Wednesday, July 31, 2013

Fortune REIT

Fortune REIT: Fortune entered into a non-binding MoU with its parent to acquire Kingswood Ginza Mall, Tin Shui Wai, for an indicative consideration of HK$5,849m. The acquisition will be financed by HK$5,084m debt (87%) and HK$764m equity (13%). The share purchase agreement is expected to be completed by 30 Sep 2013. The indicative acquisition price is HK$8,792psf, based on 655k sqf GRA. With 6M13 NPI of HK$110.4m, the price implies an annualised NPI yield of 3.8%. Fortune believes the NPI yield can rise to c.4% if occupancy of the property improves to 98-99% from 95.5%. Fortune also noted there is room for future AEI on the asset. Fortune sees the acquisition as yield accretive at the DPU level. The debt portion of the funding source will bear a blended interest margin of 1.48% p.a. over HIBOR for the next 3.5-5 years. With the current 3M HIBOR at c.0.4%, the floating interest rate is at c.1.88% before the debt upfront fee, which will be amortised, according to management. Separately, Fortune did a placement of 143m new units at an issue price of HK$6.82 to more than six institutional/ professional investors. The issue price is at a 4.5% discount to the last closing price of HK$7.14. Net proceeds of HK$947m will be used to partially fund the proposed acquisition of the Kingswood Ginza peroperty. SC has an OUTPERFORM rating, with a TP of HK$8.20.

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