FRT reported 3Q13 results that were generally in line with ours and the street's expectations. Revenue rose 10.7% YoY to HK$315.7m. Income available for distribution climbed 10.6% YoY to HK$153.3m, however, DPU increased by only 1.5% to 8.28 HK cents because of the placement units (representing an increase of 8.4% over the number of prior units) issued on 6 Aug. Income from Fortune Kingswood started contribution from 9 Oct. FRT's unit price has fallen 11% since 29 Jul (closing price of HK$7.14), the day before it announced the MOU for Kingswood. We believe the counter has been oversold. We tweak our FV slightly to HK$7.01 from HK$6.95. On valuation grounds, we upgrade FRT to a BUY from Hold. We believe that the reflection of the maiden contribution by Fortune Kingswood in the 4Q13 results will be a significant positive catalyst; we forecast 4Q13 DPU of 10.0 HK cents.
Kingswood contribution only from 4Q
FRT reported 3Q13 results that were generally in line with ours and the street's expectations. Revenue rose 10.7% YoY to HK$315.7m, thus pulling net property income up 8.2% to HK$215.6m. Income available for distribution climbed 10.6% YoY to HK$153.3m, however, DPU increased by only 1.5% to 8.28 HK cents because of the placement units (representing an increase of 8.4% over the number of prior units) issued on 6 Aug. Income from Fortune Kingswood started contribution from 9 Oct.
Good operational performance
Portfolio occupancy stood at 98.3% as at end Sep, due to strong recovery after the completion of AEIs. The average rental reversion for 9M13 was solid, clocking in at 20.0%. Average passing rent was higher by 8.2% to HK$34.2 psf for 9M13. The HK$20m AEI at the wet market of Fortune City One was completed with ROI surpassing 25%. There are now more trades and the layout has been improved. Occupancy of the FCO market increased to above 90% from 75% previously. The HK$15m AEI at Ma On Shan Plaza, with works to downsize and subdivide the current supermarket for more retail and F&B outlets, is due to be completed by year-end. All newly-subdivided shops have attracted commitments and the ROI is estimated to be approximately 60%.
Oversold
FRT's unit price has fallen 11% since 29 Jul (closing price of HK$7.14), the day before it announced the MOU for Kingswood. We believe the counter has been oversold. We maintain an expected market return of 13.5% and a risk-free rate of 2.3% in our DDM model; these assumptions are conservative since current expected market return is 13.3% and spot HK 10-year bond yield is 1.9%). We tweak our FV to HK$7.01 from HK$6.95. On valuation grounds, we upgrade FRT to a BUY from Hold. We believe that the reflection of the maiden contribution by Fortune Kingswood in the 4Q13 results will be a significant positive catalyst; we forecast 4Q13 DPU of 10.0 HK cents.
FRT reported 3Q13 results that were generally in line with ours and the street's expectations. Revenue rose 10.7% YoY to HK$315.7m, thus pulling net property income up 8.2% to HK$215.6m. Income available for distribution climbed 10.6% YoY to HK$153.3m, however, DPU increased by only 1.5% to 8.28 HK cents because of the placement units (representing an increase of 8.4% over the number of prior units) issued on 6 Aug. Income from Fortune Kingswood started contribution from 9 Oct.
Good operational performance
Portfolio occupancy stood at 98.3% as at end Sep, due to strong recovery after the completion of AEIs. The average rental reversion for 9M13 was solid, clocking in at 20.0%. Average passing rent was higher by 8.2% to HK$34.2 psf for 9M13. The HK$20m AEI at the wet market of Fortune City One was completed with ROI surpassing 25%. There are now more trades and the layout has been improved. Occupancy of the FCO market increased to above 90% from 75% previously. The HK$15m AEI at Ma On Shan Plaza, with works to downsize and subdivide the current supermarket for more retail and F&B outlets, is due to be completed by year-end. All newly-subdivided shops have attracted commitments and the ROI is estimated to be approximately 60%.
Oversold
FRT's unit price has fallen 11% since 29 Jul (closing price of HK$7.14), the day before it announced the MOU for Kingswood. We believe the counter has been oversold. We maintain an expected market return of 13.5% and a risk-free rate of 2.3% in our DDM model; these assumptions are conservative since current expected market return is 13.3% and spot HK 10-year bond yield is 1.9%). We tweak our FV to HK$7.01 from HK$6.95. On valuation grounds, we upgrade FRT to a BUY from Hold. We believe that the reflection of the maiden contribution by Fortune Kingswood in the 4Q13 results will be a significant positive catalyst; we forecast 4Q13 DPU of 10.0 HK cents.
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