- KPJ Healthcare Bhd has proposed to inject two parcels of freehold land in Nilai into its 48.7%-owned Al-`Aqar Healthcare REIT for RM77.8mil.

- The disposal of the two parcels of land, measuring 72,188 sq m, includes the building erected thereon, which is the new extension of KPJ Healthcare University College (KPJUC), a hostel block and two TNB sub-stations. KPJ will then lease the properties from Al-`Aqar for 15 years (renewable every 3 years) with an option to extend for another 15 years.

- Al-`Aqar already owns the adjacent lands which houses the KPJUC buildings. KPJ is required to amalgamate the parcels of lands to meet authorities’ requirements for the extension of KPJUC.

- As at end-Dec 2013, the net book value of the two land parcels and the buildings are at RM9.8mil and RM44.9mil, respectively.

- The academic block is an eight-storey building with a gross floor area (GFA) of 11,020 sq m, with a maximum capacity of 2,500 students. Meanwhile, the 11-and-half storey-hostel block has a GFA of 1,020 sq m and can accommodate 1,020 students.

- Half of the disposal consideration (RM38.9mil) will be paid in cash. The remaining will be paid either through deferred cash consideration, or issuance of new Al-`Aqar units, or a combination of both within three years after the completion date.

- KPJ intends to use 77% (or RM30mil) of the initial proceeds to repay borrowings, while RM8.3mil will be used for working capital purposes. However, we only expect a marginal impact on its net gearing.

- KPJ is estimated to realise a gain of RM16.8mil from the disposal.

- We are not surprised with the move as Al-`Aqar already owns the land which houses the existing KPJUC buildings. Nevertheless, we do not expect any more injections by KPJ Healthcare this year as its new hospitals are still in the gestation period.

- This is the seventh injection exercise into Al-`Aqar since 2006. In 2011, KPJ Healthcare injected Jeta Gardens for RM132mil. Maintain HOLD. 

Source: AmeSecurities