The Largest REIT You Never Heard Of: Sunlight REIT

Sunlight REIT is a HKEX-listed Real Estate Investment Trust that owns and derives income from a diverse portfolio of 16 properties with a total gross rentable area measuring 1.2 million sq. ft. As of 24 April 2019, it is valued at HK$ 9.5 billion in market capitalisation.

In this article, I’ll cover its latest financial results and valuation figures based on the current stock price of HK$ 5.76 a share. Thus, here are 12 things to know about Sunlight REIT before you invest.

• Portfolio Valuation
  Sunlight REIT had reported growth in its appraised value of its portfolio from HK$ 9.4 billion in June 2009 to HK$ 19.5 billion in December 2018. This is attributed to capital appreciation achieved by all properties in its portfolio during the period.

Source: Sunlight REIT’s Annual Reports

• Office Portfolio
  As of 31 December 2018, Sunlight REIT has 10 office properties worth a total of HK$ 10.3 billion, 53% of the REIT’s total portfolio. It has 1 Grade A Building namely, Sunlight Tower and 9 Grade B Buildings. For the past 10 years, this division has achieved a CAGR of 6.1% in revenue, rising to HK$ 384.8 million in 2018 from S$ 226.3 million in 2009.
  
  

Source: Sunlight REIT’s Annual Reports

Retail Portfolio
As of 31 December 2018, Sunlight REIT has 5 retail malls worth HK$ 9.2 billion, 47% of the REIT’s total portfolio. Over the last 10 years, Sunlight REIT has achieved a CAGR of 6.5% in revenues, growing from HK$ 245.5 million in 2009 to HK$ 432.6 million in 2018. It is contributed by growth by major retail properties such as Sheung Shui Centre Shopping Arcade, Metro City Phase 1 Property, and Kwong Wah Plaza Property.

Source: Sunlight REIT’s Annual Reports

Group Revenue
Sunlight REIT has achieved a CAGR of 6.3% in group revenues, up from HK$ 471.7 million in 2009 to HK$ 817.4 million in 2018. Apparently, the sales growth is directly contributed to its office and retail properties.

Source: Sunlight REIT’s Annual Reports

Distributable Income
Sunlight REIT has achieved a CAGR of 5.9% in distributable income from HK$ 269.8 million in 2009 to HK$ 450.5 million in 2018. It is in line of its growth in revenue in the 10-year period. Its Distribution Per Unit (DPU) has increased from 17.52 HK cents in 2009 to 26.50 HK cents in 2018.

Source: Sunlight REIT’s Annual Reports

Balance Sheet Strength
As of 31 December 2018, Sunlight REIT’s total bank borrowings stand at HK$ 4.25 billion and thus, having a gearing ratio of 21.0%. Sunlight REIT had reduced its gearing ratio from 39.6% in June 2009. As I write, it has an effective interest rate of 2.20% per annum, has an interest coverage of 6.1 times, and has 45.9% of its debt based on fixed interest rates.

• Income Visibility
  As of 31 December 2018, Sunlight REIT has recorded an overall rate of occupancy of 96.7%, which is a slight dip from 98.2% on 30 June 2018. The dip was due to a fall in occupancy rate by its office portfolio as the REIT is undertaking enhancement works as stated in Point 8 & 9.
  
  

Source: Sunlight REIT’s Annual Reports

Here, I’ll provide a list of the top three properties in both office & retail segments, its current occupancy rates and NPI contributions for 2018:

No.	Properties	Type	Occ. Rate (%)	NPI 2018(HK$ Million)
1	Sunlight Tower	Office	100.0%	170.6
2	Bonham Trade Centre (Point 8)	Office	84.9%	36.1
3	The Harvest (Point 9)	Office	63.9%	10.2
4	Sheung Shui Centre	Retail	99.3%	161.2
5	Metro City Phase 1	Retail	99.0%	133.1
6	Kwong Wah Plaza	Retail	100.0%	36.0
7	Other 10 Properties	All	n/a	98.9
Sunlight REIT’s 16 Properties	All	96.7%	646.1

Source: Sunlight REIT’s Annual Report 2018 & Interim Report 1H 2019

• Bonham Trade Centre (BTC)
  In 2019, Sunlight REIT has allocated capital expenditures of as much as HK$ 50 million for BTC. It would upgrade the lower floors of BTC which would be leased to a co-working operator. The project had caused BTC to vacate a portion of its tenants temporarily, resulting in its decline in occupancy rate to 84.9% presently from 93.0% on 30 June 2018. BTC’s enhancement works will begin in Q2 2019 and is to end by Q4 2018.
  
  

Source: Sunlight REIT’s Investors Presentation on 14 February 2019

The Harvest (Formerly known as Fung Shun Commercial Building)
As of 15 December 2017, Sunlight REIT has completed its acquisition of Fung Shun Commercial Building for HK$ 658 million. It will be renamed to The Harvest. Sunlight REIT intends to refurbish The Harvest with the aim of diversifying its tenancy mix and thus, targeting to achieve above 15% in rental reversion.

Source: Sunlight REIT’s Investors Presentation on 14 February 2019

Largest Unitholder of Sunlight REIT
Lee Shau Kee is the largest unitholder of Sunlight REIT with as much as 38.85% in units as of 31 December 2018.

P/B Ratio
As of 31 December 2018, Sunlight REIT has reported having a net assets of HK$ 9.40 a unit. Based on the current stock price of HK$ 5.76 a unit, it has a current P/B Ratio of 0.61, the highest in 10 years.

Dividend Yields
For the last 12 months, Sunlight REIT has paid out HK$ 0.271 in DPU. Its dividend yield is currently 4.70% per annum, which is the lowest for the last 10 years.

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VIA’s Verdict

Sunlight REIT has delivered consistent growth in revenues, distributable income and DPU for the last 10 years. As such, its stock price had increased sustainably, increasing its market capitalisation from HK$ 2.35 billion in June 2009 to as high as HK$ 9.49 billion presently.

At current valuations, it is trading at:

– P/B Ratio: 0.61 (above average)

– Current Dividend Yield: 4.70% (below average)

So, would you invest in Sunlight REIT? Please leave your comments below.

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