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Investing.com -- Moody’s Ratings has downgraded Champion Real Estate Investment Trust (Champion REIT) to a Ba1 corporate family rating (CFR) from its previous Baa3 issuer rating, which has been withdrawn.
The rating agency also downgraded Champion MTN Limited, a subsidiary of Champion REIT, lowering its backed senior unsecured ratings on its medium-term note program to (P)Ba1 from (P)Baa3. The outlook has been changed to stable from negative.
According to Stephanie Lau, Vice President and Senior Credit Officer at Moody’s, the downgrade reflects expectations that Champion REIT’s earnings and financial leverage will continue to weaken over the next 1-2 years due to "sustained difficulties in Hong Kong’s overall office rental market and continued oversupply."
Moody’s forecasts Champion REIT’s adjusted EBITDA will decline to HKD1.4 billion in 2025 from HKD1.6 billion in 2024, and further to HKD1.3 billion in 2026. This decline is primarily attributed to sizable office lease expiries and projected negative rental reversions amid continued office oversupply in Hong Kong.
In the first half of 2025, the company’s adjusted EBITDA fell 12% to HKD763 million, while annual total office revenue decreased 6% to HKD787 million. Its net debt remained relatively stable at HKD13.7 billion as of end-June 2025.
With the assumption of largely stable net debt, Moody’s expects Champion REIT’s adjusted net debt/EBITDA ratio to deteriorate to about 9.7x in 2025 and 10.4x in 2026, from 8.9x in the last 12 months ended June 30, 2025. Additionally, its adjusted EBITDA/interest ratio is projected to decrease to about 2.3x-2.4x in 2025-26 from 2.4x in the same period.
The Ba1 rating reflects Champion REIT’s good-quality assets in prime Hong Kong locations, complementary nature of its three assets, high-quality tenant mix, and track record of prudent financial management. However, the rating also considers the difficult office leasing environment, asset concentration, and challenging financial conditions for commercial real estate.
While Champion REIT maintains adequate liquidity to meet obligations over the next 12 months, Moody’s noted the company faces material debt maturities in 2026 and 2027, which will require proactive management.
The stable outlook reflects Moody’s expectation that deterioration in key credit metrics will slow from 2027 and that the trust will maintain adequate liquidity by addressing its refinancing needs proactively.
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