-  We reaffirm our BUY recommendation on Al-‘Aqar Healthcare REIT with an unchanged fair value of RM1.45/unit, based on a DCF valuation.

-  The Sale and Purchase Agreement in relation to the disposal of Selesa Tower in Johor Bahru with purchaser, Smartwheels Intelligence Sdn Bhd for RM112mil has been terminated.

-  The purchaser has failed to settle the balance of the disposal consideration (RM100.8mil) within the stipulated time frame.

-  Al-‘Aqar will refund to the purchaser, the sum of RM6.7mil (6% of disposal  consideration) and forfeit RM2.2mil (2% of disposal consideration). The RPGT retention sum which has been paid to the Inland Revenue Board (IRB) would only be refunded to the purchaser upon Al’-Aqar receiving the same from IRB.

-  While we are neutral on this development as occupancy remains strong, the property somewhat does not compliment the group’s portfolio as a hospitality REIT. Selesa Tower comprises a hotel and an office block. Management highlighted that Al-‘Aqar still intends to dispose Selesa Tower.

-  We make no changes to our EPS estimates. Note that since the announcement of the disposal of Selesa Tower, we have yet to include the gain of the said disposal, estimated at RM21.5mil, into our earnings estimates.

-  Our HOLD is premised on the lack of acquisition in the near term. Nevertheless, Al-‘Aqar is a prime key beneficiary of the aggressive expansion of KPJ Healthcare and the growing private healthcare industry.

-  The stock is currently trading with a distribution yield of 5.7%, a yield spread of 174bps over the 10-year Malaysia Government Securities.

Source: AmeSecurities