BUSINESS OVERVIEW 24 Al-`Aqar Healthcare REIT | Annual Report 2024 MANAGEMENT DISCUSSION & ANALYSIS PROPOSED DISPOSALS As part of its capital recycling strategy, Al-`Aqar continues to optimise its portfolio by divesting underutilised or non-core assets. The proceeds from these disposals will be strategically reinvested to strengthen the Group’s asset base and enhance long-term value creation. In FY2024, Al-`Aqar completed the disposal of Damai Wellness Centre for RM13.0 million, following the execution of a Sale and Purchase Agreement (‘’SPA”) with Sihat Damai Sdn Bhd. The Manager continues to assess opportunities for divesting non-core assets identified through a comprehensive portfolio review. These disposals are designed to unlock capital for reinvestment into high-growth healthcare assets, further enhancing Al-`Aqar’s portfolio and supporting its commitment to long-term value creation and sustainable growth. 2024 KEY CHALLENGES Al-`Aqar faced a dynamic operating environment in 2024, influenced by rising operational costs and external market factors that impacted financial performance. A significant challenge during the year was the effect of foreign exchange fluctuations, particularly on Australian assets. In response, the REIT adopted a disciplined financial approach, successfully managing these challenges while maintaining operational stability. The focus is on optimising efficiency and strengthening risk management strategies to ensure sustainable long-term growth. Challenge Impact Response Rising Operational Costs Higher repair and maintenance expenses, particularly for repainting and replacement works, led to an increase in costs compared to FY2023. However, operational and property expenses remained stable, with no significant overall variance observed. Al-`Aqar implemented strict cost control measures, prioritising essential asset enhancements while ensuring optimal financial efficiency. The REIT also continued active debt management and interest rate monitoring, benefiting from stable financing costs with the OPR at 3.00% and a weighted average finance cost of 5.06%. Foreign Exchange Fluctuations on Australian Assets The depreciation of the Australian dollar against the Malaysian ringgit resulted in a lower translated value for Al-`Aqar’s Australian properties, affecting overall asset valuation and financial reporting. As of 31 December 2024, the exchange rate stood at RM2.7809, compared to RM3.1254 in FY2023. Al-`Aqar continued to focus on long-term asset value preservation and closely monitored currency movements to assess potential hedging strategies where necessary. The REIT remains committed to safeguarding financial stability despite external currency fluctuations. PROSPECTS Since its initial public offering in 2006, the value of Al-`Aqar’s investment properties has more than tripled, reaching RM1.65 billion as of 31 December 2024. The growth outlook is positive, driven by rental adjustments, lease activity and strategic acquisitions. In early 2025, Al-`Aqar entered a purchase and leaseback agreement with KPJ Group, reinforcing its partnership with the Group and strengthening the portfolio. This transaction is expected to enhance asset quality and provide long-term, reliable income, further supporting the Fund’s growth. Despite challenges in the operating environment, Al-`Aqar maintains financial strength with a stable gearing position of 41%, with plans to reduce it gradually to 35%. Additionally, with the OPR holding steady at 3.00%, financing costs are expected to remain stable, mitigating any adverse impact on earnings. Al-`Aqar is well-positioned to take advantage of the growing demand for private healthcare services, driven by demographic shifts, medical tourism growth, and long-term tenant partnerships with KPJ Group. The Manager aims to enhance portfolio value through strategic acquisitions and financial discipline, ensuring sustained growth and value for unitholders.
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