BUSINESS OVERVIEW SECTION 2 29 Al-`Aqar Healthcare REIT | Annual Report 2024 MANAGEMENT DISCUSSION & ANALYSIS Al-`Aqar is exposed to various risks that may impact its financial performance, asset value and long-term sustainability. The table below outlines the key risks, their potential impact and the strategies in place to mitigate them. SECTION 4 – RISK MANAGEMENT OVERVIEW Risks Risk Description Mitigating Strategies Interest Rate Risk Changes in interest rates could increase Islamic financing costs, impacting profitability and gearing levels. • Maintain a prudent capital structure with diversified funding sources. • Monitor market trends and proactively refinance debt. • Explore fixed-rate financing to reduce exposure to rate fluctuations. Tenant Concentration Risk A significant portion of rental income is derived from KPJ. Over-reliance on a limited number of tenants or industry sectors for rental income may lead to significant financial impact in the event of tenant default, non-renewal, or sector downturn. • Expand tenant base by securing new healthcare operators. • Strengthen lease agreements with KPJ to ensure long-term rental stability. • Identify new asset classes within healthcare to diversify income sources. Regulatory and Compliance Risk Changes in Malaysian and Australian healthcare regulations could affect property leasing terms, tenant operations, or asset valuations. • Closely engage with regulators and industry bodies. • Ensure compliance with Securities Commission guidelines & Shariah principles. • Conduct regular audits to maintain regulatory alignment. Asset and Property Risk Aging infrastructure or insufficient capital for asset enhancements may reduce property value and rental demand. • Implement proactive asset AEIs. • Conduct regular property inspections & maintenance. • Allocate capital for sustainability- focused upgrades (e.g., energy efficiency improvements). Economic and Market Risk Economic downturns, inflation, and shifts in medical tourism could affect demand for private healthcare services, indirectly impacting rental income. • Maintain long-term leases with built-in rental escalations. • Diversify property portfolio to include complementary healthcare assets. • Monitor macroeconomic trends to adapt investment strategies. Foreign Exchange and Country Risk (Australia) Al-`Aqar’s Australian assets are subject to currency fluctuations, economic instability, and sector-specific regulations. • Use natural hedging and monitor exchange rate trends. • Assess potential divestment or repositioning of Australian assets. • Explore opportunities to expand within Malaysia to offset currency exposure. Environmental and Climate Risk Rising sustainability expectations and climaterelated events (e.g., floods, heatwaves) could impact asset valuations and operational efficiency. • Assess energy efficiency and implement green building standards. • Explore solar energy and water conservation initiatives in properties. • Strengthen climate risk assessment in investment decisions.
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