OVERVIEW Immediately following the completion of the Reorganisation and the Global Offering, NWD will have an interest in approximately [ ]% of the Share Stapled Units in issue on the Listing Date (assuming the Over-allotment Option is not exercised). NWD will consolidate the financial results of the Trust Group as its subsidiary as a result of NWD retaining de facto control of the Trust Group, on the basis that NWD s management believes NWD s approximate [ ]% voting rights are sufficient to give NWD the ability to direct those of the Trust Group s activities that significantly affect the Trust Group s returns, including its financing and operating activities. In particular, NWD s management has taken into consideration that CTFE, which as at the Latest Practicable Date, held an interest in approximately 42.54% of the total issued share capital of NWD, will, immediately following the completion of the Reorganisation and the Global Offering, excluding its interest through NWD, have an interest in approximately [ ]% of the Share Stapled Units in issue on the Listing Date (assuming the Over-allotment Option is not exercised). Accordingly, following the completion of the Reorganisation and the Global Offering, NWD will be the Controlling Holder of Share Stapled Units and CTFE will be a Substantial Holder of Share Stapled Units. Whilst the Group will operate independently of the NWD Group and the CTFE Group, there will be certain transactions between the Group (on the one hand) and the NWD Group and/or the CTFE Group (on the other hand) which will continue following the completion of the Reorganisation and the Global Offering. For details of such transactions, please see Connected Transactions. BACKGROUND OF NWD NWD is one of the major Hong Kong-based property developers, which is principally engaged in property, infrastructure, service, department store and hotel operations. NWD is a constituent stock of the benchmark Hang Seng Index and had total assets exceeding HK$310 billion as at 31 December 2012. NWD s consolidated profit for the six months ended 31 December 2012 was approximately HK$12.3 billion. Following the completion of the Reorganisation and the Global Offering, the NWD Group will continue to hold interests in, develop and manage hotels under its own hotel brands, being Rosewood Hotels & Resorts, New World Hotels and pentahotels, as well as hold interests in and invest in other hotel assets in Asia and the rest of the world. Details of the Hotel Brands Owned and Managed by the NWD Group Rosewood Hotel Group is the hospitality division of the NWD Group. Rosewood Hotel Group is an international hotel management company that owns and operates hotels under three distinct hotel brands, being Rosewood Hotels & Resorts, New World Hotels and pentahotels, with over 7,000 hotel rooms. Rosewood Hotels & Resorts Rosewood brand hotels and resorts are ultra-luxury hotels and resorts which aim to present a one-of-a-kind ambience and style, unparalleled quality and personalised service. Most of the Rosewood brand hotels are 50 to 250 plus room hotels and all embrace the brand s A Sense of Place philosophy, which reflects the history, architecture, scale and sensibilities of the destination. There are currently 17 Rosewood brand hotels located in the United States, Canada, Mexico, the Caribbean and Saudi Arabia and a new Rosewood brand hotel is expected to commence operations in Beijing in the second half of 2013. 243
New World Hotels New World brand hotels are deluxe properties favoured by business travellers and meeting planners in convenient central locations in primary and secondary cities in China and major Asian cities. Most of the New World brand hotels are 350 plus room hotels offering a full range of relevant amenities and services, including a variety of restaurants, business services, extensive meeting facilities, executive floors and recreational options. There are currently six New World brand hotels in China and Southeast Asia. pentahotels pentahotels is a new generation hotel concept and is a design-led, neighbourhood lifestyle brand providing independent travellers with comfort and style in a contemporary environment. Most of the pentahotel brand hotels are 200 plus room hotels offering the brand hallmark, pentalounge a combined lobby, reception, bar and café designed as a lively gathering place for hotel guests and local patrons alike. Launched in Europe, pentahotel brand hotels are located in Germany, Austria, the United Kingdom and China. There are currently 15 pentahotel brand hotels in Europe and China, and a new pentahotel brand hotel is expected to commence operations in Hong Kong in the second half of 2013. As the Rosewood and pentahotel branded hotels have a presence in more than one continent, each of these hotel brands would be regarded as an internationally recognised hotel brand (being a hotel brand with a presence in more than one continent) and the relevant Rosewood and pentahotel branded hotels in Asia would be subject to the Hotel Offer Arrangements as described in Hotel Offer Arrangements below. The New World branded hotels currently have a presence in Asia only and therefore this hotel brand would not currently be regarded as an internationally recognised hotel brand. However, if the New World hotel brand expands its presence to more than one continent in the future, it would be regarded as an internationally recognised hotel brand and the relevant New World branded hotels in Asia would be subject to the Hotel Offer Arrangements as described in Hotel Offer Arrangements below. Details of the hotel interests of the NWD Group in Asia (other than the Hotels) and the reasons for NWD s continued ownership of these hotel interests in Asia are described in Hotels in Asia Retained by the NWD Group and the CTFE Group below. BACKGROUND OF CTFE CTFE is the controlling shareholder of NWD and an investment holding company. CTF Holding wholly owns CTFE, and CTF Capital in turn holds an approximately 74.07% direct interest in CTF Holding. CYT Family Holdings and CYT Family Holdings II in turn hold approximately 48.98% and 46.65% direct interests in CTF Capital, respectively. Following the completion of the Reorganisation and the Global Offering, in addition to CTFE s indirect interest in the hotel assets held by the NWD Group through its shareholding interest in NWD, the CTFE Group will continue to hold interests in and invest in other hotel assets in Asia and the rest of the world. Details of the hotel interests of the CTFE Group in Asia (other than the Hotels) and the reasons for CTFE s continued ownership of these hotel interests in Asia are described in Hotels in Asia Retained by the NWD Group and the CTFE Group below. 244
HOTELS IN ASIA RETAINED BY THE NWD GROUP AND THE CTFE GROUP Other Hotel Interests in Asia Held by the NWD Group and the CTFE Group Following the completion of the Reorganisation and the Global Offering, the NWD Group and the CTFE Group will continue to hold interests in the following hotels in Asia (the Excluded Hotels ): Name of Excluded Hotel Location Hotel Description Number of Rooms Year of Commencement of Operations Interest Held by the NWD Group (%) (5) Interest Held by the CTFE Group (%) (5) Hong Kong 1. Hyatt Regency Hong Kong, Sha Tin......... 2. pentahotel Hong Kong, Kowloon (under construction)...... 3. The hotel portion of New World Centre Redevelopment, Tsim Sha Tsui (2) (under construction)... 4. Novotel Citygate Hong Kong........... Hong Kong High Tariff A hotel located in the New Territories, targeting MICE, corporate, leisure, Chinese University and Science Park customer groups Hong Kong Located in East Kowloon Approximately 695 Hong Kong Located within the New World Centre redevelopment project in Tsim Sha Tsui and expected to be managed under an internationally recognised hotel brand Hong Kong High Tariff A hotel located 5 minutes from Hong Kong International Airport and AsiaWorld-Expo, targeting MICE, transient and tour customer groups 5. JW Marriott Hong Kong.. Hong Kong High Tariff A hotel situated atop Pacific Place, targeting banking and finance, MICE and high-level management customer groups 6. Hotel Nikko, Hong Kong.. Hong Kong High Tariff A hotel located close to Tsim Sha Tsui targeting Japanese corporate, free independent traveller, tour and leisure customer groups Mainland China 7. pentahotel Beijing (3)... Beijing, China 8. pentahotel Shanghai (3)... Shanghai, China 9. Rosewood Beijing (under alteration and renovation) (3)...... Beijing, China 4 star hotel located in Dongcheng District, targeting mini meeting package, free independent traveller and tour groups 4 star hotel located in Changning District, targeting mini meeting package, free independent traveller and tour groups 567 2009 100.0 (1) To be determined Expected in the second half of 2013 To be determined (construction expected to be completed by end of 2017) Located in Chaoyang District 284 Expected in the second half of 2013 10. New World Dalian Hotel (3). Dalian, China 5 star hotel located in the city centre, targeting domestic MICE, corporate and government customer groups 11. New World Shanghai Hotel (3)......... Shanghai, China 5 star hotel located in Changning District, targeting MICE, tour and flight crew customer groups 100.0 100.0 440 2006 20.0 604 1989 12.7 463 1988 24.4 307 2011 38.5 258 2008 70.0 52.5 29.5 420 2009 70.0 605 2004 70.0 245
Name of Excluded Hotel Location Hotel Description Number of Rooms Year of Commencement of Operations Interest Held by the NWD Group (%) (5) Interest Held by the CTFE Group (%) (5) 12. New World Wuhan Hotel (3)......... 13. New World Shunde Hotel (3)......... 14. A new hotel (under construction and hotel brand to be determined) (3)...... Southeast Asia 15. Renaissance Riverside Hotel Saigon....... Wuhan, China Shunde, China Guangzhou, China Ho Chi Minh City, Vietnam 16. New World Makati Hotel.. Makati City, Philippines 17. New World Saigon Hotel.. Ho Chi Minh City, Vietnam 18. Hyatt Hotel and Casino Manila.......... Manila, Philippines 4 star hotel located in the Hankou Business District, targeting domestic MICE, corporate and government customer groups 4 star hotel located in the Daliang business district, targeting small corporate, free independent traveller and tour groups Located in Tianhe District To be determined 5 star hotel located near Ben Thanh Market, targeting corporate MICE, transient and tour customer groups 5 star hotel located in the Makati business district, targeting corporate, MICE, transient and tour groups 5 star hotel located near Ben Thanh Market, targeting corporate, MICE, transient and tour groups 5 star hotel located in Malate Manila, targeting corporate, casino guest, embassy and MICE customer groups 327 2008 42.0 370 2010 22.8 32.5 To be determined 25.0 336 1999 46.1 25.9 595 2009 31.4 17.6 533 2011 43.2 24.3 376 2005 38.1 (4) Notes: (1) Contractual entitlement to the results of operations of the hotel pursuant to a development agreement entered into between the NWD Group and The Chinese University of Hong Kong. (2) The planning for the hotel portion of the New World Centre Redevelopment is at a preliminary stage. Pursuant to the preliminary plan, the hotel portion will have a total gross floor area of approximately 1,480,000 sq.ft. This is subject to final determination by NWD and subject to change. (3) The interests in these hotels are held by New World China Land Limited, which is listed on the Main Board of the Stock Exchange (stock code: 917). The interests cited take into account NWD s 69.8% interest in New World China Land Limited, excluding certain minor (less than 10%) interests that are indirectly held through other companies. (4) This represents the CTFE Group s effective interest in Hyatt Hotel and Casino Manila arising from its 74.8% shareholding interest in International Entertainment Corporation, a company listed on the Main Board of the Stock Exchange (stock code: 01009). (5) The interests in the Excluded Hotels which are not held by the NWD Group and/or the CTFE Group are held by independent third parties. (6) All of the Excluded Hotels set out in the table will be subject to the Hotel Offer Arrangements, except for the interests of the NWD Group and/or the CTFE Group in (a) Novotel Citygate Hong Kong, (b) JW Marriott Hong Kong, (c) Hotel Nikko, Hong Kong, (d) all of the New World branded hotels, (e) the new hotel under construction in Guangzhou, China and (f) Hyatt Hotel and Casino Manila, for the reasons set out in Reasons for Excluding the Excluded Hotels from the Group below. Please see Hotel Offer Arrangements below for details of the specific terms of the Hotel Offer Arrangements applicable to each of the relevant Excluded Hotels. 246
Since the geographical focus of the Group is on completed hotels in Asia which are managed under internationally recognised hotel brands, with an initial focus on hotels located in Hong Kong, the arrangements described in this section between the Group (on the one hand) and the NWD Group and the CTFE Group (on the other hand) relate to the hotel interests of the NWD Group and the CTFE Group in Asia only. Reasons for Excluding the Excluded Hotels from the Group The Group has been established primarily to own and invest in a portfolio of completed hotels in Asia which are managed under internationally recognised hotel brands and it will only acquire Asian hospitality assets which fit the distribution and yield profile and/or the strategy of the Trust Group. The objectives of NW Hotel Investments and the Company are (a) to focus principally on the payment of distributions to Holders of Share Stapled Units with a clearly expressed intention as to their respective distribution policies stated in the Trust Deed and the Company s Articles and (b) to provide Holders of Share Stapled Units with the potential for sustainable long-term growth in the distributions payable to them and enhancement in the value of the Group s hotel portfolio. The initial hotel portfolio of the Group at the time of the Listing will comprise the Hotels which are located in Hong Kong. The Directors believe that the initial focus of the Group on hotels located in Hong Kong only is in the interests of the Group and the Holders of Share Stapled Units for the following reasons: (a) (b) (c) the Hotels have an established track record of generating revenues and cash flows (in particular Grand Hyatt Hong Kong and Renaissance Harbour View Hotel which have been in operation for 24 years each) and the Hotels are therefore considered by the Directors to be the most suitable hotel assets to be included in the initial hotel portfolio of the Group; the Hotels would provide the Holders of Share Stapled Units with exposure to an attractive hospitality industry in a mature and developed market which has exhibited strong growth fundamentals. According to Savills (HK), Hong Kong s overnight visitor numbers are forecasted to increase from 23.8 million in 2012 to 28.9 million by 2014, representing a CAGR of 10.3% over the period. In addition, the demand for hotel rooms in Hong Kong has exceeded supply. According to Savills (HK), the CAGR for hotel rooms occupied per day from 2012 to 2014 is expected to be 10.3% while the CAGR for total number of rooms available for sale per day is expected to be 7.6% for the same period. The strong projected demand for, and the limited availability of, hotel rooms provide an opportunity to increase occupancy rates and average room rates; and in light of the established operating history of the Hotels and the strong growth exhibited by the Hong Kong hospitality industry, the Hotels fit within the objectives and the distribution and yield profile of the Trust Group. Excluded Hotels in Hong Kong The Excluded Hotels located in Hong Kong have not been included in the initial hotel portfolio of the Group for the reasons described below. 247
(a) Hyatt Regency Hong Kong, Sha Tin The NWD Group does not hold the legal or beneficial title to the property upon which Hyatt Regency Hong Kong, Sha Tin is operated, as this is held by The Chinese University of Hong Kong. Instead, the NWD Group has a contractual entitlement to the results of operations of the hotel as the developer of the hotel pursuant to the terms of a development agreement with The Chinese University of Hong Kong, until 29 June 2047. The transfer of the development agreement by the NWD Group to the Group is subject to the consent of The Chinese University of Hong Kong, which has the sole discretion to decide whether or not to grant consent to such transfer. As at the Latest Practicable Date, the Directors understand from NWD that the matter is under consideration by The Chinese University of Hong Kong. Given the substantial amount of time that the Directors expect will be required to obtain the consent from The Chinese University of Hong Kong, the contractual entitlement of the NWD Group to the results of operations of Hyatt Regency Hong Kong, Sha Tin has not been included in the initial hotel portfolio of the Group. However, if and when consent for the transfer is granted by The Chinese University of Hong Kong, the NWD Group will offer to transfer the development agreement to the Group pursuant to the Hotel Offer Arrangements as described in Hotel Offer Arrangements below. If the development agreement is transferred to the Group, the acquisition of the contractual entitlement to the results of operations of Hyatt Regency Hong Kong, Sha Tin will be accounted for in the Trust Group s financial statements in accordance with Accounting Guideline 5 Merger Accounting for Common Control Combinations issued by the Hong Kong Institute of Certified Public Accountants. Upon the transfer, the Trust Group will consolidate the assets and liabilities of Hyatt Regency Hong Kong, Sha Tin at the carrying amounts recorded in the consolidated financial statements of the NWD Group. (b) Other Completed Excluded Hotels in Hong Kong It is the intention of the Group to only own and invest in completed hotels in respect of which it will be able to exercise sufficient control, being an effective interest of at least 30% in the relevant hotel. The NWD Group holds a 20% interest in Novotel Citygate Hong Kong. The CTFE Group holds a 48.75% shareholding interest in a joint venture company, which in turn owns a 26% interest in JW Marriott Hong Kong and a 50% interest in Hotel Nikko, Hong Kong. Accordingly, the CTFE Group does not control any interest in JW Marriott Hong Kong and Hotel Nikko, Hong Kong and only has an effective interest in JW Marriott Hong Kong and Hotel Nikko, Hong Kong of 12.7% and 24.4%, respectively. As the interest of the NWD Group and the CTFE Group in these hotels is less than 30%, the interests in these hotels have not been included in the initial hotel portfolio of the Group. (c) Excluded Hotels Under Development in Hong Kong The remaining Excluded Hotels located in Hong Kong are hotels which are still undergoing construction and have not yet commenced operations. 248
In relation to pentahotel Hong Kong, Kowloon which is expected to commence operations in the second half of 2013, the NWD Group will offer to sell its interest in this hotel to the Group pursuant to the Hotel Offer Arrangements as described in Hotel Offer Arrangements below. In relation to the hotel portion in New World Centre Redevelopment which is under construction, if upon completion, it will be managed under an internationally recognised hotel brand, the NWD Group will offer to sell its interest in the relevant hotel to the Group pursuant to the Hotel Offer Arrangements as described in Hotel Offer Arrangements below. Excluded Hotels in China, Vietnam and the Philippines The Excluded Hotels located in China, Vietnam and the Philippines have not been included in the initial hotel portfolio of the Group for the reasons described below. The Directors are of the view that compared to Hong Kong, China, Vietnam and the Philippines are jurisdictions which are less developed and are characterised by strong competition in the hospitality industry. Furthermore, hotels in China are subject to restrictions relating to the repatriation of cash and higher corporate tax rates while hotels located in the Philippines and Vietnam are subject to higher corporate tax rates. The consequence of these factors is that the revenues and cash flows of the hotels located in these jurisdictions are less stable as compared to the hotels located in Hong Kong. These Excluded Hotels have a different maturity profile and their operations are not as well-established as those of the Hotels. Given the objectives of NW Hotel Investments and the Company to, among other things, focus principally on the payment of distributions to Holders of Share Stapled Units and provide Holders of Share Stapled Units with the potential for sustainable long-term growth in the distributions payable to them and given the less stable nature of the revenues and the cash flows from these Excluded Hotels, the Directors do not consider that these Excluded Hotels are suitable for inclusion in the initial hotel portfolio of the Group. In addition, as these Excluded Hotels are located outside Hong Kong, there is no actual or potential competition with any of the Hotels which are located in Hong Kong. (a) Completed Excluded Hotels in China, Vietnam and the Philippines In relation to pentahotel Beijing, pentahotel Shanghai and Renaissance Riverside Hotel Saigon, the interests of the NWD Group and/or the CTFE Group in these hotels will be subject to the Hotel Offer Arrangements as described in Hotel Offer Arrangements below. Hyatt Hotel and Casino Manila is owned by International Entertainment Corporation ( IEC ), which is a company listed on the Main Board of the Stock Exchange (stock code: 01009), and the CTFE Group s interest in this hotel represents its interest arising solely from its 74.8% shareholding interest in IEC. On the basis that this hotel comprises the principal hotel operations of IEC, this hotel has not been included in the initial hotel portfolio of the Group and will not be subject to the Hotel Offer Arrangements as described in Hotel Offer Arrangements below. 249
The other completed Excluded Hotels in China, Vietnam and the Philippines are managed under the New World hotel brand. As the Group has been established primarily to own and invest in completed hotels in Asia which are managed under internationally recognised hotel brands and the New World hotel brand is not currently regarded as an internationally recognised hotel brand because it has presence in Asia only, the New World branded hotels located in China, Vietnam and the Philippines have not been included in the initial hotel portfolio of the Group and will not be subject to the Hotel Offer Arrangements as described in Hotel Offer Arrangements below. However, if the New World hotel brand expands its presence to more than one continent in the future, it would be regarded as an internationally recognised hotel brand and the relevant New World branded hotels in Asia would be subject to the Hotel Offer Arrangements as described in Hotel Offer Arrangements below. (b) Excluded Hotels Under Development in China The remaining Excluded Hotels located in China are hotels which are still undergoing construction and have not yet commenced operations. In relation to the new Rosewood hotel in Beijing which is expected to commence operations in the second half of 2013, the NWD Group and/or the CTFE Group will offer, or procure the offer of, their respective interests in this hotel to the Group pursuant to the Hotel Offer Arrangements as described in Hotel Offer Arrangements below. In relation to the new hotel in Guangzhou which is under construction, as the CTFE Group only holds a 25% interest and as it is the intention of the Group to only own and invest in completed hotels in respect of which it will be able to exercise sufficient control (being an effective interest of at least 30% in the relevant hotel), the CTFE Group s interest in this hotel will not be subject to the Hotel Arrangements as described in Hotel Offer Arrangements below. HOTEL OFFER ARRANGEMENTS In order to maintain a clear delineation of the business of the Group (on the one hand) and the hotel businesses of the NWD Group and the CTFE Group in Asia (on the other hand) following the Listing, the Company, NWD and CTFE have entered into the Hotel Offer Arrangements Deed pursuant to which the parties have agreed to certain arrangements relating to the existing and future interests of the NWD Group and the CTFE Group in hotel assets in Asia (the Hotel Offer Arrangements ). Key Terms of the Hotel Offer Arrangements The Hotel Offer Arrangements will apply as follows: (a) Hyatt Regency Hong Kong, Sha Tin If the consent for the transfer is granted by The Chinese University of Hong Kong, NWD Group will offer to transfer the development agreement relating to Hyatt Regency Hong Kong, Sha Tin, to the Group at the prevailing market price of such interest in this hotel, which will be determined by reference to an independent valuation of the NWD Group s contractual entitlement to the results of operations of this hotel pursuant to such development agreement. 250
(b) Completed Hotels in Asia Owned by the NWD Group and/or the CTFE Group Where the NWD Group and/or the CTFE Group propose to sell any completed hotel in Asia which is managed under an internationally recognised hotel brand and in which they hold in aggregate an effective interest of at least 30% (a Relevant Hotel ), NWD and/or CTFE will first offer to sell, or will procure the relevant member of the NWD Group and/or the CTFE Group to first offer to sell, to the Group their respective interests in the Relevant Hotel. The offer for sale will be made at the prevailing market price of the Relevant Hotel and on terms which are no less favourable than those to be offered by the NWD Group and/or the CTFE Group to a third party purchaser. If the Group accepts the offer to acquire the interests in the Relevant Hotel and the Relevant Hotel is part of a mixed-use development, the NWD Group and/or the CTFE Group will, subject to any contractual restrictions, use their reasonable endeavours to segregate the Relevant Hotel into a standalone hotel prior to the completion of the acquisition of the Relevant Hotel by the Group. If the Group (1) elects to accept the offer but the acquisition of the interests in the Relevant Hotel is not completed by the Group for any reason or (2) does not accept the offer or does not respond to the offer within the specified time, the NWD Group and/or the CTFE Group shall be permitted to sell their respective interests in the Relevant Hotel to a third party purchaser. If such sale to a third party purchaser is not completed, the right of the NWD Group and/or the CTFE Group to sell their respective interests in the Relevant Hotel will again be subject to the Hotel Offer Arrangements described above. The Hotel Offer Arrangements described above would apply to the interests of the NWD Group and the CTFE Group in the following existing completed hotels in Asia: (i) (ii) pentahotel Beijing; pentahotel Shanghai; (iii) Renaissance Riverside Hotel, Saigon; and (iv) immediately upon the New World hotel brand becoming an internationally recognised hotel brand in the future, all the New World branded hotels in Asia at that time in which the NWD Group and/or the CTFE Group hold in aggregate an effective interest of at least 30%. Based on the information set out in the table in Hotels in Asia Retained by the NWD Group and the CTFE Group Other Hotel Interests in Asia Held by the NWD Group and the CTFE Group, the Hotel Offer Arrangements described above would apply to the following New World branded hotels in Asia: (A) (B) (C) New World Dalian Hotel; New World Shanghai Hotel; New World Wuhan Hotel; 251
(D) (E) (F) New World Shunde Hotel; New World Makati Hotel; and New World Saigon Hotel. The Directors understand that there is no current intention by the NWD Group to expand the New World hotel brand outside of Asia. The interests of the NWD Group and the CTFE Group in other existing completed hotels in Asia (being interests in Novotel Citygate Hong Kong, JW Marriott Hong Kong, Hotel Nikko, Hong Kong and Hyatt Hotel and Casino Manila) are not subject to the Hotel Offer Arrangements described above for the reasons set out in Hotels in Asia Retained by the NWD Group and the CTFE Group Reasons for Excluding the Excluded Hotels from the Group. (c) Hotels Under Development in Asia Owned by the NWD Group and/or the CTFE Group Where the NWD Group and/or the CTFE Group have an interest in a hotel that is under development in Asia or develop a hotel in Asia in the future (including converting an existing property into a hotel) and (i) the NWD Group and/or the CTFE Group hold in aggregate an effective interest of at least 30% in such hotel and (ii) upon completion, such hotel will be managed under an internationally recognised hotel brand (which would include the New World hotel brand if and when it becomes an internationally recognised hotel brand) (also, a Relevant Hotel ), NWD and/or CTFE will offer to sell, or will procure the relevant member of the NWD Group and/or the CTFE Group to offer to sell, to the Group their respective interests in the Relevant Hotel within a period of five years from the date of commencement of operation of the Relevant Hotel (the Relevant Date ). The offer for sale will be made at the prevailing market price of the Relevant Hotel and, if applicable, on terms which are no less favourable than those to be offered by the NWD Group and/or the CTFE Group to a third party purchaser. If the Group accepts the offer to acquire the interests in the Relevant Hotel and the Relevant Hotel is part of a mixed-use development, the NWD Group and/or the CTFE Group will, subject to any contractual restrictions, use their reasonable endeavours to segregate the Relevant Hotel into a standalone hotel prior to the completion of the acquisition of the Relevant Hotel by the Group. The Directors consider that a period of five years from the Relevant Date for the NWD Group and/or the CTFE Group to offer to sell their respective interests in the Relevant Hotel to the Group is appropriate given that it will take time for a new hotel to establish its operations and to become profitable. If the Group (1) elects to accept the offer but the acquisition of the interests in the Relevant Hotel is not completed for any reason or (2) does not accept the offer or does not respond to the offer within the specified time, and if the NWD Group and/or the CTFE Group subsequently propose to sell their respective interests in the Relevant Hotel to a third party purchaser, the right of the NWD 252
Group and/or the CTFE Group to sell their respective interests in the Relevant Hotel will be subject to the Hotel Offer Arrangements described in paragraph (b) above. The Hotel Offer Arrangements described above would apply to the interests of the NWD Group and the CTFE Group in the following existing hotels under development in Asia: (i) (ii) pentahotel Hong Kong, Kowloon; the hotel portion of New World Centre Redevelopment in Hong Kong (which is expected to be managed under an internationally recognised brand upon completion); and (iii) Rosewood Beijing. (d) Investment Opportunities to Acquire Hotels in Asia Where the NWD Group and/or the CTFE Group are offered the opportunity (an Investment Opportunity ) to acquire an effective interest of at least 30% in a completed hotel in Asia (including acquiring additional interests which will result in an aggregate effective interest of at least 30%) which is managed under an internationally recognised hotel brand (also, a Relevant Hotel ), NWD and/or CTFE will notify, or will procure the relevant member of the NWD Group and/or the CTFE Group to notify, the Company of the Investment Opportunity and offer the Group the opportunity to participate in such Investment Opportunity. The NWD Group and/or the CTFE Group will only be permitted to participate in the Investment Opportunity if the Company (based on a decision of the Executive Directors and the Independent Non-executive Directors): (i) (ii) declines to participate in the Investment Opportunity; elects to participate in the Investment Opportunity but permits the NWD Group and/or the CTFE Group to also separately participate in the Investment Opportunity; or (iii) elects to participate in the Investment Opportunity jointly with the NWD Group and/or the CTFE Group. Notwithstanding that the NWD Group and/or the CTFE Group have not been permitted to participate in the Investment Opportunity and subject to any applicable legal, regulatory or contractual restrictions, the Company will keep the NWD Group and/or the CTFE Group informed of all information which it has obtained in its review of the Investment Opportunity. If the Company subsequently decides not to participate in the Investment Opportunity or fails to complete the acquisition of the Relevant Hotel, it will use its reasonable endeavours to offer the NWD Group and/or the CTFE Group the opportunity to participate in the Investment Opportunity. The Investment Opportunity described above does not apply where the NWD Group and/or the CTFE Group are offered the opportunity to acquire an effective interest of at least 30% in a completed mixed-use development which includes one or more hotels which are managed under internationally recognised hotel brands (also, a Relevant Hotel ). This is because the Group has been established primarily to own and invest in completed hotels and not mixed-use developments. 253
However, if the NWD Group and/or the CTFE Group complete the acquisition of such mixed-use development, NWD and/or CTFE will offer to sell, or will procure the relevant member of the NWD Group and/or the CTFE Group to offer to sell, to the Group their respective interests in the Relevant Hotel within five years of the date of completion of such acquisition (also, the Relevant Date ). The offer for sale will be made at the prevailing market price of the Relevant Hotel and, if applicable, on terms which are no less favourable than those to be offered by the NWD Group and/or the CTFE Group to a third party purchaser. If the Group accepts the offer to acquire the interests in the Relevant Hotel, the NWD Group and/or the CTFE Group will, subject to any contractual restrictions, use their reasonable endeavours to segregate the Relevant Hotel into a standalone hotel prior to the completion of the acquisition of the Relevant Hotel by the Group. The Directors consider that a period of five years from the Relevant Date for the NWD Group and/or the CTFE Group to offer to sell their respective interests in the Relevant Hotel to the Group is appropriate given the potentially different maturity profile and operations of the Relevant Hotel. If the Group (1) elects to accept the offer but the acquisition of the interests in the Relevant Hotel is not completed for any reason or (2) does not accept the offer or does not respond to the offer within the specified time, and if the NWD Group and/or the CTFE Group subsequently propose to sell their respective interests in the Relevant Hotel to a third party purchaser, the right of the NWD Group and/or the CTFE Group to sell their respective interests in the Relevant Hotel will be subject to the Hotel Offer Arrangements described in paragraph (b) above. Duration of the Hotel Offer Arrangements of: The Hotel Offer Arrangements will commence on the Listing Date and will terminate on the earlier (a) (b) the date on which NWD and CTFE, directly or indirectly, are interested, in aggregate, in less than 30% of the Share Stapled Units in issue; and the date on which the Share Stapled Units cease to be listed on the Stock Exchange. Other Terms of the Hotel Offer Arrangements The Hotel Offer Arrangements are subject to compliance by each of the Group, the NWD Group and the CTFE Group with any applicable legal and regulatory requirements and any applicable contractual or other restrictions. For the purpose of the Hotel Offer Arrangements, an interest in a Relevant Hotel refers to a direct legal and beneficial interest in the Relevant Hotel or an indirect interest in the Relevant Hotel held through a company. The NWD Group and/or the CTFE Group will provide to the Group all such information relating to a Relevant Hotel as the Group may reasonably request in order to make a decision whether to accept an offer to acquire such Relevant Hotel or to participate in an Investment Opportunity. 254
If the Group accepts an offer to acquire an interest in a Relevant Hotel pursuant to the Hotel Offer Arrangements, the Trust Group and NWD and/or the relevant member of the NWD Group will comply with the relevant Listing Rules requirements, including (if required) obtaining the approval of the independent Holders of Share Stapled Units and/or the independent shareholders of NWD and/or the relevant member of the NWD Group for the sale and purchase of the interest in the Relevant Hotel. Measures Adopted to Ensure the Proper Operation of the Hotel Offer Arrangements The following measures have been adopted to ensure the proper operation of the Hotel Offer Arrangements: (a) (b) (c) (d) (e) where the Board is required to make a decision on any matters relating to the Hotel Offer Arrangements, all such matters will be decided upon by such of the Executive Directors and the Independent Non-executive Directors who do not have any ongoing role with the NWD Group and/or the CTFE Group; in determining whether to accept an offer to acquire a Relevant Hotel or to participate in an Investment Opportunity pursuant to the Hotel Offer Arrangements, the Executive Directors and the Independent Non-executive Directors will take into consideration the investment criteria as described in Business Business Strategies ; a committee comprising all the Independent Non-executive Directors (the Independent Board Committee ) will be responsible for overseeing the implementation of the Hotel Offer Arrangements. In particular, the Independent Board Committee will review on an annual basis compliance by NWD and CTFE with the terms of the Hotel Offer Arrangements; NWD and CTFE will provide (i) an annual confirmation to the Trustee-Manager and the Company regarding their compliance with the terms of the Hotel Offer Arrangements and (ii) all such information as the Independent Board Committee may reasonably request for the annual review by the Independent Board Committee of compliance by NWD and CTFE with the terms of the Hotel Offer Arrangements; and the Trustee-Manager and the Company will disclose in the annual report (i) the annual confirmation of NWD and CTFE regarding their compliance with the terms of the Hotel Offer Arrangements, (ii) the findings of the Independent Board Committee regarding compliance by NWD and CTFE with the terms of the Hotel Offer Arrangements and (iii) any decision made by the Group on whether to accept an offer to acquire a Relevant Hotel or to participate in an Investment Opportunity pursuant to the Hotel Offer Arrangements, including the details and the basis for such decision (subject to such disclosure not being in breach of the contractual or legal obligations of the Group, the NWD Group and/or the CTFE Group). INDEPENDENCE OF THE GROUP FROM THE NWD GROUP AND THE CTFE GROUP The Directors are satisfied that the Group is capable of carrying on its business independently from the NWD Group and the CTFE Group following the completion of the Reorganisation and the Global Offering on the basis set out below. 255
(a) Clear Delineation between the Business of the Group and the Businesses of the NWD Group and the CTFE Group The Group has been established primarily to own and invest in a portfolio of completed hotels in Asia which are managed under internationally recognised hotel brands, with an initial focus on hotels located in Hong Kong. Upon the Listing, the Group will own the Hotels, which prior to the Listing represent all of the completed hotels in Hong Kong in which the NWD Group and the CTFE Group collectively hold an effective interest of at least 30% and which are managed under an internationally recognised hotel brand, save for Hyatt Regency Hong Kong, Sha Tin. The NWD Group s contractual entitlement to the results of operations of Hyatt Regency Hong Kong, Sha Tin has not been included in the initial hotel portfolio of the Group for the reasons described in Hotels in Asia Retained by the NWD Group and the CTFE Group Reasons for Excluding the Excluded Hotels from the Group above. The objectives of NW Hotel Investments and the Company are (a) to focus principally on the payment of distributions to Holders of Share Stapled Units with a clearly expressed intention as to their respective distribution policies stated in the Trust Deed and the Company s Articles and (b) to provide Holders of Share Stapled Units with the potential for sustainable long-term growth in the distributions payable to them and enhancement in the value of the Group s hotel portfolio. To meet these objectives, the Group will focus on optimising the performance of the Hotels together with the Hotel Managers and on growth opportunities through organic asset enhancements to the Hotels and acquisition opportunities in Hong Kong and the rest of Asia. There is no intention of the Group to be involved in developing and managing its own hotels. Upon the Listing, the NWD Group will, in addition to being principally engaged in property, infrastructure, service and department store operation and continue to be engaged in investing in, developing and managing hotel assets in Asia and the rest of the world. As described in Background of NWD Details of the Hotel Brands Owned and Managed by the NWD Group above, the NWD Group owns and operates hotels under three distinct hotel brands, being Rosewood Hotels & Resorts, New World Hotels and pentahotels. The NWD Group also invests in hotels which are managed under independently owned hotel brands. Upon the Listing, the CTFE Group will, in addition to its other investments, continue to be engaged in investing in hotel assets in Asia and the rest of the world, whether managed under the NWD Group owned hotel brands or under independently owned hotel brands. The CTFE Group is not involved in developing and managing any hotels. Notwithstanding that the NWD Group and the CTFE Group will continue to hold interests in other hotel assets in Asia as described in Hotels in Asia Retained by the NWD Group and the CTFE Group above, the Directors consider that a clear delineation of the business of the Group (on the one hand) and the hotel businesses of the NWD Group and the CTFE Group in Asia (on the other hand) can be maintained for the following reasons: (i) while the Directors consider there may be potential competition between the Excluded Hotels located in Hong Kong and the Hotels, the Hotel Offer Arrangements have been put in place in order to maintain a clear delineation between these hotels and would apply to the interests of the NWD Group in Hyatt Regency Hong Kong, Sha Tin, the new pentahotel in Hong Kong (which is expected to commence operations in the second half of 2013) and the hotel portion 256
which is currently under construction at New World Centre Redevelopment in Tsim Sha Tsui (which is expected to be managed under an internationally recognised hotel brand upon completion). The effective interests of the NWD Group and the CTFE Group in Novotel Citygate Hong Kong, JW Marriott Hong Kong and Hotel Nikko, Hong Kong will not be subject to the Hotel Offer Arrangements for the reasons described in Hotels in Asia Retained by the NWD Group and the CTFE Group Reasons for Excluding the Excluded Hotels from the Group above; (ii) in respect of the Excluded Hotels located in China, Vietnam and the Philippines, as all the Hotels are located in Hong Kong, there is no actual or potential competition between any of these Excluded Hotels and the Hotels; and (iii) the procedures described below have been adopted in order to maintain a clear delineation of the business of the Group (on the one hand) and the hotel businesses of the NWD Group and the CTFE Group in Asia (on the other hand): (1) the Company has entered into the Hotel Offer Arrangements Deed with NWD and CTFE, details of which are set out in Hotel Offer Arrangements above; (2) the Board of Directors of each of the Trustee-Manager and the Company has a balanced composition of executive, non-executive and independent non-executive Directors so that there is a strong element on each of these Boards of Directors which can effectively exercise independent judgment. Further details are set out in Independence of Directors and Management below; (3) the management structure of the NWD Group includes an audit committee, a remuneration committee and a nomination committee, the terms of reference of each of which requires them to be alert to prospective conflict of interest issues. Each of the Trustee-Manager and the Company has an audit committee and the Company also has a remuneration committee and a nomination committee; (4) any connected transactions or continuing connected transactions between the Group and the NWD Group and/or the CTFE Group will be transacted in compliance with the applicable requirements of the Listing Rules (subject to any waivers which may be granted by the Stock Exchange); and (5) NW Hotel Investments and the Company have appointed a compliance adviser for the period commencing on the Listing Date and ending on the date on which NW Hotel Investments and the Company comply with Rule 13.46 of the Listing Rules in respect of their financial results for the first full financial year commencing after the Listing Date. (b) Independence of Business and Operations Following the completion of the Reorganisation and the Global Offering, the Group s hotel assets will be operated and managed independently of the NWD Group and the CTFE Group. In particular, the Hotels have their own employees and will continue to be managed by the Hotel Managers, which are third parties independent of the NWD Group and the CTFE Group. 257
Pursuant to the Reorganisation, the Group will acquire the legal and beneficial interests of the hotel property and the hotel operations of Hyatt Regency TST (see History and Reorganisation The Reorganisation for further details). The hotel licence, general restaurant licences and food factory licence are currently registered in the name of Park New Astor. Park New Astor is also the contracting party to certain contracts relating to the hotel business of Hyatt Regency TST. Park New Astor will remain part of the NWD Group following the Listing. To allow time for the licences and the contracts to be transferred to the Group, Treasure Tower (a wholly-owned subsidiary of the Group) and Park New Astor have entered into the Transitional Services Agreement pursuant to which Park New Astor has agreed that upon completion of the Acquisition, it will continue to assist Treasure Tower in the operation and management of Hyatt Regency TST in conjunction with the Hotel Manager, Hyatt, and in particular, it will (i) maintain and comply with the terms of the hotel licence, general restaurant licences and food factory licence and (ii) continue to assist Treasure Tower in performing and transferring the contracts relating to the hotel business of Hyatt Regency TST, each at cost for a period not exceeding six months from the date of completion of the Acquisition. Park New Astor and Treasure Tower have agreed to use all their respective reasonable efforts to complete the transfers of all of the contracts and the licences relating to Hyatt Regency TST to Treasure Tower as soon as practicable following the date of completion of the Acquisition (see Connected Transactions E. One-off Connected Transaction Transitional Services Agreement for further details). The Transitional Services Agreement does not affect the operational independence of the Group from the NWD Group because this arrangement arises only as a result of the acquisition of Hyatt Regency TST being structured as an acquisition of the hotel property and the hotel operations rather than the acquisition of the hotel holding company. All of the licences and the contracts relate only to Hyatt Regency TST and not to any other member of the NWD Group or the CTFE Group. This arrangement is only a temporary measure and is to allow time for the licences and the contracts to be transferred to the Group. Following the Listing, the Group expects that there will be certain other continuing connected transactions with the NWD Group and the CTFE Group as disclosed in Connected Transactions. These include, among other things, the provision by the NWD Group of contracting and project management services, certain tenancy and car park arrangements, the provision of telephone and broadband services, the provision of certain administrative support services and the sharing of certain operational costs under operation recharges, as well as the lease of storage units by a joint venture of NWD and CTFE to the Group. In respect of the contracting and project management services, the telephone and broadband services and the lease of the storage unit, the Directors are of the view that there are other suppliers available to provide such services or leases with comparable quality and similar prices and that such services have been and will continue to be provided by the NWD Group to the Group on normal commercial terms and negotiated on an arm s length basis. In particular, contracting services for major renovation projects are customarily subject to an auction or tender process and the Group has historically engaged the NWD Group as well as independent third party contractors to provide such services. In respect of the tenancy and car park arrangements, the Directors are of the view that while most of these arrangements are in relation specifically to the operations of the Hotel, such arrangements are not critical to the Hotels operations. In respect of the administrative support services, the Directors are of the view that these services can be provided by many suppliers with comparable quality. However, given the administrative support nature of these services, it is more cost-effective and efficient for the Group to engage the NWD Group to provide these services, which are non-management administrative functions. See Independence of Administrative Capability below. 258