- November 11, 2020
We have also published a research report on LVGEM (0095.HK), on the back of Swire Properties’ recent sale of Cityplaza One in Hong Kong.
Swire Properties’ recent sale of Cityplaza One should lift investors’ concerns over LVGEM’s HK NEO valuation, in our view. We thus believe the stock should trade at a narrower disc. to NAV, while bond yield should also tighten. We maintain our Buy Rating with a HK$5.0/sh target price.
- Investors have been concerned with LVGEM’s HK NEO valuation amid COVID-19, as it represents 10% of our estimated GAV. This is one of the reasons behind the stock trading at a depressed 80% disc. to NAV, in our view.
- The latest en-bloc sale of Swire’s CityPlaza One at HK$9.8bn implies a 2.36% net cap rate, which is in-line with our valuation assumptions for LVGEM’s HK NEO and suggests that valuation for core assets in decentralized areas in HK remain intact.
- Cityplaza One office building is located in Island East, just across the harbor to LVGEM’s HK NEO. Both properties (Cityplaza One and HK NEO) are located in major decentralized office hubs in Hong Kong, namely Island East and Kowloon East, and we thus believe are comparable.
- We believe that the decentralization of office spaces in Hong Kong has been gathering pace during the COVID-19 period as corporates seek to lower their fixed overhead rental costs.
- According to Savills Research, vacancy rates in Kowloon East has edged lower on a QoQ basis during 3Q20, while rentals in Kowloon East have been resilient (-0.3% QoQ), compared to a 5% QoQ rental decline in Central.
Please see attached our full report.
