Aug 1, 2017 - PROPOSED SALE AND LEASEBACK OF THE PROPERTY HELD UNDER ... Act,2016, and is principally involved in the bu
PARAMOUNT CORPORATION BERHAD (PARAMOUNT OR THE COMPANY)
PROPOSED SALE AND LEASEBACK OF THE PROPERTY HELD UNDER TITLES H.S.(D) 216821 PT 9239, H.S.(D) 216822 PT 9240 AND H.S.(D) 216823 PT 9241, ALL SITUATED IN PEKAN BARU SUNGAI BULOH, DISTRICT OF PETALING, SELANGOR DARUL EHSAN TOGETHER WITH THE BUILDINGS ERECTED THEREON BY SRI KDU SDN BHD (FORMERLY KNOWN AS KDU SMART SCHOOL SDN BHD), A WHOLLY-OWNED SUBSIDIARY OF PARAMOUNT
1.
INTRODUCTION The Board of Directors of Paramount (Board) wishes to announce that Sri KDU Sdn Bhd (formerly known as KDU Smart School Sdn Bhd) (SKDU), a wholly-owned subsidiary of Paramount, has on 1 August 2017 entered into the following agreements with RHB Trustees Berhad (Trustee), acting as trustee for Alpha Real Estate Investment Trust (Alpha REIT): i)
a Master Agreement to dispose of the property held under titles H.S.(D) 216821 PT 9239, H.S.(D) 216822 PT 9240 and H.S.(D) 216823 PT 9241, all situated in Pekan Baru Sungai Buloh, District of Petaling, State of Selangor Darul Ehsan together with the buildings erected thereon (Sri KDU Campus or the Property) to the Trustee for a total cash sale consideration of RM165,000,000/- (Proposed Disposal); and
ii)
a Triple Net Lease Agreement (signed in escrow) to lease the Property from the Trustee for a period of ten (10) years upon completion of the Master Agreement with options to extend the lease for a first renewal term of an additional ten (10) years and a second renewal term of a further ten (10) years (Proposed Lease).
2.
INFORMATION ON THE PROPERTY
2.1
The Property comprises three parcels of leasehold land measuring in total area 48,363 square meters (Land), on which four (4) buildings with a total gross floor area of 17,319.07 square meters as described in paragraph 2.2 of this announcement (Buildings) have been erected and currently occupied by SKDU for its private and international schools, namely Sekolah Sri KDU (SSKDU) and Sri KDU International School (SKIS).
2.2
Details of the Property are as follows: Postal address
:
Nos. 3, 5 & 7, Jalan Teknologi 2/1, Kota Damansara, 47810 Petaling Jaya, Selangor Darul Ehsan
Title details
:
All of the following titles situated in Pekan Baru Sungai Buloh, District of Petaling, Selangor Darul Ehsan: Title No: H.S. (D) 216821 H.S. (D) 216822 H.S. (D) 216823
PT No: PT 9239 PT 9240 PT 9241 Total
Land Area (square meters) 17,679 14,952 15,732 48,363
Land lease tenure
:
99 years commencing from 26 January 2005 up to 25 January 2104
Category of land use
:
Building
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Existing use
:
Description of buildings
:
School buildings Description
Age (years)
Current occupancy
i)
Three-storey primary school building (Block A)
15
100% by SSKDU
ii)
Four-storey primary school building (Block B)
15
100% by SSKDU
iii) Three-storey secondary school building
6
100% by SSKDU
iv) Six-storey international school building with an annexed single-storey car park and sports facilities complex
6
Gross floor area (square meters)
17,319.07
100% by SKIS
Net book value (NBV)
:
RM87,034,000/- based on the latest audited financial statements of SKDU for the financial year ended 31 December 2016 (FY2016)
Original cost of investment in the Property
:
A total cost of approximately RM102,542,000/- (land, development and renovation costs) was invested in the Property over a period of 15 years from 2002, the year of investment, to 2017, the year of disposal
Encumbrances
:
None
Valuation as appraised by Jones Lang Wootton based on its Valuation Report dated 27 July 2017
:
RM165,000,000/- based on the Investment method of valuation
3.
INFORMATION ON SKDU, ALPHA REIT AND THE TRUSTEE
3.1
SKDU SKDU is a company incorporated in Malaysia on 15 August 2001 under the previously enacted Companies Act, 1965 (CA1965) which has been repealed and replaced by the new Companies Act,2016, and is principally involved in the business of operating private and international schools at the Sri KDU Campus. Currently, SKDU has a paid-up share capital of RM21,800,000/represented by 20,000,000 ordinary shares and 360 non-cumulative redeemable convertible preference shares, all of which are held by Paramount.
3.2.
ALPHA REIT Alpha REIT is an unlisted Islamic real estate investment trust constituted pursuant to a Deed of Trust dated 29 June 2017 entered into between the Trustee and Alpha REIT Managers Sdn Bhd. It is regulated by the Securities Commission (SC) under the Securities Commission Act, 1993 and
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the SC’s Guidelines on Real Estate Investment Trusts. Alpha REIT will be issuing a total of 346,000,000 units of RM1/- each. The Employees Provident Fund has undertaken to subscribe for 100% of the units to be issued. Alpha REIT was established with the objective of investing in a portfolio of income-generating real estate assets primarily used for education and education related purposes. Alpha REIT is managed by Alpha REIT Managers Sdn Bhd. 3.3.
THE TRUSTEE The Trustee is a company incorporated in Malaysia on 6 March 2002 under the CA1965. It is registered as a trust company under the Trust Companies Act, 1949. Its principal activity is to provide professional retail trustee services (will writing, estate planning and private trust) and corporate trustee services (collective investment schemes). Currently, the Trustee has a paid-up share capital of RM12,000,000.00 represented by 1,200,000 ordinary shares, which are held by RHB Bank Behad, RHB Nominees (Asing) Sdn Bhd, RHB Investment Bank Berhad, RHB Nominees (Tempatan) Sdn Bhd and RHB Futures and Options Sdn Bhd.
4.
THE SALE CONSIDERATION
4.1
The sale consideration of RM165,000,000/- (Sale Consideration), which is subject to Goods and Services Tax of 6%, was arrived at on a ‘willing-buyer willing-seller’ basis after taking into consideration the NBV of the Property as at 31 December 2016 and the valuation as appraised by Jones Lang Wootton.
4.2
Subject to the terms of the Master Agreement, the Sale Consideration shall be satisfied by way of payment of the following amounts by the Trustee to the Trustee’s solicitor, acting as stakeholder: i)
the sum of RM16,500,000/-, equivalent to 10% of the Sale Consideration (Deposit), simultaneously upon the execution of the Master Agreement; and
ii)
the sum of RM148,500,000/-, being the remaining 90% of the Sale Consideration (Balance Sale Consideration), within a period of three (3) months from the Effective Date, being the date of fulfilment (or waiver, as the case may be) of the last Conditions Precedent as highlighted in item 5 of this announcement (Completion Period) or an extended period of one (1) month commencing from the expiry of the Completion Period or such other period as may be mutually agreed between the parties (Extended Completion Period).
4.3
If the Conditions Precedent are fulfilled within the Conditional Period, being four months from the date of execution of the Master Agreement, the stakeholder shall release to SKDU the Deposit together with all income accrued thereon within five (5) business days from the Effective Date, and the Balance Sale Consideration within the Completion Period or the Extended Completion Period.
5.
SALIENT TERMS OF THE AGREEMENTS
5.1
Master Agreement for the Proposed Disposal
5.1.1
The completion of the Master Agreement is subject to the fulfilment of the following Conditions Precedent:
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i)
the Trustee having conducted a due diligence review of the Property and being satisfied with the results of the due diligence review by way of issuing a letter to SKDU confirming the same;
ii)
the Trustee having obtained a written confirmation from the Economic Planning Unit (EPU) in the Prime Minister’s Department that the approval in writing of EPU on the Trustee’s acquisition of the Property from SKDU is not required;
iii)
SKDU having obtained a written consent of the Selangor state authority to the disposal and transfer of the Land by SKDU to the Trustee (Land Transfer);
iv)
in the event any approval, licence, permit or consent of any regulatory authorities is required for the continued use of the Buildings by SKDU, the Trustee shall obtain all such approvals, licences, permits and/or consents as the case may be; and
v)
all applicable documents and agreements in connection with the Proposed Lease, including the Triple Net Lease Agreement, having been signed in escrow by the parties and delivered to the Trustee’s solicitor, acting as stakeholder, with irrevocable instructions from SKDU to the Trustee to do all things necessary or appropriate to perfect the Proposed Lease after the completion of the Master Agreement.
5.1.2
In the event any of the Conditions Precedent is not satisfied within the Conditional Period, the Trustee may terminate the Master Agreement by giving notice in writing to SKDU, upon which, the Deposit together with all income accrued thereon shall be refunded by the stakeholder to the Trustee.
5.2
Triple Net Lease Agreement for the Proposed Lease i)
Subject to and conditional upon the completion of the Master Agreement, the Trustee (Lessor) agrees to lease and SKDU (Lessee) agrees to accept the lease of the Buildings together with certain fixtures and fittings (Demised Premises) on an ‘as is where is’ basis for a period of ten (10) years commencing from one (1) day after the completion of the Master Agreement (Lease Commencement Date) with options to extend the lease for a first renewal term of an additional ten (10) years and a second renewal term of a further ten (10) years.
ii)
If the Master Agreement is completed but for any reason whatsoever the Land Transfer could not be registered with the Land Registry, the Triple Net Lease Agreement shall remain valid and binding upon the parties and shall continue to operate as a valid and effective agreement to the Proposed Lease.
iii)
SKDU shall be deemed to have accepted vacant possession of the Demised Premises in good tenantable condition and acceptable to SKDU on the Lease Commencement Date, and the Trustee is not obligated to make good, repair or replace any fixtures and fittings or any part of the Buildings.
iv)
The Triple Net Lease Agreement places responsibility on the Lessee for all costs relating to the lease of the Property including all rates and outgoings, takaful coverage and the maintenance and repair of the fixtures and fittings listed in the Triple Net Lease Agreement, in addition to the rent payable to the Lessor.
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6.
UTILISATION OF PROCEEDS The total proceeds of RM165,000,000/- is intended to be utilised in the following manner: Utilisation
Amount (RM’ million)
Estimated time frame for utilisation from the completion of the Master Agreement Immediately
i)
Estimated expenses in relation to the Proposed Disposal and the Proposed Lease
ii)
Cut back on leverage for the Paramount Group of Companies
iii)
Reward to shareholders
31.8
Within six months
iv)
Working capital of the Group
19.7
Within six months
0.5
113.0
Within three months
165.0 Should the actual amount utilised for any of the first three (3) items vary from the above estimates, the amount allocated for working capital shall be adjusted accordingly.
7.
RATIONALE FOR THE PROPOSED DISPOSAL AND THE PROPOSED LEASE The Proposed Disposal is in line with the Group’s plan to pursue an asset light strategy. Monetising the Group’s real estate assets through this sale-leaseback transaction enables it to unlock capital resources from being tied up in long term assets, providing growth capital and allowing the Group to focus on its core activities to ultimately better reward shareholders. The Proposed Lease safeguards SKDU’s operations allowing it to continue its business at its existing business premises without any disruption while locking in rental rates over a long-term period of ten (10) years with options to extend the term of the lease for another twenty (20) years thereby eliminating the risk of volatility in rental rates.
8.
FINANCIAL EFFECTS OF THE PROPOSED DISPOSAL AND THE PROPOSED LEASE
8.1
Share capital The Proposed Disposal and the Proposed Lease will not have any effect on the issued share capital of Paramount, as the transactions do not involve any issuance of shares.
8.2
Net assets (NA) per share, earnings per share (EPS) and gearing The proforma effects of the Proposed Disposal on the consolidated NA per share, EPS and gearing of Paramount are set out below:
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NA (RM’000) NA per share (RM) Basic EPS (sen) Gearing (times)
Audited as at 31 December 2016 934,636 2.21 17.74 0.56
After the Proposed Disposal 1,007,534 2.38 34.98 0.43
Based on the audited consolidated financial statements of the Company for FY2016, the Proposed Disposal will result in a proforma gain on disposal of approximately RM72.90 million to the Group. The Proposed Lease is not expected to have any material effect on the consolidated NA per share of Paramount or the consolidated gearing of Paramount for the financial year ending 31 December 2017 (FY2017). 8.3
Substantial shareholders’ shareholding The Proposed Disposal and the Proposed Lease will not have any effect on the substantial shareholders’ shareholding structure of Paramount, as the transactions do not involve any issuance of shares.
9.
APPROVALS OR CONSENTS REQUIRED As stated in item 5.1 (iii) above, the consent of the Selangor state authority is required for the Land Transfer, and the creation of the Proposed Lease also requires the consent of the Selangor state authority. The Proposed Disposal and the Proposed Lease are not subject to the approval of the shareholders of Paramount.
10.
INTERESTS OF DIRECTORS, MAJOR SHAREHOLDERS AND/OR PERSONS CONNECTED WITH THEM None of the Company’s Directors, major shareholders or persons connected with them have any interest, direct or indirect, in the Proposed Disposal and the Proposed Lease.
11.
DIRECTORS’ STATEMENT The Board, having considered all aspects of the Proposed Disposal and the Proposed Lease, is of the opinion that the two transactions are in the best interest of the Group.
12.
HIGHEST PERCENTAGE RATIO APPLICABLE TO THE PROPOSED DISPOSAL The highest percentage ratio applicable to the Proposed Disposal pursuant to paragraph 10.02(g) of the Main Market Listing Requirements (MMLR) of Bursa Malaysia Securities Berhad (BMSB) is 17.65% based on the audited financial statements of Paramount for FY2016.
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The Proposed Lease is not subject to the requirements of paragraph 10.02(g) of the MMLR of BMSB.
13.
ESTIMATED TIMEFRAME FOR COMPLETION OF THE PROPOSED DISPOSAL AND COMMENCEMENT OF THE PROPOSED LEASE Barring any unforeseen circumstances, the Proposed Disposal is expected to be completed by the fourth quarter of 2017. The Proposed Lease will commence on the Lease Commencement Date, being one (1) day after the completion of the Master Agreement.
14.
DOCUMENTS AVAILABLE FOR INSPECTION Copies of the following documents are available for inspection by the shareholders of Paramount at the registered office of Paramount at Level 8, Uptown 1, 1 Jalan SS21/58, Damansara Uptown, 47400 Petaling Jaya, Selangor Darul Ehsan, during normal office hours from Mondays to Fridays (except public holidays) for a period of three (3) months from the date of this announcement: i) ii) iii)
the Master Agreement; the Triple Net Lease Agreement; and Jones Lang Wootton’s Valuation Report dated 27 July 2017.
This announcement is dated 1 August 2017.
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