Tuesday, August 6, 2013

Fortune REIT: MOU for Kingswood Ginza property (OCBC)

Fortune REIT:
Fair value HK$6.95
add: 12m dividend forecast HK$0.365
versus: Current price HK$6.840

MOU for Kingswood Ginza property
• Portfolio valuation to grow by 26%
• Placement; units increase by 8.4%
• Higher discount rate, downgrade to HOLD

FRT has entered into a non-binding MOU in connection with the acquisition of 100% of the issued share capital of a target company by FRT and assignment of the shareholder loans to FRT. The target company owns Kingswood Ginza Property, which comprises the entire Kingswood Ginza Mall as well as other retail, kindergarten, parking lots and ancillary spaces.
The indicative purchase consideration is HK$5,849m. 142,962,000 new units, representing an increase of 8.4% of the total number of units currently in issue (excluding the new units), have been placed out at HK$6.82 each. The net proceeds of ~HK$947m will be used to partially fund the proposed acquisition. The remainder will be funded through new facilities. In our model, we assume that the acquisition will be completed by mid-September. While the acquisition is likely to be accretive, we note the continued increase in bond rates since late June, and hence lift our risk-free rate to 2.3% from 2.0%. Incorporating a higher expected market return of 13.5% as well (13.0% previously), we lower our FV to HK$6.95 from HK$7.51. On valuation grounds, we downgrade FRT to a HOLD.

Kingswood Ginza in close proximity to mainland
FRT has entered into a non-binding MOU regarding the acquisition of the entire issued share capital of the target company by FRT and the assignment of the shareholder loans to FRT. The target company owns Kingswood Ginza Property, which comprises the entire Kingswood Ginza Mall as well as other retail, kindergarten, parking lots and ancillary spaces. Kingswood Ginza Mall is the largest shopping center in HK’s Yuen Long district and is in close proximity to the mainland. The indicative purchase consideration is HK$5,849m. With 1H13 net property income at HK$110.4m, implied annualized NPI yield is 3.78%. NPI yield of the existing portfolio is ~3.94% (based on annualized 1H13 NPI). If the occupancy of Kingswood Ginza Property can be raised from the current 95.5%, we believe its NPI yield could be brought closer to 4%.

Increase portfolio valuation by 26%
The acquisition could increase FRT’s portfolio valuation by ~26%. 142,962,000 new units, representing an increase of 8.4% over the number of prior units, have each been placed out at HK$6.82, which is at a discount of 4.4% to the volume weighted average price for trades done on the SGX-ST and the SEHK for 29 July. The net proceeds of ~HK$947m is intended to partially fund the acquisition. The remainder funding will come from new facilities which will bear a blended interest margin of 1.48% per annum over HIBOR. The borrowings will become payable in 3.5 to 5 years.

Downgrade to HOLD
In our model, we assume that the acquisition will be completed by mid-September. While the acquisition is likely to be accretive in the longer term, we note the continued increase in bond rates since late June, and hence lift our risk-free rate to 2.3% from 2.0%. Incorporating a higher expected market return of 13.5% as well (13.0% previously), we lower our FV to HK$6.95 from HK$7.51. On valuation grounds, we downgrade FRT to a HOLD.


Source/Extract/Excerpts/来源/转贴/摘录: OCBC-Research,
Publish date: 01/08/13

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