Champion REIT Weaker Second-Half Result in Line, Distribution Per Unit Slightly Ahead

Champion REIT’s weaker second-half 2020 result was largely within our expectation. While occupancy level declined slightly more than our expectation for both 3 Garden Road and Langham Office, rental for the full year remained resilient, particularly for Langham Place Office. Since our last update in November 2020, base and variable rent at Langham Mall come in 4% lower than our forecast, mainly due to another lockdown in early December. This was offset by lower promotional expense in the second half of 2020 as economic activities improved after a decline in coronavirus cases between July and early December. Overall net property income declined 5.4% to HKD 2.35 billion for the full year, slightly ahead of our forecast of HKD 2.24 billion. Second-half distribution per unit of HKD 0.1275 per share was slightly ahead of our forecast that takes full-year distribution to HKD 0.25 per share, a 6% decline against last year. A non-cash revaluation loss of HKD 4.7 billion was booked in the second half, driven by lower rental. There was no change in capitalisation rates against the first half. With a conservative gearing level, we did not expect any decline in asset value to have an adverse effect on the REIT’s capital position. Total debt to asset was 23% and below regulatory limit of 45%.