Fortune REIT's net property income jumped 11.6% to HK$219.6m.

Thanks to strong operational performance.

According to OCBC Investment Research, Fortune REIT reported income available for distribution of HK$153.7m (+12.6% YoY), driven by a 10.7% YoY increase in revenue toHK$307.9m and a 11.6% YoY rise in net property income to HK$219.6m. 

DPU was the same as 1Q13 at 9.00 HK cents (+11.9% YoY).

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The results were generally in line with ours and the street's expectations. Interest cost was 2.81% as at 30 June (versus 2.76% as at 31 March). We raise our FY13F interest cost assumption from 2.75% to 2.80%. 76% of FRT's interest cost is hedged at fixed rates.

Portfolio valuation at HK$22.2B
The portfolio valuation as of 30 June 2013 stood at HK$22.2B, up 9.8% from Dec 2012. The increase was mainly driven by improved asset performance, with cap rates of 4.3%-5.1%.

The only asset which saw a cap rate change was Jubilee Square, which had a slight cap rate compression. Coupled with its monthly rental increasing by 34% following AEI, the valuation for the asset rose 37% from December to HK$756m at June.

The increase in portfolio valuation pushed FRT's gearing ratio down to 20.9%. FRT is trading at a P/B of 0.71x (NAV of HK$10.01).

Good rental reversion of 18.2% was registered for 1H13 renewals. Average passing rent was HK$33.1 psf, up 7.0% YoY. Portfolio occupancy remained healthy at 97.8%, weighed down partially by AEIs in Fortune City One's wet market (HK$18m; 2Q13 start) and at Smartland.

The AEI at the wet market and another small AEI at Ma On Shan Plaza (HK$17m; 3Q13 start, probably in August) should be completed by end 2013. The next large scale project is Phase 3 AEI for Belvedere Square (HK$80m; 4Q13-end 2014).