Raffles Medical Group (RMG) recently proposed to acquire a property which is located adjacent to Holland Village MRT station for a purchase consideration of S$54.8m. RMG intends to redevelop the property into a purpose-built five storey commercial building (expected total floor area of 62,720 sf), of which it will occupy 9,000 sf of space for its own outpatient medical and specialist clinics. We believe this will enable RMG to target the Holland Village community, which is largely made up of expatriates and the more affluent local population. The total redevelopment cost is estimated to reach ~S$65m and we believe construction will take approximately two years. This acquisition will be financed with RMG’s internal resources (bolstered by its strong net cash of S$141.7m as at 30 Sep 2013 and recent asset sale) and bank borrowings. Maintain BUY and S$3.61 fair value estimate on RMG.
Targeting the Holland Village catchment area
Raffles Medical Group (RMG) recently entered into a sale and purchase agreement with DBS Bank to acquire its property at 100 Taman Warna (located adjacent to Holland Village MRT station) for a purchase consideration of S$54.8m. The property has a land area of ~20,907 sf and has 72 years of tenure remaining (99-year leasehold land). RMG has already obtained regulatory approval to increase its gross plot ratio from 1.2 to 3.0. This will allow RMG to redevelop the property into a five storey commercial building comprising five above-ground levels, one basement level and two levels of basement car parks with a total floor area of 62,720 sf. The total redevelopment cost is estimated to reach ~S$65m and we believe construction will take approximately two years. RMG intends to occupy 9,000 sf of space for its own outpatient medical and specialist clinics (~20% of the net lettable area). We believe this will enable RMG to target the Holland Village community, which is largely made up of expatriates and the more affluent local population. DBS will lease 4,500 sf of space, while the remaining leasable areas are expected to be leased out to retail shops and F&B outlets. According to data from URA REALIS, shops in the Holland Avenue, Holland Drive, Holland Road and Holland Close area have fetched a median rental of S$12.93 psf per month from Jan to Dec 2013.
Strong balance sheet to finance expansion plans
The total transaction and redevelopment costs will aggregate S$119.8m, and RMG expects to finance this with internal resources and bank borrowings. As at 30 Sep 2013, RMG was in a net cash position of S$141.7m. It also received gross proceeds of S$120m in 4Q13 from the sale of its Thong Sia commercial podium. As the redevelopment will be purpose-built, we believe it will be easy for RMG to expand its medical operations in the property in the future.
Maintain BUY
We maintain our BUY rating and S$3.61 fair value estimate on RMG, pegged to 29x FY14F EPS. RMG is our top healthcare pick for 2014.
Raffles Medical Group (RMG) recently entered into a sale and purchase agreement with DBS Bank to acquire its property at 100 Taman Warna (located adjacent to Holland Village MRT station) for a purchase consideration of S$54.8m. The property has a land area of ~20,907 sf and has 72 years of tenure remaining (99-year leasehold land). RMG has already obtained regulatory approval to increase its gross plot ratio from 1.2 to 3.0. This will allow RMG to redevelop the property into a five storey commercial building comprising five above-ground levels, one basement level and two levels of basement car parks with a total floor area of 62,720 sf. The total redevelopment cost is estimated to reach ~S$65m and we believe construction will take approximately two years. RMG intends to occupy 9,000 sf of space for its own outpatient medical and specialist clinics (~20% of the net lettable area). We believe this will enable RMG to target the Holland Village community, which is largely made up of expatriates and the more affluent local population. DBS will lease 4,500 sf of space, while the remaining leasable areas are expected to be leased out to retail shops and F&B outlets. According to data from URA REALIS, shops in the Holland Avenue, Holland Drive, Holland Road and Holland Close area have fetched a median rental of S$12.93 psf per month from Jan to Dec 2013.
Strong balance sheet to finance expansion plans
The total transaction and redevelopment costs will aggregate S$119.8m, and RMG expects to finance this with internal resources and bank borrowings. As at 30 Sep 2013, RMG was in a net cash position of S$141.7m. It also received gross proceeds of S$120m in 4Q13 from the sale of its Thong Sia commercial podium. As the redevelopment will be purpose-built, we believe it will be easy for RMG to expand its medical operations in the property in the future.
Maintain BUY
We maintain our BUY rating and S$3.61 fair value estimate on RMG, pegged to 29x FY14F EPS. RMG is our top healthcare pick for 2014.
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