BUSINESS OVERVIEW SECTION 2 23 Al-`Aqar Healthcare REIT | Annual Report 2024 MANAGEMENT DISCUSSION & ANALYSIS During fiscal year 2024, Malaysia's healthcare sector continued its strong growth trajectory, fuelled by rising patient volumes, greater demand for specialised medical services and a surge in medical tourism. The country welcomed 1.08 million inbound patients in 2023, signalling a robust post-pandemic recovery, with numbers expected to grow further in 2024. This influx has reinforced Malaysia’s position as a regional medical hub, particularly among patients from neighbouring countries. Demographic shifts such as an ageing population and the increasing prevalence of chronic diseases have contributed to sustained demand for private healthcare. With public hospitals nearing full capacity, private providers are stepping in to meet healthcare needs by expanding infrastructure and adopting more advanced medical capabilities. KPJ has effectively capitalised on these developments, delivering a solid performance and strengthening its position in the sector in 2024. As Al-`Aqar’s sole lessee, KPJ’s growth directly supports the REIT’s stable rental income and supports the longterm value of its healthcare-focused property portfolio. Al-`Aqar maintained full portfolio occupancy in FY2024, securing stable rental income throughout the year. ASSET ENHANCEMENT INIATIVES (‘’AEI’’) A proactive approach is taken towards facility improvements, prioritising the maintenance of efficient and sustainable healthcare facilities that align with evolving industry standards. In FY2024, asset enhancement initiatives totaled RM8.1 million, with key upgrades and refurbishments undertaken in collaboration with tenants to enhance functionality, safety and long-term value. These included retrofitting works, lift replacements, improved water piping systems and external repainting, aimed at optimising building performance and tenant satisfaction. In line with growing sustainability expectations, the Manager continues to integrate environmentally friendly solutions and operational efficiencies into asset management strategies. Key initiatives include the installation of solar panels at selected properties, implementation of EV charging stations and enhancements to energy and water conservation systems. By aligning with industry best practices and sustainability trends, these efforts not only reduce environmental impact but also improve operational efficiency and long-term asset viability, supporting both tenant needs and stakeholder expectations. The Manager has identified further asset enhancement initiatives, focusing on infrastructure, the tenant’s requirements and sustainability. The projects are under negotiation and will be rolled out in phases, pending required approvals and regulatory clearance. This approach supports operational excellence and long-term value creation. LEASE RENEWALS Al-`Aqar remains committed to ensuring long-term portfolio stability through timely lease renewals with its principal tenant. Under the lease arrangement, the contractual lease term is 15 years, with an option to renew for an additional 15 years. The term is structured into five rental periods of three years each, subject to renewal upon expiration. Six master lease agreements were originally set to expire in 2024. However, the leases for all six properties, namely KPJ Penang Specialist Hospital, KPJ Seremban Specialist Hospital, Taiping Medical Centre, Tawakkal Health Centre, KPJ Healthcare University in Nilai and KPJ International College in Bukit Mertajam, have been extended until December 2024, ensuring continued tenancy and income. The lease renewal process is expected to conclude in 2025, supporting long-term tenant retention and operational continuity. These renewals represent 24% of the Group’s total rental income and are part of the Manager’s ongoing strategy to strengthen tenant relationships and ensure consistent revenue generation. Master Lease Renewal No of Properties % of Total Rental FY2025 7 33% FY2026 2 2% FY2027 2 7% SECTION 2 – OPERATIONS REVIEW CATEGORY AMOUNT (RM) Completed Civil & structural 1,194,000 Mechanical & Electrical 1,497,970 Repainting 925,000 Expansion Nil Sub Total 3,616,970 Ongoing Civil & structural Nil Mechanical & Electrical 4,490,741 Repainting Nil Expansion Nil Sub Total 4,490,741 TOTAL 8,107,711
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