DBS Lowers CHAMPION REIT (02778) Target Price to HK$2.1, Maintains "Hold" Rating

Stock News08-22

DBS has issued a research report stating that CHAMPION REIT (02778) recorded a 12.6% year-on-year decline in distributable income to HK$476 million for the first half, which was broadly in line with the bank's expectations. Given the challenging rental outlook and limited yield attractiveness, the bank maintains its "Hold" rating while lowering the target price from HK$2.21 to HK$2.1.

The bank believes that office rental prospects remain challenging. Although all expiring leases at Three Garden Road this year have been renewed, declining renewal rents will continue to pressure the company's rental income outlook. The negative impact is expected to outweigh the positive effect of reduced interest costs due to lower HIBOR, thereby constraining short-term distribution per unit (DPU) growth.

Additionally, while leasing activity in Central has shown slight improvement, persistently high vacancy rates continue to pressure overall office rents, which will continue to affect the rental growth prospects for Three Garden Road and Langham Place Office Tower. These two properties together account for approximately 69% of the company's net property income in the first half.

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