Fortune REIT - DBS Research 2019-06-20: Voluntary Delisting From Singapore

FORTUNE REAL ESTATE INV TRUST (SGX:F25U)

Fortune REIT - Voluntary Delisting From Singapore

Fortune REIT (SGX:F25U) intends to voluntarily delist from the main board of the Singapore Stock Exchange (SGX) and a detailed timeline will be announced later. See Fortune REIT's announcements.
Fortune REIT was first listed in Singapore in 2003 and achieved dual listing in Hong Kong in 2010. In 2015, Fortune REIT converted its primary listing status in Singapore into a secondary listing. Currently, there are c.374.9m units of Fortune REIT listed in Singapore. This represents 19.4% of total outstanding units, of which c.12% is held by Cheung Kong Asset Holdings with the remaining 7% held by minority shareholders. As a result, the daily volume traded in Singapore averaged 62,000 units between Jun-18 and May-19, and accounted for only 2.5% of total trading volume during the period. See Fortune REIT's share price history.
The delisting should help eliminate administrative overheads and costs involved in complying with SGX’s regulatory requirements. This will allow Fortune REIT to streamline its compliance obligations and focus its resources on its core businesses.
The delisting could potentially increase the liquidity of units currently listed in Singapore. Given very thin trading liquidity in Singapore, the delisting from SGX should not affect Fortune REIT’s debt and equity fund raising capability.

Portfolio occupancy has recovered to 96-97% currently from Dec-18’s 93.1% led by reduced vacancy at Fortune Metropolis. After Fortune REIT secured new tenants including ARA to fill the vacant space on 9/F, committed occupancy at Fortune Metropolis improved to > 80% from Dec-18’s 73.1%. Occupancy at Fortune Kingswood inched up to c.90% as the renovated space gradually re-opened for business. The trade mix at Ma On Shan Plaza has been refined with the addition of a variety of eateries. Retail tenants’ sales growth stays positive with F&B trades faring better. Rental reversion should moderate slightly to 8-9% in FY19 from FY18’s 12.7%.
The asset enhancement works at West Block of Fortune Kingswood is well underway. Ph 1 has been completed with the majority of enhanced area let to tenants selling household products, electrical appliances, and Chinese medicine. Ph 2 is almost completed with the creation of an education zone. Ph 3 has commenced with new F&B outlets to be introduced to G/F. With total capex of HK$150m, the ROI is estimated at > 10%. Fortune REIT is finalizing the asset enhancement plan for East Block of Fortune Kingswood.

Fortune REIT offers distribution yield of 4.19-20. See Fortune REIT's dividend history.
A higher valuation can be justified given healthy tenants selling safe harbour in the prevailing volatile market.
BUY with higher DDM-based Target Price of HK$11.8 (due to lower discount rate used).

Jeff YAU CFA DBS Group Research | Ian CHUI CFA DBS Research | Jason LAM DBS Research | https://www.dbsvickers.com/ 2019-06-20

SGX Stock Analyst Report BUY MAINTAIN BUY 11.80 UP 10.760