Presentation Material               The Transaction of Entering into               A 30-Year Land Lease Agreement         ...
Content                                                                                                             PAGES ...
Transaction Details
Transaction Background               Central Pattana Public Company Limited (“CPN”) plans to enter into a 30-year land lea...
The 30-Year Land Lease Agreement           Lessor                                                                         ...
Details regarding Land Plots CPN Will Let from Vantage                                                     Location       ...
Details regarding Annual Rental Payment over the Entire Lease Term   Over the entire 30-year lease term, CPN will make tot...
Tentative Schedule for the Transaction                                         28 Nov 2012                                ...
Independent Financial AdvisorReport
Details of the Connected Transaction and the Asset Acquisition Transaction Details of the                      CPN will en...
Key Information about Vantage                                                                 Business Information   Compa...
Key Details regarding the Shopping Complex •Gross Floor Area + Parking Area :  333,000 sq.m.                              ...
Rationales for the Transaction                                            Value Creation for CPN and Its Shareholders  1. ...
Risk Factors Related to Developing the Shopping Complex (1/2)                             Risk Factors                    ...
Risk Factors Related to Developing the Shopping Complex (2/2)                             Risk Factors                    ...
Why does CPN Need to Enter into the Lease Agreement with Vantage?                Rationale for the Transaction            ...
Land Value Appraised by the First Independent Appraiser       The value of land on freehold interest using market approach...
Land Value Appraised by the Second Independent appraiser    The value of 30-year land lease using market approach1    Divi...
IFA Opinion on the Fairness of Value – Method 1 Method to verify the reasonableness of the rental fee CPN agreed to pay to...
IFA Opinion on the Fairness of Value – Method 2 Method to verify the reasonableness of the rental fee CPN agreed to pay to...
Opinion of the IFA regarding the Connected Transaction It is of the opinion of the Independent Financial Advisor that the ...
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CPN : ประชุมผู้ถือหุ้นเช่าที่บางใหญ่ Dec 11, 2012

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CPN : ประชุมผู้ถือหุ้นเช่าที่บางใหญ่ Dec 11, 2012

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CPN : ประชุมผู้ถือหุ้นเช่าที่บางใหญ่ Dec 11, 2012

  1. 1. Presentation Material The Transaction of Entering into A 30-Year Land Lease Agreement For Analyst Meeting of Central Pattana Public Company Limited 11 December 2012Independent Financial Advisor
  2. 2. Content PAGES • Transaction Details 3 • Details of the Connected Transaction and the Asset Acquisition Transaction 10 • Key Information about Vantage 11 •Key Details regarding the Shopping Complex 12 • Rationales for the Transaction 13 •Risk Factors Related to Developing the Shopping Complex 14 •Why does CPN Need to Enter into the Lease Agreement with Vantage? 16 •Land Value Appraised by the First Independent Appraiser 17 •Land Value Appraised by the Second Independent appraiser 18 •IFA Opinion on the Fairness of Value – Method 1 19 •IFA Opinion on the Fairness of Value – Method 2 20 •Opinion of the IFA regarding the Connected Transaction 21Strictly Private and Confidential Page 2
  3. 3. Transaction Details
  4. 4. Transaction Background Central Pattana Public Company Limited (“CPN”) plans to enter into a 30-year land lease agreement with Vantage Ground Company Limited (“Vantage”) to let land plots with approximate areas of 98 rais, 1 ngan and 96.1 sq.wah or 39,396.1 sq.wah. Vantage is CPN’s connected person. Such land plots are located at the intersection between Kanjanaphisek Road and Rattanathibet Road in Nonthaburi Province. The purpose of entering into such long-term land lease agreement is to secure land plots for developing and constructing a large-scale shopping complex. The transaction in which CPN will enter into a 30-year land lease agreement with Vantage is regarded as a connected transaction related to asset or service and an asset acquisition transaction. CPN’s BOD meeting no.6/2012 held on 9 November 2012 considered and approved CPN to enter into the 30- year land lease agreement with Vantage, subject to an approval from the EGM No.1/2013 to be held on 18 January 2013. CPN will enter into such long-term land lease agreement after it obtains an approval to do so from the EGM No.1/2013.Strictly Private and Confidential Page 4
  5. 5. The 30-Year Land Lease Agreement Lessor Lessee Vantage • Lease Agreement of land (98 rais, 1 ngan and 96.1 sq.wah or 39,396.1 sq.wah) • For the purpose of developing and constructing a large-scale shopping complex • The lease term is 30 years starting from the date of entering into the agreement In return, CPN will make payments totaling 5,098.68 million Baht to Vantage consisting of : • Upfront payment for the total amount of 654.96 million Baht • Annual rental payments for the total amount of 4,443.72 million Baht to be made over the 30-year lease termStrictly Private and Confidential Page 5
  6. 6. Details regarding Land Plots CPN Will Let from Vantage Location Sao Thong Hin Sub-District, Bangyai District, Nonthaburi Total Leased Areas 98 rais 1 ngan and 96.1 sq.wah (39,396.1 sq.wah) Source: CPNStrictly Private and Confidential Page 6
  7. 7. Details regarding Annual Rental Payment over the Entire Lease Term Over the entire 30-year lease term, CPN will make total annual rental payments of 4,443.72 million Baht. Annual Rental Payment (Unit: Millions of Baht) 300 268.98 233.89 250 203.39 200 176.86 153.79 133.73 150 116.29 101.12 87.93 100 50 5.28 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 year Source: CPNStrictly Private and Confidential Page 7
  8. 8. Tentative Schedule for the Transaction 28 Nov 2012 Late Jan 2013 • Approval from the • EGM No.1/2013 • Construction Board of Directors held to approve the commencement to enter into the 30- • XM Date transaction • Date of entering year land lease into the 30-year agreement land lease agreement 9 Nov 2012 18 Jan 2013 Feb 2013Strictly Private and Confidential Page 8
  9. 9. Independent Financial AdvisorReport
  10. 10. Details of the Connected Transaction and the Asset Acquisition Transaction Details of the CPN will enter into a 30-year land lease agreement with its connected person for the purpose of developing a new transaction shopping complex. This transaction is regarded as a connected transaction and an asset acquisition transaction. Lessor : Vantage Ground Company Limited (“Vantage”) Relevant parties a company in the Central Group which is CPN’s major shareholder and controlling person. Lessee : Central Pattana Public Company Limited (“CPN”) Period CPN will After obtaining an approval from the Extraordinary General Meeting of Shareholders No.1/2013 to be held in January enter into the contract 2013 Major terms and • CPN may commence construction of the shopping complex after it enters into the land lease agreement with conditions Vantage. • CPN may let areas in the shopping complex to one or several tenants throughout the lease term. Lease payment that CPN will make to Vantage consists of: Lease payment to 1) Upfront Fee: The total amount of which is 654.96 million Baht. Vantage 2) Annual Rental Fee: The total amount to be made throughout the 30-year lease term is 4,443.72 million Baht. Conditions for •Disclose the transaction to the SEC and the SET entering •Obtain an approval to enter into the transaction from the meeting of shareholders. At least three-fourths of total into the transaction number votes of all shareholders who attend the meeting and who have the right to vote are required.Strictly Private and Confidential Page 10
  11. 11. Key Information about Vantage Business Information Company Name Vantage Ground Company Limited (“Vantage”) No. 306 Silom Road, Suriwongse Sub-District, Bangrak District, Registered Address Bangkok Harng Central Some Members of Department Store the Chirathivat Family Date of 9 December 1991 Incorporation Nature of Business Acquire, sell and let land and properties 99.98% 0.02% Paid-up Capital 85 million baht (consisting of 850,000 paid-up shares with a par (Millions of Baht) value of 100 baht each) Vantage Ground Company Limited Major Shareholder Harng Central Department Store Company Limited (99.98 %) and % of Stake Some members of the Chirathivat Family (0.02 %) Board of Directors Some members of the Chirathivat FamilyStrictly Private and Confidential Page 11
  12. 12. Key Details regarding the Shopping Complex •Gross Floor Area + Parking Area : 333,000 sq.m. 2013 •Net Rentable Area (excluding department store) : 75,000 sq.m. Year of Construction Commencement Area Development & Construction Period 26 monthsMRT Purple Line and Motorways No.81 Central Bangyai Public Transportation Commercial Project Operation Year 2015 Project LocationSao Thong Hin Sub-District, Bangyai District,Nonthaburi at the intersection between KanjanaPisek Road and Rattanathibet Road Strictly Private and Confidential Page 12
  13. 13. Rationales for the Transaction Value Creation for CPN and Its Shareholders 1. 2. 3. 4. Acquisition of Leasehold Conformance to Long-Term Diversification of Economies of Scale Right Associated with Plan and Increase in CPN’s Business Risk Strong Commercial in terms of Operation Revenue Potential Land Plot •CPN will develop a large-scale • Land plots that CPN will let •Developing and running a new •Larger number of shopping shopping complex on land from Vantage is located in the shopping complex will help to complexes in the CPN Group plots it will let from Vantage. highly populated area with diversify CPN’s business risk. would help to create This will help to generate sound revenue growth and good commercial potential. This is because its rental and economies of scale for CPN in investment return for CPN in They are appropriate for service revenues will come terms of common use of PR the long-term. developing a large-scale from a larger number of and marketing activities in the • Total areas CPN will let from shopping complex. shopping complexes, thus group and in securing tenants Vantage can also be used for •Such land plots are also reducing risk of relying on a for areas in CPN shopping the expansion phase of the located close to the MRT few number of large shopping centers. shopping complex. In Purple Line and the Motor Way complexes in generating a developing the expansion No.81, thus making them good majority of revenue. phase, CPN will take into for developing a large-scale account all relevant factors and shopping complex. key issues prior to doing so.Strictly Private and Confidential Page 13
  14. 14. Risk Factors Related to Developing the Shopping Complex (1/2) Risk Factors Mitigation Strategies 1 Risk that CPN May Not Be Able to Let Areas in the Modern trade, shopping centers and department stores located in the nearby Shopping Complex as Targeted area do not directly compete with CPN’s new shopping complex which will be developed to be a large-scale one. CPN will leverage its experience and expertise which it has gained from developing previous shopping center projects in developing and constructing the new shopping complex as well as optimizing its merchandising mix to enhance its occupancy rate. CPN’s operating and marketing synergies with the Central Group would help to secure and attract various tenants to the new shopping complex. Risk that the Land Plots on which CPN Will CPN will develop and implement several measures to prevent or minimize 2 Develop the Shopping Complex May Face Flooding flooding impact during both development and operation phases. in the Future CPN will arrange for necessary insurance policies. 3 Risk that the Land Plots on which CPN Will CPN will develop and construct the shopping complex on the unexpropriated Develop the Shopping Complex Are Located Close land plots. It obtained an approval from the Mass Rapid Transit Authority of to the State’s Infrastructure Projects (i.e. the MRT Purple Line and the Motorway No.81) Thailand to get access to some parts of the expropriated areas to facilitate development and construction of its new shopping complex. The land plots are not affected by the development and construction of the Motorway No.81.Strictly Private and Confidential Page 14
  15. 15. Risk Factors Related to Developing the Shopping Complex (2/2) Risk Factors Mitigation Strategies 4 Risk that CPN May Fail to Meet Construction & CPN has gained experience and expertise in developing and constructing Development Schedule and Budget several shopping complexes with similar nature and scale in recent years. CPN was able to meet their development & construction schedules and budgets although some of which are large-scale projects (i.e. CentralPlaza Rama 2). Risk that Revenues from Some of CPN’s Existing As the three shopping complexes are located in different areas of Nonthaburi 5 Shopping Centers May Be Cannibalized by the and all of which have their own target clients, risk of cannibalization is Launch of the New Shopping Complex projected to be minimal. CPN’s Shopping Complexes 1 In Nonthaburi 1 3 2 2 3 Central BangyaiStrictly Private and Confidential Page 15
  16. 16. Why does CPN Need to Enter into the Lease Agreement with Vantage? Rationale for the Transaction Supporting Reasons Acquisition of Leasehold Right Associated with Entering into the long-term land lease agreement to obtain land plots with 1 Land Plots Which Are Appropriate for Developing A Shopping Complex total areas of 98 rais, 1 ngan and 96.1 sq.wah (39,396.1 sq.wah) which are located in Nonthaburi allows CPN to obtain land plots which are good for developing a large-scale shopping complex thanks to their good strategic location. Such land plots which are in the highly populated area are also situated close to the MRT Purple Line. Developing and constructing a shopping complex on those land plots will help to create value-added and sound long-term return for CPN and its shareholders. Alleviate the Risk that CPN May Not Be Able to Entering into the 30-year land lease agreement with Vantage allows CPN to 2 Procure Sufficient Land Plots with Sound obtain land plots which are good for developing and constructing a large- Commercial Potential at A Reasonable Price scale shopping complex. The term of the lease agreement is sufficient for CPN to develop and operate the shopping complex. Major terms and conditions stipulated in the draft land lease agreement are conducted on an arm’s length basis. Mitigate the Risk that CPN May Not Be Able to Total land plots which CPN will let from Vantage are sufficient for developing 3 Collect Sufficient Land Plots for the Purpose of and constructing a shopping complex in both Initial Phase and Expansion Developing and Constructing a Large-Scale Phase. Shopping Complex CPN management conducted feasibility study related to developing and operating the new shopping complex and they deem that doing so would help to generate sound return for CPN and its shareholders over the long-run.Strictly Private and Confidential Page 16
  17. 17. Land Value Appraised by the First Independent Appraiser The value of land on freehold interest using market approach The value of 30-year land lease using income approach1 Annual Rental Fee = average rental fee ratio over the appraised 2 freehold value selected 7close land samples Chose 4 closest ones to go in the same area that currently through a comparison and 1 Collecting market comparable 2 had actual bidding or Analyzing the data that has 30- adjustment process data in both same and different offering prices year contract in both same area that has 10 – 30 years and different area contract4 3 4 3 Average rental fee per year of Adjusted land price / square wah Employing 3% of rental fee the 30-year lease contracts is Calculating the land value from after analyzing each sample along ratio over the freehold value approximately 3.16% of equally average all adjusted with target land on both external freehold 4 samples price / square wah and internal factors 3% rental fee ratio over the freehold value, with 3% annual growth Market Approach Approximate Value (Baht) PV Value / Square wah 93,000 7% discount rate Asset Value( 39,391.1 square wah) 3,663,800,000 Market value of 30-year leasehold rights = 1,871,000,000 Baht Independent Financial Advisor Opinion : Independent Financial Advisor Opinion : The valuation method employed is reasonable since it referred to both of the The method employed by 15 Business Advisory to derive the freehold value actual information in the market nearby the land CPN rent from Vantage and is appropriate. Since the samples included the land situated in the same long-term leases example in other areas. This method allows the closest area with the appraised asset and all of the fair prices are referred from the market value of the land to be identified given that the location, commercial actual biding and offering price occurring in the market. Moreover, 15 utilization possibility and contract life have been considered. Moreover, the Business Advisory also made adjustments on the samples to make them be rental cash flows over 30 years are also discounted to gain a present value, so close to the appraised land that the fair price of the land piece can be which means that the time value of money has been taken into the identified. consideration.Strictly Private and Confidential Page 17
  18. 18. Land Value Appraised by the Second Independent appraiser The value of 30-year land lease using market approach1 Dividing the land into 3 parts for the purpose of 2 Collecting market comparables whose 3 valuation because it will allow Brooke Real Estate to Selecting 5 data with 30-year lease characteristics are close to the target adjust the comparable data in many perspectives to contract or have been offered a 30- land. Those characteristics include year rental agreement. make it closest to the land being valued that the value size, general quality and location. can be referred. 5 4 Evaluating each 5 market Calculating the Weighted Quality 3 Score (WQS) of each land from the comparables and the land being valued by scoring them in the range of formula ∑(A*B). 1 (Poor) – 5 (Very Good) upon the weighted perspectives listed below: Market data #1 #2 #3 #4 #5 2 6 Location Adjusting rental value / offering rent Transportation Each sample will be scored upon the lists of the left. The scores are value according to the ratio of land denoted as (B) Facilities being appraised WQS over each market comparable’s WQS Potential Each has its own weight used to Physical calculate WQS denoted as (A) 1 Size 7 Calculating the rental value of the 8Independent Financial Advisor Opinion : land CPN is going into the lease Doing step 4-7 twice more to identifythe independent financial advisor believes that the method is contract from the adjusted rental the 30-year rent value of all 3 parts ofreasonable since it integrated all of the related factors affecting value / offering rent value of all 5 land.the land rental value. Moreover, Brooke Real Estate has also market comparables.adjusted the market comparable rental value as they seemapplicable in each affecting factors. All of these further support Part 1 Part 2 Part 3 1,978,000,000the independent financial advisor to agree that the 30-year 224.3 710.6 1,043rental value is referable. million million million millionStrictly Private and Confidential Page 18
  19. 19. IFA Opinion on the Fairness of Value – Method 1 Method to verify the reasonableness of the rental fee CPN agreed to pay to Vantage for this related transaction Method 1 Present value of rental fee to be paid over 30 years Annual rental fee PV Discount rate = WACC (8.76%) Rental value of 30-year leasehold rights at the contract date = 1,748,053,734 Baht Weighted Average Cost of Capital (WACC) Ke Cost of Equity 10.35% Market value of 30-yearleasehold rights appraised Rental value of 30- Kd Cost of Debt 5% by 2 independent year leasehold rights appraisers at Baht 1,871 at the contract date T Corporate Tax Rate 20% million and Baht 1,978 Baht 1,748 million million consecutively E/A 75% of investment cost* The rental value of 30-year leasehold rights calculated by the independent D/A 25% of investment cost * financial advisor is LOWER than the market values appraised by 2 independent asset appraisers. However, the fairness of rental value should Note : Referring from the ratio of interest bearing debts over the equity as also be verified by method 2 which trying to derive the benefit and appeared on CPN Financial Statements at the end of 2011. The equity has investment return of entering into the transaction. been adjusted to reflect the market value of investment properties.Strictly Private and Confidential Page 19
  20. 20. IFA Opinion on the Fairness of Value – Method 2 Method to verify the reasonableness of the rental fee CPN agreed to pay to Vantage for this related transaction Method 2 Calculating project internal rate of return (IRR) 1 2 3 Verify main assumptions used in calculating Free Cash Flow referring Calculating Free Cash Flow of the project over 30 years period Calculating the project internal rate of return (IRR) 14.80% to CPN Comparing with Comparing with Comparing with CPN weighted average cost of capital (WACC) CPN required return average return from shopping mall investment IRR IRR IRR 14.80% 14% - 15% 14.80% 14.80% WACC 8% - 12% 8.76% IRR is greater than CPN WACC IRR is within the range of CPN required return IRR is greater than average return from shopping mall investment Source: Thai Appraisal Foundation in October, 2011 The independent financial advisor believes that the rental payment scheme CPN has to pay to Vantage is REASONABLEStrictly Private and Confidential Page 20
  21. 21. Opinion of the IFA regarding the Connected Transaction It is of the opinion of the Independent Financial Advisor that the transaction in which CPN will enter into the 30-year land lease agreement with Vantage for the purpose of developing and constructing a new shopping complex is fair, creates business benefits for CPN and does not cause any unfair advantages to any parties as: 1 The transaction has provided 2 Major terms and conditions Fair Pricing 3 benefits to CPN are fair Allow CPN to obtain leasehold Rental payment that CPN will Major terms and conditions in right associated with land plots make to Vantage is lower than the draft land lease agreement with sound commercial potential those as appraised by two are fair and do not yield any Enhance CPN’s revenue and help independent asset appraisers by unfair advantages to any to generate sound return for the 5% -10%. particular party company in the long-run Project IRR indicates that Major terms and conditions are Diversify CPN’s business risk as developing and operating such conducted on an arm’s length its rental and service revenues project will allow CPN and its basis will come from larger number of shareholders to obtain a sound Allowing CPN to make annual shopping complexes long-term return rental payments rather than a lump sum one helps to relieve CPN’s financial burden.Strictly Private and Confidential Page 21
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