Champion REIT: Stock of the Week

Amid the softness in Hong Kong's office market, investors should exercise prudence before buying into Champion REIT's units. 

Kate Lin 10 October, 2023 | 8:00
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Key Takeaways for Champion REIT

- Champion REIT's portfolio consists of Three Garden Road in Central and Langham Place in Mong Kok. 

- The softness in Hong Kong's office market is expected to persist. Regional economic conditions and elevated interest rates are key risks to Champion REIT's earnings. 

- Investors should be cautious against this market. 


As the pandemic upended the chronic undersupply in Hong Kong’s prime business district, the conditions have been unfavorable for our Stock of the Week, Champion REIT.

Its Hong Kong portfolio consists of Three Garden Road in Central, and the office and retail portion of Langham Place in Mong Kok.

Champion REIT Is Facing Several Risks

The search for more centrally-located office spaces and border controls during the pandemic have scarred Three Garden Road. This resulted in an underperforming occupancy rate and lower monthly rent.

Lacking a near-term catalyst, the softness in Hong Kong’s office market is expected to persist. This could deteriorate further if more multinational companies decide to relocate their Asia hub elsewhere, or mainland Chinese companies seek other gateway cities for regional expansion. Another blow to business confidence could be struck by regional economic conditions, especially in China. This, together with the elevated interest rate, is the earnings risk for Champion's distribution. Our analysts forecast the absorption of excess office supply in the prime locations to take time before rents recover on improved demand by 2025.

At its current price, the REIT is trading at a 12% discount and a dividend yield of 6.2%. Given that a short-term recovery is not likely, investors should exercise prudence before buying into the REIT.


bulls Champion REIT Bulls Say

- Three Garden Road occupancy recovers ahead of expectations as corporates look to lock in favorable rents in the current downturn.

- Hong Kong office downturn presents Champion REIT the opportunity to pursue inorganic growth with its low gearing ratio.

- The trust’s enhancement plans for Langham Place transform it into a regional lifestyle hub, making it the preferred location for healthcare and medical, as well as beauty tenants who are willing to pay higher rents


bears Champion REIT Bears Say

- Multinational companies continue to shift out of Hong Kong while Chinese corporates seek other gateway cities for regional expansion, resulting in weak office demand.

- Interest rates stay higher for longer, resulting in further erosion in dividends.

- Foot traffic and tenant sales at Langham Place Mall decline as more people prefer online shopping over brickand-mortar retail.


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About Author

Kate Lin

Kate Lin  is an Editor for Morningstar Asia, and is based in Hong Kong

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