PROPOSED ACQUISITION BY AXIS REAL ESTATE INVESTMENT TRUST ("Axis-REIT") OF A PROPERTY KNOWN AS LOT 24, JALAN LEBUH 1, KAWASAN PERUSAHAAN SULTAN SULAIMAN, NORTH PORT, PELABUHAN KLANG, SELANGOR DARUL EHSAN ("LOT 24") FROM EC DISTRIBUTION SDN. BHD. FOR A CASH CONSIDERATION OF RM10.3 MILLION ("PROPOSED ACQUISITION")
| AXIS REAL ESTATE INVESTMENT TRUST |
|
Type | Announcement |
| Subject | PROPOSED ACQUISITION BY AXIS REAL ESTATE INVESTMENT TRUST ("Axis-REIT") OF A PROPERTY KNOWN AS LOT 24, JALAN LEBUH 1, KAWASAN PERUSAHAAN SULTAN SULAIMAN, NORTH PORT, PELABUHAN KLANG, SELANGOR DARUL EHSAN ("LOT 24") FROM EC DISTRIBUTION SDN. BHD. FOR A CASH CONSIDERATION OF RM10.3 MILLION ("PROPOSED ACQUISITION") |
Contents :
1. INTRODUCTION
- The Board of Directors (“Board”) of Axis REIT Managers Berhad (“ARMB” or “the Managers”), the management company of Axis-REIT, wishes to announce that OSK Trustees Berhad (“OSK”), the trustee of Axis-REIT, has entered into the following agreement in relation to the Proposed Acquisition on behalf of Axis-REIT :-
1.1 Proposed Acquisition of Lot 24
- Axis-REIT proposes to acquire the entire interest in Lot 24 for a cash consideration of RM10.3 Million from EC Distribution Sdn. Bhd. (Co. No. 176159-T)(“ECD”).
Lot 24 is to be acquired free from encumbrances but subject to the terms and conditions stipulated in the Sale and Purchase Agreement (“Lot 24 SPA”) entered into between OSK and ECD on 3 April 2006.
- Pursuant to the Deed dated 15 June 2005 constituting Axis-REIT, entered into between OSK and ARMB (“Axis Deed”), OSK, as the trustee of Axis-REIT, has approved the Proposed Acquisition of Lot 24, vide their letter dated 21 March 2006.
1.2 Information on Lot 24
- Lot 24 is an industrial lot located within a development called Kawasan Perusahaan Bandar Sultan Sulaiman, North Port, Pelabuhan Klang by The Selangor State Development Corporation since 1993.
By a Sale and Purchase Agreement dated 20 May 1993 (“The Principal Sale Agreement”), The Selangor State Development Corporation (“PKNS”) sold Lot 24, then a piece of vacant land to Kawasaki Motors Holdings (Malaysia) Sdn. Bhd. (“KMH”) at the price and upon terms and conditions contained therein.
KMH erected on Lot 24 a double storey office cum single storey factory building thereon with the Certificate of Fitness for Occupation (“CFO”) being issued by the relevant authorities on the 23 June 1993(“Original Buildings”).
By a Sale and Purchase Agreement dated 28 February 2002 (“The Second Sale Agreement”) and a Deed of Assignment dated 25 June 2002 (“the Original Purchaser’s Assignment”), KMH sold Lot 24 with the Original Buildings to ECD at the price and upon terms and conditions contained therein.
ECD had effected renovations and extensions to the Original Buildings and after having obtained the relevant building plans approvals from the relevant authorities had on the 6th March 2006 (”the Extension”) submitted an application to the relevant authorities for the certificate of fitness for the Extension (“CFO for Extension”) and the same has yet to be obtained.
The combined gross built-up area of the Original Buildings and the Extensions is 149,248 sq. ft. (“Gross Lettable Area”).
Lot 24, with its existing buildings an land, is currently tenanted by MISC Integrated Logistics Sdn. Bhd.(Co. No. 112036-P) (“the Tenant”). A tenancy agreement was entered into between ECD and the Tenant on 9 February 2006 for the period commencing 1 January 2006 and expiring on 31 December 2007 at a monthly rental of RM110,000.00 and with an option to renew for another three years at rental based on prevailing market rate to be mutually agreed .
The annualised gross rental income is RM1,320,000. The rental rate per month per square feet (“sq. ft.”) as at 3 April 2006 is RM0.85 calculated on a net lettable area of 130,000 sq.ft..
Further details of Lot 24 are set out in the table below.
| Property particulars | : | Lot 24, Jalan Lebuh 1, Kawasan Perusahaan Bandar Sultan Sulaiman, North Port, Pelabuhan Klang, Selangor Darul Ehsan. |
| Land area | : | 217,800 sq. ft. (provisional) |
| Gross floor area | : | 149,248 sq.ft. |
| Net lettable area | : | approximately 130,000 sq.ft. |
| Tenure | : | The separate document of title to Lot 24 of Kawasan Perusahaan Bandar Sultan Sulaiman has yet to be issued by the relevant authorities. In accordance with the terms of the Principal Agreement, when issued the document of title shall be a Qualified Title for a leasehold land for a period of 99 years and shall contain such express or implied conditions and restrictions in interest that the relevant authorities may in its’ discretion impose including the restriction that the land alienated shall not be transferred without the written consent of the relevant State Authority. |
| Occupancy as at 3 April 2006 | : | 100.00% |
| Encumbrance | : | Charged to Hong Leong Bank Berhad |
- 2.1 Salient terms and conditions of the Proposed Acquisition
- (a) A total sum of RM1,030,000.00 being deposit and towards part payment of the Lot 24 Purchase Price has been paid by OSK to ECD’s solicitors as stakeholders upon the execution of the Lot 24 SPA.
(b) Pursuant to the Lot 24 SPA, the balance of the purchase consideration amounting to RM9,270,000 shall be paid by OSK to ECD’s solicitors as stakeholders within 3 months from the date of ECD’s full compliance of all the Conditions Precedent (“the Completion Date”) stipulated in the Lot 24 SPA with a further extension of 1 month subject to interest at a rate of 8% per annum calculated on a daily basis.
2.2 The following are the Conditions Precedent to be obtained or fulfiled by ECD :-
- (a) PKNS’s written confirmation and consent to the following effect :-
- (i) approval and consent for the sale and assignment of Lot 24 in favour of OSK together with PKNS’s confirmation to execute or endorse the Lot 24 Deed of Assignment in favour of OSK;
(ii) that PKNS will execute and deliver a duly executed valid and registrable memorandum of transfer and the necessary state authority’s consent to transfer in favour of OSK upon the issuance of the individual title to the said Land; and
(iii) that the category of land use for the issue document of title of the said Property upon issuance thereof shall be “Industry” and when issued the document of title shall be a Qualified Title for a leasehold land for a period of 99 years and shall contain such express or implied conditions and restrictions in interest that the relevant authorities may in its’ discretion impose including the restriction that the land alienated shall not be transferred without the written consent of the relevant State Authority
(hereinafter collectively called the “PKNS’s Consent”); and
The above Conditions Precedent are to be obtained and complied by ECD within six (6) months from the date of execution hereof (“Approval Period”) PROVIDED ALWAYS in the event any of the above Conditions Precedent cannot be obtained or complied by ECD for any reason whatsoever (not due to the default of ECD), within the Approval Period, OSK shall have the absolute discretion to extend the Approval Period for a further period of three (3) months from the expiry of the Approval Period to enable ECD to obtain and comply with the above Condition Precedent or to deem the agreement as terminated pursuant to the Lot 24 SPA.
Under the terms of the Lot 24 SPA, OSK shall be entitled, to the extent permissible under the law, to waive the requirement of any or all of the Conditions Precedent contained in the Lot 24 SPA within the Conditional Period and proceed to complete the purchase of the said Property in accordance with the terms in the Lot 24 SPA.
- (a) to forward the Novation Agreement to the Tenant for execution immediately upon receipt of the PKNS’s Consent subject to ECD procuring the Tenant’s execution of the Novation Agreement within two (2) months from the date of PKNS’s Consent; and
(b) to release the duly executed Novation Agreement to Axis-REIT’s Solicitors on the Completion Date.
Provided Always that in the event the Novation Agreement is not executed by the Tenant within the two (2) months’ period stipulated above or such other period that may be extended in writing by and at the option of OSK, OSK shall have the option to continue with the purchase of Lot 24 SPA in accordance with the terms of the Lot 24 SPA or to terminate the Lot 24 SPA by written notice to ECD, whereupon such termination the consequences and remedies provided in the Lot 24 SPA apply.
- The purchase consideration for Lot 24 was arrived at based on a willing-buyer willing-seller basis after taking into account the market value of Lot 24 of RM13.5 million as appraised by Colliers, Jordan Lee & Jaafar Sdn Bhd, an independent firm of registered valuers in its valuation report dated 6 March 2006. The valuation was arrived at using a combination of cost and investment methods of valuation.
Axis-REIT will not assume any liabilities pursuant to the Proposed Acquisition of Lot 24.
- The Proposed Acquisition will be funded by bank borrowings.
3. INFORMATION ON THE VENDOR
3.1 EC Distribution Sdn. Bhd. (“ECD”)
ECD is a private company incorporated in Malaysia under the Companies Act, 1965 on 25 Nov 1988. ECD is principally involved in logistics and warehousing.
ARMB, the management company of Axis-REIT, aims to provide Unitholders with stable distribution and to achieve growth in net asset value per unit of the Fund through, inter-alia, selectively acquiring properties that meet the Manager’s investment criteria. The purchase consideration for the Proposed Acquisition is at a discount to the appraised value of the property. The Proposed Acquisition will be accretive to Axis-REIT’s distributable income. The Proposed Acquisition will at the same time diversify and enlarge Axis-REIT’s portfolio of property and is expected to benefit the Fund in the long term from economies of scale.
- 5.1 Unit Capital and Substantial Unitholders’ Unitholding
- The Proposed Acquisition will not have any effect on the total units in issue and substantial unitholders’ unitholding of Axis-REIT as the purchase consideration will be paid entirely in cash.
5.2 Net Asset Value ("NAV")
- The Directors of ARMB expect the Proposed Acquisition to contribute positively to the earnings of the Fund for the financial year ending 31 December 2006.
5.4 Gearing
- ARMB intends to utilise debt facility of approximately RM10.3 million from Axis-REIT’s existing credit lines. The proposed debt financing will increase Axis-REIT’s gearing ratio to 14.27 % of total assets, which is below the gearing limit of 35% prescribed by the Guidelines on Real Estate Investment Trusts issued by the Securities Commission.
The Proposed Acquisition is conditional upon approvals being obtained from the following:
(ii) any other relevant authorities, if required.
Pursuant to the Guidelines on Real Estate Investment Trusts issued by the Securities Commission dated 3 January 2005, the valuations set out in the Proposed Acquisition is not subject to approval by the Securities Commission.
7. DIRECTORS’ AND SUBSTANTIAL SHAREHOLDERS’ INTERESTS
- None of the Directors and/or substantial shareholders of ARMB and Axis-REIT as well as persons connected with them have any interest, direct and/or indirect, in the Proposed Acquisition.
8. DEPARTURE FROM THE GUIDELINES ON REAL ESTATE INVESTMENT TRUSTS ISSUED BY THE SECURITIES COMMISSION (SC REIT GUIDELINES”)
(i) A certificate of fitness for occupation (“CF”) has been issued for the industrial building and since the issuance of the said CF, no extensions or building alterations have been carried out without relevant approvals;
(ii) The real estate to be acquired is not in breach or violation of any building by-laws or other regulations;
(iii) Due diligence be conducted to ensure that the seller is the legal beneficial owner of the real estate;
(iv) A confirmation of (iii) above be obtained from PKNS;
(v) Necessary steps and due diligence be taken to ensure that the final title will be issued in the name of Axis-REIT; and
(vi) The disclosure in the circular to the unit holders of Axis-REIT must include, among others, the above facts, the current position and status of the land title and the possible risks attached in purchasing such real estate.
9. COMPLIANCE WITH SECURITIES COMMISSION’S TERMS AND CONDITIONS
- (i) A CFO has been issued for the Original Buildings on 23 June 1993. ECD had since effected the Extensions after having obtained the building plan approvals from the relevant authorities, and had on the 6 March 2006 submitted application to the relevant municipal authorities for the CFO for Extension. Obtaining the CFO for Extension by ECD is a Condition Precedent to the completion of the Lot 24 SPA;
(iii) It is a Condition Precedent that PKNS’s Consent be obtained in the manner elaborated in paragraph 2.2(a) above and such PKNS’s Consent is reasonable evidence and confirmation from PKNS of the status of the title and that ECD is the legal beneficial owner of Lot 24;
(iv) By the PKNS’s Consent and endorsement of the Lot 24 Deed of Assignment, OSK would have taken an absolute assignment of all legal rights, titles an interest in the Principal Sale Agreement and and Lot 24 and accordingly PKNS will have to ensure that the issue document of title when issued will be transferred to OSK as trustee for Axis-REIT in the manner provided in the Principal Sale Agreement and Lot 24 Deed of Assignment; and
(v) The disclosure in the announcement of the proposed acquisition to the Unitholders of Axis-REIT has included the required facts, the current position and status of the land title and the possible risks attached in purchasing such real estate.
10. DIRECTORS’ STATEMENT
11. RISK FACTORS
- Lot 24 may be subject to certain risks inherent in the property market industry. These include but not limited to the following :-
(a) Non assignment of the subject property;
(b) Compulsory acquisition by the Government;
(c) Non-Renewal of tenancy for a further period of 2-3 years due to change in circumstances of the Tenant or notification by Tenant to terminate by giving the necessary notice under the tenancy agreement;
(d) adverse changes in national or economic conditions;
(e) adverse local market conditions;
(f) the financial conditions of tenants, buyers and sellers of properties;
(g) changes in environmental laws and regulations, zoning laws and other governmental rules and fiscal policies;
(h) changes in relative popularity of property types and locations leading to an oversupply of space or a reduction in tenant demand for a particular type of property in a given market;
(i) competition among property owners for tenants;
(j) illiquidity of real estate investments; and
(k) acts of God, uninsurable losses and other factors.
13. DOCUMENTS FOR INSPECTION
- The following documents are available for inspection at the office of ARMB, the Managers at Suite 6.04, Penthouse, Wisma Academy,4A, Jalan 19/1, 4630 Petaling Jaya and the office of OSK, the trustees at 6th floor, Plaza OSK, Jalan Ampang, 50450 Kuala Lumpur.
(i) The Principal Sale Agreement;
(ii) The Second Sale Agreement;
(iii) The Original Purchaser’s Assignment;
(iv) Lot 24 SPA;
(v) Lot 24 Deed of Assignment; and
(vi) Valuation report on Lot 24 prepared by Colliers, Jordan Lee & Jaafar Sdn Bhd dated 6 March 2006.
Announcement Info
| Company Name | AXIS REAL ESTATE INVESTMENT TRUST |
| Stock Name | AXREIT |
| Date Announced | 3 Apr 2006 |
| Category | General Announcement |
| Reference No | CC-060403-55653 |
