2014 Investor Presentation Final version 3 - Final.pdf 2014 Investor Presentation Final version

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12014 Investor Presentation Final version 3.2read disclaimers on the final page 2Key HighlightsKey Highlights Langham Place - strong sales growth at mall Citibank Plaza - bottoming out in 2015 Expense Ratio Slightly Up - higher rental commissions DPU Lower - normalizing tax rate - higher interest expense Stable Valuation Resilient Financial Profile2014 ChangeRental Income $2080m + 4.6%Net Property Income$1800m + 3.0%Expense Ratio 13.5% + 1.4ppDistribution per Unit$0.2037 - 3.0%Property Valuation$62,438m + 1.5%Gearing 23.1% - 0.3pp3Total Rental IncomeTotal Rental IncomeRental Income increased 4.6% yoy to $2,080 mil, but was down 1.6% HoHBy contribution: Citibank Plaza 51%Langham Place Mall 35%Langham Place Office 14%At the Trust Level1 Langham Place OfficeB Langham Place MallC Revenue -3.7% to $1,064 mil Lower Passing RentDecrease in occupancy in 4Q after BoAML moved out Citibank PlazaA Revenue +11.2% to $281 mil Higher Passing RentsA bit of down time in 2H after Ageas Insurance vacatedRevenue +16.4% to $735 mil Higher Base RentsSeasonality concentrates growth in 2H of each yearMinimal impact on income from Oct/Nov Occupy demonstrationsNo longer discussing Gross Revenue to avoid the distortion of bldg mgt fee income growth553 564 552 553 559 505 113 119 120 133 140142259278 291340 350 385$0$200$400$600$800$1,000$1,200$1,4001H 12 2H 12 1H 13 2H 13 1H 14 2H 14in HK$ (millions)Rental Income (by Property) LP Retail LP Office Citibank Plaza4Net Property IncomeNet Property IncomeNet Property Income +3.0% to $1,800 milNet Operating Expenses +16.0% to $280 mil Net Expenses Ratio +1.4pp to 13.5%Net Building Mgt Expenses increased by $13.6 mil, driven by higher maintenance costs at LP MallLeasing Commissions increased by $17.6 mil, because oflarge amount of space rolled over at office propertiesAt the Trust Level1 At the Property Level2 Net Property IncomeNet Operating Expenses Citibank Plaza -6% to $932m +15% to $132m Langham Office +9% to $253m +34% to $28m Langham Mall +17% to $615m +14% to $120m830 836 858889 921 88095 126105136 128 151$0$200$400$600$800$1,000$1,200$1,4001H 12 2H 12 1H 13 2H 13 1H 14 2H 14in HK$ (millions)Rental Income (with expenses)Operating Expenses Net Property Income10.2%13.1%10.9%13.3%12.2%14.7%0%2%4%6%8%10%12%14%16%18%1H12 2H12 1H13 2H13 1H14 2H14Expense Ratio (as a % of Rental Income) 5Cash Interest Expenses increased $37 mil, from $251 mil to $288 mil$7.5bn refinancing in May 2014 at higher ratesNo refinancing and therefore no further increase in interest spreads for 2015.Interest1 Taxes paid increased $48 mil to $161 milEffective tax rate was low at 12.8% because of leftover deductions from retired CB used in 1HThe effective tax rate in 1H was 9.1% but returned to normal in 2HTaxes 2 Non Property ExpensesNon Property Expenses7965117134139150$0$30$60$90$120$150$1801H 12 2H 12 1H 13 2H 13 1H 14 2H 14in HK$ (millions)Cash Interest Expenses16.7%9.5%12.8%0%4%8%12%16%20%2012 2013 2014Effective Tax Rate6DistributionsDistributionsDistributable Income decreased 2.9% to $1,234 mil. There was a $37 mil drop broken down as follows:Although NPI increased $53mInterest Income decreased by $5mCash Finance Costs increased $37mTaxes increased by $48mDistributable Income1 Distribution Per Unit for 2014 decreased 3.0% to HK$0.2037Based on unit price of $3.80, the yield is 5.36%-$90mThe dip in 2012 DPU was due to the conversion of CBsDistribution Per Unit2 1,2541,2711,234-68 -70 -641,1861,2011,171-$400$0$400$800$1,200$1,600$2,0002012 2013 2014in HK$ (millions)Distribution Amount Distributable IncomeRetentionDistribution Amount0.2089 0.2099 0.2037$0.00$0.05$0.10$0.15$0.20$0.25$0.302012 2013 2014Distribution per Unit7Citibank Plaza, $36,332mLangham Office, $7,869mLangham Retail, $18,237mValuation by Property Valuation by Property 58%29%13%Value fell 4.1% to $22,000 per sq. ft.Implied rent decreased from $82.67 to $78.72 per sq. ft Cap Rate 3.3%Citibank PlazaLangham Place MallLangham Place OfficeComparisons are made with respect to Dec 2013 Valuation by Savills Valuation and Professional Services per sq. ft. valuations are based on Gross Floor AreaValue rose 6.6% to $11,200 per sq. ftImplied rent increased from $35.00 to $37.32 per sq. ftCap Rate 4.0%Value rose 12.4% to $30,000 per sq. ft.Implied rent increased from $164.32 to $185.00 per sq. ftCap Rate 4.0%Appraised Value of Properties at $62.44bnProperty Valuation1 8Properties appreciated by $929mil in 2014Capitalization Rates unchanged over 2014, all adjustments to value are based on changes in rental assumptionsProperty Value Over Time1 Net Asset Value2 Net Assets stand at HK$46.28bnNAV per unit increased 1.5% to HK$8.06 per unit from Dec 2013 Based on unit price of $3.80, the discount to NAV is 53%Net Asset ValueNet Asset Value$7.80 $7.94 $8.06 $0.00$2.00$4.00$6.00$8.00$10.0012/12 12/13 12/14Net Asset Value per Unit 36.5 37.9 36.321.823.6 26.1$0$10$20$30$40$50$60$70$8012/12 12/13 12/14in HK$ (billions)Value of Property Portfolio Citibank Plaza Langham Place92200 3700190038003104$0$1,000$2,000$3,000$4,000$5,000$6,0002015 2016 2017 2018 2019 2020 2021 2022 2023HK$ millionsDebt MaturityBank Loans MTNHK$11.6bn in secured bank loans and HK$3.1bn in unsecured notes Blended interest: 2.03% (1M Hibor = 0.24%) Average maturity: 4.1 years (as of Dec 2014)Interest Expense2 floating interest rate of Hibor + 1.33%. fixed coupon of 3.75%79% 21%Debt As Of Dec 2014 Debt As Of Dec 2014 Basic Information1 At 1M Hibor = 0.24%, 2015 interest expenses should be $298m (compared to $289m for 2014 )10Total borrowings have remained steady at $14.7bnGross Assets at $63.6bnLangham Place Mall is presently unpledged Total Borrowings1 Interest cover remains comfortable at 6.2xDebt to Assets (Gearing) ratio is low at 23.1%, well within REIT Code maximum of 45% Debt to Equity ratio at a robust level of 31.8%Ratios 2 Debt HistoryDebt HistoryInterest cover is calculated using NPI as the numerator. 12,21914,704 14,7040x4x8x12x16x05,00010,00015,00020,0002012 2013 2014HK$ (millions)Debt LevelsTotal Borrowings (L) Interest Coverage (R)31.8%23.1%0%20%40%60%80%100%2012 2013 2014Leverage RatiosDebt / Equity Debt / Assets11OFFICE MARKET UPDATEOFFICE MARKET UPDATE12$0$20$40$60$80$100$120$140$HK per sq. ft. Index rebased from original data series to the approximate equivalent rental levelsCollier's Rental Indices(Dec 2011 - Dec 2014) Wanchai Central Tsim Sha TsuiHK HK Grade A Office Rents Grade A Office Rents vacancy 5%vacancy 3%vacancy 2%130.00.20.40.60.81.01.21.41.61987198819891990199119921993199419951996199719981999200020012002200320042005200620072008200920102011201220132014201520162017NET FLOOR AREA (million sq ft)HONG KONG CENTRAL GRADE A OFFICE SUPPLY (1986 - 2016)Grade Grade A Office A Office Supply Supply -- Central Central No new land from reclamation 3 possible future sites: Murray Road Carpark (350,000 sq. ft.)GPO (300,000 sq. ft.)site opp new Government HQ (180,000 sq. ft.) Longer Term Supply2 Virtually 0 Grade A supply in CentralShanghai Commercial Bank Redevelopment (95,000 sq. ft.)Only Grade-B buildings, but in good locations 33 Des Voeux Rd Central (74,000 sq. ft.) Imminent Supply1 20 year Average Supply490,000 sq. ft. per year140.01.02.03.04.05.06.07.08.01987198819891990199119921993199419951996199719981999200020012002200320042005200620072008200920102011201220132014201520162017NET FLOOR AREA (million sq ft)HONG KONG SAR GRADE A OFFICE SUPPLY (1986 - 2016)Central Rest of HKSARGrade Grade A Office A Office Supply Supply -- HKSARHKSAR20 year Average Supply2,470,000 sq. ft. per year2016 Supply2 550k sq. ft. - 2 projects in Shatin710k sq. ft. - 2 projects in Kwln E240k sq. ft. - project in Island E600k sq. ft. - Somerset Hse in Island E180k sq. ft. - Sunning Plaza in CWB240k sq. ft. - Asia House in CWB Recent Demolitions3 2015 Supply1 2.3m sq. ft. - 5 projects in Kwln E250k sq. ft - Octagon in Tsuen Wan120k sq. ft. - Observatory Rd in TST15Capitalization RatesCapitalization Rates16CITIBANK PLAZACITIBANK PLAZA17Citibank Plaza priced competitively with face rents at $75-80 per sq. ft. Passing rent has moved down to $77.53 psf from lease rollovers with negative rental reversion. Steps taken to increase competitiveness Citibank PlazaRents Rates1 Citibank Plaza Citibank Plaza Occupancy fell to 75.4% after the relocation of BoAML,which formerly occupied 14.3% of floor area.3.5% in 1H15 new lease commencements confirmed.New demand for Central offices from China-based financial companiesOccupancy 2 86.1085.1285.2684.6082.0777.53$0$20$40$60$80$100$120Jun-12Dec-12Jun-13Dec-13Jun-14Dec-14Effective Rent per sq. ft. (Lettable)Passing Office Rents at Citibank Plaza 88.3%88.7%88.0%84.8%88.2%75.4%0%20%40%60%80%100%120%Jun 12Dec 12Jun 13Dec 13Jun 14Dec 14Occupancy at Citibank Plaza (Office) In the past occupancy was reported for the combined office and retail portions 18Citibank Plaza Citibank Plaza Expiry risk is lower in 2015 with less than 10% of the floor area up for renewal.Passing rents have further to fall as the average expiring rents in 2015 are $98 psf.Leases commission charged up front at commencement of new leases operating expenses will go up in re-letting phase Lease Maturities 2 Tenant Mix 1 Banking has been reduced to a third of the floor area with the exit of BoAMLThe growing segments are:Asset Management which increased from 8% to 14% Hedge Funds which increased from 4% to 7%.Banking33%Asset Management14%Hedge Funds7%Securities2%Legal5%Consultancy2%Others11%Vacant25%TenantProfileCitibank Plaza - Office(Dec 2014)Citibank 18%ICBC 12%24.6%9.9%27.4%18.4%1.9%6.9%1.8%12.6%1.4%0%10%20%30%40%50%Vacant 2015 2016 2017 2018Percentage of Floor AreaCitibank Plaza Expiries (Dec 2014)Vacant Leases Expiring Rent Review19Asset EnhancementAsset EnhancementPlanned2 In Progress1 Car park is currently undergoing renovation. Completion expected in 3Q 15.A facelift to the main office lobby, including the lift cars, is being launched.Work is scheduled to begin in early 2016. 20SUPPLIMENTARY MATERIALSSUPPLIMENTARY MATERIALSLANGHAM PLACE LANGHAM PLACE 21Face rents steady at $38-45 per sq. ft. Passing rent improved further to $35.87 per sq. ft. but growth will begin to taper as rental reversion gap narrows. Rent Rates 1 LanghamLangham Place Office TowerPlace Office TowerSeveral tenants vacated upon expiry in 2014 but were replaced.There was a bit of downtime for a few floors in 2H but occupancy returned to 100% by year end.Occupancy2 28.0928.3630.4232.8634.7835.87$0$5$10$15$20$25$30$35$40Jun-12Dec-12Jun-13Dec-13Jun-14Dec-14Effective Rent per sq. ft. (GFA)Passing Office Rents at Langham Place 98.0%99.2%98.8%99.0%98.8%100.0%0%20%40%60%80%100%120%Jun 12Dec 12Jun 13Dec 13Jun 14Dec 14Office Occupancy at Langham Place22Insurance, formerly 10% of floor area, is no longer a category with the relocation of Ageas. Merchandizing & Trading decreased by a further 3%.Most of this 13% has been taken up by tenants from the Health & Beauty sector.Tenant Mix 1 LanghamLangham Place Office TowerPlace Office TowerLease Maturities2 15% of floor area to expire in 2015.The renewal of the majority of these have already been negotiated. Merchandizing& Trading38%Professional & Sales Services18%Health & Beauty31%Lifestyle10%Others3%TenantProfileLangham Place Office(Dec 2014)0.0%14.8%53.1%12.3%5.1%2.5%1.0%0%10%20%30%40%50%60%70%Vacant 2015 2016 2017 2018Percentage of Floor AreaLangham Place Office Expiries (Dec 2014) VacantLeases ExpiringRent ReviewSears 17%Neo Derm12%23Some 2014 LP Mall EventsSome 2014 LP Mall Events24Fashion & Accessories44%Health &Beauty10%Entertainment16%Food & Beverage20%Others10%TenantProfileLangham Place Mall(Dec 2014)LanghamLangham Place MallPlace Mall9.8% growth in Tenant Sales per sq. ft. in 2014. Focus on cosmetics and mid-priced fashion and accessories isolates mall from slowdown in the HK luxury retail segment. Tenant Sales2 Trade mix unchanged - focus is on selecting the individual tenants. Cinema City with its 4DX cinemas is a major new tenant. Other recent new shops include Uniqlo, Holly Brown, TeaWood, Clarks Originals. Tenant Mix 1 $956$1,053$1,143$851$939$1,041$0$200$400$600$800$1,000$1,200$1,4002012 2013 2014Monthly Average (per sq. ft.) Tenant Salesex Cinemawith Cinema25102.65114.89118.71144.26146.01165.44$0$40$80$120$160$200Jun-12Dec-12Jun-13Dec-13Jun-14Dec-14Effective Rent per sq. ft. (Lettable)Passing Retail Rents at Langham Place(exclusive of turnover rent) LanghamLangham Place MallPlace MallThe passing base rent increased to $165.44 per sq. ft. following the rollover of 36% of floor area in 2014. Including turnover rent, the comprehensive rent is $180 per sq. ft. compared to $152 per sq. ft. in 2013.Rent as a percent of sales is 17.5%.Passing Rent1 In spite of the hefty jump in passing rent, turnover rent only decreased marginally from $25.87 to $25.21 per sq. ft. (there was a 2 month impact from the Occupy protests)Turnover rent as a percent of the total is 14%Turnover Rent2 $20.64$26.64$23.20$28.54$24.12$26.30$0$20$40$60$80$100$120$140$1601H 122H 121H 132H 131H 142H 14Monthly Average (per sq. ft)Turnover Rent260.0%25.8%24.1%17.4%14.1%4.7%2.2%0%10%20%30%40%50%Vacant 2015 2016 2017 2018Percentage of Floor AreaLangham Place Mall Expiries (Dec 2014)Vacant Leases Expiring Rent ReviewLanghamLangham Place MallPlace MallFull occupancy easily maintainedWith proven track record, there are ample retailers competing for limited spaces at the MallOccupancy2 26% of the space in the Mall will be rolling over in 2015. Tenant undergoing Rent Review in 2015 is H&MLease Maturities1 100.0%100.0%100.0%100.0%100.0%100.0%0%20%40%60%80%100%120%Jun 12Dec 12Jun 13Dec 13Jun 14Dec 14Occupancy at Langham Place Mall 27ConclusionConclusionAt the operational level the strong performance of Langham Place will not be able to offset the expected fall in Citibank Plaza income as it did in 2014.Distributions, which will also be affected by a slightly higher effective tax rate, are expected to be lower in 2015the REIT3 Lower average occupancy and lower passing rent in 2015. Rental rates will continue to be under pressure this year as we focus on rebuilding occupancy. While there has been some progress in reducing vacancy in 1Q15, income from Citibank Plaza is expected to decline this year.Citibank Plaza1 Office Rents are firm, there should continue to be positive rental reversion but only 15% of the building is expiring in 2015.Retail Rental Income should continue to increase in 2015 but the increase will depend on the pace of tenant sales growth in 1H 15.Langham Place2 28the END the END 29This presentation may contain information which is proprietary, confidential and/or legally privileged and has been prepared by Eagle AssetManagement (CP) Limited, in its capacity as the manager (the REIT Manager) of Champion Real Estate Investment Trust (the Trust). Thispresentation is being communicated for information purposes only and its intended recipients are professional investors in Hong Kong (asdefined by Part 1 of Schedule 1 to the Securities and Futures Ordinance(Cap.571)) and professional investors outside of Hong Kong to whomit is lawful to communicate the presentation. Any other persons should not rely or act upon this presentation or any of its contents.The information contained in this document, including any obtained from external data sources, has not been verified. The information andopinions in this presentation are subject to change without notice and the REIT Manager is under no obligation to update or keep current theinformation contained in this presentation. No representation or warranty, express or implied is made as to, and no reliance should be placedon, the fairness, accuracy, completeness or correctness of the information or opinions contained herein. 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