Further to my article on advantages and features of Sale And Leaseback:
“ recently reported in the Announcement of the Malaysian Stock Exchange: a Malaysian listed company, Advance Synergy Berhad (ASB) propose to embark on a Sale and leaseback (with option to re-purchase) of its hotels/resort properties to a Fund Management Institution for the creation of a REIT ( Real estate investment trust) “
Some salient points to note :
(1) the sale to release cash for future investment and or repaying loans for interest savings,
(2) the nature of the long lease term and yield offer
(3) the option to buy back
(4) creation of REIT by the purchaser. ( unlike an earlier article where the vendor is also a majority unit shareholder in the REIT)
Append below some basic details of the Sale & Leaseback, option to re-purchase;
Background:
Vendor: ASB having hotel/resorts properties namely Holiday Villa Alor Setar, Holiday Villa Cherating and Holiday Villa Langkawi
Purchaser: Amanah Raya Berhad(ARB) , nature of business is as fund manager who wish to initiate a REIT (real estate investment trust)( ARB is 100% owned by Ministry of Finance )

Proposed Terms and Conditions:
The purchase price of Holiday Villa Alor Setar (RM31 million), Holiday Villa Langkawi (RM55 million (”Purchase Price”). The purchase prices of Holiday Villa Alor Setar and Holiday Villa Langkawi are exactly the same as the market values stated by Colliers Jordan Lee & Jaafar (PG) Sdn Bhd in their valuation reports dated 6 December 2005 and 16 December 2005 respectively.
The leaseback period of the Hotels shall be for an initial term of 10 years with an option to renew the lease for a further term of 10 years instead of a renewal term of 5 years.

The average rental of both leases shall be 7% per annum on the purchase price of the Hotels for the initial term of 10 years as compared to an average yield of 7.5% per annum.

Upon the expiry of the Proposed Lease, each of the Vendors has an option to buyback the Hotels separately at the respective Repurchase Price. The price for the buyback of the Hotels shall be at the purchase price equivalent to the then prevailing market value of the Hotels determined based on the Discounted Cash Flow Method and the Comparable Method adopted by Colliers Jordan Lee & Jaafar (PG) Sdn Bhd in arriving at the Purchase Price of the Hotels and shall be subject to the then existing Guidelines on Real Estate Investment Trusts issued by the Securities Commission.

The Proposed Sale is expected to be completed by the end of June 2006. Upon completion of the Proposed Sale, the Vendors will cease to hold legal possession in the Hotels.

There is no departure from the Securities Commission’s Policies and Guidelines on Issue/Offer of Securities.

The Proposal is subject to the approvals, if required, of the shareholders of the respective parties and any other relevant government authorities.

Impact on Vendor, ASB on this proposal for Sale and Leaseback with option to re-purchase)

• The Proposal will enable ASB Group to reduce its bank borrowings and re-invest when the opportunity arises.

• Expected to have future positive effects on the earnings of ASB Group arising from savings in interest.
   
• Meanwhile, through the leaseback arrangement, ASB Group will continue to operate and maintain its presence in Alor Setar, Cherating and Langkawi.
  

The Proposal is not expected to result in any gain or loss to the ASB Group as the sale and leaseback arrangements are treated as finance leases rather than outright disposals.The Proposal has no effect on the share capital and major stockholders’ stockholdings of ASB as it does not involve any issuance of securities.

Not expected to have a material impact on the net tangible assets per stock unit of ASB Group for the financial year ending 31 December 2006.
Expected to reduce the earnings per stock unit of ASB Group by approximately 1.5 sen for the financial year ending 31 December 2006 due mainly to the impact on taxation.

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Related Entries

• Illustrated Example Of Sale And Leaseback-Tamaddan Berhad
• Sale and Leaseback
• Recent Malaysian REIT Development In 2006
• REIT As A Financing Strategy For Your Company
• Amanah Raya to enter REIT market