Al-`Aqar Healthcare REIT Annual Report 2020

Letter to Stakeholders KPJ Batu Pahat Specialist Hospital Business Highlights The impact of the COVID-19 outbreak has affected the Malaysian healthcare system in a contrasting way, with public hospitals overstretched from increasing patients. Meanwhile, private hospitals were underwhelmingly quiet as a result of the MCO, which has affected most of Al-`Aqar’s properties and tenants. During the lockdowns, the KPJ Group, the main sponsor of the Fund has reported a decline in their business activities, and this was evidenced by the lower patient episodes and the lower daily Bed Occupancy Rate (“BOR”) until May 2020. After the relaxation of the control under the MCO, through the implementation of the Recovery Movement Control Order (“RMCO”) on 10 June 2020, this has encouraged patient to seek treatment in the private hospitals. Thus, the KPJ Group’s business activities have gradually improved. For the business segment in Australia, the announcement by Prime Minister Scott Morrison on 16 September 2019 regarding the establishment of Australia Royal Commission into the residential aged care sector has created an increase level of uncertainty in the aged care industry. The Interim report in September 2020 by the Royal Commission on the preference for home care over residential care has also led to the possibility of shifting from aged care institutional to community and home care services. Negative publicity during Royal Commission into aged care quality and safety towards home support services and packages complemented by a quality health care system has adversely impacted the financial performance of Jeta Gardens. This was evidenced by the drop in occupancy level. In addition, the sudden outbreak of COVID-19 pandemic which started in early 2020 has also worsened the situation resulting thousands of beds in residential aged care have been left empty across Australia, as families felt safer to care their loved ones themselves. Thus, the occupancy for the aged group dropped to its lowest rates in more than a decade, in response to the pandemic. The final report of Royal Commission has been presented to the Governor-General on 26 February 2021 and will be available to public once the report is tabled in the Parliament. Proactive Business Response As part of the long-term business sustainable plan, Al-`Aqar has committed to a rental support programme to its affected tenants in the form of rental rebate. The rebate has been determined based on the actual performance of each property and tenants with a certain capping. However, Al-`Aqar is optimistic that these events will not have a long-term adverse effect on the fund as these events are one-off in nature. Looking Forward The recovery in global economy is predicated on a gradual improvement in confidence of consumption and trade, with the rollout of an effective vaccine starting early 2021. Malaysia’s economy is projected to grow by 6.7% in 2021, assuming there will be a continued improvement in exports together with a gradual build-up of momentum in private consumption and investment. Malaysia is expected to receive its vaccine supply in stages with the first batch of vaccines has arrived on 21 February 2021. This vaccine rollout will increase the confidence level of the consumers and business. Hence, the private activity and business momentum will gradually pick up in 2021. For the long term, Al-`Aqar believes that the rising of healthcare awareness arising from the outbreak should be positive for the healthcare sector. Al-`Aqar is optimistic of the response and sustainable actions plans taken to mitigate the risks resulting from the pandemic. Al-`Aqar believes that the business would continue with minimal disruption in the coming years and Al-`Aqar would be well positioned for the economic recovery. AL-`AQAR HEALTHCARE REIT Annual Report 2020 10