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Acquisition Of A Shopping Complex And Hotel Tower Together With A Basement Car Park From Wetex Realty Sdn Bhd And Lease Back Of Hotel Tower

Published : 18 Feb 2008
Announced : 18 Feb 2008

1. INTRODUCTION
On behalf of Hektar Asset Management Sdn Bhd ("Hektar AM" or "Manager"), the Manager of Hektar REIT, AmInvestment Bank Berhad ("AmInvestment Bank"), a member of the AmInvestment Bank Group wishes to announce that AmTrustee, the Trustee for Hektar REIT, has entered into the following agreements in relation to the Acquisition of Property and Lease Back of Hotel on behalf of Hektar REIT :-

i. Sale and Purchase Agreement dated 18 February 2008 between Wetex as Vendor and AmTrustee as Purchaser ("SPA") for the acquisition of the Property; and

ii. Lease Agreement dated 18 February 2008 between AmTrustee as Lessor and Wetex as Lessee ("Lease Agreement") for the lease of the Hotel.
1.1 Acquisition of Property and Lease Back of Hotel

Hektar REIT is acquiring the Property for a total lump sum cash consideration of RM117,500,000 from Wetex and is entering into a lease back arrangement with Wetex in respect of the Hotel.

The Property is being acquired free from encumbrances but subject to the terms and conditions stipulated in the aforementioned SPA.

1.2 Information on the Property

The Property is situated in the Town of Bandar Maharani, District of Muar, State of Johore. Further details are as set out below Table 1.

2. DETAILS OF THE ACQUISITION OF PROPERTY AND LEASE BACK OF HOTEL
2.1 Salient Terms and Conditions of the Acquisition of Property and Lease Back of Hotel
i. SPA
The Vendor agrees to sell and the Purchaser agrees to purchase the Property at the purchase price of Ringgit Malaysia One Hundred Seventeen Million and Five Hundred Thousand (RM117,500,000) ("Purchase Price") free from all encumbrances but subject to all conditions express or implied in the title to the lands and with the benefit of the Occupation Agreements (as defined in the SPA) and on the terms and conditions contained in the SPA. The breakdown of the Purchase Price is as Table 2.

ii. Deposit
- Prior to the execution of the SPA, the Purchaser has paid to the Vendor's Solicitors as stakeholders the sum of Ringgit Malaysia Two Million Three Hundred and Fifty Thousand (RM2,350,000) ("Earnest Deposit") being earnest deposit towards account of the Purchase Price (the receipt whereof the Vendor has acknowledged).

- Upon the execution of the SPA, the Purchaser shall pay to the Vendor's Solicitors as stakeholders the sum of Ringgit Malaysia Nine Million and Four Hundred Thousand (RM9,400,000) ("Balance Deposit"). The Earnest Deposit and Balance Deposit shall hereinafter be collectively referred to as the "Deposit".

iii. Balance Purchase Price
- The balance of the Purchase Price equivalent to Ringgit Malaysia One Hundred Five Million Seven Hundred and Fifty Thousand (RM105,750,000) ("Balance Purchase Price") shall be paid by or on behalf of the Purchaser to the Vendor within the Completion Period (as defined in the SPA).

iv. Assignment of Tenancies
- Simultaneous with the execution of the SPA, the Vendor shall execute in escrow the Deed of Assignment in respect of the Tenancies (as defined in the SPA) and deposit the Deed of Assignment with the Vendor's Solicitors who shall have the right to release to the Purchaser, the Deed of Assignment on the Completion Date (as defined in the SPA).

- On the Completion Date, the Vendor shall assign unto the Purchaser its benefits, rights, interests, obligations and liabilities under the relevant agreement for the Tenancy by a Deed of Assignment. The Vendor shall deliver the signed but unstamped Deed of Assignment to the Purchaser within three (3) Business Days from the Completion Date and the Purchaser shall bear all stamp duties in respect of the Deed of Assignment.

v. Transfer of Title
- Upon execution of the SPA, the Vendor shall execute and deliver to the Purchaser or the Purchaser's Solicitors the Transfer (as defined in the SPA).

- The Purchaser's Solicitors are hereby authorised to submit the Transfer to the Collector of Stamp Duty for adjudication (if applicable) as to the stamp duty chargeable thereon after the Unconditional Date (as defined hereinbelow).

- The Purchaser's Solicitors are authorised to present the Transfer for registration at the relevant Land Office or Registry after full payment of the Purchase Price or upon receipt of the Transfer Documents (as defined in the SPA).
2.2 Conditions Precedent to SPA and Lease Agreement

SPA

i. Conditional Agreement
- The completion of the sale and purchase of the Property shall in all respect be conditional upon the submission by the Purchaser and the acceptance by the relevant authority of the application for the State Authority Approval (as defined in the SPA) ("Condition Precedent").

- The Purchaser shall, within fourteen (14) Business Days from the date of the SPA and subject to the Vendor providing all necessary information to the Purchaser within seven (7) Business Days from the date of the SPA, submit its application for the State Authority Approval.

- The SPA shall become unconditional on the date when the Condition Precedent is satisfied ("Unconditional Date"). The Vendor's Solicitors shall release the Deposit together with the accrued interest to the Vendor on the Unconditional Date.
ii. Completion Events
On the Completion Date, the Vendor shall deliver amongst others, vacant possession of the Property (as defined in the SPA) except those parts of the Property which are tenanted or leased and legal possession of the Assets (as defined in the SPA).

iii. Lease and Lease Agreement
- Simultaneously with the execution of the SPA, the parties shall execute the Lease and the Lease Agreement (both as defined in the SPA) in or substantially in the form of the Lease Agreement attached as Exhibit 5 of the SPA and deposit the Lease with the Purchaser's Solicitors who are authorised to deal with the same in accordance with the terms of the Lease Agreement.

- Upon Completion (as defined in the SPA), the Purchaser's Solicitors shall and are authorised to effect registration of the Lease simultaneously with the registration of the Transfer.
Lease Agreement

i. Lease and Renewal

- The Lessor grants the Lease, and the Lessee accepts the Lease of the Hotel (as defined in the Lease Agreement) under the provisions of the National Land Code, 1965 upon and subject to the terms and conditions contained in the Lease Agreement.

- The ten (10) year lease term ("Term") shall commence on the date of completion of the SPA ("Lease Commencement Date") with an option for the renewal of the Lease for a further term of ten (10) years from the date falling on the tenth (10th) anniversary of the Lease Commencement Date ("the Renewed Term").
ii. Renewal
It is agreed that the Lessee may by notice in writing to the Lessor at least twelve (12) months before the expiry of the Term, request an extension of the Lease for the Hotel for the Renewed Term and the Lessor shall, provided that there shall not be at the time of such request any existing breach or non-observance of any of the covenants on the part of the Lessee hereinbefore contained, grant to the Lessee a further lease of the Hotel for the Renewed Term commencing on the tenth (10th) anniversary of the Lease Commencement Date ("Renewal Date").
2.3 Basis of the Purchase Price for the Property
Henry Butcher in its letter dated 14 August 2007 to AmTrustee, had indicated that the acquisition of the Property ("Acquisition") is valued at RM118,000,000. The Acquisition is at a discount of RM500,000, which is approximately 0.4% of the indicative market value as reported by Henry Butcher.

AmTrustee had also approved the Acquisition subject to relevant approvals obtained from relevant authorities.

2.4 Liabilities to be assumed by Hektar REIT

Hektar REIT will not assume any liabilities pursuant to the Acquisition.
2.5 Source of Funds
The Acquisition will be funded by bank borrowings.

3. INFORMATION ON THE VENDOR

Wetex is a company incorporated in Malaysia under the Companies Act, 1965 on 14 September 1981. Wetex is principally involved in property investment and operating shopping complexes and hotels. As at to date, its authorised capital is RM25,000,000 comprising 25,000,000 ordinary shares of RM1.00 each and its issued and paid-up share capital is RM16,000,000. The registered office of Wetex is at No. 67, 2nd Floor, Room B, Jalan Ali, 84000 Muar, Johor Darul Takzim.

4. RATIONALE FOR THE ACQUISITION OF PROPERTY AND LEASE BACK OF HOTEL

The Manager aims to provide the unitholders of Hektar REIT with stable distribution and to enhance the value of Hektar REIT's property portfolio over time through, inter-alia, selectively acquiring properties that meet the Manager's investment criteria. The Acquisition's rationale is as follows :-
  • Yield-accretive to Hektar REIT, providing for an expected increase in income for the financial year ending 31 December 2008;
  • Stabilised asset with potential for growth in the interim;
  • Improved income/asset diversification for Hektar REIT with new exposure to the Johor market; and
  • The lease back of Hotel is on a long-term 10-year basis and will account for only 2.7% of revenue for the financial year ending 31 December 2008.

In light of the above, Hektar REIT will maintain its primary focus on retail properties.


5. EFFECTS OF THE ACQUISITION OF PROPERTY AND LEASE BACK OF HOTEL
5.1 Unit Capital and Substantial Unitholders' Unitholding

The Acquisition will not have any effect on the total units in issue and substantial unitholders' unitholding of Hektar REIT as the purchase consideration will be paid entirely in cash.

5.2 Net Asset Value ("NAV")
The NAV is expected to improve after the Acquisition.

5.3 Earnings
For the financial year ending 31 December 2008, the Directors of Hektar AM expect the Acquisition to improve the earnings of Hektar REIT from 9.01 sen per unit (as forecasted in its Prospectus) to 9.85 sen per unit. The Directors of Hektar AM expect the Acquisition to contribute positively to the earnings of the REIT for the financial year ending 31 December 2008.

5.4 Gearing

Hektar AM intends to utilise RM117,500,000 from Hektar REIT's bank borrowings. The proposed debt financing will increase Hektar REIT's gearing ratio from 31.3% to 41.8% of unaudited total assets as at 31 December 2007, which is still below the gearing limit of 50% as prescribed by the Securities Commission's ("SC") Guidelines on Real Estate Investment Trusts ("REIT Guidelines").

6. APPROVALS REQUIRED FOR THE ACQUISITION OF PROPERTY AND LEASE BACK OF HOTEL

Pursuant to the REIT Guidelines, the valuation set out in the acquisition of the Property is not subject to approval by the SC.


7. RISK FACTORS

The Property may be subject to certain risks inherent in the property market industry. These risks include but are not limited to the following :-
  1. Non-fulfillment of the condition precedent in the SPA;
  2. Non registration of the transfer of the Property;
  3. Compulsory acquisition (as affected by any notice of acquisition or intended acquisition under the Land Acquisition Act, 1960 or other legislation of Malaysia);
  4. Non-renewal of tenancy after expiry due to change in circumstances of the Tenant;
  5. Adverse changes in national economic conditions;
  6. Adverse local market conditions;
  7. Changes in environmental laws and regulations, zoning laws and other governmental rules and fiscal policies;
  8. Changes in relative popularity of certain property types and locations leading to an oversupply/undersupply of space or an increase/reduction in tenant demand for a particular type of property in a given market; and
  9. Acts of God, uninsurable losses and other factors.
Notwithstanding the above, the Board of Directors of Hektar AM opine that the risks associated with the Acquisition are minimal.

8. ESTIMATED TIMEFRAME FOR COMPLETION

The Acquisition is expected to be completed within three (3) months from the date of the Condition Precedent being satisfied i.e. by May 2008.

9. STATEMENT BY THE BOARD OF DIRECTORS
The Board of Directors of Hektar AM having considered the rationale for the Acquisition, and after careful deliberation, is of the opinion that the Acquisition is in the best and long term interests of both Hektar AM and Hektar REIT.

10. DOCUMENTS FOR INSPECTION

The SPA and Lease Agreement are available for inspection for a period of three (3) months from the date of this announcement, at the office of Hektar AM at Block A-2-4, Plaza Damas, No. 60, Jalan Sri Hartamas 1, Sri Hartamas, 50480 Kuala Lumpur or the principal place of business of AmTrustee at 17thFloor, Bangunan AmBank Group, 55, Jalan Raja Chulan, 50200 Kuala Lumpur.

This announcement is dated 18 February 2008.


Table 1
Property's address : 69 Jalan Ali, Off Jalan Sulaiman, 84000 Muar, Johor Darul Takzim
Title nos. : (i) H.S. (D) 19633, No. Lot PTB 10586; and

(ii) GRN 84560 (formerly known as Certificate of Title
2955), Lot No. 3675
Total land area : (i) 0.4908 hectares (equivalent to 1.2128 acres); and

(ii) 641.1728 square metres
Tenure : Freehold
Gross built-up area (Mall) : 290,200 square feet
Net lettable Area (Mall) : 178,742 square feet
Occupancy in 2007 (Mall) : 94.6%
Hotel component : 156 rooms
Car parks : 190 bays
Approximate age of building : 11 years
Appraised valuation* : RM118,000,000
Note:

* Valuation dated 14 August 2007 by Henry Butcher Malaysia Sdn Bhd ("Henry Butcher")

Table 2

Particulars
Purchase Price
The Hotel
RM24,000,000.00
The Mall (inclusive of the basement car park)
RM93,500,000.00
Total Purchase Price of the Property
RM117,500,000.00