• Kingswood contribution from Oct 2013
• Opportunities in 2014
• Maintain BUY

Kingswood tenant repositioning

FRT reported 4Q13 results that were in line with ours and the street's expectations. Revenue rose 34.6% YoY to HK$392.6m chiefly due to contribution from Fortune Kingswood from Oct 2013, as well as higher occupancy rates and strong rental growth across the portfolio. Net property income was up 33.0% at HK$275.2m. Income available for distribution climbed 27.8% YoY to HK$182.1m. DPU increased by 16.1% to 9.72 HK cents because of the placement units (representing an increase of 8.4% over the number of prior units) issued on 6 Aug 2013. Occupancy for the Kingswood has increased to 99.0% from 95.5% at acquisition. The Jockey Club, which previously occupied 12,350 sqft on the ground floor, has been relocated to the first floor, and the original prime space is being subdivided and 100% precommitted by new retail F&B tenants. Kingswood is positioned for rental growth with 46.5% of leases expiring in 2014 (low base). FRT's portfolio saw its valuation increase by 45.2% to HK$29.3b, including HK$6.0b from Kingswood. The original portfolio's valuation increased by 15.3% YoY. Cap rates were mostly unchanged; portfolio weighted average retail cap rate was at 4.7%.

Opportunities in 2014

Portfolio occupancy was strong at 98.7% as at end Dec. Average rental reversion was 20.4% for FY13 and average passing rent for the original portfolio was higher by 9.0% to HK$33.5 psf. The HK$15m AEI at Ma On Shan Plaza, with works to downsize and subdivide the supermarket for more retail and F&B outlets, was completed in Dec 2013 and achieved ROI of 60%. In 2014, Fortune Metropolis has 69% of total GRA expiring and Provident Square has anchor tenant space expiring, providing repositioning opportunities. This year will also see the beginning of a HK$80m capex AEI on Belvedere Square with target completion by end 2015. Target ROI is 15%.

Maintain BUY

Raising the cost of equity to 8.5% from 7.9%, we lower our FV on FRT to HK$6.28 from HK$7.01. We maintain our BUY rating on FRT.

Source: OCBC Research - 27 Jan 2014