Fortune REIT reported excellent results for 1Q13. Revenue and net property income climbed 16.3% YoY and 17.6% YoY to HK$301.4m and HK$217.9m respectively. Occupancy rose to 98.6%, the highest level in over two years, with good portfolio-wide operational statistics and a fast recovery after AEI. Average passing rents grew by 10.0% YoY to a new high of HK$32.9 sq ft. Due to a strong leasing market, rental reversions were at 19.5%, higher than the mid-teen percentages that management had guided. While 2Q/3Q may see anchor tenants renewing leases with lower percentages, we think that revenue and net property income are likely to grow on a QoQ basis. DPU of 9.0 HK cents formed 27% of our initial FY13 estimate and 26% of the street’s FY13 consensus estimate. Raising revenue assumptions and lowering interest cost assumptions, we lift our fair value to HK$8.64 from HK$7.28 and we maintain a BUY rating on FRT. It is trading at a still-attractive P/B of 0.9x.
Better-than-expected 1Q13
Fortune REIT (FRT) reported excellent results for 1Q13. Revenue and net property income climbed 16.3% YoY and 17.6% YoY to HK$301.4m and HK$217.9m respectively. Occupancy rose to 98.6%, the highest level in over two years, with good portfolio-wide operational statistics and a fast recovery after AEI. Average passing rents grew by 10.0% YoY to a new high of HK$32.9 sq ft. Due to a strong leasing market, rental reversions were at 19.5%, higher than the mid-teen percentages that management had guided. While 2Q/3Q may see anchor tenants renewing leases with lower percentages, we think that revenue and net property income are likely to grow on a QoQ basis. There was also a full quarter's contribution from Belvedere Square and Provident Square, which were acquired on 17 Feb 2012. DPU of 9.0 HK cents formed 27% of our initial FY13 estimate and 26% of the street’s FY13 consensus estimate.
Continuous program of successful AEIs
The HK$100m AEI for Fortune City One (FCO), completed in 4Q12, has repositioned the mall as a one-stop shopping, dining and leisure centre. The HK$15m AEI at Jubilee Square is expected to be completed in 2Q13 with an ROI of over 25%. Two smaller AEIs at FCO's wet market (HK$18m; starts in 2Q13) and Ma On Shan Plaza (HK$17m; starts in 3Q13) should be completed by end 2013. The next large scale project is Phase 3 AEI for Belvedere Square (HK$80m; 4Q13-end 2014).
Low gearing
At 23%, FRT's gearing continues to remain low. Interest cost for ~76% of FRT's debt exposure has been hedged to fixed rates with effective interest cost at 2.76%. FRT has no refinancing needs till 2015 and has a weighted term to maturity of 2.7 years. Management continues to evaluate potential acquisitions.
Raising FV to HK$8.64
Raising revenue assumptions and lowering interest cost assumptions, we lift our fair value to HK$8.64 from HK$7.28 and we maintain a BUY rating on FRT. It is trading at a still-attractive P/B of 0.9x.
Fortune REIT (FRT) reported excellent results for 1Q13. Revenue and net property income climbed 16.3% YoY and 17.6% YoY to HK$301.4m and HK$217.9m respectively. Occupancy rose to 98.6%, the highest level in over two years, with good portfolio-wide operational statistics and a fast recovery after AEI. Average passing rents grew by 10.0% YoY to a new high of HK$32.9 sq ft. Due to a strong leasing market, rental reversions were at 19.5%, higher than the mid-teen percentages that management had guided. While 2Q/3Q may see anchor tenants renewing leases with lower percentages, we think that revenue and net property income are likely to grow on a QoQ basis. There was also a full quarter's contribution from Belvedere Square and Provident Square, which were acquired on 17 Feb 2012. DPU of 9.0 HK cents formed 27% of our initial FY13 estimate and 26% of the street’s FY13 consensus estimate.
Continuous program of successful AEIs
The HK$100m AEI for Fortune City One (FCO), completed in 4Q12, has repositioned the mall as a one-stop shopping, dining and leisure centre. The HK$15m AEI at Jubilee Square is expected to be completed in 2Q13 with an ROI of over 25%. Two smaller AEIs at FCO's wet market (HK$18m; starts in 2Q13) and Ma On Shan Plaza (HK$17m; starts in 3Q13) should be completed by end 2013. The next large scale project is Phase 3 AEI for Belvedere Square (HK$80m; 4Q13-end 2014).
Low gearing
At 23%, FRT's gearing continues to remain low. Interest cost for ~76% of FRT's debt exposure has been hedged to fixed rates with effective interest cost at 2.76%. FRT has no refinancing needs till 2015 and has a weighted term to maturity of 2.7 years. Management continues to evaluate potential acquisitions.
Raising FV to HK$8.64
Raising revenue assumptions and lowering interest cost assumptions, we lift our fair value to HK$8.64 from HK$7.28 and we maintain a BUY rating on FRT. It is trading at a still-attractive P/B of 0.9x.
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