Sunlight Real Estate Investment Trust : Final Results Announcement for the year ended 30 June 2017

The Securities and Futures Commission of Hong Kong, Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

Sunlight Real Estate Investment Trust

(a Hong Kong collective investment scheme authorized under section 104 of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong))

(Stock Code : 435)

Managed by Henderson Sunlight Asset Management Limited

恒基陽光資產管理有限公司

FINAL RESULTS ANNOUNCEMENT FOR THE YEAR ENDED 30 JUNE 2017

The board of directors (the "Board") of Henderson Sunlight Asset Management Limited (the "Manager") is pleased to announce the final results of Sunlight Real Estate Investment Trust ("Sunlight REIT") for the year ended 30 June 2017 (the "Year"). The final results and the consolidated financial statements for the Year have been reviewed by the Audit Committee and the Disclosures Committee of the Manager and were approved by the Board on 5 September 2017.

FINANCIAL HIGHLIGHTS

(in HK$' million, unless otherwise specified)

For the year ended 30 June : 2017 2016 Change (%)

Revenue 788.1 769.7 2.4

Net property income 623.4 608.5 2.5

Cost-to-income ratio (%) 20.9 20.9 N/A

Profit after taxation 743.5 825.3 (9.9)

Annual distributable income 434.5 415.0 4.7

Distribution per unit (HK cents)1 33.0 24.3 35.8

Payout ratio (%)1 & 2 124.3 95.8 N/A

At 30 June :

Portfolio valuation	17,062.4	16,651.0	2.5
Net asset value	13,899.5	13,518.1	2.8
Net asset value per unit (HK$)	8.49	8.26	2.8
Gearing ratio (%)	21.5	21.9	N/A

Notes :

1. Including a special distribution of HK 7.5 cents in 2017.

2. Payout ratio for 2017 would have been 96.1% if the special distribution were excluded.

   PORTFOLIO STATISTICS

   Operational Statistics Property Financials
   Occupancy	Passing Rent 1	Capitalization Rate at	Appraised Value at
   Property	at 30 June	at 30 June	Rental Reversion 2	Net Property Income	30 June 2017	30 June 2017
   (%) (HK$/sq. ft.) (%) (HK$'000) (%) (HK$'000)

   Office

   Grade A

   2017 2016 2017 2016 FY2016/17 FY2015/16 FY2016/17 FY2015/16 Office Retail

   Sunlight Tower 99.1 99.7 36.4 35.3 11.9 11.7 167,385 163,577 3.85 3.75 4,807,000

   Grade B

   Bonham Trade Centre 96.1 95.1 28.9 27.7 11.5 18.0 36,734 35,275 3.65 4.00 1,141,000

   Righteous Centre 93.4 98.1 34.7 41.5 7.7 13.2 23,007 24,555 3.95 3.60 586,000

   Winsome House Property 85.9 97.1 42.9 41.0 11.2 5.7 17,204 17,378 3.65 3.80 582,100

   135 Bonham Strand Trade Centre Property 100.0 98.7 26.6 26.0 5.0 16.5 17,302 17,029 3.65 4.00 557,000

   235 Wing Lok Street Trade Centre 98.9 96.4 20.8 19.9 10.3 17.3 11,557 11,046 3.65 4.00 376,000

   Java Road 108 Commercial Centre 96.1 94.2 24.1 23.3 8.5 13.3 8,761 8,688 3.95 4.20 278,000

   On Loong Commercial Building 3 92.0 94.0 30.9 30.3 6.3 8.7 8,401 7,780 3.85 3.90 263,000

   Sun Fai Commercial Centre Property 100.0 97.1 21.7 22.2 1.6 4.2 5,607 5,633 4.00 4.25 175,000

   Wai Ching Commercial Building Property 94.5 100.0 13.8 13.2 10.3 18.8 2,081 1,851 3.75 4.10 70,600

   Sub-total/Average 97.3 98.0 32.0 31.6 10.1 12.7 298,039 292,812 8,835,700

   Retail

   New Town

   Sheung Shui Centre Shopping Arcade 91.7 77.6 4

   118.4 131.75

   3.9 17.7 163,093 155,952 N/A 4.40 4,020,000

   Metro City Phase I Property 98.7 98.4 54.1 51.8 14.5 17.4 121,700 117,381 N/A 4.50 2,986,000

   Kwong Wah Plaza Property 100.0 100.0 49.6 50.0 (3.7) 23.8 33,672 33,541 3.85 3.80 1,008,000

   Urban

   Beverley Commercial Centre Property 96.7 96.6 45.1 51.3 (14.2) (3.2) 3,952 4,441 N/A 4.30 110,100

   Supernova Stand Property 100.0 100.0 54.0 47.8 15.0 N/A 2,342 2,329 N/A 4.00 64,300

   Palatial Stand Property 75.2 75.2 12.0 12.0 N/A 0.0 648 83 N/A 4.35 38,300

   Total/Average (excluding the disposed properties)	96.9 95.9	44.9 44.2	7.1 15.3 623,446	606,539
   Disposed properties	N/A	1,957
   Total	623,446	608,496

   Sub-total/Average 96.2 91.7 71.3 71.6 5.3 18.2 325,407 313,727 8,226,700

   17,062,400

   Notes : 1. Passing rent is calculated on the basis of average rent per sq. ft. for all occupied gross rentable area on the relevant date.

3. Rental reversion is calculated on the basis of change in effective rent of the leases renewed and commenced during the relevant year.

4. Sunlight REIT acquired the remaining interests in On Loong Commercial Building and has become the sole owner of the building with effect from 3 August 2015.

5. Excluding the renovated area of approximately 26,000 sq. ft. at Sheung Shui Centre Shopping Arcade, the occupancy would have been 98.5%.

6. The renovated area at Sheung Shui Centre Shopping Arcade is excluded from the calculation.

- 2 -

PERFORMANCE HIGHLIGHTS

For the Year, Sunlight REIT recorded a 2.5% year-on-year increase in net property income to HK$623.4 million. Thanks to the Manager's success in containing the rise in operating costs and interest expenses, however, annual distributable income expanded at a faster rate of 4.7% to HK$434.5 million.

The Board has resolved to declare a final distribution of HK 13.3 cents per unit. Further, in light of the strong financial position of Sunlight REIT particularly following the strategic asset disposal which took place in 2015, the Board has also declared a special distribution of HK 7.5 cents per unit. Coupled with an interim distribution of HK 12.2 cents per unit, the total distribution per unit ("DPU") for the Year would amount to HK 33.0 cents, up 35.8% year on year. The implied payout ratio for the Year is 124.3% (or 96.1% if excluding the special distribution), compared with 95.8% in the preceding year.

Given firmer commercial property prices and rental improvement, the value of Sunlight REIT's property portfolio at 30 June 2017 was appraised at HK$17,062.4 million, which was 2.5% higher than a year ago. Meanwhile, the net asset value of Sunlight REIT rose by 2.8% to HK$13,899.5 million at 30 June 2017, which was equivalent to HK$8.49 per unit (30 June 2016: HK$8.26 per unit).

Capitalizing on an auspicious liquidity environment, the Manager opted to refinance the existing term loan facilities of Sunlight REIT expiring between 2017 and 2020 all at once during the Year. Not only was the refinancing concluded at a favourable loan interest margin, it was also structured with a clear strategic intention of bolstering the unencumbered asset base of Sunlight REIT through initiating an exposure to unsecured lending.

MANAGEMENT DISCUSSION AND ANALYSIS

Review of Operations

The overall portfolio of Sunlight REIT recorded an average occupancy of 96.9% at 30 June 2017 (30 June 2016: 95.9%Note). The occupancies of the office and retail portfolios were 97.3% and 96.2% (30 June 2016: 98.0% and 91.7%Note) respectively, while their retention rates

stood at 68% and 73% (FY2015/16: 73% and 65%).

Average passing rent of the office portfolio was HK$32.0 per sq. ft. at 30 June 2017, up 1.3% year on year, while that of the retail portfolio was HK$71.3 per sq. ft., a decrease of 0.4% from a year ago. During the Year, rental reversions of 10.1% and 5.3% were secured by the office and retail portfolios respectively.

A strictly disciplined approach has been adopted in keeping Sunlight REIT's costs under control. Amid inflationary pressure notably caused by the mandatory minimum wage requirement, the overall cost-to-income ratio was 20.9% for the Year, same as the preceding financial year. The stability in this ratio was partly attributable to savings from efficient energy consumption and budgetary measures, which offset rising labour costs as well as higher rental commissions incurred when bringing in new tenants to the revamped Sheung Shui Centre Shopping Arcade ("SSC").

Note : Excluding the renovated area at Sheung Shui Centre Shopping Arcade, the occupancies for the overall portfolio and retail portfolio at 30 June 2016 would have been 98.1% and 98.2% respectively.

Sunlight Tower

Despite heightened competition from Kowloon East and Wong Chuk Hang as alternative inexpensive office locations, the occupancies and rentals of office buildings in Wan Chai/Causeway Bay have remained firm, mainly because corporations by and large continue to see proximity to the traditional core business districts as another important consideration (in addition to rental savings). As such, Sunlight Tower, an appealing choice for institutional and corporate tenants, continued to perform well. For the Year, this flagship property achieved a rental reversion of 11.9% and a satisfactory retention rate of 62%. At 30 June 2017, its occupancy rate was 99.1%, while passing rent rose 3.1% to HK$36.4 per sq. ft..

More encouragingly, the Manager is pleased to report that the largest tenant of the building has renewed its leases for another three years commencing in the first quarter of FY2017/18 at an 11.9% rental reversion.

Sheung Shui Centre Shopping Arcade

The HK$25 million refurbishment programme at SSC completed in late 2016 has clearly brought freshness to shoppers, with the revamped area now hosting an attractive variety of stylish eateries as well as general retail outlets, nicely complementing the core non-discretionary trades and services of SSC such as healthcare, education and banking.

At end-June 2017, the average rent of the renovated area (which was 89% occupied) was 21% higher than the level prior to renovation; specifically, the rental improvement as compared to the previous restaurant lease (which accounted for 78% of the area) was about 73%. The return on investment of this project is estimated at approximately 16%.

On balance, the occupancy of SSC for the Year was slightly lower than expected, principally reflecting the impact of the space reconfiguration programme, an early lease termination by a bank tenant and the still cautious retail sentiment. While the rental environment is expected to steadily improve in tandem with stabilizing consumer spending, the Manager is keenly aware of the importance of introducing innovative retail concepts to maintain the competitiveness and to enhance the vitality of the shopping mall. As a case in point, the establishment of pop-up stores will be a concept actively explored, as it can help the Manager grasp prevailing consumer preferences and achieve an optimal trade mix when committing long-term leases ahead.

Metro City Phase I Property ("MCPI")

MCPI continued to benefit from a conscientious rebalancing of its tenant mix in response to changing retail trends. In particular, the effort of streamlining the trade mix composition on the ground floor of the shopping complex has scored success. This exercise involved the reconfiguration of space equivalent to approximately 7% of gross rentable area (previously occupied by a kindergarten), with a view to accommodating more dining and healthcare outlets. In addition to encouraging patronage subsequent to re-opening, it has also resulted in an almost 60% increase in rental contribution from this designated space.

Going forward, the Manager will continue to explore value adding benefits for MCPI. In particular, the upcoming chiller plant replacement programme which is targeted for completion at mid-2018, is expected to bring in long-term benefits both in terms of cost saving and environmental friendliness.