LAPORAN TA H U NA Ntower-reit.com.my/files/TWRREIT-AnnualReport2006(1.1MB).pdf · Tun Razak. The ﬁ nishes and speciﬁ cations of Menara HLA provide tenants with functional, quality

2006

6

L A P O R A N

T A H U N A N

A N N U A L

R E P O R T

Tower Real Estate Investment Trust

Lapo

ran T

ahu

nan

20

06

An

nu

al Rep

ort

Tower R

eal Estate Investment Trust

ANNUAL REPORT 2006 1

COntents

02 Salient Features of Fund

03 Corporate Directory

04 Property Portfolio

08 Financial Highlights

09 Chairman’s Statement

12 Profi le of Directors

14 Manager’s Report

24 Corporate Governance

28 Financial Statements

52 Unitholders’ Statistic

2 TOWER REAL ESTATE INVESTMENT TRUST

Salient Features of Fund

Fund category

Fund type

Approved size of Fund

Authorised investments

Financial year end

Distribution policy

Borrowing limitations

Valuation policy

No redemption by unitholders

Initial Public Offering retail price

Minimum initial investment

Minimum additional investment

Board lot

Investor profi le

Stock Exchange Listing

Bursa Securities stock number

Real Estate Investment Trust (“REIT”)

Income and growth

237,500,000 units

At least 75% of Gross Asset Value (“GAV”) are invested in real estate and/or single-purpose companies which principal assets comprise real estate, real estate-related assets and/or liquid assets out of which at least 50% of GAV are invested in real estate and/or single-purpose companies which principal assets comprise real estate and the remaining 25% may be invested in any other permitted investments.

31 December

The Manager intends to distribute 100% of the Distributable Income to unitholders for the fi nancial period from the Establishment Date to 31 December 2006 and the fi nancial year ending 31 December 2007. Thereafter, the Manager intends to distribute at least 90% of the Distributable Income for the relevant fi nancial years.

The Manager intends to make semi-annual distributions to unitholders with the amount calculated as at 30 June and 31 December each year or such other percentage and at such other intervals as determined by the Manager at its discretion.

Total borrowings of the Fund shall not exceed 50% of the GAV at the time the borrowings are incurred or such other level as may be permitted by the Securities Commission Guidelines on REITs.

The investment in real estate and single-purpose companies which principal assets comprise real estate, shall revalue at least once every 3 years from the last valuation date or at such other times as required under the applicable approved accounting standards in Malaysia for entities other than private entities issued by Malaysian Accounting Standards Board.

Unitholders have no right to request the Manager to repurchase or redeem the units while the units are listed on Bursa Malaysia Securities Berhad (“Bursa Securities”). It is intended that unitholders may only deal with their listed units through trading on Bursa Securities.

RM1.07 per unit

Minimum of 100 units

Multiples of 100 units

100 units per board lot

Tower REIT may appeal to an investor who:• understands the risk related to the real estate industry and REITs;• has long-term investment objectives with moderate risk appetite; and• seeks regular distribution of income and long-term capital appreciation.

Main Board of Bursa Malaysia Securites Berhad

TWRREIT 5111


CoRporate Directory

MANAGER : GLM REIT MANAGEMENT SDN. BHD. (659312-H)

MANAGER’S : Level 8, Wisma Hong Leong PRINCIPAL ADDRESS 18 Jalan Perak

50450 Kuala Lumpur Tel No : 03-2164 7878

MANAGER’S : Level 10, Wisma Hong Leong REGISTERED ADDRESS 18 Jalan Perak

50450 Kuala LumpurTel No : 03-2164 1818

Fax No : 03-2164 2476

BOARD OF DIRECTORS : KWEK LENG SENGOF GLM REIT ChairmanMANAGEMENT SDN. BHD. KHOO POH CHYE

Managing Director

GOH TIAN SUIDirector

DATO’ AHMAD JOHARI BIN TUN ABDUL RAZAKDirector

COMPANY SECRETARIES : LIM YEW YOKE (LS 000431)2 Jalan SG 7/12 Taman Sri Gombak 68100 Batu Caves Selangor Darul Ehsan

TRUSTEE : AMTRUSTEE BERHAD22nd Floor, Bangunan AmBank Group55 Jalan Raja Chulan50200 Kuala LumpurTel No : 03-2078 2633

PROPERTY MANAGER : YAP BURGESS RAWSON INTERNATIONAL (Proprietor : Yap & Partners Sdn Bhd)Level 5, Bangunan MIDF195A Jalan Tun Razak50400 Kuala LumpurTel No : 03-2712 0033

REGISTRAR : HONG LEONG SHARE REGISTRATION SERVICES SDN BHDLevel 5, Wisma Hong Leong18 Jalan Perak50450 Kuala LumpurTel No : 03-2164 1818Fax No: 03-2164 3703

AUDITORS : KPMG CHARTERED ACCOUNTANTSWisma KPMG, Jalan DungunDamansara Heights50490 Kuala LumpurTel No : 03-2095 3388

PRINCIPAL BANKERS : HONG LEONG BANK BERHADLevel 1, Wisma Hong Leong18 Jalan Perak50450 Kuala LumpurTel No : 03-2164 2525

LEE SOW YEANG (MAICSA 7020119)11A, Jalan Alam Jaya 5 Taman Alam Jaya 43200 Selangor Darul Ehsan

PUBLIC BANK BERHAD27th Floor, Menara Public Bank146 Jalan Ampang50450 Kuala LumpurTel No : 03-2163 8888


Trustee’s report to the Unitholders

Menara HLA

Menara HLA

Property Portfolio

ADDRESSMenara HLA, No. 3, Jalan Kia Peng 50450 Kuala Lumpur.

TITLE DETAILSSited on part of the land held under Lot No. 1286, Seksyen 57, Title No. Geran 43969, Town and District of Kuala Lumpur

PROPERTY TYPE/USECommercial Offi ce Building

DESCRIPTIONA 32-storey high-rise offi ce building with a 4-level basement car park

AGE7 years

STATUS OF HOLDINGFreehold

NET LETTABLE AREA396,820 sq. ft.

PARKING SPACE723 car parking bays

DATE OF ACQUISITION23 February 2006

COST OF ACQUISITIONRM221 million

OCCUPANCY RATES95%

AVERAGE RENTAL RECEIVEDRM1,480,000 per month

AVERAGE MAINTENANCE COSTRM359,000 per month

MAJOR CAPITAL EXPENDITURENil

ENCUMBRANCESPrivate Caveat entered by Public Bank Berhad

LIMITATION IN TITLE/INTERESTNil

LATEST REVALUATIONRM240 million

BASIS OF REVALUATIONComparison and Investment Method

DATE OF LAST VALUATION20 November 2006

FAIR VALUE ADJUSTMENTRM18.7 million

NET BOOK VALUERM240 million

Menara HLA is situated in the heart of the Golden Triangle of Kuala Lumpur. The Golden Triangle is Kuala Lumpur’s main central business district accommodating prime offi ce buildings, prime retail centres and international class hotels.


TOP 5 MAJOR TENANTS

Name of Tenant Trade Sector% of total

net lettable area

Hong Leong Assurance Berhad Finance/Insurance 20.4

Aker Kvearner Engineering SEA Sdn. Bhd. Manufacturing/Trading 13.8

V Source Asia Berhad Services 13.3

HLG Capital Berhad Finance/Insurance 11.2

RZ Corporation Sdn. Bhd. Manufacturing/Trading 5.1

63.8

Manufacturing/ Trading

Services

OthersFinance/ Insurance

TENANT MIX

Menara HLA is equidistant from the Kuala Lumpur city center development and retail/hotel belt of Jalan Bukit Bintang and Jalan Sultan Ismail which provides ample supplementary amenities such as a wide variety of restaurants, convenient shops, banking facilities, etc. In general, the building has good ingress and egress and it is accessible from Jalan Ampang, Jalan Sultan Ismail and Jalan Tun Razak.

The fi nishes and specifi cations of Menara HLA provide tenants with functional, quality offi ce space now demanded by the corporate sector with more sophiscated technical expectations. Moreover, the positioning of the columns at the sides creates column free space, thereby increasing effi ciency in usage. The external wall of the building is of quality granite whilst the entrance lobby on the ground fl oor and all the lift lobbies are polished granite slabs. Its 3-level high main entrance lobby with glass panels further creates an aura of grandeur.

EXPIRY PROFILE

17%

60

50

40

30

20

10

02007 2008 2009

Property Portfolio (cont’d)

%

Menara HLA - Main Entrance

Information Technology

53%

29%

Menara HLA (cont’d)

Finance/ Insurance

32% Others13%

Services29%


18%

InformationTechnology

8%


Trustee’s report to the Unitholders

HP Towers

ADDRESSHP Towers, No. 12 Jalan Gelenggang Bukit Damansara50490 Kuala Lumpur

TITLE DETAILSLot No. PT 5748, Title No. HS (D) 100327, Mukim and District of Kuala Lumpur

PROPERTY TYPE/USECommercial Offi ce Building

DESCRIPTION2-block offi ce building identifi ed as Block A (9 storey) and Block B (21 storey) with a 3-level connecting podium and a 4-level basement car park.

AGE14 years

STATUS OF HOLDINGFreehold

NET LETTABLE AREA350, 056 sq. ft.

PARKING SPACE545 car parking bays

DATE OF ACQUISITION23 February 2006

COST OF ACQUISITIONRM130 million

OCCUPANCY RATES91%

AVERAGE RENTAL RECEIVEDRM873,000 per month

AVERAGE MAINTENANCE COSTRM325,000 per month

MAJOR CAPITAL EXPENDITURENil

ENCUMBRANCESNil

LIMITATION IN TITLE/INTERESTNil

LATEST REVALUATIONRM150 million

BASIS OF VALUATIONComparison and Investment Method

DATE OF LAST VALUATION20 November 2006

FAIR VALUE ADJUSTMENTRM19.9 million

NET BOOK VALUERM150 million

HP TowerS


HP Towers is situated within the commercial area of Bukit Damansara and is on the northern (right) side of Jalan Semantan (forming part of the SPRINT Highway), travelling from Kuala Lumpur city centre towards Petaling Jaya. HP Towers lies about 8 km west of the Kuala Lumpur city centre.


TOP 5 MAJOR TENANTS

TENANT MIX EXPIRY PROFILE

27%

70

60

50

40

30

20

10

02007 2008 2009Manufacturing/ Trading

Services


Property/ Construction

Finance/ Insurance

Others

HP Towers has good ingress and egress and is easily accessible to SPRINT highway, which is linked to other major roads, such as the North Klang Valley Expressway (NKVE), Federal Highway, Damansara-Puchong Highway (LDP) and North South Expressway (NSE). The extensive road networks developed in the vicinity has reduced the travelling time to the Kuala Lumpur city centre and Petaling Jaya.

The fi nishes and specifi cations of HP Towers provide tenants with functional, quality offi ce space demanded by the corporate sector. The external wall of the building is clad with alucobond curtain walling whilst the entrance lobby on the ground fl oor and all the lift lobbies are of polished granite slabs. Its 3-level high main entrance lobby further creates an aura of grandeur.


Name of Tenant Trade Sector% of total

net lettable area

Hewlett-Packard (M) Sdn. Bhd. Information Technology 36.1

MMC Corporation Berhad Property/Construction 13.2

Dagang Net Technologies Sdn. Bhd. Information Technology 6.6

Carat Media Services (M) Sdn. Bhd. Services 3.4

TBWA-ISC Malaysia Sdn. Bhd. Services 3.4

62.7

%

HP Towers - Main Entrance

13%

60%

HP Towers (cont’d)


45%


7%

Others16%

Property/ Construction

13%

Services17%

Finance/ Insurance

2%


Financial Highlights

Financial Position As at

31 December 2006RM’000

As atcommencement

RM’000Variance

(%)

Total assets 413,770 360,274 +14.8

Total borrowing 105,500 105,000 -

Net assets value 285,199 246,724 +15.6

Units in circulation (units) 237,500,000 237,500,000 -

Net assets value per unit (RM) 1.20 1.04 +15.4

Financial Performance Actual RM’000

ProspectusRM’000

Variance(%)

Total revenue 22,893 21,829 +4.9

Income after taxation - realised and distributable for the period 12,692 11,548 +9.9- unrealised from fair value adjustment of 38,532 - - investment properties

51,224 11,548 Provision for income distribution 12,692 11,548 +9.9

Earnings per unit (sen) 21.57 4.86 +343.8 Distribution per unit (sen) 5.34 4.86 +9.9

Distribution yield *- based on IPO price (RM1.07) 7.05% 6.42% +9.8- based on closing price at 31 December 2006 (RM0.91) 8.29% 7.54% + 9.8

* annualised results of approximately 8.5 months (12 April 2006 to 31 December 2006)

HP Towers - Foyer


Chairman’s Statement

OVERVIEW

Tower REIT was established by a deed of trust entered into on 17 February 2006 between GLM REIT and AmTrustee Berhad, as trustee of Tower REIT, and was successfully listed on the Main Board of Bursa Malaysia Securities Berhad on 12 April 2006.

Tower REIT started of with ownership of two prime properties, namely, Menara HLA, a 32-storey high-rise offi ce building with a 4-level basement car park, located in the heart of the prestigious Golden Triangle of Kuala Lumpur and HP Towers, a 2-block offi ce building identifi ed as Block A (9 storey) and Block B (21 storey) with a 3-level connecting podium and a 4-level basement car park, situated within the commercial area of Damansara Heights.

The initial public offering (“IPO”) of units in Tower REIT comprised of a combined total of 201,874,000 units available under the retail and institution offers. Of the total IPO units offered, 9,300,000 units were allocated to Malaysian public, 2,500,000 units were reserved for eligible directors and employees of GLM REIT, GuocoLand (Malaysia) Berhad (immediate holding company), GuocoLand Limited (intermediate holding company) and their subsidiaries and associated companies and 190,074,000 units were offered via private placement to institutions and selected investors. The IPO price was set at RM1.07 per unit and the offering was oversubscribed.

On behalf of the Board of Directors and Management of GLM REIT Management Sdn. Bhd. (“GLM REIT” or the “Manager”), the Manager of Tower REIT, I am pleased to present the fi rst Annual Report and Audited Financial Statements of Tower REIT for the fi nancial period from 21 February 2006 (date of establishment) to 31 December 2006 (the “Period”).


Chairman’s Statement (cont’d)

FINANCIAL PERFORMANCE

During the Period, Tower REIT recorded a total revenue of RM22.89 million, an increase of 4.9% (or RM1.06 million) in comparison to the forecast in the prospectus for the IPO. Income after taxation for the Period excluding the unrealised surplus from fair value adjustment of the investment properties of RM12.69 million exceeded the forecast of RM11.55 million as disclosed in the prospectus by approximately 10%.

As a result of the improvement in income after taxation, we propose an income distribution of 5.3442 sen per unit of Tower REIT, totalling RM12.69 million, representing 100% of the realised and distributable income after taxation, ahead of the forecasted distribution per unit of 4.86 sen by approximately 10%. The provision of income distribution of 5.3442 sen per unit translates to an annualised yield for the period from 12 April 2006 to 31 December 2006 of approximately 8.29% based on the closing price of RM0.91 on 31 December 2006. This excellent set of results which outperformed the IPO forecast shows the success of our proactive and professional asset management, the ability to enhance value for unitholders as well as a refl ection of the quality and resilience of our portfolio’s underlying properties.

OPERATION REVIEW

Strong Underlying Portfolio

Through the implementations of various active assets management strategies and the prime and preferred locations of our quality assets, the two buildings, Menara HLA and HP Towers, continued to perform relatively well above the market performance. The occupancy rate has improved to 95% and 91% for Menara HLA and HP Towers respectively which are higher than the Klang Valley’s overall average occupancy rate of 85%.

As at 31 December 2006, an independent professional valuer, Ooi & Zaharin Sdn. Bhd. (Knight Frank) valued Menara HLA and HP Towers at an aggegate of RM390 million. The revaluation resulted in an unrealised surplus of RM38.53 million, an increase of 11% compared to the original acquisition cost of RM351 million or translates into an increase of 16 sen in net asset value per unit, a well refl ection of Tower REIT’s underlying quality asset performance.

Yield Accretive Acquisition

In line with our investment strategy on actively exploring capital growth opportunities through acquisition of yield-accretive properties, Tower REIT had, on 16 October 2006, entered into a Sale and Purchase Agreement with ING Insurance Berhad to acquire 78.33% of the total share unit entitlement and 100% of the car parks of Menara ING, located along Jalan Raja Chulan which is within the Golden Triangle area. This marks the fi rst yield accretive acquisition by Tower REIT since its listing on 12 April 2006 and crystallising our strategies to accelerate the growth dynamics as well as in enhancing the real estate portfolio and the distribution per unit of Tower REIT.

Upon completion of the Menara ING acquisition, our total real estate investment portfolios will grow by 21% and the distribution per unit is expected to improve further.


PROSPECTS

In 2007, we expect another year of growth led by more acquisitions, proactive asset management, stable occupancy and higher rental buoyed by the positive and healthy economic growth in Malaysia. The offi ce market, in particular, is expected to continue their upward trend with vacancies dipping and limited new quality offi ce development in prime business district.

With an improving economic outlook and the continual upturn of offi ce market, we will continue to implement active asset management strategies to key drive the organic growth of the properties under our portfolio as we identify ways to add value and generate additional revenue. We will also continue to seek opportunities to make yield-accretive acquisitions to pursue capital growth and further enhancement on the return to the unitholders of Tower REIT.

DIRECTORATE

Mr. Tan Ming Huat retired as the Chief Executive Offi cer of GLM REIT on 31 July 2006 and Mr. Steven Lek Ah Hup resigned as a Director on 1 August 2006. Mr. Benny Chew Yow Leng stepped down as Managing Director on 16 December 2006. On behalf of the Board, I would like to express our appreciation for their services and invaluable contributions during their tenure of service with GLM REIT.

On behalf of the Board, I welcome Mr. Khoo Poh Chye as a new Board member with effect from 18 January 2007.

APPRECIATION

On behalf of the Board of Directors and management of GLM REIT, I wish to express our appreciation for the continued support of our valued customers, tenants, business associates, government authorities and unitholders of Tower REIT and we look forward to their continued support and contributions for the year ahead. To our management and staff, we thank you for your commitment and dedication. We look forward to a fruitful year in 2007.

KWEK LENG SENG Chairman

Kuala Lumpur30 January 2007

Chairman’s Statement (cont’d)


Profi le of Directors

BOARD OF DIRECTORS OF GLM REIT MANAGEMENT SDN. BHD.

MR. KWEK LENG SENGChairman, Non-Independent Non-Executive DirectorMr. Kwek Leng Seng, aged 48, a Singaporean, holds an Honours degree in Law from the University of Buckingham, London. He is currently the Group Managing Director of GuocoLand (Malaysia) Berhad (“GLM”), a position held since 1995. He joined the Hong Leong Group Malaysia in 1987 as the Claims Manager and Director of Hong Leong Assurance Berhad. Between 1990 to mid 1994, he assumed directorships and managerial positions in various subsidiaries of GLM. He was the Managing Director of HLG Securities Sdn. Bhd. from mid 1994 to October 1995.

Mr. Kwek was appointed on 11 July 2005 as the Chairman of GLM REIT Management Sdn. Bhd., the Manager of Tower Real Estate Investment Trust (“Tower REIT”).

He is also a Director of Hong Leong Bank Berhad, a public listed company.

He attended all the Board meetings held during the period from the date of establishment of Tower REIT on 21 February 2006 to 31 December 2006.

Mr. Kwek has no family relationship with other directors or major unitholders of Tower REIT, has no confl ict of interests with Tower REIT and has no convictions for offences within the past 10 years.

MR. KHOO POH CHYE Managing Director, Non-Independent Executive DirectorMr. Khoo Poh Chye, aged 39, a Malaysian, holds a Diploma in Banking & Finance and a Post Graduate Diploma in Accounting and Finance (ACCA, UK). He has over 15 years exposure and experience in property industry coupled with 6 years attachment at the Malaysia’s National Asset Management Agency (Danaharta) as the Deputy General Manager, Property Division. His scope of responsibilities covered strategic business planning, rehabilitation of abandoned projects, property market review, feasibility studies, real estate management and value enhancement. He has held the position of General Manager in several reputable property companies, spearheading the Marketing, Sales Administration and Building Management portfolio.

Mr. Khoo was appointed as the Managing Director of GLM REIT on 18 January 2007.

He has not attended any Board meetings held during the period from the date of establishment of Tower REIT to 31 December 2006 as he was appointed to GLM REIT in January 2007.

Mr. Khoo has no family relationship with other directors or major unitholders of Tower REIT, has no confl ict of interests with Tower REIT and has no convictions for offences within the past 10 years.


MR. GOH TIAN SUI Independent Non-Executive Director Mr. Goh Tian Sui, aged 51, a Malaysian, graduated with a Bachelor of Science (Honours), Estate Management from the University of Reading, United Kingdom in 1978. He is also a Fellow of the Royal Institution of Chartered Surveyors, United Kingdom (FRICS), Fellow of the Institution of Surveyors Malaysia (FISM) and Registered Valuer and Registered Estate Agent with the Board of Valuers, Appraisers & Estate Agents, Malaysia. Mr. Goh is also a founding member of the Valuers and Property Consultants in Private Practice (Association of Valuers Property Consultants in Private Practice, Malaysia) (APEPS) and Licensed Auctioneer for Federal Territory of Kuala Lumpur and Selangor. He has been a Partner and Company Director in C H Williams Talhar & Wong Sdn. Bhd. since June 1989, and its Managing Director since September 2003. Prior to joining C H Williams Talhar & Wong Sdn. Bhd., he was a valuation offi cer with the Ministry of Finance, Valuation and Property Services Division in Kelantan and Malacca.

Mr. Goh was appointed to the Board of GLM REIT on 24 November 2005.

He attended all the Board meetings held during the period from the date of establishment of Tower REIT to 31 December 2006.

Mr. Goh has no family relationship with other directors or major unitholders of Tower REIT, has no confl ict of interests with Tower REIT and has no convictions for offences within the past 10 years.

YBHG. DATO’ AHMAD JOHARI BIN TUN ABDUL RAZAK Independent Non-Executive DirectorYBhg. Dato’ Ahmad Johari bin Tun Abdul Razak, aged 52, a Malaysian, graduated from University of Kent, United Kingdom with a Bachelor of Arts degree in law and qualifi ed as a Barrister-at-Law from Lincoln’s Inn.

YBhg. Dato’ Ahmad Johari was appointed to the Board of GLM REIT on 24 November 2005.

He is currently the Executive Chairman of Ancom Berhad and Chairman of Courts Mammoth Berhad and Daiman Development Berhad, Deputy Chairman of Nylex (Malaysia) Berhad and a Director of Deutsche Bank (Malaysia) Berhad and Hong Leong Industries Berhad.

He attended all the Board meetings held during the period from the date of establishment of Tower REIT to 31 December 2006.

YBhg. Dato’ Ahmad Johari has no family relationship with other directors or major unitholders of Tower REIT, has no confl ict of interests with Tower REIT and has no convictions for offences within the past 10 years.

Profi le of Directors (cont’d)


GLM REIT Management Sdn Bhd (“GLM REIT” or the “Manager”), the Manager of Tower Real Estate Investment Trust (“Tower REIT”), has pleasure in presenting the Manager’s Report together with the audited fi nancial statements of Tower REIT for the period from 21 February 2006 (date of establishment) to 31 December 2006 (the “Period”).

Since the listing of Tower REIT on the Main Board of Bursa Malaysia Securities Berhad on 12 April 2006, the Manager has been actively managing the property portfolio with the objective of delivering the forecast yield to unitholders. On 16 October 2006, Amtrustee Berhad, acting as trustee for and on behalf of Tower REIT (“Trustee”), and ING Insurance Berhad had entered into a Sale and Purchase Agreement to acquire 78.33% of the total share unit entitlement and 100% of the car parks of Menara ING that would further enhance the portfolio of Tower REIT in line with its prudent acquisition strategy and to enhance distributions to unitholders. The performance during the Period demonstrates the commitment of the Manager to maximise total returns i.e income and growth in net asset value (“NAV”) for the benefi t of unitholders.

THE TRUST, THE MANAGER AND THEIR PRINCIPAL ACTIVITIES

Tower REIT was constituted under a Deed dated 17 February 2006 (“Deed”), entered into between the Manager and the Trustee.

The principal activity of Tower REIT is investment in real estate and real estate-related assets used, or predominantly used, for commercial purposes, whether directly or indirectly through the ownership of single-purpose companies which principal assets comprise real estate. On 17 April 2006, Tower REIT had successfully acquired Menara HLA and HP Towers (collectively referred to as the “Properties”) as its initial real estate portfolio. There has been no signifi cant change in the nature of this activity during the Period.

The Manager is a wholly-owned subsidiary of Guocoland (Malaysia) Berhad (“GLM”), a member of the Hong Leong Group Malaysia. The principal activity of the Manager is providing management services to real estate investment trusts. There has been no signifi cant change in the nature of this activity during the Period.

Menara HLA Menara HLA- Main Entrance

Manager’s Report


Manager’s Report (cont’d)

INVESTMENT OBJECTIVES

The investment objectives of Tower REIT are:

(a) to provide the unitholders with stable distributions per unit with potential for sustainable long term growth of such distribution; and

(b) to achieve medium to long-term growth in the NAV per unit.

INVESTMENT STRATEGIES

The Manager will continue to implement the following strategies to achieve the investment objectives:

(i) Active Asset Management

The Manager’s strategy for organic growth is to enhance the performance of the Properties by increasing yields and returns through a combination of retaining existing tenants, reducing vacancy levels, adding and optimising offi ce space at the Properties and minimising interruptions in rental income and optimising operation costs. The Manager will apply the active asset management principles via the following:

(a) maintaining close relationship with tenants to optimise tenant retention; (b) to optimise rental rates via active management of tenancies renewals and new tenancies;(c) actively working through their networking to pursue new tenancy opportunities;(d) to optimise the tenant mix and space confi guration; and(e) continually maintaining quality of the Properties.

(ii) Prudent Acquisition Strategy

The Manager will continue to actively explore acquisition opportunities that would add value to the unitholders. The Manager will focus on the following key criteria when evaluating acquisitions:

(a) Economic and property market outlook• Timing and cost of acquisition• Capital appreciation

(b) Location• Strategic • Accessibility• Surrounding environment

(c) Tenancy • Credit quality• Lease expiry profi le• Tenancy mix

(d) Building quality • Building and facilities specifi cation • Effective operations cost

As part of the larger Hong Leong Group Malaysia, the Manager stand to benefi t from the established network of business relationships of Hong Leong Group Malaysia with major players in the property industry in Malaysia and overseas for the purpose of identifying acquisition opportunities. Also, being a wholly-owned subsidiary of GLM, the Manager will be able to leverage on GLM’s extensive expertise, experience and knowledge in the REIT’s properties based on GLM’s proven track record in managing large scale commercial property assets.


The Manager intends to hold the Properties on a medium to long-term basis. In the future where any of the Properties has reached a stage of optimum growth, the Manager may consider selling the property, hence realising potential capital gain and thereafter, use the proceeds for alternative investments in properties that meet Tower REIT’s investment criteria to further maximise the total returns to unitholders.

(iii) Capital and Risk Management Strategy

The Manager aims to optimise Tower REIT’s capital structure and cost of capital and intends to use a combination of debt and equity funding for future acquisitions and property enhancement. The Manager’s capital management involve:

(a) adopting and maintaining an optimal gearing level; and (b) adopting an active interest rate management strategy to manage risks associated with

changes in interest rates

while maintaining fl exibility in Tower REIT’s capital structure to meet future investment and/or capital requirements.

INVESTMENT POLICIES

(i) Portfolio Composition

Tower REIT’s investment may be allocated in the following manner, as prescribed by the Securities Commission (“SC”) Guidelines on REITs:

(a) at least 75% of Tower REIT’s Gross Asset Value (“GAV”) shall be invested in real estate, single-purpose companies which principal assets comprise real estate, real estate-related assets or

liquid assets out of which at least 50% of Tower REIT’s GAV must be invested in real estateor single-purpose companies which principal assets comprise real estate; and

(b) the remaining 25% of Tower REIT’s GAV may be invested in other permitted investments (i.e. real estate-related assets, non-real estate-related assets or asset-backed securities).

(ii) Diversifi cation

Tower REIT will seek to explore diversifi cation of its real estate portfolio by property and location. Primarily, Tower REIT will focus on investing in commercial properties for offi ce or retail purposes in prime locations. In addition, it may also look into other types of properties that will provide attractive returns as part of its balanced portfolio management strategy.

(iii) Gearing

Under the SC Guidelines on REITs, Tower REIT is permitted to procure borrowings of up to 50% of its total assets value wherein Tower REIT will be able to leverage on its borrowing to make the permitted investment. Notwithstanding the above, Tower REIT may source other means of funding through new issuance of units.



REVIEW OF PERFORMANCE

As at 31 December 2006 As at Commencement

Net assets value (RM’000) 285,199 246,724

Units in circulation (units) 237,500,000 237,500,000

Net assets value per unit (RM) 1.20 1.04

Market price per unit (RM) 0.91 n/a

Highest traded price per unit for the Period (RM) 1.06 n/a

Lowest traded price per unit for the Period (RM) 0.85 n/a

Comparison of Results Actual RM’000

Prospectus RM’000

Total revenue 22,893 21,829

Income before taxation 51,224 11,548

Income after taxation - realised and distributable for the Period - unrealised from fair value adjustment of investment properties

12,69238,532

11,548-

51,224 11,548

Provision for income distribution 12,692 11,548

Earnings per unit (sen) 21.57 4.86

Distribution per unit (sen) 5.34 4.86

Distribution yield *

- based on IPO price (RM1.07) 7.05% 6.42%

- based on closing price at 31 December 2006 (RM0.91) 8.29% 7.54%

* annualised results of approximately 8.5 months (12 April 2006 to 31 December 2006)


HP Towers - FoyerHP Towers


During the Period, Tower REIT recorded total revenue of RM22.89 million and this represents a 4.9% (or RM1.06 million) increase in comparison to the forecast in the prospectus for the initial public offer. This increase was mainly attributable to increase in the overall effi ciency in the management of the Properties.

Income after taxation of RM51.22 million for the Period includes unrealised surplus from fair value adjustment of the investment properties, namely, Menara HLA and HP Towers, of RM38.53 million. The fair value adjustment represents approximately 11% increase compared to the original acquisition cost or an increase of 16 sen in NAV per unit, a refl ection of Tower REIT’s strong quality asset performance.

Notwithstanding the above unrealised surplus from fair value adjustment on investment properties of RM38.53 million, Tower REIT’s income after taxation for the Period of RM12.69 million exceeded the forecast in the prospectus of RM11.54 million by approximately 10%. This favourable result was mainly attributable to the improvement in revenue and effi cient cost control through the implementation of various active assets management strategies by the Manager.

DISTRIBUTION OF INCOME

No distribution of income was paid during the Period. The Manager has declared an income distribution of 5.3442 sen per unit, totalling RM12,692,475, representing approximately 100% of the realised and distributable income after taxation. This income distribution of 5.3442 sen per unit was ahead of the forecast distribution per unit of 4.8 sen by approximately 10% and is in line with the objectives of Tower REIT to provide unitholders with attractive yield and sustainable distributions.

The distribution per unit of 5.3442 sen translates to an annualised yield of approximately 8.29% (for the period from 12 April 2006 to 31 December 2006) based on the closing price of RM0.91 as at 31 December 2006.

The effect of the income distribution in terms of NAV per unit as at 31 December 2006 is as follows:

RM

NAV per unit – before distribution 1.2543

NAV per unit – after distribution 1.2008

INVESTMENT PORTFOLIO AND ASSETS ALLOCATION

As at balance sheet date, Tower REIT’s composition of investment portfolio is as follows:

At valuation Real Estate RM’000 %

Menara HLA * 240,000 59.4

HP Towers * 150,000 37.2

390,000 96.6

At fair value

Deposit with licensed fi nancial institutions 13,669 3.4

403,669 100.0

* Refer to “Property Portfolio” for details of the real estate owned.



REVIEW OF PROPERTY MARKET

Generally, the offi ce market in Kuala Lumpur has strengthened since the regional economic crisis in 1997 and has continued its upward trend in 2006. The continued healthy growth in Gross Domestic Product (GDP) has spurred demand for offi ce space and higher occupancy rates in the last two years.

As at 31 December 2006, the two existing properties of Tower REIT, namely, Menara HLA and HP Towers, have recorded occupancy rates of 95% and 91% respectively which are higher than the Klang Valley’s overall average occupancy rate of 85%. The high occupancy rates of the existing properties refl ect well on the quality of the investment properties and the success of the Manager’s operating strategies in managing these properties.

PROSPECT OF THE PROPERTY MARKET

Buoyed by the positive and healthy economic growth in Malaysia, the offi ce market is likely to improve further in year 2007. With vacancies dipping and limited new quality offi ce development in prime business district, occupancy and rental rates of offi ce market are expected to continue their upward trend.

Tapping the positive development in offi ce market, the Manager will continue to review and implement active asset management strategies to further improve the distribution per unit and NAV per unit of Tower REIT. The Manager will also actively explore capital growth opportunities through acquisition of yield-accretive properties in view of the favourable market outlook for commercial real estate in Malaysia, primarily in the Klang Valley and growth corridors in Penang and Johor Bahru.

SIGNIFICANT EVENT

Proposed Acquisition of Menara ING

On 16 October 2006, it was announced that the Trustee and ING Insurance Berhad had on even date entered into a Sale and Purchase Agreement for Tower REIT to acquire 78.33% of the total share unit entitlement and 100% of the car parks of Menara ING (“Menara ING”) for a purchase consideration of RM75,000,000 (“Proposed Acquisition”). As part of raising fi nancing for the Proposed Acquisition, the Manager intends to implement a proposed private placement of up to 43,000,000 new units in Tower REIT (“Proposed Placement”). On 12 January 2007, the Board of GLM REIT had fi xed the issue price at RM0.91 per placement unit, being the weighted average market price of Tower REIT units for the fi ve market days up to 11 January 2007.

The valuation of Menara ING and Proposed Placement have been approved by the Securities Commission vide its letter dated 9 January 2007. Bank Negara Malaysia has also vide its letter dated 19 December 2006 approved the sale of Menara ING by ING Insurance Berhad. The Proposed Placement is now pending the approval of the unitholders of Tower REIT and Bursa Malaysia Securities Berhad for the listing of and quotation for the placement units.

• Information of Menara ING

Menara ING comprises a 20-storey highrise offi ce tower with an annexed 3½-storey offi ce block and2 split level basement car park. It is located within the Golden Triangle of Kuala Lumpur. Tower REITwill purchase 151,393 square feet of the total strata area which represents 78.33% of the total share unitentitlement.



• Basis of Purchase Price

The purchase consideration for the Proposed Acquisition of RM75,000,000 was arrived at on a willing-buyer willing-seller basis based on the market value of the Property of RM75,000,000 as valued by independent fi rm of registered valuers, Ooi & Zaharin Sdn. Bhd. (Knight Frank) in its valuation report dated 15 September 2006. The valuation of RM75,000,000 was arrived at using comparison and investment methods of valuation. At as the date of this report, Tower REIT had paid 10% of the purchase consideration.

• Source of Funding

The acquisition of Menara ING will be funded by a combination of proceeds from a proposed private placement of up to 43,000,000 new units in Tower REIT, bank borrowing and internally generated funds.

• Impact of Acquisition

The acquisition is expected to enhance the real estate portfolio of Tower REIT and improve distribution to unitholders.

BREAKDOWN OF UNITHOLDINGS

Distribution of unitholders as at 22 January 2007:

Size of Holding No. of Unitholders % of Unitholders No. of Units Held % of Units Held

5,000 and below 905 64.83 1,709,700 0.72

5,001 to 10,000 186 13.32 1,541,700 0.65

10,001 to 50,000 163 11.68 3,889,500 1.64

50,001 to 500,000 102 7.31 19,636,000 8.27

500,001 and above 40 2.86 210,723,100 88.72

1,396 100.00 237,500,000 100.00


Menara HLA - Lift Lobby Menara HLA - Foyer


DIRECTORS

The Directors who served on the Board of GLM REIT at the date of this report are:

Mr. Kwek Leng Seng (Chairman) Mr. Khoo Poh Chye (Managing Director)Mr. Goh Tian Sui YBhg. Dato’ Ahmad Johari bin Tun Abdul Razak.

DIRECTORS’ BENEFITS

During and at the end of the Period, no arrangement subsisted to which GLM REIT is a party, with the object or objects of enabling the Directors of GLM REIT to acquire benefi ts by means of the acquisition of units in or debentures of Tower REIT or any other body corporate.

Since the establishment of Tower REIT, no Director has received or become entitled to receive any benefi t by reason of a contract made by GLM REIT for Tower REIT or a related corporation with the Director or with a fi rm of which he is a member, or with a company in which he has a substantial fi nancial interest, except as disclosed in the notes to the fi nancial statements.

DIRECTORS’ INTEREST

The direct holdings in the units of Tower REIT of those who were Directors of GLM REIT at the period ended 31 December 2006 are as follows:

At12 April 2006

(Date of Listing)

No. of UnitsBought /(Sold)

At 31 December 2006

Mr. Kwek Leng Seng 300,000 - 300,000

Mr. Khoo Poh Chye - - -

Mr. Goh Tian Sui - - -

YBhg. Dato’ Ahmad Johari bin - - -

Tun Abdul Razak

During and at the end of the Period, no material contracts have been entered into involving any Directors and major unitholders.

MANAGER’S FEES AND COMMISSION

Pursuant to the Deed, the Manager’s fees consist of a base fee (excluding any good and service tax payable) of up to 0.75% per annum of the GAV and a performance fee (excluding any goods and services tax payable) of up to 4% per annum of the net property income, but before deduction of property management fee.

In addition, the Manager will also be entitled to the following fees for any acquisition or disposal of real estate by Tower REIT:

(i) an acquisition fee of 1.0% of the acquisition price of any real estate or single-purpose company which principal assets comprise real estate, purchased for Tower REIT (pro-rate if applicable to the proportion of the interest of Tower REIT in the asset acquired); and



(ii) a divestment fee of 0.5% of the sale price of any real estate or a single-purpose company which principal assets comprise real estate, sold or diverted by Tower REIT (pro-rate if applicable to the proportion of the interest of Tower REIT in the asset sold). SOFT COMMISSION

During the Period, the Manager did not receive any soft commission (i.e. goods and services) from its broker, by virtue of transactions conducted by Tower REIT.

OTHER STATUTORY INFORMATION

a) Before the income statement and balance sheet of Tower REIT were made out, the Manager took reasonable steps:

i. to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of provision for doubtful debts and satisfi ed themselves that there were no known bad debts and no provision for doubtful debts was necessary; and

ii. to ensure that any current assets which were unlikely to realise their value as shown in the accounting records in the ordinary course of business had been written down to an amount which they might be expected so to realise.

b) At the date of this report, the Manager is not aware of any circumstances which would render:

i. it necessary to write off any bad debts or to make any provision for doubtful debts in respect of fi nancial statements of Tower REIT; and

ii. the values attributed to the current assets in the fi nancial statements of Tower REIT misleading.

c) At the date of this report, the Directors of the Manager are not aware of any circumstances, which have arisen which would render adherence to the existing method of valuation of assets or liabilities of Tower REIT misleading or inappropriate.

d) At the date of this report, the Directors of the Manager are not aware of any circumstances nototherwise dealt with in this report or fi nancial statements of Tower REIT which would render any amount stated in fi nancial statements misleading.

e) As at the date of this report, there does not exist:

i. any charge on the assets of Tower REIT which has arisen since the end of the Period which secures the liabilities of any other person, except as disclosed in Note 7 to the fi nancial statements of Tower REIT; and

ii. any contingent liability of Tower REIT which has arisen since the end of the Period.



f) In the opinion of the Directors of the Manager:

i. no contingent or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the end of the fi nancial period which will or may affect the ability of Tower REIT to meet its obligations as and when they fall due; and

ii. no item, transaction or event of a material and unusual nature has arisen in the interval between the end of the fi nancial period and the date of this report which is likely to affect substantially the results of the operations of Tower REIT for the Period in which this report is made.

AUDITORS

The Auditors, KPMG, have expressed their willingness to continue in offi ce.

Signed in accordance with a resolution of the Directors of GLM REIT.

KWEK LENG SENG KHOO POH CHYE



HP Towers - Foyer


GLM REIT Management Sdn. Bhd. (“GLM REIT” or the “Manager”), as the Manager of Tower REIT, has adopted an overall corporate governance framework that is designed to meet best practice principles and which recognises that an effective corporate governance culture is critical to the performance of the Manager and consequently, the success of Tower REIT, which it manages.

In particular, the Manager has an obligation to act honestly, with due care and diligence, and in the best interest of unitholders. This obligation ties in with the Manager’s prime responsibility in managing the assets and liabilities of Tower REIT for the benefit of unitholders, and the Manager will endeavour to continue enhancing returns to unitholders.

THE MANAGER OF TOWER REIT

The Manager’s primary responsibility is to manage and administer Tower REIT in accordance with the investment policy of Tower REIT for the benefit of the unitholders. Amongst others, the Manager will be responsible for the following:

• determining the investment policies of Tower REIT;

• formulating the strategies direction of Tower REIT;

• developing business plans for investments in the short, medium and long-term, and the budgets of Tower REIT;

• formulating Tower REIT’s risk management policies;

• recommending acquisition, divestment or asset enhancement of Tower REIT’s assets to the Trustee;

• devising the leasing strategies and managing tenants;

• ensuring compliance with the applicable provisions of the Deed constituting Tower REIT (“Deed”), the Securities Commission Acts 1993, the Securities Commission (“SC”) Guidelines on Real Estate Investment Trusts (“REITs”), SC Guidelines on Unit Trust Funds, the Listing Requirements of Bursa Malaysia Securities Berhad and other relevant legislations;

• supervising the Property Manager; and

• performing any other duties and obligations as provided under the Deed, SC Guidelines on REITs and SC Guidelines on Unit Trust Funds. Tower REIT, constituted as a trust, is externally managed by the Manager and accordingly, it has no personnel of its own. The Manager appoints experienced and well-qualified management personnel to handle the day-to-day operations of the Manager. All directors and employees of the Manager are remunerated by the Manager, and not Tower REIT. DIRECTORS OF THE MANAGER

The BoardThe Board of Directors of the Manager (the “Board”) assumes responsibility for effective stewardship and control of the Manager and has established terms of reference to assist in the discharge of this responsibility.

corporate governance


The Board (cont’d)The role and responsibilities of the Board broadly cover formulation of corporate policies and strategies; overseeing and evaluating the conduct of the Manager’s activities; identifying principal risks and ensuring the implementation of appropriate systems to manage these risk; and reviewing and approving key matters such as financial results, investments and divestment, acquisitions and disposals and major capital expenditure.

Board BalanceThe Board comprises four (4) directors, two (2) of whom are independent. The profiles of the members of the Board are provided in the Annual Report.

The Chairman leads the Board and is responsible for the vision and strategic direction of the Manager as well as to monitor progress on implementation of Key Performance Areas and strategic developments.

The Managing Director is responsible for implementing the policies and decisions of the Board, overseeing the day-to-day operations, setting the plan and direction, benchmark and targets for the Manager, tracking compliance and progress of the operation, initiating innovative business ideas to create competitive edge and development asset enhancement strategies with the aim of enhancing unitholders’ return.

Board MeetingsBoard meetings are scheduled at least four (4) times per annum to review the operations of Tower REIT and to approve the interim and annual finance statements of Tower REIT. Additional meetings are held as and when urgent issues and important decisions need to be taken between the scheduled meetings.

Since the listing of Tower REIT on 12 April 2006, the Board met two (2) times during the financial period ended 31 December 2006.

Access to and Supply of Information and AdviceAll Board members are supplied with information on a timely manner. Board reports are circulated prior to Board meetings and the reports provide, amongst others, financial and corporate information, significant operational, financial and corporate issues, performance of Tower REIT and management’s proposals which require the approval of the Board.

All directors have access to the advice and services of the Company Secretary as well as to independent professional advice.

Appointments to the BoardThe Board has decided that the Board as a whole will serve as the Nominating Committee. All new nominations received are accessed and approved by the entire Board in line with its policy of ensuring nominees are persons of sufficient caliber and experience.

The process of accessing the directors is an on-going responsibility of the entire Board.

Re-electionAll directors are required to submit themselves for re-election every three (3) years.

Training and EducationThe Manager does not have a formal training programme for the new directors. However, to assist the directors in discharging their duties, the Manager has developed a Director Manual which is given to every director for their reference. The Director Manual highlights, amongst others, the major duties and responsibilities of a director vis-à-vis various laws, regulations and guidelines governing the same. New directors will also be given a briefing on the businesses of the Manager.

corporate governance (cont’d)


Training and Education (cont’d)All the directors of the Manager except for Mr. Khoo Poh Chye who was appointed on 18 January 2007, have completed the Mandatory Accreditation Programme. The directors continuously receive briefings and updates on the Manager’s businesses, operations, risk management, internal control, corporate governance, finance and any new or changes to relevant legislations, rules and regulations. In addition, the directors are also encouraged to attend seminars and briefing in order to keep themselves abreast of the latest developments in the business environment and to enhance their skills and knowledge.

ACCOUNTABILITY AND AUDIT

Financial ReportingThe Board is responsible for ensuring the proper maintenance of accounting records for Tower REIT. The directors are stratified that in preparing the financial statements of Tower REIT for the financial period ended 31 December 2006, Tower REIT has used the appropriate accounting policies and applied them consistently. The directors are also of the view that relevant approved accounting standards have been followed in the preparation of these financial statements.

Internal Control The Board has overall responsibility for maintaining a system of internal control which covers financial and operation controls and risk management. This system provides reasonable but not absolute assurance against material misstatement of management and financial information or against financial losses and fraud.

Relationship with AuditorsThe appointment of external auditors who may be nominated by the Manager, is approved by the Trustee. The auditors appointed must be independent of the Manager and Trustee. The remuneration of the Auditor is approved by the Trustee.

RELATED PARTY TRANSACTIONS AND CONFLICT OF INTEREST

The Manager will establish procedures that will ensure that related party transactions and conflict of interest are undertaken in full compliance to the SC Guidelines on REITs, The Deed and the Listing Requirements of Bursa Malaysia Securities Berhad; and on an arm’s length basis and on normal commercial terms which are no more favourable than those extended to related third parties.

The Board is under a fiduciary duty to Tower REIT to act in the best interest in relation to decision affecting Tower REIT when they are voting as a member of the Board. In addition, the directors, the executive director and the executive officers of the Manager are expected to act with honesty and integrity at all times.

RISK ASSESSMENT AND MANAGEMENT OF BUSINESS RISK

The Manager operates within overall guidelines and specific parameters set by the Board. Each transaction is comprehensively analysed to understand the risks involved. Responsibility for managing risk lies initially with the business unit concerned, working within the overall strategy outlined by the Board.

The Board reviews the risk to the assets of Tower REIT, and acts upon any comments of the Auditors of Tower REIT. In assessing business risk, the Board considers the economic environment and the property industry risk.



COMMUNICATION WITH UNITHOLDERS

The Board acknowledges the importance of regular communication with unitholders and investors via the annual reports, circulars to unitholders and quarterly financial reports and the various announcements made during the Period, through which unitholders and investors can have an overview of Tower REIT’s performance and operation.

In addition, the Chief Financial Officer of the Manager could provide unitholders and investors with a channel of communication in which they can provide feedback to the Manager.

Queries may be conveyed to the following person:

Name : Mr Chan Wan LeongTel No : 03-21647878Fax No : 03-21641822E-mail address : [email protected]

This statement on Corporate Governance is made in accordance with the resolution of the Board of GLM REIT.


< 28 TOWER REAL ESTATE INVESTMENT TRUST

29 Statement By Directors of the Manager

30 Statutory Declaration

31 Report of the Trustee to the Unitholders

32 Report of The Auditors to the Unitholders

33 Balance Sheet

34 Income Statement

36 Statement of Changes in Net Asset Value

37 Cash Flow Statement

38 Notes To The Financial Statements

Financial Statements


Statement By Directors of the Manager

In the opinion of the Directors of the Manager, the fi nancial statements set out on pages 33 to 51 are drawn up in accordance with the provisions of the Deed dated 17 February 2006, the Securities Commission Guidelines on Real Estate Investment Trusts, applicable securities laws and applicable approved accounting standards for entities other than private entities issued by the Malaysian Accounting Standards Board so as to give a true and fair view of the state of affairs of Tower Real Estate Investment Trust at 31 December 2006 and of the results of its operations and cash fl ows for the period ended on that date.

Signed for and on behalf of the Manager, GLM REIT Management Sdn. Bhd., in accordance with a resolution of the Directors of the Manager:

KWEK LENG SENG

KHOO POH CHYE



Statutory declaration

I, Chan Wan Leong, the Offi cer of the Manager, GLM REIT Management Sdn. Bhd., primarily responsible for the fi nancial management of Tower Real Estate Investment Trust, do solemnly and sincerely declare that the fi nancial statements set out on pages 33 to 51, are, to the best of my knowledge and belief, correct and I make this solemn declaration conscientiously believing the same to be true, and by virtue of the provisions of the Statutory Declarations Act, 1960.

Subscribed and solemnly declared by the abovenamed in Kuala Lumpur in the Federal Territory on 30 January 2007

CHAN WAN LEONG

Before me:

FAISAL MEERANGKUTTY BIN K.M. MOHD MAULABIPesuruhjaya SumpahCommissioner for Oaths


Report of the Trustee to the Unitholders of Tower Real Estate Investment Trust (Established in Malaysia)

We, AmTrustee Berhad, have acted as Trustee of Tower Real Estate Investment Trust (“Tower REIT”) for the fi nancial period ended 31 December 2006. In our opinion, GLM REIT Management Sdn. Bhd. (the “Manager”) has managed Tower REIT in accordance with the limitations imposed on the investment powers of the Manager and the Trustee under the Deed dated 17 February 2006, the Secrurities Commission Guidelines on Real Estate Investment Trusts, the Securities Commission Act 1993, and other applicable laws during the fi nancial period then ended.

We have also ensured the following:

(a) the procedures and processes employed by the Manager to value and price the units of Tower REIT are adequate and that such valuation/pricing is carried out in accordance with the Deed and other regulatory requirements; and

(b) the creation of units are carried out in accordance with the Deed and other regulatory requirements.

We confi rm that the recommended net income distribution of 5.3442 sen per unit for the fi nancial period is in line with and is refl ective of the objectives of Tower REIT.

For and on behalf of the Trustee,AmTrustee Berhad

RAJA AMIR SHAH BIN RAJA ABDUL AZIZ Chief Executive Offi cer



Report of the auditors to the Unitholders of Tower Real Estate Investment Trust (Established in Malaysia)

We have audited the fi nancial statements set out on pages 33 to 51 The preparation of the fi nancial statements is the responsibility of the Directors of GLM REIT Management Sdn. Bhd. (the “Manager”) of Tower Real Estate Investment Trust (“Tower REIT”).

It is our responsibility to form an independent opinion, based on our audit, on the fi nancial statements and to report our opinion to you, as a body, in accordance with the Securities Commission Guidelines on Real Estate Investment Trusts and for no other purpose. We do not assume responsibility to any other person for the contents of this report. We conducted our audit in accordance with approved Standards on Auditing in Malaysia. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the fi nancial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the fi nancial statements. An audit also includes assessing the accounting principles used and signifi cant estimates made by the Directors of the Manager as well as evaluating the overall fi nancial statements presentation. We believe our audit provides a reasonable basis for our opinion.

In our opinion, the fi nancial statements of Tower REIT are properly drawn up in accordance with the provisions of the Trust Deed dated 17 February 2006, the Securities Commission Guidelines on Real Estate Investment Trusts, applicable securities laws and applicable approved accounting standards for entities other than private entities issued by the Malaysian Accounting Standards Board so as to give a true and fair view of the state of affairs of Tower REIT at 31 December 2006 and the results of its operations and cash fl ows for the period ended on that date.

KPMG SIEW CHIN KIANG @ SEOW CHIN KIANGFirm Number: AF 0758 PartnerChartered Accountants Approval Number: 2012/11/08(J)



Note 2006 RM’000 Assets Investment properties 3 390,000 Trade and other receivables 4 9,683 Deposits placed with licensed fi nancial institutions 13,669 Cash and bank balances 418 Total assets 413,770 Liabilities Trade and other payables 5 10,379 Provisions for income distribution 6 12,692 Borrowing (secured) 7 105,500 Total liabilities 128,571 Net asset value (“NAV”) 285,199 Represented by:

Unitholders’ funds Unitholders’ capital 8 246,667 Undistributed income - realised - Undistributed income - unrealised - Investment fl uctuation reserves 9 38,532 285,199

Number of units in circulation (’000) 237,500 NAV per unit (RM) - before income distribution 1.2543- after income distribution 1.2008

Balance sheet as at 31 December 2006

The notes set out on pages 38 to 51 form an integral part of, and should be read in conjunction with, these fi nancial statements.


Income statement for the period from 21 February 2006 (date of establishment) to 31 December 2006

21.2.2006 to 31.12.2006 Note RM’000 Gross revenue 10 22,340Property operating expenses 11 (6,013) Net rental income 16,327Interest income 495Fair value adjustment on investment properties 38,532Other income 58 Total income 55,412

Manager’s fees 12 565Trustee’s fees 13 54Auditors’ fees 35Administrative expenses 157Interest expense 3,317Valuation fees 60 Total expenses 4,188 Income before taxation 51,224Taxation 14 - Net income for the period 51,224 Net income for the period is made up as follows:Realised 12,692Unrealised - Fair value adjustment on investment properties 38,532 51,224 Earnings per unit (sen) 15 21.57



21.2.2006 to 31.12.2006 Note RM’000

Net income distributionProposed fi nal income distribution of 5.3442 sen per unit payable on 28 February 2007 16 12,692

Final income distribution per unit- Gross (sen)* 16 5.3442

* Withholding tax will be deducted for distributions made to following types of unitholders:

Resident corporate - tax at prevailing rate Resident non-corporate - withholding tax 15% Non-resident individual - withholding tax 15% Non-resident corporate - withholding tax 27% Non-resident institutional - withholding tax 20%


Income statement (cont’d)

for the period from 21 February 2006 (date of establishment) to 31 December 2006


Statement of changes in net asset value for the period from 21 February 2006 (date of establishment) to 31 December 2006

Distributable Undistributed income Unitholders’ capital Unrealised Realised Total Note RM’000 RM’000 RM’000 RM’000

At 21 February 2006 (date of establishment) 1 - - 1

Operations for the period from 21 February 2006 to 31 December 2006

Net income for the period - - 12,692 12,692Changes in fair value 3 - 38,532 - 38,532 Increase in net assets resulting from operations - 38,532 12,692 51,224 Unitholders’ transactions

Creation of units 251,630 - - 251,630

Distribution to unitholders 16 - - (12,692) (12,692)

Establishment & issue expenses 17 (4,964) - - (4,964)

Increase in net assets resulting from unitholders’ transactions 246,666 - (12,692) 233,974 At 31 December 2006 246,667 38,532 - 285,199 Note 8 Note 9



Cash fl ow statement

for the period from 21 February 2006 (date of establishment) to 31 December 2006

21.2.2006 to 31.12.2006 RM’000

Cash fl ows from operating activities Income before taxation 51,224 Adjustments for: Interest expense 3,317 Interest income (495) Fair value adjustment on investment properties (38,532) Operating profi t before working capital changes 15,514 (Increase)/Decrease in working capital: Trade and other receivables (9,683) Trade and other payables 10,379 Net cash generated by operating activities 16,210 Cash fl ows from investing activities Purchase of investment properties (351,468) Interest income 495 Net cash used in investing activities (350,973) Cash fl ows from fi nancing activities Interest paid (3,317) Proceeds from issue of units 251,631 Proceeds from borrowing 105,500 Establishment & issue expenses (4,964) Net cash generated by fi nancing activities 348,850 Net increase in cash and cash equivalents 14,087Cash and cash equivalents at 21 February 2006 (date of establishment) - Cash and cash equivalents at 31 December 2006 14,087

Cash and cash equivalents

Cash and cash equivalents included in the cash fl ow statement comprise the following balance sheet amounts: 2006 RM’000

Cash and bank balances 418Deposits placed with licensed fi nancial institutions 13,669 14,087



Notes to the fi nancial statements

Tower Real Estate Investment Trust (estblished in malaysia)

Tower Real Estate Investment Trust (“Tower REIT”) is a Malaysia-domiciled real estate investment trust constituted pursuant to the Deed dated 17 February 2006 (the “Deed”) between GLM REIT Management Sdn. Bhd. (the “Manager”) and AmTrustee Berhad (the “Trustee”). The Deed is regulated by the Securities Commission Act, 1993, the Securities Commission Guidelines on Real Estate Investment Trusts, the Listing Requirement of Bursa Malaysia Securities Berhad, the Rules of the Depository and taxation laws and rulings. Tower REIT will continue its operations until such time as determined by the Trustee and the Manager as provided under the provisions of Clause 19 of the Deed.

Tower REIT was listed on the Main Board of Bursa Malaysia Securities Berhad on 12 April 2006.

The principal activity of Tower REIT is to own or invest in real estate and real estate-related assets, whether directly or indirectly through the ownership of single-purpose companies which principal assets comprise real estate with the primary objective of achieving an attractive level of return from rental income and for long-term capital growth. There has been no signifi cant change in the nature of this activity during the period.

1. Basis of preparation

(a) Statement of compliance

The fi nancial statements of Tower REIT have been prepared in accordance with the provisions of the Deed dated 17 February 2006, the Securities Commission Guidelines on Real Estate Investment Trusts, applicable securities laws, applicable approved accounting standards for entities other than private entities issued by the Malaysia Accounting Standard Board (“MASB”) and accounting principles generally accepted in Malaysia. These fi nancial statements also comply with the applicable disclosure provisions of the Listing Requirements of the Bursa Malaysia Securities Berhad.

The MASB has issued a number of new and revised Financial Reporting Standards (FRSs) that are effective for accounting periods beginning on or after 1 January 2006 or available for early adoption. In this set of fi nancial statements, Tower REIT has chosen to early adopt FRS 117, Leases and FRS 124, Related Party Disclosures which are effective for annual periods beginning on or after 1 October 2006. The MASB has also issued FRS 139, Financial Instruments: Recognition and Measurement but for which the MASB has yet to announce the effective date of this standard. Tower REIT has not adopted FRS 139 and by virtue of the exemption in paragraph 103AB of FRS 139, the impact of applying FRS 139 on its fi nancial statements upon fi rst adoption of this standard as required by paragraph 30(b) of FRS 108, Accounting Policies, Changes in Accounting Estimates and Errors is not disclosed.

MASB also issued FRS 6, Exploration for and Evaluation of Mineral Resources and Amendment to

FRS 1192004, Employee Benefi ts: Actuarial Gains and Losses, Group Plans and Disclosures which will be effective for annual periods beginning on or after 1 January 2007 and which is not applicable to Tower REIT. Hence, no further disclosure is warranted.

There are no effects of adopting any new / revised FRSs in 2006 as this is the fi rst fi nancial statements prepared by Tower REIT.

The fi nancial statements were approved by the Board of Directors of GLM REIT Management Sdn. Bhd. on 30 January 2007.


1. Basis of preparation (cont’d)

(b) Basis of measurement

The fi nancial statements have been prepared on the historical cost basis except for investment properties as explained in its accounting policy notes.

(c) Functional and presentation currency

These fi nancial statements are presented in Ringgit Malaysia (RM), which is Tower REIT’s functional currency. All fi nancial information presented in RM has been rounded to the nearest thousand, unless otherwise stated.

(d) Use of estimates and judgements

The preparation of fi nancial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revision to accounting

estimates are recognised in the period in which the estimate is revised and in any future periods affected.

In particular, information about signifi cant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most signifi cant effect on the amount recognised in the fi nancial statements are described in Note 3 on valuation of investment properties.

2. Signifi cant accounting policies

The accounting policies set out below have been applied consistently to the period presented in these fi nancial statements.

(a) Investment properties

Investment properties are properties which are owned or held to earn rental income or for capital appreciation or for both.

When an item of property, plant and equipment is transferred to investment property following a change in its use, any difference arising at the date of transfer between the carrying amount of the item immediately prior to transfer and its fair value is recognised directly in unitholders’ funds as a revaluation of property, plant and equipment. However, if a fair value gain reverses a previous impairment loss, the gain is recognised in the income statements. Upon disposal of the investment property, any surplus previously recorded in equity is transferred to unitholders’ funds; the transfer is not made through the income statement.

When the use of a property changes such that it is reclassifi ed as property, plant and equipment or inventories, its fair value at the date of reclassifi cation becomes its costs for subsequent accounting.

Notes to the fi nancial statements (cont’d)


2. Signifi cant accounting policies (cont’d)

(a) Investment properties (cont’d)

An external independent valuation company having appropriate recognised professional qualifi cations and recent experience in the location and category of property being valued, values the trust’s investment property portfolio every twelve months. The fair values are based on market values, being the estimated amount for which a property could be exchanged on the date of the valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.

In the absence of current prices in an active market, the valuations are prepared by considering the aggregate of the estimated cash fl ows expected to be received from renting out the property. A yield that refl ects the specifi c risks inherent in the net cash fl ows then is applied to the net annual cash fl ows to arrive at the property valuation.

Valuations refl ect, where appropriate, the types of tenants actually in occupation or responsible

for meeting lease commitments or likely to be in occupation after letting vacant accommodation, and the market’s general perception of their creditworthiness; the allocation of maintenance and insurance responsibilities between the trust and the lessee; and the remaining economic life of the property. When rent reviews or lease renewals are pending with anticipated reversionary increases, it is assumed that all notices and, where appropriate, counter-notices have been served validly and within the appropriate time.

(b) Trade and other receivables

Trade and other receivables are initially recognised at their cost when the contractual right to receive cash or another fi nancial asset from another entity is established.

Subsequent to initial recognition, receivables are stated at cost less allowance for doubtful debts.

Receivables are not held for the purpose of trading.

(c) Cash and cash equivalents

Cash and cash equivalents consist of cash on hand and balances and deposits with fi nancial institutions which have an insignifi cant risk of changes in value.

(d) Borrowings

Borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings using the effective interest method.




(e) Provisions

A provision is recognised if, as a result of a past event, the Trust has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outfl ow of economic benefi ts will be required to settle the obligation. Provisions are determined by discounting the expected future cash fl ows at a pre-tax rate that refl ects current market assessments of the time value of money and the risks specifi c to the liability.

Provisions for income distribution

Provisions for income distribution is recognised when any distribution is declared, determined or publicly recommended by the Directors of the Manager but not distributed at the balance sheet date.

(f) Payables

Payables are measured initially and subsequently at cost. Payables are recognised when there is a contractual obligation to deliver cash or another fi nancial asset to another entity.

(g) Revenue

i) Rental income

Rental income from investment property is recognised in the income statement on a straight-line basis over the term of the lease unless collectibility is in doubt, in which case, they are recognised on a receipt basis. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease.

ii) Interest income

Interest income is recognised in the income statement as it accrues, using the effective interest method.

(h) Expenses

i) Property expenses

Property expenses consist of property management fees, quit rent and assessment and other property outgoings in relation to investment properties where such expenses are the responsibility of Tower REIT. Property management fee are recognised on an accrual basis.

ii) Interest expenses

All borrowing costs are recognised in the income statement using the effective interest method, in the period in which they are incurred.




(h) Expenses (cont’d)

iii) Establishment and issue expense

Establishment expenses represent expenses incurred in establishing and listing the trust and issue expenses relate to expenses incurred in the issuance and placement of additional units in the Trust. These expenses are deducted directly against unitholders’ capital.

iv) Manager’s and Trustee’s fees

The Manager’s and Trustee’s fees are recognised on an accrual basis.

(i) Tax expense

Tax expense comprises current and deferred tax. Tax expense is recognised in the income statement except to the extent that it relates to items recognised directly in unitholders’ funds, in which case, it is recognised in unitholders’ funds.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profi t (tax loss). Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the balance sheet date.

In respect of deferred tax on the fair value adjustment on investment properties, no deferred tax has been provided as there is no fi rm commitment to dispose the investment properties.

Deferred tax liability is recognised for all taxable temporary differences.

A deferred tax asset is recognised to the extent that it is probable that future taxable profi ts will be available against which temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefi t will be realised.

Additional taxes that arise from the distribution of income are recognised at the same time as the liability to pay the related distribution is recognised.



3. Investment properties 2006 RM’000

At 21 February 2006 (date of establishment) - Acquisitions 351,000 Subsequent expenditures 468 Change in fair value 38,532 At 31 December 2006 390,000 Percentage of fair value Tenure Existing Acquisition to Net Asset Description of property of land Location use Fair value cost Value RM’000 RM’000 % Menara HLA* Freehold Kuala Lumpur Offi ce 240,000 221,000 84.2 HP Towers Freehold Kuala Lumpur Offi ce 150,000 130,000 52.6 390,000 351,000 * This property is charged to a fi nancial institution for bank facilities granted to Tower REIT (Note 7).

Both the properties above were revalued on 20 November 2006 by Ooi & Zaharin Sdn Bhd (Knight Frank), an independent fi rm of professional valuer, registered with the Board of Valuers, Appraisers & Estate Agents Malaysia, using the comparison and investment method of valuation.

The comparison method considers the sales of similar or substitude properties and related market data, and establishes a value estimate by processes involving comparison. In general, the property being valued is compared with sales of similar properties that have been transacted in the open market. Listing and offering may also be considered.

The investment method considers income and expenses data relating to the property being valued and estimates value through a capitalisation process. Capitalisation relates net income and a defi ned value type by converting an income amount into a value estimate. This process may consider direct relationship, yield or discount rates which refl ects measures of return on investment, or both. In general, the principle of substitution holds that the income stream which produces the highest return commensurate with a given level of risk leads to the most probable value fi gure. The range of yield applied to the net annual rentals to determine fair value of the property is between 6.5% - 7.0%.



4. Trade and other receivables 2006 RM’000

Trade receivables 722 Other receivables, deposits and prepayments 8,961 9,683

Included in trade receivables are rental outstanding from companies related to the Manager amounting to RM263,915 and are subject to normal trade term.

Included in other receivables, deposits and prepayment are deposit of RM7,569,920 paid upon the acceptance of offer for sale from ING Insurance Berhad of Menara ING and expenses incurred for the necessary due diligence work on the acquisition of Menara ING (Note 24) and earnest deposit paid amounting to RM1,240,000 for another potential building to be acquired.

5. Trade and other payables 2006 RM’000 Trade payables 620 Other payables and accrued expenses 805 1,425

Tenants’ deposits - payable within 12 months 1,196 - payable after 12 months 7,758 8,954 10,379 Included in other payables and accrued expenses is amount due to the Manager and the Trustee

of RM79,426 and RM25,400 respectively which are unsecured, interest free and payable monthly in arrears.

Included in rental deposits are rental deposits received from companies related to the Manager amounting to:

RM’000

Payable within 12 months - Payable after 12 months 5,075 5,075



6. Provisions for income distribution 2006 RM’000

Balance at 21 February 2006 (date of establishment) - Provisions made during the period 12,692 Balance at 31 December 2006 12,692

7. Borrowing (secured) 2006 RM’000

Term loan 105,500 Security The term loan is secured by way of lien holder caveat over Menara HLA (Note 3).

Term and debt repayment schedule The term loan is repayable fi ve years from the date of the full drawdown on 10 March 2006.

The term loan bears interest ranging from 4.16% to 4.55% p.a. during the fi nancial period.

8. Unitholders’ capital 2006 Number of Units ’000

Authorised: At 21 February 2006 (date of establishment)/ 31 December 2006 237,500

2006 RM’000

Issued and fully paid up: At 21 February 2006 (date of establishment) 1 Creation of units: - 35,626,000 units of RM1.00 each 35,625 - 201,874,000 units of RM1.07 each 216,005 Establishment and issue expenses (Note 17) (4,964)

At 31 December 2006 246,667



8. Unitholders’ capital (cont’d)

As at 31 December 2006, the Manager did not hold any units in Tower REIT. However, the Directors of the Manager and related parties held units in Tower REIT as follows:

Number Market of Units value ‘000 RM’000 Direct unitholding in Tower REIT of a Director of the Manager: Kwek Leng Seng 300 273 Direct unitholdings in Tower REIT of the related parties of the Manager: Hong Leong Assurance Berhad 48,865 44,467 HLP Equities Sdn. Bhd. 35,625 32,419 Hong Leong Bank Berhad 2,090 1,902 HLG Securities Sdn. Bhd. 5,981 5,443 Asia Fountain Investment Company Limited 5,600 5,096 The market value is determined by multiplying the number of units with the market price of RM0.91 as

at 31 December 2006.

9. Investment fl uctuation reserves

Investment fl uctuation reserves represent the cumulative net change arising from the fair value movement of the investment properties (Note 3).

10. Gross revenue

21.2.2006 to 31.12.2006 RM’000

Gross rental income 20,007 Car park income 1,845 Other income 488 22,340



11. Property operating expenses 21.2.2006 to 31.12.2006 RM’000

Assessment 1,912 Service contracts and maintenance 1,332 Property management fees 190 Utilities 1,972 Others 607 6,013 The property management fee of RM190,000 was charged by Yap Burgess Rawson International

(proprietor : Yap & Partners Sdn Bhd), in accordance with the Valuers, Appraisers and Estate Agent Acts 1981 with permissible discount.

12. Manager’s fees Pursuant to the Deed constituting Tower REIT, the Manager’s fees consist of a base fee (excluding

any goods and services tax payable) of up to 0.75% per annum of the gross asset value and a performance fee (excluding any goods and services tax payable) of up to 4% per annum of the net property income, but before deduction of property management fee. The base fee for the period ended 31 December 2006 of RM565,481 is 0.13% of the gross asset value. No performance fee has been paid for the period ended 31 December 2006.

13. Trustee’s fees

Pursuant to the Deed constituting Tower REIT, the Trustee is entitled to receive a fee of 0.03% per annum of the net asset value of Tower REIT with a cap of RM200,000. The Trustee’s fees for the period ended 31 December 2006 is RM53,640.

14. Tax expense 21.2.2006 to 31.12.2006 RM’000

Current tax expense - Reconciliation of effective tax expense

Income before taxation 51,224 Income tax using Malaysian tax rate of 28% 14,343 Non-deductible expenses 54 Effect of fair value adjustment of investment properties (10,789) Effect of income exempted from tax (3,608) Tax expense -



15. Earnings per unit The calculation of earnings per unit is based on net income for the period of RM51,224,202 and on the

number of units in circulation during the period of 237,500,000.

16. Distribution to unitholders Distribution to unitholders is from the following sources: 21.2.2006 to 31.12.2006 RM’000

Net rental income 16,327 Interest income 495 Other income 58 16,880 Less: Expenses (4,188) 12,692

17. Establishment and issue expenses

21.2.2006 to 31.12.2006 RM’000 Brokerage and commissions 2,700 Professional fees 812 Miscellaneous expenses 1,452 4,964

These expenses are deducted directly against the unitholders’ funds. Included in the professional fees are non-audit fees paid and payable to the Auditors of Tower REIT amounting to RM130,000 for acting as independent reporting accountants with respect to the issuance and placement of additional units in Tower REIT.



18. Portfolio turnover ratio 21.2.2006 to 31.12.2006 Portfolio turnover ratio (“PTR”) (times) 0.70

The calculation of PTR is based on the average of total acquisitions and total disposals of investments in Tower REIT for the period to the average net asset value during the period calculated on a weekly basis.

Since the basis of calculating PTR can vary among real estate investment trusts, there is no sound basis for providing an accurate comparison of Tower REIT’s PTR against other real estate investment trusts.

There were no other acquisitions and disposals save for the two buildings acquired on 17 April 2006.

19. Management expense ratio 21.2.2006 to 31.12.2006 Management expense ratio (“MER”) (%) 0.32

The calculation of MER is based on total fees of Tower REIT incurred, including the Manager’s fees, Trustee’s fees, audit fees, tax agent’s fees and administrative expenses, to the average net asset value during the period. Since the average net asset value is calculated on a weekly basis, comparison of the MER of Tower REIT with other real estate investment trusts which use a different basis of calculation may not be an accurate comparison.

20. Capital commitment 2006 RM’000

Investment properties Contracted but not provided for and payable within one year (Note 24) 69,000

21. Transactions with companies related to the Manager 21.2.2006 to 31.12.2006 RM’000

Rental charged to Kiapeng Development Sdn. Bhd. 12,159 Rental charged to HLG Capital Berhad 22 Placement fee to HLG Securities Sdn. Bhd. 2,002 Corporate advisory fee to HL Management Co Sdn. Bhd. 151

The above transactions have been entered into in the normal course of business and have been established on terms and conditions that are not materially different from those obtainable in transactions with unrelated parties.



22. Transaction with brokers/dealers

No transaction with brokers/dealers was made during the period.

23. Financial instruments

Financial risks management objectives and policies

Exposure to credit, interest rate and liquidity risk arises in the normal course of Tower REIT’s business. Tower REIT has informal risk management policies and guidelines which set out its overall business strategies and general risk management philosophy.

Credit risk

At balance sheet date, there were no signifi cant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of fi nancial asset.

Interest rate risk Tower REIT’s exposure to changes in interest rates relates primarily to interest-earning fi nancial assets

and interest-bearing fi nancial liabilities. Interest rate risk is managed by the Manager on an ongoing basis with the primary objective of limiting the extent to which net interest expense could be affected by adverse movements in interest rates.

Liquidity risk

The Manager monitors and maintains a level of cash and cash equivalents and bank facilities deemed adequate to fi nance Tower REIT’s operations and to mitigate the effects of fl uctuations in cash fl ows. In addition, the Manager also monitors and observes the Securities Commission Guidelines on Real Estate Investment Trusts concerning limits on total borrowings.

Effective interest rates and repricing analysis

In respect of interest-earning fi nancial assets and interest-bearing liabilities, the following table indicates their effective interest rates at the balance sheet date and the periods in which they mature:

2006 Effective interest Within 1-5 After rate Total 1 year years 5 years % RM’000 RM’000 RM’000 RM’000

Financial assets

Deposits with licensed bank 3.25 13,669 13,669 - -

Financial liabilities

Term loan 4.35 105,500 - 105,500 -




23. Financial instruments (cont’d)

Fair values

Recognised fi nancial instruments

In respect of cash and cash equivalents, trade and other receivables and trade and other payables, the carrying amounts approximate fair value due to the relatively short term nature of these fi nancial instruments.

24. Signifi cant events

(i) On 17 April 2006, The Trustee, acting on behalf of Tower REIT, entered into a 2-year master tenancy agreement with Kiapeng Development Sdn Bhd (“KDSB”) in respect of Menara HLA and this agreement commenced immediately upon the completion of the acquisition of Menara HLA on 17 April 2006.

(ii) On 16 October 2006, Tower REIT and ING Insurance Berhad had entered into a Sale and Purchase Agreement to acquire 78.33% of the total share unit entitlement and 100% of the car parks of Menara ING (“Menara ING”) for a purchase consideration of RM75,000,000 (“Proposed Acquisition”). As part of raising fi nancing for the Proposed Acquisition, GLM REIT Management Sdn. Bhd, the management company of Tower REIT, intends to implement a proposed private placement of up to 43,000,000 new units in Tower REIT (“Proposed Placement”). On 12 January 2007, the Board of GLM REIT Management Sdn. Bhd. had fi xed the issue price at RM0.91 per placement unit, being the weighted average market price of Tower REIT units for the fi ve market days up to 11 January 2007. The valuation of Menara ING and Proposed Placement have been approved by the Securities Commission vide its letter dated 9 January 2007. Bank Negara Malaysia has also vide its letter dated 19 December 2006 approved the sale of Menara ING by ING Insurance Berhad. The Proposed Placement is now pending the approval of the unitholders of Tower REIT and Bursa Malaysia Securities Berhad for the listing of and quotation for the placement units.

Upon completion of the Proposed Acquisition, Tower REIT will enter into a 3-year master tenancy

agreement with ING Insurance Berhad in respect of Menara ING and this agreement will commence immediately upon completion of the acquisition of Menara ING. Upon expiry of the fi rst 3 years term (fi rst term), the tenancy shall be automatically renewed for a further term of 3 years (second term) and contains an option to renew the tenancy term by a further 3-year term (third term). During the second term, early termination of the master tenancy is allowed by giving 12 months’ written notice and provided ING Insurance Berhad moves to a building owned by ING Insurance Berhad or ING Group. During the third term, ING Insurance Berhad is allowed to early terminate the master tenancy by giving 12 months’ written notice.

25. Segmental reporting

As the principal activity of the Tower REIT is to invest in properties with the primary objective to derive rental income, there are no risk and returns distinguishable between business and geographical segments. No segmental reporting is thus presented.

26. Comparative fi gures

No comparative fi gures are presented as this is the fi rst fi nancial statements prepared by Tower REIT.


Names of Unitholders No. of Units Percentage

1. Hong Leong Assurance Berhad 48,865,300 20.58 • As Benefi cial Owner 2. Assets Nominees (Tempatan) Sdn. Bhd. 35,625,000 15.00 • HLP Equities Sdn. Bhd.

3. Cimsec Nominees (Tempatan) Sdn. Bhd. 19,954,100 8.40 • CIMB Bank Berhad

4. Yong Yoon Kiong 14,000,000 5.90

5. Citigroup Nominees (Tempatan) Sdn. Bhd. 11,500,000 4.84 • ING Insurance Berhad

6. Citigroup Nominees (Tempatan) Sdn. Bhd. 10,000,000 4.21 • Uni.Asia Life Assurance Berhad (Life Fund)

7. Cimsec Nominees (Tempatan) Sdn. Bhd. 7,500,000 3.16 • Employees Provident Fund Board

8. HLG Securities Sdn. Bhd. 5,981,000 2.52 • IVT-A

9. HLG Nominee (Asing) Sdn. Bhd. 5,600,000 2.36 • Asia Fountain Investment Company Limited

10. Loh Cheng Yean 4,600,000 1.94

11. Citigroup Nominees (Asing) Sdn. Bhd. 3,500,000 1.47 • Third Avenue Real Estate Opportunities Fund LP

12. Cimsec Nominees (Tempatan) Sdn. Bhd. 3,490,000 1.47 • Pensions Trust Fund Council

13. AMMB Nominees (Tempatan) Sdn. Bhd. 3,200,000 1.35 • HLG Dividend Fund

Distribution Schedule Of Unitholders

Size of Holding No. of % of No. of % of Unitholders Unitholders Unit held Unit held

Less than 100 units 2 0.14 100 0.00100 – 1,000 units 542 38.83 513,800 0.221,001 – 10,000 units 547 39.18 2,737,500 1.1510,001 – 100,000 units 202 14.47 7,139,300 3.01100,001 – less than 5% of issued units 99 7.09 108,664,900 45.755% and above of issued units 4 0.29 118,444,400 49.87

1,396 100.00 237,500,000 100.00

Thirty Largest Unitholders:

Unitholders’ Statistic

Analysis of unitholdings as at 22 January 2007


Unitholders’ Statistic (cont’d)Unitholders’ Statistic (cont’d)

Thirty Largest Unitholders (cont’d)


14. Lembaga Kemajuan Tanah Persekutuan 3,000,000 1.26

15. Uni.Asia General Insurance Berhad 3,000,000 1.26

16. Mayban Nominees (Tempatan) Sdn. Bhd. 2,500,000 1.05 • Perusahaan Otomobil Nasional Berhad

17. Mayban Nominees (Tempatan) Sdn. Bhd. 2,500,000 1.05 • Kumpulan Wang Amanah Pencen

18. Cimsec Nominees (Tempatan) Sdn. Bhd. 2,271,100 0.96 • Chua Ma Yu

19. Hong Leong Fund Management Sdn. Bhd. 2,090,000 0.88 • Hong Leong Bank Berhad

20. Cimsec Nominees (Tempatan) Sdn. Bhd. 2,000,000 0.84 • Seow Lun Hoo @ Seow Wah Chong

21. HLG Nominee (Tempatan) Sdn. Bhd. 2,000,000 0.84 • Pertubuhan Keselamatan Sosial

22. HSBC Nominees (Tempatan) Sdn. Bhd. 2,000,000 0.84 • Hwang-DBS Select Income Fund

23. Koperasi Permodalan Felda Berhad 2,000,000 0.84

24. HLG Nominee (Tempatan) Sdn. Bhd. 1,514,000 0.64 • Chut Nyak Isham Bin Nyak Ariff

25. Ke-Zan Nominees (Tempatan) Sdn. Bhd. 1,450,000 0.61 • Lee Soon Seng @ Lee San Choon

26. UOBM Nominees (Tempatan) Sdn. Bhd. 1,140,000 0.48 • Uni.Asia Life Assurance Berhad

27. Electroscon Coletra Sdn. Bhd. 1,000,000 0.42

28. Gan Seong Liam 1,000,000 0.42

29. HLB Nominees (Asing) Sdn. Bhd. 1,000,000 0.42 • Ko Beng Soo

30. Yeo Khee Nam 1,000,000 0.42

205,280,500 86.43


Unitholders’ Statistic (cont’d)

Major Unitholders

According to the Record of Depositors, the major unitholders holding not less than 5% of the issued units in Tower REIT as at 22 January 2007 are as follows:


1. Hong Leong Assurance Berhad 48,865,300 20.58 • As Benefi cial Owner 2. Assets Nominees (Tempatan) Sdn. Bhd. 35,625,000 15.00 • HLP Equities Sdn. Bhd.

3. Cimsec Nominees (Tempatan) Sdn. Bhd. 19,954,100 8.40 • CIMB Bank Berhad

4. Yong Yoon Kiong 14,000,000 5.90

Documents

LAPORAN TA H U NA Ntower-reit.com.my/files/TWRREIT-AnnualReport2006(1.1MB).pdf · Tun Razak. The ﬁ nishes and speciﬁ cations of Menara HLA provide tenants with functional, quality