-  We reaffirm our HOLD recommendation on Al-‘Aqar Healthcare REIT with an unchanged fair value of RM1.50/unit, based on a DCF valuation.

-  Al-‘Aqar had announced to undertake a proposed private placement to raise gross proceeds of up to RM40mil to partly finance the acquisition of the extension of KPJ University (which comprises two parcels of freehold land in Nilai together with buildings erected thereon) for a total of RM77.8mil from Puteri Nursing College Sdn Bhd (PNCSB), a wholly-owned subsidiary of KPJ Healthcare.

-  This exercise together with the acquisition is expected to be completed in 1QFY15.

-  Pursuant to the General Mandate, the REIT can issue new units of not exceeding 139mil, or representing 20% of its approved fund size of 696.2mil. Al-‘Aqar did not issue any units in the past one year.

-  Based on the indicative issue price of RM1.26/unit, the issue size for the private placement is 31.7mil, which represents 4.6% of its existing approved fund size.

-  The acquisition will be funded via the following:- (1) 50% from proceeds of the proposed private placement of 31.7mil new units (RM38.9mil); (2) 25% from the deferred consideration of 15.4mil new units (RM19.5mil) to PNCSB (which will eventually hold a 2% stake in the REIT); and (3) 25% from bank borrowing (RM19.5mil).

-  The proposed placement will allow Al-‘Aqar to raise funds for the acquisition without compromising its gearing level, which stands at 47% as at end-FY2013. Post the exercise, gearing is expected to reduce to 46%.

-  After the acquisition, Al-‘Aqar’s share base will increase by 6.8% to 743.4mil. KPJ Healthcare will hold a 49% stake in Al-‘Aqar through its indirect shareholdings.

-  We make no changes to our EPS estimates. The stock is currently trading at a distribution yield of 5.7%.

Source: AmeSecurities