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Wednesday October 10, 2012
By JOHN LOH email@example.com
PETALING JAYA: Sunway Real Estate Investment Trust (Sunway REIT) will see the injection of its first healthcare asset with the proposed acquisition of Sunway Medical Centre (SunMed) for RM310mil, which would boost its portfolio to 12 properties and keep it at the top rung in terms of assets among local REITs.
StarBiz reported yesterday that the company was looking to add either education or medical assets after it indicated in August an interest to absorb four properties, including SunMed, from its sponsor Sunway Bhd.
Sunway REIT said in a public filing that it would pay for SunMed's land and building with a combination of debt and/or equity, the latter of which is to be raised from a placement of new units of up to RM320mil.
The pricing, number of units and ratio between debt and equity have yet to determined as a bookbuilding exercise will soon be carried out by its four placement agents RHB Investment Bank Bhd, Maybank Investment Bank Bhd, Credit Suisse (Singapore) Ltd, and The Hongkong and Shanghai Banking Corp Ltd (Singapore).
This process is expected to be completed by the end of the year, with the potential placees being foreign and local institutional investors, Sunway REIT chief executive officer Datuk Jeffrey Ng said at a briefing.
SunMed, located in Sunway's 324ha flagship Sunway Resort City development in Bandar Sunway, has a market value of RM310mil as appraised by its independent valuer Knight Frank (Ooi and Zaharin Sdn Bhd) and net book value of RM161mil.
It is a seven-storey purpose-built hospital with gross floor area of 762,319 sq ft, 324 beds, 12 operating theatres, 94 consultation suites, and a convention centre with capacity for 500 people.
A master lease agreement has also been signed between the parties, essentially guaranteeing rental payments from SunMed for 10 years with an option to renew for another 10.
Under the lease, Sunway REIT will receive rental revenue of RM19mil in the first year of acquisition and an incremental rate of 3.5% per annum for each of the subsequent nine years.
Ng said the lease was signed on a triple net basis, meaning the rental income from SunMed would be accrued in its entirety to Sunway REIT as the maintainence and other costs would be borne by the operators of the hospital, which is a wholly-owned unit of Sunway.
Post-acquisition, Sunway REIT's asset base is set to grow to RM4.9bil from RM4.7bil, pushing it further ahead of recently-listed IGB REIT's RM4.67bil.
“Our business is model is quite simple: we grow via acquisitions. We are not going to do anything else other than look at what is in the market and continue to build up the portfolio,” Ng said.
He added that Sunway would not be taking up any units in the placement. The dilution of its stake, however, is not envisaged to drop below 33% from the current 37%, underscoring its long-term commitment to the firm.
Meanwhile, analysts told StarBiz the net impact of the new asset would be marginal, with one estimating the effect on dividend per unit at less than 0.5% as a result of the dilution caused by the private placement.
“On its own, this is not very significant for shareholders, but it is nonetheless a win-win for both Sunway REIT and Sunway,” he said.
Sunway will see a net gain on disposal of RM148.8mil from the sale in the first quarter next year, which is when the transaction is slated to go through.
RHB Research Institute said in a note to clients that the price tag was “good” considering the property's book value and development cost of RM178.6mil.
For Sunway REIT, the brokerage said SunMed's first year yield of 6.1% was “decent” vis-a-vis the REIT's own average yield of 4.6%.
It added that the step up rate of 3.5% was comparable to the 2% to 3% for Al-Aqar REIT, the only pure healthcare REIT in the country.
“We are neutral on the acquisition of SunMed, as management has previously hinted at acquiring some assets from the sponsor to mitigate the loss of income from the upcoming closure of Sunway Putra Mall,” RHB Research said.
Another analyst opined that SunMed, being a healthcare asset, would not enjoy the “exciting” double-digit rental growth of a retail property, but it offered stable and resilient income.
Sunway REIT is also seeking its shareholders' mandate to allot and issue up to 20% of its approved fund size to enable it to make opportunistic acquisitions and cash calls when necessary.
Its units gained four sen to close at RM1.55 yesterday on volume of 2.84 million transactions.
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