SF REIT Revenue Growth Not Enough to Overcome Fair Value Shift

SF REIT reported a 50 percent decline in net profit in 2023 despite positive revenue growth, as the industrial trust controlled by mainland logistics and transport giant SF Holding saw a smaller gain from fair value changes on investment properties last year.

The Hong Kong-listed owner of three industrial parks in mainland China and a logistics facility in Hong Kong booked net profit of HK$219.5 million last year, while revenue grew 5.6 percent from a year prior to HK$444.9 million, according to the company’s annual results announced Thursday.

“Throughout the year, we faced uncertainties caused by high USD interest rates and geopolitical tensions which presented unprecedented challenges to the overall business environment,” Hubert Chak, chief executive of the trust’s manager SF REIT Asset Management said in a release. “Our proactive asset management approach and the support by SFH Group tenants have ensured a stable occupancy rate in our portfolio.”

The trust is also eyeing “yield accretive” acquisitions to bolster future growth, building on the revenue lift from its 2022 purchase of a Changsha facility.

Stable Occupancy

SF REIT’s portfolio includes facilities in Hong Kong’s Tsing Yi area and the mainland cities of Changsha, Foshan and Wuhu, which together total 427,893 square metres (4.6 million square feet) of gross leasable area, of which 80.1 percent was leased to subsidiaries of SF Holding as of December.

Overall occupancy of the trust’s portfolio dipped by 20 basis points to 98.0 percent last year, while rental reversion saw an 11 percent year-on-year increase.

The Hong Kong facility is the trust’s largest asset, accounting for 73 percent of last year’s revenue and 81 percent of the portfolio’s independently appraised valuation of HK$7.4 billion ($946 million) as of December, with occupancy at the 15-storey property staying flat at 97.3 percent in 2023.

The trust’s overall portfolio saw a marginal valuation rise of 10 basis points in 2023, after RMB depreciation caused the value of its mainland assets to offset a slight 0.7 percent gain on its Hong Kong property.

SF REIT booked in 2023 the first full year contribution from its industrial park in the Hunan provincial city of Changsha after purchasing the property in 2022 for RMB 540 million ($81.2 million) from SF Holding. The 98.9 percent occupied facility accounted for 11 percent of last year’s revenue and 8 percent of portfolio value as of December.

The trust’s remaining properties in Foshan and the Anhui provincial city of Wuhu saw revenue increases of 2.8 percent and 4.2 percent respectively, with the Foshan facility maintaining full occupancy while occupancy at the Wuhu asset declined by 100 basis points to 95.4 percent.

Net property income grew 4.1 percent year-on-year to HK$357.7 million, while distributable income rose 3.7 percent to HK$230 million.

Seeking Acquisition Opportunities

With SF Holding owning a 35 percent stake in SF REIT, the trust is eyeing acquisitions to fuel growth and intends to leverage its relationship with its parent company when pursuing opportunities.

“Our future growth will mainly come from new acquisitions and will adhere to our current investment strategy, maintaining prudence and discipline. We will leverage on our strategic partnership with the SFH Group, which remains fully supportive, and seek investment opportunities in line with our objectives to provide stable and sustainable return to our unitholders,” said Chak.

The trust sees the continued growth of e-commerce in Hong Kong and mainland China as driving demand for logistics assets, supported by mainland China’s recent policy initiatives to boost domestic consumption, as well as Hong Kong’s Action Plan on Modern Logistics Development.

“The e-commerce market, with its significant growth potential, presents a promising opportunity in Hong Kong and mainland China. The demand for high-quality logistics services to meet consumer expectations in this dynamic market will continue to rise,” SF REIT said in the release.