Sunlight Real Estate Investment Trust : Final Results Announcement for the year ended 30 June 2019

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 2019

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 2019 (the "Year").

FINANCIAL HIGHLIGHTS

(in HK$' million, unless otherwise specified)

	2019j	2018	Change
			(%)
For the year ended 30 June :	850.7
Revenue	817.4	4.1
Net property income	682.5	646.1	5.6
Cost-to-income ratio (%)	19.8	21.0	N/A
Profit after taxation	1,591.1	1,442.3	10.3
Annual distributable income	467.3	450.5	3.7
Distribution per unit (HK cents)	27.3	26.5	3.0
Payout ratio (%)	96.4	96.7	N/A
At 30 June :	20,002.5
Portfolio valuation	18,754.8	6.7
Net asset value	15,991.9	14,857.0	7.6
Net asset value per unit (HK$)	9.68	9.03	7.2
Gearing ratio (%)	20.4	21.8	N/A

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PORTFOLIO STATISTICS

					Operational Statistics							Property Financials
					Passing Rent 1									Capitalization
	Occupancy Rate			Rental Reversion 2							Rate at			Appraised Value at
Property	at 30 June				at 30 June					Net Property Income			30 June 2019		30 June 2019
	(%)				(HK$/sq. ft.)		(%)			(HK$'000)			(%)			(HK$'000)
Office	2019	2018	2019	2018		FY2018/19	FY2017/18			FY2018/19	FY2017/18			Office	Retail
Grade A
Sunlight Tower	98.2	98.5	39.6	38.2		13.5	10.4	181,162	170,628	3.75	3.65	5,294,300
Grade B	68.44
Bonham Trade Centre 3	93.0	31.8	29.8		10.6	9.1	32,532	36,065	3.45	3.80	1,311,400
The Harvest 5	96.4	100.0	51.2	47.3		N/A	N/A	16,643	10,284	3.10	2.90	730,800
135 Bonham Strand Trade Centre Property	100.0	100.0	29.4	27.6		12.6	8.6	18,681	18,648	3.45	3.80	671,000
Winsome House Property	100.0	100.0	43.8	42.8		6.5	4.0	19,040	17,321	3.45	3.60	652,700
Righteous Centre	100.0	98.8	36.3	34.5		8.5	(15.1)	20,523	19,368	3.75	3.40	621,700
235 Wing Lok Street Trade Centre	93.8	96.0	22.6	21.7		9.2	8.1	12,330	11,509	3.45	3.80	432,600
Java Road 108 Commercial Centre	96.1	94.2	26.4	24.7		7.1	8.0	10,112	8,965	3.75	4.00	321,200
On Loong Commercial Building	100.0	100.0	31.6	30.4		8.6	5.5	9,132	8,742	3.65	3.70	294,600
Sun Fai Commercial Centre Property	100.0	100.0	22.7	21.6		9.1	(2.3)	5,856	5,613	3.80	4.05	193,800
Wai Ching Commercial Building Property	97.2	100.0		16.1	14.5		20.8	8.8		2,019	2,195			3.55	3.90		85,100
Sub-total/Average	94.0	97.8	35.5	33.8		11.4	6.9	328,030	309,338					10,609,200
Retail
New Town
Sheung Shui Centre Shopping Arcade	98.1	98.9	118.4	115.9		13.4	3.8	172,310	161,204			N/A	4.30	4,617,200
Metro City Phase I Property	98.9	99.8	57.5	55.8		11.5	10.5	139,913	133,062			N/A	4.40	3,332,610
Kwong Wah Plaza Property 6	100.0	100.0	54.3	52.1		9.6	21.8	36,972	35,958	3.60	3.60	1,257,600
Urban
Beverley Commercial Centre Property	62.9	82.9	45.6	44.5		(0.2)	(6.2)	2,674	3,485			N/A	4.10	111,200
Supernova Stand Property	100.0	100.0		54.5	54.0		7.7	N/A		2,638	2,637			N/A	3.80		74,700
Sub-total/Average	98.1	99.2	75.8	73.9		11.4	8.0	354,507	336,346					9,393,310
Total/Average
95.3	98.2	48.6	46.5		11.4	7.4	682,537	645,684					20,002,510
Palatial Stand Property												N/A	377
Total										682,537	646,061

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

1. Rental reversion is calculated on the basis of change in effective rent of the leases renewed and commenced during the relevant year.
2. The property has been renamed Strand 50 with effect from 1 September 2019.
3. Excluding the renovated area, the occupancy rate would have been 95.4%.
4. The property was previously known as Fung Shun Commercial Building.
5. Additional office units with gross rentable areas of 1,870 sq.ft. and 644 sq.ft. were acquired on 7 September 2018 and 25 April 2019 for approximately HK$29 million and HK$10 million respectively.
6. • 2 -

PERFORMANCE HIGHLIGHTS

Sunlight REIT delivered a satisfactory set of results amidst a whirlwind of global economic uncertainty, as reflected by a 5.6% year-on-year rise in net property income ("NPI") to HK$682.5 million. Annual distributable income recorded a 3.7% growth to HK$467.3 million.

The Board has resolved to declare a final distribution of HK 14.1 cents per unit. Coupled with an interim distribution of HK 13.2 cents per unit, the total distribution per unit ("DPU") for the Year amounts to HK 27.3 cents, up 3.0% year on year. The implied payout ratio is 96.4%, compared with 96.7% in the preceding year.

At 30 June 2019, Sunlight REIT's property portfolio was appraised by the principal valuer Note at HK$20,002.5 million, 6.7% higher than a year ago. Net asset value consequently rose 7.6% to HK$15,991.9 million at 30 June 2019, or HK$9.68 per unit (30 June 2018: HK$9.03 per unit).

MANAGEMENT DISCUSSION AND ANALYSIS

Review of Operations

The overall portfolio of Sunlight REIT recorded an average occupancy rate of 95.3% at 30 June 2019 (30 June 2018: 98.2%). The occupancy rates of the office and retail portfolios were 94.0% and 98.1% (30 June 2018: 97.8% and 99.2%) respectively, while their corresponding retention rates stood at 64% and 74% (FY2017/18: 74% and 80%).

Average passing rent of the office portfolio was HK$35.5 per sq. ft. at 30 June 2019, up 5.0% year on year, while that of the retail portfolio rose 2.6% to HK$75.8 per sq. ft.. Average rental reversion of the portfolio was 11.4%.

The Manager maintained a high level of discipline in cost control. The cost-to-income ratio improved from 21.0% to 19.8%, partly due to lower rental commissions reflecting relatively fewer leasing activities during the Year.

Sunlight Tower

Wan Chai/Causeway Bay remained an appealing choice for corporate tenants. Sunlight Tower, as an award-winning Grade A office property situated at the south side of Wan Chai, continued to benefit from the office decentralization momentum and stable leasing environment. This flagship property of Sunlight REIT achieved an encouraging rental reversion of 13.5% with a high retention rate of 78%, contributing to a 6.2% year-on-year growth in NPI to HK$181.2 million. At 30 June 2019, its occupancy rate was 98.2%, while passing rent rose 3.7% to HK$39.6 per sq. ft..

Sunlight Tower has maintained a well-balanced tenant base, including government-related organizations and a diverse range of multinational enterprises. At 30 June 2019, the total number of leases at Sunlight Tower was 70 (30 June 2018: 72).

Note : Colliers International (Hong Kong) Limited

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Sheung Shui Centre Shopping Arcade ("SSC")

SSC achieved a stable growth in revenue and NPI amidst a retrenchment in consumer spending. Supported by a 13.4% rental reversion and effective cost-saving measures, NPI grew 6.9% year on year to HK$172.3 million. Occupancy rate stood at 98.1% while passing rent rose 2.2% to HK$118.4 per sq. ft. at 30 June 2019.

Looking forward, 47.4% of SSC's gross rentable area will expire in the next financial year, mainly relating to the area which was revamped in late 2016. The Manager will continue to fine-tune the tenant mix to maintain SSC as one of the most reputable shopping malls in the northern New Territories.

Metro City Phase I Property ("MCPI")

MCPI registered a 5.1% growth in NPI to HK$139.9 million on the back of a rental reversion of 11.5%; passing rent rose 3.0% year on year to HK$57.5 per sq. ft.. The steady performance reflected the continued efforts in trade mix optimization, effectively positioning MCPI as a defensive service-oriented retail destination in the district. At 30 June 2019, the occupancy rate was 98.9% (30 June 2018: 99.8%).

The replacement of the chiller plant system in April 2018 made a meaningful contribution to cost savings. Despite an increase in electricity tariff and a higher average temperature, the Manager managed to reduce the electricity costs at MCPI by approximately 11% for the Year.

Strand 50 Note

Due to the asset enhancement works which commenced in April 2019, NPI of Strand 50 dropped by 9.8%, while occupancy rate declined to 68.4% at 30 June 2019, or 95.4% if the area vacated for renovation were excluded. However, the property was able to register a rental reversion of 10.6% while the passing rent rose 6.7% to HK$31.8 per sq. ft.. Based on the long term lease signed with theDesk and the renovation budget of HK$50 million, a return on investment of approximately 15% is currently expected.

Financial Review

Operating Results and Financial Ratios

Sunlight REIT recorded a 4.1% growth in revenue for the Year to HK$850.7 million. Property operating expenses were HK$168.2 million which gave rise to an NPI of HK$682.5 million, up 5.6% year on year.

Finance costs increased 38.2% year on year to HK$103.1 million, of which cash interest expenses went up 29.3% to HK$95.7 million. A higher interest rate environment, the expiry of certain low-cost interest rate swaps ("IRSs") and the additional funding costs relating to the acquisition of The Harvest were the major factors for the increase. However, interest income rose 69.1% to HK$16.8 million, partly the result of an expanded bond portfolio.

Note : The property was previously known as Bonham Trade Centre.

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Taking into account the fair value gain on investment properties of HK$1,194.0 million, profit after taxation for the Year was HK$1,591.1 million (FY2017/18: HK$1,442.3 million).

At 30 June 2019, the gearing ratio of Sunlight REIT (defined as total borrowings as a percentage of gross assets) improved to 20.4% (30 June 2018: 21.8%), while gross liabilities1 as a percentage of gross assets dropped to 23.1% (30 June 2018: 24.3%).

The EBITDA2 of Sunlight REIT grew 6.9% year on year to HK$581.6 million. In light of the faster increase in interest expenses, the interest coverage ratio for the Year decreased to 6.1 times as compared with 7.4 times recorded in the previous financial year.

Distribution

Total distributions for the Year amounts to HK$450.3 million, up 3.4% year on year. The full-year DPU of HK 27.3 cents represents a distribution yield of 4.6% based on the closing price of HK$5.99 on the last trading day of the Year.

Distribution at a Glance

(HK cents)

		7.50
	1.05	1.05	0.91	1.03
0.95		26.50	27.30
24.30	25.50
22.00
2014/15	2015/16	2016/17	2017/18	2018/19

Financial year

Special distribution

Portion of distributable income retained

Interim and final distributions

Capital and Interest Rate Management

Sunlight REIT had loan facilities of HK$4,850.0 million in place at 30 June 2019, comprising term loan facilities of HK$4,250.0 million ("Term Loan Facilities") which had all been drawn, and uncommitted revolving credit facilities of HK$600.0 million that remained undrawn.

Notes :

1. Gross liabilities include total borrowings, tenants' deposits and other liabilities.
2. EBITDA represents net earnings before change in fair value of investment properties, interest expenses, taxation, depreciation and amortization. Any gain on disposals of investment properties and subsidiaries would be excluded from the calculation.
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