Monday 28 January 2013

Fortune REIT

OCBC on 25 Jan 2013

FRT's had a solid FY12, with revenue climbing 22.5% YoY to HK$1.11b and NPI rising 22.8% YoY to HK$788.3m. The two properties acquired on 17 Feb 2012 accounted for 12.4% of NPI growth. The remaining 10.4% of NPI growth from the original portfolio of 14 properties was from strong reversion and AEI results. Overall rental reversion was high at 19.8%, partially because of the low base in 2009 when the leases due to be renewed were signed. We understand from management that, since 2010 provides a higher base, 2013's rental reversions are likely to be in the mid-teen percentages. FY12 DPU of 23.35 HK cents was up 23.0% YoY, representing the highest growth trend in the REIT's 9-years history. The results were in line with ours and consensus expectations. We are maintaining our fair value of HK$7.28 and a BUY rating on FRT.

Rental reversions likely to be in mid-teens
FRT's had a solid FY12, with revenue climbing 22.5% YoY to HK$1.11b and NPI rising 22.8% YoY to HK$788.3m. The two properties acquired on 17 Feb 2012 accounted for 12.4% of NPI growth. The remaining 10.4% of NPI growth from the original portfolio of 14 properties was from strong reversion and AEI results. Passing rent for the original portfolio was up 8.3%. Overall rental reversion was high at 19.8%, partially because of the low base in 2009. Management indicates that 2013's rental reversions are likely to be in the mid-teen percentages. FY12 DPU of 23.35 HK cents was up 23.0% YoY, representing the highest growth trend in the REIT's 9-years history. The results were in line with ours and consensus expectations.

More AEI opportunities
Portfolio occupancy climbed from 96.1% as of 30 Sep 2012 to 97.7% as of 31 Dec 2012, reflecting good recovery upon AEI completion. 2013 sees significant portions of occupied GRA for FRT's three largest assets by valuation, i.e., Fortune City One (FCO), Ma On Shan Plaza (MOSP) and Metro Town, up for expiry (43.1%, 41.4% and 69.9% respectively). For FCO, 2013 will see the first reversion of leases from the AEIs that were completed in 2010. Following the completion of HK$100m AEI in 4Q12 (ROI of over 20%), management is considering a HK$10-20m AEI at FCO to improve the wet market and increase occupancy. At MOSP, FRT will explore getting back some space from the supermarket to bring in some higher yielding trades (e.g. another AEI at HK$10-20m). At Metro Town, there is mark-to-market upside because of improvement in foot traffic. One of the Feb acquisitions, Belvedere, may see a ~HK$80m AEI starting end 2013. 

Solid balance sheet 
The portfolio valuation increased by 4.9% to HK$20.2b between Jun to Dec 2012; capitalisation rates stayed the same. The valuation of the original portfolio climbed 5.0% to HK18.0b. FRT has a low gearing of 23.4% and no refinancing needs till 2015.

Maintain FV
We are maintaining our fair value of HK$7.28 and a BUY rating on FRT. FRT is one of our top REIT picks and has an attractive P/B of 0.75x.

No comments:

Post a Comment