20131107-Maybank_KERPL-Various_Headwinds_Ahead_18页_638kb

报告摘要

Champion REIT Summary

Core Content

Champion REIT (CREIT), listed in Hong Kong in 2006, is currently the third-largest REIT by market capitalization. It is managed by Eagle Asset Management (CP) Limited, a subsidiary of Great Eagle Group, and owns two primary properties: Citibank Plaza in Central, Hong Kong Island, and Langham Place in Mongkok, Kowloon. The trust has a total of 5,714 million units issued, with a market cap of USD2,594.6 million as of 6 November 2013.

Main Issues and Risks

1. High Income Concentration Risk

CREIT's revenue is heavily concentrated in its two properties, with Citibank Plaza contributing the majority.
In 1H13, 70% of gross revenue came from the office segment, with 57% from Citibank Plaza and 13% from Langham Place Office.
Langham Place Mall contributed 30% of revenue, but its growth is expected to be limited due to high foot traffic and reliance on ASP (average selling price) increases.

2. Vacancy Risk at Citibank Plaza

Vacancy rates at Citibank Plaza have remained 10–12% since 2011, with an estimated 15% vacancy in late 2013.
The Bank of America Merrill Lynch (BoAML) is set to vacate 10 floors (15% of space) in Sep 2014, which could lead to a material impact on CREIT's performance.
The newly acquired 3–6th floors have a lower efficiency ratio and worse views, with Compass renting at HKD60/sq ft, HKD10/sq ft lower than the spot rent of normal floors.

3. Negative Rental Reversion

CREIT is expected to face negative rental reversion due to the higher average letable rents (HKD96/sq ft in 2014, HKD100/sq ft in 2015) compared to the spot rents (currently around HKD80/sq ft).
This is likely to reduce net property income by ~2% by end-2014, impacting distributable income and DPU (Distribution Per Unit).

4. Cap Rate Expansion Risk

The cap rate for Citibank Plaza is 3.3%, which is lower than most other REITs and landlords, making CREIT more sensitive to cap rate changes.
A potential cap rate expansion could lead to a more severe impact on CREIT's valuation.

Performance Overview

52-week High/Low: HKD4.28 / HKD3.26
Share Price (as of 6 Nov 2013): HKD3.52
Target Price (TP): HKD3.09 (a 12% downside from the closing price)
3-month Avg Daily Turnover: USD2.5 million
Free Float: 39.5%

Earnings Summary (HKDm)

FYE Dec	2012A	2013F	2014F	2015F
Revenue	2,059	2,026	1,927	1,920
Underlying Distributable Profit	1,254	1,207	1,167	1,155
Underlying DPU (cents)	22.1	20.1	19.1	18.3
Distribution Yield on Fair Value (%)	7.2	6.5	6.2	5.9
P/BV (x)	0.44	0.46	0.53	0.59
Gearing (%)	26.1	29.0	31.3	33.3
Consensus DPU (cents)	N/A	19.5	18.5	18.9

Key Challenges

High vacancy rates at Citibank Plaza are expected to increase to ~15–16% after BoAML vacates.
Limited tenant diversification in the financial sector, with ~66% of space now occupied by financial tenants, down from ~78%.
Spot rents are lower than passing rents, leading to negative rental reversion.
No new acquisitions are expected in the near term.

Upside Risks

A single large tenant committing to a significant portion of the space vacated by BoAML could boost occupancy rates and enhance CREIT's bargaining power.
CREIT has capacity for further acquisitions, which could be distribution accretive.
An unexpected recovery in the financial sector could improve rental affordability and reduce relocation demand to non-core CBD areas.

Valuation and Recommendation

Target Price (TP): HKD3.09/share
Valuation Method: Dividend Discount Model (DDM)
Key Assumptions:
- Cost of Equity: 6.41%
- Terminal Growth Rate: 1.0%
- Discount Rate: 6.50%
- Long-run Risk-Free Rate: 3.50%
Current Yield (FY13 DPU): ~5.7%
Yield Spread over 10-year HK Exchange Fund Note: ~380 bps, close to the long-run average of 392 bps.

Peer Comparison

REIT Name	Ticker	Rating	Nov 6 (HKD)	TP (HKD)	Mkt Cap (USDm)	Last FYE	FY13 PER	FY14 PER	FY13 P/B	FY14 P/B	FY13 Yield	FY14 Yield	FY13 ROE	FY14 ROE
Prosperity REIT	808 HK	BUY	2.31	2.75	416	12/2012	15.7	14.8	0.5	0.5	6.4	6.7	3.4	3.5
Link REIT	823 HK	NR	38.50	N/A	11,477	03/2013*	24.1	22.2	1.1	1.0	4.2	4.5	4.4	4.7
Champion REIT	2778 HK	SELL	3.52	3.09	2,595	12/2012	17.6	18.5	0.5	0.5	5.7	5.4	2.8	2.9
Sunlight REIT	435 HK	NR	3.07	N/A	642	06/2013*	17.1	16.2	0.5	0.4	6.2	6.4	2.9	3.0
Fortune REIT	778 HK	NR	6.29	N/A	1,508	12/2012	20.0	18.3	0.7	0.6	5.7	6.2	3.7	3.9
Regal REIT	1881 HK	NR	2.29	N/A	962	12/2012	15.3	15.3	0.5	0.5	6.8	7.0	3.1	3.0

Conclusion

Champion REIT is being initiated with a SELL rating and a target price of HKD3.09, reflecting concerns over income concentration, vacancy rates, negative rental reversion, and cap rate expansion risks. Despite the recent acquisition of additional floors in Citibank Plaza, the trust is expected to face challenges in maintaining rental performance and occupancy levels in the short to medium term. The valuation is based on a dividend discount model and considers interest rate changes and cap rate expansion as key factors. The target price represents a 12% downside from the closing price of HKD3.52 on 6 November 2013.