Multiple Hong Kong Stock REITs Release Financial Reports: Retail Performance Under Pressure, Inter-Connect Progress Generates Expectations

During the National People’s Congress and the Chinese People’s Political Consultative Conference, Hong Kong Legislative Council member Chen Zhongni mentioned that including REITs in the interconnection mechanism would introduce mainland liquidity and activate the Hong Kong REITs market. This statement has once again sparked market attention on the future development of Hong Kong REITs.

Recently, several Hong Kong-listed REITs disclosed their annual results. Data shows that overall performance remains constrained by the retail sector’s winter, but significantly lower financing costs have provided some support, and the market has high hopes for the upcoming REITs interconnection mechanism.

Retail Sector Winter Weighs on Income

Recently, Hong Kong REITs have been releasing financial reports. Among them, Link Real Estate Investment Trust (00823.HK) achieved a revenue of HKD 7.023 billion in the first half of fiscal year 2025/2026, a slight decrease of 1.8% year-on-year; net property income was HKD 5.178 billion, down 3.4%; total distributable income was HKD 3.283 billion, down 5.6%; and distribution per unit was HKD 126.88 cents, down 5.9%.

The management stated in the financial report that rising costs, weak consumer sentiment, and increased market competition continue to pressure retail tenants, especially in general retail, supermarkets, and Chinese restaurants. Although signs of recovery in Hong Kong’s market and consumer atmosphere have appeared, it will still take time for sales growth to translate into rental income increases.

In fact, this is a common challenge faced by Hong Kong REITs. Under this context, most disclosed REITs have seen declines in income and distributable earnings.

For example, Prosperity Real Estate Investment Trust (00778.HK) saw total revenue decrease by 3.7% year-on-year, net property income down 5.2%, total distributable income slightly down 0.1%, and distribution per unit at HKD 35.22 cents, down 1%. Champion REIT (02778.HK) experienced a 9% decline in rental income, an 11.4% drop in net property income, a 10.4% decrease in distributable income, and distribution per unit at HKD 12.63 cents, down 11.2%. Sunlight REIT (00435.HK) recorded a 4.8% decrease in total revenue and a 5.3% decline in net property income, with distributable income down 2.1%, and annual distribution per unit at HKD 18.2 cents.

However, amidst this downward trend, SF Holding REIT (02191.HK) was the only fund to achieve positive growth. Its annual report shows total revenue of HKD 460 million, up 2%; net property income of HKD 384 million, up 6.2%; and total distributable income of HKD 240 million, up 2.4%. This is mainly due to its unique asset portfolio—comprising four modern logistics properties located in Chai Wan (Hong Kong), Changsha (Hunan), Foshan (Guangdong), and Wuhu (Anhui). All four properties were initially developed by SF Group and are suited to support its members’ logistics operations, demonstrating a counter-cyclical characteristic different from retail REITs.

Benefiting from the decline in Hong Kong interbank offered rates, financing costs for Hong Kong REITs have generally decreased, becoming a key factor supporting performance. According to Hong Kong Securities and Futures Commission regulations, REITs must distribute at least 90% of annual income as dividends, leaving limited funds for reinvestment, making them highly sensitive to changes in financing costs.

For example, the annual report shows Yuexiu Property Trust (00405.HK) actively optimized its financing structure during the market rate decline, with an average interest rate of 3.77%, a decrease of 76 basis points from the previous year; the end-of-period financing cost further dropped to 3.61%, a three-year low, saving approximately RMB 150 million in financing costs annually. Yuexiu Property Trust is the first Hong Kong-listed REIT investing in mainland China properties.

Additionally, Prosperity REIT’s actual borrowing cost has fallen to 3.5%, and Sunlight REIT’s weighted average financing cost has decreased from 4.2% to 3.5%, significantly reducing interest expenses and offsetting the decline in net property income.

Attention on REITs Interconnection Progress

Since the China Securities Regulatory Commission announced on April 19, 2024, that REITs would be included in the Shanghai-Hong Kong-Shenzhen Connect mechanism, the process has attracted much attention. Hong Kong society has expressed keen anticipation in various public forums.

Last June, at the Asia Traders Forum Annual Conference and Stock Trading Summit 2025, Hong Kong Securities and Futures Commission Chairman Huang Tianyou revealed that in the future, the securities regulators of both regions will consider fully optimizing the Shanghai-Hong Kong-Shenzhen Connect, including more products such as Hong Kong-listed RMB counters, REITs, and ETFs.

On February 25, 2026, Hong Kong SAR Financial Secretary Paul Chan announced in the Legislative Council that the government aims to quickly implement the inclusion of REITs in the interconnection mechanism.

Currently, there are 11 REITs listed in Hong Kong. In total, these have a market value of HKD 142.7 billion, with Link Real Estate Investment Trust being the largest at HKD 96.7 billion—also the first REIT listed in Hong Kong. The next largest are Champion REIT and Prosperity REIT, each with a market value exceeding HKD 10 billion. The smallest is Fortune REIT (01881.HK), with about HKD 1.1 billion.

Including REITs in the Shanghai-Hong Kong-Shenzhen Connect will, on one hand, enhance market liquidity for Hong Kong REITs, leading to a long-term valuation re-evaluation, and on the other hand, provide more options for mainland investors. Over the past two years, mainland investors’ preference for high-dividend assets has increased. Against the backdrop of rising valuations of high-dividend assets in A-shares, the dividend yields of Hong Kong REITs are highly attractive to mainland capital.

“Integrating REITs into the Shanghai-Hong Kong-Shenzhen Connect is a major breakthrough in capital market interconnection, with profound market impact and strategic significance,” said Wang Guolong, CEO of Link Group. He added that this will help consolidate Hong Kong’s status as an international financial center and attract the large and rapidly growing group of individual and institutional investors from mainland China, boosting market activity and improving overall liquidity.

(This article is from Yicai)