Al-`Aqar Healthcare REIT Annual Report 2020

AL-`AQAR HEALTHCARE REIT Annual Report 2020 40 BUSINESS REVIEW For the year under review, Al-`Aqar registered an increase of 9% in revenue from RM106.1 million in FY2019 to RM115.7 million in FY2020. The moderate growth has been contributed by an annual increment and additional rental from KPJ Batu Pahat Specialist Hospital. OPERATIONAL REVIEW The impact of the COVID-19 outbreak in March 2020 has impacted the business performance of KPJ Group. Thus, Al-`Aqar has provided a rental rebate based on the actual performance of each property and tenants with a certain capping during the period. 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 and furthermore, the Fund’s earnings are sturdily underpinned by the long-term lease arrangements with the KPJ Group. In addition, expiring long-term leases are anticipated to be renewed in the second quarter of 2021. Currently, the economy is still in the early stages of adapting to the changes resulting from the coronavirus, and many developments will continue to evolve in the months and years ahead. Some recent developments are workarounds that may not be entirely satisfactory but can protect against the viruses while the risk of infection is high. These changes may eventually fade, as behaviour returns to pre-pandemic patterns after vaccines or other public health measures suppress the virus. Other changes in behaviour, however, may that persist and may continue to evolve. There is considerable uncertainty today, of course, about which developments will be transitory and permanent. However, in the long run, the Manager believes the increased healthcare awareness arising from the outbreak should be positive for the healthcare sector. ASSET ENHANCEMENT INITIATIVES The Group strategy is to enhance its initiatives in optimising the value of the stakeholders. This is achieved via asset enhancement strategy. We always put efforts on upgrading our performance in properties and services to their full potential and this milestone has increase investors’ confidence in our portfolio. RENTAL RENEWALS Under the lease arrangement, the contractual lease term is 15 years with an option to renew for a further 15 years. The contractual lease term is divided into 5 rental terms of 3 years which shall be renewed upon expiry of each rental term. The first six KPJ properties’ long-term leases, namely KPJ Ampang Puteri Specialist Hospital, KPJ Damansara Specialist Hospital, KPJ Johor Specialist Category Amount (RM) Completed - Civil and structural - Mechanical & Electrical - Repainting Sub Total 198,280 925,118 322,000 1,445,398 Ongoing - Repainting - Civil and structural - Mechanical & Electrical - Expansion Sub Total 160,195 NIL 1,026,340 3,307,200 4,493,735 TOTAL 5,939,133 RENTAL REVIEW Al-`Aqar’s rental review is as follows: Year No. of Properties % of Total Properties FY2021 15 65.2 FY2022 1 4.3 FY2023 6 26.2 FY2025 1 4.3 Hospital, KPJ Selangor Specialist Hospital, KPJ Puteri Specialist Hospital and KPJ Ipoh Specialist Hospital with total value of RM595 million will be expired on 29 June 2021. Despite the COVID-19 outbreak, the expiring long-term leases of the properties are anticipated to be renewed in the second quarter of 2021. The lessees of the rest of the properties have continuously committed to their rental obligations. This is evidenced by the efforts of the Manager in implementing asset initiatives worth up to RM1.45 million in FY2020. Management Discussion and Analysis

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