Assets injection into Al-Aqar REIT enables KPJ to expand hospitals network

KUALA LUMPUR: The proposed injection of assets into Al-Aqar KPJ Real Estate Investment Trust (REIT) enables KPJ Healthcare Bhd to expand its hospitals network without pressuring its balance sheet.

This is because, most of the cash proceeds would be used as working capital, following the proposed disposal of entire interest by KPJ's subsidiaries in three properties to Al Aqar, said OSK Research on March 10.

KPJ announced on March 9 that its subsidiaries, PT KPJ Medica, Pusat Pakar Kluang Utama Sdn Bhd and Bandar Baru Klang Specialist Hospital Sdn Bhd, are disposing three properties to Al-Aqar REIT for RM138.8 million.

The properties are Rumah Sakit Bumi Serpong Damai building in Indonesia, Kluang Utama Specialist Hospital building and Bandar Baru Klang Specialist Hospital building.

"Unlike the three other previous injections, KPJ for the first time, will be injecting its Indonesian hospital building into the REIT which could pave the way for a further expansion in that country," OSK Research said in an equity note here on March 10.

The injection will be satisfied via a RM83.3 million cash and RM55.5 million issuance of 56.6 million new units in Al-Aqar REIT at an issue price of RM0.98 per unit.

The proposal is expected to be completed by the second half of financial year 2011.

OSK Research said the short time period between acquisitions of the assets and its injection into the REIT, was in line with KPJ's objective to free out its balance sheet.

This will enable KPJ to continue with a more aggressive expansion strategy by adding two new hospitals into its network annually, said the research house.

KPJ had invested in the Rumah Sakit Bumi Serpong Damai building in 1997, while it only acquired the Kluang Utama Specialist Hospital and Bandar Baru Klang Specialist Hospital buildings in December 2008 and July 2009 respectively.

OSK Research said it is very likely for KPJ to reduce its stake by declaring dividend-in-specie in terms of units in Al-Aqar REIT, to maintain shareholding at an associate level.

Currently KPJ holds a 46.22% interest in the REIT and following the completion of the latest injection, KPJ's stake will increase to 50.87%.

OSK Research said it continues to see KPJ as an excellent small-cap investment with a sound business model, that generates good returns in the immediate term.

The research house maintained its "buy" rating on KPJ. -- Bernama