Champion REIT: Transfer Coverage With HKD 2.84 Fair Value; Excess Supply Drags on Office Performance

We transfer and resume coverage of Champion REIT with a fair value estimate of HKD 2.84, implying a price/book ratio of 0.4 and a fair distribution yield of 6%, in line with the 10-year historical average. We assign Champion REIT a no moat rating, down from narrow previously. This is due to Three Garden Road’s inferior location in the Hong Kong central business district, which has resulted in the asset underperforming the market during downturns and saw tenants leaving for more centrally located office buildings. This is evidenced by Three Garden Road’s occupancy rate of 82.2% as at June 2023 compared with the overall CBD Grade A office occupancy rate of 90.6%, according to JLL.