Fortune REIT reported a creditable 2Q15 DPU of HK11.75¢ (+11.9% y/y) which rose in tandem with distributable income of HK$221.5m (+12.7%). This brought 1H15 DPU payout to HK23.38¢ (+12%), representing 52% of FY15 consensus estimate of HK$0.451¢
Revenue and NPI both grew 13.5% and 12.6% to HK$922.6m and HK$654.4m, respectively, supported by strong rental reversion across its portfolio (1H15: +22.1%) as well as maiden contributions from Laguna Plaza, acquired in Jan ’15. Growth was however pared by the absence of contributions from Nob Hill Square, which was divested in Apr ’15.
The retail REIT achieved 1H15 passing rent (excluding Laguna Plaza and Nob Hill Square) of US$38.40 psf (+9.5%) despite the slowdown in overall retail sales in Hong Kong.
But portfolio occupancy dipped slightly to 97.3% (-0.8ppt q/q) to 97.3% due to frictional vacancies from ongoing AEIs.
Fortune’s balance sheet improved slightly with aggregate leverage declining 2.6 ppt q/q to 30.6%, and average cost of debt at 2.04% (-0.2ppt) on an average debt term of 2.2 years. NAV/share has been revised up by 4.7% to HK$12.49 from HK$11.93 as at Dec '14 following the revaluation of its investment properties and gain on sale of Nob Hill Square.
On its HK$80m AEI at Belvedere Square, management updated that Phase 1 has been completed, while Phase 2 has commenced in Mar ’15. Meanwhile, ~80,000 sf has been closed for renovations with completion expected by end of 2015.
Although total retail sales in Hong Kong fell by 1.8% y/y in the first five months of 2015, the low unemployment rate of 3.2% would provide some support for local consumption.
Nonetheless, Fortune is relatively shielded from the weak high end and tourist dependent retail sales as its malls caters mainly to day-to-day shopping needs and are is thus more resilient to economic cycles.
Fortune is currently trading at an annualised distribution yield of 5.4%, and 0.65x P/B.
Recent broker updates:
OCBC maintains its Hold ith TP of HK$8.04
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