EUR 850.00 For Business Accounts Only

Morningstar | Strong Performance for 3 Garden Road and Langham Retail Underpin Champion REIT's Solid 1H Results. See Updated Analyst Note from 16 Aug 2018

Strong performance for 3 Garden Road and Langham Retail underpinned narrow moat rated Champion REIT’s solid first half result. The result does not alter our view on the trust, and our forecast and fair value estimate of HKD 4.60 are unchanged. While we continue to view both properties as high quality, we believe the outperformance is priced into current unit price. As expected, the tight Grade A office market in Central saw 3 Garden Road achieving rents of HKD 130 per square feet per month with passing rents increasing to HKD 95.87 from HKD 92.52. Occupancy rate increased to 98.85% from 94.2% from higher demand from Chinese financial firms. Langham Retail was another highlight as the sustained recovery in the retail market in Hong Kong resulted in stronger turnover rent. The focus is on the large lease expiry or rent review due across the two assets in fiscal 2019 and 2020. Despite some concerns over trade and softer capital markets this quarter, we maintain our long-term view Hong Kong will continue to benefit from the liberalisation of the financial markets in China. This will support sustained office demand in the medium term, translating into higher rental growth and near full occupancy level for 3 Garden Road.

Capital position remains strong with net debt to EBITDA declining to 6.5 times from 7.2 times and debt to total assets at 12% from 13% at the end of fiscal 2017. The latter also benefited from positive revaluation for the two properties. Interest rate increased slightly to 3% from 2.6% as the trust continues to increase the proportion of fixed rate debt to 54.2% of total debt, in anticipation of further interest rate increase. With HKD 1.6 billion in cash, management is still on a lookout for acquisitions and reiterate particular interests in the Greater Bay Area.