KPJ Healthcare Bhd has proposed to inject a 5,644sqm land in Seremban, Negeri Sembilan into Al-‘Aqar Healthcare REIT for RM4.25mil.

In a Bursa announcement yesterday, KPJ said that its wholly-owned subsidiary, Seremban Specialist Hospital Sdn Bhd (SSHSB), had entered into the sales and purchase agreement with AmanahRaya Trustee Bhd, which is the trustee for Al-‘Aqar.

The disposal is expected to result in a gain of RM0.62mil. SSHSB will then lease the land from Al-‘Aqar. The land being disposed is currently being used as an open space carpark; a medical gas storage building, a substation, and a refuse had also been erected upon.

The disposal is part of KPJ’s amalgamation plans for the expansion of KPJ Seremban Specialist Hospital. Note that the land being disposed is adjacent to a 16,832sqm land (owned by Al-‘Aqar) where the existing hospital building is erected upon.

Post completion of the disposal, Al-‘Aqar will amalgamate the two land parcels. This is necessary for KPJ to obtain the Certificate of Completion and Compliance when the expansion of KPJ Seremban is completed on the existing land in Nov 2015.

The expansion entails the construction of an additional eight-storey physician consultant block, and a six-storey annexe block on the Al-‘Aqar land.

Upon completion of the disposal, KPJ will then lease the land in a supplementary lease agreement. On 13 Oct 2015 (when the lease for the existing Al-‘Aqar land expires), KPJ will then enter into a new lease agreement encompassing the existing land, existing properties and the land currently being disposed. The rental rate will be 7.1% p.a. of the disposal consideration (or RM0.3mil), which we deem to be fair.

We have a neutral view on the disposal as it is part of KPJ’s continuous plans to inject assets into Al-‘Aqar. Moreover, the disposal is necessary to facilitate KPJ’s expansion plans for Seremban Specialist.

This land is being disposed at market value. It is the eight injection exercise into Al-‘Aqar since 2006. The last injection was last Oct for the KPJ Healthcare University extension. We expect more injections in the future when its newer hospitals mature.

We see possible pressure on margins post GST implementation next month and given the pipeline of new hospitals coming on-stream. Maintain HOLD (Fair Value: RM4.10) .

Source: AmeSecurities Research - 20 Mar 2015