Fortune REIT (778.HK): Stable Growth in 2017 and Disposal of One Property March 7, 2018

Investment Summary

  • Stable growth in 2017 with effective cost controls;
  • Improving occupancy of some assets and disposal of one property;
  • AEIs underpin future growth.

Business Overview

Stable growth in 2017. Fortune REIT reported revenue of HKD2030.3mn (+2.8% YoY) and net property income of HKD1456.7mn (+3.3% YoY). Higher net property income growth than revenue increase is mainly attributable to effective cost control measures, given continuously decreasing coat-to-revenue ratio from 26.4% in 2016 to 26% in 2017. Income available for distribution amounted to HKD 970.8mn representing YoY growth 3.8%, due to faster net income growth and declining financing cost. Finance costs over revenue ratio decreased to 13.21% compared 14.4% in 2016. We see that interest cost for 60% (2016: 67%) of outstanding debts was hedged through interest rate swaps and caps, which will cushion potential financial risks with expected US interest rate hike and tapering of Fed balance sheet. Meanwhile, Fortune REIT has kept steady dividend, given 2017 final dividend HKD0.2525 implying 3.27% YoY growth.

Effective cost controls. 2017 property operating expenses (excluding manager`s performance fee) increased by 1.2% YoY to HKD528.3mn. Cost-to-revenue ratio continue to decline to 26% (2016: 26.4%), the lowest level since 2011. This is due to management`s continued efforts in energy saving, given reduced electricity consumption and lower utility expenses in 2017.

About the author

Profile photo of Eurus Zhou

Eurus Zhou
Phillip Securities (HK)

Graduated from Hong Kong Polytechnic University, Master of Finance (Investment Management). Possess bachelor degree majoring in Financial Management from Southwestern University of Finance and Economics. Focus on industry prospect and corporate fundamentals to explore investment value and cover pharmaceutical and consumer industry.

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