Fortune REIT

22 Jan 2009

Life goes on, even in a recession. People still need to buy groceries, have their haircut, and maybe even treat themselves a little at the local shopping mall. This is why analysts are recommending trusts like CapitaMall and Frasers Centrepoint Trust, which own suburban malls.

Like Frasers Centrepoint, Fortune REIT falls back on non-discretionary spending in hard times and is defensive in nature. Fortune REIT, which owns 11 suburban retail malls in Hong Kong, revealed the trust’s gearing of 26.4%, which is lower than the typical 30-40% range among Singapore or S-REITs.

The trust also has no immediate refinancing pressure, which must appeal to investors who are worried whether the companies in their stock portfolios will be able to get loans in such a tight lending climate.
Fortune REIT saw a 7% increase in Q4 2008 gross revenue to HK$134.8 million.

Distributable Income increased by 4% to HK$80.8m, and it generated HK$73.3m in cash, up from HK$69.8m in Q4 2007.

The trust's manager, ARA Asset Management, said it will pay out HK$0.0986 per unit.

The stock is trading at a significant discount to its book value. Its price-to-book ratio stands at 0.27x, with the stock price at around HK$2.40, having recovered from its lows of HK$1.50 in October and November. One year ago, the stock was trading at around HK$5.

Fortune REIT's DPU for FY2008 comes up to HK$0.374. Based on its latest stock price, this translates to a dividend yield of 15.9%, which is significantly higher than rates offered by fixed deposits.

The trust manager said it expects Fortune REIT to perform in the current financial year like it did last year, because it is more resilient in the face of general market and economic conditions.

The trust's free cashflow is pretty stable – it was HK$113.2m for FY2008, a figure which has averaged HK$130m for the past four years.

DBS Vickers likes Fortune REIT and calls it a BUY with a target price of HK$2.40. The broker likes the trust's resilient income stream.

About 64% of the trust's gross rental income is derived from tenants from the food and beverage, services/education, and supermarket/wet market segment. These businesses offer basic necessities and services to residents living nearby, and are not expected to be greatly affected by a slowing local economy.

Analysts surveyed by Reuters have on average an OUTPERFORM call on the stock with a target price of HK$4.77.

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