Al-`Aqar Healthcare REIT Annual Report 2020

Strategic Performance 43 Al-`Aqar’s profit rate risk is relatively low, as 84.04% of its borrowings are on fixed rate. The fixed rate borrowing mirror to the fixed lease arrangement. The exposure of floating rate borrowings only represents 15.96% of the total borrowing. Due to the nature of the borrowings, there is an exposure to interest rate risk. The recent OPR cutting provide lower refinancing risks that benefitted Al-`Aqar. ISLAMIC FINANCING: SUKUK IJARAH The Group via its special purpose vehicle, Al-`Aqar Capital Sdn Bhd (‘‘Al-`Aqar Capital’’) has established a 15-year Islamic Medium Term Notes Sukuk Ijarah up to RM1.0 billion in nominal value in FY2013. In May 2018, Al-`Aqar Capital redeemed the outstanding IMTNs of Issue 1 of RM575 million together with the outstanding profit due on maturity and refinanced the IMTNs via an issuance of RM575 million in nominal value of IMTNs (“Issue 2”). The maturity period for Sukuk Issue 2 has shortened to 3 years compared to 5 years under Issue 1. In December 2018, Al-`Aqar re-rated RM112 million in nominal value of unrated Class C IMTNs of Issue 2. The re-rating exercise had led to an early redemption of the Class C IMTNs of Issue 2 and an additional issuance of RM75 million in nominal value of Class A IMTNs of Issue 2 and RM37 million in nominal value of Class B IMTNs of Issue 2. The profit rates for the sukuk are all on a fixed rate basis thus protecting Al-`Aqar Capital from any adverse movement in the interest rate and volatility in the economy. The average profit rate of the Sukuk Issue 2 is about 5.05% per annum. The Issue 2 under the above sukuk programme will be due in the second quarter of 2021 and the Manager is in the midst of undertaking steps to refinance the said issuance. ISLAMIC FINANCING: COMMODITY MURABAHAH TERM FINANCING-I On 27 December 2019, Al-`Aqar obtained a floating rate borrowing facility (“Commodity Murabahah-I”) amounting to RM80.0 million to finance the acquisition of KPJ Batu Pahat Specialist Hospital with purchase consideration of RM78.0 million and to pay related cost and expenses during the acquisition. The Commodity Murabahah-I is payable over a period of 60 months from the date of first disbursement with bullet repayment of the principal sum on the 60th month. The Commodity Murabahah-I bears an effective profit rate of 1.25% per annum, above the bank’s Cost of Funds (“COF”). The average effective profit rate for the Commodity Murabahah during the year was 3.74%. ISLAMIC FINANCING: COMMODITY MURABAHAH TERM FINANCING-II On 30 November 2020, Al-`Aqar obtained floating rate borrowing facility (“Commodity Murabahah-II”) amounting to RM29.9 million to refinance the Ambank’s facility. The Commodity Murabahah-II is payable over a period of 60 months from the date of first disbursement with bullet repayment of the principal sum on the 60th month. The Commodity Murabahah-II bears an effective profit rate of 1.25% per annum above the bank’s Cost of Funds (“COF”). The average effective profit rate for the Commodity Murabahah-II during the year was 3.35%. Management Discussion and Analysis