BURSA ANNOUCEMENTS

Date : 08 December 2014

TRANSACTIONS (CHAPTER 10 OF LISTING REQUIREMENTS): RELATED PARTY TRANSACTIONS SUNWAY REAL ESTATE INVESTMENT TRUST ("SUNWAY REIT") - PROPOSED ACQUISITION OF SUNWAY HOTEL GEORGETOWN AND WISMA SUNWAY FOR A TOTAL PURCHASE CONSIDERATION OF RM134 MILLION

SUNWAY REAL ESTATE INVESTMENT TRUST

TypeAnnouncement
SubjectTRANSACTIONS (CHAPTER 10 OF LISTING REQUIREMENTS)
RELATED PARTY TRANSACTIONS
DescriptionSUNWAY REAL ESTATE INVESTMENT TRUST ("SUNWAY REIT")
- PROPOSED ACQUISITION OF SUNWAY HOTEL GEORGETOWN AND WISMA SUNWAY FOR A TOTAL PURCHASE CONSIDERATION OF RM134 MILLION

1. INTRODUCTION

The Board of Directors of Sunway REIT Management Sdn Bhd, the manager for Sunway REIT (“Manager”), wishes to announce that RHB Trustees Berhad, as Trustee for Sunway REIT (“Trustee”), has on 8 December 2014 entered into the following agreements with the following subsidiaries of Sunway Berhad (“Sunway”):

(i)  A sale and purchase agreement (“1st SPA”) with Sunway Biz Hotel Sdn Bhd (formerly known as Sunway Hotel (Penang) Sdn Bhd) (“SBH”) to acquire 2 pieces of freehold land held under GRN 63519 Lot  2220, Seksyen 12, Bandar Georgetown, Daerah Timor Laut, Negeri Pulau Pinang and GRN 35332 Lot 1754, Seksyen 12, Bandar Georgetown, Daerah Timor Laut, Negeri Pulau Pinang together with a 16-storey building comprising a 250-room hotel erected thereon known as “Sunway Hotel Georgetown” (“Sunway Hotel Georgetown Property”);

(ii) A master lease agreement (“MLA”) with Sunway REIT Management Sdn Bhd, as the Manager for Sunway REIT and SBH, as the Lessee for the leaseback of the Sunway Hotel Georgetown Property; and

(iii) A sale and purchase agreement (“2nd SPA”) with SunwayMas Sdn Bhd (“SMSB”) and Daksina Harta Sdn Bhd (“DHSB”) to acquire all the individual strata titles for various floors/storeys of all that office building known as “Wisma Sunway” located at No.1, Jalan Tengku Ampuan Zabedah C9/C, Seksyen 9, 40100 Shah Alam, Selangor (the particulars of the strata titles for which are set out below) (“Wisma Sunway Property”).

The Sunway Hotel Georgetown Property and Wisma Sunway Property shall collectively be referred to as the “Properties” and the transactions referred to in paragraphs (i) and (iii) above shall be referred to as the “Proposed Acquisition”.

2. PROPOSED ACQUISITION AND LEASEBACK OF SUNWAY HOTEL GEORGETOWN PROPERTY

2.1 Description of Sunway Hotel Georgetown Property

The Sunway Hotel Georgetown Property is a 4-star, 250-room international class hotel with 102 car park bays and an adjoining parcel of vacant land currently being utilised for car park use. It is located at No. 33, Lorong Baru, 10400, Pulau Pinang. The hotel had completed a refurbishment exercise in April 2013.

Other pertinent information on Sunway Hotel Georgetown Property is provided below:-

Facilities

100 pax coffee house known as Sun Cafe

60 pax Club Lounge Meet @ 14

3 functions rooms (capacities ranging from 60 pax to 240 pax)

Swimming pool  & gymnasium

 

Title Details

Title No.: GRN 63519, Lot No.: 2220, Seksyen 12, Bandar Georgetown, Daerah Timor Laut, Pulau Pinang

Title No.: GRN 35332, Lot No.: 1754, Seksyen 12, Bandar Georgetown, Daerah Timor Laut, Pulau Pinang 

Tenure

Freehold  

Land Area

 

Hotel land - 27,480 sq ft

Carpark land - 6,112 sq ft

Total - 33,592 sq ft 

Gross Floor Area

192,383 sq ft

 

Market Value as at July 2014 

RM74 million

Net Book Value as at 31 October 2014

RM37.6 million

Purchase Consideration 

RM74 million

2.2 Salient Terms and Conditions of the 1st SPA

(a) SBH (“Vendor”) shall sell and the Trustee (“Purchaser”) shall purchase the Sunway Hotel Georgetown Property together with the fixtures and fittings (“Fixtures & Fittings”) and its plant and machinery (“P&M”) as detailed in the 1st SPA.

(b) The Sunway Hotel Georgetown Property together with the Fixtures & Fittings and P&M are sold on an “as is where is” basis -

(i) save for the lease registered in favour of Tenaga Nasional Berhad for a sub-station, free from any encumbrances;
(ii) with legal possession subject to the existing tenancies;
(iii) subject to all restrictions in interest and conditions of title, whether express or implied, affecting the Sunway Hotel Georgetown Property;
(iv) subject to the existing category of land use affecting the Sunway Hotel Georgetown Property; 
(v) on the basis that each of the warranties set out in the 1st SPA are true and accurate in all respects;
(vi) on the basis of SBH, as lessee (“Lessee”), entering into the MLA with the Trustee as lessor (“Lessor”), in accordance with the terms and conditions stipulated in the MLA to be signed simultaneously with the execution of the 1st SPA; and
(vii)subject to all applicable licences, certificates and permits affecting the Sunway Hotel Georgetown Property, the Fixtures & Fittings and the P&M remaining valid and subsisting.

(c) The completion of the sale and purchase of the Sunway Hotel Georgetown Property pursuant to the terms and subject to the conditions set out in the 1st SPA will in all respects be conditional upon the following being fulfilled / obtained within 6 months after the date of the 1st SPA (“Cut-Off Date”):-

  i) The approval or consent of the financiers of the Vendor, where required, having been obtained.
  ii) Any other approvals of any authorities as may be deemed necessary by the parties.

(d) Upon the execution of the 1st SPA, the Purchaser shall pay the sum of RM7,400,000.00 as deposit and part payment of the Purchase Consideration to SBH.

(e) The balance of the Purchase Consideration, being RM66,600,000.00, shall be paid to SBH on a day to be mutually agreed between the parties within 3 months after the date of fulfilment of all the conditions precedent as set out above (“Completion Date”).

2.3 Salient Terms and Conditions of the MLA

(a) In consideration of the Lessee’s agreement to pay the Total Rent (as hereinafter defined) and other monies payable to the Lessor under the MLA and to perform its obligations under the MLA, the Lessor lets to the Lessee and the Lessee takes a lease of the Sunway Hotel Georgetown Property together with the P&M and furniture, fixtures, furnishing and equipment detailed in the MLA (“FF&E”), from the commencement date of the lease, which falls on the day immediately after the Completion Date of the 1st SPA or a date to be mutually agreed by the Lessor and the Lessee (“Commencement Date”). The principal lease period is 10 years with an option to renew (at the option of the Lessee and at the Lessee’s cost) for a further term of 10 years commencing from the expiry of the Principal Lease Period on the same terms and conditions.

(b) The Lessee must pay the Total Rent to the Lessor by monthly payments in arrears on or before the 15th business day of the following month being the Rent Day, with the first payment commencing on the 15th day of the month immediately following the Commencement Date.

“Total Rent” is the higher of (a) Guaranteed Rent and (b) the Variable Rent for that fiscal year.

“Variable Rent” is computed based on the following formula:
P + (70 per cent x (Q-R))
Where:
P = Base Rent of the Hotel, being 20% of Revenue (which includes all revenues, receipts and income of every kind derived directly or indirectly from the operations of the Sunway Hotel Georgetown Property and attributable to the period under consideration, determined on an accrual basis);
Q = Gross Operating Profit of the Hotel (being the amount by which the Revenue for each fiscal year exceeds operating expenses for the same fiscal year); and
R = Master Lease Expenses (including the FF&E reserve established for the purpose of funding FF&E works, management fee payable to the hotel operator under the hotel management agreement and P).

The Guaranteed Rent is agreed between the parties as set out below:

Year

Guaranteed Rent (RM)

1 (from the Commencement Date)

4,387,720

2

4,387,720

3

3,290,790

4

3,290,790

5

3,290,790

6

3,290,790

7

3,290,790

8

3,290,790

9

3,290,790

10 (ending on the expiry date)

3,290,790

(c) The obligations of the parties set out in the MLA are in all respects conditional upon the following being fulfilled / obtained by the Cut-Off Date:

i) The approval or consent from any party which has entered into any subsisting arrangement, contract or undertaking with the Lessee in respect of the Sunway Hotel Georgetown Property and/or the FF&E (where required).

(d) In the event the registration of the Lease is not or cannot be effected for any reason whatsoever not due to any fault of the parties, the parties agree that the Lessor shall grant and the Lessee shall take on a tenancy of the Sunway Hotel Georgetown Property on the terms and conditions as are herein stipulated whereupon the Principal Lease Period and the Secondary Lease Period shall be amended to a fixed term or period of 3 years each, with an automatic renewal of 2 successive 3 years terms and a final renewal term of 1 year.

3. PROPOSED ACQUISITION OF WISMA SUNWAY PROPERTY

3.1 Description of Wisma Sunway Property

A stratified 19-storey office building (excluding Parcel No. 2, Ground Floor; identified as Unit No. L2A) together with elevated and basement car park and mechanical bays. It is located at No. 1, Jalan Tengku Ampuan Zabedah C 9/C, 40100 Shah Alam, Selangor Darul Ehsan. Wisma Sunway Propertycompleted a refurbishment exercise in 2013.

Other pertinent information on Wisma Sunway Property is provided below:-

Title Details

Strata Title PN21876/M1/B1/1 together with Accessory Parcels (A1 – A15, A18 and A19), Strata Title PN21876/M1(1/3, N1/4, N1/5, 2/6, 8/7, 9/8, 10/9, 11/10, 12/11, 13/12, 14/13, 15/14, 16/15), PN21876/M1/17/16 together with Accessory Parcels A16 & A17, all sited on Parent Lot No. 517 Bandar Shah Alam, District of Petaling, Selangor Darul Ehsan.

Tenure

99 years leasehold expiring on 29th August 2094.
The unexpired term of lease is approximately 80 years.
 

Land Area

47,813 sq ft  

Strata Area

Office Space

Main Parcel Area: 171,544 sq ft

Accessory Parcel: 2,626 sq ft

Total Strata Floor Area: 174,170 sq ft

Car Park (382 bays, including mechanical bays)

Main Parcel Area: 123,441 sq ft

Accessory Parcel:  4,112 sq ft

Total Strata Floor Area: 127,553 sq ft 

Net Lettable Area 

171,544 sq ft

 

Market Value as at August 2014 

RM60 million

Net Book Value as at 31 October 2014

 

RM59.1 million

Purchase Consideration  

Total : RM60 million

 

3.2 Salient Terms and Conditions of the 2nd SPA

(a) SMSB and DHSB (“Vendors”) shall sell and the Purchaser shall purchase the Wisma Sunway Property together with the Fixtures & Fittings and P&M detailed in the 2nd SPA.

(b) The Wisma Sunway Property together with the Fixtures & Fittings and P&M are sold on an “as is where is” basis –
(i) free from any encumbrances;
(ii) with legal possession subject to the existing tenancies;
(iii) subject to all restrictions in interest and conditions of title, whether express or implied, affecting the Wisma Sunway Property;
(iv) subject to the existing category of land use affecting the Wisma Sunway Property;
(v) on the basis that each of the warranties set out in the 2nd SPA are true and accurate in all respects; and
(vi) subject to all applicable licences, certificates and permits affecting the Wisma Sunway Property, the Fixtures & Fittings and the P&M remaining valid and subsisting.

(c) The completion of the sale and purchase of the Wisma Sunway Property pursuant to the terms and subject to the conditions set out in the 2nd SPA will in all respects be conditional upon the following being fulfilled / obtained within 6 months after the date of the 2nd SPA (“2nd SPA Cut-Off Date”):
(i) The Vendors having obtained the state authority approval for the transfer of the Wisma Sunway Property to the Purchaser.
(ii) The approval or consent of the financiers of the Vendors, where required.
(iii) The transfer documents, where applicable, having been duly executed in favour of the Purchaser and delivered to the Purchaser’s Solicitors as stakeholders.
(iv) Any other approvals of any authorities as may be deemed necessary by the parties.

(d)  Upon the execution of the 2nd SPA, the Purchaser has paid the sum of RM6,000,000.00 as deposit and part payment of the Purchase Consideration to the Vendors.

(e) The balance of the Purchase Consideration, being RM54,000,000.00, shall be paid to the Vendors on a day to be mutually agreed between the parties within 3 months after the date of fulfilment of all the conditions precedent as set out above (“2nd SPA Completion Date”).

4. BASIS OF DETERMINING THE PURCHASE CONSIDERATION

The Purchase Consideration for the Properties of RM134 million collectively was arrived at on a willing buyer willing seller basis after taking into consideration the market value of the Properties of RM134 million as appraised by Knight Frank Malaysia Sdn Bhd, being the independent registered valuer appointed by the Trustee on behalf of Sunway REIT, in its valuation report dated 31 October 2014 for Wisma Sunway Property and 1 December 2014 for Sunway Hotel Georgetown Property (“Valuation Report”) for the valuation of the Properties pursuant to the Proposed Acquisition, using the investment and comparison methods.

5. METHOD OF FINANCING

The Manager intends to fully fund the Proposed Acquisition through its existing debt financing.

6. LIABILITIES TO BE ASSUMED

There are no liabilities and guarantees to be assumed by Sunway REIT arising from the Proposed Acquisition.

7. INFORMATION ON SUNWAY, SBH, SMSB, DHSB, THE TRUSTEE, SUNWAY REIT  AND THE MANAGER

Sunway

Sunway is a company incorporated in Malaysia and having its registered office at Level 16, Menara Sunway, Jalan Lagoon Timur, Bandar Sunway, 47500 Subang Jaya, Selangor Darul Ehsan. The authorised and paid-up share capital of Sunway are RM10,000,000,000/- and RM1,720,100,072.00 respectively. The principal activities of Sunway are investment holding and provision of management services.

SBH

SBH, a wholly-owned subsidiary of Sunway City Sdn Bhd which in turn is a wholly-owned subsidiary of Sunway, is a company incorporated in Malaysia and having its registered office at Level 16, Menara Sunway, Jalan Lagoon Timur, Bandar Sunway, 47500 Subang Jaya, Selangor Darul Ehsan. The authorised and paid-up share capital of SBH are RM25,000,000.00 and RM20,710,360.87 respectively. The principal activities of SBH are those of an hotelier.  

SMSB

SMSB, a wholly-owned subsidiary of Sunway Holdings Sdn Bhd (“Sunway Holdings”) which in turn is a wholly-owned subsidiary of Sunway, is a company incorporated in Malaysia and having its registered office at Level 16, Menara Sunway, Jalan Lagoon Timur, Bandar Sunway, 47500 Subang Jaya, Selangor Darul Ehsan. The authorised and paid-up share capital of SMSB are RM10,000,000.00 and RM7,642,120.00 respectively. The principal activity of SMSB is property and housing development. 

DHSB

DHSB, a subsidiary of Sunway Holdings which in turn is a wholly-owned subsidiary of Sunway, is a company incorporated in Malaysia and having its registered office at Level 16, Menara Sunway, Jalan Lagoon Timur, Bandar Sunway, 47500 Subang Jaya, Selangor Darul Ehsan. The authorised and paid-up share capital of DHSB are RM100,000.00 and RM2.00 respectively. The intended principal activities of DHSB are general trading, land and property investment and investment holding. DHSB has not commenced operations since its incorporation.  

The Trustee

The Trustee is a company incorporated in Malaysia under the Companies Act, 1965 and having its registered office at Level 10, Tower One, RHB Centre, Jalan Tun Razak, 50400 Kuala Lumpur, Wilayah Persekutuan. It is registered as a trust company under the Trust Companies Act, 1949. The principal activity of the Trustee is to provide professional retail trustee services (will writing, estate planning and private trust) and corporate trustee services (collective investment schemes).

The present authorised share capital of the Trustee is RM25,000,000.00 comprising 2,500,000 ordinary shares of RM10.00 each, of which 1,200,000 ordinary shares are currently issued and credited as partially paid-up to RM5.00 each in the Trustee.

Sunway REIT

Sunway REIT was established pursuant to a Deed dated 20 May 2010 (as supplemented by a Supplemental Deed dated 10 June 2010) entered into between the Manager and the Trustee. The principal investment policy of Sunway REIT is to invest in commercial, office, industrial and other real estate assets.

The Manager

The Manager, a subsidiary of Sunway, is a company incorporated in Malaysia and having its registered office at Level 16, Menara Sunway, Jalan Lagoon Timur, Bandar Sunway, 47500 Subang Jaya, Selangor Darul Ehsan. The authorised and paid-up share capital of the Manager are RM1,000,000.00 respectively. The principal activity of the Manager is managing and administering a real estate investment fund.

8. RATIONALE AND BENEFITS

The Proposed Acquisition is consistent with the key investment objective of Sunway REIT to provide its unitholders with exposure to a diversified portfolio of investments that will provide stable cash distributions with the potential for sustainable growth in net asset value (“NAV”) per unit and for Sunway REIT to be one of the leading real estate investment trusts in Malaysia in terms of asset value.

Further, the Manager believes that the Proposed Acquisition will bring the following key benefits to the unitholders of Sunway REIT:

(a) Accretive to earnings and distribution per unit (“DPU”)

The Manager believes that the Proposed Acquisition will improve the earnings and the DPU to Sunway REIT’s unitholders. The Proposed Acquisition is also consistent with the Manager’s acquisition growth strategies of pursuing acquisition opportunities that are earnings accretive and will provide long-term growth in DPU and/or NAV per unit.

(b) Increased income stability through the MLA and increased weighted average lease expiry of Sunway REIT’s portfolio

The Proposed Acquisition will be beneficial to Sunway REIT as the MLA in respect of Sunway Hotel Georgetown Property is expected to provide additional stability to Sunway REIT’s gross rental income over the next 10 years by virtue of the Guaranteed Rent.

With the Proposed Acquisition, Sunway REIT will benefit from the increase in the enlarged portfolio’s weighted average lease to expiry based on the terms of the MLA. The weighted average lease to expiry of Sunway REIT’s enlarged portfolio will increase from approximately 2.3 years as at 30 September 2014 to approximately 2.4 years after the completion of the Proposed Acquisition.

(c) Increased size of Sunway REIT’s portfolio

Sunway REIT’s asset size will increase from approximately RM5.56 billion, as at 30 September 2014, to RM5.69 billion after the completion of the Proposed Acquisition. This increase in portfolio size will further strengthen Sunway REIT’s current position as one of the largest real estate investment trusts in Malaysia by asset value.

(d) Opportunity to acquire good quality assets

Sunway Hotel Georgetown Property, which is located on Penang Island near the Komtar building, has been comprehensively refurbished in 2013. The hotel stands to benefit from the growing tourism activities that are being actively promoted by the Penang Tourism Board.

Wisma Sunway Property, which is located in Shah Alam, the state government precinct of Selangor, enjoys a captive office market whereby more than 90% of its tenants are government agencies. Wisma Sunway Property was also refurbished in 2013.

(e) Enhance the geographical diversification of Sunway REIT’s portfolio

The Proposed Acquisition will improve the geographical diversification of Sunway REIT’s portfolio by reducing property concentration at Sunway Resort City from 76% (by property value) as at 30 September 2014 to 74%.

(f) Asset enhancement opportunity in respect of the Sunway Hotel Georgetown Property

The adjoining carpark land to the Sunway Hotel Georgetown Property will provide asset enhancement opportunity in the future for the expansion of the hotel property or other asset enhancement avenues.

9. FUTURE PROSPECTS

The Malaysian Economy

The Malaysian economy is expected to grow at 5.5-6.0% in 2014. The growth momentum is expected to sustain in 2015, driven by resilient domestic demand and the improving external sector. The Ministry of Finance (MOF) said Gross Domestic Product (GDP) growth is expected to expand at a steady pace of between five per cent and six per cent in 2015 given the better global economic outlook and underpinned by the 2015 Budget measures. However, there remains downside risk on the external front, including slow and uneven growth in the euro area, increased deflationary pressures in the advanced economies, slower growth in emerging markets, as well as, geopolitical tensions.

(Source: Economic Report 2014/2015, Ministry of Finance)

Outlook for Office Market – Shah Alam
 
Shah Alam, the administrative capital of Selangor, has a limited office stock both in terms of quantity and quality, with most of the existing office developments located within the city centre area (SACC).

Typical occupiers are government agencies, most of which are Selangor state agencies and state branches of federal agencies. Occupiers from the private sector account for a marginal portion and take small amount of office space. Most of the demand for office space in the area will remain driven by the public sector. The proposed LRT line 3, from Bandar Utama to Klang and crossing Shah Alam section 14, may have a slight positive impact on the office market, but this sole factor may not be sufficient to spur demand.

Unlike most areas of Greater Kuala Lumpur where concerns exist about oversupply, there is not a large quantum of office space scheduled to be completed in Shah Alam over the next few years. The impact of the future developments on the existing supply should therefore remain limited, especially since part of that supply will be owner-occupied. Occupancy rates in SACC and the vicinity are usually high, with the bulk of the buildings nearing or exceeding 90% occupancy rates. However, many of the companies and agencies within these buildings appear to have grown to fill up all available space. Nevertheless, occupancy rates should remain high and stable over the next few years.

Gross asking rents for existing office buildings in SACC and surrounding areas range between RM3.00 and RM4.00 per square foot per month, for both new and old buildings. Any further rental increases will depend upon the willingness of the existing tenants to negotiate, external demand and the scale of refurbishments to be done to the existing office buildings in the area. However, benefiting from a monopoly situation due to a lack competitors, good quality buildings may take advantage of these circumstances when renewing rents upwards.

(Source: CB Richard Ellis (Malaysia) Sdn Bhd)

Outlook for Hospitality Market – Penang

The hospitality industry in Penang caters to a wide range of markets ranging from business and leisure to health tourism, it is also the most vibrant economy among the states in the northern part of Peninsular Malaysia. With an expected increase in economic activities in Penang state as it attracts more investments, in the industrial and commercial / tourism sector, improved infrastructure with the opening of the Second Penang Bridge the hospitality industry is set to grow. The continued popularity of Penang as an international destination for medical tourism, supported with the opening of more hospitals will also support the hospitality industry.

International arrivals to the Penang International Airport in 2013 numbered 671,200 versus 614,000 in 2012, indicating a growth of 9.3% (statistics obtained from Penang Global Tourism) whilst domestic arrivals increased to 1.5 million last year from 1.2 million recorded in 2012. Enhanced accessibility and infrastructure through the Second Penang Bridge and the refurbished Penang International Airport further raise the state up a notch as preferred tourist destination. Several airlines such as Hong Kong Express, Dragonair and Malindo Air have started new international and domestic routes to Penang. Positive tourist arrivals coupled with the impending completion of the Subterranean Penang International Convention and Exhibition Centre (SPICE) in 2015 and the Penang Waterfront Convention Centre (PWCC) in 2017 will gear up the demand for hotel rooms. A higher level of business travelers is also anticipated from the strong performance of the industrial sector.

The supply of new hotels have been relatively stable but the trend to build niche, boutique hotels and heritage hotels (especially in the Georgetown heritage area) is expected to continue and provide choices and alternatives to hotel guests, particularly from the leisure group. As these often unique, niche hotels bring new interest and excitement into the island’s hotel market, it is also expected to affect some “larger” and conventional hotels and enhance competition in the industry.

Rooms rates of hotel are expected to continue to increase, especially among the new hotels to reflect better hotel room inventory and quality. The older hotels can be expected to be withdrawn from the market and highly likely to be upgraded and refurbished to remain competitive and appealing as more new hotels are being built in the State.

(Source: The Malaysian Quarterly, 3rd Quarter 2014 (by Jones Lang Wootton) & Knight Frank Malaysia Sdn Bhd)

10. RISK FACTORS

The Properties may be subjected to certain risks inherent in property investment and the property market. These include but are not limited to the following:

10.1  Risks relating to the Sunway Hotel Georgetown Property

(a) susceptibility of the hospitality industry to external factors outside the control of Sunway REIT and the Manager that may have an adverse effect on the operating performance of SBH and in turn on the Variable Rent receivable by Sunway REIT under the MLA for the Sunway Hotel Georgetown Property;

(b) inability of SBH to pay rental to Sunway REIT due to, amongst others, the following reasons:

(i) competition in the hospitality industry that could have an adverse effect on SBH’s financial condition and results of operations; and

(ii) downturn in the tourism sector adversely affecting the performance of the Sunway Hotel Georgetown Property; and

(c) inability and limitation of the Manager to effectively monitor the obligations of the Lessee under the MLA and to actively manage the Sunway Hotel Georgetown Property.

10.2 Risks relating to the Wisma Sunway Property

(a) the office property market is highly competitive and future new supply may adversely affect the results of operations; and

(b) the Wisma Sunway Property relies significantly on government sector tenancies and thus any adverse factors affecting this sector of the office property market could potentially have an adverse impact on the results of operations.

11. EFFECTS OF THE PROPOSED ACQUISITION 

11.1 Unit Capital and Substantial Unitholders’ Unitholding

The Proposed Acquisition will not have any effect on the total units issued and substantial unitholders’ unitholding as the Purchase Consideration will be settled entirely via cash.

11.2 NAV

The Proposed Acquisition will have no material impact or changes to the unaudited NAV of Sunway REIT at the time of completion of the Proposed Acquisition.

11.3 Earnings

The Proposed Acquisition is not expected to have any material effect on the DPU of Sunway REIT for the financial year ending 30 June 2015 since the Proposed Acquisition is only expected to be completed in the 3rd quarter of financial year 2015 and 1st quarter of financial year 2016 for the Sunway Hotel Georgetown Property and Wisma Sunway Property respectively. The Proposed Acquisition is expected to contribute positively to the future net property income of Sunway REIT following the completion of the Proposed Acquisition.

11.4 Gearing

The Manager intends to fully fund the Proposed Acquisition through its existing debt facility. The proposed debt financing will increase Sunway REIT’s gearing ratio from 32.0% as at 30 September 2014 to 33.5%.

12. APPROVALS REQUIRED FOR THE PROPOSED ACQUISITION

Under the REIT Guidelines, the Proposed Acquisition does not require the approval of the Securities Commission or the unitholders of Sunway REIT.

13. DIRECTORS' AND MAJOR UNITHOLDERS' INTERESTS

Tan Sri Dato' Seri Dr Jeffrey Cheah Fook Ling and Sarena Cheah Yean Tih are Directors of Sunway and the Manager. Dato’ Ngeow Voon Yean is a Director of the Manager as well as SBH. Dato’ Ngeow Voon Yean also has a direct interest in Sunway and a deemed interest in Sunway REIT.

Tan Sri Dato’ Seri Dr Jeffrey Cheah Fook Ling, Puan Sri Datin Seri (Dr) Susan Cheah Seok Cheng, Sarena Cheah Yean Tih, Evan Cheah Yean Shin, Sungei Way Corporation Sdn Bhd and Active Equity Sdn Bhd are major shareholders of Sunway and major unitholders of Sunway REIT.

Accordingly, Tan Sri Dato' Seri Dr Jeffrey Cheah Fook Ling, Dato’ Ngeow Voon Yean and Sarena Cheah Yean Tih have abstained from deliberation and voting in the Board of the Manager in respect of matters pertaining to the Proposed Acquisition.

Save as disclosed above, none of the other directors of the Manager or major unitholders of Sunway REIT or persons connected with them has any interest, direct or indirect, in the Proposed Acquisition.

14. THE MANAGER’S AUDIT COMMITTEE’S RECOMMENDATION

The Audit Committee of the Manager, after having considered all aspects of the Proposed Acquisition, is of the opinion that the Proposed Acquisition is in the best interests of Sunway REIT and is not detrimental to the interests of the non-interested unitholders of Sunway REIT. The Audit Committee of the Manager is of the view that the Proposed Acquisition is fair, reasonable and on normal commercial terms.

15. STATEMENT BY THE BOARD OF DIRECTORS

Save and except for Tan Sri Dato' Seri Dr Jeffrey Cheah Fook Ling, Dato’ Ngeow Voon Yean and Sarena Cheah Yean Tih, who have abstained from deliberation and voting in respect of matters pertaining to the Proposed Acquisition the Board of Directors of the Manager is of the opinion that the Proposed Acquisition is in the best interests of Sunway REIT.

16. ESTIMATED TIMEFRAME FOR COMPLETION

The Proposed Acquisition is expected to be completed upon the payment of the balance of the Purchase Price on the Completion Date or 2nd SPA Completion Date, as the case may be, pursuant to the respective sale and purchase agreements. The Completion Date or the 2nd SPA Completion Date, shall be a day falling within 3 months from the date of fulfilment of all the conditions precedent in the 1st SPA or the 2nd SPA as set out above, the latest date is expected to be some time in the 3rd quarter of financial year 2015 and 1st quarter of financial year 2016 for the Sunway Hotel Georgetown Property and Wisma Sunway Property respectively.

17. DOCUMENTS AVAILABLE FOR INSPECTION

The 1st SPA, 2nd SPA, MLA and Valuation Report are available for inspection by unitholders of Sunway REIT at the registered office of the Manager at Level 16, Menara Sunway, Jalan Lagoon Timur, Bandar Sunway, 47500 Subang Jaya, Selangor Darul Ehsan during normal business hours (9.00 a.m. to 6.00 p.m.) from Monday to Friday (except public holidays) for a period of 3 months from the date of this announcement.

This announcement is dated 8 December 2014.



Announcement Info

Company NameSUNWAY REAL ESTATE INVESTMENT TRUST  
Stock Name SUNREIT    
Date Announced8 Dec 2014  
CategoryGeneral Announcement
Reference NoSR-141208-56759

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