{"id":13478,"date":"2022-11-15T07:00:03","date_gmt":"2022-11-14T23:00:03","guid":{"rendered":"https:\/\/www.smallcapasia.com\/?p=13478"},"modified":"2022-12-18T11:34:37","modified_gmt":"2022-12-18T03:34:37","slug":"champion-reit-dpu-down","status":"publish","type":"post","link":"https:\/\/www.smallcapasia.com\/zh-hant\/champion-reit-dpu-down\/","title":{"rendered":"Champion Reit &#8211; DPU down"},"content":{"rendered":"<p><em>Excerpts from CGS CIMB report<\/em><\/p>\n<h2>Champion Reit (HKG: 2778)<\/h2>\n<ul>\n<li>Champion Reit\u2019s (CREIT) DPU declined by 11% yoy in 1H22 as a result of higher operating expenses and lower interest income from investments.<\/li>\n<li>Operations at 3GR Office face challenges, with high vacancy, negative rental reversions and new completions nearby.<\/li>\n<li>We think a significant rebound in LP Mall\u2019s tenant sales should not be expected till 2023 when borders are more likely to reopen.<\/li>\n<\/ul>\n<p>Reiterate Hold with a lower TP of HK$3.7 (40% discount to NAV).<\/p>\n<h2>1H22 DPU down 11% yoy<\/h2>\n<p>CREIT&#8217;s DPU declined by 11% yoy to HK$0.1064 in 1H22, weaker than the 5% yoy decline in revenue, given<\/p>\n<ul>\n<li>higher proportion of property operating expense incurred due to lower portfolio occupancy;<\/li>\n<li>expense incurred for the opening of Langham Beauty at Langham Place (LP) Mall; and<\/li>\n<li>lower interest income from its investment portfolio.<\/li>\n<\/ul>\n<h2>Champion Reit outlook for 3GR Office still very challenging<\/h2>\n<p>Revenue and NPI from Three Garden Road (3GR) Office declined by 6% and 7% yoy, respectively, in 1H22. End-1H22 occupancy worsened from 89% at end-2021 to 83.8% at end-1H22 as tenants cut back on leased space with little take-up during the peak of HK\u2019s fifth wave of Covid-19.<\/p>\n<p>With the average rent of expiring leases in FY23F high at c.HK$120\/sf vs. spot rent of HK$90-100\/sf and new completions in Central in 2023, we believe negative rental reversions at 3GR Office will likely persist in the next 12 months.<\/p>\n<h2>LP Office sees first signs of stabilisation<\/h2>\n<p>LP Office was resilient in 1H22 with a 2% yoy rise in both revenue and NPI. Occupancy was satisfactory at 94.5% and lifestyle-positioned tenants took up 69% of office space at end-1H22.<\/p>\n<p>We think they will not be so heavily affected going forward as HK is already off the peak of Covid-19 outbreaks given high vaccination rates.\u00a0 Nevertheless, as 39% of GFA will have their leases expire in FY23F, mild pressure on rental reversion is unavoidable.<\/p>\n<h2>Expect no significant improvement at LP Mall until borders reopen<\/h2>\n<p>NPI for LP Mall was down 16% yoy in 1H22, weaker than its 6% yoy decline in revenue, due to operating expenses associated with the opening of Langham Beauty.<\/p>\n<p>Turnover rent accounted for 17% of LP Mall\u2019s revenue in 1H22 (5% in 1H21) and c.10% of the tenants paid turnover rent only at end-1H22.<\/p>\n<p>As large-scale reopening of borders looks more likely in 2023 than in end-2022, we do not expect its tenant sales to improve significantly. We think rental reversions will remain negative for the rest of 2022F.<\/p>\n<h2>Valuation\/Recommendation<\/h2>\n<p>Reiterate Hold with a lower TP of HK$3.7. We cut FY22-24F DPS by 4-7% and end-FY22F NAV by 2% to HK$6.2 given a weaker office rents outlook with lower portfolio occupancy.<\/p>\n<p>We also cut TP to HK$3.7 after widening its discount to NAV by 5% pts to 40% to factor in weaker profitability under low occupancies. 3GR Office remains the weak spot.<\/p>\n<p>Key downside risks: further decline in occupancy and prolonged border closure of HK. Higher portfolio occupancy, especially at 3GR Office, is a key upside risk.<\/p>\n<p><a href=\"https:\/\/www.smallcapasia.com\/wp-content\/uploads\/2022\/10\/champion-reit-share-price-chart.jpg\"><img fetchpriority=\"high\" decoding=\"async\" class=\"wp-image-13479 size-full\" src=\"https:\/\/www.smallcapasia.com\/wp-content\/uploads\/2022\/10\/champion-reit-share-price-chart.jpg\" alt=\"champion reit share price chart\" width=\"1380\" height=\"655\" \/><\/a><\/p>\n<p>champion reit share price chartYou can find the full report <em><a href=\"https:\/\/www.smallcapasia.com\/wp-content\/uploads\/2022\/10\/Champion-Reit.pdf\" target=\"_blank\" rel=\"noopener\">here<\/a><\/em> and the company website <em><a href=\"https:\/\/www.championreit.com\/\" target=\"_blank\" rel=\"noopener noreferrer nofollow\">here<\/a><\/em><\/p>\n<p>[thrive_leads id=&#8217;13210&#8242;]<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Excerpts from CGS CIMB report Champion Reit (HKG: 2778) Champion Reit\u2019s (CREIT) DPU declined by 11% yoy in 1H22 as a result of higher operating expenses and lower interest income from investments. Operations at 3GR Office face challenges, with high vacancy, negative rental reversions and new completions nearby. We think a significant rebound in LP [&hellip;]<\/p>\n","protected":false},"author":36,"featured_media":13481,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"fifu_image_url":"","fifu_image_alt":"","footnotes":""},"categories":[1,61,1867,57],"tags":[2001,2060,2103,2107,2195,2253,2254,2361,2362,2363,144,2364,1576,2365,1900,2366,1953,2367,1986,2000],"class_list":["post-13478","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog","category-hong-kong-stocks","category-reits","category-stocks","tag-hong-kong-reits","tag-recovery-reits","tag-reits-investing","tag-commercial-reit","tag-retail-mall-reits","tag-champion-reit","tag-champion-reit-share-price-chart","tag-s-reits","tag-reits-dividend-yield","tag-reits-to-invest-in","tag-reits","tag-reits-stock","tag-stable-reits","tag-best-reits","tag-singapore-reits","tag-reits-etf","tag-office-reits","tag-reits-to-buy","tag-high-yield-reits","tag-hk-reit"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.smallcapasia.com\/zh-hant\/wp-json\/wp\/v2\/posts\/13478","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.smallcapasia.com\/zh-hant\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.smallcapasia.com\/zh-hant\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.smallcapasia.com\/zh-hant\/wp-json\/wp\/v2\/users\/36"}],"replies":[{"embeddable":true,"href":"https:\/\/www.smallcapasia.com\/zh-hant\/wp-json\/wp\/v2\/comments?post=13478"}],"version-history":[{"count":5,"href":"https:\/\/www.smallcapasia.com\/zh-hant\/wp-json\/wp\/v2\/posts\/13478\/revisions"}],"predecessor-version":[{"id":13486,"href":"https:\/\/www.smallcapasia.com\/zh-hant\/wp-json\/wp\/v2\/posts\/13478\/revisions\/13486"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.smallcapasia.com\/zh-hant\/wp-json\/wp\/v2\/media\/13481"}],"wp:attachment":[{"href":"https:\/\/www.smallcapasia.com\/zh-hant\/wp-json\/wp\/v2\/media?parent=13478"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.smallcapasia.com\/zh-hant\/wp-json\/wp\/v2\/categories?post=13478"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.smallcapasia.com\/zh-hant\/wp-json\/wp\/v2\/tags?post=13478"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}