Page 1 STARHILL REAL ESTATE INVESTMENT TRUST ( STARHILL REIT OR TRUST ) PROPOSED ACQUISITIONS OF HOSPITALITY RELATED PROPERTIES PURSUANT TO THE RATIONALISATION EXERCISE TO REPOSITION STARHILL REIT AS A FULL-FLEDGED HOSPITALITY REAL ESTATE INVESTMENT TRUST ( REIT ) ( PROPOSED ACQUISITIONS ) 1. INTRODUCTION We refer to the announcement dated 28 June 2010 in relation to the completion of the disposal of Starhill Gallery and Lot 10 properties by Starhill REIT to Starhill Global REIT ( Starhill Global REIT ). On behalf of Pintar Projek Sdn Bhd, the manager of the Trust ( Manager ), AmInvestment Bank Berhad (a member of AmInvestment Bank Group) ( AmInvestment Bank ) wishes to announce that as part of the rationalisation exercise to reposition Starhill REIT as a full-fledged hospitality REIT, Maybank Trustees Berhad (as the trustee for Starhill REIT) ( Trustee ) has entered into several agreements for the purposes of the Proposed Acquisitions on 14 December 2010. Details regarding the agreements entered into are set out in Section 2.4 of this announcement. The Proposed Acquisitions entails the acquisitions of the following hospitality related properties (together with appurtenant assets) ( Properties ) for a total indicative purchase consideration of RM1,054.0 million ( Purchase Consideration ) to be satisfied via a combination of cash ( Cash Consideration ), issuance of new units in Starhill REIT at an issue price of RM1.00 per unit ( Consideration Units ) and convertible preference units issued by Starhill Global REIT ( CPUs ) which are currently held by the Trust valued at SGD1.00 per CPU: (i) Cameron Highlands Resort; (ii) Hilton Niseko 1 ; (iii) Vistana Penang; (iv) Vistana Kuala Lumpur; (v) Vistana Kuantan; (vi) The Residences at The Ritz-Carlton, Kuala Lumpur 2 ( Residences@Ritz-Carlton ); (vii) The Ritz-Carlton Hotel, Kuala Lumpur ( Ritz-Carlton, KL ); (viii) Pangkor Laut Resort 3 ; and (ix) Tanjong Jara Resort 1. Starhill REIT will subsequently lease the Properties to the respective vendors/lessees 4 for an initial lease period of 15 years (except for Residences@Ritz-Carlton) with an option granted to the respective lessees to renew for a further term of 15 years. For Residences@Ritz-Carlton, the Trust will assume an existing lease agreement with the remaining term of approximately 21 years (expiring 30 June 2031) with an option for the lessee to renew for a further term of 15 years. The lease payments for the Properties are fixed and include a 5% step up rate every 5 years. Upon completion of the Proposed Acquisitions, Starhill REIT will be positioned as the first full-fledged hospitality REIT in Malaysia with ten (10) hospitality properties located in prime leisure and/or business tourism locations in Malaysia and Japan, which will provide a platform to enable the Trust to focus on a 1 2 3 4 There are currently no separate individual title(s) for Tanjong Jara Resort and Hilton Niseko and the relevant vendors will undertake to apply for separate title(s) to the sub-divided portion of the relevant land(s) to be acquired by the Trustee on behalf of Starhill REIT. Involves the acquisition of the remaining 54 units and 1 level of basement carpark not currently owned by Starhill REIT. Involves the acquisition of a registered lease over 2 pieces of land and 97 units of luxury villas thereon. Vendors and lessees (other than Tanjong Jara Beach Hotel Sdn Bhd) are companies related to YTL Corporation Berhad ( YTL Corp ), a major unitholder of Starhill REIT and/or Yeoh Tiong Lay & Sons Holdings Sdn Bhd, the ultimate holding company of YTL Corp. For Pangkor Laut Resort, Starhill REIT as the registered lessee will sub-lease the property to Syarikat Pelanchongan Pangkor Laut Sendirian Berhad.
Page 2 single dedicated class of assets. The lease of the Properties to the respective lessees will provide the Trust with a steady and secure income stream which substantially mitigates risks normally associated with the hospitality industry. The Proposed Acquisitions and the lease arrangements are deemed to be related party transactions pursuant to Chapter 9 of the Securities Commission ( SC ) guidelines on Real Estate Investment Trusts ( REIT Guidelines ) due to the interests of certain Directors and major shareholders of the Manager and major unitholders as set out in Section 8 of this announcement. 2. DETAILS OF THE PROPOSED ACQUISITIONS 2.1 Background on the Properties Please refer to Appendix 1 of this announcement for information on the Properties. 2.2 Purchase Consideration The Purchase Consideration may vary due to the following: (i) (ii) (iii) final exchange rate used for Hilton Niseko (as stated in Note 3 to the table below); if the respective area of the sub-divided land(s) for Tanjong Jara Resort and Hilton Niseko differs from the agreed area (please refer to Note 8 to the table below and Section 2.4.1 for further details); and any variation to the valuation of the Properties which the SC may impose and to be agreed by the parties. The Purchase Consideration is proposed to be satisfied as follows: Mode of Consideration Properties Vendors Cash (RM 000) Consideration Units (1) (RM 000) Principal amount of CPUs (2) (RM 000) Purchase Consideration (RM 000) Cameron Highlands Resort YTL Land Sdn Bhd ( YTL Land ) (6) - - (6) 50,000 (6) 50,000 Hilton Niseko Niseko Village K.K. ( NVKK ) (6) - - (3), (6) 222,000 (3), (6), (8) 222,000 Vistana Penang Business & Budget Hotels (Penang) Sdn Bhd ( BBHP ) (6) 50,000 - (6) 50,000 100,000 Vistana Kuala Lumpur Prisma Tulin Sdn Bhd ( PTSB ) (6) 50,000 - (6) 50,000 100,000 Vistana Kuantan Residences@Ritz- Carlton (4) Business & Budget Hotels (Kuantan) Sdn Bhd ( BBHK ) Megahub Development Sdn Bhd ( MDSB ) 56,250 18,750-75,000 54,750 18,250-73,000
Page 3 Properties Vendors Cash (RM 000) Ritz Carlton, KL East-West Ventures Sdn Bhd ( EWV ) Mode of Consideration Consideration Units (1) (RM 000) Principal amount of CPUs (2) (RM 000) Purchase Consideration (RM 000) 187,500 62,500-250,000 Pangkor Laut Resort (7) Syarikat Pelanchongan Pangkor Laut Sendirian Berhad ( SPPL ) (5) 72,750 24,250-97,000 Tanjong Jara Resort Tanjong Jara Beach Hotel Sdn Bhd ( TJBH ) 65,250 21,750 - (8) 87,000 Total 536,500 145,500 372,000 1,054,000 Notes: (1) Issuance of new units in the Trust at an issue price of RM1.00 per Consideration Unit. (2) CPUs are denominated in SGD. The final number of CPUs will be fixed based on the average RM:SGD exchange rate based on the Bank Negara Malaysia ( BNM ) Interbank Foreign Exchange Mid Rate over the last twenty (20) business days (in Kuala Lumpur) prior to the Completion Date (as defined in Section 2.4.1). The salient terms of the CPUs are set out in Starhill REIT s circular to unitholders dated 17 May 2010. (3) The purchase consideration for Hilton Niseko is denominated in Japanese Yen ( JPY ) 6,000,000,000 (or RM222,000,000 based on the exchange rate of JPY27.052:RM1.000 as at 30 September 2010, being the material date of valuation (rounded up to the nearest thousand)). The final number of CPUs to be transferred in settlement of the purchase consideration for Hilton Niseko will be determined based on a 20- business day (in Singapore) average JPY: SGD exchange rate issued by the Monetary Authority of Singapore prior to completion date of the acquisition of Hilton Niseko. (4) Involves the acquisition of the remaining 54 units and 1 level of basement carpark which are not currently owned by Starhill REIT. (5) SPPL is the registered lessee of the relevant lands. (6) Parties mayby mutual agreement vary the number of CPUs and/or cash consideration as settlement for the purchase consideration. (7) Involves the acquisition of a registered lease over 2 pieces of lands and 97 units of luxury villas thereon. (8) If after completion of subdivision process, the relevant land area of the relevant property differs from the area shown in the agreed plans in excess of three (3%) per centum, then the respective vendors and the Trustee shall negotiate in good faith and mutually agree to any adjustment of the purchase consideration. The difference between the purchase consideration and the adjusted purchase consideration shall be settled by such mode of payment as may be mutually agreed upon. YTL Land, NVKK, BBHP, PTSB, BBHK, MDSB, EWV, SPPL and TJBH are collectively referred to as Vendors. 2.3 Justification and basis for the Purchase Consideration The Purchase Consideration of RM1,054.0 million was arrived at on a willing-buyer willing-seller basis after taking into consideration the market value of the Properties ascribed by the Independent Valuers (as defined hereunder) of RM1,067.0 million.
Page 4 Based on the independent valuations by Savills Japan Co., Ltd (for Hilton Niseko) and Raine & Horne International Zaki + Partners Sdn Bhd (for all other Properties) (collectively the Independent Valuers ), the market value of the Properties (on the basis that the properties are in their respective existing conditions, free from all encumbrances and subject to the Lease Agreements (as defined in Section 2.4 below), as the case may be, and the existing letting agreements) are as follows: Properties Material Date of Valuation Market Value (RM 000) Purchase Consideration (RM 000) Principal Method of Valuation Cameron Highlands Resort 30 September 2010 50,000 50,000 Profit method Hilton Niseko (1) 30 September 2010 222,000 222,000 Investment method Vistana Penang 30 September 2010 100,000 100,000 Profit method Vistana Kuala 30 September 2010 100,000 100,000 Profit method Lumpur Vistana Kuantan 30 September 2010 75,000 75,000 Profit method The Residences@Ritz- Carlton (2) 30 September 2010 73,000 73,000 Investment method Ritz Carlton, KL 30 September 2010 250,000 250,000 Profit method Pangkor Laut 30 September 2010 97,000 97,000 Profit method Resort (3) Tanjong Jara Resort 30 September 2010 100,000 87,000 Profit method Total 1,067,000 1,054,000 Notes: (1) The purchase consideration for Hilton Niseko is denominated in JPY6,000,000,000 (or RM222,000,000 based on the exchange rate of JPY27.052:RM1.000 as at 30 September 2010, being the material date of valuation (rounded up to the nearest thousand)). (2) Involves the acquisition of the remaining 54 units and 1 level of basement carpark which are not currently owned by Starhill REIT. (3) Involves the acquisition of a registered lease over 2 pieces of land and 97 units of luxury villas thereon. The issuance of Consideration Units at an issue price of RM1.00 per unit represents a premium of approximately 13.6% to the 5-day volume weighted average price ( VWAP ) of RM0.88 up to and including 13 December 2010, being the last full trading day prior to this announcement and a discount of 14.5% to the audited net asset value ( NAV ) per unit of Starhill REIT as at 30 June 2010 of RM1.17. The issuance of the Consideration Units as part settlement of the Purchase Consideration will avoid increasing the gearing level of the Trust.
Page 5 2.4 Agreements entered into by the Trustee The Trustee has entered into the following agreements today: (i) nine (9) separate conditional Sale and Purchase Agreements ( SPA ) with the respective Vendors for the acquisition of the Properties. (ii) with regards to the lease of the Properties by the Trustee (as lessor) 1 : (a) (b) (c) (d) six (6) separate lease agreements with the respective Vendors (as lessees) of Hilton Niseko, Ritz-Carlton KL, Tanjong Jara Resort, Vistana Penang, Vistana Kuantan and Vistana Kuala Lumpur; a lease agreement with Cameron Highlands Resort Sdn Bhd ( CHRSB ) (as lessee), being the current hotel operator, for the lease of Cameron Highlands Resort; a sub-lease agreement with SPPL (as sub-lessee) for the sub-lease of Pangkor Laut Resort; and a deed of novation ( Deed of Novation ) with MDSB (retiring party) and Star Hill Hotel Sdn Bhd ( SHHSB ) (continuing party/lessee) for the novation of the existing lease agreement dated 18 October 2006 in relation to Residences@Ritz-Carlton ( Residences@Ritz-Carlton Lease Agreement ) from MDSB to the Trustee. The lease/sub-lease agreements set out in paragraphs (a) to (c) above are collectively referred to as Lease Agreements. The lessees and sub-lessee mentioned in paragraphs (a) to (d) above are collectively referred to as Lessees. 2.4.1 Salient terms of the SPAs Agreement for Sale The Trustee on behalf of Starhill REIT shall purchase the respective Properties free from encumbrances but subject to the relevant Lease Agreements or Residences@Ritz-Carlton Lease Agreement and/or any existing letting documents ( Existing Letting Documents, which shall include existing tenancy agreements/licenses/occupational rights granted by the respective Vendors in respect of the Properties), at the Purchase Consideration and on the terms and subject to the conditions set out in the SPAs. The Properties are sold with all attached or accrued rights and benefits but subject to all conditions of title, restrictions in interest, existing category of land use, whether express or implied, affecting the Properties. The Vendors and Trustee shall upon execution of the SPAs execute the necessary agreements for the leases of the Properties from the Trustee with effect from Completion (as defined below) 2. The Vendors who are also Lessees under the Lease Agreements may continue with any Existing Letting Documents which are still subsisting as at completion of the relevant SPAs ( Completion ). 1 2 For Pangkor Laut Resort, the Trustee will enter into a sub-lease agreement in its capacity as lessee and will lease the property to SPPL, as sub-lessee. The relevant Vendors will procure CHRSB to execute the relevant lease agreement for Cameron Highlands Resort and also for a novation of the Residences@Ritz-Carlton Lease Agreement to the Trustee.
Page 6 The Properties are sold with legal possession on Completion but subject to each of the Vendor s and CHRSB s continued rights of use, occupation or possession under the Lease Agreements, Residences@Ritz-Carlton Lease Agreement and/or any existing arrangements with the respective hotel managers to operate and manage the relevant Properties. Conditions Precedent The completion of the Proposed Acquisitions shall be conditional upon, amongst others, the satisfaction of the following ( Conditions Precedent ): (i) (ii) (iii) approval of unitholders of Starhill REIT in a general meeting for the Proposed Acquisitions (including for the execution of the Lease Agreements and Deed of Novation, and the issuance of Consideration Units); approval-in-principle from Bursa Malaysia Securities Berhad ( Bursa Securities ) for the listing of and quotation for the Consideration Units on the Main Market of Bursa Securities; approval of SC for the valuation of certain Properties; (iv) approval of SC under Section 212 of the Capital Markets and Services Act 2007 for the issuance, listing of and quotation for the Consideration Units on the Main Market of Bursa Securities; (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) (xiii) execution of the Lease Agreements and Deed of Novation which shall be deposited with the appointed solicitors prior to Completion; consent of the hotel managers of the Properties pursuant to respective hotel management agreements, where required; approval of shareholders of the Vendors authorising the Proposed Acquisitions; consent of state authorities in respect of Vistana Penang, Vistana Kuantan, Pangkor Laut Resort and Tanjong Jara Resort; consent of Perbadanan Kemajuan Negeri Perak (as registered owner) in respect of Pangkor Laut Resort; receipt by the Trustee of the redemption statement for Vistana Penang from Malayan Banking Berhad, the existing chargee; approval of BNM for the Vendors (or their respective nominees) of Cameron Highlands Resort, Hilton Niseko, Vistana Penang and Vistana Kuala Lumpur to hold CPUs issued by Starhill Global REIT as part settlement of the Purchase Consideration; fulfilment of all conditions, variations and revisions imposed by the SC and Bursa Malaysia, where applicable, in respect of the acquisition of the Properties and the listing of and quotation for the Consideration Units (to the extent that the same can be fulfilled prior to the completion of the Proposed Acquisitions); and all other consents and approvals from all relevant authorities and any other third parties necessary for the completion of the Proposed Acquisitions.
Page 7 In the event that the relevant Conditions Precedent are not satisfied on or before the expiry of six (6) months from the date of the relevant SPAs or such other date mutually agreed upon in writing, either party to the relevant SPAs may terminate the respective SPAs. Completion Completion of the Proposed Acquisitions ( Completion Date ) shall take place within ten (10) business days (or such other date mutually agreed upon by the relevant parties to the SPAs in writing) from the date on which all the relevant Conditions Precedent set out in the respective SPAs have been satisfied and/or waived ( Unconditional Date ) whereupon the Vendors shall: (a) (b) deliver to the Manager (or such person directed by the Manager), the relevant completion documents specified in the SPAs to the extent not previously delivered; and deliver legal possession of the Properties to the Trustee. For Vistana Kuantan, Ritz Carlton, KL, Pangkor Laut Resort, Residences@Ritz-Carlton and Tanjong Jara Resort, whereby part of the purchase consideration will be satisfied by Consideration Units, the date of listing of the Consideration Units on the Main Market of Bursa Securities shall be the Completion Date on which the Trustee shall pay to the respective Vendors, the Cash Consideration. The relevant Vendors of such Properties may, subject to the terms of the SPAs, authorise the presentation of the relevant transfer documents to effect the transfer of the Properties after the Unconditional Date provided that the Vendor is satisfied that the Manager has proceeded to allot and issue the Consideration Units to the respective Vendors. For Cameron Highlands Resort, Hilton Niseko, Vistana Penang and Vistana Kuala Lumpur, whereby part or all of the purchase consideration will be satisfied by CPUs, on the Completion Date, subject to the terms of the relevant SPAs, the Trustee shall procure the transfer of the CPUs to the respective Vendors (or the nominee of the relevant Vendors) and pay to the relevant Vendors, the Cash Consideration (less the sum payable to redeem the existing charge for Vistana Penang). The relevant Vendors and the Trustee shall take the necessary action to effect the transfer of such Properties 1 within 2 business days from the Completion Date. The title to the Properties and full beneficial ownership and risk in respect of the Properties passes to the Trustee on Completion Date. Application for Hotel Title for Tanjong Jara Resort TJBH shall at its own cost and expense submit the application for sub-division of land for approval by the relevant land authority for the sub-division of the land in accordance with agreed plans for the issuance of the separate sub-divided document(s) of title to Tanjong Jara Resort ( Tanjong Jara Title ) within six (6) months from the Completion Date or such extended period agreed upon by the Trustee in writing. Upon issuance of the Tanjong Jara Title, the Vendor shall take the necessary steps to effect the transfer of the Tanjong Jara Title to the Trustee. Pending the issuance of the Tanjong Jara Title and the transfer of Tanjong Jara Title to the Trustee, the Trustee may sell, transfer, dispose of, charge or deal with the property 1 The transfer of the subdivided portion of the lands(s) in respect of Hilton Niseko will be effected after completion of the subdivision process.
Page 8 as the beneficial owner as it deems appropriate in accordance to the terms of the SPA and subject to the terms of the relevant Lease Agreement. If the land area of Tanjong Jara Resort as shown in the Tanjong Jara Title when issued is less or more than the area shown in the agreed plans in excess of three (3%) per centum, then TJBH and the Trustee shall negotiate in good faith and mutually agree on the terms pertaining to any adjustment of the purchase consideration and the difference between the purchase consideration and the adjusted purchase consideration shall be settled by such mode of payment as may be mutually agreed upon. TJBH shall not immediately and at any time after the date of execution of the relevant SPA, sell or transfer the relevant lands to a third party without the prior written consent of the Trustee, which shall not be unreasonably withheld or delayed in the event that the new purchaser undertakes to comply with all the outstanding obligations to obtain the approval for the sub-division of the relevant land including the delivery of the Tanjong Jara Title and the execution of the memorandum of transfer to the Trustee in accordance with the relevant provisions set out in the relevant SPA. Application for Hotel Title for Hotel Niseko NVKK shall submit the filings of relevant registration application(s) for sub-division of lands for approval by the relevant land authority to register with the relevant authority ( Sub-Division Registration ) the sub-divided document(s) of title in respect of Hilton Niseko ( Hilton Niseko Title ) on or after the Completion Date or on such earlier date as notified by NVKK to the Trustee. NVKK shall bear the cost and expense of complying with and fulfilling all the terms, conditions and requirements of the Sub-Division Registration process. The Trustee shall bear the cost and expense of complying with and fulfilling all the terms, conditions and requirements for the registration of the transfer of the Hilton Niseko Title from NVKK to the Trustee or its nominee. If the accepted land area of Hilton Niseko by the relevant authority is less or more than the area shown in the agreed plans in excess of three (3%) per centum, then NVKK and the Trustee shall negotiate in good faith and mutually agree on the terms pertaining to any adjustment of the purchase consideration and the difference between the purchase consideration and the adjusted purchase consideration shall be settled by such mode of payment as may be mutually agreed upon. Until the completion of the Sub-Division Registration, NVKK shall not sell or transfer or otherwise vary the title to the portion of the lands (to be retained by NVKK) to a third party without the prior written consent of the Trustee, which shall not be unreasonably withheld or delayed. Management Pending Completion Date Following the date of the relevant SPAs (other than in relation to Residences@Ritz- Carlton and Cameron Highlands Resort), the relevant Vendors shall, subject to the conditions set out in the relevant SPAs, continue to operate and maintain the hotel business undertaken at the respective Properties until Completion. Following the date of execution of the respective SPAs in relation to Residences@Ritz- Carlton and Cameron Highlands Resort, the relevant Vendors shall comply with its respective obligations under the relevant existing lease agreements until Completion.
Page 9 Termination (i) If the Trustee or the relevant Vendors are in material breach of obligations under the relevant SPAs or if any of the warranties set out in the respective SPAs are untrue/misleading in any material respect, the non-defaulting party will be entitled on or before the Completion Date to elect to rescind the respective SPAs if such breach is not remedied within the time stipulated in the SPAs. The parties shall, to the maximum extent possible, be restored to their respective original position prior to the execution of the respective SPAs, at the costs and expenses of the defaulting party. (ii) In the event the acquisition of the respective Properties is not completed in accordance with the SPAs or the transfer of title 1 ( Transfer ) cannot be registered in favour of the Trustee for reasons not attributable to the fault of either party to the relevant SPAs, the parties shall do all things within their reasonable control to procure the registration of the Transfer within a period of thirty (30) days from the date of the parties being notified of such nonregistration, failing which the parties shall, to the maximum extent possible, be restored to their respective original position prior to the relevant SPAs. The Trustee or the Vendors may thereafter terminate the relevant SPAs and Lease Agreements. 2.4.2 Lease Agreements Pursuant to the Lease Agreements, the Properties (save for Residences@Ritz-Carlton) will be leased to certain Lessees for an initial period of fifteen (15) years commencing on the Completion Date with an option granted to the respective Lessees to renew the lease for a further term of fifteen (15) years ( Renewed Term ). If the parties to the relevant Lease Agreements shall fail to agree on the monthly rentals payable for the Renewed Term, the monthly rental for the first five (5) years of the Renewed Term shall be the then prevailing monthly rental payable in the last month of the term of the lease plus five per cent (5%) of such amount and the monthly rentals shall be increased by five per cent (5%) of the then prevailing monthly rental at every five (5) yearly intervals thereafter. The following table sets out the lease payments which include a step-up provision of 5% every five (5) years: Annual lease payments (1) (RM 000) Properties Years 1-5 Years 6-10 Years 11-15 Cameron Highlands Resort 4,000.00 4,200.00 4,410.00 Hilton Niseko 15,540.00 16,317.00 17,132.85 Vistana Penang 8,200.00 8,610.00 9,040.50 Vistana Kuala Lumpur 8,200.00 8,610.00 9,040.50 Vistana Kuantan 6,000.00 6,300.00 6,615.00 Ritz-Carlton, KL 19,250.00 20,212.50 (2) 21,223.13 1 Other than in respect of Hilton Niseko and Tanjong Jara Resort as there is currently no separate document(s) of title to the sub-divided portion of the relevant lands to be acquired.
Page 10 Pangkor Laut Resort 8,400.00 8,820.00 9,261.00 Tanjong Jara Resort 7,000.00 7,350.00 7,717.50 TOTAL 76,590.00 80,419.50 84,440.48 Notes: (1) (2) The lease terms pursuant to the relevant Lease Agreements shall commence on the Completion Date of the relevant SPAs. Actual amount is RM 21,223,125. The Trustee shall not sell, transfer, dispose of or deal with the respective Properties without the prior consent of the relevant Lessees which shall not be unreasonably withheld provided that any such sale, transfer, charging or dealing of the Properties must be subject to the Lease Agreements. 2.4.3 Residences@Ritz-Carlton Lease Agreement Pursuant to the Deed of Novation, the Trustee will replace MDSB as lessor under the Residence@Ritz-Carlton Lease Agreement with effect from the Completion Date for Residences@Ritz-Carlton. Pursuant to the Residences@Ritz-Carlton Lease Agreement, Residences@Ritz-Carlton is currently leased to SHHSB for a period of twenty five (25) years commencing 1 July 2006 with an option granted to SHHSB to renew the lease for a further term of fifteen (15) years ( Residences Renewed Term ). If the parties to the Residences@Ritz-Carlton Lease Agreement as novated pursuant to the Deed of Novation shall fail to agree on the monthly rentals payable for the Residences Renewed Term, the monthly rental for the first five (5) years of the Residences Renewed Term shall be the then prevailing monthly rental payable in the last month of the term of the lease plus five per cent (5%) of such amount and the monthly rentals shall be increased by five per cent (5%) of the then prevailing monthly rental at every five (5) yearly intervals thereafter. The following table sets out the lease payments for Residences@Ritz-Carlton, which include a step-up provision of 5% every five (5) years: Annual lease payments (RM 000) Years 1-5 Years 6-10 Years 11-15 Years 16-20 Years 21-25 2.5 Source of funding 3,600.00 3,780.00 3,969.00 4,167.45 4,375.82 The Trustee shall not sell, transfer, dispose of or deal with Residence@Ritz-Carlton without the prior consent of MDSB which shall not be unreasonably withheld provided that any such sale, transfer, charging or dealing of Residence@Ritz-Carlton must be subject to the Residence@Ritz-Carlton Lease Agreement. The Cash Consideration will be funded using cash proceeds from the disposal of Starhill Gallery and Lot 10 properties by Starhill REIT to Starhill Global REIT which was completed on 28 June 2010.
Page 11 2.6 Ranking of the Consideration Units The Consideration Units to be issued as part settlement of the Purchase Consideration will upon allotment and issue, rank pari passu in all respect with the existing Starhill REIT units but shall not be entitled to any rights, allotments and/or other distributions for which the entitlement date precedes the relevant date of allotment of the Consideration Units. An application will be made to Bursa Securities for the listing of and quotation for the Consideration Units on the Main Market of Bursa Securities. 2.7 Liabilities to be assumed Save for liabilities which are incurred in the ordinary course of business, there are no liabilities including contingent liabilities and guarantees, to be assumed by Starhill REIT pursuant to the Proposed Acquisitions. 3. EFFECTS OF THE PROPOSED ACQUISITIONS The pro-forma effects of the Proposed Acquisitions are as follows: 3.1 Unitholders capital The Proposed Acquisitions will increase the unitholders capital of Starhill REIT, as set out below:- No. of Units ( 000) Amount (RM) As at 30 November 2010 1,178,889 1,145,895 To be issued pursuant to the Proposed Acquisitions 145,500 145,500 Enlarged unitholders capital 1,324,389 1,291,395 3.2 Substantial unitholders unitholdings The effects of the Proposed Acquisitions on the unitholdings of the substantial unitholders are set out below: <------------After the Proposed Acquisitions--------- <-------------As at 30 November 2010-------------> > <---------Direct---------> <---------Indirect--------> <---------Direct--------> <----------Indirect---------> No. of Units (%) No. of Units (%) No. of Units (%) No. of Units (%) YTL Corporation Berhad ( YTL Corp ) 747,084,189 63.37 Yeoh Tiong Lay & Sons Holdings Sdn Bhd ( YTLSH ) - - Tan Sri Dato Seri (Dr) Yeoh Tiong Lay - - (1) 43,089,500 3.66 747,084,189 56.41 (2) 790,173,689 67.03 - - (3) 790,173,689 67.03 - - (4) 61,839,500 4.67 (5) 913,923,689 69.01 (6) 913,923,689 69.01
Page 12 Notes:- (1) (2) (3) (4) (5) (6) Deemed interest by virtue of its shareholding in YTL Power International Berhad ( YTL Power ) pursuant to Section 6A of the Companies Act, 1965 ( Act ). Deemed interest by virtue of its shareholding in YTL Corp and YTL Power pursuant to Section 6A of the Act. Deemed interest by virtue of his interests in YTLSH, YTL Corp and YTL Power pursuant to Section 6A of the Act. Deemed interest by virtue of its shareholding in YTL Power and BBHK pursuant to Section 6A of the Act. Deemed interest by virtue of its shareholding in YTL Corp, YTL Power, BBHK, MDSB, EWV and SPPL pursuant to Section 6A of the Act. Deemed interest by virtue of his interests in YTLSH, YTL Corp, YTL Power, BBHK, MDSB, EWV and SPPL pursuant to Section 6A of the Act. 3.3 Distribution per Unit ( DPU ) and Distributable Income For illustration purposes only, the proforma effect of the Proposed Acquisitions on the DPU for the financial year ending 30 June 2011 ( FY2011 ) assuming the Proposed Acquisitions were completed on 1 July 2010 (full year contribution) is expected to be as follows: Audited FYE 30 June 2010 Proforma FY2011 (4) Realised and distributable income after tax (RM 000) 76,457 (3) 91,282 No. of Starhill REIT units (000) 1,178,889 1,324,389 DPU (sen) (1) 6.49 6.89 DPU yield (%) (2) 7.38 7.83 Notes:- (1) Assuming all distributable income are distributed to unitholders. (2) Based on the 5-day VWAP per unit of RM0.88 up to and including 13 December 2010, being the last full trading day prior to this announcement. (3) Assuming the Proposed Acquisitions was completed on 1 July 2010. The realised and distributable income after tax represents a full year income from JW Marriott, Residences@Ritz-Carlton (including units already owned by Starhill REIT), the Properties and other income such as interest income for the FYE 30 June 2011. Costs in relation to the Proposed Acquisitions will be capitalised as cost of investment in the Properties (4) The above proforma is not intended to be a forecast of eventual DPU. Actual distributable income after tax for FY2011 is expected to be significantly different from the above in view that the Proposed Acquisitions are expected to complete towards the end of FY2011. Barring any unforeseen circumstances and subject to the cash available after working capital requirements, Starhill REIT will endeavour to maintain a DPU for the FY2011 of at least 6.49 sen utilizing its existing undistributed income available for distribution.
Page 13 3.4 Net assets value ( NAV ) and leverage ratio Based on the audited financial statements of Starhill REIT for the financial year ended ( FYE ) 30 June 2010, the proforma effects of the Proposed Acquisitions on the NAV and leverage ratio of Starhill REIT are set out below: Audited as at 30 June 2010 After the Proposed Acquisitions RM million RM million Unitholders Funds Unitholders capital 1,145.90 (1) 1,291.40 Undistributed income 228.98 (2) 228.98 1,374.88 1,520.38 Interest-bearing borrowings 180.00 180.00 Number of units in issue ( million) 1,178.89 (1) 1,324.39 NAV per Unit (RM) 1.17 1.15 Leverage ratio (times) 0.13 0.12 Notes:- (1) (2) Assuming the issuance of 145,500,000 Consideration Units as part settlement of the Purchase Consideration Assuming estimated expenses of RM32.1 million will be capitalised as cost of investment in the Properties. 4. RATIONALE AND PROSPECTS OF THE PROPOSED ACQUISITIONS The Proposed Acquisitions are part of the rationalisation exercise to reposition Starhill REIT as a fullfledged hospitality REIT. Upon completion of the Proposed Acquisitions, Starhill REIT will be positioned as the first hospitality REIT with ten (10) hospitality properties located in prime leisure/business tourism locations in Malaysia and Japan. It will provide a platform to enable the Trust to focus on a single, dedicated class of assets and enable Starhill REIT to focus on the acquisition of hotel properties located both in Malaysia and internationally, subject to attractive valuations which will provide yield accretive returns to unitholders. Gearing levels after the Proposed Acquisitions will reduce slightly to 0.12 times and allow the Trust to embark on further acquisitions. The repositioning of Starhill REIT as a hospitality REIT is also expected to promote clarity of investment and facilitate investors assessments of the risks and returns of the portfolio. The Proposed Acquisitions entails the sale and lease of the Properties and provide stable cash flows with a step-up provision of 5% every 5 years. The Proposed Acquisitions will therefore provide the Trust with a steady and secure income stream. Risks associated with the hospitality and tourism industry such as travel patterns, seasonal factors, regional and global economic performance, increased threat of terrorism, epidemics, natural disasters and weather conditions which may result in reduced occupancy and uncertainty in cashflows are substantially mitigated through the lease arrangements.
Page 14 5. DETAILS OF THE VENDORS OF THE PROPERTIES 5.1 YTL Land 5.2 NVKK YTL Land was incorporated as a private limited company on 17 August 1991 in Malaysia under the Act. It is principally involved in properties investment and property management. As at 30 November 2010, YTL Land is a wholly-owned subsidiary of YTL Corp. YTL Land is also the holding company of the Manager. Tan Sri Dato Seri (Dr) Yeoh Tiong Lay, Tan Sri Dato (Dr) Francis Yeoh Sock Ping, Dato Yeoh Seok Kian, Dato Yeoh Seok Hong, Dato Sri Michael Yeoh Sock Siong and Dato Mark Yeoh Seok Kah are directors of YTL Land. NVKK was incorporated as a private limited company on 7 December 2006 in Japan under the Companies Act (Act No. 86 of 2005). The major business purposes of NVKK are as follows: (i) (ii) (iii) (iv) (v) (vi) (vii) management, operation, control, sale and purchase, planning and development and consulting of golf courses, ski resorts and resort facilities such as resort hotels; holding, control and management of assets in relation to the foregoing; investment business; holding, construction, development, sale and purchase, lease and management of real property; holding, management and sale and purchase of trust beneficiary interests; real estate transaction business; and all business incidental to or relating to each of the foregoing. 5.3 BBHP 5.4 PTSB As at 30 November 2010, NVKK is an indirect wholly-owned subsidiary of YTL Corp. Dato Mark Yeoh Seok Kah, Yeoh Keong Shyan, Takehiko Fukuoka, Yeoh Soo Len, Tanaka Eiichi and Jeffrey Marks are directors of NVKK. BBHP was incorporated as a private limited company on 14 April 1993 in Malaysia under the Act. It is principally engaged as a hotel and resort operator. As at 30 November 2010, BBHP is 51%-owned by Business & Budget Hotels Sdn Bhd, a whollyowned subsidiary of YTL Corp. The remaining 49% interest is held by Penang Development Corporation. Dato Abdul Rahim Bin Isahak, Dato Mark Yeoh Seok Kah or his alternate director, Carl Benjamin Kono and Chong Shao Siew are directors of BBHP. PTSB was incorporated as a private limited company on 10 June 1991 in Malaysia under the Act. It is principally engaged as a hotel operator. As at 30 November 2010, PTSB is 59.3%-owned by YTL Corp. Amcorp Properties Berhad (formerly known as AMDB Berhad) holds the remaining interest in PTSB. Dato Mark Yeoh Seok Kah or his alternate director, Carl Benjamin Kono, Lee Keen Pong, Azmi Bin Hashim or his alternate director, Azlan Baqee Bin Abdullah and Chong Shao Siew are directors of PTSB.
Page 15 5.5 BBHK 5.6 MDSB 5.7 EWV 5.8 SPPL 5.9 TJBH BBHK was incorporated as a private limited company on 9 April 1991 in Malaysia under the Act. It is principally engaged as a hotel and resort operator. As at 30 November 2010, BBHK is a 50%-owned associated company of Business & Budget Hotels Sdn Bhd, a wholly-owned subsidiary of YTL Corp. The remaining shareholders of BBHK are Far East Holdings Berhad and the Pahang State Development Corporation holding 36.3% and 13.7% interest, respectively. Dato Mark Yeoh Seok Kah, Datin Noraskin Binti Jamaludin, Asmin Binti Yahya and Carl Benjamin Kono are directors of BBHK. MDSB was incorporated as a private limited company on 1 October 1994 in Malaysia under the Act. It is principally involved in investment holding. As at 30 November 2010, MDSB is a whollyowned subsidiary of YTLSH. Dato Yeoh Seok Kian, Dato Mark Yeoh Seok Kah and Hj Safian Bin Tan Sri Hj Ibrahim are directors of MDSB. EWV was incorporated as a private limited company on 3 June 1991 in Malaysia under the Act. It is principally involved in hotel operations. As at 30 November 2010, EWV is 70%-owned by YTLSH. The remaining 30% interest is held by Getaran Bakat Sdn Bhd. Dato Mark Yeoh Seok Kah, Hj Safian Bin Tan Sri Hj Ibrahim and Yeoh Keong Shyan are directors of EWV. SPPL was incorporated as a private limited company on 28 December 1972 in Malaysia under the Act. It is principally engaged as a hotel and resort operator. As at 30 November 2010, SPPL is 57%-owned by YTLSH. The other substantial shareholder of SPPL is Seri Yakin Sdn Bhd, having a 35.05% interest in SPPL. Y.A.M. Raja Dato Seri Ashman Shah Ibni Sultan Azlan Shah, Tan Sri Dato Seri (Dr) Yeoh Tiong Lay, Tan Sri Dato (Dr) Francis Yeoh Sock Ping, Dato Hj Mohamed Zainal Abidin Bin Hj Abdul Kadir or his alternate director, Mohamad Ziad Bin Dato Hj Mohamed Zainal Abdin, Dato Yeoh Seok Hong, Dato Sri Michael Yeoh Sock Siong and Dato Mark Yeoh Seok Kah are directors of SPPL. TJBH was incorporated as a private limited company on 29 December 1975 in Malaysia under the Act. It is principally engaged as a hotel and resort operator. As at 30 November 2010, TJBH is a wholly-owned subsidiary of Dagang Warisan Sdn Bhd. Raja Dato Wahid Bin Raja Kamaral Zaman, Dato Hj Mohamed Zainal Abidin Bin Hj Abdul Kadir or his alternate director, Mohamad Ziad Bin Dato Hj Mohamed Zainal Abidin and Gerald Glesphy A/L G.M. Perara are directors of TJBH.
Page 16 6. RISK FACTORS The risk factors associated with the Proposed Acquisitions and lease arrangements (which may not be exhaustive) are as follows: - (i) Lease Arrangements The performance of the Trust is dependent on the ability of the Lessees to make timely lease payments under the Lease Agreements and Residence@Ritz-Carlton Lease Agreement. The Trust will therefore be adversely affected in the event of the bankruptcy, insolvency or downturn in the business of any of the Lessees. Although the Manager has taken steps to ensure that the Lessees are established and qualified corporations, the ability of any Lessee to make payment may be affected by factors beyond their control such as factors relating to the hospitality industry such as travel patterns, regional and global economic performance, increased threat of terrorism, epidemics, natural disasters and weather conditions which may result in reduced occupancy and room rates for the properties in the Trust s portfolio and volatile earnings. (ii) Capital Investment Requirements Hospitality properties require periodic capital expenditures, refurbishments, renovation and improvements to remain competitive. Further acquisitions or development of additional hospitality properties will require significant expenditure. There is no assurance that the operating cash flows from future investment properties may not be sufficient for the Trust to fund its capital investment requirements or fund further growth through the acquisition or development of additional hospitality properties. In addition, the Trust may not be able to obtain additional equity or debt financing on favourable terms. However, this risk is mitigated for the Properties as the periodic repairs and maintenance expenditures are borne by the Lessees. (iii) Fixed Income from the Lease of the Properties As the rental rates for the Properties pursuant to the Lease Agreements and Residences@Ritz- Carlton Lease Agreement are fixed, the Trust may not be able to benefit from the increase in market rental rates for the Properties if the market rental rates increase more than the incremental rate pursuant to the aforesaid lease agreements. In addition, the Lease Agreements and Residences@Ritz-Carlton Lease Agreement may be renewed for a further fifteen (15) years at the option of the relevant Lessees and in the event that the parties to the aforesaid lease agreements cannot agree on the rentals for the renewed term, Starhill REIT is obliged to renew the said leases at the agreed rental rates as stipulated in the relevant Lease Agreements and the Residences@Ritz-Carlton Lease Agreement. The fixed nature of the rental rates, however, would protect Starhill REIT from any downside in market rental rates and would provide Starhill REIT with stable cashflows. (iv) Acquisition risks There is no assurance that the anticipated benefits of the Proposed Acquisitions will be realised or that the Trust would be able to recoup its investment in the Properties. There is no certainty that the Manager would be able to enhance the performance of its portfolio of hospitality properties subsequent to the Proposed Acquisitions. However, this is mitigated by the Manager s familiarity with the hospitality industry given the Trust currently has two hospitality properties under its portfolio of investment properties.
Page 17 7. APPROVALS/CONSENTS REQUIRED The Proposed Acquisitions are subject to, inter-alia, the following: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) the approval of the SC for the issuance and the listing of and quotation for the Consideration Units and the valuation of certain Properties where Consideration Units are issued as part of the Purchase Consideration; the approval of Bursa Securities for the listing of and quotation for the Consideration Units on the Main Market of Bursa Securities; the approval of the unitholders at the forthcoming unitholders meeting; the approval of the relevant shareholders of the Vendors; the consent of the relevant hotel managers of the relevant Properties, pursuant to the relevant management agreements, where required; consent of state authorities in respect of Vistana Penang, Vistana Kuantan, Pangkor Laut Resort and Tanjong Jara Resort; consent of Perbadanan Kemajuan Negeri Perak (as registered owner) for Pangkor Laut Resort; the Trustee s consent (the Trustee s approval in principle for the Proposed Acquisitions has been obtained on 14 December 2010); approval of BNM for the Vendors (or their respective nominees) of Cameron Highlands Resort, Hilton Niseko, Vistana Penang and Vistana Kuala Lumpur to hold CPUs issued by Starhill Global REIT as part settlement of the Purchase Consideration; approvals, waivers and/or consents from any other relevant authorities and/or persons, if required. AmInvestment Bank Berhad on behalf of the Manager had, on 29 November 2010, submitted applications for extension of time to from 28 December 2010 to 28 June 2011 to: (a) (b) the SC to comply with clauses 8.08, 8.22(b), (c) and (d) of the REIT Guidelines; and Bursa Securities to comply with Paragraph 8.04 and Practice Note 17 of the Main Market Listing Requirements. At this juncture, the decision from the SC and Bursa Securities for the extension of time is still pending. 8. INTERESTS OF DIRECTORS AND MAJOR SHAREHOLDERS OF THE MANAGER AND MAJOR UNITHOLDERS' INTERESTS The Proposed Acquisitions and lease arrangements are deemed related party transactions due to the interests of certain Directors and major shareholders of the Manager and/or the major unitholders. Save as disclosed below, none of the other Directors and major shareholders of the Manager or major unitholders of Starhill REIT and persons connected with them has any interest, direct or indirect, in the Proposed Acquisitions and lease arrangements: (a) YTL Corp which is a major shareholder of the Manager and major unitholder of Starhill REIT, is also a major shareholder of YTL Land, NVKK, BBHP, PTSB and BBHK.
Page 18 YTLSH and Tan Sri Dato Seri (Dr) Yeoh Tiong Lay who are major shareholders of the Manager via their shareholdings in YTL Corp, and major unitholders of Starhill REIT via the shareholdings of YTL Corp and YTL Power, are also major shareholders of YTL Land, NVKK, BBHP, PTSB, BBHK, MDSB, EWV and SPPL. Tan Sri Dato Seri (Dr) Yeoh Tiong Lay is also a director of YTL Land and SPPL. (YTL Corp, YTLSH and Tan Sri Dato Seri (Dr) Yeoh Tiong Lay collectively referred to as Interested Major Unitholders ) (b) (c) Tan Sri Dato (Dr) Francis Yeoh Sock Ping and Dato Yeoh Seok Kian who are directors of the Manager, are sons of Tan Sri Dato Seri (Dr) Yeoh Tiong Lay. Tan Sri Dato (Dr) Francis Yeoh Sock Ping and Dato Yeoh Seok Kian are also directors of YTL Land. Tan Sri Dato (Dr) Francis Yeoh Sock Ping is also a director of SPPL. Dato Yeoh Seok Kian is also a director of MDSB. Dato Hj Mohamed Zainal Abidin Bin Hj Abdul Kadir who is a director and major shareholder of the Manager, is also a major shareholder of SPPL, EWV and TJBH. Dato Hj Mohamed Zainal Abidin Bin Hj Abdul Kadir is also a director of SPPL and TJBH. (Tan Sri Dato (Dr) Francis Yeoh Sock Ping, Dato Yeoh Seok Kian and Dato Hj Mohamed Zainal Abidin Bin Hj Abdul Kadir collectively referred to as Interested Directors ) Save as disclosed below, as at 30 November 2010, the Interested Major Unitholders and Interested Directors do not have any other direct or indirect unitholdings in Starhill REIT:- YTL Corp 747,084,189 63.37 Direct Indirect No of Units % No of Units % (1) 43,089,500 3.66 YTLSH - - Tan Sri Dato Seri (Dr) Yeoh Tiong Lay - - (2) 790,173,689 67.03 (3) 790,173,689 67.03 Tan Sri Dato (Dr) Francis Yeoh Sock Ping 870,000 0.07 - - Dato Hj Mohamed Zainal Abidin Bin Hj Abdul Kadir 70,000 0.01 - - Notes:- (1) Deemed interest by virtue of its shareholding in YTL Power pursuant to Section 6A of the Act. (2) Deemed interest by virtue of its shareholding in YTL Corp and YTL Power pursuant to Section 6A of the Act. (3) Deemed interest by virtue of his interests in YTLSH, YTL Corp and YTL Power pursuant to Section 6A of the Act. Tan Sri Dato (Dr) Francis Yeoh Sock Ping and Dato Yeoh Seok Kian have abstained and will continue to abstain from board deliberation and voting on the relevant resolutions pertaining to the Proposed Acquisitions and lease arrangements (other than the proposed acquisition and lease of Tanjong Jara Resort). Dato Hj Mohamed Zainal Abidin Bin Hj Abdul Kadir has abstained and will continue to abstain from deliberating and voting at board deliberation and voting on the relevant resolutions pertaining to the proposed acquisitions and lease of Pangkor Laut Resort, Tanjong Jara Resort and the Ritz-Carlton, Kuala Lumpur.
Page 19 YTLSH, YTL Corp, Tan Sri Dato Seri (Dr) Yeoh Tiong Lay, Tan Sri Dato (Dr) Francis Yeoh Sock Ping Dato Yeoh Seok Kian and Dato Hj Mohamed Zainal Abidin Bin Hj Abdul Kadir will also abstain from voting in respect of their direct and/or indirect unitholdings in Starhill REIT (if any) and undertake to ensure that persons connected to them abstain from voting in respect of their direct and indirect unitholdings in Starhill REIT on the relevant resolution(s) for the relevant Properties in relation to the Proposed Acquisitions and lease arrangement at the unitholders meeting of Starhill REIT to be convened 9. ESTIMATED TIME FRAME FOR COMPLETION Barring any unforeseen circumstances and subject to receipt of all other relevant approvals, the Proposed Acquisitions are expected to be completed by the second quarter of 2011. 10. APPLICATION TO THE RELEVANT AUTHORITIES Barring any unforeseen circumstances, the applications in relation to the Proposed Acquisitions are expected to be submitted to the SC within two (2) months from the date of this Announcement. 11. DEPARTURE FROM THE REIT GUIDELINES To the best knowledge of the Board of the Manager, the Proposed Acquisitions do not depart from the REIT Guidelines. 12. DIRECTORS STATEMENT Having considered the rationale for the Proposed Acquisitions, the Board of the Manager (save for the Interested Directors for the relevant Properties) is of the opinion that the Proposed Acquisitions are in the best interests of Starhill REIT. 13. ADVISER AmInvestment Bank has been appointed as Adviser to Starhill REIT for the Proposed Acquisitions. 14. DOCUMENTS AVAILABLE FOR INSPECTION The SPAs, Valuation Letters, Lease Agreements, Residence@Ritz-Carlton Lease Agreement and Deed of Novation will be available for inspection at the registered office of the Manager at 11th Floor, Yeoh Tiong Lay Plaza, 55 Jalan Bukit Bintang, 55100 Kuala Lumpur during normal business hours from Monday to Friday (except public holidays) for a period of three (3) months from the date of this announcement. This announcement is dated 14 December 2010.