CONNECTED TRANSACTIONS

Transcription

1 OVERVIEW We have entered into a number of continuing transactions with our connected persons in our ordinary and usual course of business. Upon the [REDACTED] of our Shares on the Stock Exchange, the transactions disclosed under this section will constitute continuing connected transactions under Chapter 14A of the Listing Rules. CONNECTED PERSONS We have entered into certain transactions with the following parties which will become our connected persons upon [REDACTED]: 1. Dexin Holding Dexin Holding is owned as to 91.61% and 8.39% by Mr. Hu Yiping, our executive Director and Controlling Shareholder, and Mr. Hu Shihao, our non-executive Director and Controlling Shareholder, respectively. Hence, Dexin Holding is an associate of Mr. Hu Yiping and Mr. Hu Shihao, and a connected person of our Company upon [REDACTED]. 2. Deqing Fanchuang Investment Management Co., Ltd.* ( ) ( Deqing Fanchuang ) Deqing Fanchuang is a company established under the laws of the PRC with limited liability on March 1, It is principally engaged in investment management and consultation services. Deqing Fanchuang is wholly-owned by Fanchuang Investment Co., Ltd.* ( ) ( Fanchuang Investment ). Fanchuang Investment is wholly-owned by Dexin Holding. Hence, Deqing Fanchuang is an associate of Mr. Hu Yiping and Mr. Hu Shihao, and a connected person of our Company upon [REDACTED]. 3. ShengQuan Property Service Co., Ltd. ( ) ( ShengQuan Property Service ) ShengQuan Property Service is a company established under the laws of the PRC and listed on the National Equities Exchange and Quotations with stock code It is principally engaged in property management business. ShengQuan Property Service is owned as to 74.8% by Shengquan Holding Co., Ltd.* ( ) ( Shengquan Holding ). Shengquan Holding is whollyowned by Dexin Holding. Hence, ShengQuan Property Service is an associate of Mr. Hu Yiping and Mr. Hu Shihao, and a connected person of our Company upon [REDACTED]. 4. Zhejiang Geya Decoration Co., Ltd.* ( ) ( Zhejiang Geya Decoration ) Zhejiang Geya Decoration is a company established under the laws of the PRC with limited liability on November 16, It is principally engaged in the provision of decoration and related services for properties in the PRC. Zhejiang Geya Decoration is owned as to 91.43% by Mr. Hu Yuegen, the brother of Mr. Hu Yiping who is our executive Director and Controlling Shareholder. Hence, Zhejiang Geya Decoration is an associate of Mr. Hu Yiping, and a connected person of our Company upon [REDACTED]. 323

2 5. Kylin Investment Management Co., Ltd.* ( ) ( Kylin Investment ) Kylin Investment is a company established under the laws of the PRC with limited liability on December 16, It is principally engaged in assets management, wealth management and other financial services including investment in property development and refurbishment projects in the PRC. Kylin Investment is wholly-owned by Zhejiang Kylin Holding Co., Ltd.* ( ) ( Kylin Holding ). Kylin Holding is owned as to 37.5% by Deqing Bochen Investment Partnership (Limited Partnership)* ( ( )) ( Deqing Bochen ) and the remaining 62.5% equity interest in Kylin Holding is held by four Independent Third Parties, each holding not more than 25% equity interest. Ms. Zhu Hong, the director of our subsidiary Dexin Real Estate in the last 12 months, has control over Deqing Bochen as its general partner. As Kylin Investment is the wholly-owned subsidiary of Kylin Holding, it is deemed to be controlled by Ms. Zhu Hong). Hence, Kylin Investment is an associate of Ms. Zhu Hong, and a connected person of our Company upon [REDACTED]. As Ms. Zhu Hong will cease to be our connected person upon the expiration of 12 months from the date she ceased to be a director of our subsidiary, accordingly Kylin Investment will cease to be our connected person from January 8, 2019 onwards. WHOLLY-EXEMPT CONTINUING We set out below a summary of the continuing connected transactions for our Company which will constitute continuing connected transactions for our Company exempt from the reporting, annual review, announcement, circular and independent Shareholders approval requirements under Chapter 14A of the Listing Rules. Trademark License Agreement Our Company (for itself and on behalf of its subsidiaries) and Dexin Holding entered into a trademark license agreement dated [REDACTED] in respect of certain trademarks registered in the PRC (the Trademark License Agreement ). Pursuant to the Trademark License Agreement, Dexin Holding agreed to irrevocably license certain trademarks in the PRC to our Group at nil consideration on an exclusive and non-assignable basis for our use in connection with our operations for a term of 10 years commencing from the date of the Trademark License Agreement, and may be renewed by mutual agreement of both parties for a period of three years for each three year from the initial expiry date, subject to compliance with the Listing Rules and the relevant laws and regulations. For details of our licensed trademarks, see Appendix V Statutory and General Information B. Further Information about the Business of the Company 2. Our Material Intellectual Property Rights and Business Intellectual Property. We have been using the licensed trademarks in connection with our business conducted over the years. As such, in order to maintain the consistency of our market image, we will continue to use the licensed trademarks after [REDACTED]. Our Directors are of the view that (i) the licensed trademarks are essential to our business, which, to a significant extent is built on brand recognition, and a longer duration of the license term will afford a greater degree of stability and continuity to our business; and (ii) it is normal business practice for license agreement of this term to be of a term of 10 years. The Sole Sponsor concurs with the view of our Directors. As the grant of the rights to use these trademarks in the PRC by Dexin Holding to our Group is on a royalty-free basis, the applicable percentage ratios (other than the profits ratio) calculated for the purpose of Chapter 14A of the Listing Rules for the transactions under the Trademark License Agreement is expected to be less than 0.1% on an annual basis. Accordingly, the transactions under the Trademark License Agreement fall within the de minimis threshold under Rule 14A.76(1)(a) of the Listing Rules and are exempt from the annual review, reporting, announcement, circular and independent Shareholders approval requirements under Chapter 14A of the Listing Rules. 324

3 Property Lease Agreement On April 24, 2017, Deqing Delan Real Estate Co., Ltd.* ( ) ( Deqing Delan ), our wholly owned subsidiary, entered into a property lease agreement with Deqing Fanchuang (as varied and modified on May 30, 2018) (the Property Lease Agreement ). Pursuant to the Property Lease Agreement, Deqing Delan agreed to lease to Deqing Fanchuang a property owned by it located at 14th Floor, Office Building, Block 6, Delan Plaza, No. 957 Beihu East Street, Wukang Jiedao, Deqing ( ) with a total gross floor area of 989 sq.m. (the Office Property ) with car parking spaces Nos. 7, 8, 9, 42, 43 and 44 (collectively, the Deqing Delan Property ) for a term commencing from August 1, 2017 and ending on July 30, 2019 at an annual rental of RMB520,000 for the first year and RMB540,000 for the second year. The Office Property is used as office premises by Deqing Fanchuang. For each of the three years ended December 31, 2015, 2016 and 2017 and the six months ended June 30, 2018, the total amount of rental payable by Deqing Fanchuang to us for the Deqing Delan Property amounted to nil, nil, RMB156,000 and RMB312,000 respectively. The annual rental payable by Deqing Fanchuang to us for under the Property Lease Agreement will be RMB589,000 and RMB315,000 for each of the two years ended December 31, 2019, which is determined by the parties through arm s length negotiations with reference to the prevailing market rate for similar premises where the Deqing Delan Property is located. Savills Valuation and Professional Services Limited, our independent property valuer, has reviewed the Property Lease Agreement and conducted market research on the leasing market in Deqing. Savills Valuation and Professional Services Limited confirmed that the current annual rental paid by Deqing Fanchuang to our Group under the Property Lease Agreement is at current market level and the other commercial terms of the Property Lease Agreement are on normal commercial terms under the current prevailing market conditions and are considered fair and reasonable and are no more favorable to Deqing Fanchuang than that we offer to an Independent Third Party. Our Directors confirmed that the transactions under the Property Lease Agreement are in the ordinary course of our business, on normal commercial terms or on terms no more favorable than those offered to Independent Third Parties, fair and reasonable and in the interests of our Group and our Shareholders as a whole. As each of the applicable percentage ratios (other than the profits ratio) calculated for the purpose of Chapter 14A of the Listing Rules for the transactions under the Property Lease Agreement is expected to be less than 0.1% on an annual basis, the transactions contemplated under the Property Lease Agreement fall within the de minimis threshold under Rule 14A.76(1)(a) of the Listing Rules and are exempt from the annual review, reporting, announcement, circular and independent Shareholders approval requirements under Chapter 14A of the Listing Rules. NON-EXEMPT CONTINUING We set out below a summary of the continuing connected transactions for our Group, which are, under the Listing Rules, subject to the reporting, annual review and announcement requirements but are exempt from the independent Shareholders approval requirement under Chapter 14A of the Listing Rules. 325

4 1. Provision of Property Management Services to our Group We do not engage in the provision of property management services and therefore the property management services of our property projects have been provided by third-party service providers, including ShengQuan Property Service, one of our connected persons upon [REDACTED], details of which are set out below. Parties: (a) ShengQuan Property Service (for itself and on behalf of its subsidiaries) (as service provider); and (b) our Company (for itself and on behalf of its subsidiaries) (as services recipient) ShengQuan Property Service has been engaged by us by way of tender during the Track Record Period. As of the Latest Practicable Date, ShengQuan Property Service provided property management services for most of our property projects. We entered into a framework agreement with ShengQuan Property Service (for itself and on behalf of its subsidiaries) on [REDACTED], to regulate our transactions with ShengQuan Property Service in relation to (i) the provision of pre-delivery property management services, including but not limited to security, cleaning, gardening, repair and maintenance of common area and shared facilities; and (ii) the provision of management and related services to the display units, sales offices and common area of our properties during the sales period of the property projects and prior to the delivery of the properties to the purchasers, including but not limited to cleaning, gardening, concierge, maintenance of public order and security services to the aforesaid venues (the Framework Property Management Service Agreement ). The Framework Property Management Services Agreement shall become effective from the [REDACTED] and up to and including December 31, 2020 and the term may be renewed as the parties may mutually agree, subject to compliance with the requirements under Chapter 14A of the Listing Rules and all other applicable laws and regulations. (a) Principal Terms of the Framework Property Management Service Agreement (i) Pre-Delivery Property Management Services to our Property Projects (1) ShengQuan Property Service shall, where it is selected following the tender processes in accordance with the relevant pre-delivery property management laws and regulations, provide management and related services to our Group according to the tender documents and definitive management agreements to be entered into between ShengQuan Property Service and members of our Group from time to time; (2) the management fees payable by our Group shall be based on the fee quotes to be submitted by ShengQuan Property Service under the relevant tender bids and the pricing terms shall not be higher than the guidance rate set by the relevant government authorities; and (3) the definitive management agreement to be entered into between ShengQuan Property Service and members of our Group shall only contain provisions which are, in all material aspects, consistent with the binding principles, guidelines, terms and conditions set out in the Framework Property Management Service Agreement. 326

5 (ii) Management Services to Display Units, Sales Offices and Common Area of our Property Projects (1) ShengQuan Property Service shall, where it is selected following the relevant tender processes, provide management and related services to our Group according to the tender documents and definitive management services agreements to be entered into between ShengQuan Real Estate Service and members of our Group from time to time; (2) we will endeavor to solicit at least two Independent Third Parties to participate in the tender process; (3) the management fees payable by our Group shall be based on the fee quotes to be submitted by ShengQuan Property Service under the relevant tender bids which will be subject to the selection procedure set out under the subsection Tender Process and Selection Procedure after [REDACTED] below; and (4) the definitive management services agreement to be entered into between ShengQuan Property Service and members of our Group shall only contain provisions which are, in all material aspects, consistent with the binding principles, guidelines, terms and conditions set out in the Framework Property Management Service Agreement. (b) Reasons for and Benefits of the Transaction (i) Pre-Delivery Property Management Services to our Property Projects Before newly developed properties are delivered to future property owners, a property developer usually seeks to engage a property management company by entering into pre-delivery property management services agreement. The purpose is primarily to ensure availability of property management services before the property owners association could be lawfully established and contract with the property management company directly. These property management services typically include security, cleaning, gardening, repair and maintenance of common area and shared facilities. Taking into account various factors such as credentials, fee quote and quality of services, ShengQuan Property Service had been engaged by us for the provision of pre-delivery property management services for most of our property projects, by way of tender in accordance with the relevant pre-delivery property management laws and regulations, during the Track Record Period and as of the Latest Practicable Date. ShengQuan Property Service also provides pre-delivery property management services to other third party customers other than our Group. Based on the established long-term cooperation relationship between ShengQuan Property Service and our Group, ShengQuan Property Service has a track record of providing reliable, efficient and satisfactory pre-delivery property management services to our Group. As compared to other service providers who are Independent Third Parties, it generally maintains better and more efficient communication with our Group and more thorough understanding of the conditions of our property projects and our requirements of the services needed. 327

6 Notwithstanding the above, in light of the number of pre-delivery property management service providers in the market, it is expected that in the event that ShengQuan Property Service ceases to provide such management services to us, there will also be other comparable pre-delivery property management service providers readily available in the market for the provision of pre-delivery property management services to our Group. As such, our Directors (including the independent non-executive Directors) are of the view that there will not be any negative impact from the perspective of our operational independence from the Controlling Shareholders in case ShengQuan Property Service ceases to provide pre-delivery property management services to our Group. For more details, please see Relationship with Controlling Shareholders Independence from our Controlling Shareholders Operational Independence. (ii) Management Services to Display Units, Sales Offices and Common Area of our Property Projects Due to the foot traffic at the display units, sales offices and common area of property projects, property developers typically engage property management companies to provide consistent management services such as cleaning, security, maintenance and concierge services. We do not engage in the provision of the relevant management services and therefore the management and related services to the display units, sales offices and common area of our property projects during the sales period of the property projects and prior to the delivery of the properties to the purchasers have also been provided by ShengQuan Property Service. Taking into account various factors such as credentials, fee quote and quality of services, ShengQuan Property Service had been engaged by us as the management service provider for substantially all of our display units, sales offices and common area of our property projects during the sales period of the property projects and prior to the delivery of the properties to the purchasers during the Track Record Period and up to the Latest Practicable Date. We will continue to adopt the tender process for the engagement of management service providers after [REDACTED], more details of which are set out under subsection Tender Process and Selection Procedure after [REDACTED] below. ShengQuan Property Service also provides management and related services to the display units, sales offices and common area of property projects to other third party customers other than our Group. Notwithstanding the above, in light of the number of other independent management service providers that had participated in our previous projects, it is expected that in the event ShengQuan Property Service ceases to provide such management services to us, there will also be other comparable management service providers readily available in the market for the provision of management and related services to our Group. As such, our Directors (including the independent non-executive Directors) are of the view that there will not be any negative impact from the perspective of our operational independence from the Controlling Shareholders in case ShengQuan Property Service ceases to provide management and related services to the Group. For more details, please see Relationship with Controlling Shareholders Independence from our Controlling Shareholders Operational Independence. 328

7 (c) Pricing Terms under the Framework Property Management Service Agreement (i) Pre-Delivery Property Management Services to our Property Projects The pre-delivery property management service fees payable by our Group shall be based on the fee quotes to be submitted by ShengQuan Property Service under the relevant tender process. The bids review shall assess (i) the qualification of the potential bidder; (ii) the bidder s relevant experience in the property management service industry; (iii) the price as quoted by the bidder, which shall not be higher than the guidance rate set by the relevant government authorities; (iv) the quality of the property management service to be offered; (v) how the service proposal submitted is able to satisfy our specific needs for the relevant property projects; and (vi) whether the service proposal is congruent with our corporate culture. The tender evaluation criteria and the relevant weighting of those criteria are pre-determined before the tender bids are invited. The successful bidder and the service rate it offers will be published on the website of relevant government authorities. The term of the pre-delivery property management services ends when the relevant property owners association of our property project is established, as the property owners association is responsible for selecting property management service provider and entering into relevant property management services agreement with such provider on behalf of all property owners. (ii) Management Services to Display Units, Sales Offices and Common Area of our Property Projects The management fees in respect of management services to display units, sales offices and common area of our property projects payable by our Group shall be based on the fee quotes submitted by ShengQuan Property Service under the tender bids, taking into account a wide range of factors such as the nature, age and infrastructure features of the relevant property projects, geographic location, neighborhood profile and the scope of services to be provided. We shall also determine the fees with reference to the fees quoted by other independent and comparable management service providers to our Group under normal commercial terms in the ordinary course of its business. The fee quotes submitted to us will be subject to the tender process set out under subsection Tender Process and Selection Procedure after [REDACTED] below. The term of the management and related services to the display units, sales offices and common area of our property projects typically end when the facilities are no longer in use and the properties are delivered to subsequent property owners. 329

8 (d) Historical Transaction Amounts The following table sets out the total property management service fees paid by us to ShengQuan Property Service in relation to (i) the provision of pre-delivery property management and (ii) the provision of management and related services to the display units, sales offices and common area of our property projects during the sales period of the property projects and prior to the delivery of the properties to the purchasers by ShengQuan Property Service during the Track Record Period: Historical transaction amount (RMB in thousands) Year ended December 31, Six months ended June 30, ,209 18,220 24,212 10,752 As we expect an increasing number of property projects approaching completion and for which we will commence sales period in the second half of 2018, the historical figure for the six months ended June 30, 2018 is not indicative of the estimated aggregate management fees to be paid by us for the full year in (e) Annual Caps The following table sets out the estimated maximum aggregate management service fees to be paid by us to ShengQuan Property Service in relation to (i) the provision of pre-delivery property management and (ii) the provision of management and related services to the display units, sales offices and common area of our property projects during the sales period of the property projects and prior to the delivery of the properties to the purchasers by ShengQuan Property Service for each of the three years ending December 31, 2020: Annual cap for the year ended December 31, (RMB in thousands) 31,000 46,600 68,500 In arriving at the above annual caps, we have taken into account the estimated total amounts of management fees payable by our Group in relation to (i) the current property projects which we had engaged ShengQuan Property Service as management service provider in the provision of such management services and (ii) the projected new property projects that we may engage ShengQuan Property Service for the provision of such management services for the three years ending December 31, The annual caps are determined with reference to the subsequent projected increase in demand for such management services as a result of our expected growth in the sales of our property projects in the next three years and on the assumption that the labor costs and material costs in the PRC will increase steadily in the next three years. As we expect that the number of property projects that are expected to be delivered by us as well as the number of property projects that will commence sales period shall increase constantly, which will drive the demand for management services to our property projects, we expect a constant increase in the annual caps for the three years ending December 31, 2020 as compared to the historical transaction amounts during the Track Record Period. 330

9 (f) Implication under the Listing Rules As one or more of the applicable percentage ratios (other than the profits ratio) of the proposed annual caps in respect of the property management services under the Framework Property Management Service Agreement exceed 0.1% but are all less than 5% on an annual basis, the property management services under the Framework Property Management Service Agreement and the proposed annual caps for each of the three years ending December 31, 2020 are subject to the reporting, annual review and announcement requirements but are exempt from the independent Shareholders approval requirement under Rule 14A.76(2) of the Listing Rules. 2. Provision of Decoration Services to our Group We do not engage in the provision of decoration services and therefore engage third-party service providers, including Zhejiang Geya Decoration, one of our connected persons upon [REDACTED], to provide such services to us. Parties: (a) Zhejiang Geya Decoration (for itself and on behalf of its subsidiaries) (as service provider); and (b) our Company (for itself and on behalf of its subsidiaries) (as service recipient) We entered into a framework decoration service agreement with Zhejiang Geya Decoration (the Framework Decoration Service Agreement ) on [REDACTED], to regulate our transactions with Zhejiang Geya Decoration in relation to the provision of decoration and related services to our properties, including but not limited to fine decoration of apartments, decoration of common area and installation of doors, windows and curtain wall. The Framework Decoration Service Agreement shall become effective from the [REDACTED] and up to and including December 31, 2020 and the term may be renewed as the parties may mutually agree, subject to compliance with the requirements under Chapter 14A of the Listing Rules and all other applicable laws and regulations. (a) Principal Terms of the Framework Decoration Service Agreement (1) Zhejiang Geya Decoration shall provide decoration and related services to our Group according to the definitive decoration services agreements to be entered into between Zhejiang Geya Decoration and members of our Group from time to time; (2) we will endeavor to solicit at least two Independent Third Parties to participate in the selection procedures; (3) the decoration fees payable by our Group shall be based on the fee quotes to be submitted by Zhejiang Geya Decoration under selection procedures; and (4) the definitive decoration services agreement to be entered into between Zhejiang Geya Decoration and members of our Group shall only contain provisions which are, in all material aspects, consistent with the binding principles, guidelines, terms and conditions set out in the Framework Decoration Service Agreement. 331

10 (b) Reasons for and Benefits of the Transaction We do not engage in the provision of the relevant decoration services and therefore the decoration and related services to our properties have been provided by third-party service providers, such as Zhejiang Geya Decoration. Taking into account various factors such as credentials, fee quote, qualification, experience and quality of services, Zhejiang Geya Decoration had been engaged by us as the decoration service provider for some of our properties during the Track Record Period and up to the Latest Practicable Date. We will continue to adopt the selection procedure for the engagement of decoration service providers after [REDACTED], more details of which are set out under subsection Tender Process and Selection Procedure after [REDACTED] below. Zhejiang Geya Decoration also provides decoration and related services to other third party customers other than our Group. Notwithstanding the above, in light of the number of other independent decoration service providers that had been participated in our previous projects, it is expected that in the event that Zhejiang Geya Decoration ceases to provide such decoration services to us, there will also be other comparable decoration service providers readily available in the market for the provision of decoration and related services to our Group. As such, our Directors (including the independent non-executive Directors) are of the view that there will not be any negative impact from the perspective of our operational independence from the Controlling Shareholders in case Zhejiang Geya Decoration ceases to provide decoration and related services to the Group. (c) Pricing Terms under the Framework Decoration Service Agreement The decoration fees payable by our Group shall be based on the fee quotes submitted by Zhejiang Geya Decoration, taking into account a wide range of factors such as the nature and conditions of the relevant property projects and the scope of services to be provided. We shall also determine the fees with reference to the fees quoted by other independent and comparable decoration service providers to our Group under normal commercial terms in the ordinary course of its business. The fee quotes submitted to us will be subject to the selection procedure set out under subsection Tender Process and Selection Procedure after [REDACTED] below. (d) Historical Transaction Amounts The following table sets out the total decoration service fees incurred by us to the provision of decoration and related services to our properties by Zhejiang Geya Decoration during the Track Record Period: Historical transaction amount (RMB in thousands) Year ended December 31, Six months ended June 30, ,656 68,500 31,116 35,685 There was a significant decrease in expenses in relation to the provision of decoration and related services by Zhejiang Geya Decoration in 2017 as compared to such expenses in 2016 as the number of decoration work to our Hangzhou and Huzhou property projects completed by Zhejiang Geya was decreased in

11 (e) Annual caps The following table sets out the estimated maximum aggregate decoration service fees to be paid by us to Zhejiang Geya Decoration in relation to the provision of decoration and related services to our properties by Zhejiang Geya Decoration for each of the three years ending December 31, 2020: Annual cap for the year ended December 31, (RMB in thousands) 70,000 77,000 84,700 The term of the decoration and related services to our properties typically end when the decoration work is finished and delivered to our Group. In arriving at the above annual caps, we have taken into account the estimated total amounts of decoration fees payable by our Group in relation to (i) the current property projects which we had engaged Zhejiang Geya Decoration as decoration service provider in the provision of such decoration services and (ii) the projected new property projects that we may engage Zhejiang Geya Decoration for the provision of such decoration services for the three years ending December 31, The annual caps are determined with reference to the subsequent projected increase in demand for decoration services to our properties as a result of our expected growth in the sales of our property projects in the next three years and on the assumption that the labor costs and material costs in the PRC will increase steadily in the next three years. As we expect that the number of property projects that will be completed for sale shall increase constantly, which will drive the demand for decoration services to our properties, we expect a constant increase in the annual caps for the three years ending December 31, 2020 as compared to the historical transaction amounts during the Track Record Period. (f) Implication under the Listing Rules As one or more of the applicable percentage ratios (other than the profits ratio) of the proposed annual caps in respect of the decoration and related services under the Framework Decoration Service Agreement exceed 0.1% but are all less than 5% on an annual basis, the decoration and related services under the Framework Decoration Service Agreement and the proposed annual caps for each of the three years ending December 31, 2020 are subject to the reporting, annual review and announcement requirements but are exempt from the independent Shareholders approval requirement under Rule 14A.76 (2) of the Listing Rules. 333

12 3. Provision of Fund Management Services to our Group Parties: (a) Kylin Investment (for itself and on behalf of its subsidiaries) (as service provider); and (b) our Company (for itself and on behalf of its subsidiaries) (as service recipient) During the Track Record Period and up to June 30, 2018, we entered into a number of fund subscription and fund management service agreements (the Fund Management Service Agreements ) with Kylin Investment or its subsidiaries in relation to the provision of investment fund management services to investment funds and/or limited partnership entities to which Kylin Investment or its subsidiaries are the fund managers and/or the general partners thereof (collectively Kylin Funds ) and in which we had invested. (a) Reasons for and Benefits of the Transaction Kylin Investment is principally engaged in asset management, wealth management and provision of other financial services, including investment in property development and refurbishment projects in the PRC. During the Track Record Period, Kylin Investment had established 61 series of Kylin Funds and, upon identifying suitable investment opportunities, it applied the funds therein to invest in investment targets covering 19 industries with a focus on the real estate industry, sports and cultural industry and quantitative hedge funds. Among the 61 series, 18 series of Kylin Funds had invested in our property development projects. The total investment amounts investing in our projects by the Kylin Funds amounted to RMB454.0 million, RMB1,717.5 million, RMB1,081.2 million and RMB1,219.7 million for the three years ended December 31, 2015, 2016 and 2017 and the six months ended June 30, 2018, respectively. Kylin Funds had invested in several of our property development projects based on the independent assessment and investment judgment made by Kylin Investment regarding the business performance and prospects of those projects with some projects which were introduced by Kylin Investment. At the same time, we were of the view that having Kylin Funds as a shareholder in those projects was in our best interest due to the fact those projects were seeking cooperating partner at the relevant time and Kylin Funds had the capital, the third party investors and investment experience to be the project companies shareholders. On the other hand, to better utilize our available cash and cash equivalents to enhance our investment return, we pursue different investment opportunities from time to time. During the Track Record Period, we had invested in 27 series of Kylin Funds. The balance of our investment in the 27 series of Kylin Funds was RMB75.0 million, RMB429.8 million, RMB878.0 million and RMB1,143.3 million as of December 31, 2015, 2016 and 2017 and June 30, 2018, respectively. Our PRC Legal Advisor has advised us that the above-mentioned arrangement is in compliance with applicable PRC laws and regulations. As Ms. Zhu Hong will cease to be our connected person upon the expiration of 12 months from the date she ceased to be a director of our subsidiary, accordingly Kylin Investment will cease to be our connected person from January 8, 2019 onwards. Our Directors confirm that we will not make any new investment in any Kylin Fund on or before January 7, As confirmed by Kylin Investment, it will not make any new investment in any of our property development project on or before January 7,

13 (b) Pricing Terms under the Fund Management Service Agreements The investment fund management service fees payable by the Kylin Funds in which we had invested to Kylin Investment comprised (i) a fixed management fee and (ii) a performance bonus (depending on the financial performance of the projects invested). Such service fees were determined based on the arm s length negotiation between the fund s investors (including our Group) and Kylin Investment as the fund manager and/or the general partner of the relevant Kylin Funds, which took into account factors including the capital contribution to the investment funds by the relevant fund s investors, the class of investments made by the relevant fund s investors, the specific industries that the investment focused on and the prevailing market rates. The markets rates are generally transparent across the market. As confirmed by Kylin Investment, the terms (including the pricing terms) it provided to us in respect of the investment fund management services were comparable to those it offered to other third party investors under normal commercial terms in the ordinary course of its business. (c) Historical Transaction Amounts The following table sets out the fixed management fee in respect of the investment fund management services paid by the Kylin Funds in which we had invested to Kylin Investment during the Track Record Period: Historical transaction amount (RMB in thousands) Year ended December 31, Six months ended June 30, ,067 19,098 39,417 16,155 The following table sets out the performance bonus in respect of the investment fund management services paid by the Kylin Funds in which we had invested to Kylin Investment during the Track Record Period: Historical transaction amount (RMB in thousands) Year ended December 31, Six months ended June 30, 2018 Nil 56,321 42, ,444 Based on the above, the historical aggregate amount of investment fund management service fees paid by the Kylin Funds in which we invested to Kylin Investment for each of the three years ended December 31, 2015, 2016 and 2017 and the six months ended June 30, 2018 in relation to the investment fund management services are RMB4.067 million, RMB million, RMB million and RMB million, respectively. When Kylin Funds were settled, after the distributable profits were first distributed to all investors (including us) of the relevant Kylin Funds in the agreed sequence based on the class of investment they made, Kylin Investment received a pre-determined percentage of the distributable profits as performance bonus. In 2018, several series of Kylin Funds with a term of one to two years in which we had invested were settled and there were significant profits derived from the projects in which such Kylin Funds had invested when compared to 2017, and therefore there was a significant increase in the performance bonus in 2018 paid to Kylin Investment by the Kylin Funds in which we invested as compared to that of

14 (d) Annual caps The estimated maximum aggregate amount of investment fund management service fees payable by our Group to Kylin Investment for each of the two years ending on December 31, 2019 in relation to the investment fund management services before Kylin Investment will cease to be a connected person of our Group are RMB235.1 million and RMB1 million, respectively. In arriving at the above annual caps, we have taken into account (i) the fixed management fees as set out in the Fund Management Services Agreements in relation to the current Kylin Funds which we had invested in; and (ii) the estimated investment returns in relation to the current Kylin Funds which we had invested in with reference to the percentage of the historical performance bonus out of our annual investment amounts. (e) Implication under the Listing Rules As one or more of the applicable percentage ratios (other than the profits ratio) of the proposed annual caps (including the fixed management fee and performance bonus) in respect of the investment fund management services under the Fund Management Service Agreements exceed 0.1% but are all less than 5% on an annual basis, the investment fund management services under the Fund Management Service Agreements and the proposed annual caps for the two years ending on December 31, 2019 are subject to the reporting, annual review and announcement requirements but are exempt from the independent Shareholders approval requirement under Rule 14A.76(2) of the Listing Rules. TENDER PROCESS AND SELECTION PROCEDURE AFTER [REDACTED] We have adopted an independent mechanism with the following features to govern and monitor the tender process and selection mechanism for our potential bidders: depending on the actual situations (such as the amount and size of the transaction), we shall publish a tender announcement on newspapers and information network designated by the competent authorities to invite unspecified potential bidders or issue tender invitation to potential bidders, or the our project company will obtain service supply proposals from at least three potential suppliers based on our needs and the criteria set out by the operation department, at least two of whom should be Independent Third Parties; an internal tender review committee, which comprises the general manager of our Group s regional companies and the project managers of our projects, will be responsible for reviewing the terms and conditions of the tender documents; and the internal tender review committee will set up an assessment mechanism based on the scores given by the committee members to each potential bidder in relation to various aspects such as the offer price of the services to be provided, credentials of potential bidder, quality of services to be provided and allocation of human resources. The average scores of the potential bidders will be used by the internal tender review committee as an indicator for the selection of the service provider. The internal tender review committee will only approve the application of the potential bidder if it is considered to have a competitive advantage in the relevant market in which our property projects are located. 336

15 We believe that the members of the internal tender review committee possess the knowledge and skills to thoroughly consider all offers and properly assess our potential service providers to ensure that the pricing and terms of services offered by ShengQuan Property Service and Zhejiang Geya Decoration are fair and reasonable and no less favourable than those offered by Independent Third Parties, and all transactions with ShengQuan Property Service Zhejiang Geya Decoration are conducted in the ordinary course of our business, on normal commercial terms, in accordance with the Framework Property Management Service Agreement or the Framework Decoration Service Agreement (as the case may be) and are fair and reasonable and in the interests of our Group and our Shareholders as a whole. OUR DIRECTORS VIEWS Our Directors (including our independent non-executive Directors) are of the view that the non-exempt continuing connected transactions described above have been and shall be entered into in the ordinary and usual course of business of the Company, are on normal commercial terms and are fair and reasonable and in the interests of the Shareholders as a whole. Our Directors (including our independent non-executive Directors) are also of the view that the proposed annual caps for the non-exempt continuing connected transactions described above are fair and reasonable and in the interests of the Shareholders as a whole. The conflicted Directors shall be required to abstain from participation and abstain from voting in the Board meetings at which resolutions in relation to the above continuing connected transactions are discussed. CONFIRMATION FROM THE SOLE SPONSOR The Sole Sponsor is of the view that the non-exempt continuing connected transactions described above, have been and shall be entered into in the ordinary and usual course of business of the Company, are on normal commercial terms, are fair and reasonable and in the interests of the Shareholders as a whole, and that the proposed annual caps (where applicable) are fair and reasonable and in the interests of the Shareholders as a whole. APPLICATION FOR WAIVER FOR NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS In respect of the transactions described in Non-exempt Continuing Connected Transactions above, as one or more relevant percentage ratios under the Listing Rules are, on an annual basis, expected to be more than 0.1%, but less than 5%, such transactions are exempt from the circular and independent Shareholders approval requirement under Chapter 14A of the Listing Rules but subject to the annual reporting and announcement requirements as set out in Rules 14A.49 and 14A.35 of the Listing Rules and the annual review requirements as set out in Rules 14A.55 to 14A.59 and 14A.71(6) of the Listing Rules. As described above, we expect these non-exempt continuing connected transactions to be carried out on a continuing basis and to extend over a period of time. Our Directors therefore consider that strict compliance with the announcement requirements under the Listing Rules would be impractical and unduly burdensome and would impose unnecessary administrative costs upon us. Accordingly, pursuant to Rule 14A.105 of the Listing Rules, we have applied for, and the Stock Exchange [has granted] to us, a waiver from strict compliance with the announcement requirements relating to continuing connected transactions under Rule 14A.35 of the Listing Rules in respect of the transactions described in Non-exempt Continuing Connected Transactions above. 337

16 We will, however, comply at all times with the applicable provisions under Rules 14A.34, 14A.49, 14A.51 to 14A.59 and 14A.71 of the Listing Rules in respect of these non-exempt continuing connected transactions, and will immediately inform the Stock Exchange if there are any changes to the non-exempt continuing connected transaction. In the event of any future amendments to the Listing Rules imposing more stringent requirements than those as of the date of this document on the continuing connected transactions referred to in this section, we will take immediate steps to ensure compliance with such new requirements. 338