Table of contents. Introduction 1. Our unbeatable REITs track record in Asia 2. Other strengths 3

Transcription

1 Executing REITs in Hong Kong February 2006

2 Table of contents Introduction 1 Our unbeatable REITs track record in Asia 2 Other strengths 3 Issues to consider when structuring REITs in Hong Kong 4 Timetable for the establishment of a REIT 12 Summary of the SFC s requirements for REIT applications and REIT offer documents 16 Documentation required for REIT transactions 28 Appendix I: Linklaters experience of REITS in Asia 33 Please refer to for important information on the regulatory position of the firm.

3 Introduction A Real Estate Investment Trust ( REIT ) offering consists of several different components. On the basis of our experience of successfully structuring and executing REIT transactions in other countries in Asia, we are well qualified to assist you on the principal components of the transaction, including: the sale and purchase of the properties/property holding companies the creation of the REIT and the REIT management infrastructure the initial public offering and listing of Units of the REIT the concurrent debt financing required by the REIT to increase its gearing. The successful execution of a REIT transaction requires a multidisciplinary team of leading lawyers in these respective areas. Linklaters team in Hong Kong provides the full range of expertise required for the proposed transaction including experts in the areas of corporate finance, mergers and acquisitions, investment funds, capital markets, real estate, banking and financial markets. More specifically, Linklaters is uniquely qualified to assist on REITs transactions for the following reasons: Linklaters has been at the forefront of the development of REIT structures in several Asian jurisdictions, and has advised on international REIT offerings involving real estate in Singapore, Hong Kong and Japan we have acted on 83 new listings and offerings in Hong Kong in recent years (including some of the most complex and innovative offerings), which raised more than HK$186 billion in funds we are one of the leading capital markets law firms in the world, as acknowledged by our numerous awards in this area we have an unrivalled reputation in Asian M&A - we were awarded M&A Team of the Year by IFLR Asian Awards 2005 we have award-winning teams in the areas of real estate and investment funds. Linklaters has a specialised and active investment management practice strengths include REITs and private equity funds. Asia Pacific Legal 500 (Hong Kong: Unit Trusts and Investment Funds) 2004/05 A

4 Our unbeatable REITs track record in Asia Linklaters has been at the forefront of the development of REIT structures in several Asian jurisdictions, and has advised on international REIT offerings involving real estate in Singapore, Hong Kong and Japan. To date, Linklaters has advised on: the Link REIT, the first REIT in Hong Kong and one of the largest in the world to date. The transaction involved the HK$34 billion government privatisation of 180 retail and car park facilities (comprising a HK$22 billion IPO and debt finance of HK$12.2 billion). The portfolio represents around 10% of all retail spaces and 14% of all car park spaces in Hong Kong the first REIT to be successfully launched in Singapore. The offering by CapitaMall Trust Management Limited comprised a concurrent offering to international investors and a domestic offering to retail investors in Singapore. As Singapore s debut REIT offering, this transaction required a detailed analysis of the newly-implemented regulatory regime in Singapore by us and our joint venture partners, Allen & Gledhill. The proceeds from the offer were used to fund the acquisition of income-generating shopping malls in Singapore Singapore s second REIT offering - by Ascendas Real Estate Investment Trust. This comprised an international placement in reliance on Regulation S, together with a public offering to retail investors in Singapore. The proceeds from the offer were used to fund the acquisition of income-generating industrial and office properties the first international offering of J-REIT units by a Japanese REIT, ORIX J-REIT Inc. This comprised an offering to qualified institutional buyers within the United States and institutional investors outside the United States, as well as a public offering in Japan. The offering by ORIX J-REIT Inc. was the first international offering of J-REIT units by a Japanese REIT Japan s most recent international REIT offering. We have recently advised on the international offering of J-REIT units for Tokyu Corporation, a leading owner of retail properties in Japan the first cross-border REIT in Asia. The international offering of Units by Fortune REIT. This involved the establishment of a REIT in Singapore, Fortune REIT, which acquired five retail shopping malls in Hong Kong and financed the acquisition by way of an offering of Units. The offering included an international offering of Units pursuant to Regulation S. This transaction was the first to involve a REIT investing in Hong Kong real estate. Asia Law Firm of the Year 2005 Chambers Global Best Hong Kong Deal and Best REIT Deal of the Year 2005 FinanceAsia Real Estate and Construction Super Deal of the Year (Asia) 2005 Asian Legal Business Awards (HK) For further details of our REITs experience in Asia, please refer to Appendix I. 2

5 Other strengths Corporate finance Hong Kong corporate finance is one of Linklaters core practice areas in the Asia Pacific Region. On new listings we have acted on 83 completed offerings in recent years raising over HK$186 billion in funds by way of international institutional placings and Hong Kong public offers. We participated in the HK$30 billion China Telecom IPO, one of Hong Kong s largest ever IPOs. We also advised on the US$2.8 billion global offering and dual listing of PetroChina Company Limited on the Hong Kong and New York Stock Exchanges. We have participated extensively in other complex and innovative IPOs and have a significant amount of experience on advising in relation to investments by strategic investors pre-ipo. Capital markets Linklaters capital markets practice in Asia focuses particularly on regional debt, derivative, equity and equity-linked securities. Our teams are ranked top tier in every jurisdiction in which we have an office by the Asia Pacific Legal 500. We were awarded Capital Markets Law Firm of the Year 2005 by Asian Legal Business and Debt & Equity-Linked Team of the Year 2005 by IFLR Asian Awards. Investment funds Linklaters investment funds practice in Asia regularly advises on the structuring, formation, taxation and regulation of all types of investment funds (including open and closed ended investment funds, including unit trusts, corporate structures, limited partnerships and co-ownership arrangements), for investment in property of all types: real estate, securities, debt, private equity, derivatives, and financial instruments. Linklaters was awarded Best Hong Kong Deal and Best REIT Deal by the FinanceAsia Awards 2005 for The Link REIT IPO. Real estate With over 200 lawyers and other professionals who specialise in real estate advice around the world, Linklaters has one of the most comprehensive real estate practices in the world - actively involved in almost every major market. Linklaters maintains its firstclass reputation for Asia M&A Asia Pacific Legal 500 (Hong Kong: Corporate/M&A) 2005/06 Linklaters has an outstanding regional debt practice Asia Pacific Legal 500 (Hong Kong: Capital Markets Debt and Equity) 2005/06 Linklaters is still ranked first for commercial real estate expertise in the leading guide to UK law firms Chambers Guide to the Legal Profession (1 st since 1997) and receives particular praise for its international network. Excellence in M&A Linklaters reputation as a leading firm for corporate and M&A advice extends around the world. We consistently top league tables measuring global, European and Asian M&A activity. League tables tell a compelling story about Linklaters standing in M&A in Asia. In 2004 we dominated all Asia M&A league tables, topping the Thomson Financial Asia (ex-japan) announced and completed tables for Asia target deals, as well as the Bloomberg Asia (ex-japan, Australia and New Zealand) table. 3

6 Issues to consider when structuring REITs in Hong Kong Under the Hong Kong Code on REITs (the Code ) the SFC permits REITs to hold and acquire properties through two methods: direct ownership of real estate assets by the REIT (as illustrated in Chart 1 below) ownership of real estate assets through special purpose vehicles (as illustrated in Chart 2 below). The ability to structure REITs using special purpose vehicles may result in stampduty savings if a significant portion of the real estate is currently already held through special purpose vehicles. In addition, it will enable REITs to benefit from the same tax treatment as companies. Please refer to Taxation, further below. Banking Law Firm of the Year 2005 Asian Legal Business Awards Chart 1 Direct ownership REITs that directly hold and acquire real estate assets may be structured under the Code along the following lines: UNITHOLDERS - retail investors - institutional investors - overseas investors Units subscribed in initial public offering Income/ Capital Cornerstone Investors REIT Management Company Management fees Management services REIT Acts on behalf of Unitholders Trustee appointed REIT Trustee Property management fees Direct ownership of properties Net property income Property Manager Property management services PROPERTIES 4

7 Chart 2 Ownership through special purpose vehicles REITs that hold and acquire real estate assets through special purpose vehicles may be structured under the Code along the following lines: Linklaters' Units subscribed in initial public offering UNITHOLDERS - retail investors - institutional investors - overseas investors Income/ Capital Cornerstone Investors eminent threepartner corporate team is headed by Casper Lawson, who commands immense respect REIT Management Company Management fees Management services Share ownership REIT Dividends Acts on behalf of Unitholders Trustee appointed REIT Trustee within the market. Asia Pacific Legal 500 (Japan: Corporate/M&A) 2005/06 Property management fees Property Manager SPV SPV SPV Property management services PROPERTY PROPERTY PROPERTY Special purpose vehicles The Code provides that REITs may hold real estate through special purpose vehicles only if certain conditions are met, including: the special purpose vehicles are legally and beneficially owned by the REIT the REIT has majority ownership and control of the special purpose vehicles (the SFC expects the special purpose vehicles to be wholly owned by the REIT except in special and limited circumstances, such as the need to comply with regulatory requirements in an overseas jurisdiction where such requirements are relevant to the REIT and/or its portfolio) 5

8 the special purpose vehicles are incorporated in jurisdictions which have established laws and corporate governance standards equivalent to those of Hong Kong the board of directors of each special purpose vehicle must be appointed by the REIT trustee both the REIT and the special purpose vehicles must appoint the same auditors and adopt the same accounting principles and policies. If the REIT acquires real estate through the acquisition of a special purpose vehicle, the Code sets out a number of requirements to be satisfied including: a report must be prepared by accountants to report on: (i) (ii) the profit and loss of the special purpose vehicle in respect of each of the three financial years (or such other shorter period as appropriate) immediately preceding the transaction the assets and liabilities of the special purpose vehicle as at the last date to which the accounts of the special purpose vehicle were prepared (which cannot be more than six months from the date of the report) a full valuation of the real estate assets must be prepared. Establishing the REIT To ensure a clear segregation of assets of the REIT, the Code provides that the REIT should be structured in the form of a unit trust. Accordingly, the REIT must appoint a trustee that is functionally independent of the REIT management company and acts in the best interests of unitholders. Trustee The trustee must be one of the following: Linklaters reigns supreme as excellent all round, and with a comprehensive understanding of the institutions they deal with... Its lawyers, who are effective right down to the most junior level, have enjoyed particular success Chambers Global (Singapore: Capital Markets) 2004/05 a bank licensed under Section 16 of the Hong Kong Banking Ordinance a trust company which is a subsidiary of such a bank a banking institution or trust company incorporated outside Hong Kong which is acceptable to the SFC. Furthermore, the trustee must employ key personnel with the knowledge, organisational resources and experience relevant to holding real estate under REITs or similar schemes. Management company The management company of a REIT must be licensed to conduct the regulated activity of asset management under Part V of the Securities and Futures Ordinance and approved by the SFC to manage the REIT. The SFC will consider overseas REIT managers from acceptable jurisdictions (Australia, Germany, Ireland, Luxembourg and the United Kingdom) in order to develop REIT management expertise in Hong Kong. The management company must employ at least two responsible officers with a track record of at least five years in investment management and/or property portfolio management. The management company may own or have an interest in the REIT that it manages. 6

9 The management company is responsible for conducting all proper and thorough due diligence on all relevant aspects of any property investment. While what are relevant aspects would depend on the nature and specific circumstances relating to the property and the jurisdiction in which it is located, relevant aspects include matters such as the ownership and title of the property, necessary government approvals and town planning requirements, compliance with zoning and building requirements and current and prospective leases and material agreements. The management company and each of its directors are jointly and severally responsible for the contents, completeness and accuracy of the information contained in the REIT s offering document. The complexity of the issues that a management company has to deal with when investing and managing overseas properties depends on the jurisdiction(s) where the properties are located. In licensing a management company as a REIT manager that invests in overseas properties, the SFC will generally only allow it to manage one REIT and will impose such conditions as may be appropriate in the light of the unique circumstances of the management company. The management company must appoint a listing agent acceptable to the SFC to be responsible for preparing the REIT as a new applicant for listing, for lodging the formal application for listing and all supporting documents with the Exchange and for dealing with the Exchange on all matters in connection with the application. Linklaters has a specialised and active investment management practice strengths include REITs and private equity funds. Asia Pacific Legal 500 (Hong Kong: Unit Trusts and Investment Funds) 2004/05 Property manager The REIT management company may perform property management services itself or may delegate this function to a professionally qualified property manager. The property management company must employ key personnel who are professionally qualified to manage real estate and who have at least five years of experience in managing real estate. Investment restrictions The Code contains a list of investment and operating restrictions, including requirements that a REIT shall: only invest in real estate note that a REIT can invest in overseas real estate hold good marketable legal and beneficial title in all its real estate, whether directly or via special purpose vehicles controlled by the REIT distribute 90% of its after-tax net income as dividend to unitholders not hold non-income generating real estate in excess of 10% of the total net asset value of the REIT not invest in vacant land or engage in property development activities with the exception of refurbishment and renovation hold its real estate for a period of not less than two years unless otherwise approved by its unitholders not borrow more than 45% of the total gross asset value of the REIT. The management company must ensure that the REIT has majority ownership and control in each property at all times. In making any such investment, the management company must comply with the following conditions: (a) the management company must be able to demonstrate that such arrangement 7

10 (including the decision of owning less than a 100% interest in the property) is in the interests of the unitholders; and (b) a legal opinion stating that the REIT will have good and marketable legal and beneficial interest in the property. Corporate Governance The Code contains several policy requirements to raise the transparency of connected party transactions, to enable the replacement of the management company and to ensure a fair and independent valuation of REIT assets. Connected persons transactions Transactions carried out by or on behalf of the REIT must be: carried out at arm s length independently valued (in the case of property transactions) consistent with the investment objective and strategy of the scheme in the best interests of unitholders properly disclosed to unitholders. In addition, the Code requires all connected party transactions to be subject to prior approval by unitholders by way of an ordinary resolution at an EGM, unless the total value or consideration of the transaction is less than 5% of the latest net asset value of the REIT as disclosed in the latest published audited reports (and adjusted for any subsequent transactions since the publication of such accounts). A substantial firm with considerable depth of resources, its lawyers were lauded for their ability to cultivate close relationships with clients. Chambers UK (UK: Real Estate Finance) 2006 Efficient replacement of management company The Code states that unitholders shall have an appropriate degree of supervision and control with respect to the management company s performance. This includes the ability of unitholders to remove the management company upon approval by holders of at least 75% of the outstanding units. Fair and independent valuation In order to promote the timely and credible valuation of REIT properties, the SFC proposes that: the valuer shall be independent of the trustee of the REIT, its management company and the property management company a full valuation report shall be prepared on an annual basis no valuer shall value the same REIT for more than three consecutive years. The valuation methodology must follow the Valuation Standards on Properties published from time to time by the Hong Kong Institute of Surveyors or the International Valuation Standards issued from time to time by the International Valuation Standards Committee. Disclosure and financial reporting Appendix B of the Code sets out the disclosure requirements with respect to the offering document to be used in a REIT offering. This has been supplemented by the Checklist of documents and content requirements published by the SFC. 8

11 These requirements cover disclosure of inter alia: investment objectives and dividend policies nature and risks of the REIT making property investments in each of the relevant jurisdictions (including economic and foreign exchange risk, political risks, legal and tax considerations and overview of the property market) the measures in place to mitigate or minimise risks relating to the investment and management of real estate owned by the REIT transaction history of the relevant property in the 5 years immediately preceding the date of the valuation report tenancy profile and other tenancy details revenue and occupancy trends details of the valuation of the real estate held by the REIT lease expiries and renewal trends full details of the trustee, the management company (including a description of the expertise, experience, resources, internal controls and risk management systems), the property valuer and the auditor information pertaining to the underlying properties and other operational details. The Code also provides that the REIT offering document must be accompanied by the REIT s most recent audited annual report and accounts (where applicable). In practice, there may be no audited historical financial information available with respect to the REIT (or the underlying properties). Experience in other jurisdictions in Asia has shown that it may be possible for the REIT to prepare pro forma financial information with respect to preceding financial years but this information may not be of a standard that can be audited. Dividend/yield forecasts The Code provides that dividend yield forecasts can be included in the REIT offering document provided that a number of conditions are satisfied. The Code states that no forecast of dividend yield may be made unless it is made on reasonable grounds and supported by a formal profit forecast. Appendix F of the Code sets forth the basis upon which such forecasts should be prepared, including requirements that: the forecast must cover a period which is co-terminous with the REIT s financial year-end. If the forecast period ends at a half year-end, the SFC will require an undertaking from the management company that the interim report for that half year will be audited. Forecast periods not ending on the financial year end or half year-end will not be permitted a forecast may be provided for the following financial year only if the REIT management company reasonably believes that such forecast is compiled in accordance with the principles and requirements set out in Appendix F the principal assumptions underlying the forecast, including commercial assumptions upon which it is based, must be stated in the offering document. The assumptions must be specific and precise, and readily understandable by investors 9

12 rental income, which forms a material element of the forecast, must be examined and reported on by the valuer and its report must be set out in the offering document the accounting policies and calculations underlying the forecast must be reviewed and reported on by the auditor and its report must be set out in the offering document. In terms of on-going reporting requirements, the Code provides that at least two financial reports shall be distributed each year to unitholders. The Code provides that the annual report must, inter alia, include a summary of the REIT management s discussion on investment outlook, a list of connected party transactions that the REIT has undertaken during the year, the top five real estate agents and contractors engaged by the REIT during the year, and a full valuation report and audited financial statements as prescribed in the Code. Published financial statements which cover the dividend yield forecast period must disclose the relevant figure and account for any discrepancy between the forecast and the actual yield. Special product features The SFC may consider allowing special product features in respect of the REIT on a case by case basis if the management company can demonstrate that the proposed feature is fair and objective and in accordance with prevailing market practice. Such product features include payment of management fees by way of issuance of units, transaction based fees and a flexible approach towards the basis for calculating performance fees (for instance linking such fees with increases in the listed unit price of a REIT, the net asset growth of a REIT, the income growth of a REIT or the relative unit price out performance of a REIT). Taxation While the Code is largely silent on the taxation treatment of REITs, by allowing REITs to hold and acquire real estate assets through special purpose vehicles, the SFC has made available potential taxation and stamp duty savings. The potential stamp duty savings arise from the fact that a significant portion of real estate in Hong Kong is currently held through special purpose vehicles. Any transfer of such real estate from a special purpose vehicle to direct ownership by a REIT would incur stamp duty of up to 3.75%. However, if the REIT is able to acquire shares in the special purpose vehicle itself (as opposed to the real estate) the stamp duty arising from the transfer of shares in the special purpose vehicle would amount only to 0.2%. From a taxation standpoint, there may be advantages if the REIT holds the real estate through a special purpose vehicle. In such a structure, the REIT may pay profits tax (reflecting the corporate structure) as opposed to property tax if the REIT owned the real estate directly. The principal advantage of being subject to profits tax is the fact that the REIT may be able to deduct a number of expenses against its profits (including debt interest payments and management fees). Certain of these expenses are not deductible against property tax. 10

13 At the individual investor level, under existing tax rules in Hong Kong, there are no capital gains tax or dividend income tax payable by individuals. Marketing/investor education The general position adopted by the SFC is that marketing materials in relation to REITs may only be published and distributed to the public after such materials are authorised by the SFC. The SFC would not normally authorise any such marketing materials before the REIT is authorised by the SFC or listing approval is granted by the Stock Exchange. In addition, advertisements and marketing materials must have proper risk warning statements including references to the offering circular for the REIT offering (for a detailed discussion of the risk factors involved in the REIT offering). 11

14 Timetable for the establishment of a REIT This indicative timetable provides an overview of the timing required for each component of a REIT transaction, including: Property Related Due Diligence and Legal Documentation Legal/Execution Issues Structuring the REIT Trust Structure Accounting/Financial Statements Financial Modelling for Forecast Debt Financing Cornerstone Investor Marketing (if applicable) Pre-marketing/Research (subject to discussion with SFC) Listing/SFC Approval Launch of Offer Property Related Due Diligence and Legal Documentation Create data room and collate property data and documents Weeks 1-2 Provide Tenancy Schedules Week 1 Commence legal and property due diligence Weeks 1-6 Commence work on property valuations and market review Weeks 1-6 Circulate and review first drafts of valuation and market report Circulate and review second drafts of valuation and market report Week 3 Week 4 Due diligence meeting with valuers and market researcher Week 5 Circulate and review final drafts of valuation and market report Commence drafting, review and negotiation on Share Purchase/Property Sale Agreements Week 6 Weeks 2-6 Finalise purchase price and share purchase terms Week 6 Property completion Week 16 Legal/Execution Issues Draft Offering Circular Weeks

15 Offering Circular circulated to relevant teams Comments received on draft Prospectus Circulate 1st draft Offering Circular Comments received on 1st draft Circulate subsequent drafts of Offering Circular and receive comments Return of all verification materials and management sign off Weeks 6-8 Structuring the REIT - Trust Structure Negotiation and drafting of Trust Deed Appointment of key personnel and directors Finalise Trust Deed Finalise Property and Asset management agreement Weeks 1-6 Weeks 4-6 Week 6 Week 6 Accounting/Financial Statements Work on Proforma Financial Statements Weeks 1-8 Finalise preparation of Proforma Financial Statements Week 8 Agree form of reporting accountant s report Weeks 5-8 Discussion on comfort letter Week 8 Agree form of comfort letter Week 8 Sign off on historical financials and forecasts Week 8 Reporting accountant s report signed Week 9 Financial Modelling for Forecasts Set preliminary forecast assumptions Week 2 Real estate net operating income agreed Weeks 1-3 Trust and asset model variables and models reviewed Weeks 1-6 Auditor s review and verification on cash flows Weeks 6-8 Forecast reviewer s review of forecast assumptions and model Weeks

16 Agree form of expert s forecast review Weeks 6 Expert review of forecast signed Weeks 6 Debt Financing Request for proposal for debt financing Week 4 Appoint loan provider and provide term sheet Week 5 Finalise terms of debt financing Week 6 Drawdown on debt financing Week 13 Cornerstone Investor Marketing (if applicable) Shortlist potential Cornerstone Investors Weeks 2-6 Prepare Information Memorandum Weeks 6-9 Prepare Cornerstone Investor presentation Weeks 4-7 Send Confidentiality Agreements to potential investors Week 7 Receive signed Confidentiality Agreements from Cornerstone investors Week 8 Start meeting, negotiation and finalisation with Cornerstone Investors Weeks 6-12 Pre-marketing/Research (subject to discussion with SFC) Generic research report to cover HK property and REITs Week 5 Prepare analyst presentation Week 6 Commence drafting of pre-deal research report Weeks 6-12 Distribute research reports before Black-out Week 10 Pre-marketing Weeks Present pre-marketing feedback Week 12 Listing/SFC Approval Verification of Offering Circular Weeks 6-8 Submission to HKEx (i) draft offering circular (ii) Form A2 Weeks

17 Submission to SFC (a) application for establishing REIT (b) offering circular, trust deed & constitutive documents SFC/HKEx review period Weeks 8-12 Migrate Offering Circular to printers/review printer s proof Week 10 Launch of Offer Prepare Roadshow Presentation Weeks Roadshow rehearsals Week 12 Agree form of Underwriting Agreement Weeks Sign Underwriting Agreement Week 12 Roadshow/Bookbuilding Weeks Hong Kong Public Offer Weeks Pricing and allocation Week 16 Process applications, balloting, print unit trust certificates Week 16 Closing and settlement Week 16 REIT units begin to trade Week 16 Transfer of assets into REIT Week 16 15

18 Summary of the SFC s requirements for REIT applications and REIT offer documents Legend Abbreviation AUD MG MGC SFC SP TU TUC UN UNC Party Auditor REIT Manager REIT Manager s Counsel Hong Kong Securities and Futures Commission Sponsor/Vendor Sponsor s/vendor s Counsel Trustee Trustee s Counsel Underwriter/Global Co-ordinator Underwriter s/global Co-ordinator s Counsel 16

19 Please note that documents submitted should be in an advanced form, in good order and suitable for clearance. Documents Completed Application Form MGC Party Responsible for Producing Document Offering document, constitutive document(s) such as trust deed and management company agreement (if any) Note: Please include proper annotation in each draft of the documents to demonstrate compliance with the relevant Code requirements. A diagram showing the Scheme s structure, indicating the relationships between the Scheme, the SPVs (if any) and the underlying real estate. MGC (offer document and trust deed) / AUD (financials) Approved person A letter from the Management Company nominating an individual to be approved by the SFC as an approved person (see Chapter 3.3 and 3.4 of the Code) containing the individual s name, employer, position held and contact details A letter from the nominated approved person to the SFC confirming and undertaking compliance with relevant provisions in the Code and the SFO applicable to an approved person of a collective investment scheme authorized by the SFC under section 104 of the SFO Management Company s undertaking to the SFC to appoint and ensure there is an approved person in respect to the Scheme at all times Trustee s undertaking to the SFC that it shall procure an appointment of an approved person for the Scheme if the Management Company fails to comply with its undertaking to the SFC MG MG MG MG Trustee Letter of consent to the appointment from the Trustee (for newly established Schemes) Evidence to demonstrate compliance with Chapter 4.3 of the Code. Examples: certificate of incorporation of the Trustee for a bank licensed under section 16 of the Banking Ordinance, licence issued by the relevant authority for a subsidiary of licensed bank, documentation showing its relationship with the licensed bank such as group organizational chart name of primary supervisory authority and appropriate certificate from such authority. Evidence to demonstrate compliance with Chapter 4.4 or 4.5 of the Code such as the Trustee s latest audited report (and if more recent, TU TU TU 17

20 Documents latest unaudited report). Evidence to demonstrate the Trustee s ability to discharge its functions in accordance with Chapter 4.6 of the Code: where the trustee possesses appropriate personnel (see Chapter 4.6(a)): detailed profiles of the key personnel a description of the real estates investment schemes to which the experience of the Trustee relates an organisational chart. where the trustee does not possess appropriate personnel (see Chapter 4.6(b)) in addition to the information set out immediately above: documentation showing its relationship with a corporate group that has acted as trustees for overseas REITs or real estate investment schemes details of overseas REITs or real estate investment schemes for which the corporate group (or any of its members) acts as trustee an undertaking from the corporate group for adequate support to the Trustee. Self-declaration by the Trustee in respect of any disciplinary or legal proceedings commenced or pending against the Trustee that may affect its eligibility as a trustee under Chapter 4 or, where appropriate, a negative statement signed by the Trustee Self-declaration by the Trustee in respect of its independence in accordance with Chapter 4.8 of the Code Where the Trustee and the Management Company are both corporations having the same ultimate holding company, the following has to be submitted: documentation such as group organizational chart to demonstrate that they are both subsidiaries of a substantial financial institution, and that neither the Trustee nor the Management Company is a subsidiary of the other documentation to demonstrate that no person is a director of both the Trustee and the Management Company an undertaking signed by both the Trustee and the Management Company to the effect that they will act independently of each other in their dealings with the scheme a declaration and an undertaking by the ultimate holding company to the effect that the Trustee and the Management Company are, and that the ultimate holding company shall ensure that they continue to be, independent of each other, except as regards their relationship with each other as member companies in the same group. Party Responsible for Producing Document TU TU TU TU / SP / MG 18

21 Documents Party Responsible for Producing Document Management company Evidence to demonstrate fulfilment of the acceptability criteria: documents to support that the Management Company is licensed by the SFC to carry out the business of regulated activities including but not limited to, asset management documents to support that the Management Company meets the financial resources requirements in Chapter 5.5 of the Code such as its latest audited report (and if more recent, the latest unaudited report) identities and detailed profiles of the responsible officers, including their experience in managing collective investment schemes during the period which constitutes the required 5-year track record name of the responsible officer (at least one) who will be available at all times to supervise the Management Company s business of regulated activity where the Management Company itself performs the general obligations required of it under the Code (i.e. internal management), e.g. those relating to the management of the Scheme s real estate, detailed profiles of the key personnel responsible for each of these functions such as their professional qualifications and details of their past experience relevant to the functions they perform; (see Note (2) to Chapter 5.4 of the Code) internal controls and written compliance procedures organizational chart within the Management Company group organizational chart of the Management Company total assets under management (Global/Hong Kong) types of assets under management by asset class (such as securities vs real estate) and client base (such as retail vs institutional). Submission from the board of directors/senior management of the Management Company in relation to the following: names, qualifications, experience and other directorships or positions of each of the directors declaration and undertaking from each of the independent nonexecutive directors of the Management Company names and resumes of the senior management and key personnel of the Management Company Additional Information required for an overseas Management Company: / MGC MG MG / MGC MG / MGC MG / MGC / MGC MG / MGC MG / MGC MG / MGC MG / MGC MG/MGC MG 19

22 Documents certification from the securities regulator of an overseas regime acceptable to the SFC (see Appendix A of the Code) to demonstrate that it has been licensed to manage schemes that operate in a similar manner as Schemes authorised under the Code evidence to demonstrate that it is experienced with the Hong Kong property market an undertaking that the Management Company will, upon request, provide the SFC with all books and records relating to the scheme (see Note to Chapter 5.3 of the Code) a self-declaration from the Management Company with respect to the following: confirmation of its registration status with its home regulator (including its date of registration and approved status to manage real estate investment schemes) any disciplinary history of the company in the past five years or since the date of registration if it has been registered for less than five years any disciplinary history of its directors whether the directors are aware of any current or pending investigation of the Management Company. Party Responsible for Producing Document Delegation of functions (if applicable): a diagram showing the delegation arrangement of the Management Company detailed description of the delegation arrangement including the functions to be delegated, names of delegates and qualifications of delegates criteria and procedures for the selection and ongoing monitoring and replacement of delegates (contained in the compliance manual of the Management Company) Management Company s confirmation and undertaking that the delegation arrangement complies with Chapter 5 of the Code, including the delegates are fit and proper, of good repute, possess the necessary experience and resources to carry the delegated activities (see Notes to Chapter 5.7 of the Code) Management Company s undertaking that ultimate responsibilities and obligations shall lie in the Management Company (see Chapter 5.8 of the Code). Management Company s confirmation that there are no actual or threatened claims or litigation against the Management Company / the Scheme / any of its SPVs which could materially affect the financial position of the Scheme Declaration of the Management Company s independence from each of the Trustee and the Property Valuer (see Chapter 4.8, 4.9 and 6.5 of MG MG MG / MGC MGC / MG MGC / MG MGC / MG MGC / MG 20

23 Documents the Code). Party Responsible for Producing Document Listing arrangement Evidence to demonstrate that an application for listing to the Exchange has been made, such as advance booking form and relevant correspondence with the Exchange. Evidence of appointment and acceptance of such appointment, of the listing agent(s) for the purpose of (i) dealing with the Exchange on all matters in relation to listing matters and (ii) assuming the duties of a sponsor in an initial public offering pursuant to Chapter 5.11 of the Code. UNC UNC / UN Information of the listing agent such as: UN names of the officers responsible for listing matters a description of their experience in arranging collective investment schemes or corporations for listing on the Exchange evidence to demonstrate that it is licensed by the SFC to carry out the regulated activity of providing corporate finance services. where more than one listing agent is appointed, the name of the listing agent to be designated as the primary channel of communication with the SFC concerning matters involving the application Where the Management Company appoints an agent to perform the functions of a listing agent, an undertaking by the Management Company to the effect that: the agent is fit and proper and is licensed by the SFC to carry out the regulated activity of providing corporate finance services the agent possesses the relevant experience and resources to perform its activities the Management Company shall remain responsible for all matters relating to the conduct of an initial public offering and the listing of the scheme. Confirmation from the listing agent(s) as to whether there are any pending or commenced disciplinary proceedings against the listing agent or its responsible officers by any regulatory bodies including the Exchange and the SFC or an appropriate negative statement. A submission from each listing agent on any matters that it considers would or might affect its independence in discharging its duties and responsibilities as a listing agent as required by the Code Information of listing/ipo arrangement including: listing timetable (if dual listing is proposed, please include details of listing timetable of both HK and overseas) a description of the offering mechanism a summary of any underwriting arrangements MGC / MG UNC / UN UNC / UN UN UNC / UN / SP / MG UNC / UN / SP / MG 21

24 Documents proposed offer size indicative price ranges tentative initial market capitalization of the Scheme a contact list for key parties to the IPO Party Responsible for Producing Document SP / UN / MG SP / UN / MG UN Appointment of the auditor Information of the auditor AUD name and qualifications of the auditor a declaration from the auditor of its independence in compliance with Chapter 5.19 of the Code Management Company s confirmation that the auditor appointed for the Scheme and the SPVs (if any) fulfils the requirement set out in Chapter 5.19 of the Code MG Appointment of principal valuer An confirmation provided by the Trustee (being responsible for the appointment of the Principal Valuer to the scheme, see Chapter 4.2(c) of the Code) to the effect that: the Principal Valuer fulfils the qualification requirements set out in Chapter 6.4 of the Code the Principal Valuer is independent of the trustee, the management company and each of the significant holders of the scheme in accordance with Chapter 6.5 of the Code the directors of the Principal Valuer shall be persons of good repute who possess the necessary experience for the performance of their duties. Valuation report prepared and duly signed by the Principal Valuer in accordance with Chapter 6.8 and 6.9 of the Code. TU / PV PV SPVs arrangement (if applicable) Financial statement of the SPVs: AUD audited by properly qualified accountants (see Note to Chapter 7.6(a) of the Code) indicating how the profits and losses of the SPVs would have impacted on the Scheme, if the Scheme had at all material times held SPVs where an SPV has subsidiaries, delaying with the profits or losses and the assets and liabilities of the SPV and its subsidiaries, either as a whole or separately Letter of appointment by the Trustee appointing the board of directors of each of the SPVs TU / TUC 22

25 Documents Party Responsible for Producing Document Joint ownership arrangement (if applicable) Management Company to confirm and demonstrate in a written submission the rationale for such arrangement (including the decision of owning less than a 100% interest in the property) and that such arrangement is in the interests of the holders MG / MGC Confirmation from the Management Company that: MG / MGC proper due diligence has been conducted in identifying restrictions and constraints that may limit the Scheme s direct ownership of a 100% interest in a property the liability of or assumed by the Scheme does not exceed the percentage of its interest in the joint ownership arrangement and there is no assumption of unlimited liability by the Scheme Legal opinions Hong Kong legal opinion confirming the following details of the Scheme: date of establishment of the Scheme governing laws validity of the Scheme formed as a trust to hold real estates and SPVs (if applicable) under the Laws of Hong Kong legality, validity and enforceability of the Trust Deed under the Laws of Hong Kong and the Trust Deed is binding under the parties thereto the Scheme, including its SPVs, has not violated any applicable laws, regulations and policies in Hong Kong and/or in the relevant jurisdiction Legal opinion in accordance with Chapter 7.7 of the Code, certifying the Scheme holds good marketable legal and beneficial title in each of its real estate and other matters, where applicable, regarding the Scheme holding majority interest and control and having freedom to dispose of its interest Legal opinions in accordance with Chapter 7.5 of the Code (if applicable), confirming that: the SPVs are duly incorporated in accordance with the laws of the place of incorporation and there are no statutory or other requirements that would render the holding of real estates by the SPVs to be in contravention of the Code the Scheme has legal and beneficial majority ownership, and control of the SPVs free of any encumbrances MGC 23

26 Documents the SPVs are incorporated in jurisdictions which have established laws and corporate governance standards which are commensurate with those observed by companies incorporated in Hong Kong. Examples include jurisdictions with common law systems and well established legal framework for corporations where there is one layer of SPVs, they are established for the sole purpose of directly holding real estate for the Scheme and/or arranging financing for the Scheme where there are two layers of SPVs, the top-layer SPV is formed solely for the purpose of holding 100% interests in one or more SPVs described in the fourth point above. where there are more than two layers of SPVs, the rationale for such establishment and the explanation of the structure, and confirming that the structure is for the sole purpose of holding the SPVs that holds the real estate for the Scheme and/or arranges financing for the Scheme the memorandum and articles of association (M&A) (or equivalent constitutional documents) of the SPVs are in compliance with all applicable requirements of the Code and otherwise do not contain provisions that contravene any requirements of the Code the M&A (or equivalent constitutional documents) of the SPVs are legal, valid, binding and enforceable under applicable law a statement that all necessary licenses and consents required in the location where the subject property is located have been obtained by the Scheme or its SPV Where there is joint ownership arrangement in relation to a property, a legal opinion in accordance with Chapter 7.7A(b) of the Code, certifying the Scheme holds good and marketable legal and beneficial interest in the property Where there is joint ownership arrangement in relation to a property, a legal opinion in accordance with Chapter 7.7(A)(c) of the Code to include: a description of the significant terms of the joint ownership arrangement a description of the equity and profit sharing arrangements of the parties to the arrangement a legal opinion that the relevant contract and joint ownership arrangements are legal, valid, binding and enforceable under applicable law a statement that all necessary licenses and consents required in the location where the subject property is located have been obtained by the Scheme or its SPV any restriction on the divestment by the Scheme of its interest, in whole or in part, in the property Party Responsible for Producing Document 24

27 Documents Party Responsible for Producing Document Connected party transactions A detailed description of: MGC / / SP / MG the connected party transactions entered into by the Scheme and the connected person in the past 12 months any subsisting connected party transactions proposed connected party transactions. Details shall include: Names of the parties and their relationship to the Scheme Date and nature of the transaction and the consideration involved Duration of the transactions (e.g. one-off or continuous) Categories to which the transaction belongs under Chapter 8 Valuation reports of real estate involved in the transactions, if any Whether the transactions are, in the opinion of the Management Company, carried out at arm s length, consistent with the investment objectives and strategy of the scheme, and in the best interests of holders. Waiver application Application for waiver from compliance with a provision in the Code shall be made at the earliest possible time when the application for authorization is submitted. A waiver application must be supported by a formal submission with detailed reasons and a proposal for any alternative measures to afford the sufficient safeguard to investors if the waiver were granted. The applicant should note that the SFC may exercise its discretion to grant or to refuse to grant any waivers requested. Any application which departs from the ten General Principles of the Code may not be accepted. MGC / MG / SP Financial information Latest audited annual report of the Scheme (if more recent, the latest interim report) AUD In relation to the working capital statement: confirmation from the Management Company that the Scheme has sufficient working capital to meet its present requirements, that is, for at least the next twelve months after listing as demonstrated by its working capital forecast confirmation from the listing agent(s) or the auditors that the working capital statement has been made by the Management Company after due and careful enquiry and that persons or 25