Champion Real Estate Investment Trust (2778.HK) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. This is Sophia, Head of Corporate Communications and Sustainability at Champion REIT. Welcome to our 2025 Interim Results Analyst Briefing. Today, our CEO, Ms. Christina Hau; and our Investment and Investor Relations Director, Ms. Amy Luk, will present our 2025 interim results. After the presentation, we will have a Q&A section. Now may I pass the time to Christina, please?

Thank you, Sophia. Good afternoon, everyone. Great to have you here today. So let's look at the highlights first. 2025 is a year of major celebration of our portfolio. Langham Place Mall is marking its 20th anniversary. The mall has been an icon in Mong Kok since opening, and we are reinforcing its status as a cultural and retail trend sector. We have a series of top-of-the-town events to celebrate this important milestone for Langham Place. At the same time, our acclaimed Musica del Cuore concert series is celebrating its 10th year, continuing our commitment to nurturing youth artistic talent. These initiatives are central to our role as a Super Connector and Super Value-Adder. Our strategies go beyond only not -- go beyond only managing our assets well, but we are also actively fostering a vibrant ecosystem, creating powerful synergy among other stakeholders. And as you can see in the slide, we have organized dynamic events to create value for our stakeholders. For example, we are engaging our office tenant with festive celebrations, driving top of the town moments and promotional campaigns to drive footfall, good sales and create unique experiences at the mall. Also, the co-working space at Langham Place Office launched our inaugural Social Wellness Hall at 49th floor to further reinforce the property's position as 6D Wellness Hub. Now I will pass to Amy.

Thank you, Christina. Let's look at the first half interim result highlights. While the macro environment and also global sentiment remain challenging, the local market sentiment has improved with the active stock market, lower Hibor and mega events. However, negative rental reversion continued to impact our results. For the first half, total rental income dropped 7.6% year-on-year to HKD 1,029 million. Net property income dropping 10% to HKD 859 million. Distributable income is 12.6% decline to HKD 476 million, and the distribution per unit is HKD 0.0701. The fall in Hibor brought in interest rate savings towards the end of the second quarter, where cash financing costs dropped 6% to HKD 291 million comparing with last year. And then looking at the debt profile, our gearing ratio is maintained at a healthy level of 24.5%. We have now successfully completed the refinancing of all our 2025 debt, bringing new lenders into syndicated loan and also secure new banking facilities. The undrawn committed facilities amounted to HKD 2.9 billion as at 30th June 2025. The lower average Hibor has brought down average effective interest rate to 4% versus 4.2% in the first half of 2024 and 4.4% for the full year of 2024. And then as shown in the bottom right-hand side, you can see the Hibor movement in this year. And since half of our debt is on a floating rate basis, we are right now enjoying the decline in Hibor comparing with last year. And then turning to valuations, our portfolio value stood at HKD 58.1 billion at the end of June, reflecting market-wide rental decline. The per square foot valuation is undemanding for Three Garden Road if you compare the recent notable transaction of strata title Central office property. I'll now hand over to Christina to walk us through the property performance review.

Thanks, Amy. Let's go through the property performance. For Three Garden Road, while the Central office market continued to face an abundant supply situation, the market sentiment was boosted by the robust IPO and stock market this year. Three Garden Road occupancy remained stable at 80.7% as at 30th June 2025. We received increasing leasing inquiries from finance-related firms and recruited several small-sized tenants, including asset management firms and family offices to our Three Garden Road. One of our banking tenant also expanded their wealth management in the property. We continue our leasing renewal efforts with all the 2025 lease expiry being handled with high retention rate, including several anchor tenants. Also, over 70% of 2026 lease renewal, lease expiry has been renewed. We continue to cultivate a truly vibrant community with our tenants, whether through festive celebrations with our signature Musica del Cuore concerts. We believe these initiatives not only add value to the properties, but also go beyond the traditional landlord-tenant relationship. Indeed, they foster lasting partnerships. For Langham Place Office, the property remains a preferred location for health care, beauty and wellness operators. Lifestyle and wellness tenants are occupying 68% of the area as of 30th of June 2025. Occupancy remained stable at 86.9% as at 30 June 2025. While we are seeing some medical tenants expanding their operations in the property, we have also successfully secured service industry tenants, including a VIP launch of a travel agency to enhance the tenant diversity. This year, we solidified Langham Place Office positioned as a 6D Wellness Hub encompassing physical, emotional, intellectual, spiritual, social and financial wellness. In February, we launched YouTube channel featuring weekly wellness tips, now reaching 1.7 million views across Hong Kong and China. A new Social Wellness Hall debuted in our expanded co-working space, attracting over 140 guests in its ESG Gala and launched in July this year. Additionally, we introduced a 6D Wellness Hub offering wellness experience packages worth over HKD 8.3 million to tenants and customers. For Langham Place Mall, we continue to adopt agile leasing and marketing strategies to adapt to changing customer behavior. Last year, we introduced POP MART in the mall, which generated double-digit asset -- sales growth in the lifestyle segment during the first half of 2025. Despite an increase in overall net local outbound travel, the mall's footfall remained stable in the first half. Our vibrant summer campaigns recently drove a new single-day footfall record in August this year. The mall's occupancy remained at high level with committed occupancy currently at 100%. We maintained our active tenant management strategy with a stay local trend global vision. To date, we have recruited 23 brands, including several first in Hong Kong stores at Langham Place Mall. Among these is Chiikawa Ramen Buta, which opened last week as the first global store outside Japan and has become an instant hotspot. Additionally, our long-term tenant MUJI is expanding its footprint by adding MUJI to GO and MUJI CYCLE sections. This brand is also offering exclusive products for our shoppers. As mentioned earlier, Langham Place Mall is celebrating its 20th anniversary this year with a series of celebrations and special events, reinforcing its position as a trend sector and dynamic social hub. The summer features exclusive activities, including Hong Kong's first Disney Baby Oyster Mark Pop-Up, Gareth T New Song Debut, a Kyubi and Squid Game collaboration. Our ongoing summer lucky draw campaign is driving incremental sales with mall footfall increasing since June and reaching a record high. We have also revamped the loyalty program to strengthen customer engagement. And the new program also offers compelling benefits that like Birthday Surprises, Exclusive Privilege and a rich Reward Redemption program. Now I hand over to Amy to talk about sustainability.

Thank you, Christina. On sustainability, we have been proactively engaging with our tenants and business partners to make significant steps in our ESG initiatives. Our flagship ESG Gala this year with a theme of innovation, inspiration and integration brought together over 1,000 tenants and business partners, demonstrating our commitment to cross-sector collaboration. Our EcoChampion Pledge program achieved impressive results with 80% of participating tenants formalizing energy targets and all recycling at least 3 types of waste. Additionally, we organized engaging capacity-building events for tenants with 85% rating them highly informative. And then at the property level, we have been enhancing the environmental performance of our properties through smart building technologies. At Three Garden Road, our innovative AI-driven chiller optimization system has delivered 6.1% energy savings annually. The property maintains its status as Hong Kong's first existing building with Quadruple Platinum certifications, while all our properties in Hong Kong have achieved BEAM Plus certification. And we are also dedicated to collaborating with community partners to drive positive social impact. We have supported the government's Strive and Rise program for 3 consecutive years and held an exclusive Movie Day for student mentees at our Langham Place Mall recently. Besides, we organized a Sports Day featuring AI body scan and smoothie bikes to promote holistic approach to workplace wellness among tenants. This year, we introduced a brand-new Langham Place 6D Wellness concept, as mentioned by Christina earlier. And our sustainability effort has been acknowledged through prestigious awards, notably the GRESB 5-star rating and global listed sector leader award. These recognitions reinforce our commitment to delivering long-term sustainable value. Moving forward, we will continue to foster cross-sector partnerships as we believe the true sustainability success lies in our collective efforts with tenants and partners. Now I will pass to Christina to talk about the outlook.

For the second half of 2025, macro environment is expected to remain uncertain, and we will remain agile in our strategy under the competitive market landscape. For portfolio management, we will continue to implement flexible leasing strategies to maximize tenant retention and to recruit new tenants. We will further strengthen Langham Place Office unit position as a premier 6D Wellness Hub. There will be more celebration events for the 20th anniversary of Langham Place Mall, together with festive events. On liability management, we're positioned to benefit from the lower average Hibor environment with over half of our debt in a floating rate basis. We are already in preliminary discussion with lenders to refinance our outstanding debt due in 2026. We are also actively exploring opportunities to broaden and diversify our funding sources. We'll focus on our ecosystem enhancement, leverages on our available resources, including the newly added Social Wellness Hall to bring value-added services to all our stakeholders. We'll also deepen our collaboration with tenants and strategic partners across our entire portfolio to enhance our ecosystem. That's the end of our presentation. Thank you.