Champion Real Estate Investment Trust (2778) H1 2024 earnings summary

Executive summary

• Rental income declined 4.5% year-over-year to HK$1,115 million for the six months ended 30 June 2024, mainly due to negative office rental reversions and subdued leasing momentum, while Langham Place Mall outperformed the broader retail market.

• Distributable income dropped 11.9% to HK$544 million, and distribution per unit fell 12.7% to HK$0.0809, reflecting higher finance costs and subdued office leasing demand.

• Three Garden Road achieved "Quadruple Platinum" sustainability certifications, a first for existing buildings in Hong Kong.

• Successful refinancing of a HK$5.05 billion bank loan, maintaining ample undrawn committed facilities of HK$4.0 billion to cover 2024 and 2025 needs.

• Property portfolio value decreased by 2.5% to HK$61.4 billion, mainly due to lower office rental assumptions.

Financial highlights

• Net property income decreased 4.1% year-over-year to HK$954 million.

• Net property operating expenses fell 7.1% to HK$160 million, mainly from lower rental commissions.

• Cash finance cost rose to HK$309 million due to higher average HIBOR.

• Net asset value per unit was HK$7.42, down from HK$7.72 at year-end 2023.

• Distribution yield annualised at 10.3% based on a closing price of HK$1.57 as of 28 June 2024.

Outlook and guidance

• Office rental income faces continued downside risk due to abundant supply, cost-conscious tenants, and changing tenant behavior.

• Retail sales growth at Langham Place Mall may slow if outbound travel by locals persists, but long-term prospects remain positive with policy support and mainland economic recovery.

• Financing costs for the full year are expected to be higher due to increased effective interest rates after swap expirations.

• Interest rate cuts are anticipated in the second half of 2024, but the extent remains uncertain.

• The Trust will maintain a prudent approach to capital management and continue to broaden funding sources.