Ravi Chandran
SPH acquires portfolio of five high quality senior independent living properties in Hokkaido, Nara and Tokyo
- Leveraging on partnership with Bridge C Capital to identify suitable opportunities in Japan’s aged care and healthcare sector
- Marks first overseas investment for Aged Care business in the Japanese market in partnership with Bridge C Capital
- In line with strategy to acquire cash-yielding assets in defensive sectors to grow recurring income
Singapore Press Holdings Limited (“SPH”) on Feb 24 announced that it has, through two special purpose vehicles, Straits Himawari TMK One TMK and Straits Himawari TMK Two TMK, entered into sale and purchase agreements to acquire five aged care assets in Japan for an aggregate consideration of JPY5.26 billion (approximately S$65.8 million).
SPH said that the acquisition of the portfolio of five high quality senior independent living properties is in line with the Group’s strategy of investing in aged care and healthcare assets, and expanding its business footprint in markets with fast-ageing populations.
Three of the properties are in Hokkaido, one is in Nara in the Osaka Metropolitan Region and the fifth, in Tokyo. The properties are well-designed and located, with a total capacity of 365 beds. Seniors are offered quality independent living services including community-based activities, transport and laundry, meals and care services. SPH said that further details of the senior independent living properties will be disclosed on completion of the acquisition.
Mr. Ng Yat Chung, Chief Executive Officer of SPH, said: “We continue to seek opportunities to expand our Aged Care business overseas. This acquisition is in line with our strategy of growing our recurring income base through the acquisition of cash yielding assets in defensive sectors.”
The acquisition of the senior independent living properties is made as part of SPH’s partnership with Japanese real estate asset manager Bridge C Capital in October 2019 to establish a fund focused on investing in aged care and healthcare assets such as senior housing, nursing homes and medical office buildings in Japan. Asset management fees will be generated as part of the fund, eventually adding to the recurring income stream from the assets. The senior independent living properties in Japan will continue to be managed by the current operators on long leases averaging 23.4 years.
Mr. Anthony Tan, Deputy Chief Executive Officer of SPH said: “The move builds on the acquisition of Orange Valley, one of the largest private nursing home operators. We believe that the aged care industry is set for continued growth in countries with fast-ageing populations like Singapore and Japan. We will continue to leverage on the track record and network of Bridge C to explore future growth opportunities in Japan.”
The aged care sector in Japan has attractive demographics with the proportion of the elderly population (65 years and above) expected to rise to 30% by 20252. Senior care offerings, including home, facility and the elderly care market are estimated to be worth JPY15 trillion (approximately S$188 billion) in 2025.
The aggregate consideration will be fully satisfied in cash and funded through internal as well as external resources. The acquisition is expected to complete by March 2020 and is not expected to have a material effect on the net tangible assets per share or earnings per share of the Company for the current financial year.
A recent report by OCBC said that as its media business in FY19 was a drag on results, and with a weak macro backdrop likely to continue to weigh on its advertisement revenue moving forward, it is relying more on property for income diversification.
The report noted that SPH has made some strides in media business with its digital push and income diversification strategy, as shown by its latest acquisition of UK student accommodation assets, but its Singapore residential property exposure in Bidadari still remains a source of potential headwind.
In its investment summary OCBC said:
“Under expectations – SPH’s FY19 results came in below our expectations. The group’s operating revenue was down 2.4% YoY to S$959.3m, bolstered by revenue contribution from its Purpose-Built Student Accommodation (PBSA) portfolio, SPH REIT’s Figtree Grove and Rail Mall, which helped to offset declines in its media revenue.
The group’s newspaper ad revenue YoY decline has increased from 12.4% in FY18 to 13.9% in FY19, owing to notable weakness in the Classified segment. PATMI was down 23.4% YoY to S$213.2m, due largely to the lack of investment income, following the previous divestment of the group’s Treasury & Investment portfolio. Adjusting for exceptional and one-off items, core PATMI came in at S$155.2m, comprising 96.5% of our full-year forecast. The group has declared a final and special DPS of 5.5 S-cents and 1S-cents, bringing the full-year DPS to 12 S-cents.
Relying on property moving forward – SPH has also announced that it will be looking to streamline its media sales capabilities, with around 5% reduction in staff numbers across the Media Group. We expect modest net cost savings in FY20, given that the group will be incurring ~S$8m in retrenchment cost in 1QFY20. Moving forward, we believe the group will continue to be on the lookout for more PBSA assets, building on its portfolio AUM of more than S$600m though we note that cap rates for such assets in the UK have been compressing.
The group has also partnered a Japanese asset manager to set up a fund focusing on aged care and healthcare assets in Japan; SPH will be contributing up to S$50m in seed equity. Separately, we note that Woodleigh Residences is 20% sold as at 31 Aug, with an ASP of ~S$1.9k psf. In our view, the group’s media business outlook remains challenging, and we believe it is still too early to call the bottom on this segment. We roll forward our valuations and reduce our FV slightly from S$2.29 to S$2.28.”
