Report of Quality Houses Leasehold Property Fund For the Period during 1 January 2013 – 31 December 2013
Contents Page
Message from the Management Company 1
Quality Houses Leasehold Property Fund 2
Assets Invested or Held by the Fund Classified4 by T ype
Details of Properties Invested by the Fund 6
Details of Property Investment during the9 Accountin Period g
Details of Property Sale or Transfer of Leasehold Right during the Accounting Period 9
Details of Borrowings as of 31 December 2013 9
Report on Transactions with Related Parties
Market Overview of the Segment Related to the Property from which the Fund Generates Income and Its Outlook
Expenses Chargeable to the Fund
Soft Commission
Names and Addresses of the Property Fund Managers
Opinion of the Trustee
Auditors’ Report and Financial Statements
About the Management Company
Report of Quality Houses Leasehold Property Fund For the Period From1 January 2013 – 31 December 2013
1
Message from the Management Company
1 April 2014
Dear Unitholders of Quality Houses Leasehold Property Fund,
As the Management Company has accomplished the management of the Fund for another accounting period, we are pleased to submit for your consideration herewith the Repots of the Fund’s Auditors and Trustee for the period during 1 January – 31 December 2013, together with the summary report on the Fund’s investment portfolio as well as properties invested by the Fund.
We would like to take this opportunity to extend our gratitude to our unitholders for entrusting us with the management of your investments over the years.
Yours sincerely,
(Ms. Chantana Kanchanagama)
Managing Director
Land and Houses Fund Management Company Limited
Report of Quality Houses Leasehold Property Fund For the Period during 1 January 2013 – 31 December 2013
2
Quality Houses Leasehold Property Fund
Abbreviated Name: “QHPF”
Management Company
Land and Houses Fund Management Company Limited
Type of Fund
Closed-ended property fund listed on the Stock Exchange of Thailand
Fund Maturity
Indefinite
Objectives of the Project:
To mobilize funds from the public and general investors, with the primary objective of utilizing the proceeds from such fund mobilization to invest in commercial properties, emphasizing property projects that generate consistent returns on investment over the long-term. The Fund shall use such funds to invest in office buildings, including using the funds for renovating, improving, building, and/or developing properties with construction permits, and/or to take proper and appropriate actions for the benefits arising from investments in such properties in order to enhance income and investment returns for the unitholders and the Fund. The Fund has an objective to generate consistent dividends to the unitholders and to enhance the net asset value of the Fund over the long-term in accordance with the rules and methods as prescribed by relevant securities laws.
The Management Company aims to seeks benefits and generate income for the Fund by way of leasing, subleasing, transfer and/or disposal of the properties in which the Fund has invested and plans to invest in the future. Besides, the Fund may invest in other properties and/or other securities and/or deriving benefit by other means in compliance with the securities law and/or other relevant laws.
Investment Policy
To mobilize funds from the public and general investors thereby using the mobilized funds to purchase, lease and/or receive the transfer of lease or sublease of properties, and seeking benefits from such properties by way of letting, subletting, and/or other actions for the benefits of the properties invested or held by the Fund including renovating, improving, modifying, developing, and/or disposal of properties in order to generate income and the investment returns for the Fund and the unitholders as well as making investments in other properties and/or other securities and/or deriving benefit by other means as prescribed by securities law and/or other relevant laws. Report of Quality Houses Leasehold Property Fund For the Period during 1 January 2013 – 31 December 2013
3
Dividend Policy
The Fund has a policy to pay dividends to the unitholders not more than four times per annum.
However, the Management Company may consider payment of extraordinary dividends to the unitholders as deemed necessary and appropriate.
(1) If the Fund has a net profit in any accounting year, the Management Company will pay the unitholders a dividend equal to not less than 90% of the annual net profit, excluding unrealized gain on revaluation or review of property value or leasehold rights to properties for that accounting period.
(2) If the Fund has retained earnings during any accounting period, the Management Company may pay dividends to the unitholders from such retained earnings.
In this respect, the rules and regulations for the payment of dividends shall be in accordance with the Notification of the Securities and Exchange Commission regarding R rules, Conditions and Procedures for Establishment and Management of Property and Loan Funds and the modifications thereof as well as other relevant notifications and shall be in line with the accounting standards under the Accounting Profession Act B.E. 2547.
Trustee : Kasikornbank Public Company Limited
Registrar : Siam Commercial Bank Public Company Limited
Investment Capital : 7,863 million Baht
Offer Price : 10 Baht per unit
Minimum Purchase : 50,000 Baht
Number of Investment Units : 797 million units
Type of Investment Units : Name-registered
Shareholders of the Management Company with Holding from 10 percent of the total shares sold (as of 31 December 2013)
Land and Houses Bank Public Company Limited holds 99.99 percent of the total shares sold.
Report of Quality Houses Leasehold Property Fund For the Period during 1 January 2013 – 31 December 2013
4
Assets Invested by or Held by the Fund Classified by Type of Asset
1. Investments in Properties as of 31 December 2013
Area Cost Prices Fair Value % of Project (rai-ngan- (Baht) (Baht) NAV sq. wah) Leasehold right of land, building including public utility systems together with component parts and equipment related thereto 1. Quality Houses Ploenchit Project
Location: 1-1-63 819,000,000 No. 598 Ploenchit Road, Lumpini, Pathumwan, Bangkok; next to Ploenchit BTS Station; 18 stories with a total space of 22,520 sq. m.
- Cost of right acquisition 8,965,000 Total 1-1-62 827,965,000 828,000,000 9.88 Purchase of building and public utility systems together with component parts and equipment related thereto; and acceptance of transfer of leasehold right of land. 1. Q. Houses Lumpini Project
Location: 8-0-18.5 4,596,643,816 No. 1 South Sathon Road, Thungmahamek, Sathon; next to Lumpini MRT Subway Station; 38 stories with a total space of 134,123 sq. m., and a net rental space of 68,272 sq. m.
- Additional investment 6,700,535 - Cost of right acquisition 14,219,523 Total 8-0-18.5 4,617,563,874 5,530,000,000 65.97 2. Wave Place Project
Location: 2-3-99 1,772,000,000 No. 55 Witthayu Road, Lumpini, Pathumwan, Bangkok; next to Ploenchit BTS Station; 18 stories with a total space of 46,675 sq. m., and a net rental space of 24,886 sq. m.
- Cost of right acquisition 3,460,869 Total 2-3-99 1,775,460,869 1,410,000,000 16.82 Total Investments in Properties 7,220,989,743 7,768,000,000 92.67
Report of Quality Houses Leasehold Property Fund For the Period during 1 January 2013 – 31 December 2013
5
2. Assets Other Than Investments in Properties as of 31 December 2013
Book Assets Value/Market % of NAV Value (Baht) 1. Cash and deposits at banks 42,956,332.57 0.50 2. Investment in Promissory Notes and Debt Instruments Bills of exchange/Promissory notes issued/accepted/ - - avaled by financial institutions
Certificate of Deposits/Deposit Receipts 527,186,600.00 6.14 Government bonds 84,119,450.06 0.98 Treasury bills - - Total 654,262,382.63 7.62 3. Investments in Properties
Investment in properties 7,768,000,000.00 90.42 Total 7,768,000,000.00 90.42 4. Other Assets
Accrued interests 3,274,558.21 0.04 Guarantee money under land lease agreement 404,882,831.59 4.71 Accounts receivable from rental-net 21,575,845.59 0.25 Other assets 54,866,000.00 0.64 Total 484,599,234.01 5.64
Total Asset Value 8,906,861,617.44 103.68
5. Other Liabilities Accrued fees and expenses (63,426,775.48) -0.74 Security deposits (232,887,380.00) -2.71 Other liabilities (19,365,494.84) -0.23
Total Liabilities (315,679,647.32) -3.68
Net Asset Value (NAV) of the Fund 8,591,181,970.12 100.00
Number of Investment Units 797,000,000.00 units
NAV per Unit 10.7794 Baht
Report of Quality Houses Leasehold Property Fund For the Period during 1 January 2013 – 31 December 2013
6
Details of Properties in which the Fund Invested
As of 31 December 2013
1. Q. Houses Ploenchit Project Location No. 598 Ploenchit Road, Lumpini, Pathumwan, Bangkok Type Leasehold right of land and a 18-storey office building Project Feature An 18-storey office building plus 3 stories underground with a total space of 22,520 sq. m. and a net rental space of 10,825 sq. m. The underground parking on Floors B1-B3 and outdoor parking on Floors 1-4 can accommodate approximately 171 cars. Title Deed Number 3541 Ownership in Land Quality Houses Public Company Limited Ownership in Building Quality Houses Public Company Limited Land Size 1 rai 1 ngan 63 square wah Appraised Value (2013) 828,000,000 Baht (by TAP Valuation Co Ltd. as of 7 November 2013) Commencement of Operation The building commenced operation in 1998 Property Manager Quality Houses Public Company Limited Rental Space (sq. m.) Office space of 10,825 sq. m. Revenue for the period of 1 January -31 104.28 million Baht December 2013) Characteristic of the Fund’s Property Right The leasehold agreement of land, building including public utility systems together with component parts and equipment related thereto has 23 year 1 month remaining until the expiry date on 8 December 2036. Both parties may consider extending the agreement for another 30 years following the expiration of the agreement. Obligations The overall conditions and stability of the building and public utility systems are required to undergo an annual inspection, with the inspection report reviewed and certified by a licensed engineer; the inspection for the last 5 years of the lease agreement must be undertaken during January of each year.
Report of Quality Houses Leasehold Property Fund For the Period during 1 January 2013 – 31 December 2013
7
Details of Properties in which the Fund Invested
As of 31 December 2013
2. Q. Houses Lumpini Project Location No. 1 South Sathon Road, Thungmahamek, Sathon, Bangkok Type Leasehold right of land together with the ownership in a 38-storey office building and a 4-storey retail building. Project Feature 38-storey office building, 4-storey retail building, plus 5 stories underground with a total space of 134,123 sq. m. and a net rental space of 68,272 sq. m. The underground parking on Floors B1-B5 can accommodate approximately 985 cars. Title Deed Number 620, 584, 4918, 619, 585, 617 Ownership in Land 1. Khunying Kasama Vorawan Na Ayudhya 2. Mr. Utaipan Chatikavanij 3. Mrs. Sirima, Mr. Chai, Mr. Charn and Miss Korakot Srivikorn Ownership in Building Quality Houses Leasehold Property Fund Land Size 8 rai 0 ngan 18.5 square wah Appraised Value (2013) 5,530,000,000 Baht (by TAP Valuation Co Ltd. as of 7 November 2013) Commencement of Operation The building commenced operation in 2006 Property Manager QH International Company Limited Rental Space (sq. m.) Total space of 68,272 sq. m. comprising 58,894 office space and 9,378 retail space. Revenue for the period of 1 January -31 671.82 million Baht December 2013) Characteristic of the Fund’s Property Right Purchase of building including public utility systems together with component parts and equipment related thereto; and acceptance of transfer of leasehold right of land. The leasehold agreement has 22 years and 2 months remaining until the expiry date on 31 December 2035. Obligations The overall conditions and stability of the building and public utility systems are required to undergo an annual inspection, with the inspection report reviewed and certified by a licensed engineer during the lease period of 2031-2035. In addition, in the case where the leasehold agreement expires and upon request of the land owners, the Fund must sell the buildings to the land owners at the cost of 500,000 Baht. Notwithstanding, in the case that the lessors do not wish to accept the transfer of the ownership right of the buildings upon expiry of the leasehold agreement, the Fund has the responsibility to demolish the building and return the land to its original condition. Report of Quality Houses Leasehold Property Fund For the Period during 1 January 2013 – 31 December 2013
8
Details of Properties in which the Fund Invested
As of 31 December 2013
3. Wave Place Project Location No. 55 Witthayu Road, Lumpini, Pathumwan, Bangkok Type Leasehold right of land together with the ownership in a 21-storey office/retail building. Project Feature 21-storey office building plus 2 stories underground with a total space of 46,675 sq. m. and a net rental space of 24,886 sq. m. The underground parking on Floors B1-B2 can accommodate approximately 383 cars. Title Deed Number 11106, 11107 Ownership in Land 1. Mrs. Nualsiri Yaemsa-ad 2. Mrs. Kanuengnij Techolarn Ownership in Building Quality Houses Leasehold Property Fund Land Size 2 rai 3 ngan 99 square wah Appraised Value (2013) 1,410,000,000 Baht (by TAP Valuation Co Ltd. as of 7 November 2013) Commencement of Operation The building commenced operation in 1999 Property Manager Quality Houses Public Company Limited Rental Space (sq. m.) Total space of 24,886 sq. m. comprising 19,024 office space and 5,862 retail space. Revenue for the period of 1 January -31 206.62 million Baht December 2013) Characteristic of the Fund’s Property Right Purchase of building including public utility systems together with component parts and equipment related thereto; and acceptance of transfer of leasehold right of land. The leasehold agreement has approximately 16 years and 11 months remaining until the expiry date on 31 October 2030. Obligations The Fund is obliged to transfer the ownership in the building to the land owners upon expiry of the leasehold agreement.
Report of Quality Houses Leasehold Property Fund For the Period during 1 January 2013 – 31 December 2013
9
Details of Property Investment
During 1 January 2013 – 31 December 2013
- None -
Details of Property Sale or Transfer of Leasehold Right
During 1 January 2013 – 31 December 2013
- None -
Details of Borrowing
During 1 January 2013 – 31 December 2013
- None -
Details of Transactions with Related Parties
During 1 January 2013 – 31 December 2013
Quality Houses Leasehold Property Fund has transactions with the following related party: Land and Houses Bank Public Company Limited
Remarks:Investors can contact the Management Company directly for inspection of the transactions with related parties.
Report of Quality Houses Leasehold Property Fund For the Period during 1 January 2013 – 31 December 2013
10
Market Overview of the Segment Related to the Property from which the Fund Generates Income and Its Outlook
The Thai Economy in 2013 The Thai economy expanded during the first half of 2013 as a result of the Government’s economic stimulus package that boosted domestic consumption. This was further supported by favorable factors that encouraged spending including employment, income and household confidence as well as continued investment in the business sector. However, during the latter half of the year, the economy slowed down subsequently due to shrinking domestic demand resulting from subdued stimulating measures as well as the delay in both budget and off-budget investment expenditure in the public sector. Due to increasing uncertainty about the economic and political situations, consumers became more cautious in spending, business operators put off their investment with a wait-and-see attitude, and financial institutions were more restrictive in credit extension. Meanwhile, the export sector grew slowly despite obvious improvements in foreign demand. As a matter of fact, the recovery of foreign demand concentrated on some product groups which are not Thailand’s major exports and did not have much positive effect on exports from Thailand. Moreover, some industries were affected by production constraints. Consequently, the Thai economy was mainly driven by the tourism sector that enjoyed continued expansion throughout the year. On account of an economic slowdown and uncertainty, the Monetary Policy Committee (MPC) resolved to cut the interest rate twice, by an aggregate of 0.50%, in May and November 2013, in an attempt to help mitigate the risks of the economy through a relaxation of monetary policy. The overall economy remained stable with low inflation rate in line with global inflation, attributable to the softening world prices of major production factors including crude oil and commodities and the limitation on transfer pricing due to sluggish demand. Although the minimum wage rate was raised to 300 Baht nationwide early of the year and the household cooking gas prices were increased successively during the end of the year, they showed no significant effects. The financial positions of the business and banking sectors remained solid whereas the rapid growth of household debts which was witnessed during the past two years became diminishing whereas the country’s fiscal position remained favorable. The external sector was stable although current accounts recorded a marginal deficit for the second year due to net imports of gold and remittances of profits and dividends by foreign businesses. The overall capital account posted a surplus with capital flows fluctuating corresponding to the monetary measures of major industrialized countries and domestic political situations, resulting in a two-way direction movement of the Baht currency. In 2013, the Thai economy grew a slower pace of 2.9% from the prior year due mainly to the weakening private spending. During the first half of the year, consumption in the private sector still had a positive effect on the economic growth as a result of the economic stimulus package such as the increase of minimum wage rate, agricultural price intervention, and the tax rebate for the first-time car buyer program that had been stimulating the sales volume of passenger cars continuously since the end of last year. Moreover, the Report of Quality Houses Leasehold Property Fund For the Period during 1 January 2013 – 31 December 2013
11 factors that encouraged spending, including employment, income and household confidence, were also favorable. The expansion of household spending led to continued investment by the business sector in order to improve production efficiency. This was in line with the growth of production in the industrial sector, in particular the domestic market-oriented segments. However, the Government stimulus measures became subdued and household debts surged since the latter half of the year, leading to more cautious household spending and restrictive credit extension by financial institutions. As overtime pay earned by workers decreased and consumer confidence weakened due to economic and political uncertainties, domestic consumption became sluggish as well as domestic investment since business operators postponed their investment decisions pending a clearer economic and political outlook. For 2014, it is forecast that the export sector will play a greater role in economic expansion according to the economic recovery of the trading partners. Meanwhile, the recovery of domestic consumption depends of the political situation. The prolonged uncertainty will worsen consumers’ confidence, leading to further slowdown of consumption and investment in the private sector as well as the public sector’s investment spending. The weakening domestic demand is expected to keep inflation rate close to that of 2013. (Source: Bank of Thailand)
Overview of Office Building Market in Bangkok
Demand
In the 4th quarter of 2013, 7,330,000 square meters of office space was occupied, rose by 0.9% over Q3 2013 and 1% over the same period of 2012, with only 781,085 square meters vacant space in this quarter. Overall demand for office buildings increased steadily and the trend is expected to continue subject to current political uncertainty. It is observed that some grade B CBD offices located near mass transit systems such as the BTS Sky Train Stations or the MRT Subway Stations achieved higher rents than those of grade A CBD offices located farther away from such mass transit systems.
Supply
The total office supply in Bangkok increased to 8,110,000 square meters in Q4 2013, an increase of 0.2% over the previous quarter and over the same period of 2012. The supply grew by 20,000 square meters during Q4 2013 with the completion of SCG’s new Head Office in Bang Sue.
Occupancy Rate of Office Buildings
The total occupancy rate of office buildings in Bangkok rose to 90.4% in Q4 2013 from 89.8% in the previous quarter, representing an increase of 0.6% over the previous quarter and 2.5% over the same period of 2013. Meanwhile, the vacancy rate for CBD grade A offices in Q4 2013 fell to 8.4% from 9.9% in the previous quarter. Report of Quality Houses Leasehold Property Fund For the Period during 1 January 2013 – 31 December 2013
12
Rental Rates of Office Buildings
The rental rate of Grade A CBD offices rents rose by 1.2% from Q3 2013 and 7.0% from the same period of 2012 to 820 Baht /sq.m./month, whereas that for Grade A non-CBD offices increased by 1.0% from Q3 2013 and 5.4% from the same period of 2012, respectively, to 608 Baht /sq.m./month.
The average rental rate of buildings with space of more than 1,000 square meters attained a discount of approximately 5%-15% compared to those with smaller space. The rent-free periods was average at one month for office space of 200-300 square meters
Future Outlook
According to the projects that have already been announced, 450,000 square meters of new office space is anticipated to be completed during 2014-2016. Grade A CBD office buildings that will be developed are Bhiraj Tower and AIA Sathorn Tower which have been completed by 30%.
(Source: CB Richard Ellis (Thailand) Company Limited)
Report of Quality Houses Leasehold Property Fund For the Period during 1 January 2013 – 31 December 2013
13
Total Expenses Chargeable to the Fund For the Period during 1 January 2013 – 31 December 2013
Amount % of NAV Expenses Chargeable to the Fund Actually Thousand Baht 1 As Per the Project Charged Management Fee 18,460.68 0.21 Not exceeding 0.20%2 Registrar Fee 2,769.10 0.03 Not exceeding 0.10% Fund Supervisor’s Fee 2,769.10 0.03 Not exceeding 0.15% Property Management Fee 27,757.92 0.32 Not exceeding 0.20% Trustee Fee None None None Underwriting Fee None None None Insurance Premiums 5,044.80 0.06 As Actually Incurred Rental and Service Cost 210,049.29 2.45 As Actually Incurred Sale and Administration Expenses 92,156.19 1.07 As Actually Incurred Expenses for Building Maintenance 16,656.10 0.19 As Actually Incurred Expenses for Space Rental Advertisement 4,024.32 0.05 As Actually Incurred Expenses for Advertisement, PR and Sales Promotion 3 - During IPO None None Not exceeding 0.29% 3 - After IPO 8.99 0.00 Not exceeding 0.50% 4 As Actually Incurred Other Expenses 20,328.54 0.24
Total Expenses 400,025.03 4.65 Remarks: 1. Fees and expenses charged to the Fund are inclusive of value added tax, specific business tax or other taxes of a similar nature (if any) whereas fees or expenses as per the project are exclusive of value added tax.
2. The Management Company of the Fund has changed from SCB Asset Management Company Limited to Land and Houses Fund Management Company Limited since 1 August 2012, and the management fee as per the project was modified from not exceeding 1% of NAV to not exceeding 0.20% of NAV accordingly.
3. Such expenses are not calculated as a percentage of NAV therefore the rates as per the project which are specified as a percentage of NAV are just estimation.
4. Refers to all other expenses, each of which is not higher than 0.01% of NAV.
The averaged monthly NAV calculated from 1 January to 31 December 2013 is equivalent to 8,587,401,738.36 Baht. Report of Quality Houses Leasehold Property Fund For the Period during 1 January 2013 – 31 December 2013
14
Soft Commission
As of 31 December 2013
Research Rationale for Accepting Soft Analysis and Seminars Commissions Information
Kasikornbank Public Co Ltd For the benefits of the Fund’s investment
Siam Commercial Bank Public Co Ltd For the benefits of the Fund’s investment
Bangkok Bank Public Co Ltd For the benefits of the Fund’s investment
Bank of Ayudhya Public Co Ltd For the benefits of the Fund’s investment
Krung Thai Bank Public Co Ltd For the benefits of the Fund’s investment
TISCO Bank Public Co Ltd For the benefits of the Fund’s investment
CIMB Thai Bank Public Co Ltd For the benefits of the Fund’s investment
UOB Bank Public Co Ltd For the benefits of the Fund’s investment
Government Savings Bank For the benefits of the Fund’s investment
Land and Houses Bank Public Co Ltd For the benefits of the Fund’s investment
Kiatnakin Bank Public Co Ltd For the benefits of the Fund’s investment
Report of Quality Houses Leasehold Property Fund For the Period during 1 January 2013 – 31 December 2013
15
Names and Addresses of the Property Fund Managers
Q Houses Ploenchit Building and Wave Place Building
Quality Houses Public Company Limited
Q. House Lumpini Building, 7th Floor No. 1 South Sathon Road, Tungmahamek, Sathon, Bangkok 10120 Telephone: (02) 677-7000 Facsimile: (02) 677-7005
Q Houses Lumpini Building
Q. H. International Company Limited
Q. House Lumpini Building, 7th Floor No. 1 South Sathon Road, Tungmahamek, Sathon, Bangkok 10120 Telephone: (02) 677-7000 Facsimile: (02) 677-7005
Report of Quality Houses Leasehold Property Fund For the Period during 1 January 2013 – 31 December 2013
16
Report of Quality Houses Leasehold Property Fund For the Period during 1 January 2013 – 31 December 2013
17
Auditors’ Report and Financial Statements
As of 31 December 2013
Report of Quality Houses Leasehold Property Fund For the Period during 1 January 2013 – 31 December 2013
48
Land and Houses Fund Management Company Limited
Company Background
Land and Houses Fund Management Company Limited registered for name change with the Ministry of Commerce on 23 November 2010 from United Asset Management Company Limited that was established on 17 January 2008. Presently, the Company has a fully paid up registered capital of 300 million Baht and has obtained various business licenses as follows:
- Type C Securities Business License (Kor) from the Ministry of Finance with the License No. Lor Kor-0013-01 since 21 February 2011
- Derivatives Business License from the Securities and Exchange Commission (Derivatives Fund Manager Category) with the License No. Sor Dor 04-0013-10 since 2 March 2011.
- Derivatives Business License from the Securities and Exchange Commission (Derivatives Advisor Category) with the License No. Sor Dor 03-0013-11 since 2 March 2011.
The Company was authorized by the Securities and Exchange Commission to commence the operations of mutual fund and private fund business on 2 June 2011.
The Company is currently a 99.99% owned subsidiary of Land and Houses Bank Public Company Limited.
Location:
Land and Houses Fund Management Company Limited 11 Q. House Sathon Building, 14th Floor South Sathon Road, Tungmahamek, Sathon, Bangkok 10120 Telephone: (02) 286-3484, (02) 679-2155 Facsimile: (02) 286-3585 www.lhfund.co.th