APPENDIX III PROPERTY VALUATION REPORT
The following is the text of a letter, summary of values and valuation certificates, prepared for the purpose of incorporation in this document received from Jones Lang LaSalle Corporate Appraisal and Advisory Limited, an independent valuer and consultant, in connection with its valuation as at 30 June 2018 of the properties held by the Group and Hubei College.
31 August 2018
The Board of Directors China Chunlai Education Group Co., Ltd. Cayman Corporate Centre 27 Hospital Road George Town Grand Cayman KY1-9008 Cayman Islands
Dear Sirs,
In accordance with your instructions to value the properties in which China Chunlai Education Group Co., Ltd. (the “Company”), its subsidiaries and its consolidated affiliated entities (hereinafter together referred to as the “Group”) and Hubei College (the company is in the process of acquiring its sponsor interest) have interests in the People’s Republic of China (the “PRC”), we confirm that we have carried out inspections, made relevant enquiries and searches and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the market value of the property interests as at 30 June 2018 (the “valuation date”).
Our valuation is carried out on a market value basis. Market value is defined as “the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion”.
Due to the nature of the buildings and structures of the properties in Group I and the particular location in which they are situated, there are unlikely to be relevant market comparable sales readily available, the relevant property interests have been valued by the cost approach with reference to their depreciated replacement cost.
Depreciated replacement cost is defined as “the current cost of replacing an asset with its modern equivalent asset less deductions for physical deterioration and all relevant forms of obsolescence and optimization.” It is based on an estimate of the market value for the existing use of the land, plus the current cost of replacement of the improvements, less deduction for physical deterioration and all relevant forms of obsolescence and optimization. In arriving at the value of the land portion, reference has been made to the sales evidence as available in the locality. The depreciated replacement cost of the property interest is subject to adequate potential profitability of the concerned business. In our valuation, it applies to the whole of the complex or development as a unique interest, and no piecemeal transaction of the complex or development is assumed.
III-1 APPENDIX III PROPERTY VALUATION REPORT
In valuing the construction in process (the “CIP”) in property nos. 1 to 3 in Group I and the property in Group II which were under construction as at the valuation date, we have assumed that they will be developed and completed in accordance with the latest development proposals provided to us by the Group. In arriving at our opinion of values, we have adopted the comparison approach by making reference to land comparable sales evidence as available in the relevant market and have also taken into account the accrued construction cost and professional fees relevant to the stage of construction as at the valuation date and the remainder of the cost and fees expected to be incurred for completing the developments. We have relied on the accrued construction cost and professional fees information provided by the Group according to the different stages of construction of the properties as at the valuation date, and we did not find any material inconsistency from those of other similar developments.
Our valuation has been made on the assumption that the seller sells the property interests in the market without the benefit of a deferred term contract, leaseback, joint venture, management agreement or any similar arrangement, which could serve to affect the value of the property interests.
No allowance has been made in our report for any charge, mortgage or amount owing on any of the property interests valued nor for any expense or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the properties are free from encumbrances, restrictions and outgoings of an onerous nature, which could affect their values.
In valuing the property interests, we have complied with all requirements contained in Chapter 5 and Practice Note 12 of the Rules Governing the Listing of Securities issued by the Stock Exchange of Hong Kong Limited; the RICS Valuation — Global Standards 2017 published by the Royal Institution of Chartered Surveyors; the HKIS Valuation Standards published by the Hong Kong Institute of Surveyors, and the International Valuation Standards issued by the International Valuation Standards Council.
We have relied to a very considerable extent on the information given by the Group and have accepted advice given to us on such matters as tenure, planning approvals, statutory notices, easements, particulars of occupancy, lettings, and all other relevant matters.
We have been shown copies of various title documents including State-owned Land Use Rights Certificates, Real Estate Title Certificates, Building Ownership Certificates and other official plans relating to the property interests and have made relevant enquiries. Where possible, we have examined the original documents to verify the existing title to the property interests in the PRC and any material encumbrance that might be attached to the property interests or any tenancy amendment. We have relied considerably on the advice given by the Company’s PRC legal advisers — Tian Yuan Law Firm, concerning the validity of the property interests in the PRC.
We have had no reason to doubt the truth and accuracy of the information provided to us by the Group. We have also sought confirmation from the Group that no material factors have been omitted from the information supplied. We consider that we have been provided with sufficient information to arrive an informed view, and we have no reason to suspect that any material information has been withheld.
We have not carried out detailed measurements to verify the correctness of the areas in respect of the property but have assumed that the areas shown on the title documents and official site plans handed to us are correct. All documents and contracts have been used as reference only and all dimensions, measurements and areas are approximations. No on-site measurement has been taken.
III-2 APPENDIX III PROPERTY VALUATION REPORT
We have inspected the exterior and, where possible, the interior of the properties. However, we have not carried out investigation to determine the suitability of the ground conditions and services for any development thereon. Our valuation has been prepared on the assumption that these aspects are satisfactory. Moreover, no structural survey has been made, but in the course of our inspection, we did not note any serious defect. We are not, however, able to report whether the properties are free of rot, infestation or any other structural defect. No tests were carried out on any of the services.
Inspection of the properties was carried out in August 2018 by Ms. Gloria Wang who is a qualified China Real Estate Appraiser and has 10 years’ property valuation experience in the PRC.
Unless otherwise stated, all monetary figures stated in this report are in Renminbi (RMB).
Our valuation is summarized below and the valuation certificates are attached.
Yours faithfully, For and on behalf of Jones Lang LaSalle Corporate Appraisal and Advisory Limited Gilbert C.H. Chan MRICS MHKIS RPS (GP) Director
Note: Gilbert C.H. Chan is a Chartered Surveyor who has 25 years’ experience in the valuation of properties in Hong Kong and the PRC as well as relevant experience in the Asia-Pacific region.
III-3 APPENDIX III PROPERTY VALUATION REPORT
SUMMARY OF VALUES GroupI–Property interests held and occupied by the Group in the PRC
Market value in existing state as at No. Property 30 June 2018 RMB
1. Shangqiu University No commercial value located at No. 66 Beihai East Road Shangqiu City Henan Province The PRC
2. Shangqiu University Applied Science and Technology College No commercial value located at No. 66 Five Avenue Beiduan Kaifeng New District Kaifeng City Henan Province The PRC
3. Anyang University No commercial value located at No. 599 Zhonghua Road Nanduan Wenfeng District Anyang City Henan Province The PRC
Sub-total: Nil
Group II – Property interest held under development by Hubei College in the PRC
4. College of Engineering and Technology of Yangtze University No commercial value located at Taolin Village Heshengqiao Town Xian’an District Xianning City Hubei Province The PRC
Sub-total: Nil
Grand total: Nil
III-4 APPENDIX III PROPERTY VALUATION REPORT
VALUATION CERTIFICATE GroupI–Property interests held and occupied by the Group in the PRC
Market value Particulars of in existing state as at No. Property Description and tenure occupancy the valuation date RMB
1. Shangqiu University The locality of Shangqiu University The property is No commercial value located at No. 66 is well served with public currently occupied by Beihai East Road transportation and ancillary the Group for Shangqiu City facilities nearby. It is about 1,600 educational and Henan Province meters from the Shangqiu South ancillary purposes, The PRC Railway Station. except for the CIP which is currently The property comprises 7 parcels under construction. of land with a total site area of approximately 984,711.48 sq.m., and 68 buildings and various structures erected thereon which were completed in various stages between 2003 and 2016. The buildings have a total gross floor area of approximately 283,218.31 sq.m., mainly include teaching buildings, a library, dormitory buildings, canteens and ancillary facilities. The structures mainly include corridors, boundary walls and roads. The property also comprises 9 buildings which were under construction (the “CIP”). The CIP will be developed into a library, dormitory buildings, and laboratories with a planned total gross floor area of approximately 116,144.15 sq.m., and the CIP is scheduled to be completed in November 2018. As advised by the Group, the total construction cost of the CIP is estimated to be approximately RMB223.5 million, of which RMB17.6 million has been paid up to the valuation date. The land use rights of 3 parcels of land with a total site area of approximately 729,652.16 sq.m. have been allocated to the Group. The land use rights of 2 parcels of land of the property with a total site area of approximately 139,664.10 sq.m. have been allocated to Henan Lvbao Chemical Co. Ltd. And for the remaining 2 parcels of land with a total site area of approximately 115,395.22 sq.m., the relevant land use rights certificate have not been obtained.
III-5 APPENDIX III PROPERTY VALUATION REPORT
Notes: 1. Pursuant to 2 State-owned Land Use Rights Certificates – Shang Guo Yong (2013) Di Nos. 163 and 164, the land use rights of 2 parcels of land with a total site area of approximately 692,076.16 sq.m. have been allocated to Shangqiu University (商 丘學院, one of the consolidated affiliated entities of the Company) for educational use. 2. Pursuant to a State-owned Land Use Rights Certificate – Shang Guo Yong (2004) Di No. 6249, the land use rights of a parcel of land with a site area of approximately 37,576 sq.m. have been allocated to Henan Shangqiu Chunlai Education Corporation (商丘春來教育集團, one of the consolidated affiliated entities of the Company) for educational use. 3. Pursuant to 2 State-owned Land Use Rights Certificates – Shang Guo Yong (1999) Di No. 0043 and Shang Guo Yong (2001) Di No. 0356, the land use rights of 2 parcels of land with a total site area of approximately 139,664.1 sq.m., have been allocated to Henan Lvbao Chemical Co. Ltd. (“Lvbao Chemical”) for industrial use. And in accordance with a Real Estate Transfer Agreement and its supplementary agreement dated in 2010 entered into between Lvbao Chemical and Huayu College of Henan Agricultural University (“Henan Huayu”, the predecessor of Shangqiu University), the aforesaid land parcels and the buildings and structured erected thereon would be transferred to Henan Huayu at a total consideration of RMB24.29 million. As advised by Shangqiu University, changing formalities of the land usage and land user of the 2 land parcels are being conducted. 4. For the remaining 2 parcels of land with a total site area of approximately 115,395.22 sq.m., we have not been provided with any title certificate. 5. Pursuant to 23 buildings Ownership Certificates, 23 buildings of the property with a total gross floor area of approximately 67,570.59 sq.m. are owned by Shangqiu University. 6. Pursuant to a Building Ownership Certificate – Shang Shi Fang Quan Zheng (1999) Zi Di No. A0002582009, 3 buildings with a total gross floor area of approximately 2,420.58 sq.m. are owned by Lvbao Chemical. 7. For the remaining buildings of the property with a total gross floor area of approximately 213,227.14 sq.m., we have not been provided with any title certificates. 8. For the CIP with a total gross floor area of approximately 116,144.15 sq.m., we have not been provided with any construction permits. 9. We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia, the following: a. Shangqiu University has obtained the valid land use rights certificates to the 2 parcels of land mentioned in note 1; it has the rights to use the allocated land parcels according to their described land usage and should obtain consents from the allocated authority to transfer and lease the land; b. as confirmed by Henan Shangqiu Chunlai Education Corporation, Shangqiu University is in the process of applying for the allocated land use rights for the land parcel mentioned in note 2, and the user name of the Land Use Rights Certificate will be changed to Shangqiu University; c. according to the confirmation of Shifan Branch of Shangqiu Land Resources Bureau, there is no legal impediment for Shangqiu University to obtain the allocated land use rights certificates to the land parcels mentioned in note 3 and there is no risk of being asked for any administrative penalty, being confiscated land and buildings on the ground, requiring relocation or paying any other fees; d. some buildings have been constructed on the land parcel without any title certificate mentioned in note 4 and in accordance with PRC laws, unauthorized occupation of land would be asked by relevant government authorities to refund the land or pay penalty; e. Shangqiu University has the legal rights to occupy and use the buildings mentioned in note 5, and should obtain consents from the allocated authority to transfer and lease the buildings; f. Shangqiu University will conduct the changing formalities of the Building Ownership Certificates of the buildings mentioned in note 6 after the Land Use Rights Certificates of the land parcels these buildings erected thereon complete the changing procedures. Before the completion of changing procedures, Shangqiu University could continue use the buildings without paying penalty or asking for allocation; g. Shangqiu University has used the buildings mentioned in note 7 without obtaining any construction permits and completion and inspection certificates; According to relevant PRC laws, absence of those permits/certificates may be subject to penalty; according to the confirmation of relevant competent authorities, there is no impediment for Shangqiu University to apply for construction permits and then the Building Ownership Certificates; Shangqiu University could continue use the buildings before obtaining relevant permits or certificates; h. according to the confirmation of Shangqiu Housing and Urban-Rural Construction Bureau, the CIP mentioned in note 8 was qualified with the construction conditions and Shangqiu University may acquire relevant construction permits following normal process; therefore, there is low possibility for Shangqiu University to receive any penalty due to the absence of relevant construction permits; and i. according to the Guaranty Law, schools, kindergartens, hospitals and other educational/hospital facilities held by public instructions/organisations for public welfare purposes could not be mortgaged. 10. In the valuation of this property, we have relied on the aforesaid legal opinions and attributed no commercial value to the property. However, for reference purpose, we are of the opinion that the depreciated replacement cost of the buildings and the CIP (exclusive of the land parcels) as at the valuation date would be RMB239,974,000 assuming all proper title certificates have been obtained.
III-6 APPENDIX III PROPERTY VALUATION REPORT
VALUATION CERTIFICATE
Market value Particulars of in existing state as at No. Property Description and tenure occupancy the valuation date RMB 2. Shangqiu The locality of Shangqiu The property is No commercial value University Applied University Applied Science currently occupied Science and and Technology College is by the Group for Technology College well served with public educational and located at No. 66 transportation and it is about ancillary purposes, Five Avenue 1,000 meters from Kaifeng except for the CIP Beiduan High Speed Railway Station. which is currently Kaifeng New under construction. District The property comprises 2 Kaifeng City parcels of land with a site Henan Province area of approximately The PRC 610,101 sq.m., and 13 buildings, and various structures erected thereon which were completed in various stages between 2012 and 2017. The buildings which have a total gross floor area of approximately 102,737.54 sq.m, mainly include teaching buildings, dormitory buildings, canteens and office buildings. The structures mainly include lakes, boundary walls and roads. The property also comprises 4 buildings which were under construction (the “CIP”). The CIP will be developed into dormitory buildings, sports facility, and a laboratory with a planned total gross floor area of approximately 23,557.08 sq.m., and the CIP is scheduled to be completed in October 2018. As advised by the Group, the total construction cost of the CIP is estimated to be approximately RMB35.9 million, of which RMB14 million has been paid up to the valuation date. The land use rights of the property with a site area of approximately 403,736.80 sq.m. have been allocated to the Group. For the remaining one parcel of land with a site area of approximately 206,364.2 sq.m., the relevant land use rights certificate have not been obtained.
III-7 APPENDIX III PROPERTY VALUATION REPORT
Notes: 1. Pursuant to a State-owned Land Use Rights Certificate — Yu (2017) Kai Feng Shi Bu Dong Chan Quan Di No. 2000042, the land use rights of a parcel of land with a site area of approximately 403,736.80 sq.m. have been allocated to Shangqiu University Applied Science and Technology College (商丘學院應用科技學院,“Shangqiu University Kaifeng Campus”, a branch college of Shangqiu University) for educational use. 2. For the remaining one parcel of land with a site area of approximately 206,364.2 sq.m., we have not been provided with any title certificate. 3. For the 13 buildings of the property with a total gross floor area of approximately 102,737.54 sq.m., we have not been provided with any title certificates. 4. For the CIP with a total gross floor are of approximately 23,557.08 sq.m., we have not been provided with any construction permits. 5. We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia, the following: a. Shangqiu University Kaifeng Campus has obtained the valid land use rights certificate to the parcel of land mentioned in note 1; it has the rights to use the allocated land parcel according to their described land usage and should obtain consents from the allocated authority to transfer and lease the land; b. according to the confirmation of Kaifeng Land Resources Bureau, there is no legal impediment for Shangqiu University Kaifeng Campus to obtain allocated land use rights certificate to the land parcel mentioned in note 2 and there is no risk of being asked for any administrative penalty, being confiscated land and buildings on the ground, requiring relocation or paying any other fees; c. Shangqiu University Kaifeng Campus has used the buildings mentioned in note 3 without obtaining any construction permits and completion and inspection certificates; According to relevant PRC laws, absence of those permits/certificates may be subject to penalty; Shangqiu University Kaifeng Campus has not received any administrative penalty for the constructed buildings; d. according to the confirmation of Kaifeng Housing and Urban-Rural Construction Bureau, for the CIP mentioned in note 4 there is low possibility for Shangqiu University Kaifeng Campus to receive any penalty due to the absence of relevant construction permits; and e. according to the Guaranty Law, schools, kindergartens, hospitals and other educational/hospital facilities held by public instructions/organisations for public welfare purposes could not be mortgaged. 6. In the valuation of this property, we have relied on the aforesaid legal opinions and attributed no commercial value to the property. However, for reference purpose, we are of the opinion that the depreciated replacement cost of the buildings and the CIP (exclusive of the land parcels) as at the valuation date would be RMB179,800,000 assuming all proper title certificates have been obtained.
III-8 APPENDIX III PROPERTY VALUATION REPORT
VALUATION CERTIFICATE
Market value Particulars of in existing state as at No. Property Description and tenure occupancy the valuation date RMB
3. Anyang University The locality of Anyang The property is No commercial value located at No. 599 University is well served currently occupied Zhonghua Road with public transportation by the Group for Nanduan Wenfeng and it is about 8,000 meters educational and District Anyang from Anyang Railway ancillary purposes, City Station. except for the CIP Henan Province which is currently The PRC The property comprises a under construction. parcel of land with a site area of approximately 609,963.95 sq.m., and 43 buildings, and various structures erected thereon which were completed in various stages between 2009 and 2016. The buildings which have a total gross floor area of approximately 211,928.64 sq.m, mainly include teaching buildings, dormitory buildings, office buildings and a library. The structures mainly include corridors, boundary walls and roads. The property also comprises 7 buildings which were under construction (the “CIP”). The CIP will be developed into dormitory buildings, teaching buildings and a laboratory with a planned total gross floor area of approximately 41,269.62 sq.m., and the CIP is scheduled to be completed in November 2018. As advised by the Group, the total construction cost of the CIP is estimated to be approximately RMB48.5 million, of which RMB16.3 million has been paid up to the valuation date. The land use rights of the property have been allocated to the Group.
III-9 APPENDIX III PROPERTY VALUATION REPORT
Notes: 1. Pursuant to a State-owned Land Use Rights Certificate — Yu (2017) Wen Feng Qu Bu Dong Chan Quan Di No. 0021997, the land use rights of a parcel of land with a site area of approximately 609,963.95 sq.m. have been allocated to Anyang University (安陽學院, one of the consolidated affiliated entities of the property) for educational use. 2. For the 43 buildings of the property with a total gross floor area of approximately 211,928.64 sq.m., we have not been provided with any title certificates. 3. For the CIP with a total gross floor area of approximately 41,269.62 sq.m., we have not been provided with any construction permits. 4. We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia, the following: a. Anyang University has obtained the valid land use rights certificate to the parcel of land mentioned in note 1; it has the rights to use the allocated land parcel according to their described land usage and should obtain consents from the allocated authority to transfer and lease the land; b. Anyang University has used the buildings mentioned in note 2 without obtaining any construction permits and completion and inspection certificates; According to relevant PRC laws, absence of those permits/certificates may be subject to penalty; according to the confirmation of relevant competent authorities, there is no impediment for Anyang University to apply for construction permits and then the Building Ownership Certificates; Anyang University could continue use the buildings before obtaining relevant permits or certificates; c. according to the confirmation of Anyang Wenfeng District Housing and Urban-Rural Construction Bureau, the CIP mentioned in note 3 was qualified with the construction conditions and Anyang University may acquire relevant construction permits following normal process; therefore, there is low possibility for Anyang University to receive any penalty due to the absence of relevant construction permits; and d. according to the Guaranty Law, schools, kindergartens, hospitals and other educational/hospital facilities held by public instructions/organisations for public welfare purposes could not be mortgaged. 5. In the valuation of this property, we have relied on the aforesaid legal opinions and attributed no commercial value to the property. However, for reference purpose, we are of the opinion that the depreciated replacement cost of the buildings and the CIP (exclusive of the land parcel) as at the valuation date would be RMB244,264,000 assuming all proper title certificates have been obtained.
III-10 APPENDIX III PROPERTY VALUATION REPORT
VALUATION CERTIFICATE Group II – Property interest held under development by Hubei College in the PRC
Market value Particulars of in existing state as at No. Property Description and tenure occupancy the valuation date RMB
4. College of The property comprises a The property is No commercial value Engineering and parcel of land with a site currently under Technology of area of approximately construction. Yangtze University 333,200.55 sq.m., and under construction 11 buildings and various located at Taolin structures under Village construction (the “CIP”) Heshengqiao Town erected thereon. Xian’an District Xianning City The CIP will be developed Hubei Province into 7 dormitory buildings, The PRC 3 teaching buildings and a canteen with a planned total gross floor area of approximately 35,067.94 sq.m., and the CIP is scheduled to be completed in September 2018.
As advised by the Company, the total construction cost of the CIP is estimated to be RMB78 million, of which approximately RMB73.6 million has been paid up to the valuation date.
The land use rights of property have been allocated to Hubei College.
III-11 APPENDIX III PROPERTY VALUATION REPORT
Notes: 1. Pursuant to a State-owned Land Use Rights Certificate – E (2018) Xian An Qu Bu Dong Chan Quan Di No. 0004614, the land use rights of a parcel of land with a site area of approximately 333,200.55 sq.m., have been allocated to College of Engineering and Technology of Yangtze University (長江大學工程技術學院,“Hubei College”, an independent college of Yangtze University that the Company is in the process of acquiring its sponsor interest) for educational use. 2. Pursuant to a Construction Land Planning Permit – Di Zi Di No. 2018007, permission towards the planning of the aforesaid land parcel with a site area of approximately 333,200.55 sq.m. have been allocated to Hubei College. 3. Hubei College has not obtained any construction permits for the CIP of the property. 4. We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia, the following: a. Hubei College has obtained the valid land use rights certificate to the parcel of land mentioned in note 1; b. according to the confirmation of Xianning Xian’an District Housing and Urban-Rural Construction Bureau, the CIP mentioned in note 3 was qualified with the construction conditions and there is no impediment for Hubei College to apply for relevant construction permits; therefore, there is low possibility for Hubei College to receive any penalty due to the absence of relevant construction permits; and c. according to the Guaranty Law, schools, kindergartens, hospitals and other educational/hospital facilities held by public instructions/organisations for public welfare purposes could not be mortgaged. 5. In the valuation of this property, we have relied on the aforesaid legal opinions and attributed no commercial value to the property. However, for reference purpose, we are of the opinion that the depreciated replacement cost of the CIP (exclusive of the land parcel) as at the valuation date would be RMB80,209,000 assuming all proper construction permits have been obtained.
III-12