Yuexiu Property : CONTINUING CONNECTED TRANSACTIONS - 2019 ...

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(Incorporated in Hong Kong with limited liability)

(Stock Code: 00123)

CONTINUING CONNECTED TRANSACTIONS

2019 FRAMEWORK LEASE AGREEMENT

2019 FRAMEWORK LEASE AGREEMENT

On 17 January 2019, GCCD (an indirect 95%-owned subsidiary of the Company) and GZYX entered into the 2019 Framework Lease Agreement for a term of three years commencing with retrospective effect from 1 January 2019 to govern the leasing of the Lease Properties by the GCCD Landlords to the GZYX Entities.

PROPOSED ANNUAL CAPS

The Annual Caps for the Lease Transactions are RMB75,000,000 for each of the years ending 31 December 2019, 2020 and 2021, respectively.

LISTING RULES IMPLICATIONS

GZYX is the controlling shareholder of the Company and therefore a connected person of the Company under the Listing Rules. As such, the Lease Transactions constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules.

Since the highest applicable percentage ratio for the Annual Caps is more than 0.1% but less than 5%, the Lease Transactions are subject to the reporting, annual review and announcement requirements but are exempt from independent shareholders' approval requirement under Chapter 14A of the Listing Rules.

The Board (including the independent non-executive Directors) considers that: (i) the terms of the 2019 Framework Lease Agreement are fair and reasonable and on normal commercial terms; (ii) the Lease Transactions are in the ordinary and usual course of business of the Group; (iii) the entering into of the 2019 Framework Lease Agreement by GCCD is in the interest of the Company and its shareholders as a whole; and (iv) the Annual Caps (including the basis of determination thereof) are fair and reasonable.

2019 FRAMEWORK LEASE AGREEMENT

Reference is made to the announcement of the Company dated 30 November 2015 in relation to the 2015 Framework Lease Agreement. As the 2015 Framework Lease Agreement has expired on 31 December 2018, on 17 January 2019, GCCD (an indirect 95%-owned subsidiary of the Company) and GZYX entered into the 2019 Framework Lease Agreement to renew the term of the 2015 Framework Lease Agreement.

Term and Termination

The Term is three years commencing with retrospective effect from 1 January 2019 up to and including 31 December 2021.

Subject to compliance with the relevant requirements under the Listing Rules, GCCD and GZYX may within three months before the end of the Term agree to renew the 2019 Framework Lease Agreement on such terms and conditions as may be mutually agreed.

Either party to the 2019 Framework Lease Agreement may terminate the 2019 Framework Lease Agreement by giving not less than 30 days' prior written notice to the other party.

SPECIFIC LEASE AGREEMENT

Subject to compliance with the terms and conditions of the 2019 Framework Lease Agreement, any GZYX Entity that is willing to take up a lease in respect of the Lease Properties shall enter into a Specific Lease Agreement with the relevant GCCD Landlord (as landlord) in relation to the Lease Properties which must satisfy the following requirements:

(i) the term of the Specific Lease Agreement must be for a fixed term of not more than three years;

• (ii) the terms and conditions of the Specific Lease Agreement must be no less favourable than the terms and conditions of lease agreements entered into by independent third parties for similar or comparable premises;

• (iii) the aggregate annual rental payable under all of the Specific Lease Agreements for any given year during the Term shall not exceed the corresponding Annual Cap for the relevant year; and

(iv) the annual rental payable under the Specific Lease Agreement shall be negotiated and determined in accordance with the following principles to ensure that the relevant pricing terms are fair and reasonable:

• (a) based on the respective interests of the relevant parties; and

• (b) with reference to the then prevailing market conditions and the market rental value as appraised by an independent valuer which should reflect the rental rate of similar or comparable spaces and/or units offered to independent third parties.

Pursuant to the 2019 Framework Lease Agreement, any lease agreement entered into between any GZYX Entity and any GCCD Landlord in respect of any of the Lease Properties prior to and remaining in effect as at the effective date of the 2019 Framework Lease Agreement is deemed to be a Specific Lease Agreement for the purposes of calculating the relevant Annual Cap.

In the event that: (i) the term of any Specific Lease Agreement will end after the end of the Term, and the 2019 Framework Lease Agreement is not extended or renewed; or (ii) the 2019 Framework Lease Agreement is terminated in accordance with its terms prior to the end of the term of any Specific Lease Agreement, such Specific Lease Agreement shall remain in effect and the Company shall comply in full with the applicable requirements under the Listing Rules for such Specific Lease Agreement in respect of the period for which the term of such Specific Lease Agreement exceeds the Term.

PROPOSED ANNUAL CAPS

As at the date of this announcement, 66 units, with total gross floor area of approximately 13,133.22 sq. m., and some other spaces are being leased under a total of 12 Existing Leases. The total monthly rental amounts payable by the GZYX Entities to the GCCD Landlords under the Existing Leases for the year ended 31 December 2018 was on average approximately RMB3.3 million.

The Annual Caps are determined with reference to: (i) the estimated total annual rental amount payable by the GZYX Entities to the GCCD Landlords under the Existing Leases; (ii) the rental amount received by the GCCD Landlords from the GZYX Entities for the leasing of the Lease Properties under the 2015 FrameworkLease Agreement for the years ended 31 December 2016, 2017 and 2018 being RMB6.7 million, RMB17.2 million and RMB39.6 million, respectively; (iii) the estimated aggregated annual rental payable by the GZYX Entities to the GCCD Landlords under the Specific Lease Agreements which are estimated to be entered into by the GZYX Entities and the GCCD Landlords during the Term, and after providing for a buffer to cater for possible increases in the number of the Lease Transactions due to, among other things, demand for office space in a location where Yuexiu Financial Tower is situated and in the amount of rental payable.

The Annual Caps are set out below:

For the year ending	For the year ending	For the year ending
31 December 2019	31 December 2020	31 December 2021
(RMB)	(RMB)	(RMB)
75,000,000	75,000,000	75,000,000

In the event that the entering into or amendment of any Specific Lease Agreement will result in the aggregate annual rental payable by the GZYX Entities to the GCCD Landlords exceeding the Annual Cap for the relevant year, the Company shall take all necessary procedures to comply with the Listing Rules, including to make announcement(s) if appropriate and to seek independent shareholders' approval if necessary. Unless such compliance is made in full by the Company, no such Specific Lease Agreement shall be entered into or amended.

INTERNAL CONTROL MEASURES

In order to ensure that the terms of the 2019 Framework Lease Agreement are complied with, the Group has established a series of internal control procedures and external supervision measures, which are summarized below:

1. The Group will monitor the rental amount payable by the GZYX Entities to the

GCCD Landlords on a monthly basis to ensure that the aggregate amount of the annual rental payable by the GZYX Entities to the GCCD Landlords under the Specific Lease Agreements do not exceed the Annual Caps.

• 2. The Group will prepare a continuing connected transaction report ("CCT Report") once every six months on the Specific Lease Agreement(s) and the transactions contemplated thereunder which will be submitted to the Group's audit committee for consideration. The content of the CCT Report includes (i) the aggregate rental amount payable by GZYX Entities to the GCCD Landlords under the Specific Lease Agreement(s); (ii) a summary and comparison of the annual rental of the Lease Properties payable by the relevant GZYX Entity to the relevant GCCD Landlord under each Specific Lease Agreement with reference to the then prevailing market conditions and the market rental value as appraised by an independent valuer which should reflect the rental rate of similar or comparable spaces and/or units offered to independent third parties; and (iii) the status of compliance with the Annual Caps.

• 3. The Group's audit committee will convene meetings at least twice a year to discuss and assess the implementation of the continuing connected transactions of the Group (including the transactions contemplated under the 2019 Framework Lease Agreement).

• 4. The external auditors of the Group will conduct a review of interim financial information of the Group for six months ending 30 June of each financial year, and an audit of consolidated financial statements of the Group for each financial year. The external auditors of the Group will also issue a letter to the Board in relation to the continuing connected transactions of the Group for each financial year in accordance with Rule 14A.56 of the Listing Rules confirming whether anything has come to the external auditors' attention that causes them to believe that the continuing connected transactions: (i) have not been approved by the Board; (ii) were not, in all material respects, in accordance with the pricing policies of the Group if the transactions involve the provision of goods or services by the Group; (iii) were not entered into, in all material respects, in accordance with the relevant agreement governing the transactions; and (iv) have exceeded the cap. In addition, with respect to the transactions contemplated under the 2019 Framework Lease Agreement, the independent non-executive Directors will conduct an annual review and give the relevant confirmation in each annual report of the Group in accordance with the Listing Rules.

In view of the above, the Company considers that there are adequate internal control procedures and external supervision measures to ensure that the transactions contemplated under the Specific Lease Agreements will comply with the relevant regulatory guidelines and the terms of the 2019 Framework Lease Agreement.