Result First Take: Prepares for a rainy day
- FY21 distributable income fell 3.3% to HK$1.5bn, in line with our estimate
- Distribution payout ratio lowered to 90% from FY20’s 95%
- Negative rental reversion working its way through the entire portfolio
Champion REIT’s FY21 distributable income was 3.3% lower at HK$1.5bn, in line with our forecast. The modest decline was driven by lower rental earnings, partially offset by reduced cash finance costs.
To retain more cash for planned renovation at Three Garden Road and preparing for the challenging times led by the recent COVID resurgence, Champion REIT lowered the distribution payout ratio to 90% from FY20’s 95%. Distribution amount therefore dropped 8.4% to HK$1.35bn and DPU fell 8.7% to HK$0.2279.
Income from Three Garden Road fell 3.8% to HK$1.46bn. Rental declined upon lease renewal/new letting, resulting in passing rents lowered to HK$108.3psf in Dec-21 from Jun-21’s HK$111.1psf. Occupancy, however, recovered to 89% in Dec-21 from Jun-21’s 85%. With expiring rents of >HK$120psf, reversionary growth should remain in the negative territory in 2022 when 20.9% of floor area is scheduled for roll over.
Langham Place Office Tower showed 3.4% revenue fall due to negative rent reversion. But occupancy rebounded to 96.3% in Dec-21 from Jun-21’s 91% as existing and new lifestyle tenants took up more space, accounting for 70% of GRA in Dec-21. (Jun-21/Dec-20: 65%/62%)
Langham Place Mall recorded 9.1% drop in revenue dragged by negative reversionary growth and rent void resulting from the departure of its anchor tenant, Beauty Avenue.
Cash finance cost fell 10% to HK$401m due to lower HIBOR and the decrease in fixed-rate debt portion. Total debt stood at HK$15.4bn. This translated into gearing of 22.9% which remained comfortable. Interest costs for 65% of its debt are on fixed-rate basis.
In 2022, Champion REIT will focus on safeguarding the occupancy with flexible leasing strategy and drive the performance of Langham Beauty.
We currently have HOLD rating on Champion REIT