Fortune Reit in focus

ALP REIT INVESTMENT CLUB

Fortune REIT (F25U)

(30th April 2016) close: HK$8.52

12M-Target price: HK$8.73

1.) Type of Reit: Retail Real Estate Industrial Trust (REIT) with a primary listing in Hong Kong and secondary listing in Singapore. Fortune REIT’s portfolio has a diverse mix of tenants that deal with supermarkets, food and beverage, entertainment, education, and more.

2.) Number of property in the portfolio: 17 retail properties located in Hong Kong.

3.) Top 5 properties that generates the highest revenue (Decreasing order): Fortune Kingswood (18.8%), Fortune One City (18.8%), Ma On Shan Plaza (14%), Metro Town (8.2%), Fortune Metropolis (7.7%).

4.) Challenges: China’s economy has been slowing down, thus affecting retailing in Hong Kong. Overall, retailing in Hong Kong saw stagnant growth in 2015 following a decline in 2014. Even though China is set to become the largest retail market by 2018, growth is slowing and attention within China’s retail market is increasingly shifting towards fast growing e-commerce and away from physical stores.

 

5.) Strengths:

Overall occupancy improved to 98.8%, up from 97.3% at the end of 2014.

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The Reit’s tenants are largely skewed towards the banking and real estate services sector. As such, we may not see the large impact e-commerce has on the Reit. However, with the increasing labor cost and advent of Fintech, the impact of these new developments may only be felt in the near future.

Fortune REIT’s strong results can be attributed to the opening of Laguna Plaza in January 2015 coupled with strong portfolio rental reversions. It also disposed of Nob Hill Square at a 48% premium to its book value.

 

6.) Significant events: The acquisition and disposal of significant properties. To name a few: the disposal of Noble Hill Square was completed in April 2015 and the transaction was done at 48% over book value. 2015 also saw the Reit complete their acquisition of Laguna Plaza.

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 7.) TABLE:

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 8.) Recommendation: Buy. There are significant challenges retail REITS will face in the next few years as e-commerce and a slowing economy take shape. However, we believe with prudent capital management and constant asset enhancement, retail reits will be able to adapt to the changing landscape. Given the scarcity of land in Hong Kong, retail space is in robust demand, as one of the major operators of private housing estate malls, the REIT benefits from a well- diversified portfolio of tenants in various non- discretionary trades, which has proven to be resilient across the economic cycles.  Fortune REIT’s portfolio currently consists of 1,396 tenants. The non-discretionary retail sector contributed to 60% of its gross rentable area.

Currently, the reit is trading at 0.7 times Book Value – a significant discount. It’s current dividend yield of 5.79% is also higher than CapitaLand Mall Trust’s yield of 5.46%.

 

COMPILED BY: Matthew

DISCLAIMER: Readers should not rely solely on information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.

 

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