Quarz Capital Management, Ltd.

Sends Open Letter to International Healthway Corporation to Engage

on the Proposals to Unlock a Total Potential Return of >40% in IHCs Share Price through the Sale of
Non-Core Assets and Refocus on Key Markets.
GEORGE TOWN, Cayman Islands, Jan. 13, 2017 /PRNewswire/ -- Quarz Capital Management, Ltd. (QCM),
an investment manager, today issued a letter urging International Healthway Corporation to take
immediate steps to address the severe undervaluation of up to 48% which its share price is trading at to
its intrinsic book value.
QCM supports the new Board of Directors nominations at IHCs EGM on the 23rd of Jan 2017 as the
nominees seem to demonstrate diverse skillsets which are highly relevant to IHC. The substantial
shareholders backing these candidates also have significant experience and successful track records in real
estate development and value creation for shareholders. QCM believes that the newly-energized IHC will
be able to rebuild its reputation, regain the trust of investors and leverage on the vast contacts and
expertise of the new board and shareholders to expedite on its forward strategy.
QCM recommends IHC to deleverage its balance sheet by REIT ing and reducing its stake in its Japan
nursing home asset to release capital and create a listed asset light platform to grow its management fee
income. QCM proposes that the firm focuses its resources and onboards credible partners to expedite on
its attractive healthcare development projects. Completed healthcare projects can be injected into the
REIT to realize gains and recycle capital for further profit accretive projects.
QCM believes that its proposals can provide the required capital for IHC to commit to its core China and
Malaysia healthcare development projects (hospitals, medical suites, service residences) which have the
potential to become a multi-year profit growth generator for the company, supported by the strong
structural demographic and increasing healthcare expenditure per capita drivers.
As these projects are executed, the valuation of IHC has the potential to rerate strongly to that in line with
other established listed healthcare players in the region. Investors will additionally be rewarded by the
payout of earnings and the unlocking of capital from IHCs development projects, asset management fees
(REIT) and hospital services.
QCM has delivered the following letter to International Healthway Corporations management team,
board of directors and other stakeholders.
QUARZ CAPITAL MANAGEMENT, LTD. ISSUES OPEN LETTER TO
THE BOARD OF DIRECTORS OF INTERNATIONAL HEALTHWAY CORPORATION (SGX: 5WA)
.
ALL RECIPIENTS ARE ADVISED TO READ
IMPORTANT DISCLOSURE INFORMATION
AT THE END OF THE ATTACHED LETTER

.
QUARZ CAPITAL MANAGEMENT, LTD.
CLIFTON HOUSE 75 FORT STREET
GEORGE TOWN I KY1-1108 I GRAND CAYMAN
CAYMAN ISLANDS

13 January 2017
TO ENGAGE ON THE PROPOSALS FOR THE SALE OF IHCS NON-CORE ASSETS TO UNLOCK CAPITAL AND
REFOCUS ON KEY MARKETS
- POTENTIAL TOTAL UPSIDE OF >40% IN IHCS SHARE PRICE BY 2018 Dear Members of the Board,
Quarz Capital together with its affiliates have built up a position in International Healthway Corp (the
Company, Firm, IHC SP or IHC). We believe that IHC is deeply undervalued despite its plethora of
PAGE 1 OF 5

valuable assets with significant upside opportunities. The firms stock price has substantially
underperformed its potential for a prolonged time period due to its overly aggressive asset acquisition
strategy, lack of strategic focus and several execution issues.
IHC currently trades with a market cap of SGD 101.0 million1, at a sharp 48% discount to its intrinsic NAV
of SGD 195 million despite its high quality assets. Its flagship 12 nursing homes2 with 1,458 rooms in Japan
are master-leased to reputable operators under long term contracts in excess of 25 years. Rental rates are
subjected to periodic reviews with up-only rate adjustments allowed. This asset generates a combined
resilient annual operating income of ~SGD 13 million3 and has an estimated value in excess of SGD 3624
million when conservatively valued at a 20% discount to listed healthcare REITs of similar size in Japan
(implied cap rate of 3.6%).

Source: Bloomberg, Quarz Capital Management estimates, various brokers and companies reports

IHCs Australia properties which have been either earmarked or contracted for sale will potentially deliver
another SGD 70 million of net cash flow in the second half of 2017 post resolution of the Crest Fund
lawsuit5. The companys Kuala Lumpur 4,725 square meters land bank which is 600 meters away from the
sought after prime CBD and retail location of KLCC can be prudently valued at SGD 52 million6. IHCs
centrally located Wuxi (China) 165-bed hospital generates an estimated annual operating profit of ~SGD
1 million7. The firm intends to develop this into an up to 1,300-bed Class 3A hospital together with the
adjacent land bank. IHC has another land bank in Chengdu (China) which is next to a 1,000-bed public
hospital. The firm plans to develop the land bank into a specialist rehabilitation and wellness hospital. We
conservatively estimate the value of the China assets at a rock bottom price of SGD 30 million. This is in
view of PWCs inability to ascertain IHCs contracted independent valuation8 of the China land banks (exhospital) at SGD 88 million9.
Our conservative valuation puts IHCs asset value at SGD 515 million, which represents an upside of 92%
to IHCs current share price. We are convinced that the key reasons for IHC to trade at a substantial
discount to its intrinsic value are:
-

Loss of confidence by shareholders in IHCs management and Board of Directors. This can be
attributed to the severe drop of IHCs share price in excess of 85% since its listing. IHCs development
projects have all been substantially delayed with no committed execution timeline. The Crest lawsuit
has further increased the skepticism on managements execution capabilities.

IHCs overly aggressive asset acquisition strategy has also resulted in a lack of cash flow to develop
its healthcare assets. The higher leverage level has resulted in the firm paying sub-optimally high
interest rates versus peers which essentially exhausts most of IHCs recurring income base. The low
cash balance also puts the company in a vulnerable position.

Share Price of SGD 0.061 (12th Jan 2017)

With 1 building annex

Including property operating expenses, tax and implied asset management fees

SGD/YEN rate of 80.2

IHC disputes that there is no basis to the extra SGD 29 million of loan claimed by the Crest Funds and is defending its position in court. Only IHCs Australia
properties are involved in the lawsuit

Lowest price psf of the last 4 land bank transactions in the vicinity (since 2013), SGD/MYR rate of 3.12

In FY2015

Valuation performed by Savills, Colliers and Jiangsu Zhongda

IHCs 2015 Annual Report

PAGE 2 OF 5

We are surprised at the lack of active steps taken by the current management to address this
shareholder value destructive situation despite the multiple levers at their disposal (such as the
partial or full sale of valuable but non-core assets).
In our view, the directors and management team supported by IHCs founding shareholders have been
provided with an extended period of time since the IPO to create value for shareholders with little results.
Immediate actions have to be taken to promote the long-term interest of IHCs shareholders and to
address the undervaluation of IHCs share price.
We are in support of the new Board of Directors nominations at IHCs EGM on the 23rd of Jan 2017. The
EGM is proposed by some of the recent large shareholders to replace the current board of IHC. These
nominees seem to demonstrate diverse skillsets in corporate finance, audit, operations, business
development, investment and corporate governance which are highly relevant to IHC. They are also
backed by the substantial shareholders who have significant experience and a successful track record in
the development of real estate projects internationally as well as value creation for shareholders. This
expertise is exceptionally relevant to the successful execution of IHC greenfield healthcare asset
development projects. We are confident that the newly re-energized IHC will be able to rebuild its
reputation, regain the trust of investors and banks, as well as leverage on the vast contacts and
expertise of the board and shareholders to expedite on its forward strategy.
We respectfully request the board to consider and implement the following recommendations in 20171H 2018 which we believe will enhance the value of IHC:
1.

REIT - list in Japan (due to the higher valuation) and retain a 10% stake in IHCs Japan nursing homes
asset to release an estimated cash proceeds of up to SGD 325 million. IHC is to be appointed as the
asset manager of the REIT (IHC REIT) and grow the REITs asset base to increase IHCs asset
management income.

2.

Sale of up to 50% stake in IHCs KLCC land bank at above SGD 25 million to a JV partner who has the
relevant development expertise to jointly develop the land bank with IHC into a medical hub with
serviced residences. Stake holding in the project will ensure that the partners interest is aligned with
IHC to maximize the value of the asset.

3.

Repay and lower the interest rate for a substantial part of the net debt of SGD 320 million with the
estimated sales proceeds of up to SGD 420 million (including SGD 70 million of proceeds from the
divestment of Australia properties) to lower debt costs.

4.

Utilize the net cash balance of SGD 100 million to fund IHCs China and Malaysia healthcare
development projects.

5.

Consider an IPO of the China healthcare asset in the mid-term to unlock value.

6.

Potentially inject the completed and stabilized China and Malaysia healthcare assets (hospitals,
medical suites and service residences) into the REIT to release capital for further profitability accretive
healthcare development projects.
We believe that IHH Berhad (IHH SP) and Parkway Life REIT (PREIT SP) serve as ideal business models
for IHC to emulate.

7.

Payout of earnings and unlock capital from healthcare development projects, asset management fees
(REIT) and hospital services to reward shareholders.

We are also supportive of the alternative strategy for the full sale of the Japan nursing homes asset to
unlock even more financial resources to expedite and focus on the development projects in China and
Malaysia.
We are confident that our proposals can provide the required capital for IHC to commit to its core China
and Malaysia healthcare development projects which have the potential to become a multi-year profit
PAGE 3 OF 5

growth generator for the company, supported by the strong structural demographic and increasing
healthcare expenditure per capita drivers. As these projects are executed, we believe that the valuation
of IHC will rerate strongly to that in line with other established listed healthcare players in the region.
We are cognizant and will support IHC if the firm is to conduct a rights raising to strengthen its asset-rich
but cash poor balance sheet until the inflow of proceeds from the sale of its Australia properties and
corporate actions.
We hope that the new board will remember the trust that shareholders have vested in them and
communicate a transparent strategy for IHC with strong commitment and clear execution timeline as soon
as possible.
We firmly believe that the nomination of new directors and the execution of our proposed strategy will
provide a clear pathway to deliver a potential return of at least 40% for all IHC shareholders in the near
and mid-term. As shareholders, we look forward in participating in IHC current business and future
success.
Sincerely yours,
Mr. Jan F. Moermann
Chief Investment Officer, Quarz Capital Management, Ltd.
Mr. Havard Chi, CFA
Portfolio Manager, Quarz Capital Management, Ltd.

For further information, please contact:

Havard Chi, CFA (hch@quarzcapital.com , +65 9433 3898)

About Quarz Capital Management

Quarz Capital Management, Ltd. is a value oriented and research driven investment advisory firm that
seeks to earn above average, long-term returns by identifying value investments across the globe.
www.quarzcapital.com
IMPORTANT DISCLOSURE INFORMATION
SPECIAL NOTE REGARDING THIS LETTER
THIS LETTER CONTAINS OUR CURRENT VIEWS ON THE VALUE OF INTERNATIONAL HEALTHWAY CORPORATIONS SECURITIES AND
ACTION THAT INTERNATIONAL HEALTHWAY CORPORATIONS BOARD MAY TAKE TO ENHANCE THE VALUE OF ITS SECURITIES. OUR
VIEWS ARE BASED ON OUR ANALYSIS OF PUBLICLY AVAILABLE INFORMATION AND ASSUMPTIONS WE BELIEVE TO BE REASONABLE.
THERE CAN BE NO ASSURANCE THAT THE INFORMATION WE CONSIDERED IS ACCURATE OR COMPLETE, NOR CAN THERE BE ANY
ASSURANCE THAT OUR ASSUMPTIONS ARE CORRECT. INTERNATIONAL HEALTHWAY CORPORATION ACTUAL PERFORMANCE AND
RESULTS MAY DIFFER MATERIALLY FROM OUR ASSUMPTIONS AND ANALYSIS. WE HAVE NOT SOUGHT, NOR HAVE WE RECEIVED,
PERMISSION FROM ANY THIRD-PARTY TO INCLUDE THEIR INFORMATION IN THIS LETTER. ANY SUCH INFORMATION SHOULD NOT
BE VIEWED AS INDICATING THE SUPPORT OF SUCH THIRD PARTY FOR THE VIEWS EXPRESSED HEREIN. WE DO NOT RECOMMEND
OR ADVISE, NOR DO WE INTEND TO RECOMMEND OR ADVISE, ANY PERSON TO PURCHASE OR SELL SECURITIES AND NO ONE
SHOULD RELY ON THIS LETTER OR ANY ASPECT OF THIS LETTER TO PURCHASE OR SELL SECURITIES OR CONSIDER PURCHASING OR
SELLING SECURITIES. ALTHOUGH WE STATE IN THIS LETTER WHAT WE BELIEVE SHOULD BE THE VALUE OF INTERNATIONAL
HEALTHWAY CORPORATIONS SECURITIES, THIS LETTER DOES NOT PURPORT TO BE, NOR SHOULD IT BE READ, AS AN EXPRESSION
OF ANY OPINION OR PREDICTION AS TO THE PRICE AT WHICH INTERNATIONAL HEALTHWAY CORPORATIONS SECURITIES MAY
TRADE AT ANY TIME. AS NOTED, THIS LETTER EXPRESSES OUR CURRENT VIEWS ON INTERNATIONAL HEALTHWAY CORPORATION.
IT ALSO DISCLOSES OUR CURRENT HOLDINGS OF INTERNATIONAL HEALTHWAY CORPORATION SECURITIES. OUR VIEWS AND OUR
HOLDINGS COULD CHANGE AT ANY TIME. WE MAY SELL ANY OR ALL OF OUR HOLDINGS OR INCREASE OUR HOLDINGS BY
PURCHASING ADDITIONAL SECURITIES. WE MAY TAKE ANY OF THESE OR OTHER ACTIONS REGARDING INTERNATIONAL

PAGE 4 OF 5

HEALTHWAY CORPORATION WITHOUT UPDATING THIS LETTER OR PROVIDING ANY NOTICE WHATSOEVER OF ANY SUCH CHANGES.
INVESTORS SHOULD MAKE THEIR OWN DECISIONS REGARDING INTERNATIONAL HEALTHWAY CORPORATION AND ITS PROSPECTS
WITHOUT RELYING ON, OR EVEN CONSIDERING, ANY OF THE INFORMATION CONTAINED IN THIS LETTER.

FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED IN THIS LETTER ARE FORWARD-LOOKING STATEMENTS INCLUDING, BUT NOT LIMITED TO,
STATEMENTS THAT ARE PREDICATIONS OF OR INDICATE FUTURE EVENTS, TRENDS, PLANS OR OBJECTIVES. UNDUE RELIANCE
SHOULD NOT BE PLACED ON SUCH STATEMENTS BECAUSE, BY THEIR NATURE, THEY ARE SUBJECT TO KNOWN AND UNKNOWN
RISKS AND UNCERTAINTIES. FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE OR ACTIVITIES
AND ARE SUBJECT TO MANY RISKS AND UNCERTAINTIES. DUE TO SUCH RISKS AND UNCERTAINTIES, ACTUAL EVENTS OR RESULTS
OR ACTUAL PERFORMANCE MAY DIFFER MATERIALLY FROM THOSE REFLECTED OR CONTEMPLATED IN SUCH FORWARD-LOOKING
STATEMENTS. FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY THE USE OF THE FUTURE TENSE OR OTHER FORWARDLOOKING WORDS SUCH AS VIEW, BELIEVE, CONVINCED, EXPECT, ANTICIPATE, INTEND, PLAN, ESTIMATE,
SHOULD, MAY, WILL, OBJECTIVE, PROJECT, FORECAST, MANAGEMENT BELIEVES, CONTINUE, STRATEGY,
PROMISING, POTENTIAL, POSITION OR THE NEGATIVE OF THOSE TERMS OR OTHER VARIATIONS OF THEM OR BY
COMPARABLE TERMINOLOGY.
IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE EXPECTATIONS SET FORTH IN
THIS LETTER INCLUDE, AMONG OTHER THINGS, THE FACTORS IDENTIFIED IN THE RISK SECTIONS IN INTERNATIONAL HEALTHWAY
CORPORATION ANNUAL REPORT FOR THE YEAR ENDED DEC, 2015, PROSPECTUS AND INFORMATION MEMORANDUM FOR ITS
MULTICURRENCY MEDIUM TERM NOTE PROGRAMME DATED JAN 2015. SUCH FORWARD-LOOKING STATEMENTS SHOULD
THEREFORE BE CONSTRUCTED IN LIGHT OF SUCH FACTORS, AND QUARZ CAPITAL MANAGEMENT IS UNDER NO OBLIGATION, AND
EXPRESSLY DISCLAIMS ANY INTENTION OR OBLIGATION, TO UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS,
WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE, EXCEPT AS REQUIRED BY LAW.

PAGE 5 OF 5