Good afternoon. This is Sophia Wong. On behalf of Champion REIT, welcome you all to our 2024 Annual Results Analyst Briefing. Today, our CEO, Ms. Christina Hau, and Investment and Investor Relations Director, Ms. Amy Luk, represent our Annual Results with you all. Christina, please.
Hi, good afternoon, everyone. I apologize for the delay and the inconvenience caused. Together with Amy, who is sitting next to me, I would like to welcome you all of you today. So I will walk you through the 2024 Annual Results Highlights and the Property Performance Review, and Amy will go through the Financial Highlights and Sustainability part. And after that, I will wrap up with the outlook of Champion REIT. So in 2024, we stayed resilient under the challenging market environment. Our property maintained a stable occupancy despite that operating environment continued to be challenging. Meanwhile, the sales at Langham Place Mall outperformed the overall Hong Kong retail market by three points.
On sustainability, after obtaining LEED Platinum and WELL Core Platinum in 2024, Three Garden Road has become the first quadruple existing building in Hong Kong, demonstrating our commitment to sustainability across our properties and value chain. On liability management, our undrawn committed facilities on hand are sufficient to service all the refinancing needs in 2025. Throughout the year, we launched different initiatives to broaden our business opportunities. We strengthened collaborations with stakeholders through events like the 6th Dimension Wellness Hub Forum at Langham Place Office, and also a healthcare seminar where a Langham Place Office tenant presented to tenants at Three Garden Road and our inaugural ESG Week.
On the retail front, to drive footfall to the upper zone of Langham Place Mall, we made joint efforts with tenant White Market to arrange weekend markets at the high floors of the mall in last summer, where tenants on the high zone benefit from the rising footfall. We also enhanced the shopping experience at Langham Beauty by partnering with SF Express for groundbreaking door-to-door delivery service and launched the Langham Beauty eStore. As a trendsetter, we continued to introduce first-in-Hong Kong shops to the mall, including the world's first Harry Potter x MINISO pop-up store and AMI's first store in Hong Kong last year. We kept on amplifying our role as a super connector, bringing together and collaborating with our stakeholders. By fostering these connections, we have created value-added services that benefit stakeholders from different perspectives.
This collaborative approach not only strengthened our relationship but also drove collective success and contributed to a vibrant integrated ecosystem. Events on the previous slides, such as the inaugural ESG Week, were an example of how we leverage resources in our Champion ecosystem to drive values. And now, let's go through the performance of each of our properties. Let's look into Three Garden Road. The competitive landscape of Grade A Central office market remained intense in view of the abundance supplied. Yet, Three Garden Road stayed resilient in terms of occupancy, which stood at 82.6% as of 31st December 2024. We observed demand mainly coming from relocation within the district, as well as some expansion needs from existing tenants. Central office market rental continued to weaken. Negative rent reversion remained in 2024, with passing rent lowered to HKD 87 per sq ft.
We continue to proactively negotiate with tenants on renewals for leasing expiring in 2025 and also 2026 to secure early renewal commitments. Around 40% and 50% of the expiries in 2025 and 2026 have confirmed to renew respectively, including some anchor tenants. Meanwhile, we strive to strengthen our partnership with tenants through multiple engagements. We have enhanced engagement through festive celebrations. For example, our Halloween tenant parties in October received overwhelming feedback, turning the office tower into hubs of joy. Our Christmas celebration brought tenants, business partners, and our community together in a heartwarming celebration. Our signature musical decor series brings monthly classical concerts to our tenants, offering high-quality performances and gives talented young musicians a stage to connect with an appreciative audience.
For Langham Place Office, Langham Place Office Tower continued to be a preferred location for healthcare, beauty, and wellness operators, despite that some beauty and medical tenants scaled down their operations due to slower-than-expected recovery of mainland beauty tourism after the pandemic. Occupancy as of 31st December 2024 was 87.2%, similar to the level as in June 2024. The property continued to be a lifestyle and wellness hub, with lifestyle tenants occupying around 67% of the area. While occupancy remained stable in the second half of 2024, market rental remained under pressure, and passing rent slightly lowered to HKD 44 per sq ft as of 31st December 2024. We are in active discussion on 2025 expiries, and more than 20% of 2025 expiries have confirmed to renew. In 2024, we cultivated the office tower as a 6th Dimension Wellness Hub.
By leveraging the internal ecosystem, we recently hosted a healthcare seminar where a tenant from Langham Place Office presented to tenants at Three Garden Road and collaborated, creating a win-win impact, strengthening connections within our stakeholders. And we are also enhancing our wellness offering with insightful sessions covering physical, emotional, intellectual, spiritual, social, and financial wellness. And these events will enrich our tenants' experience and attract medical and wellness prospects. For Langham Place Mall, the Hong Kong retail sector was affected by the change in tourist spending behavior, strong local currency, as well as the outflow of local travelers. Despite the unfavorable market backdrop, the Mall's tenant sales continued to outperform the market in 2024, where tenant sales at the Mall declined by 4.3% compared to a 7.3% drop in Hong Kong retail sales. Overall, rental income at the Mall recorded a marginal decline of 1.6%.
The base rent portion improved to HKD 475 million as mall turnover rent leases changed to base plus turnover rent leases. However, turnover rent portion declined to HKD 196 million on slowdown in tenant sales. We observed fluctuations of tenant sales in December, which impacted the passing rent at the year-end. The passing rent was HKD 157.5 per sq ft as at 31st December 2024, which reflected fluctuations of sales in that month. Occupancy at the mall maintained at a high level of 99.3%. In 2024, we enhanced Langham Place Mall's position as a premier beauty hub through key initiatives. We partnered with SF Express to offer groundbreaking door-to-door delivery services for products purchased at Langham Beauty. Our eStore now operates 24/7, allowing customers to shop anytime, day or night.
We also subdivided stores on street level and introduced seven international beauty brands to the mall, enriching our offerings to shoppers. Additionally, we installed LED walls to facilitate marketing and promotions, and these efforts have strengthened our appeal to beauty aesthetics and elevated the shopping experience for our customers. In 2024, we also reinforced Langham Place as a trendsetter with dynamic initiatives, so in October, we have launched the world's first Harry Potter x MINISO pop-up store, which drove both sales and rental income while delighting fans. We also collaborated with local artists and influential social media channels to create engaging events that resonate with our audience, and building on the success of first weekend m arket since June 2024, we introduced a series of weekend markets as a spiral with different themes throughout the second half of the year.
These markets attracted diverse crowds and enhanced the mall's vibrant atmosphere, solidifying position at the forefront of retail trends. Throughout the year, we continue to enhance tenant mix and strengthen offerings to shoppers. For example, we both opened a new beauty zone. Following the completion of subdivision work, seven international beauty brands were introduced to the mall. Also, shops like Lacoste and Pinko improved fashion diversity and provide exceptional customer experience to shoppers. Amy and I will update our financial position and sustainability performance with you.
Thanks, Christina. For the financial year 2024, the higher-for-longer interest rate environment remained unfavorable for our results. Yet, our office and retail properties demonstrated resilience with stable occupancy under challenging operating environment. Retail sales of our Langham Place Mall continued to outperform the market, as Christina has mentioned.
In 2024, total rental income dropped 5.5% year-on-year to HKD 2,185 million. Net property income dropped 6.5% to HKD 1,820 million. In addition to softening rental income, the increase in cash finance costs also impacted distribution, where distributable income dropped 14.6% to HKD 958 million, and DPU dropped 15.5% to HKD 0.1422. Then looking at the rental income breakdown, the office portfolio continued to face negative rental reversion and recorded a lower rental income. Slowdown in retail sales of Langham Place Mall also suppressed retail rental income. As a result, total rental income dropped 5.5% to HKD 2,185 million. Net property income of Three Garden Road, Langham Place Office, and Langham Place Mall went down by 8.2% to HKD 993 million, 8% to HKD 280 million, and 2.2% to HKD 547 million, respectively. Our financial position remained stable. Gearing ratios stayed at a comfortable level of 23.7% as of 31st December 2024.
The undrawn committed credit facilities on hand amounted to HKD 3.7 billion, which is well enough to service all the outstanding debt amounted to HKD 1.7 billion maturing in 2025. The fixed-rate debt portion was 40.4% as of 31st December 2024. Average interest rate during the reporting period increased to 4.4%, mainly due to the expiration of interest rate swaps in the middle of 2024, which were at a much lower rate than the prevailing HIBOR and swap rates, and for property valuation, there was a mild drop of 4.5% to HKD 60.1 billion due to lower rental rate assumptions. Cap rates for all properties remained unchanged, with Three Garden Road at 3.7%, Langham Place Office at 4.1%, and Langham Place Mall at 4%. NAV as of December 31st, 2024, was HKD 7.16 per unit, and for the sustainability part, all our buildings in Hong Kong have successfully attained Platinum Green Building certification.
As Christina mentioned earlier, Three Garden Road has achieved a remarkable milestone in 2024, becoming Hong Kong's first existing building with the prestigious quadruple platinum status after attaining LEED and WELL Core Platinum certifications. This achievement serves as a solid proof of our efforts to create seamless digital connectivity while embodying efficient and innovative green practices across our operations. On climate resilience, we have been working closely with our tenants and stakeholders through collaborative strategies. Key initiatives in 2024 included the Eco- Champion Pledge, where we engaged tenants in energy saving, waste reduction, and green procurement. Another green initiative, the Langham Green Vitality Campaign, promoted recycling beauty empties and sustainable art. We also deployed AI technology for chiller plant optimization, projecting significant energy savings annually. We are also dedicated to collaborating with community partners to drive positive social impact.
We hosted an outdoor social enterprise pop-up market Christmas celebration, showcasing products from over 30 local social enterprises to promote ethical consumption. Our community outreach efforts included staff volunteering to offer a sensory dining experience to the elderly. Besides, we participated in the Strive and Rise Programme, supporting the government's initiative to empower our teenagers. In 2024, our unwavering commitment to sustainability was honored with prestigious recognitions, including the HKMA Sustainability Distinction Award, the Global Listed Sector Leader with five-star rating in the Global Real Estate Sustainability Benchmark Assessment (GRESB). These achievements reaffirm our dedication to driving meaningful progress in sustainability. I'll now pass back the time to Christina to talk about the outlook.
Thanks, Amy. Looking forward, the macroeconomic outlook appears to be uncertain amid growing global geopolitical tensions. As such, the operating environment of the trust is expected to stay challenging for our office properties.
Although we expect the situation to remain tough in view of the demand and supply, we'll continue to adopt flexible leasing strategies and strengthen tenants' relations to maximize tenant retention and secure more renewals. On the retail side, the multiple-entry Individual Visit Scheme has brought some more visitors since the end of 2024. Yet, the overall Hong Kong retail market and rental levels might still face headwinds. To celebrate the 20th anniversary of Langham Place, we'll launch a series of celebrations together with our customers and our stakeholders. Regarding liability management, although the undrawn committed facilities on hand are sufficient to service the refinancing needs in 2025, we are in the process of arranging refinancing for the outstanding debt of HKD 1.7 billion due in 2025 in order to enhance financial flexibility.
Meanwhile, we'll continue to closely monitor the market situation and look for suitable market windows to increase the hedging ratio. And we'll remain agile and deepen the collaboration with our stakeholders and strategic partners to enhance the ecosystem. So thank you.
Thank you. Thank you, Christina and Amy. Here comes our Q&A section. If you have any questions, please feel free to raise your hand, state your name and company name.
Hi, thank you for taking my question. This is Ben from UBS. So I actually have two questions. So the first one being with the major shareholder of our trust continue the buyback. And the second one is that whether we see a narrowing trend for our negative rental reversion for our offices in the second half of 2024. And if possible, will you share with us some updates in 2025 as well for the renewal of the expiring leases? Thank you.
For the buyback, you mean the major shareholder, right? I'm sorry, that we really cannot comment on their decision, but that actually shows their support and confidence in Champion REIT, I think. And then whether we will be buying back, I think we will consider various factors, but in general, like borrowing to buyback may not be something that will be considered for the current situation.
Yes, as mentioned in our outlook, the office markets remain challenging in 2025, and we do see the supply and demand issue still continue affecting the Hong Kong office market rental, so we do see there is pressure on the occupancy and rent rate as well.
Thank you. This is Cindy from Citi. A couple of questions. First thing is, I'm wondering if you will say adjust the 90% payout ratio considering the, say, the challenging environment and the decline in the distributable income. Second question is back to the office part. So it's good that we maintain the stable occupancy, but is there anything more proactive that we could do to actually increase occupancy in any sense? You know, just when we were waiting outside, we were discussing the possibility of, say, having Eaton Club expand a little bit or introduce more flexible working, etc. So just wondering, like I say, any scope we can do to actually increase occupancy maybe. And I think you mentioned certain consolidation demand, that expansion demand last year. Can you elaborate a little bit more on that?
And wondering about the office tenant retention rate we actually achieved last year. This is the second thing. And the third thing is actually on long-term retail. So I think the beauty positioning is quite unique and we have already done the, say, most of the big things last year, I think. So how's your outlook for the long-term retail this year? Are we getting a little bit more, say, cautiously optimistic? And is there any comment on, say, the trend during the Chinese New Year or fourth quarter alone? Maybe I stop here first. Thank you.
There are a few. So the board has decided to keep the payout ratio at 90% because due to the market is quite challenging and we want to keep more cash in hand to facilitate the asset enhancement initiative. So that was the decision made by the board to stay at this level. And regarding the to be more proactive in the office leasing, in fact, we have signed up quite a number of new leases in 2024. So we, of course, are in a proactive approach to try to maximize our occupancy, not limited to retain the tenants, but of course need to secure the new leases as well. So that's why you can see our statements. And we have increased it in the expenses on the commissions to secure new leases as well. That is affecting our bottom line as well.
So considering the suggestion, expansion of Eaton Club will keep reviewing how to maximize and recruit new tenants. And also for the retail part. So the retail part on the office retention rate in 2024 is over 85% of the tenants renewed it and stay in 2024. So the retention rate in 2024 is relatively high. And on the retail part, we saw that there is an increased number of visitors. In fact, it's pre-CNY and during CNY this year. And the tenants feedback saying before CNY, local customers as well as tourists had contributed a significant increase in their overall sales in pre-CNY. So this year we have launched the government, we have launched many different events to celebrate and to attract tourists from all over the world to participate in the CNY celebration in Hong Kong, which is a very good sign.
And also with the opening of our Kai Tak Sports Park, with the launching of expansion, hopefully expansion of the relaxation of the permits coming to Hong Kong, we are cautiously optimistic about the retail performance. Yet the uncertainty is the strong Hong Kong dollar. And also we do see in 2024 that the increase in net outflow of Hong Kong residents has compared to 2023, it has been increased over 50%. So that will impose another impact on the uncertainty of the outlook of 2025 retail sales. Thank you.
Thank you. This is Raymond from HSBC. I got two quick questions. The first question is also related to the Langham Place Mall. Because we heard some of the shopping malls in the market delivered like positive retail sales growth in the early this year, like for the first month or first one and a half month. Can you mention share with us, do we see the similar trend here for your mall? This is the first question. And the second question is actually about the Three Garden Road office. Because we have lease expiry around 40% in 2025. Can you remind us the percentage of the floor that will be expired for the major anchor tenants and have they already renewed? Thank you.
So you mentioned that the sales performance of the Hong Kong retail in January is good, right? That we do see there is also a positive growth in Langham Place Mall. Yeah. So it's echoing with the market. And the anchor tenants' lease expired in 2025. We're still in the discussion with them. In active discussion. Thank you.
Hi, Chairman. Thank you for taking my question. This is Percy from DBS. Perhaps just two questions. One is on Langham Place Mall. Just wondering what is the current occupancy cost ratio and how are you seeing the rental reversion for general retail trades at the moment and the trend for it? And secondly, it's on the hedging ratio side. Notice that currently it's around 41%. Has Champion REIT further increased the ratio after that? And what is your optimal level going forward? Thank you.
The retail sales at Langham Place Mall is around 20s, which is at 20%, which is at a low 20s, which I think is still healthy, and so we do see the two sides of the coin. In 2024, we have recruited new tenants who are able to pay higher rent. This phenomenon also continues in our no matter renewal or new lettings. In some locations, we are able to secure new leases which pay higher rent than the current tenants. But in some renewals, we need to be more flexible to accommodate the performance of that particular tenant. I think that we can't say there's negative rental reversion, but it's really case by case. That's why we're actively pruning our tenants, hoping to bring more quality tenants that can generate good sales and can bring traffic as well as pay higher rent on the retail side.
On the hedging, Amy, please.
Hedging ratio, we keep on looking for opportunity, market window to increase the hedging ratio. So after December year end, so far we are still keep monitoring situation, but definitely we will be closely monitoring and we'll look for a window to increase. Yeah. So probably say at least a balanced level of 50-50.
Hi, this is Clifford from MF Jebsen. Just want to check on ICBC, just exactly when they're expiring and the size of their portfolio in Three Garden Road and any color?
So I would say they are one of our anchors. So the leases will be expired within this year, 2025. Yeah.
If I say they are.
One of the major.
One of the very major.
Yeah.
Like.
Yeah.
If there's no other question, we'd like to conclude our analyst briefing today. Thank you for joining us and hope to see you next time. Thank you.