[Major Bank Report] Citi: Fortune REIT bottoms out and rebounds, maintains "Buy" rating

Citi issued $FORTUNE REIT (00778.HK)$ an updated research report, maintaining'Buy'a rating, raising the target price toHK$6.05。

Key Highlights：

Citi believes that $FORTUNE REIT (00778.HK)$ the outlook is turning optimistic:

📌The decline in renewal rents has narrowed to mid-single digits;

📌Tenant sales in most sectors recorded moderate year-on-year growth;

📌Both weekend foot traffic and hourly rental car flow improved;

📌The renewal rate reached 83%, and the occupancy rate rose to 96.4%;

📌Stable earnings in the first half of 2026 (a slight semi-annual decline of only 0.9%).

Sales and leasing momentum stabilized, with the occupancy rate hitting a six-year high.

Most industry tenants recorded year-on-year sales growth, with the supermarket and real estate agency sectors beginning to stabilize in the first half of 2026. Tenant mix optimization proved effective: leasable area for experiential formats (health, fitness, etc.; accounting for 3% of rental income) increased by 11% year-on-year, and more diversified F&B options (including emerging brands) were introduced. Benefiting from+WOO Jockey Clubincreased leasing following the completion of renovation works, andLaguna City Mallsuccessful restructuring of certain supermarket spaces, the overall occupancy rate of the property portfolio rose to96.4%。

narrowing decline in rents

As rent adjustments and area optimizations for renewed supermarket leases were completed, coupled with the gradual recovery of the real estate agency sector, pressure on rent adjustments for lease renewals eased. Furthermore, leasing demand from the F&B, lifestyle leisure, and experiential sectors rose, with some lease renewals even achieving rent increases. Citi expects rents to stop falling and stabilize starting in 2027.

Interest costs remained stable; no major renovation plans for 2026

Actual borrowing costs in the first half remained flat semi-annually at3.4%, approximately 54% of borrowings are at floating rates (linked to the Hong Kong Interbank Offered Rate, HIBOR). During the period, $FORTUNE REIT (00778.HK)$ has successfully refinanced HK$3.8 billion of maturing loans, with a slight improvement in interest margin. However, given the extremely low HIBOR base in Q3 2025 (around 1%), Citi expects total financing costs to rise year-on-year in the second half of 2026 due to the low-base effect.

As of the end of June 2026, the gearing ratio stood at 26.9%, leaving approximately HK$17 billion of debt headroom; with the capitalization rate remaining stable, the total property valuation was HK$36.6 billion (up 0.4% half-on-half).

$FORTUNE REIT (00778.HK)$ is planning to dispose of its Singapore assets (accounting for approximately 2% of revenue), while temporarily suspending Fortune Metropolitan's asset enhancement initiatives to await clearer government development plans for the Hung Hom waterfront area.

Maintain "Buy" rating, raise target price

Based on a 6.9% distribution yield and a fundamental turnaround, Citi maintains its $FORTUNE REIT (00778.HK)$ "Buy" rating, raising the target price to HK$6.05.

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