STRUCTURE & LEGAL DOCUMENTATION OF AN I-REIT &

UNIT TRUST

ISLAMIC CAPITAL MARKET - Sir Johan LeeMohd Taha Abdul Rahman (G1417805)Mohd Fakhri bin Md Sobri (G1411011)

PART 1 - IREITsISLAMIC REAL ESTATE INVESTMENT TRUST (I-REIT)

ISLAMIC REAL ESTATE INVESTMENT TRUST (I-REIT)

• SC Guidelines (2005) on REIT, to invest at least 50% total assets in real estate.

• An Islamic REIT on the other hand, shall operate in accordance with Shariah Principle.

• Tax efficiency, risk/portfolio diversification, stable returns to investors, professional management.

• Insurance / Takaful to protect the real estate.• Japan (2000) with the revision of Investment Trust Law in May 2000

known as J-REITs. • Korea in April (2001) known as K-REITs with the legislation of “real

estate investment company act”. • Singapore on the other hand comes with its “Sabana Shari’ah

Compliant Industrial REIT” in November 2010 listed in Singapore Exchange Securities Trading Limited (SGX-ST).

I – REIT – (AS – SALAM BY JOHOR CORPORATION)- facts and figures-

• Established under a Deed dated 26 March 2015 & registered with SC on 30 March 2015.

• Prospectus was dated 4 September 2015 & expired 3 September 2016.• Listed on Bursa Malaysia September 2015 with total IPO of 252.36 million units at RM

1.00 per unit.• Utilization of proceed will be channeled into payment of the purchase consideration

for the acquisition about 242.86 million• Balance of another 9.5 million to bear the estimated listing expenses. • 240.76 million units to Malaysian and foreign institutional.• 11.6 million units to Malaysian public. • 31 properties with 1.52 million sq ft net lettable area.• Menara KOMTAR & Komtar JBCC, QSR Properties of 22 restaurants and 5 industrial

properties. • Occupancy rate of about 94% as at June 2015.• Non permissible activities of 1.93% from total revenue based on 2016 forecast.

A) STRUCTURE OF AS – SALAM REIT

Sponsor – Johor Corporation (Jcorp)

Manager – Damansara REIT Managers Sdn Bhd

Trustee – AmanahRaya Trustees Principal Adviser, Sole Global

Coordinator, and Sole Underwriter – RHB Investment Bank Berhad

Joint Placement Agents – RHB Investment Bank Berhad & Maybank Investment Bank Berhad.

Parties in the As – Salam REIT Structure.

• Shariah Committee1. An investment of the REIT shall be in compliance as advised by the SC

members or ruling by the SAC of SC.2. SC Members may apply Ijtihad if necessary, as in the case of activities that not

involving space usage. 3. Conducting half yearly review on the assets and investments.4. Assessing property to be acquired5. Consulting SAC of the SC should there be any ambiguity or uncertainty.

• The Sponsors (Johor Corporation@JCorp)1. Johor Corporation (incorporated under the Johor Corporation Enactment No. 4

1968 (amended by Enactment No. 5 1995)2. Major business in palm oil, property development, investment holdings.3. FYE 31 December 2014 group revenue RM 4.69 billion, total asset base of RM

20.44 billion.

• REIT Manager (DRMSB)1. Paid up share capital of RM 1,000,000.2. Wholly own subsidiary of Jcorp3. CMSL holder. 4. Currently manages 2 funds

• Al – ‘Aqar REIT• Al – Salam REIT

5. FYE 31 December 2014, asset size RM 1.59 billion and market capitalization RM 960.79 million.

6. Functions, duties, responsibilities among others• Risk management• New acquisitions and disposal• Marketing and communication• Proper accounting records• Investor’s realtion• Legal and corporate compliance

Parties in the As – Salam REIT Structure.

Parties in the As – Salam REIT Structure. • Property Manager (Exa Strata Solutions)

1. Incorporated on December 2010 as a real estate consultancy firm.2. The Manager, the Trustee and Property Manager entered“Property Management

Agreement”for the appointment of ES.3. Functions, duties, and responsibilities among others

• Operation and maintenance of the subject properties.• Letting and tenancy management services.• Property promotion services.• Car park management services. 　　

• REIT Trustee (Amanah Raya Trustees)1. Registered as a trust company under the Trust Companies Act 1949. 2. Functions, duties, and responsibilities among others,

• Safeguard the interests of the unitholders• Ensure the Manager does not violate its position in managing the REIT• To notify SC of any irregularity, breach of Deed, Laws or Requirements.

The Deed

• The Deed was entered between the Trustee and Manager on March 2015 and registered with SC.• The Deed contains covenants on the part of each Unitholders.• Deed does not establish either the Trustee or Manager as the

agent of the Unitholders.• Pursuant to the Deed, Trustee shall hold an assets of As –

Salam upon trust for the Unitholders.• Both the Manager and Trustee must perform their respective

duties under the Deed.• The Deed in last shall be governed, and construed in

accordance with the laws of Malaysia.

B) LEGAL DOCUMENTATIONS

• REIT’s governed by the following guidelines and & legislations1. SC Act 1993 (S.158)2. SC Guidelines on REIT’s 20053. SC Guidelines on Islamic REIT 20054. Guidelines on asset valuation5. Guidelines on Prospectus6. Bursa Malaysia Listing Requirements

Material Contracts – SPA

• Deed dated 26 March 2015 entered between Manager and the Trustee for the benefit of unitholders.

• SPA dated 2 April 2015 entered between Trustee and DASB for Menara KOMTAR at RM 70 million in cash.

• SPA dated 2 April 2015 entered between Trustee and DASB for KOMTAR JBCC at RM 462 million in cash.

• SPA dated 2 April 2015 entered between Trustee and DSAB for KFCH College at RM 28.2 million in cash.

• SPA’s Salient Terms• Category A (DASB Properties)

• Have individual title deeds, not subject to any restriction in interest or State Authority consent for the transfer. Acquisition have been completed on May 2015.

• Category B (QSR Properties)• Have individual title deeds or under master title and transfer subject to restriction in

interest from State Authority consent, or proprietor or developer of the land.

• Entered between Trustee (Lessor) and the QSR (Lessee) under the respective MLAs. • Leased by the lessor to the lessee for a term of 3 years.

Renewable every 3 years up to a maximum of 15 years (Lease Term) with an option to renew for another 15 years (Extended Lease Term). In total 5 rental periods.• Rental shall be paid monthly within seven (7) days from the

Lease Commencement Date and subsequent payment to be made on or before seventh (7th) day of each calendar month. • Revision of base rental at the end of every 3 years.

Material Contracts – MLA

C) COMPARISON BETWEEN MALAYSIA & SINGAPORE

• Areas of concern under the Shariah Parameters of an i-REIT’s

Rental of Real Estate Investment, Deposit & Financing

Insurance/Takaful Risk Management

Areas Malaysia (as per guidelines) Singapore (Sabana Shariah Compliant REITs)

Acquiring new assets (existing tenant)

• Tenants with permissible activities only• Non permissible shall not exceed 20% of

i-REIT turnover• Activities of 100% non compliance not

allowed to be acquired

• Mixed activities shall obtain prior approval from Shariah committee

• Percentage not mention

Continuous Rental • 100% must be Shariah compliant• Mixed activities: based on the ratio of

area occupied

• Non permissible activities shall be less than 5% pa from gross revenue

Financing, Investment & Deposit Facilities

• Shall be Islamic • Must be Islamic. Conventional must get approval from Shariah Advisors

1. Total interest – based debt to 12-month average NAV ratio shall less than 33%

2. Sum of cash and interest bearing securities less than 33%

3. All A/C Receivables shall less than 33% • Approval from Shariah Committee must be sought on the

banking facility from Conventional institutions. • Any breach, manager shall bring it to within threshold

within 6 months or two reporting quarters. (sooner).

Cont’d..

Cont’d..Areas Malaysia (as per guidelines) Singapore (Sabana Shariah Compliant REITs)

Takaful / Insurance • Islamic. Conventional must get approval from SA.

Same

Risk Management • For hedging purposes only• Islamic. Conventional must obtain

approval SA

Same

Cleansing Process • Not mention • Net amount of non permissible income (after expenses) before distribution of net income

PART 2 – UNIT TRUST

PRIVATE RETIREMENT SCHEME ISLAMIC STRATEGIC EQUITY FUND (PRS-ISEQF)

PART 2 – UNIT TRUSTPRIVATE RETIREMENT SCHEME ISLAMIC STRATEGIC

EQUITY FUND (PRS-ISEQF)

A. STRUCTURE OF SHARIAH-COMPLIANT FUNDB. TYPES OF FUNDC. LEGAL DOCUMENTATIOND. COMPARISON BETWEEN LOCAL & FOREIGN UNIT TRUST (NEW ZEALAND)

What is Private Retirement Scheme?

Section 139A of CMSA stated:PRS is a retirement scheme governed by a trust, offered or provided to the public for the sole purpose, having the effect, of building up long-term savings for retirement for its members.

A PRS may be illustrated as a tripartite relationship between the PRS Provider, the trustee and members governed by a legally binding deed registered with the Securities Commission of Malaysia (SC).

Regulatory Framework Governing PRSRegulatory Framework for PRS Coverage

Securities Commission of Malaysia • Empowered by law to be the regulator of the PRS industry

• provide a regulatory environment• development of PRS industry

The Capital Markets and Services Act 2007 (CMSA) Part IIIA of the CMSA – come into force on 3rd October 2011 :• Private Retirement Scheme Administrator;• Private Retirement Scheme Providers (PRS Provider);• Private Retirement Schemes (PRS Scheme);• Trustee to Private Retirement Schemes (Scheme

Trustee); and• Trustee to Employer-Sponsored Retirement Schemes

(Employer Trustee)The Capital Markets and Services (Private Retirement Scheme Industry) Regulations 2012 (the PRS Regulations)

Establish the: • duties and responsibilities of a PRS Provider and Scheme

Trustee, • requirements on approval of the PRS Scheme, • the registration and lodgement of the trust deed, • the disclosure document, • register of members and meeting of members

The Guidelines on Private Retirement Schemes (PRS Guidelines) – by virtue Section 377 CMSA 2007

Providing a regulatory environment that would safeguard the interests of contributors to PRS

No Features Private Retirement Scheme Islamic Strategic Equity Fund (PRS-ISEQF)

1 Category of Fund Equity2 Launch Date 6 November 20153 Fund Objective Fund seeks to achieve long-term capital growth.4 Asset Allocation - 75% to 98% of NAV in Shariah compliant equities.

- The balance of NAV in Sukuk and Islamic liquid assts.

5 Investment Strategy PRS-ISEQF seeks to achieve its objective by investing 75% to 98% of its NAV in Shariah-compliant equities and collective investment schemes which comprises of: a diversified portfolio of Shariah-compliant blue chip stocks, index stocks and growth stocks in the domestic and selected foreign markets. The balance of the fund’s NAV will be invested in sukuk and Islamic liquid assets which include Islamic money market instruments, Islamic investment accounts and Islamic deposits. The fund may invest up to 98% of its NAV in foreign markets.

Features of PRS-ISEQF

Cont’d..No Features Private Retirement Scheme Islamic Strategic Equity Fund (PRS-ISEQF)

6 Benchmark - 50% FTSE Bursa Malaysia Hijrah Shariah Index. - 40% customised index by S&P Dow Jones Indices, LLC based on top 100

constituents by full market capitalisation on the S&P Shariah BMI Asia Ex-Japan Index.

- 10% 3-Month Islamic Interbank Money Market (IIMM) rate.7 Principal Risks Market risk, specific security risk, liquidity risk, currency risk, country risk and risk of

non-compliance with Shariah requirements.

8 Trustee AmanahRaya Trustee Berhad (766894-T).

9 Shariah Adviser ZICO Shariah Advisory Services Sdn Bhd (769433-D).

A) STRUCTURE OF SHARIAH-COMPLIANT FUND

Cont’d..

Structure of PRSi. Private Pension

Administrator (PPA)ii. PRS Provideriii. Scheme Trusteeiv. PRS Distributors &

Consultants

i) PRS Provider (Public Mutual Berhad) Section 2 of the Capital Market and Services Act 2007 (CMSA), stated that;

“the “business trust” is defined as a unit trust scheme where the operation or management of the scheme and the scheme’s property or asset is managed by a trustee manager”

Section 139A of CMSA defined the PRS Provider as:-“a person who provides and manages a private retirement scheme”

Function of PRS Provider• to ensure that the PRS is managed within the ambit of the Deed, the CMSA

2007, the securities laws and the relevant guidelines at all times;

Cont’d..PRS Provider Job Scope

Board of Director Determining the corporate policies and direction of the Company

Management Staff / CEO Report to the Board of Director.

Key Investment Personnel • Report to the CEO. • Monitoring macro-economic variables and

developments as well as undertaking financial analyses of various listed companies.

Investment Committee • oversees the investment process of the funds,• reviewing the asset allocation and investment

strategies proposed by the Fund Manager

Audit, Risk & Compliance Committee • reviews and reports to the Board of Directors internal control issues

• ensuring proper management of assets, liabilities, revenue and expenses of the Company and compliance with statutory and regulatory requirements

ii) Trustee (AmanahRaya Trustee Berhad) Guideline on Private Retirement Scheme:

Chapter 4.01 – Appointment of Scheme TrusteeChapter 4.02 – Eligibility requirement

Duties and Responsibilities of The Trustee.

• ensure compliance of PRS Officers and Delegates• provide accurate valuation and pricing• ensure accuracy of all transactions to avoid unnecessary costs or

risk to the fund• adequate accounting for all accounts

iii) Shariah Adviser (ZICO Shariah Advisory Sdn Bhd)Guidelines on Private Retirement Scheme for Shariah-compliant fund Chapter Description

Chapter 6.02 Appointment of Shariah AdviserChapter 6.07 The investment committee must comprise

at least two Muslim members.

A quorum is not present for the purpose of holding an investment committee meeting unless one Muslim member is present at the meeting

Chapter 6.13 A Shariah adviser must–

(a) be independent of the PRS Provider; (b) be registered with the SC; (c) (where individuals are appointed) comprise at least three individuals who meet the fit and proper criteria in clauses 6.24 and 6.25; and (d) (where a corporation is appointed) engage at least one Shariah expert who meets the fit and proper criteria in clauses 6.24 and 6.25.

Cont’d..In line with SC Guidelines, the role of Shariah Adviser are:

• To ensure that the operations and investments of the funds are in compliance with Shariah requirements at all time.

• Meets with the PRS Provider on a quarterly basis to review and advise on the fund’s compliance with Shariah requirements.

B) TYPES OF FUND

TYPES OF FUND INVESTMENT OBJECTIVESIncome fund Invests in Islamic fixed-income securities and huge dividend-

yielding Shariah-compliant shares, with a view to pay out most of the returns.

Suitable for investors with low-risk appetite, seeking income with some level of growth.

Capital Growth Invests in Shariah-compliant funds shares, with a view to maximise capital growth over the long term (i.e. through a higher unit price).

Suitable for investors with high-risk appetite and are keen on capital accumulation.

Aggressive Similar to capital growth but growth funds with investments in aggressive, fast track Shariah-compliant shares that promise high returns, but with higher risk.

Suitable for investors with high-risk appetite.

Cont’d..TYPES OF FUND INVESTMENT OBJECTIVES

Balanced Funds Three main objectives: income; moderate capital appreciation; and capital preservation.

Invests across a broad range of asset categories, including Shariah-compliant shares, Islamic fixed-income securities and cash.

Risks are lower and which produce average returns.

Index Funds Invests in a basket of Shariah-compliant shares to track the performance of a selected stock market index.

Suitable for investors seeking medium to long-term capital appreciation.

Bond Funds Invests in Islamic fixed income securities such as Islamic bonds and short-term money-market instruments.

Suitable for investors seeking greater security in form of capital preservation and income with minimal risk.

C) LEGAL DOCUMENTATION

i. Product Highlights Sheetii. Disclosure Documentiii. Trust Deeds

i) Product Highlights Sheet

Summary of the salient information about the PRS (“Scheme”) and Public Mutual PRS Islamic Strategic Equity Fund (“PRS-ISEQF)

The contents consist of;i. Details of the “Scheme” and “PRS-ISEQF”,ii. Benefit of contributing to the Scheme,iii. How the Scheme work,iv. General risks involved,v. Specific risks to PRS-ISEQF,vi. Fees and Chargesvii. Applicable Taxviii. Contribution trackingix. How to start contributex. How to lodge complaint

ii) Disclosure DocumentSection 2 Capital Markets And Services (Private Retirement Scheme

Industry) Regulations 2012 stated:Disclosure document means any document which is issued by a private retirement scheme provider inviting contributions to the private retirement scheme

Chapter 13 – Establish the guidelines on the issuance of disclosure document

For PRS-ISEQF, the Disclosure Document has been reviewed, approved and registered by the:-

i. Directors of Public Mutual Berhadii. Securities Commission of Malaysia

Cont’d..The contents of the Disclosure Document:-

i. Key Features of the Scheme and fundsii. Detailed Information on the Scheme and fundsiii. Purchase and Redemption Informationiv. Transaction Informationv. Fees, Charges & Expensesvi. PRS Provider Informationvii. Trustee Informationviii. Shariah Adviser Informationix. Salient Terms of the Deedx. Conditions of Approval of the Scheme and fundsxi. Taxation of the Funds and Membersxii. Public Mutual Branch Officesxiii. Public Mutual Agency Offices

Cont’d.. (Product Highlights Sheet VS Disclosure Document)Item Product Highlights

SheetDisclosure Document

1. Key Features of the fund / /2. Detailed Information on the fund NIL /3. Benefit of contributing to the Scheme / /4. Purchase, Redemption & Switch Units Information / /5. Fees, Charges & Expenses / /6. Transaction Information NIL /7. Information on General Risks involved / /8. Information on Risks Specific to PRS-ISEQF / /9. Information on Taxation of the Funds and Members / /10. PRS Provider Information NIL /11. Trustee Information NIL /12. Shariah Adviser Information NIL /13. Salient Terms of the Deed NIL /14. Contribution Tracking Information / /15. Conditions Of Approval of The Scheme And Fund NIL /16. Public Mutual Branch & Agency Office Information NIL /

iii) Trust DeedsSection 2 of Capital Markets and Services (Private

Retirement Scheme Industry) Regulations 2012 stated:

“deed” means any deed which creates a trust governing the establishment and operation of a private retirement scheme and funds in the private retirement scheme and includes any supplementary deed

It effectively forms the constitution of the fund, and details the way in which the fund operates.

The trust deed is prepared by the fund manager and is registered with the SC.

Cont’d..

Trust Deeds may contain the items as follow:-

i. Covenants of Management Companyii. Covenants of the Trusteeiii. Joint Covenants of the Management Company & Trusteeiv. Member’s rights & Liabilitiesv. Maximum Fees and charges permitted by the deedsvi. Permitted expenses payable out of the fundsvii. Retirement and replacement of the PRS Providerviii. Retirement, removal and removal of the trusteeix. Termination of the scheme or funds under a schemex. Member’s meetingxi. Withdrawalsxii. Switching and transfer of unitsxiii. The deed

Unit Trust Guideline – Effective date on 3rd March 2008, updated on 1st June 2010

D) COMPARISON BETWEEN PRS-ISEQF (LOCAL) AND AMANAH KIWISAVER PLAN (FOREIGN)

No Features Private Retirement Scheme Islamic Strategic Equity Fund (PRS-ISEQF)

Amanah KiwiSaver Plan (Amanah Growth Fund)

1 Fund Objective

Fund seeks to achieve long-term capital growth. Same as PRS-ISEQF

2 Scheme type Retirement saving represented by Unit trust Same as PRS-ISEQF

3 Launch Date 6th Nov 2015 23rd Sept 2015

4 Regulatory Body

Securities Commission of Malaysia (SC) New Zealand Financial Markets Authority (FMA)

5 Trustee Required by the Part IIIA of CMSA 2007 & Capital Markets and Services (Private Retirement Scheme Industry) Regulations 2012

Licensed issued by FMA under Securities Trustees and Statutory Supervisors Act 2011 & Trustee Act 1956

6 Shariah Adviser & compliance

Required by the Guideline on Private Retirement Scheme and Guideline on Islamic Management Fund

Islamic Advisory Board, AAOIFI, IdealRatings®.

7 Fund Cleansing Channeled to charitable body Registered humanitarian charity i.e Red Cross / Red Crescent

Cont’d..No Features Private Retirement Scheme Islamic Strategic Equity

Fund (PRS-ISEQF)Amanah KiwiSaver Plan (Amanah Growth Fund)

8 Investment Strategy

PRS-ISEQF seeks to achieve its objective by investing 75% to 98% of its NAV in Shariah-compliant equities comprises of: a diversified portfolio of Shariah-compliant blue chip

stocks, index stocks and growth stocks in the domestic and selected foreign

markets. The balance of the fund’s NAV will be invested in sukuk and Islamic liquid assets which include Islamic money market instruments, Islamic investment accounts and Islamic deposits. The fund may invest up to 98% of its NAV in foreign markets.

The Trust invests in up to 50 Shari’ah compliant stocks listed on the NYSE, NYSE MKT or main board NASDAQ (the authorised exchanges) or cash. The stocks must be listed on the authorised exchanges but are corporations domiciled internationally.

The Trust’s investment focus is on corporations that produce goods or services demanded by consumers.

9 Principal Risks Market risk, specific security risk, liquidity risk, currency risk, country risk and risk of non-compliance with Shariah requirements.

Same with PRS-ISEQF + Reliance on IdealRatings®,

Cont’d..No Features Private Retirement Scheme Islamic Strategic

Equity Fund (PRS-ISEQF)Amanah KiwiSaver Plan (Amanah Growth Fund)

10 Benchmark - 50% FTSE Bursa Malaysia Hijrah Shariah Index.

- 40% customised index by S&P Dow Jones Indices, LLC based on top 100 constituents by full market capitalisation on the S&P Shariah BMI Asia Ex-Japan Index.

- 10% 3-Month Islamic Interbank Money Market (IIMM) rate.

IdealRatings® AAOIFI illustrated 3 relevant financial ratios: Interest bearing debts (<30%) Interest generating investments (<30%) Liquidity (<67%) - Under the AAOIFI standards, the “liquidity

ratio” measures the investment’s “real and tangible” assets on the balance sheet.

Unacceptable of high level of borrowing or debt within a corporation. All our investments must be ‘low geared’.

A corporation must work for money rather than let the money idly work for the corporation. This is called ‘organic growth’.

Shari’ah law interprets ‘liquidity’ to mean ‘real and tangible’ assets. At least 33% of a company’s assets must be ‘real and tangible

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