Champion REIT (2278)

Source: Champion REIT website

With the ongoing Hong Kong protests which is slightly over a month, it reminded me of Champion REIT and how it must be suffering right now. Champion REIT's portfolio consists of two properties, my favorite Langham Place, a super bustling shopping centre, office and hotel that is connected to the Mongkok MRT station. They don't own the hotel which I heard is really comfortable from ACCICB who stayed there on a company trip. Champion REIT however owns part of the office tower and the entire shopping mall.They also own 95.7% of Citibank Plaza and when I asked ACCICB where this is in Hong Kong, he gave me a blank I'm not sure look and quips with a 'It's definitely not at IFC mall where all the major financial bigwigs are!'

Both of us went to take a look at Citibank Plaza's location and found that the major bugbear must be it's not as connected as IFC. Interestingly, I read in June this year was of Citi HK that would be moving to Kowloon in 2016 due to the never ending rise of Grade A office rents in Central HK. I believe that this is a trend that is set to follow given that cost cutting is by far the number 1 thing that all companies do, regardless of whether they are doing well or not. As a business strategy it is easy to implement and results are seen while you are still under the employment of the company so it is like the de facto thing to do. 

I believe that more companies will shift their offices to Kowloon as the overall global economy is not exactly in the best of health, yet the rentals in Hong Kong are not slowing down. In fact, Knight Frank wrote that Hong Kong will see a 10% increase in office rentals over the next 5 years. Currently Hong Kong is ranked highest in the list of 15 global cities which include Singapore, London, New York, Paris etc, with annual rents of US$181.42 per square foot this year. 

However with the current stalemate of Occupy Central, it has seen their stock price move up and down like a roller coaster ride over the past month. Last week, South China Morning Post interviewed CEO Adrian Lee and the main takeaway of the article is that they would be focusing on internal income growth rather than acquisition of new projects. This raised concerns as Citibank Plaza has a vacancy rate of 12% as of June 2014 and retail sales growth of Langham Place has dropped as compared to the last two years because of the slowdown in the growth of mainland tourist arrivals. I was surprised that Langham Place has been affected from the drop in spending by mainland tourists which makes up 20% of Langham Place's customer base. As such, I am not going to put this company on my watch list as its current business strategy and overall outlook is at odds with my investment criteria. 

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