PERENNIAL Real Estate Holdings (PREH) said on Tuesday its healthcare arm is taking up a 49.9 per cent stake in Renshoutang, the largest private eldercare operator in Shanghai, through a capital injection of 735.5 million yuan (S$148 million).
Renshoutang operates 11 eldercare facilities with over 2,400 beds, and four pharmacies, each with a dedicated TCM (Traditional Chinese Medicine) clinic. They are located predominantly in Changning District in Shanghai.
The consideration takes into account the existing operations and business pipeline of Renshoutang, which translates to about 12.9 times Ebitda (earnings before interest, taxes, depreciation and amortisation) based on Renshoutang's full-year financial statements for 2015.
"Our investment in Renshoutang provides immediate access to the largest integrated eldercare company in Shanghai with a strong operating track record and strengthens our 'asset-light' strategy to drive steady long-term income for the group," said PREH chief executive Pua Seck Guan.
He added that this allows the group to leverage Renshoutang's platform, raise its operations standard, and scale up the business to become the largest eldercare services operator in the Yangtze River Delta Region. "Ultimately, the shareholders' vision is to position Renshoutang as one of the largest eldercare operators in China."
Renshoutang has an existing portfolio of over 2,400 beds, and access to a committed pipeline and pipeline under negotiation of over 5,700 beds and 16,000 beds respectively, positioning it to be the largest eldercare services operator in the affluent and populous Yangtze River Delta Region in the next few years.
Upon completion of the deal, PREH will be the largest single shareholder of Renshoutang, followed by the founder of Renshoutang, Dr Feng Qiang. Renshoutang will become an associated company of Perennial and provide a new stream of recurring income to the group.
Earlier in January, PREH had entered into a memorandum of understanding with Shanghai Summit Property Development (Shanghai Summit) and Shanghai RST Chinese Medical Co (Renshoutang) to form a joint venture to set up and manage Chengdu Xiehe International Eldercare and Retirement Home at Chengdu Plot D2.
PREH, Shanghai Summit and Renshoutang will each hold 40 per cent, 40 per cent and 20 per cent stake in the joint venture entity respectively.