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Is Perennial Real Estate Holdings Limited’s Latest Business Venture a Smart Move?

What does Raffles Medical Group Ltd (SGX: R01) and Perennial Real Estate Holdings Limited (SGX: 40S) have in common? At first glance, there doesn’t seem to be much similarities between a healthcare services provider (the former) and a real estate developer and owner (the latter).

But, with the latest announcement from Perennial Real Estate Holdings, the two companies may finally have a common reed.

Last month, Raffles Medical Group announced its plans to build a hospital in Shanghai, China together with Shanghai LuJiaZui Group. Perennial Real Estate Holdings revealed earlier today that it’d be entering the healthcare industry in China by setting up a 40:60 joint venture with China Boai Medical Group, one of the largest private hospital/medical services operators in China.

Is this a smart move on the part of Perennial Real Estate Holdings?

A healthy purchase and deal

Perennial Real Estate Holdings will be investing RMB286.7 million (S$63 million) for the 40% stake in the joint venture, which will be acquiring an operational medical business, Modern Hospital Guangzhou, in Guangzhou, China, from China Boai Medical Group.

Beyond the acquisition of the hospital, the joint venture will also be looking to acquire, develop, and manage other hospitals and medical services businesses in China in the future. The joint venture will also be able to get access to both Perennial Real Estate Holdings’ developments in China and China Boai Medical Group’s strong pipeline of development projects and existing medical businesses.

The joint venture and the repositioning of a Chinese property that’s under development (more on this later) marks Perennial Real Estate Holdings’ first foray into the healthcare services sector in China.

The company reasons that it’s a smart move to make given the fast-growing nature of China’s healthcare industry and the potential synergies that can happen; to the latter point, the company thinks it can create value by introducing healthcare real estate into its developments in China.

Coming to the repositioning, Perennial Real Estate Holdings also revealed that the Perennial Dongzhan Mall, a 280,000 square metre property that’s still being developed, will be renamed as Perennial International Health and Medical Hub.

In the process, the retail mall will become an integrated healthcare hub offering an international hospital, medical suites, and wellness-related services like Traditional Chinese Medicine, maternity care, and rehabilitative centres. It’s worth noting that the company has already received an impressive “expressions of interest for more than 90% of its leasable area [that’s] set aside for healthcare services.”

Foolish Summary

In all, the changes happening at Perennial Real Estate Holdings seem to be positive for its business. But, given the company’s current and future investment capital needs, investors might want to keep an eye on the firm’s balance sheet.

After all, no matter how good the future may look, taking on too much borrowings can still be a dangerous move. Investors would need to ensure that they’re comfortable with the financial risks that Perennial Real Estate Holdings may be taking on.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim owns Perennial Real Estate Holdings.