Further details of the Proposed Acquisition are set out in the ensuing sections.

Transcription

1 AL-SALĀM REAL ESTATE INVESTMENT TRUST ( AL-SALĀM REIT ) PROPOSED ACQUISITION OF MYDIN HYPERMARKET GONG BADAK BY AMANAHRAYA TRUSTEES BERHAD ( TRUSTEE ), AS THE TRUSTEE OF AL-SALĀM REIT, FOR AND ON BEHALF OF AL-SALĀM REIT, FROM MYDIN WHOLESALE CASH AND CARRY SDN BHD FOR A TOTAL CASH CONSIDERATION OF RM155.0 MILLION ( PROPOSED ACQUISITION ) 1. INTRODUCTION On behalf of the board of directors of Damansara REIT Managers Sdn Berhad ( Board ), the management company of Al-Salām REIT ( Manager ), RHB Investment Bank Berhad ( RHB Investment Bank ) wishes to announce that the Trustee, acting solely in the capacity as trustee for and on behalf of Al-Salām REIT ( Purchaser ), had on 2 October 2017 entered into a conditional sale and purchase agreement with Mydin Wholesale Cash and Carry Sdn Bhd ( MWCC ) for the acquisition of Mydin Hypermarket Gong Badak (as defined in Section 2 below) ( SPA ) for a total cash consideration of RM155.0 million to be satisfied entirely in cash. The Proposed Acquisition is conditional upon the leaseback agreement with Mydin Mohamed Holdings Bhd ( MMHB ) for the lease of Mydin Hypermarket Gong Badak for a period of 30 years on a triple net lease agreement ( Lease Agreement ) becoming effective immediately after the completion of the Proposed Acquisition. Further details of the Proposed Acquisition are set out in the ensuing sections. 2. DETAILS OF THE PROPOSED ACQUISITION The Proposed Acquisition entails the acquisition of a double storey hypermarket, each floor with a mezzanine level together with 796 car park bays (634 covered parking bays and 162 surface car parking bays) known as Mydin Hypermarket Gong Badak, located at Lot (formerly PT No ), Dataran Austin, Jalan Gong Pak Damat, Kuala Terengganu, Terengganu Darul Iman ( Mydin Hypermarket Gong Badak or the Subject Property ) for a total cash consideration of RM155.0 million to be satisfied entirely in cash ( Purchase Consideration ). Upon completion of the Proposed Acquisition, the Subject Property will be leased to MMHB for a period of 30 years with a 5% rent increment every 2 years and in accordance to the terms and conditions of the Lease Agreement. Further details of the Lease Agreement are set out in Section 2.3 of this announcement. 2.1 Information on the Subject Property Mydin Hypermarket Gong Badak is located at the northern development corridor of Kuala Terengganu town with close proximity to the Kuala Terengganu exit off the East Coast Highway 2 (Lebuhraya Pantai Timur 2 / LPT 2). The Kuala Terengganu town centre is located approximately 9 kilometres (5.62 miles) to the south-east of the Subject Property whilst Sultan Mahmud Airport, the main entry point via air is located about 3.5 kilometres (2.19 miles) to the north-east of the Subject Property. A brief description of the Subject Property is as follows:- Details 1 Description Postal address : Lot (Formerly PT No ), Dataran Austin, Jalan Gong Pak Damat, Kuala Terengganu, Terengganu Darul Iman Land title : Lot 52606, Mukim and District of Kuala Nerus, Terengganu Darul Iman held under Title No. Pajakan Negeri 10207

2 Details Description Tenure : 99-year leasehold interest expiring on 26 December 2109 (unexpired term of about years as at 24 August 2017) Registered owner : MWCC Category of land use : Building Approximate age of building as at 24 August 2017 Gross floor area (square feet ( sq. ft. )/square metres ( sq. m. )) : 3 years old : 589,232 sq. ft./ 54,741 sq. m. (including covered car park area of 228,604 sq. ft./ 21,238 sq. m.) Net lettable area ( NLA ) (sq. ft./sq. m.) : 245,257 sq. ft./ 22,785 sq. m. Land area (sq. ft./sq. m.) : 307,309 sq. ft./ 28,550 sq. m. Date of certificate of completion and compliance ( CCC ) Occupancy rate (based on the NLA of Mydin Hypermarket Gong Badak) Net property income for the financial year ended ( FYE ) 31 March 2017 (RM 000) Audited net book value as at 31 March 2017 (RM 000) : 20 November 2014 : 95.29% as at 24 August 2017 : 6,985 : 98,062 Market value (1) : RM158,000,000 Encumbrances : Charged twice by MWCC to Hong Leong Islamic Bank Berhad, both registered on 16 June 2011 Express conditions : 1) Hendaklah didirikan bangunan perniagaan/ hypermarket sahaja. 2) Dalam tempoh dua tahun dari tarikh diberimilik atau di dalam satu-satu tempoh lanjutan yang diluluskan oleh Pengarah Tanah dan Galian Terengganu. Hendaklah didirikan dan disiapkan dengan sempurna bangunan perniagaan/ hypermarket mengikut pelan yang diluluskan oleh Pihak Berkuasa Tempatan. Restriction-in-interest : Tidak dibenarkan pindahmilik, digadai atau dipajak kecuali mendapat kebenaran Pihak Berkuasa Negeri Note:- (1) As appraised by Cheston International (KL) Sdn Bhd ( Independent Valuer ), being the independent registered valuer appointed by the Trustee on behalf of Al-Salām REIT, in its valuation report dated 15 September 2017 ( Valuation Report ). 2.2 Salient terms of the SPA The Trustee, acting solely in the capacity as Trustee for and on behalf of Al-Salām REIT, agreed to purchase, and MWCC agreed to sell the Subject Property free from all encumbrances and with legal but no vacant possession as the Subject Property will be leased to MMHB ( Lessee ) for a tenure of 30 years with a 5% rent increment every 2 years. The salient terms of the SPA are, amongst others, set out below:- Purchase Consideration The total purchase price of the Subject Property shall be RM155,000,000 to be paid by the Purchaser to MWCC for the acquisition of the Subject Property in cash and in the proportion set out below:- (a) RM3,100,000 which is equivalent to 2% of the Purchase Consideration ( Earnest Deposit ); and 2

3 (b) RM151,900,000 which is equivalent to 98% of the Purchase Consideration, by payment in cash to MWCC ( Balance Purchase Consideration ). Upon the execution of the SPA, the Earnest Deposit is to be paid by the Purchaser to MWCC s solicitors who shall hold the same as stakeholder for MWCC pending the fulfilment of the conditions precedent specified in Section 2.2 below ( Conditions Precedent ). Upon completion of the Proposed Acquisition, the Earnest Deposit shall be applied in and towards part payment of the Purchase Consideration. Subject to the Conditions Precedent being fulfilled within the Conditional Period (as defined herein), the Balance Purchase Consideration is to be paid by the Purchaser to MWCC s solicitors as the stakeholders within 7 business days commencing from the date upon which the SPA shall become unconditional ( Effective Date ) with a further extension of 2 months subject to a late payment penalty at a rate of 8% per annum to accrue on the Balance Purchase Consideration remaining unpaid, calculated on a daily basis. Conditions Precedent MWCC and the Purchaser wherever is applicable, shall fulfill and complete the Conditions Precedent within a period of 6 months from the date of the SPA or such longer period as they may mutually agree in writing ( Conditional Period ). The sale and purchase of the Subject Property is conditional upon and subject to the fulfillment of the following Conditions Precedent within the Conditional Period:- (a) To be obtained and/or fulfilled by MWCC (iii) (iv) (v) (vi) the approval of the shareholder of MWCC, being obtained for the disposal of the Subject Property to the Purchaser; the approval of the board of directors of MWCC being obtained for the disposal of the Subject Property to the Purchaser; the relevant state authority s consent to transfer the Subject Property in favour of the Purchaser. MWCC shall be deemed to have obtained the relevant state authority consent when all conditions imposed by the relevant state authority, if any, have been duly complied with and consent becomes unconditional; the Lease Agreement (undated and unstamped) having been duly executed (in escrow) by the Lessee and deposited with the Purchaser s solicitors as stakeholders to be held and dealt with by them in accordance with the relevant provisions in the SPA; MWCC to undertake and complete the material repair, remedial and replacement works to be undertaken to the Subject Property as listed in the building due diligence inspection and audit report to the satisfaction of the independent consultant to be appointed by the Purchaser (at the cost and expense of Al-Salām REIT) ( Independent Consultant ); the receipt by the Purchaser of the certified true copy of the CCC and other certificates (if any) for the Subject Property; 3

4 (vii) (viii) the approval of the board of directors of the Lessee obtained for the creation of the lease of the Subject Property to be granted by the Purchaser (as lessor) to MWCC and authorisation for the execution of the Lease Agreement, the lease documents and all other relevant documents pertaining to the lease of the Subject Property and (iii) the affixation of the common seal where necessary; and the approval of any other relevant authorities, if required for MWCC s disposal of the Subject Property. (b) To be obtained and/or fulfilled by Al-Salām REIT (iii) (iv) (v) (vi) (vii) (viii) (ix) the approval of the board of directors of the Manager and the Purchaser in respect for the acquisition of the Subject Property from MWCC and for the lease back of the Subject Property by the Purchaser (as lessor) to the Lessee; the approval of the Securities Commission Malaysia ( SC ) in respect of Al-Salām REIT s Proposed Acquisition (if applicable); the approval of the SC for the valuation of the Subject Property (if applicable); the legal due diligence exercise in respect of the Subject Property by the Purchaser s solicitors having been completed to the satisfaction of the Purchaser ( Due Diligence Review ). For purposes of the Due Diligence Review, MWCC shall grant the Purchaser or the Purchaser s solicitors access to the documents to facilitate the completion of the Due Diligence Review; the undertaking of a building due diligence inspection and audit on the Subject Property and a written report is to be prepared by an Independent Consultant (to be appointed by the Purchaser at the Purchaser s cost), the results of which are to be satisfactory to the Purchaser; the relevant state authority consent in relation to the charging of the Subject Property in favour of the Purchaser s financiers having been obtained by the Purchaser; the Purchaser obtaining a financing facility and the receipt of confirmation from the Purchaser s financier s solicitors that all conditions for the disbursement/drawdown of the financing have been met; the Lease Agreement (undated and unstamped) having been duly executed (in escrow) by the Purchaser and deposited with the Purchaser s solicitors as stakeholders to be held and dealt with by them in accordance with the terms of the Lease Agreement; and any and/or all such other consents and regulatory and/or governmental approvals required to be obtained by the Manager and the Purchaser for the completion of acquisition of the Subject Property. 4

5 (iii) Default by the Vendor or the Purchaser Default by the Purchaser In addition to the general defaults stipulated under the SPA, if the Purchaser fails to satisfy the Purchase Consideration, or fails to observe the covenants under the SPA, MWCC shall be entitled (at the Purchaser s cost and expense) to: (a) (b) specific performance of the sale and purchase of the Subject Property; or to terminate the SPA in which case: (iii) MWCC shall be entitled to forfeit the Earnest Deposit and to claim from the Purchaser an additional amount equivalent to 8% of the Purchase Consideration as liquidated damages but shall refund to the Purchaser of all other monies paid by the Purchaser; the Purchaser shall re-deliver legal possession of the Subject Property (at Purchaser s own cost and expense) to MWCC; and the Purchaser (at Purchaser s own cost and expense) return to MWCC all transfer documents, MWCC s documents or any other documents, Default by MWCC In addition to the general defaults stipulated under the SPA, if MWCC defaults, fails or refuses to complete its sale of the Subject Property in favour of the Purchaser in the manner provided in the SPA or if MWCC shall fail to observe or perform or be in material breach of any of the provisions of the SPA, the Purchaser shall be entitled at the cost and expense of MWCC and at the Purchaser s sole discretion to the following remedies:- (a) (b) specific performance of the sale and purchase of the Subject Property; or to terminate the SPA in which case: (iii) (iv) the Purchaser shall be entitled to claim from the Vendor an amount equal to 10% of the Purchase Consideration as liquidated damages; MWCC shall refund and pay to the Purchaser, all monies that have been paid by the Purchaser to MWCC towards the account of the Purchase Consideration, failing which a penalty at the rate of 8% per annum will be imposed on MWCC from the date of expiry until the date of actual payment ; the Purchaser shall re-deliver legal possession of the Subject Property to MWCC; the Purchaser shall return the transfer documents, MWCC s documents and any other documents to MWCC, 5

6 2.3 Salient terms of the Lease Agreement The salient terms of the Lease Agreement are, amongst others, set out below:- (iii) (iv) (v) The Lease Agreement shall commence on the date immediately after the completion of the Proposed Acquisition. Under the Lease Agreement, the Subject Property will be leased on a triple net lease to MMHB for a tenure of 30 years with 5% rent increment every 2 years ( Lease Term ); Under the triple net lease arrangement, the Lessee shall bear in addition to the rental and all utility bills, all real estate taxes (such as quit rents, assessments and any other outgoings imposed by the relevant authority), the Takaful policies for the Subject Property and the normal maintenance and routine maintenance of the Subject Property whilst the Trustee, acting on behalf of Al-Salām REIT ( Lessor ) shall be responsible for the total replacement of the Lessor s fixtures and fittings; In the event the Lessee triggers any event of default as set out in the Lease Agreement, the Lessor may serve a forfeiture notice upon the Lessee, and if the breach has not been remedied, the Lessor may terminate the Lease Agreement, claim for monthly rental and other sums due, call on the bank guarantee, sue and take any other action the Lessor deems fit; In the event the Lessor triggers any event of default as set out in the Lease Agreement, the Lessee shall have the right to seek specific performance of the Lease Agreement and damages; If during the Lease Term the Lessee shall attempt to abandon or quit or re-deliver possession of the Subject Property prior to the expiry of the Lease Term for any reason and the same is not being remedied, the Lease Agreement shall be terminated and the Lessee shall:- (a) (b) remove and dispose of the Lessee s fixture, fittings, and other articles in the Subject Property; and surrender the Subject Property; and (vi) If the termination notice is issued under item (v), the Lessee shall have an option to source (within 6 months of the Lessee s receipt of such termination notice), for a replacement lessee or tenant acceptable by the Lessor for the unexpired Lease Term (or any part thereof) at such rental and upon such terms and conditions acceptable to the Lessor failing which the security deposit and utilities deposit shall be forfeited (by calling on the bank guarantees which are equivalent to the amount of the security deposit and utilities deposit under the Lease Agreement). 2.4 Basis and justification for the Purchase Consideration The Purchase Consideration was arrived at on a willing-buyer willing-seller basis, after taking into consideration the market value of the Subject Property as appraised by the Independent Valuer. The Independent Valuer had, in the Valuation Report, adopted the market value derived from the investment method of valuation as fair representation of the market value of the Subject Property, taking into consideration that the Subject Property will be leased to MMHB for a period of 30 years pursuant to the Lease Agreement. The valuation is also supported by the market value derived from the comparison method of valuation. The market value is defined as the estimated amount for which a property should exchange on the date of valuation between a willing-seller and a willing-buyer in an arm s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. 6

7 The Purchase Consideration of RM155.0 million represents a discount of RM3.0 million or 1.9% to the appraised market value of the Subject Property of RM158.0 million derived from the investment method of valuation. The Purchase Consideration also represents a discount of RM2.6 million or 1.6% to the appraised market value of RM157.6 million derived from the comparison method of valuation. 2.5 Total estimated funding required and source of funding The estimated funding required for the Proposed Acquisition is as follows:- Estimated total funding required RM million Purchase Consideration Estimated expenses relating to the Proposed Acquisition (1) 2.6 Total Note:- (1) Includes the acquisition fee to the Manager as well as the estimated professional fees and other incidental expenses. The Purchase Consideration and the expenses relating to the Proposed Acquisition will be fully funded via bank borrowings and/or debt financing to be secured by Al-Salām REIT. 2.6 Liabilities to be assumed Save for the obligations and liabilities arising from or in connection with the SPA and Lease Agreement, there are no other liabilities, contingent liabilities and/or guarantees to be assumed by Al-Salām REIT pursuant to the Proposed Acquisition. 2.7 Additional financial commitment required Save for the borrowings and/or debt financing to be secured for the Proposed Acquisition and its related expenses, Al-Salām REIT does not expect to incur additional financial commitments arising from the Proposed Acquisition. 3. INFORMATION ON MWCC AND MMHB 3.1 Background information on MWCC MWCC was incorporated as a private limited liability company on 7 September 1993 in Malaysia. The share capital of MWCC is RM17,500,000 comprising 17,500,000 ordinary shares. MWCC is principally engaged in property letting. As at 30 June 2017, the directors of MWCC are Dato Murad Ali Bin Mydin Mohamad, Datuk Wira (Dr.) Hj. Ameer Ali Bin Mydin, Ahimmat Bin Mydin Mohamed and Salim Bin Mydin Mohamed. As at 30 June 2017, the shareholder of MWCC is as follows:- Shareholder of MWCC Direct Indirect No. of shares % No. of shares % Mydin Wholesale Emporium Sdn Bhd 17,500, (Source: The management of MWCC) 7

8 3.2 Background information on MMHB MMHB was incorporated as a private limited liability company on 23 July 1991 in Malaysia. It was subsequently converted into a public limited liability company on 23 August The share capital of MMHB is RM107,700,000 comprising 82,700,000 ordinary shares. MMHB is principally engaged in the operations of hypermarket, supermarket, emporium, franchising, wholesale business and shopping mall management. As at 30 June 2017, the directors of MMHB are Dato Murad Ali Bin Mydin Mohamad, Datuk Wira (Dr.) Hj. Ameer Ali Bin Mydin, Ahimmat Bin Mydin Mohamed, Salim Bin Mydin Mohamed and Datin Wira (Dr.) Hjh. Siti Hawa Binti Mohd Munji. As at 30 June 2017, the shareholders of MMHB are as follows:- Shareholders of MMHB Direct shareholdings Indirect shareholdings No. of shares % No. of shares % Dato Murad Ali Bin Mydin Mohamad 7,250, Datuk Wira (Dr.) Hj. Ameer Ali Bin Mydin 7,250, Ahimmat Bin Mydin Mohamed 7,250, Salim Bin Mydin Mohamed 7,250, Datin Wira (Dr.) Hjh. Siti Hawa Binti Mohd Munji 40,800, MWCC 12,900, (Source: The management of MMHB) 4. RATIONALE FOR THE PROPOSED ACQUISITION The Manager believes that the Proposed Acquisition represents a good opportunity for Al- Salām REIT to expand its existing portfolio of investment properties that could provide a stable and sustainable income stream pursuant to the Lease Agreement, where Al-Salām REIT is entitled to receive a rental increment of 5% every 2 years throughout the Lease Term. Further, the triple net lease arrangement minimises Al-Salām REIT s exposure to the increases in property operating costs as well as other property administrative activities. Leveraging on Mydin group s Shariah-compliant status and its business model in offering 100% halal products, the Manager views that the Subject Property will appeal to the surrounding area of the Subject Property, which is predominantly Muslim community. Upon completion of the Proposed Acquisition, Al-Salām REIT s portfolio of investment properties as at 31 December 2016 will increase from RM922.1 million to RM1,077.1 million. Taking into consideration the above, the Proposed Acquisition is expected to be yield accretive to Al-Salām REIT and therefore, is in line with the objective of the Manager to grow the asset size of Al-Salām REIT with yield accretive assets and provide the unitholders with regular and stable distributions as well as achieving sustainable growth in distributable income, unit price and capital growth of Al-Salām REIT. 8

9 5. INDUSTRY OVERVIEW AND PROSPECTS 5.1 Overview and outlook of the Malaysian economy The Malaysian economy recorded a stronger growth of 5.8% in the second quarter of 2017 (First Quarter ( 1Q ) 2017: 5.6%). Private sector spending continued to be the main driver of growth. On the external front, growth was further supported by the robust expansion in real exports of goods and services (9.6%; 1Q 2017: 9.8%) following strong demand for manufactured and commodity products. Real imports moderated slightly to 10.7% (1Q 2017: 12.9%) following more moderate expansion in investment. On a quarter-on-quarter seasonally adjusted basis, the economy recorded a growth of 1.3% (1Q 2017: 1.8%). Domestic demand grew by 5.7% in the second quarter of the year (1Q 2017: 7.7%), supported by continued expansion in both private sector expenditure (7.2%; 1Q 2017: 8.2%) and public sector spending (0.2%; 1Q 2017: 5.8%). Private consumption recorded a growth of 7.1% (1Q 2017: 6.6%), supported by the improvement in private sector wages amid continued strength in employment growth. During the quarter, consumer sentiments continued to improve, providing further impetus to household spending. (Source: Economic and Financial Developments in the Malaysian Economy in the Second Quarter of 2017, Quarterly Bulletin, Bank Negara Malaysia) 5.2 Overview and prospects of the retail sector in Malaysia The wholesale and retail trade subsector increased further by 7.7% (Q2 2016: 6.6%) mainly contributed by stronger performance in the wholesale and retail segments. The retail trade segment expanded 11.4% (Q2 2016: 7.2%) driven mainly by sales of other goods in specialised stores. The wholesale trade segment grew 6% (Q2 2016: 8.7%) supported by other specialised wholesale and wholesales of agricultural raw material and live animals. In 2017, taking into cognisance of the favourable world output and trade performances as well as the robust growth during the first half of the year, the Malaysian gross domestic product is expected to expand at a faster rate than the earlier projection. Economic expansion will be underpinned by robust domestic demand and strengthening exports, with private sector continuing the main impetus to growth. (Source: Quarterly Update on the Malaysian Economy Second Quarter 2017, Ministry of Finance Malaysia) 5.3 Overview and prospects of the retail space in Terengganu The average occupancy rate of retail space in Terengganu was at 89.79% in 2016 compared to 75.07% in The occupancy rate of retail space in the district of Kuala Terengganu where the Subject Property is located increased to 92.58% in 2016 from 70.32% whilst the occupancy for the rest of the districts remained unchanged. Based on publicly available information, the existing retail space to population ratio of Kuala Terengganu is 1:3.1, which is well below the average of other prominent cities and towns in Malaysia (more than 1:6). The above ratio reveals that there is a shortfall in the supply of retail space in Terengganu. As such, there is great potential for the retail sector in Terengganu particularly in densely populated city of Kuala Terengganu which is the centre of investment activities in the east coast of Peninsular Malaysia. Furthermore, the increasing number of residential development within and at the neighbourhood of the northern development corridor of Kuala Terengganu is envisaged to increase the residential population in the immediate vicinity of the hypermarket. The growing population within and at the neighbourhood will become potential shoppers to the hypermarket which is located within short distance. (Source: Valuation Report) 9

10 5.4 Prospects of the Subject Property Mydin Hypermarket Gong Badak is strategically located within Gong Badak area and is approximately 11 km from Kuala Terengganu City Centre and 4 km away from the Sultan Mahmud Airport. Mydin Hypermarket Gong Badak enjoys good accessibility to the East Coast Expressway which links Kuala Terengganu with Kuantan, Pahang. The new township of Gong Badak has a number of educational institutions namely Universiti Malaysia Terengganu, Universiti Sultan Zainal Abidin and Maktab Perguruan Dato Razali that provide key growth catalysts to the township. Mydin Hypermarket Gong Badak is surrounded by shop offices with good complementary trade offering whilst the nearby Gong Badak industrial area is a major industrial hub. At present, Mydin Hypermarket Gong Badak is considered as the main shopping destination of the area due to lack of offering from other competitors nearby. The main target market of Mydin Hypermarket Gong Badak comprises middle income to lower middle income group. With the large catchment area of over 100,000 people within the area that is predominantly Malay, Mydin Hypermarket Gong Badak enjoys steady flow of customers on a daily basis. Mydin Hypermarket Gong Badak has achieved an average occupancy rate of 95.29% of its NLA as at 24 August 2017 with a good retail mix that position Mydin Hypermarket Gong Badak as a one-stop centre for shopping, dining and leisure. The average occupancy is expected to improve along with the average rental which is also expected to trend upward due to the larger market catchment as more residential developments are undertaken in the neighbourhood of the hypermarket. The Subject Property will benefit from the ongoing and future development of townships and it is expected that the population will grow due to its proximity to Kuala Terengganu. In addition, Mydin group has established a strong following within its target market of low to middle-income consumers. Mydin group distinguishes itself from its competitors by offering 100% Halal products as well as offering local brands that are not carried by its competitors, enabling Mydin group to establish a niche position among the Muslim community. Premised on the above and particularly on the triple net lease arrangements with MMHB under the Lease Agreement, the Board believes that the Subject Property will contribute positively to the income of Al-Salām REIT moving forward. (Source: The Manager) 6. RISK FACTORS The Proposed Acquisition may be subjected to certain risk factors inherent in the property market, which Al-Salām REIT is currently subjected to as a diversified real estate investment trust. The following are some non-exhaustive risk factors that may be inherent to Al-Salām REIT in relation to the Proposed Acquisition:- the Proposed Acquisition may not be completed if the Conditions Precedent are not fulfilled or waived and/or the relevant parties do not perform their respective obligations as set out in SPA. In such circumstances, Al-Salām REIT will not be able to derive the potential benefits from the Proposed Acquisition as set out in Section 4 above; there can be no assurance that Al-Salām REIT may be able to raise sufficient funds to finance the Proposed Acquisition and/or on terms acceptable to Al-Salām REIT. In such circumstances, the Proposed Acquisition may not be completed; 10

11 (iii) the inability of MMHB to pay rental to Al-Salām REIT during the tenure of the Lease Agreement due to, amongst others, the following reasons that could have an adverse effect on the operations and financial performance of MMHB:- (a) (b) (c) increased competition from other retail and/or commercial properties; vacancies following expiry or termination of tenancies that lead to a decrease in the overall occupancy rates and gross rental income of the Subject Property; and ability of MMHB to collect rents from other tenants on a timely basis; (iv) (v) (vi) (vii) (viii) the inability and limitation of the Manager to ensure that MMHB fulfil its obligations under the Lease Agreement respectively and actively manage the Subject Property; non-renewal or termination of the Lease Agreement by MMHB prior to the expiry of the Lease Term, whereby Al-Salām REIT may suffer loss of rental income over such period until a replacement lessee on a satisfactory terms has been identified; the Subject Property is subject to potential changes to, or new interpretations of the laws, building by-laws, codes and regulations issued by the relevant regulatory authorities, which may result in it undergoing extensive renovation and incurring renovation costs resulting in higher future capital expenditure; the Subject Property may be under insured, leading to Al-Salām REIT suffering material losses in excess of insurance proceeds. In addition, there is no assurance that insurance against some or all of the risks will in the future continue to be available, or be available in amounts that are equal to the full market value or replacement cost of the insured assets. There can be no assurance that the particular risks will continue to be insurable or insurable on an economically feasible basis; and the total borrowings to total asset value ( Gearing ) of Al-Salām REIT based on its latest audited financial statements as at 31 December 2016 is 35.45% and is expected to increase to 44.51% upon the completion of Proposed Acquisition. The corresponding increase in Gearing level may limit Al-Salām REIT s ability to incur further borrowings for future acquisitions and increase the vulnerability of Al-Salām REIT to financing risks. 7. EFFECTS OF THE PROPOSED ACQUISITION 7.1 Unitholders capital The Proposed Acquisition will not have any effect on the unitholders capital of Al-Salām REIT. Al-Salām REIT does not have any convertible units as at the date of this announcement. 7.2 Substantial unitholders unitholdings The Proposed Acquisition will not have any effect on the unitholdings of the substantial unitholders of Al-Salām REIT. 11

12 7.3 Earnings and distributable income The Proposed Acquisition is not expected to have a material effect on Al-Salām REIT s earnings and distributable income for the financial year ending 31 December 2017 as the Proposed Acquisition is expected to be completed in the first quarter of Upon commencement of the Lease Agreement immediately after the completion of the Proposed Acquisition, Al-Salām REIT is expected to recognise stable and sustainable income contribution from the Subject Property given that there will be an increment of 5% in rental income in every 2 years. As such, the Proposed Acquisition is expected to increase the earnings per Unit and distribution per Unit of Al-Salām REIT moving forward. 7.4 Net asset value ( NAV ) per Unit and gearing The pro forma effects of the Proposed Acquisition on the NAV per Unit and gearing of Al- Salām REIT based on the audited consolidated statements of financial position of Al-Salām REIT as at 31 December 2016 and on the assumption that the Proposed Acquisition had been effected on that date are as follows: Proforma I Proforma II Audited as at 31 December 2016 RM ( 000) Adjustment for subsequent events (2) RM ( 000) After Proforma I and the Proposed Acquisition RM ( 000) Unitholders capital 572, , ,545 Undistributed income 39,395 19,675 (3) 17,075 Total Unitholders Fund/ NAV 611, , ,620 No. of Units in circulation 580, , ,000 NAV per Unit (RM) Total borrowings (RM 000) 346, ,805 (4) 504,405 Total asset value (RM 000) 978, ,182 1,133,182 Gearing (%) (1) Notes:- (1) Gearing is computed as total borrowings divided by total asset value. (2) After adjusting for the final income distribution in respect of FYE 31 December 2016 of 3.40 sen per Unit paid on 28 February (3) After deducting the estimated expenses pertaining to the Proposed Acquisition of RM2.6 million. (4) Assuming that the Proposed Acquisition and its related expenses are fully funded via borrowings. 8. APPROVALS REQUIRED Save for the approvals and/or consents that may be required to be obtained as set out in Section 2.2(b) of this announcement, the Proposed Acquisition is not subject to any other approvals being obtained. The Proposed Acquisition is not conditional upon any other corporate exercises being or proposed to be undertaken by Al-Salām REIT. 12

13 9. INTERESTS OF THE DIRECTORS AND MAJOR SHAREHOLDERS OF THE MANAGER, MAJOR UNITHOLDERS OF AL-SALĀM REIT AND/OR PERSONS CONNECTED TO THEM None of the Directors of the Manager, major shareholders of the Manager, major unitholders and persons connected to them have any interest, whether direct or indirect, in the Proposed Acquisition. 10. RELATED PARTY TRANSACTIONS The Proposed Acquisition is not deemed to be a related party transaction under Chapter 9 of the SC s Guidelines on Real Estate Investment Trusts. 11. DIRECTORS STATEMENT After taking into consideration all aspects of the Proposed Acquisition (including but not limited to the basis of deriving the Purchase Consideration, the market value of the Subject Property as appraised by the Independent Valuer, the rationale for the Proposed Acquisition, the prospects of the Subject Property and the financial effects of the Proposed Acquisition), the Board is of the opinion that the Proposed Acquisition is in the best interest of Al-Salām REIT and its unitholders. 12. ADVISERS RHB Investment Bank has been appointed as the Principal Adviser to Al-Salām REIT for the Proposed Acquisition. 13. ESTIMATED TIMEFRAME FOR COMPLETION Barring any unforeseen circumstances, the Proposed Acquisition is expected to be completed in the first quarter of DOCUMENTS AVAILABLE FOR INSPECTION The SPA, Lease Agreement and Valuation Report are available for inspection by the unitholders at the registered office of the Manager at Level 16, Menara KOMTAR, Johor Bahru City Centre, Johor Bahru, Johor during normal business hours (except public holidays) for a period of 3 months from the date of this announcement. This announcement is dated 3 October