Mid-Year Report Observation | S.F. Reit 2025 Major Test: How to Maintain Distribution Amounts Amid Property Rental Rate Fluctuations?

Guandian.com “In the face of ongoing market uncertainties, we remain committed to active asset management while maintaining a prudent balance sheet to address potential challenges.”

On March 12, 2026, SF Real Estate Investment Trust (REIT) released its 2025 annual results. During the reporting period, SF REIT achieved a revenue of HKD 460 million, a 2% increase year-over-year, with growth rates similar to 2023 and 2024; net property income was HKD 383.7 million, up 6.2% year-over-year.

In terms of occupancy rates, SF REIT’s overall occupancy reached 96.9% in 2025, down 1.1 percentage points from 2024. The main reason for the decline was the Hong Kong Tsing Yi project (SF Tower), where occupancy dropped from 97.3% in 2024 to 94.8%, which significantly impacted the overall occupancy rate.

Additionally, the Hong Kong Tsing Yi property accounts for nearly 40% of the total portfolio, representing the largest asset in terms of size and valuation. Since 2019, rent and occupancy rates at the Hong Kong Tsing Yi project have shown volatility and a clear downward trend.

It is also worth noting that the valuation of SF REIT’s properties and portfolio decreased from HKD 6.731 billion to HKD 6.17 billion, with the debt-to-asset ratio rising from 35.9% to 38.5%. According to Zhai Diqiang, Executive Director and CEO of SF REIT, the decline in property valuation mainly affects accounting figures and does not impact cash flow, thus having little effect on the company’s cash distributions.

Despite the drop in property valuations, an analysis of SF REIT’s property project income shows that the Hong Kong Tsing Yi property generated HKD 335 million, a 1.7% increase; Changsha property HKD 45.265 million, up 1.2%; Foshan property RMB 49.57 million, up 3.5%; and Wuhu property RMB 20.341 million, up 3.5%.

Based on these figures, SF REIT’s property project income for the year increased by 2.6% compared to last year.

The increase in income is mainly due to a decrease in property operating expenses. The annual report shows that, through streamlining workflows to improve efficiency, SF REIT’s property management fees decreased from HKD 41.4 million in 2024 to HKD 36.7 million in 2025, and maintenance and repair costs dropped from HKD 16.3 million to HKD 7.7 million.

However, it should be noted that this expense reduction did not alleviate SF REIT’s losses. “The company recorded a net loss of HKD 332.3 million after tax for the year, compared to HKD 294.5 million in 2024.” The increased loss was mainly due to a fair value loss of HKD 610.3 million on investment properties, a non-cash item that currently does not affect distributions.

During the reporting period, SF REIT’s distributable income was HKD 240 million, a 2.4% increase year-over-year; however, the distribution per unit was 26.33 HK cents, a 3.9% decrease from last year.

It is reported that the total distributable income for 2025 increased by 2.4%, influenced by pre-distribution losses and adjustments related to the trust deed. “To continue strengthening financial stability, the Board has decided to maintain a 90% payout ratio.” Additionally, a final distribution of 13.22 HK cents per unit was declared for the period from July 1, 2025, to December 31, 2025, higher than the 12.69 HK cents at the end of 2024.

On the debt side, SF REIT has made efforts to ease debt pressure. During the period, total liabilities decreased from HKD 3.301 billion in 2024 to HKD 3.228 billion.

Breaking down liabilities, it includes HKD 2.4704 billion in committed bank loans, of which HKD 2.1574 billion are in HKD and HKD 313 million in RMB. The reduction was mainly due to depreciation of investment properties leading to lower deferred tax liabilities and repayment of RMB loans.

However, SF REIT’s debt-to-asset ratio and total debt as a percentage of total assets remain volatile. The debt-to-asset ratio increased from 35.9% to 38.5% (2024: 35.9%), and total debt as a percentage of total assets rose from 47.3% to 50.4%. This increase is partly due to the decline in total assets from HKD 6.982 billion to HKD 6.411 billion during the period.

Despite the rising debt ratio, SF REIT has benefited from reduced financing costs. Its financing expenses for 2025 decreased from HKD 117 million to HKD 85.3 million, with interest on bank borrowings dropping from HKD 115 million to HKD 84.4 million; net interest expenses after considering interest rate swaps fell from HKD 112 million to HKD 92.9 million. “The reduction in interest expenses is mainly due to the decline in Hong Kong interbank offered rates and ongoing negotiations by the REIT manager for more favorable interest rate terms.”

In fact, to ease liquidity pressures, SF REIT has undertaken some RMB debt refinancing. During the year, a HKD 120 million loan related to Foshan property, originally due in April 2026, was repaid early; another RMB 100 million loan for Wuhu property was refinanced within 2025, replaced by a new RMB 60 million ten-year loan. As of December 31, 2025, the remaining balance of this debt was RMB 55 million.

Additionally, a refinancing of RMB 275 million for Changsha property, with an eight-year term due in May 2030, was completed, with an outstanding balance of RMB 22.7 million. This was replaced by a new RMB 234 million loan.

Regarding liquidity, SF REIT’s cash and bank balances increased from HKD 93.5 million to HKD 118 million by the end of 2025; fixed deposits over three months decreased from HKD 40 million to HKD 10 million, and standby bank credit lines were reduced from HKD 450 million to HKD 250 million.

“We will maintain a cautious approach to capital management. The REIT manager will continue to monitor market developments closely and explore acquisition opportunities to expand the portfolio as market conditions improve, aiming to generate sustainable returns for unitholders.” As of now, SF REIT has not made any acquisitions in 2025 and remains in a wait-and-see stance.

Since acquiring the Changsha Industrial Park project in June 2022, SF REIT has not pursued other projects and remains cautious. “A 500-600 million acquisition can be funded with existing capital, but for acquisitions exceeding a billion, the company would need to raise funds through new stock issuance, which depends on market conditions stabilizing.”

Disclaimer: The content and data in this article are compiled by Guandian based on publicly available information and do not constitute investment advice. Please verify before use.