Champion REIT’s Fiscal 2021 in Line; Lower FVE on Slower Recovery

Narrow-moat-rated Champion REIT’s full-year result was weaker and consistent with our view as we had anticipated lower rental for its property portfolio. As management is wary of the impact from the latest pandemic restrictions, fiscal 2021 distribution payout ratio was lowered to 90% from 95% previously to preserve capital. As such, full-year distribution per unit has declined 8.7% to HKD 0.23 in line with our forecasts. Given the latest COVID-19 wave, we expect recovery to be pushed back and our fair value estimate for Champion REIT is lowered to HKD 4.00 from HKD 4.30. However, our long-term thesis is unchanged as we expect the trust’s properties to maintain a high level of occupancy during an economic downturn, due to the location and quality of the properties. This was reflected in an improvement in occupancy levels for both Three Garden Road, and Langham Place office, in the second half of 2021. Similar to previous lockdowns, management also noted that rental concessions may be granted to tenants on a case-by-case basis.