Champion REIT’s First-Half 2021 Within Expectation; Lower FVE of HKD 4.30 on a More Cautious Outlook

Champion REIT’s first-half result was largely within our expectations but management’s outlook was weaker than anticipated. Net property income of HKD 1.14 billion is down 4.8% year on year. The decline was largely driven by negative rental reversions across the REIT’s core portfolio in Hong Kong. The decline in rents and net property income sees interim distribution at HKD 12 cents, representing a 2% year-on-year decline, and management noted a downward trajectory for distribution per unit was expected. We have factored in the more cautious outlook and lowered our fair value estimate to HKD 4.30 from HKD 4.60. Our distribution per unit forecasts for fiscal 2021 and 2022 have declined slightly to HKD 22.90 cents and HKD 23.40 cents, from HKD 23.50 cents and HKD 25.10 cents previously. This represents a decline of around 2.5% and 6.7% respectively, and implies a distribution yield of 5.2%.