Bank of Communications International has issued a research report reducing the target price for SF REIT (02191) by 18.75%, from HK$3.84 to HK$3.12, while maintaining a "Buy" rating. The adjustment is based on the actual impact of revised rental levels following lease renewals, leading to lowered revenue and distribution forecasts. The recent stock price is believed to largely reflect the effects of the lease renewals, while its dividend yield of approximately 9% remains somewhat attractive. SF REIT demonstrated stable operations in 2025. Full-year adjusted revenue increased by 2% year-on-year to HK$460.4 million, while adjusted net property income rose by 6.2% to HK$383.7 million, primarily due to effective cost control. Property operating expenses decreased by 15% year-on-year to HK$76.7 million, with property management fees and maintenance costs falling by 11.4% and 52.7%, respectively. Distributable revenue grew by 2.4% to HK$240 million, with an annual distribution per unit of HK26.33 cents and a distribution payout ratio of 90%. Affected by market adjustments, the valuation of the property portfolio declined by 8.3% year-on-year to HK$6.171 billion, and net asset value per unit dropped to HK$3.88. The company's occupancy rate stood at 96.9% at the end of 2025, down 1.1 percentage points from the previous year but still high relative to industry peers. Total liabilities at the end of 2025 amounted to HK$3.2285 billion, a decrease of 2.2% from the prior year, while the debt-to-asset ratio reached 38.5%, up 2.6 percentage points year-on-year. The company’s lease renewal agreements have brought rents back to market levels. In March 2026, SF REIT completed lease renewals with the SF Group, covering 83.9% of total leasable area, with lease terms ranging from two to five years. Key adjustments in the renewal terms include a 20–45% reduction in rent and management fees, a decrease in annual rental growth to 0–2% (previously 3–5%), and clarified renewal options and termination clauses. The rent reductions are expected to suppress revenue in the short term, with projections indicating year-on-year declines of 14.3% and 7.3% in 2026 and 2027, respectively. However, in the long term, the successful renewals secure key tenants, mitigating significant vacancy risks, and the alignment of rental levels with market standards supports long-term income stability.
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