[Zhenzhuo Hong Kong Stock Experts] Fortune REIT (00778.HK) Attractive dividends and valuations amid continued global interest rate cuts

$FORTUNE REIT(00778.HK) released its 2025 interim report, showing revenue of HK$854.4 million for the six months ended June 30, 2025, a year-on-year decrease of 2.0%, while net property income was HK$612.6 million, down 3.2% year-on-year. Distributable income was HK$377.1 million, up 2.1% year-on-year. Distribution per unit was HK18.41 cents, up 1.0% year-on-year. In addition, regarding the group's operations and asset status (as of June 30, 2025), the group's occupancy rate was approximately 95.0%, flat compared to the end of 2024, remaining at a high level. The gearing ratio was 26.2%, up 1.4 percentage points from the end of 2024, while net asset value per unit was HK$12.67.

Based on the interim data analysis, Fortune REIT's rental pressure continued but moderated in 2025. Poon Tiksan, Vice Chairman of the Hong Kong Stock Analysts Association, estimated that the group's occupancy rate would remain resilient, with the company's occupancy rate stable at around 95% and the rental decline continuing to narrow. Looking ahead to 2026, the interest rate environment is expected to improve further, with about 50% of the company's liabilities being floating rate, linked to HIBOR. This directly helped reduce financing costs. It is estimated that the cost of capital will stabilize at around 4% in 2025. The savings in financing costs effectively cushioned the impact of rental income decline on distributable income. The group's HK$300 million asset enhancement projects, such as "+WOO Lakeside," were completed in 2024, and the effects on rental growth and foot traffic will gradually materialize.

In addition, the Fed's rate cut cycle may further boost the Hong Kong REITs sector. Furthermore, if the group is included in the "Stock Connect" program, it will attract incremental capital from the mainland. Therefore, the author suggests investors consider buying at HK$4.98, with a target price of HK$5.50 and a stop-loss at HK$4.80.

Poon Tiksan

Vice Chairman, Hong Kong Stock Analysts Association

(I do not hold the relevant shares, but my clients do)