Proposed lease agreements with Al Saqr Property

RNS Number : 4603V

Al Noor Hospitals Group PLC

07 August 2015

 



7 August 2015: FOR IMMEDIATE RELEASE

Al Noor Hospitals Group Plc 

(the "Company" or "Al Noor")

Proposed lease agreements relating to certain properties in Abu Dhabi between Al Noor Hospitals Group PLC and Al Saqr Property Management LLC ("Al Saqr")

London and Abu Dhabi: Al Noor Hospitals Group Plc today announces that consistent with its strategy to expand hospital operations in the UAE through the expansion of Al Ain Hospital, Khalifa Street Hospital and Airport Road Hospital, it has agreed to lease additional premises from Al Saqr, conditional on shareholders approval. 

Al Saqr is the dedicated real estate development company of (and a wholly-owned subsidiary of) United Al Saqr Group LLC ("United Al Saqr Group"). Sheikh Mohammed Bin Butti Al Hamed ("SMBB"), a principal shareholder of Al Noor with a shareholding of approximately 28.25% of the issued share capital of the Company, has a controlling interest in the shares of United Al Saqr Group.

Given the relationship between Al Saqr or United Al Saqr Group and SMBB, the Transaction is a related party transaction for the purposes of the Listing Rules. As such, the Transaction is conditional on Shareholder approval, which will be sought at a General Meeting to be convened for 24 August 2015. 

A circular setting out further details of the Transaction, together with the notice convening the General Meeting is expected to be published and posted to Shareholders later today.

Ronald Lavater, CEO, Al Noor Hospitals Group Plc. said:

"The proposed Transaction is in line with the Board's strategy of investing and expanding in Al Noor's existing hospitals to take advantage of the long-term strength of the Abu Dhabi healthcare market. Abu Dhabi remains one of the fastest growing sectors in the Gulf region due to a rapidly ageing demographic, an increasing incidence of lifestyle-related medical conditions such as diabetes and obesity, and service gaps in the current healthcare market. By expanding each of our hospital's capacity, we will be positioned to deliver robust returns for shareholders."

Shareholders should read this preceding summary in conjunction with the full text of the following announcement and its appendices, together with the Circular which is expected to be published later today. 

EXPECTED TIMETABLE OF PRINCIPAL EVENTS

All times shown in this document are London times unless otherwise stated
Publication of the Circular	7 August 2015
Latest time and date for receipt of Forms of Proxy	10 a.m. 22 August 2015
General Meeting	24 August 2015
Expected date of entry into the Transaction	24 August 2015

Future times and dates are indicative only and are subject to change by the Company. If the expected timetable of events changes from the above, the Company will release an announcement to this effect. References to time in this announcement are to London time.

Background to and reasons for the Transaction

The Transaction is in line with the Board's strategy of leveraging Al Noor's existing asset base to take advantage of the strength of the Abu Dhabi healthcare market, which remains one of the fastest growing sectors in the Gulf region due to a rapidly ageing demographic, an increasing incidence of lifestyle-related medical conditions such as diabetes and obesity, and service gaps in the current healthcare market. 

The additional space to be secured under the Transaction will allow Al Noor to build on its position as the largest private healthcare service provider in the Abu Dhabi Emirate by increasing its capacity and service offering across all of its hospitals:

·    Khalifa Street Hospital: more than double the capacity for emergency services, allows for expansion of outpatient clinics,  improves access and patient flow for all clinical services outpatients thus creating a more patient centric environment, and meets the health authority's future requirement for hospitals to be in single use buildings;

·    Al Ain Hospital: increase bed capacity by over 50% and add a necessary additional operating theatre; and

·    Airport Road Hospital: nearly double the hospital bed capacity with an additional 100 bed purpose built hospital.

The Board believes that by investing to develop Al Noor's hospital capacity in Abu Dhabi, it will deliver superior returns for shareholders in the long term.

The premises of Al Noor's three existing hospitals, namely Al Ain Hospital, Khalifa Street Hospital and Airport Road Hospital, are currently leased from Al Saqr pursuant to existing lease agreements in place since 2012. These existing lease agreements are due to expire in 2036.

In line with its strategy to expand hospital operations in the UAE through the expansion of Al Ain Hospital, Khalifa Street Hospital and Airport Road Hospital, Al Noor is proposing to lease additional premises in buildings which currently house Al Noor hospitals and in buildings (including a new building to be built by Al Saqr) adjacent to the existing hospital buildings, as described further below (the "Transaction"). The Transaction is consistent with the Company's previously announced corporate strategy.

·    Al Ain Hospital: Al Noor currently occupies 6,802 sqm for the Al Ain Hospital and is proposing to lease a new building known as the "Jasmine Building" (approximately 6,585 sqm) which is located adjacent to the existing Al Ain Hospital. Under the proposed lease agreement (which amends the existing lease), the Jasmine Building will be leased to Al Noor on the same terms as apply to the existing Al Ain Hospital building (other than with respect to the new premises, rental amounts (which has been agreed at a rate that is approximately 10% higher than the rent for the existing premises) and a 6 month rent-free period). All other terms of the existing lease as they relate to the existing premises remain unchanged.

·    Khalifa Street Hospital: Al Noor has converted 79 flats to modern outpatient and inpatient clinical space in in the Khalifa Street Hospital building. The proposed Transaction will result in Al Noor occupying the remainder of the Khalifa Street building allowing for expansion of clinical services, accommodating consolidation of Group functions such as laboratory services and meeting the health authority's requirement for hospitals to be in single use buildings. The new premises will include (i) the remaining 72 flats and 70 parking spaces in the Khalifa Street building and (ii) the entire ground floor (comprising 1,139.50 sqm) and the mezzanine level (comprising 1,431.86 sqm) of the Khalifa buliding. Under the proposed lease agreement (which amends the existing lease), the premises comprising the remainder of the Khalifa Street building will be leased to Al Noor on the same terms as apply to the existing Al Khalifa Street Hospital lease (other than with respect to the new premises, rental amounts and in respect of the ground floor and mezzanine floors only, a 6 month rent-free period). All other terms of the existing lease as they relate to the existing premises remain unchanged.

·    Airport Road Hospital: Al Noor currently occupies the entire building in which the Airport Road Hospital operates and proposes to lease a new hospital building to be built by Al Saqr to a similar size as the existing hospital building on the unutilised adjacent land ("Airport Road Extension"). Under the proposed Transaction, Al Noor will (i) enter into an agreement with Al Saqr relating to the construction of the Airport Road Extension by Al Saqr, and (ii) following the completion of its construction, enter into a new lease agreement with Al Saqr relating to the Airport Road Extension. The cost of the construction of the Airport Road Extension is agreed at AED 330 million (approximately U.S.$90 million) (and any variation will need to be agreed by the parties) which will be borne by Al Saqr. Rent is proposed to be a rate per annum of 8% of the agreed construction costs (approximately AED 26.4 million (approximately U.S.$7.2 million) per annum), with a 12 month rent free period from handover of the lease to enable fit outs. Other than with respect to rent and the 12 month rent-free period relating to the new premises, all other terms of the lease are on similar terms as the existing leases that Al Noor had entered into with Al Saqr. 

The agreements relating to the Transaction will be entered into by Al Noor Medical Company - Al Noor Hospital - Al Noor Pharmacy and Al Noor Warehouse LLC, an operating subsidiary of Al Noor as the tenant, and Al Saqr as the landlord.

The proposed Lease Agreements are intended to secure additional space for Al Noor on a long term basis to facilitate its stated corporate strategy to expand its existing operations.

Key terms of the Transaction

Al Noor has entered into a framework agreement with Al Saqr dated on or around the date of this document (the "Framework Agreement"), which provides that, conditional upon the passing of the Resolution at the General Meeting, the parties will enter into the Khalifa Street Lease Amendment Agreement, the Jasmine Building Lease Amendment Agreement and the Agreement to Build and Lease.

Each Lease Agreement is a long-term lease, with a contract length of between 21 and 23 years, and an option for Al Noor to terminate by giving 12 months' notice (and no termination costs are payable). Al Noor has the option to  renew each lease for another term by giving 12 months' notice prior to expiry of the term, subject to the parties negotiating the renewal and agreeing the rent in good faith.

Under the Khalifa Street Lease Amendment Agreement and the Jasmine Building Lease Amendment Agreement, rent for each property is fixed from commencement of the term of the lease until 2031, at which point rent will increase by 5 per cent. for each year from 2032 through 2036. Under the Airport Road Extension Lease Agreement, rent for each property is fixed from commencement of the term of the lease until 2034, at which point rent will increase by 5 per cent. in each year from 2035 through 2039. As detailed in Part II of this document, Al Noor also benefits from certain rent free periods in respect of certain new premises in accordance with the terms of the relevant Lease Agreement.

The Lease Agreements and the Agreement to Build and Lease are conditional upon the Company obtaining the approval of Shareholders at the General Meeting. Al Noor expects to enter into:

· the Khalifa Street Lease Amendment Agreement, the Jasmine Building Lease Amendment Agreement and the Agreement Build and Lease on or after the date on which approval of Shareholders at the General Meeting is obtained; and

· in relation to Airport Road Extension, the Airport Road Extension Lease Agreement following completion of its construction (which is currently planned for July 2017).

The total rental payments in respect of the New Premises over the length of the Lease Agreements (if the right to terminate is not exercised) for the New Premises is US$ 274,300,723 (AED 1,006,683,654) to be paid over an average period of 22 years. This is equal to an annual yearly rental expense of US$ 12,477,832 (AED 45,793,645).

The table below summarises the key terms of the Lease Agreements in respect of the New Premises:

New Premises (to be leased)	Total proposed rent for the whole contract period (AED)	Proposed rent per annum (AED) (2)	Proposed tenure of contract (years)	Expiry of Lease	Landlord (1)	Rent free period	Termination provision (applicable to all leases)
Jasmine Building (3)	61,886,034	2,750,490	22.5	31 December 2036	Al Saqr	6 months	Al Noor has the option to terminate lease on 12 months' notice (and no termination costs are payable)
Khalifa 72 flats (3)	227,594,886	9,684,889	23.5	31 December 2036	Al Saqr	From inception
Khalifa Mezzanine & Ground level (3)	128,432,236	5,973,592	21.5	31 December 2036	Al Saqr	6 months
Airport Road Extension (4)	588,770,498	27,384,674	21.5	31 December 2039	Al Saqr	12 months
Total-AED	1,006,683,654	45,793,645	-	-	-	-	-
Total-U.S. $ (at a foreign exchange rate of 3.67)	274,300,723	12,477,832	-	-	-	-	-

Notes:

(1) Al Saqr Property Management LLC is a company within United Al Saqr Group LLC and SMBB, a principal shareholder of Al Noor, has a controlling interest in the shares of United Al Saqr. Sheikh Mansoor Bin Butti, a Non-Executive Director of Al Noor, is the Chairman of and is interested in the shares of United Al Saqr Group LLC. Ahmad Nimer, a Non-Executive Director of Al Noor, is the CEO of United Al Saqr Group.

(2) Rent under the Khalifa Street Lease Amendment Agreement and the Jasmine Building Lease Amendment Agreement is fixed at the price indicated, from commencement of the term of the lease until 2031, at which point rent will increase by 5 per cent. for each year from 2032 through 2036 in accordance with the terms of the lease. Rent under the Airport Road Extension Lease Agreement is fixed at the price indicated, from commencement of the term of the lease until 2034, at which point rent will increase by 5 per cent. in each year from 2035 through 2039, in accordance with the term of the lease. This represents the annual rent expenses.

(3) Al Noor is proposing to enter into amendments agreements in respect of the existing leases with Al Saqr to extend such lease in order to secure these additional premises (as indicated) for its operations in these locations.

(4) Following completion of the construction of the Airport Road Extension (currently planned for July 2017), Al Noor will enter into a long-term lease in the agreed form with Al Saqr in respect of this premises.

For enquiries please contact:

Al Noor Hospitals Group plc 

Dr Sami Alom [phone] 

Jefferies International Limited

(Sole sponsor) 

Paul Nicholls / Jason Grossman [phone]

Brunswick Group 

Jon Coles / Craig Breheny [phone] 

Rupert Young / Jeehan Balfaqaih [phone]    

Notes to editors:  

About Al Noor 

Al Noor Hospitals Group Plc provides primary, secondary and tertiary care in the Emirate of Abu Dhabi and the wider region through its portfolio of hospitals and medical centres.  As of 30 June 2015, the company had 216 operational beds and 684 physicians, more than any other private competitor in Abu Dhabi. Al Noor was the first private hospital in Abu Dhabi City to obtain Joint Commission International ("JCI") accreditation, and today all of its hospitals are accredited. The company is listed in on the London Stock Exchange (ticker: ANHA.L). For more information, please go to www.alnoorhospital.com.

Important Notice

Jefferies International Limited, which is authorised and regulated in the UK by the Financial Conduct Authority, is acting exclusively for Al Noor Hospitals Group PLC and no-one else in connection with the Transaction and will not be responsible to any other person other than Al Noor Hospitals Group PLC for providing the protections afforded to clients of Jefferies International Limited nor for providing advice in relation to the contents of this document, the Circular or the Transaction.  

DEFINITIONS

The following definitions apply throughout this document, unless stated otherwise:

Agreement to Build and Lease	means the agreement to be entered into between Al Noor and Al Saqr relating to the construction of the Airport Road Extension, as described in Part II of this document
Airport Road Extension	means a new building adjacent to the Airport Road Hospital to be built by Al Saqr pursuant to the Agreement to Build and Lease and to be leased to Al Noor following its completion on the terms of the Airport Road Extension Lease Agreement
Al Saqr	means Al Saqr Property Management LLC, a subsidiary of the United Al Saqr Group
Board	means the board comprising the Directors
Company or Al Noor	means Al Noor Hospitals Group PLC
Directors	means the directors of the Company
FCA	means the Financial Conduct Authority
FSMA	means Financial Services and Markets Act 2000
General Meeting	means the general meeting of the Company to be held on 24 August 2015, notice of which is set out in the Circular which is expected to be published later today
Group	means the Company and its subsidiary undertakings
Jasmine Building	means the building adjacent to the Al Ain Hospital known as the "Jasmine Building"
Lease Agreements	means the amendments to the existing lease agreements and/or the new lease agreement to be entered into between Al Noor and Al Saqr relating to the New Premises
Listing Rules	means the Listing Rules issued and maintained by the FCA under Part VI of FSMA
New Premises	means the additional premises to be leased from Al Saqr, namely, the Jasmine Building, the Remaining Khalifa Street Building and, following completion of its construction, the Airport Road Extension, on the terms of the relevant Lease Agreement
Remaining Khalifa Street Building	means the remaining part of the Khalifa Street Hospital building not currently occupied by the hospital (comprising of additional 72 flats (and the remaining 70 parking spaces), the ground floor and mezzanine level of the Khalifa Street building)
Resolution	means the ordinary resolution to approve the Transaction as set out in the notice of General Meeting in the Circular
Shares	means the ordinary shares of GBP 10 pence each in the capital of the Company
Shareholders	means the holders of the Shares
SMBB	means Sheikh Mohammed Bin Butti Al Hamed, a principal shareholder of the Company
Transaction	means in relation to the New Premises, the proposed entry into the Lease Agreements and the Agreement to Build and Lease
Transaction Agreements	means the Lease Agreements and the Agreement to Build and Lease
UAE	means the United Arab Emirates
United Al Saqr Group	means United Al Saqr Group LLC

 

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