Q2 2026 Champion Real Estate Investment Trust Earnings Call
Speaker #1: With 2026 interim results, analysts briefing, today I was executive director and finance director Ms. Rosanna Song, and our investment and investor relations director Ms. Amy Loke will present our interim results.
Speaker #1: After the presentation, there will be a Q&A section. Amy, please.
Speaker #2: Thank you, Karina, and good afternoon, everyone. During the first half of 2026, while the macro environment continued to fill with uncertainties, we saw signs of stabilization of our portfolio.
Speaker #2: Here are some highlights: Central office market rents are stabilizing, with free garden row achieving positive rental reversion on some lease renewal cases. And for land place more, our proactive tenant management continued to drive positive impact, with new retail tenants driving sales rebound at the mall.
Speaker #2: And on financing, we successfully secured creative facilities for refinancing all the debt maturing in 2026, and now our path to Rosanna to walk through the result highlights.
Speaker #1: Thank you, Amy. Let's look at the interim results highlights. Occupancy across our properties stayed stable and resilient. We saw a narrowing negative rental reversion for our central office, and lower average highball resulted in reduced cash finance cost.
Speaker #1: For the first half of 2026, total rental income decreased 7.8% year-on-year to $949 million. Net property income decreased 9.3% year-on-year to $718 million. While distributable income decreased 9.1% year-on-year to $432 million.
Speaker #1: Distribution per unit decreased to 6.33 HKD in first half of 2026. Turning to our debt profile, we have secured credit facilities for refinance all debt maturing in 2026, including securing our $3 billion sustainability-linked loan with the support of 8 banks.
Speaker #1: We have also broadened our lender base with a new bilateral credit facility offered by a new lender. As of 30 June 2026, undrawn committed facilities amounted to $2,560 million.
Speaker #1: Giving us flexibility for the 2027 revising needs. Gearing remained healthy at 25.4%. For the first half of 2026, fixed rate debt portion was $47.4%, an average effective interest rate lowered to 3.6%.
Speaker #1: On valuation, the portfolio was valued at $56.4 billion, which increased mildly, mainly due to higher rental assumptions of free garden row. The cap rate of all properties remained unchanged.
Speaker #1: And now I will hand over to Amy to walk you through the operational performance of our properties.
Speaker #2: Thank you, Rosanna. For free garden row, the solid central office leasing momentum has driven up market rents in the overall central market. We also observed stabilization of rents in free garden row, and recorded positive rental reversion in some renewal cases, while the overall negative rental reversion has been narrowing.
Speaker #2: Inspection momentum also stayed solid, we continued to adopt a proactive approach on lease renewal with over 90% of 2026 expiry confirmed to renew, we also managed the expiry of anchor tenants prudently to avoid concentration of expiries, to ensure income stability.
Speaker #2: Occupancy maintained as stable level of 82.2% as at 30 June 2026, with passing rent at HKD 71.1 per square foot. And we continued to enhance free garden row as a premier wealth management and family office hub.
Speaker #2: Through our wealth talk series and strengthened engagement with family office, banks, and wealth management professionals and tenants. And for land place office, the property remains a preferred location for healthcare, beauty, and wellness operators, with lifestyle and wellness tenants accounting for 67% of the area, with occupancy remained resilient at 86.2% and amid competition in the broader Kowloon office, with passing rent at HKD 41.7.
Speaker #2: Per square foot. To diversify the tenant mix, we secured an international direct sales company and its distributors as new tenants. We also continued to enhance tenant engagement and create value for our stakeholders.
Speaker #2: Among the stakeholder collaborations included cross-property outreach, such as health talks delivered by land place office tenants to free garden row tenants. And these engagement initiatives helped strengthen tenant relationships and were well received.
Speaker #2: And then for land place more, we continued to reinforce the more as a retail trend sector through agile leasing and marketing. Proactive tenant mix refinement captured and emerging trends and brought in popular brands.
Speaker #2: For example, the introduction of fashion brands that fit the more's customer demographics resulted in double-digit growth in the fashion segment, and also helped driving the sales of the more to the positive territory in the first half of 2026.
Speaker #2: Occupancy stayed high at 99.5% and passing rent was at HKD 153.1 per square foot. Adding to our tenant mix rebranding, we leveraged our IP synergies strategic promotions and cultural engagements ements to reinforce the more's positioning as a retail trend sector, like the recent Chicago pop-up stores and the collaboration with well-known local brand garden, all deliver very solid results.
Speaker #2: And then on sustainability, our commitment to sustainability earned further prestigious recognitions and shown in this slide. This year, our free garden row also obtained wide-score platinum recertification.
Speaker #2: Demonstrating our continual effort for deliver best-in-class connectivity. We also built momentum across several key fronts, including flagship eco-champion pledge, which drives collective environmental efforts with tenants.
Speaker #2: We also expanded our multi-themed recycling program at land place. And on the social fronts, we sustained our commitment to youth development by supporting the government-led Stripe and RISE program and hosted an opera concert here in our free garden row, with the performer sharing her career journey with the youth participants.
Speaker #2: And then on outlook, for office, central office leasing sentiment improving. Our free garden row is well positioned to capture future leasing opportunities. The property will undergo a major enhancement initiative to further enhance its competitiveness.
Speaker #2: At land place office, there will be further diversification of tenant mix. And for retail, we will continue refining the tenant mix at land place more, including introduction of first in Hong Kong brands and also roll out a robust pipeline of marketing and festive campaigns to provide engaging experience to shoppers.
Speaker #2: For liability management, following the refinancing of the debt maturing this year, we will maintain a disciplined approach to capital management and look for opportunities to broaden our lender relationships.
Speaker #2: We will also continue to deepen collaboration with our tenants' business partners and stakeholders to create long-term value. And before we open the floor to questions, we would like to share that there is no update regarding the appointment of our CEO.
Speaker #2: And announcement will be made as and when appropriate. And then on the business operation side, we have Ms. Yvonne Lau rejoining us as COO in asset management.
Speaker #2: Yvonne is a seasoned real estate and professional, and she will be overseeing the management of our property's portfolio. This is the end of our interim presentation.
Speaker #2: Thank you. I will now open the floor for questions.
Speaker #3: Thank you, management. This is Mark Lem from UBS. I have a first question is regarding on our leasing strategy for the remaining around 20% vacant space in free garden road.
Speaker #3: Are we rushed in leasing this kind of vacant space? Because I recall you last time you mentioned this more like a separate small unit.
Speaker #3: Seems pretty quite fit for hedge fund. So are you waiting for a better price to lease out? That's the first questions. And the second question is, can you elaborate more what kind of AEI you are looking for free garden row capex, where to renovate, and also you mentioned to diversify the Mong Kok land place office tower.
Speaker #3: What kind of tenant mix do you are looking at for the office portion? Thank you.
Speaker #2: Okay. For free garden row, we continue to adopt a flexible leasing strategy. And then as we also mentioned in the announcement that say smaller fitted office are quite popular, and we continue to do that.
Speaker #2: And so we keep on being flexible and also keep on doing it at market rent and also as also as the market rent has stabilized, not only for central, but also for free garden row, then we will be seeing.
Speaker #2: And also achieving positive rental reversion for some cases. So we keep on to adopt flexible strategy and then try to optimize the overall performance of the property.
Speaker #2: And for the AEI is in very preliminary stage. And actually, it will be quite a comprehensive one, not only we keep on doing the toilet renovation upgrade.
Speaker #2: And then the upcoming one will be uplifting the image and then also the overall ambience of the property. And then we'll be sharing a more info when we get like more detail in the planning.
Speaker #2: And in terms of the like the capex, also a little bit early to quote a number, but we will be using our internal resources and also the standby facilities to fund the capex and then preliminary estimate is very limited impact.
Speaker #2: To the gearing level, just probably slightly just a little bit higher. And then in terms of the land place office, diversification, we got traditionally or like in the past years, it has been more focused on wellness and lifestyle tenants.
Speaker #2: And then this year, we saw some downsizing in terms of some of these tenants. So to diversify the mix, this year, we introduced one international direct sales tenants and then it's distributors related distributors in Israeli chain is also joining.
Speaker #2: Land place office and then there will be other like other industry of tenants that should be also joining in later of this year. We will be also sharing more information with you as they move in.
Speaker #4: Hi, this is Cindy. Two questions from me. The first is one three garden row reversion. You mentioned the narrower reversion. What magnitude of reversion are we talking about?
Speaker #4: Is it like say high single digit negative? And is there any visibility towards a potential stabilization in reversion? I see your passing room is probably somewhere to my understanding of the spot right now.
Speaker #4: So maybe next year or the year after, when do you think is the correct time for the stabilizing reversion? And the second time is on your finance cost.
Speaker #4: Can you indicate on the refinancing margin for your recent refinancing versus the previous? Has there been any improvement in the spread? And also, how's your finance outlook into the second half?
Speaker #4: I mean, the very dynamic market. Thank you.
Speaker #2: Okay. For the reversion, maybe we can also roll back or rewind last year. Because in terms of the expiry, it is quite a bit of expiry in 2025.
Speaker #2: Say over 40% of expiry. And then last year, the market was not really stabilizing yet. And so the magnitude of negative rental reversion was relatively higher.
Speaker #2: Say last year expiring rent was at the average at the 90s. And then rent that we confirm at the 60s to 70s that cup level.
Speaker #2: And so that's why the passing rent last year at December 2025 are lower to the 70ish level. And then this year, the expiring rent was roughly at the 80s.
Speaker #2: And then we are doing deals at the 70s to some cases touching the 80s or above 80s. So that kind of the negative rental reversion is narrowing.
Speaker #2: And then say we expect that effect could be lasting for some time because or in terms of the rental income, it will take some time to fully reflect the market stabilization.
Speaker #2: And next year, 2027, our expiring rent will be at the 70s. So if the momentum is maintaining at current level or continue to improve, then hopefully we could be achieving neutral reversion by next year.
Speaker #2: But also depending on the case by case basis. In some cases, we already achieved positive rental reversion. And then on the financing, there is some kind of improvement in terms of margin for the loan that we secure this year.
Speaker #2: Not a very big magnitude, but it's improving. And then this year, we already handle everything that we need for the refinancing. And we have already started preliminary discussion and evaluation for next year's.
Speaker #2: Refinancing needs. Yeah, we got also committed and drawn facilities that can provide flexibility for next year's refinancing.
Speaker #4: I mentioned this is Percy from DBS. I've got two questions. One is regarding the occupancy as three garden row. Just wondering what's your outlook in terms of the occupancy for three garden row in the second half?
Speaker #4: Do we see room for higher occupancy in the near term? And just to follow up on your description on the asset enhancement work, I'm just wondering would there be any impact on the occupancy?
Speaker #4: Would you have to move tenants around for the AEI? And secondly is on the Langham place wall. Just wondering how I mean, in terms of the retail sales lately particularly in the as we moving towards second half and what's the reversion for the mall at the moment?
Speaker #4: Thank you.
Speaker #2: Okay. For first question is a free garden row occupancy. Occupancy we expect stable and hopefully say hopefully we have some improvement, but because although we already confirm like over 90%, but also some tenants may be giving back space to us.
Speaker #2: So on a very conservative basis, we expect stable. Hopefully we can provide a better occupancy. And in terms of the valuation, there should be no need to vacate any tenant because it's at the lobby and then also the lobby of the office floor.
Speaker #2: So it's just like when doing the toilet renovation, it's the tenant will be staying as usual in their yeah. So for the latest retail sales really depends on the category.
Speaker #2: Some tenants doing quite well and then some may still be like facing some challenges. Overall, we already rebound from to the positive territory this year in the first half.
Speaker #2: And second half, there's still a lot of uncertainty in the market, but as we see like the tourist inbound momentum has been keeping quite well.
Speaker #2: So hopefully there will be a better second half. But in terms of reversion, on a conservative estimate, we will still be expecting some reversion on the negatives on the downward side for the remaining part of the year.
Speaker #2: And also in some case, we achieve positive rental reversion, but some not so much or maybe flat. So blended we will see. Yeah.
Speaker #4: So if there's no further question and perhaps we can wrap up the interim results. And thank you for all your participation and have a very good evening.
