Champion REIT Announces 2017 Final Results

CHAMPION REIT

– Distributable income achieved record high at HK$1,487 million; Distribution per Unit up 5.8%;
– Three Garden Road: Continued encouraging growth in rental income;
– Langham Place Mall: Retail sales growth outperformed Hong Kong retail market again

HONG KONG — Champion Real Estate Investment Trust (stock code: 2778), the owner of Three Garden Road and Langham Place, announces its financial results for year ended 31 December 2017.

Summary of financial results

FY 2017 FY 2016 % Change
Total Rental Income (HK$ mil) 2,431 2,299 + 5.7%
Three Garden Road 1,232 1,157 +6.4%
Langham Place Office Tower 344 325 +5.9%
Langham Place Mall 856 817 +4.7%
Net Property Income (HK$ mil) 2,166 2,027 + 6.9%
Distributable Income (HK$ mil) 1,487 1,408 + 5.6%
Distribution per Unit (HK$) 0.2426 0.2292 + 5.8%

Value as of 31 Dec 2017 31 Dec 2016 % Change
Gross Value of Portfolio (HK$ mil) 76,704 66,842 + 14.8%
Net Asset Value per Unit (HK$) 10.36 8.72 + 18.8%
Gearing Ratio 18.9% 21.7% – 2.8pp

Overview
The Trust’s distributable income increased 5.6% to HK$1,487 million, achieving another record high in 2017. Distribution per unit also rose 5.8% to HK$0.2426. This sustained positive performance was largely driven by stable rental income growth across all properties.

Three Garden Road
Rental income for Three Garden Road continued to achieve significant positive rental reversions standing at HK$1,232 million, a 6.4% increase over 2016. Passing rents also surged 18.3% to HK$92.52 per lettable sq. ft. compared with HK$78.20 per lettable sq. ft. as at 31 December 2016. Market rents also moved gradually upwards as leasing momentum improved. The latest leasing transaction has reached HK$120 per lettable sq. ft..

Langham Place Office Tower
Langham Place Office Tower’s prime location and top-quality construction and facilities ensured it remained a preferred address for leading lifestyle tenants. The property’s total rental income for 2017 rose 5.9% to HK$344 million. The Trust announced a possible disposal of its interest in Langham Place Office Tower In July 2017. No offer has been received by the REIT Manager to date.

Langham Place Mall
Buoyed by an improved local economy and rising tourist arrivals, Hong Kong’s retail market showed encouraging signs of a recovery in the second half of 2017. Rental income for Langham Place Mall rose 4.7% to HK$856 million largely due to significant increases in turnover rents which were mainly driven by beauty and skincare tenants’ solid sales performance. Overall tenants’ sales rose 5.3%, outperforming the local retail market’s growth of 2.2% in 2017.

Financing
In continuing to hedge against possible rises in interest rates, the Trust has increased the fixed rate portion of its total debt to 50.0% as of 31 December 2017.

Distribution
With stable rental income growth across all properties, the Trust’s distributable income for 2017 rise 5.6% reached another record high of HK$1,487 million (2016: HK$1,408 million). Distribution per Unit (DPU) increased 5.8% to HK$0.2426 (2016: HK$0.2292). Based on the closing Unit price of HK$5.73 recorded on 29 December 2017, the distribution yield is 4.2% p.a..

Asset Value
2017 saw the appraised value of the Trust’s properties rise 14.8% to HK$76.7 billion as a result of higher rental rate assumptions, while Net Asset Value per Unit increased 18.8% to HK$10.36.

Outlook
The occupancy of our office portfolio looks set to remain high. As spot rates are now below passing rents for both Three Garden Road and Langham Place Office Tower, positive rental reversion is expected to continue in the coming year.

With the recovery of Hong Kong’s retail sector improving operating conditions for retailers, The Trust remains prudently optimistic regarding Langham Place Mall’s prospects for the coming year. With the emergence of experimental retail in the digital era, the Trust will continue to pioneer innovative new ways to make shopping even more enriching for consumers.

The Trust’s existing property portfolio is expected to continue to deliver stable rental income growth in 2018. That said, potential rises in interest rates may lead to higher finance costs and thus impact the Trust’s DPU growth. At the same time, we will continue to remain prudent when reviewing our portfolio and investigating sound strategic opportunities to benefit and optimize value for unitholders.

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