Fortune Reit

Fortune Reit: good 2Q12 results. Net property income at HK$196.8m, +24.2% yoy. Distributable income at $136.6m, +33.8% yoy. Overall, 1H12 results were its best in the 9 yrs of operating history. NPI surged by 19.6% yoy to a record high of HK$382.1m, driven by i) strong rental reversions across its enlarged portfolio, ii) additional income generated by the 2 new properties acq in Feb ’12, and iii) remarkable returns from the completed asset enhancement initiatives (AEI). 1H12 DPU was HK 15.82cts, +23.6% yoy. Mgt notes retail sentiment remains positive, with total value of HK retail sales in 5M12 +13.5% yoy, believes its portfolio of 16 private housing estates retail properties will continue to benefit. Notes that its leases expiring in 2H12 account for 18.2% and 16.7% of gross rentable area and gross rental income respectively. Plans to continue to implement effective leasing and tenant repositioning strategies, AEIs (Fortune City One, Jubilee Square), and create synergies for its two newly acq properties (Belvedere Square and Provident Square). The counter trades at an annualized distribution yield of 6.4%, and 0.6x P/B.