Fortune REIT

Fortune REIT: OCBC maintains Buy but reduces TP to HK$7.51 from HK$8.64. House note that the prospect of an early tapering of US Fed quantitative easing program has driven up bond yields and, as a result, high-yield counters such as Fortune REIT (FRT) have seen a correction in their prices. FRT’s unit price has fallen 15.1% since the peak of HK$8.43 on 15th May this year (but still up 12.4% YTD). House note that rising risk-free rates will not have much impact on cost of debt for FRT given that 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. FRT's gearing continues to remain low at 23%. Accounting for the higher HK 10-year government risk-free rate (which climbed from 0.8% at the beginning of May to 2.0% currently), house raise cost of equity assumption to 7.5% from 6.6%. Also raise LT nominal growth rate for dividends from 1.75% to 2.0%. FV falls to HK$7.51 from HK$8.64.