MANAGEMENT DISCUSSION AND ANALYSIS RISK MANAGEMENT The Group is cognisant of the fact that it is exposed to various risks that may have a material effect on its business operations, financial performance and conditions, and liquidity. As such, the Management of the Group has identified the following key risks faced by the Group together with the measures undertaken to mitigate such risks: 1. Business / Market Risk The Group is facing a decline in revenue due to poor market condition, competition, geographical concentration, change in government regulations and outbreak of pandemic. However, the Group is not highly susceptible to business and market risk due to the Group has established a long-term relationship of healthcare business with KPJ Group through the years. The recent outbreak of COVID-19 has imposed a substantial impact on the market condition and business performance of the healthcare sector. To strengthen its current partnership with KPJ Group, an approved rental rebate is granted to lessees to ease their current financial performance. Thus, there was a slight reduction in rental income for the Group in 2021. Moving forward, the Manager will continue to monitor the performance of the lessees. Apart from that, the Manager is also considering redevelopment and divestment plans for those underperforming assets. 2. Tenant Concentration Risk Al-`Aqar is facing the risk that its revenue is solely dependent on a single tenant. The upside benefit of this lease arrangement is Al- `Aqar maintained a stable rental income to the Fundwithminimum administrative cost. However, considering the risk if the lessee or operator’s business fails to sustain their own financial performance or change its strategic direction, Al-`Aqar’s fund will face the risk of losing their mainstream rental income. To minimise the risk, the Manager has proposed the mitigation plans to take effect should the single tenant go out of their business or decide not to renew or continue the lease. The Group needs to identify new JV partners, continuously source for a replacement lessee or healthcare operator, re-purpose the building and divest or dispose of the property to a third party. The factors to decide will mainly depend on the risk assessments of each project before a certain course of action is undertaken to mitigate the risks. AL-`AQAR HEALTHCARE REIT ANNUAL REPORT 2021 054
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