AL-SALAM REIT ANNUAL REPORT 2018

AL-SALĀM REIT ANNUAL REPORT 2018 10 We Are Pleased To Announce That Al-Salām REIT Has Distributed A Total Distribution Per Unit (Dpu) Of 5.35 Sen Per Unit In Fy2018. This Translates Into An Annual Distribution Yield Of 6.6% Based On The Closing Unit Price Of Rm0.81 As At 31 December 2018. The Total Payout Of Rm31.0 Million Represents Approximately 97.4% Of Al-Salām Reit’s Distributable Income For The Year. “ ” Dear Valued Stakeholders, On behalf of the Board of Directors of the manager (the Board), it is my utmost pleasure to present Al- Salām REIT’s (the Fund) Annual Report and audited inancial statements for the inancial year ended 31 December 2018. The 2018 Malaysian property market has been challenged by shrinking demand and oversupply amidst the background of a prolonged slowdown of the global economy and the moderate growth of the Malaysian economy. The market is further challenged by tighter lending requirements and escalating cost of living which worked in tandem to weight on consumers’ discretion in spending, subduing demand for property. We observed market activities to have continued to be at moderate level all across residential, retail, commercial and industrial property subsectors since the past few years. Early 2018 saw the Malaysian real estate investment trusts (M-REIT) facing a setback of overnight policy rate (OPR) afecting M-REITs with exposure to loating rate borrowings and this has reduced M-REIT’s appetite for asset acquisitions as the investments primarily rely on borrowings to support inorganic growth. Although some M-REITs remained resilient due to their long-term leases or prime assets, we expect the organic growth of M-REITs in 2019 to be subdued due to risks related to occupancy level arising from the oversupply of retail and commercial assets, and slower new assets acquisition following limited availability of yield accretive assets. As 63% of its assets are from the retail segment, Al-Salām REIT was not spared from the challenging retail market. While the established prime shopping malls which sit on prominent locations have sustained their earnings via high footfall, stable occupancy and decent tenant sales growth, competition will be more easily felt amongst neighbourhood malls and malls of smaller scale. The situation was further challenged with the current oversupply in the retail market as well as the rising threat from e-commerce that afects the performance of physical stores. The same can be said in the ever-competitive retail market in Johor Bahru with the opening of new shopping malls ofering various incentives to attract tenants. Amidst challenging environment, Al-Salām REIT remains conident in delivering sustainable returns to the unitholders. We are grateful that KOMTAR JBCC being the trophy of Al-Salām REIT’s assets has however successfully maintained its occupancy rate of 95% for the reporting year thanks to its strategic location in the heart of Johor Bahru city centre and minutes away from the Johor Bahru Customs, Immigration and Quarantine Complex (CIQ). The outlook for KOMTAR JBCC will be positive as it is set to receive spillover efect from the recently completed Menara JLand and the upcoming Holiday Inn Hotel as well as the development of Ibrahim International Business District (IIBD). IIBD is a project spearheaded by the Johor state government to turn Johor Bahru into a metropolis of international standard and will become Malaysia’s latest economic growth nodes. The 250 acres project has a gross development value of RM20 billion to RM25 billion. Dato’ Kamaruzzaman bin Abu Kassim Chairman Letter To Stakeholders