Henderson-Managed Sunlight REIT Buys Mong Kok Tower for $84M

Hong Kong’s Sunlight REIT, which is managed by a unit of Henderson Land Development, has announced that it is buying a commercial building on Nathan Road in Mong Kok for HK$658 million ($84.3 million). Through the sale-and-leaseback deal, the REIT will acquire the 22-storey office-and-retail property from its owner and occupier, Chong Hing Bank, then lease out the entire building to the Hong Kong-listed seller.

Sunlight REIT sees the acquisition of the Fung Shun Commercial Building as a chance to further diversify its HK$17 billion ($2.2 billion) office and retail portfolio. The REIT already owns Righteous Centre, a similar 26-storey tower on the same block.

“We are delighted to announce this en-bloc property acquisition, which marks an important milestone for Sunlight REIT to expand its footprint in the decentralized office market, while providing accretive benefit to its unitholders,” commented Keith Wu Shiu-kee, CEO of Henderson Sunlight Asset Management, the REIT’s manager in a statement.

Sunlight REIT Adds Another Pencil Tower to Its Portfolio

Built in 1981, the Fung Shun Commercial Building at No. 591 Nathan Road has a total rentable area of 34,651 square feet (3,219 square metres), including an 11,627 square foot (1,080 square metre) retail podium and a 23,024 square foot (2,139 square metre) office portion from the fifth to the 20th floor.

The pencil tower is located on a corner site at the junction of Nathan Road and Changsha Street, and is equidistant between the Mong Kok and Yau Ma Tei MTR stations in western Kowloon. The area on Nathan Road, a popular shopping hub, “offers unparalled pedestrian and vehicular traffic with convenient access to other districts of Hong Kong,” said the REIT in a stock exchange announcement.

Virtually next door is Righteous Centre, a grade B office building with shops on the ground floor that is wholly owned by Sunlight REIT. The 51,767 square foot (4,809 square metre) tower at 585 Nathan Road is separated from the Fung Shun Commercial Building by the Kwangtung Provincial Bank Building which sits between them.

The trust cited the close proximity of the two buildings as an advantage of the latest deal. “Upon Completion, Sunlight REIT can achieve better economies of scale on enhanced operating synergies, both in terms of satisfying tenant requirements as well as sharing of property management resources,” the trust stated.

The statement also indicated that the sale-and-leaseback agreement should provide adequate time for the REIT’s manager to plan and carry out asset enhancement efforts aimed at upping the rental yield.

Bank Would Rather Be a Tenant than a Landlord

The building is currently used entirely as a retail banking branch and office premises of Chong Hing Bank. Upon completion of the deal, the financial institution will lease the entirety of the property from Sunlight REIT, for fixed terms of one year for the office portion, and four years for the retail portion. Chong Hing Bank will also have the option to renew the office lease for an additional year.

“The Directors are of the view that it is a good opportunity for the Bank to dispose of the Property at an attractive return to realise capital gain on a non-core business asset,” the company said in stock exchange announcement.

Chong Hing Bank, which operates a network of 40 branches in Hong Kong, Macao and China’s Guangdong province, was acquired by mainland investment firm Yuexiu Group in 2014. The enterprise backed by the Guangzhou city government also owns Yuexiu Property, one of China’s leading developers and builder of the Guangzhou IFC skyscraper.

Henderson-Managed Trust Gets a Bit More Decentralized

Following the completion of the deal, Sunlight REIT will hold a portfolio of 11 office and six retail properties across Hong Kong, with a total gross rentable area of around 1.24 million square feet (115,200 square metres). The office assets are scattered across core business districts including Central, Wan Chai and Sheung Wan, as well as in decentralised areas such as Mong Kok and North Point. The REIT’s retail properties are primarily located in the New Territories.

Sunlight REIT’s largest asset is Sunlight Tower at 248 Queen’s Road East in Wan Chai, a 40-storey, grade A office building offering 376,381 square feet (34,967 square metres) of space. Henderson Sunlight Asset Management is a subsidiary of Henderson Land Development, the $22 billion property behemoth headed by tycoon Lee Shau Kee.