Al-`Aqar Healthcare REIT Annual Report 2020

AL-`AQAR HEALTHCARE REIT Annual Report 2020 44 Management Discussion and Analysis RISK MANAGEMENT The Management consistently identified anticipated or known risks that the group is exposed to which may have a material effect on the group’s operations, performance, financial condition, and liquidity and a discussion of the plans or strategies to mitigate such risks. The assessment and discussion of the risks involved outsourced functions which constitute an integral part of risk profiles of the Fund. This include: a) performing due diligence on the nature, scope and complexity of the outsourcing to identify key risk areas and risk mitigation strategies; b) conducting a review of its outsourcing arrangement and identifying new risks which may arise; and c) analysing the impact of the outsourcing arrangement on the overall risk profile of the Fund, and whether there are adequate measures and resources in place to mitigate the risks identified. ANTICIPATED AND KNOWN RISK PROFILES Focus Areas Disclosures Investment Risk Six hospitals/properties lease agreement will be expired in June 2021. The hospitals have an option of not to renew the lease agreements upon the expiry of the agreements. Termination or non-renewal of tenancy by the lessees will negatively impact the performance of the properties. The target properties are: i. KPJ Damansara Specialist Hospital ii. KPJ Ampang Puteri Specialist Hospital iii. KPJ Selangor Specialist Hospital iv. KPJ Ipoh Specialist Hospital v. KPJ Johor Specialist Hospital vi. KPJ Puteri Specialist Hospital KPJ has issued a letter dated 28 September 2020 stating its intention to renew the lease agreements involving the six (6) hospitals mentioned above. Discussions and negotiations have been carried out with the lessees on the terms of the renewal lease agreement. Business/Market Risk The risk that the properties face a decline in revenue due to poor market condition, competition, geographical concentration, change in government regulations following a disease outbreak. Given the established healthcare business of the tenants, the Manager is of the view that Al-`Aqar is not highly susceptible to the business and market risks. However, the recent outbreak of COVID-19 has imposed a substantial impact on the market condition and business performance of the healthcare sector, of which certain business activities (medical operations) are put on hold to contain the spread of the disease. Following the approved rental rebate granted to lessees in March to August 2020, there was a slight reduction in rental income in 2020. The risk of reduced rental income has eased in the fourth quarter of 2020. Moving forward, the Manager will continue to monitor the performance of the lessees.