DBS Bank: "BUY" rating for FORTUNE REIT (00778) with a target price of 5.62 Hong Kong dollars.

DBS released a research report stating that FORTUNE REIT (00778) holds 16 suburban shopping mall complexes located in densely populated residential areas in Hong Kong, with a total gross floor area of approximately 3 million square feet. Over 70% of the space is leased to tenants providing essential goods and services, mainly serving the nearby residents. FORTUNE REIT also owns Kovan Stars in Singapore, the only overseas asset acquired since its listing. DBS has given a "buy" rating with a target price of HK$5.62. FORTUNE REIT's portfolio occupancy rate remained high at 95.8% in December last year, despite the continued occurrence of negative rental reversions in the portfolio, mainly from supermarket tenants, which is expected to drag down its short-term rental profit prospects. However, about 50% of FORTUNE REIT's total borrowings are at floating interest rates, in a favorable position to benefit from a decrease in borrowing costs driven by the decline in the Hong Kong Interbank Offered Rate. As of now, the one-month Hong Kong Interbank Offered Rate has fallen by about 1 percentage point from 3.1% in December last year to about 2.0%, which should support the real estate investment trust's short-term financing costs. The bank noted that the 6.3% high dividend yield is attractive compared to major Hong Kong property stocks and should help support unit price performance. FORTUNE REIT's forecast for the 2026 to 2027 fiscal year offers an attractive distribution yield of 6.3%, equivalent to a premium yield of 2.1 to 2.2 percentage points.