Asset Acquisitions And Disposals :: Acquisition Of Nursing Home Located In Japan

(Constituted in the Republic of Singapore pursuant to a trust deed dated 12 July 2007 (as amended))

ACQUISITION OF NURSING HOME LOCATED IN JAPAN

1. INTRODUCTION

1. Agreement to Purchase Nursing Home in Japan
   Parkway Trust Management Limited, as manager of Parkway Life Real Estate Investment
   Trust ("Parkway Life REIT", and as manager of Parkway Life REIT, the "Manager"), is pleased to announce that HSBC Institutional Trust Services (Singapore) Limited, as trustee of Parkway Life REIT (the "Trustee"), has through its wholly-owned subsidiary, Parkway Life Japan4 Pte. Ltd. (the "SPV"), entered into a Tokumei Kumiai agreement (or silent partnership agreement, the "TK Agreement") with Godo Kaisha SAMURAI 16, a Godo Kaisha incorporated under Japanese laws (the "TK Operator") in relation to the acquisition of a nursing home in the Greater Tokyo Region of Japan (the "Property") by the TK Operator (the "Acquisition") at a total purchase price of JPY3,200 million (approximately S$37.9 million1) (the "Purchase Price"). Completion is expected to complete by December 2021 (the "Closing Date").
   The TK Operator has today entered into a conditional purchase and sale agreement with two third-party vendors (the "Vendors"), who are unrelated to Parkway Life REIT, for the purchase of the Property.
2. Certain Information on the Property

Name of Property

Lessee

Location

No. of

Type of

Beds

Property

Habitation Kisarazu Ichiban-

Fuyo Shoji

Kisarazu City, Chiba

150

Nursing

kan

Kabushiki Kaisha

Prefecture

Home

1.3 Manner of Acquiring and Holding the Property

Under the TK Agreement, a company established under Japanese laws, and known as a "Godo Kaisha", will own the Property. A Godo Kaisha is a company similar to a limited liability company in Singapore whose members are only liable to the extent of their contribution to the Godo Kaisha2.

Prior to the Closing Date, the SPV, which is wholly-owned by Parkway Life REIT, shall inject funds into the TK Operator (the "Parkway Life REIT TK Investment") and, as provided for in the Purchase and Sale Agreement, the TK Operator will acquire the entire trust beneficial interests in a Japan-constituted trust which holds the Property. On the Closing Date, the TK

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Based on the exchange rate of S$1.00:JPY84.46 (the "Exchange Rate"). Unless otherwise stated, all conversions of JPY amounts into S$ in this announcement will be based on the Exchange Rate.

See also paragraph 5.4 below.

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Operator will undertake a conversion of the trust beneficial interests into a fee simple title of the Property.

The completion of the Acquisition will be subject to the satisfaction of a number of conditions including, inter alia, compliance with certain applicable laws and regulations and the obtaining of certain applicable governmental and regulatory approvals.

1. Building Lease Agreement
   The TK Operator will enter into a building lease agreement (the "Building Lease Agreement") with Fuyo Shoji Kabushiki Kaisha (the "Lessee") to grant a 20-year building lease at an annual gross rental of approximately JPY197.2 million (approximately S$2.3 million).
2. Guarantee
   Kabushiki Kaisha Habitation, being the parent company of the Lessee, has in connection with the entry into the Building Lease Agreement and the Undertaking Letter (as defined herein) for the Property, irrevocably, unconditionally and absolutely, guaranteed the prompt performance, payment or fulfillment of any and all obligations (including, without limitation, all obligations to make rental payments and maintain applicable licenses) of the Lessee under the Building Lease Agreement and the Undertaking Letter (the "Guarantee").
3. Undertaking Letter
   The Lessee has provided an undertaking (the "Undertaking Letter") to the TK Operator, in which it agrees to undertake to, among others, rectify certain conditions set forth in the Undertaking Letter at its own costs and expenses no later than six months after the Closing Date.
4. Backup Operator Agreement
   The TK Operator has entered into a backup operator agreement with Kabushiki Kaisha Genki na Kaigo, a Japanese kabushiki kaisha (the "Backup Operator"), and the Lessee.
   The purpose of the backup operator agreement is to allow the Backup Operator to assume the role of the lessee of the Property so as to ensure that the business of the fee-charging nursing home for the aged and other ancillary business run smoothly in the event of any cancellation or termination of the current lease.
5. Asset Management Agreement
   The TK Operator has entered into an asset management agreement with Black Hills Investment, Ltd., a Japanese kabushiki kaisha ("Black Hills" or the "Asset Manager") in respect of the Property (the "Asset Management Agreement"). The Asset Manager is responsible for the servicing, administration and management of the Property.
   The Asset Manager shall be appointed for an initial term up to 30 June 2022, and its appointment shall thereafter be automatically renewed for successive two-year periods unless the TK Operator or the Asset Manager gives a notice of non-renewal in accordance with the terms of the Asset Management Agreement.

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1.9 Information on the Lessee and the Asset Manager Lessee

Fuyo Shoji Kabushiki Kaisha was established in 1971, with a paid up capital of JPY51 million (approximately S$0.6 million) as at October 2021, is an aged care operator based in Chiba Prefecture. Fuyo Shoji Kabushiki Kaisha was acquired in 2015 and the company is wholly owned by Kabushiki Kaisha Habitation. To date, it operates 3 nursing homes and several day services facilities in Chiba Prefecture.

Asset Manager

Black Hills is a private real estate asset management firm that was founded in March 2007 in Japan with its core business being in the real estate markets. The assets under Black Hills' management are approximately JPY94 billion (approximately S$1.1 billion) as at October 2021.

2. RATIONALE FOR THE ACQUISITION

1. DPU Accretion
   Based on the expected net property yield of the Acquisition of 5.9%3, the Manager believes that the Acquisition will be DPU-accretive to the unitholders of Parkway Life REIT ("Unitholders"), using pro forma historical financial information for the purpose of analysis.
2. Consistency with Parkway Life REIT's principal investment strategy
   The Acquisition is in line with the investment criteria stated in the prospectus of Parkway Life REIT dated 7 August 2007. The principal investment strategy of the Manager is to invest in income-producing real estate and/or real estate-related assets in the Asia-Pacific region (including Singapore) that are primarily used for healthcare and/or healthcare related purposes (including but not limited to, hospitals, healthcare facilities and real estate and/or real estate assets used in connection with healthcare research, education, and the manufacture or storage of drugs, medicine and other healthcare goods and devices), whether wholly or partially owned, and whether directly or indirectly held through the ownership of special purpose vehicles whose primary purpose is to own such real estate. As such, the Acquisition is consistent with Parkway Life REIT's principal investment strategy.
3. Income Diversification
   The Acquisition is expected to benefit Unitholders by improving income diversification and reducing the reliance of Parkway Life REIT's income stream on any single property.

3 The expected net property yield is computed by dividing the contractual rent (net of property expenses) by the Purchase Price of the Property (excludes capitalised cost).

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2.4 Competitive Strengths of the Property

The Property is built in 2017 and located in the residential area of Kisarazu City within Chiba Prefecture. The operational occupancy of approximately 96% as at 31 October 2021 reflects the operational stability of the Property. The Property is also well situated with transportation connectivity and close proximity to Tokyo. The Acquisition will further lengthen the weighted average lease expiry (by gross revenue) for Parkway Life REIT from 17.42 years to 17.47 years4, which will further enhance the resiliency of Parkway Life REIT's earnings.

3. CERTAIN PRINCIPAL TERMS OF THE ACQUISITION

1. Purchase Price
2. The Purchase Price for the Property, exclusive of Japanese consumption tax and other estimated fees and expenses (including the acquisition fee, stamp duties, taxes payable, advisory fees, professional fees and expenses), was arrived at on a willing-buyer and willing- seller basis after taking into account the valuation of the Property by the independent valuer. The valuation for the Property as at 31 October 2021 is set out in paragraph 3.3 below. The Purchase Price will be paid in cash to the Vendors on the Closing Date after making the relevant adjustments for security deposits (if applicable) and allocations of taxes, expenses and revenues in relation to the Property pursuant to the terms of the Purchase and Sale Agreement.
   Upon completion of the Acquisition:
3. 1. an acquisition fee of approximately S$0.38 million excluding tax, is payable to the Manager pursuant to the trust deed constituting Parkway Life REIT dated 12 July 2007 (as amended), which may be payable in the form of cash and/or units in Parkway Life
      REIT ("Units") as the Manager may elect;
   2. a one-time acquisition fee of JPY20.8 million (approximately S$0.25 million) excluding tax, is payable to the Asset Manager for facilitating the acquisition of the Property; and
   3. a one-time brokerage fee of JPY48.0 million (approximately S$0.57 million) excluding tax, is payable to the broker responsible for brokering the acquisition of the Property.
4. Valuation of the Property
   CBRE K.K. ("CBRE"), an independent valuer, has been commissioned to prepare an independent valuation of the Property. In its valuation report dated 24 November 2021, CBRE stated that the appraised value of the Property as at 31 October 2021 is JPY3.44 billion (approximately S$40.7 million).

4 As at 30 September 2021.

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The valuation was prepared with an emphasis on the Discounted Cash Flow Method with the Income Approach Value and Cost Approach Value used as reference and the Purchase Price is approximately 7.0% below the valuation of the Property.

1. MATERIAL IMPACT
   The above transaction is not expected to have any material impact on the consolidated net tangible assets or distributions per Unit for the financial period ending 31 December 2021.
2. OTHER INFORMATION

1. Rule 1006 of the Listing Manual
   Based on the relative figures as computed on the bases set out in Rule 1006 of the listing manual of Singapore Exchange Securities Trading Limited (the "Listing Manual"), the Acquisition is a "Non-Discloseable Transaction" within the meaning of Rule 1008 of the
   Listing Manual.
2. Interests of the Directors and Controlling Unitholders
   Based on information available to the Manager, as at the date of this announcement, none of the directors of the Manager or the controlling Unitholders has any interest, direct or indirect, in the Acquisition.
3. Service Contracts
   No person is proposed to be appointed as a director of the Manager in connection with the Acquisition.
4. TK Operator
   Pursuant to the Purchase and Sale Agreement, the TK Operator will acquire the trust beneficial interests in a Japan-constituted trust which holds the Property from the Vendors. On the Closing Date, the TK Operator will undertake a conversion of the trust beneficial interests into a fee simple title of the Property and the title deed to the Property will be held by the TK Operator, as the legal owner of the Property. It should be noted that the title deed of the Property is held by the TK Operator and not by the Trustee directly due to the nature of the arrangements under the TK Agreement. As such, the Trustee is not the legal owner of the Property and has no direct control over the Property or how it is managed. Should the TK Operator become insolvent, the Trustee's right to distribution under the TK Agreement would be treated as a bankruptcy claim, and would rank junior to all debt obligations owed by the TK Operator.
   Given that only the TK Operator has rights against and obligations to third parties as the legal owner of the Property, third parties will have no recourse against the SPV, as the silent partner, and the liability of Parkway Life REIT (as a TK investor through the SPV) is thus limited to the amount of the Parkway Life REIT TK Investment.

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