Infusing Sustainability
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Stock Code : 435 Infusing Sustainability Annual Report 2018/19 Highlights of the Year • A satisfactory set of results supported by respectable rental reversion and effective cost control • The office portfolio continued to benefit from the momentum in decentralization, while key retail assets turned in a decent performance despite a slowdown in consumer spending • The rebranding cum asset enhancement initiatives at Strand 50 and The Harvest are poised to bring reasonable benefits to Unitholders Performance Highlights Appraised property value Revenue (HK$’ million) (HK$’ million) 20,003 850.7 30 June 2019 FY2018/19 30 June 2018 18,755 FY2017/18 817.4 Net property income Distribution per unit (HK$’ million) (HK cents) 682.5 27. 3 FY2018/19 FY2018/19 FY2017/18 646.1 FY2017/18 26.5 Net asset value per unit Gearing (HK$) (%) 9.68 20.4 30 June 2019 30 June 2019 30 June 2018 9.03 30 June 2018 21.8 Contents Overview 2 Who We Are : In Brief 4 Chairman’s Statement 6 CEO’s Report 10 Portfolio at a Glance Management Discussion and Analysis 12 Portfolio Statistics 14 Business Review 26 Financial Review Overview Corporate Governance 30 Environmental, Social and Governance Report 52 Board of Directors and Senior Management 58 Corporate Governance Report Management Discussion and Analysis 76 Connected Party Transactions 79 Disclosure of Interests Financial and Other Information 82 Valuation Report 100 Trustee’s Report 101 Independent Auditor’s Report 106 Consolidated Financial Statements 155 Performance Table 156 Notice of Annual General Meeting 158 Financial Calendar 159 Corporate Information Corporate Governance Forward-looking Statements This annual report contains certain statements and terminologies that are forward-looking. These statements are made on the basis of the current beliefs, Financial and Other Information assumptions, expectations and projections of the board of directors (the “Board”) and senior management of Henderson Sunlight Asset Management Limited (the “Manager”) regarding the industry and sectors in which Sunlight Real Estate Investment Trust (“Sunlight REIT”) operates. They are subject to risks, uncertainties and other factors beyond the Manager’s control, the emergence of which may cause actual results or performance to differ materially from those expressed or implied in such statements. 001 Who We Are : In Brief Sunlight REIT’s unit price performance (at 30 June 2019) Total returnNote (%) 1-year 3-year 5-year Since listing Sunlight REIT 16.0 59.4 142.8 477.1 Hang Seng Index 2.5 52.3 47.4 129.0 Hang Seng Index - Properties 14.8 61.3 75.1 178.3 Hang Seng REIT Index 20.8 54.8 106.4 240.7 Source : Bloomberg Our Business Annualized total return to investors since listing Sunlight REIT is a real estate investment trust authorized by the Securities and Futures Commission (the “SFC”), and constituted by the trust deed dated 26 May 2006 (as amended and supplemented by six supplemental deeds) (the “Trust Deed”). The trustee of Sunlight REIT 15.0% (the “Trustee”) is HSBC Institutional Trust Services (Asia) Limited. Listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) on 21 December 2006, the areas with high population density. At 30 June 2019, market capitalization of Sunlight REIT was approximately Sunlight REIT’s portfolio was appraised by its principal HK$9,894 million at 30 June 2019. valuer, Colliers International (Hong Kong) Limited (the “Principal Valuer”) at HK$20,002.5 million, with office Sunlight REIT offers investors the opportunity to invest and retail properties accounting for 53.0% and 47.0% of in a diversified portfolio of 11 office and five retail total valuation respectively. properties in Hong Kong with a total gross rentable area (“GRA”) of over 1.2 million sq. ft.. The office Our Management properties are primarily located in core business areas, An indirect wholly-owned subsidiary of Henderson including Wan Chai and Sheung Wan/Central, as well as Land Development Company Limited (“HLD”), the in decentralized business areas such as Mong Kok and Manager is responsible for managing Sunlight REIT in North Point. The retail properties are situated in regional accordance with the Trust Deed in the sole interest of transportation hubs and new towns including Sheung the unitholders of Sunlight REIT (“Unitholders”). It is Shui, Tseung Kwan O and Yuen Long, as well as in urban also responsible for ensuring compliance with the Code on Real Estate Investment Trusts (the “REIT Code”), the Portfolio composition by appraised value Trust Deed, applicable provisions of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) and the Rules Governing the Listing of Securities on the Stock Exchange, as well as other relevant laws 47.0% and regulations. Henderson Sunlight Property Management Limited (the “Property Manager”) has been delegated with the responsibilities of providing property management, 53.0% lease management and marketing services solely and exclusively for the properties of Sunlight REIT located Office Retail in Hong Kong, subject to the overall management and supervision of the Manager. Note : Total return is the holding period return with dividends (or distributions in the case of Sunlight REIT) reinvested in the relevant security. 002 Sunlight REIT annual report 2018/19 ValuationNote and net property income (HK$’ million) Valuation Net property income 20,000 700 18,000 600 16,000 500 Valuation 2014/15 2015/16 2016/17 2017/18 2018/19 Net property income Financial year Our Strategy Our Strength Overview The key objectives of the Manager are to provide Sunlight REIT has established a solid track record in Unitholders with regular and stable cash distributions, delivering growth in rental income and portfolio value and the potential for sustainable growth of such since inception. Its defensive qualities are supported by distributions and long-term enhancement in capital a competent management team which places a strong value of the properties. The Manager has identified the emphasis on asset enhancement, financial management Management Discussion and Analysis following business areas for which proactive strategies and corporate governance. Further, Sunlight REIT has have been implemented to ensure the accomplishment received unwavering support from its sponsors, namely, of these objectives : Shau Kee Financial Enterprises Limited (“SKFE”) and HLD, which collectively owned 39.7% of the total Operational management and asset enhancement number of units of Sunlight REIT (“Units”) in issue at The Manager works closely with the Property Manager 30 June 2019. to develop proactive leasing strategies, cost saving solutions and asset enhancement initiatives aimed at improving the rental income and unlocking the value of Unitholding structure the properties. (30 June 2019) Investment and acquisition growth The Manager seeks to acquire income-producing Corporate Governance investment properties which would enhance returns through accretion in distribution yield, sustainable growth 45.6% 39.8% in distributions and/or long-term enhancement in capital value. The Manager also considers from time to time fine-tuning the portfolio through divestment of non-core assets for more attractive investment alternatives. 14.6% Capital and business management In support of the operational and acquisition growth SKFE, HLD and directors of the Manager Financial and Other Information strategies of Sunlight REIT, the Manager has in place an Silchester International Investors LLP efficient capital management strategy, characterized by Free float the appropriate use of equity and leverage. It has also established a solid business management framework which includes sound corporate governance practices, effective risk management and internal control systems, reliable management information systems as well as an experienced work force. Note : Valuation for FY2015/16 and FY2017/18 excluded three disposed properties and included one acquired property respectively. 003 Chairman’s Statement During the Year, the Manager continued to devote substantial resources on asset enhancement, while forging strategic leasing partnerships in ensuring the income sustainability of Sunlight REIT. AU Siu Kee, Alexander Chairman On behalf of the Board, I have the pleasure of presenting At 30 June 2019, Sunlight REIT’s property the results of Sunlight REIT for the financial year ended portfolio was appraised by the Principal Valuer 30 June 2019 (the “Year”). at HK$20,002.5 million, 6.7% higher than a year ago. Net asset value consequently rose 7.6% to Sunlight REIT delivered a satisfactory set of results HK$15,991.9 million at 30 June 2019, or HK$9.68 per amidst a whirlwind of global economic uncertainty, as Unit (30 June 2018: HK$9.03 per Unit). Based on the reflected by a 5.6% year-on-year rise in net property closing price of HK$5.99 on the last trading day of the income (“NPI”) to HK$682.5 million. Sustainable Year, the Units were trading at a 38.1% discount to momentum in rental reversion and effective cost asset backing. control were among the key impetus for growth, which helped improve the cost-to-income ratio to 19.8% During the Year, the Manager continued to devote (FY2017/18: 21.0%). Meanwhile, the anticipated upsurge substantial resources on asset enhancement, while in interest outlay was mitigated by a strong increase forging strategic leasing partnerships in ensuring the in interest income attributable to an expanded fixed income sustainability of Sunlight REIT. In the meantime, income portfolio and higher cash return. Accordingly, trade mix optimization for our retail assets was at the annual distributable income recorded a 3.7% growth to forefront of our operational initiatives, which has proved HK$467.3 million. rewarding in light of the slight curtailment in retail sales. 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.