• Fortune REIT's FY18 distribution income expected to rise slightly.
• Reversionary growth should remain healthy at 12-13%.
• Progress of renovation at Fortune Kingswood is one of the key items to look out for.
• BUY with HK$10.68 Target Price.

What’s New

• FORTUNE REAL ESTATE INV TRUST (SGX:F25U, Fortune REIT) will announce its FY18 final results on 28 January. We forecast its distribution income to grow slightly by 1% to HK$981m on interest savings from the loan repayment following the Provident Square disposal.
• We forecast total revenue to be HK$1.93bn. Rental reversion is estimated stay healthy at 12-13% on renewals.
• Were it for not the income shortfall from the disposal of Provident Square and renovation of Fortune Kingswood, Fortune REIT’s revenue would have been stronger.
• With cost-to-income ratio estimated to stay stable at 22- 23%, NPI should remain relatively flat at HK$1.45bn.
• The key item to watch is the progress update and further plans of renovation works at Fortune Kingswood. Other items to watch include the outlook of retail reversionary growth and interest rate hedging, among others.

Source: DBS Research - 25 Jan 2019