This year, Al-`Aqar has dedicated a significant effort to strengthen our relationship with our key tenant, KPJ Healthcare Berhad. Alongside, we are actively working on establishing a strategic foundation for our long-term objectives. This commitment is visually represented through the vibrant depiction of a resilient and colorful tree root on the annual report cover. This symbolic representation encapsulates the essence of our initiatives to fortify a strategic foundation, embodying the company’s dedication to enduring success and sustained growth. The tree root, bursting with color, serves as a powerful metaphor, symbolising the depth and strength of our strategic endeavors. As we invest effort into this foundation, it is akin to nurturing a colorful root that will eventually give rise to beautiful leaves—reflecting the positive outcomes and achievements that will flourish from our dedicated and intentional initiatives. The annual report cover, adorned with this dynamic and symbolic imagery, becomes a visual testament to our commitment to building a strong and enduring foundation that will blossom into a future of success and prosperity for our company. SCAN ME Scan the QR Code by following these simple steps OPEN IT Open the Camera app or open the dedicated QR code reader POINT IT Point your camera or QR code scanner at the QR code ACCESS IT Get access to Al-`Aqar website COVER RATIONALE
01 ABOUT US 3 Corporate Profile 4 2023 Year in Review 5 Corporate Information 6 Trust Structure 7 Organisation Structure 8 Salient Features 04 CORPORATE GOVERNANCE 84 The Board of Directors 93 The Shariah Committee 96 The Management Team 100 Corporate Governance Overview Statement 113 Board Nomination and Remuneration Committee Report 118 Board Audit and Risk Committee Report 125 Board Investment Committee Report 128 Board Sustainability Committee Report 131 Statement on Risk Management and Internal Control 145 Additional Compliance Information 146 Shariah Adviser’s Report 147 Trustee’s Report 02 BUSINESS OVERVIEW 10 Letter to Stakeholders 15 Five-Year Financial Performance 17 Trading Performance 19 Market Summary Report 24 Management Discussion & Analysis 38 Stakeholders Engagement 05 OTHER INFORMATION 149 Analysis of Unitholdings 151 List of Properties 03 SUSTAINABILITY STATEMENT 41 Overview 43 A Synopsis of Our Sustainability Accomplishments 44 Navigating Our Sustainability Journey 45 Our Approach to Sustainability 47 Key ESG Performance Indicators 51 Insights Into Our Materiality Assessment 54 Integrating Climate-Related Considerations 56 Robust Corporate Governance 61 Sustainable Trust Fund 64 Strong Social Relationships 72 Environmental Stewardship 76 Moving Ahead 77 Performance Data Table 80 GRI Content Index 82 TCFD Content Index 06 FINANCIAL STATEMENTS 165 Manager’s report 171 Statement by Directors of the Manager 171 Statutory Declaration 172 Independent Auditors’ Report 176 Statements of Comprehensive Income 178 Statements of Financial Position 180 Statements of Changes in Net Asset Value 182 Statements of Cash Flows 184 Notes to the Financial Statements INSIDE THIS REPORT
About Us Corporate Profile 3 2023 Year in Review 4 Corporate Information 5 Trust Structure 6 Organisation Structure 7 Salient Features 8
CORPORATE PROFILE Established on 10 August, 2006, and listed on the main market of Bursa Malaysia, Al- `Aqar embarked on its journey with a modest portfolio of six properties. Over time, it has transformed into a robust entity, now encompassing an extensive portfolio of 24 properties spanning diverse segments, with a notable focus on healthcare. This diverse segments includes 17 hospitals, four wellness/health centers, two colleges, and an aged care facility, solidifying Al-`Aqar’s presence in the real estate investment trust landscape. At the helm of Al-`Aqar’s growth is Damansara REIT Managers Sdn Berhad (DRMSB), proudly serving as the fund manager. As a wholly-owned subsidiary of Johor Corporation and supported by KPJ Healthcare Berhad, DRMSB has played a pivotal role in fostering Al-`Aqar’s growth. As at 31 December 2023, Al-`Aqar’s properties value stood at RM1.64 billion and market capitalisation of RM1.04 billion. 4 WELLNESS/ HEALTH CENTRES 17HOSPITALS 2 COLLEGES 1 AGED CARE & RETIREMENT VILLAGE ABOUT US 2 3 4 5 6 3 AL-`AQAR HEALTHCARE REIT ANNUAL REPORT 2023
2023 YEAR IN REVIEW RETURN HIGHLIGHTS NO OF ASSETS OCCUPANCY RATE 2015 2018 2021 2016 2019 2022* 2017 2020 2023 1.64 24 billion DISTRIBUTION YIELD 6.37% TOTAL RETURN 8.01% MARKET CAPITALISATION 1.04 billion RM RM PROPERTY VALUE 100% NET REALISED INCOME 63.2 million RM GROSS REVENUE 121.0 million RM Distribution Per Unit (Sen) : From Stagnant to Increasing Trend 7.70 7.70 7.70 7.70 7.75 6.81 7.80 7.85 0.25 7.90 *Note: Contributed by cost saving from refinancing exercise (refinanced from fixed to floating rate) 4 AL-`AQAR HEALTHCARE REIT ANNUAL REPORT 2023 2 3 4 5 6 ABOUT US
CORPORATE INFORMATION MANAGER DAMANSARA REIT MANAGERS SDN BERHAD (200501035558) Registered Office: Level 14, Menara KOMTAR, Johor Bahru City Centre, 80000 Johor Bahru, Johor. Tel : (+607) 226 7692 / 226 7476 Fax : (+607) 222 3044 Principal Place of Business: Unit 1-19-02, Level 19, Block 1 V SQUARE, Jalan Utara, 46200 Petaling Jaya, Selangor. Tel : (+603) 7932 1692 / 7932 3692 Fax : (+603) 7932 0692 REGISTRAR LARKIN SENTRAL PROPERTY BERHAD Lot S8, Podium 1, Menara Ansar, 65, Jalan Trus, 80000 Johor Bahru, Johor. Tel : (+607) 297 2521 Fax : (+607) 223 3275 MOHAMED RIDZA & CO Unit No. 50-10-9, Level 10, Wisma UOA Damansara, No. 50, Jalan Dungun, Damansara Heights, 50490 Kuala Lumpur. Tel : (+603) 2092 4822 Fax : (+603) 2092 5822 Email : mrco@ridzalaw.com.my Website : ridzalaw.com.my PROPERTY MANAGER HEALTHCARE TECHNICAL SERVICES SDN BHD (199501012909) Level 17, Menara KPJ, No. 238, Jalan Tun Razak, 50400 Kuala Lumpur. Tel : (+603) 2681 6222 Fax : (+603) 2681 6888 CBRE (C) PTY LTD (64003205552) Level 3, Waterfront Place, 1 Eagle Street, Brisbane, Queensland 4000, Australia. Tel : (+617) 3833 9833 IM GLOBAL PROPERTY CONSULTANTS SDN BHD (200501019108) No. 47-2, 2nd Floor, Wisma IMG, Jalan 3/76D, Desa Pandan, 55100 Kuala Lumpur Tel : (+603) 9284 8884 Fax : (+603) 9281 1884 Email : info@img.com.my Website : www.img.com.my INDEPENDENT PROPERTY VALUER CBRE WTW Valuation & Advisory Sdn Bhd (197401001098) (formerly known as C H Williams Talhar & Wong Sdn Bhd) 30-01 30th Floor Menara Multi-Purpose 8 Jalan Munshi Abdullah P O Box 12157 50100 Kuala Lumpur Tel : (+603) 2616 8888 Fax : (+603) 2616 8899 Email : kualalumpur@cbre-wtw.com.my Website : www.cbre-wtw.com.my AUDITOR ERNST & YOUNG PLT (LLP0022760-LCA) (AF 0039) Level 23A, Menara Milenium, Jalan Damanlela, Pusat Bandar Damansara, 50490 Kuala Lumpur. Tel : (+603) 7495 8000 Fax : (+603) 2095 5332 Website : www.ey.com SOLICITOR ABDUL RAMAN SAAD & ASSOCIATES C-2-1, Pacific Place Commercial Centre, Jalan PJU 1A/4, Ara Damansara, 47301 Petaling Jaya, Selangor. Tel : (+603) 7859 9229 Fax : (+603) 7734 5777 Email : arsakl@arsa.com.my Website : www.arsa.com.my KADIR ANDRI & PARTNERS Suite A-38-8, Level 38, Menara UOA Bangsar, 5, Jalan Bangsar Utama 1, 59000 Kuala Lumpur. Tel : (+603) 2780 2888 Fax : (+603) 2780 2833 Email : partner@kaaplaw.com Website : www.kaaplaw.com ALBAR & PARTNERS Suite 14-3, Level 14, Wisma UOA Damansara II, No. 6 Changkat Semantan, Damansara Heights, 50490 Kuala Lumpur. Tel : (+603) 7890 3288 Fax : (+603) 7890 3266 Email : albar@albar.com.my Website : www.albar.com.my TRUSTEE AMANAHRAYA TRUSTEES BERHAD (200701008892) Level 14, Wisma AmanahRaya, No 2, Jalan Ampang, 50508 Kuala Lumpur. Tel : (+603) 2036 5129 Fax : (+603) 2072 0323 Email : art@arb.com.my Website : www.artrustees.my SHARIAH COMMITTEE 1. Dato’ (Dr) Haji Nooh Bin Gadot 2. Professor Madya Dr Abdul Halim Bin Muhammad 3. IBFIM (200701005076) Level 5, Bangunan AICB, No. 10, Jalan Dato’ Onn, 50480 Kuala Lumpur. Tel : (+603) 2031 1010 Fax : (+603) 2026 9988 Email : info@ibfim.com / shariah.advisory@ibfim.com Website : www.ibfimonline.com LISTING Main Market of Bursa Malaysia Securities Berhad Stock Name : ALAQAR Stock Code : 5116 WEBSITE www.alaqar.com.my ABOUT US 2 3 4 5 6 5 AL-`AQAR HEALTHCARE REIT ANNUAL REPORT 2023
TRUST STRUCTURE MANAGER UNITHOLDERS TRUSTEE REIT PROPERTIES SHARIAH ADVISORY PROPERTY/ MAINTENANCE MANAGER Property/Maintenance & Management Services • Healthcare Technical Services Sdn Bhd • IM Global Property Consultants Sdn Bhd • CBRE (C) Pty Ltd, Australia Acts on behalf of unitholders Trustee’s fees Property/ Maintenance & Management Fees Holding of units Distributions Shariah Advisor’s Fee Advise on Shariah related matters Net Property Income Ownership of Properties Management fees Management Services 6 AL-`AQAR HEALTHCARE REIT ANNUAL REPORT 2023 2 3 4 5 6 ABOUT US
ORGANISATION STRUCTURE Business Development & Investor Relations Finance Operations Corporate Services Compliance & Risk Management GENERAL MANAGER CHIEF EXECUTIVE OFFICER BOARD OF DIRECTORS BOARD NOMINATION AND REMUNERATION COMMITTEE BOARD INVESTMENT COMMITTEE BOARD AUDIT AND RISK COMMITTEE BOARD SUSTAINABILITY COMMITTEE COMPLIANCE OFFICER ABOUT US 2 3 4 5 6 7 AL-`AQAR HEALTHCARE REIT ANNUAL REPORT 2023
SALIENT FEATURES INVESTMENT OBJECTIVE To provide stable distributions per unit to unitholders with potential for sustainable growth of distributions and net asset value per unit. INVESTMENT POLICY To diversify its Shariah-compliant real estate portfolio with a focus on healthcare-related real estate investment by property and location as well as to explore opportunities with attractive returns. OPERATING STRATEGY To continue enhancing the performance of the properties by increasing yields and returns from the properties. This is being achieved through a combination of: i. meeting needs of the tenants; ii. maintaining the quality and physical conditions of the properties; iii. minimising interruptions in rental income and operational costs; and iv. enhancement initiatives by repositioning or repurposing potential underperformed or underutilised properties. INVESTMENT MANAGEMENT STRATEGY • To increase cash flow and enhance unit value through selective acquisitions • To preserve and enhance the value of the Fund’s properties via portfolio diversification consideration and a combination of: i. capitalisation of acquisition growth opportunities; and ii. identify assets approaching or have attained optimal returns for disposal consideration. CAPITAL MANAGEMENT STRATEGY To optimise capital structure and cost of capital within the financing limits prescribed by REIT Guidelines and intend to use a combination of debt and REIT units to fund future acquisitions and improvement works of the properties. NAME OF FUND Al-`Aqar Healthcare REIT TYPE OF FUND Income and growth CATEGORY OF FUND Islamic healthcare real estate and healthcare related assets DISTRIBUTION POLICY At least 95% of distributable income RENTAL REVIEW Every 3 years LISTING Main Market of Bursa Malaysia Securities Berhad LISTING DATE 10 August 2006 FUND SIZE 839,597,757 units OCCUPANCY RATE 100% STOCK NAME & CODE ALAQAR (5116) FINANCIAL YEAR END 31 December 8 AL-`AQAR HEALTHCARE REIT ANNUAL REPORT 2023 2 3 4 5 6 ABOUT US
Business Overview Letter to Stakeholders 10 Five-Year Financial Performance 15 Trading Performance 17 Market Summary Report 19 Management Discussion & Analysis 24 Stakeholders Engagement 38
Dear Valued Stakeholders, LETTER TO STAKEHOLDERS On behalf of the Board of Directors, I am delighted to present the Annual Report for Al-`Aqar Healthcare REIT (“Al-`Aqar”, the “Fund” or the “Group”) for the financial year ended 31 December 2023 (“FY2023”). The year 2023 marked a significant period of growth as Malaysia successfully navigated beyond the challenges posed by Covid-19 and the healthcare industry witnessed its capacity reaching maximum rates. Throughout 2023, the Manager dedicated substantial efforts to fortify relationships with existing tenants, KPJ Group, laying the foundation for future growth and diversification, as well as implementing capital recycling strategies. The Group’s investment properties stood at RM1.64 billion as at 31 December 2023. As we step into 2024, the Manager remains focused on implementing the comprehensive 5-Year Plan (20242028), a strategic initiative poised to propel Al-`Aqar to the next phase of growth. As the chairman of the Group, I am honored to present the Annual Report for FY2023, featuring a commendable distribution per unit (“DPU”) of 7.90 sen. This achievement aligns with the Manager’s expectation and translates to a remarkable payout of 100%, marking a 10-year high for Al-`Aqar, demonstrating our continuous commitment in delivering higher DPU to unitholders. The Manager remains steadfast in its commitment to delivering a consistently increasing trend of DPU, supported by acquisitions, long term lease renewals, and proactive capital recycling. 10 BUSINESS OVERVIEW 1 3 4 5 6 AL-`AQAR HEALTHCARE REIT ANNUAL REPORT 2023
REVIEWING 2023: ROBUST PRIVATE-PUBLIC PARTNERSHIPS In 2023, the Malaysian economy experienced moderate growth, with projections of a 3.9% to 4.0% increase. Despite this being a moderation from the previous year’s 7.8% growth, it signified a stable post-pandemic recovery. Resilient domestic demand was the main driver of growth, with significant contributions from household spending and investment activities. The robust employment market and wage growth further buoyed consumer confidence, which positively impacted our healthcare property sector. In the aftermath of the COVID-19 pandemic, hospitals in Malaysia, both public and private, are running at almost full capacity. Recognising the challenges posed by overcrowding at public hospitals, the government has established partnerships with private hospitals. Under these collaborations, private hospitals provide treatment to government patients at mutually agreedupon fees. This private-public partnership trend has become increasingly prevalent due to the realisation that, at a comparable cost, private hospitals deliver procedural services that are on par, if not more efficient, than those provided by government hospitals. Additionally, KPJ reported robust revenue and net profit in 2023, which increased by 19.2% and 63.3%, respectively, as compared to 2022. This was mainly driven by the higher patient volume, which resulted in a higher bed occupancy rate of 67% and more surgery cases. 2023 - A PRODUCTIVE YEAR Throughout the financial year 2023, Al-`Aqar’s demonstrated strong growth in both revenue and net property income, driven by contributions from three expansion assets bought in December 2022 and the renewal of master leases for five properties in 2023. Following the acquisition of three expansion assets, the Fund’s gearing grew to 45.8%, while the private placement exercise lowered the Fund’s gearing to 40.8%, providing headroom for the next acquisition plan. In 2023, the total number of properties and value remain unchanged at 24 and RM1.72 billion, respectively. Following the implementation of capital recycling activities, the Fund entered into agreements to dispose of two properties worth RM76.7 million, bringing the total investment property value to RM1.64 billion. LETTER TO STAKEHOLDERS KPJ Perdana Specialist Hospital. 15 years master lease renewed on 25 August 2023. 11 BUSINESS OVERVIEW 1 3 4 5 6 AL-`AQAR HEALTHCARE REIT ANNUAL REPORT 2023
In FY2023, the Group recorded a higher gross revenue of RM121.0 million (FY2022: RM110.2 million) and net property income of RM114.5 million (FY2022: RM104.2 million). Profit increased to RM60.7 million (FY2022: RM60.1 million), with realised profit of RM63.2 million. The Fund achieved a total DPU of 7.90 sen in FY2023. This achievement aligns with the Manager’s expectations and translates to a remarkable payout of 100%, marking a 10-year high for Al-`Aqar, demonstrating the Manager’s continuous commitment in delivering higher DPU to unitholders. 2023 AL-`AQAR FINANCIAL PERFORMANCE. DISTRIBUTION PER UNIT (SEN) 7.90 8.10 7.80 6.81 7.75 7.70 7.70 7.70 7.70 7.65 7.85 2013 2017 2015 2019 2022 2014 2018 2021 2016 2020 2023 LETTER TO STAKEHOLDERS The Manager successfully maintained their business prospects by adeptly turning risks into opportunities through an effective and ongoing Capital, Investment and Asset Management plan. CAPITAL MANAGEMENT On 20 April 2023, Al-`Aqar successfully concluded the private placement of 83.1 million units, generating total gross proceeds of RM99.7 million. This move contributed in lowering the gearing level to 40.8%, creating room for future acquisition strategies. Moreover, due to the elevated OPR rate as expected, the Group saw an increase in Islamic financing cost by 41.7%, reaching RM39.1 million in FY2023 (FY2022: RM27.6 million). Nevertheless, the weighted average finance cost of 4.86% in FY2023 was below that of FY2018, which averaged 5.44%. ASSET MANAGEMENT On 25 August 2023, the Manager renewed the master lease for five properties, which contributed 11.8% of Al-`Aqar’s revenue in FY2023. Additionally, the Manager has also managed to maintain a 100% occupancy rate for its entire portfolio of assets, ensuring that all the properties were leased out throughout the year. INVESTMENT MANAGEMENT On 15 November 2023, Al-`Aqar entered into a Sale and Purchase Agreement (“SPA”) with Sihat Damai Sdn Bhd for the disposal of Damai Wellness Centre for a disposal consideration of RM13 million cash. Subsequently, on 12 December 2023, Al-`Aqar entered into an SPA with Principal Healthcare Finance Trust for the disposal of Jeta Gardens Aged Care Facilities, with a disposal consideration of AUD24.4 million (or proximately RM74.9 million). Both transactions are targeted to be completed in 2024. These strategic moves are part of the Group’s capital recycling strategy, whereby the Manager divests underperforming and/or underutilised assets and utilises the freed-up capital to acquire highyielding assets, distribute to unitholders and/or reduce borrowings. 2023 AL-`AQAR INITIATIVES 2023 - A PRODUCTIVE YEAR (CONT’D) 12 BUSINESS OVERVIEW 1 3 4 5 6 AL-`AQAR HEALTHCARE REIT ANNUAL REPORT 2023
LETTER TO STAKEHOLDERS 2024 - EXPANSION AND DIVERSIFICATION Looking ahead to 2024, the Malaysian economy is expected to experience firmer growth of between 4% and 5%. This optimism is underpinned by resilient consumer spending and sustained investment in infrastructure, with the healthcare sector poised to benefit from these trends. The implementation of the MADANI Economy reforms is expected to further boost the service sector, contributing positively to our strategic growth areas. Furthermore, KPJ expects an increase in the number of patients in 2024, supported by the addition of new beds and services, as well as hiring of new consultants. The health tourism sector is expected to exceed RM2 billion in revenue in 2024, presenting an opportunity that KPJ aims to capitalise on. The Manager is optimistic regarding Al-`Aqar’s prospects in 2024, supported by the acquisitions of high-yielding assets, as well as the strategic disposal of underperforming/underutilising assets and renewal of master lease of six properties by October 2024. Moreover, the Manager’s primary focus remains on diversifying its assets and tenant base in the local market, with the aim of enhancing the overall quality of assets and tenants. Equally important, the Manager is dedicated to ensuring a sustained, upward trend in the long-term DPU. KPJ Penang Specialist Hospital. 15 years master lease to be renewed in October 2024. KPJ Seremban Specialist Hospital. 15 years master lease to be renewed in October 2024. 13 BUSINESS OVERVIEW 1 3 4 5 6 AL-`AQAR HEALTHCARE REIT ANNUAL REPORT 2023
INNOVATING FOR TOMORROW The Manager has developed a strategic 5-Year Plan (2024-2028) designed to leverage emerging opportunities and position itself at the forefront of ever-evolving healthcare trends. These trends encompass areas such as telemedicine, artificial intelligence-based diagnostics, wearable technology and precision medicine. With the implementation of the 5-Year Plan (2024-2028), the Manager anticipates the Group’s investment properties value to double to approximately RM3.0 billion by 2028 and the DPU to show a consistent increasing trend over the long term. APPRECIATION AND ACKNOWLEDGMENT I would like to thank Dato’ Wan Kamaruzaman bin Wan Ahmad who resigned as Independent Non-Executive Director, and Dato’ Salehuddin bin Hassan who resigned as Non-Independent Non-Executive Director, for their guidance and services during their tenure as the Board members. On behalf of the Board, Management and employees of the Manager, we wish them every success in their future endeavours. I also wish to extend my heartfelt appreciation to our unitholders, investors, clients, trustees, financiers, business partners, bankers, government and regulatory bodies for their unwavering support and trust in Al-`Aqar. Our appreciation is also expressed to our dedicated Management and loyal employees who consistently contribute their efforts and commitment, playing a vital role in shaping a resilient future for Al-`Aqar within the dynamic healthcare landscape. Looking forward, we will persist in fortifying our business and build a stronger portfolio, extending our reach within Malaysia and internationally. Thank you. DATO’ HAJI MOHD REDZA SHAH BIN ABDUL WAHID Chairman LETTER TO STAKEHOLDERS Over the next five years, the Group will meticulously assess potential asset acquisitions, ensuring alignment with the Group’s growth and diversification strategies. In addition, underperforming and underutilised assets will be strategically repositioned or divested to maximise returns, laying the foundation for a resilient portfolio capable of withstanding the test of time. The Manager is actively engaged in negotiations with KPJ Group, the promoter, and third-party asset owners/ operators, to acquire new healthcare properties. The Manager anticipates that Al-`Aqar will record transactions related to some of the growth initiatives below in 2024. To enhance competitiveness and strengthen relationship with tenants, the Manager is exploring new business model for Al-`Aqar’s current and future tenants. This may involve flexible and customised rental arrangements tailored to the needs of the tenants, including the creation of retail space at the healthcare properties to enhance tenants’ income. To expedite the fund transformation initiatives, the Manager has successfully executed digital and organisational transformation initiatives. Furthermore, the Manager continuously implements new measures, which include enhancing leadership development programmes, staying abreast of healthcare trends and international knowledge learning as well as increasing the frequency of engagements with all stakeholders to better understand the existing gaps. GROUP LEVEL – THE 5-YEAR PLAN (2024-2028) GROUP LEVEL – STRENGTHENING TENANT RELATIONSHIPS MANAGER LEVEL – PIONEERING INNOVATIONS AND IMPROVEMENTS DIVERSIFY CORE BUSINESS GROWTH IN NEW ECONOMIES Enlarge tenant base with different healthcare operators Diversify across value chain Grow complementary assets with KPJ Capitalise on aged care markets 1 2 3 4 14 BUSINESS OVERVIEW 1 3 4 5 6 AL-`AQAR HEALTHCARE REIT ANNUAL REPORT 2023
FIVE-YEAR FINANCIAL PERFORMANCE GROSS REVENUE (RM Million) RM121.0million NET ASSET VALUE (RM Million) RM1,072.3million PROFIT FOR THE YEAR (REALISED) (RM Million) RM63.2million ANNUALISED DISTRIBUTION YIELD (%) 6.37% ANNUAL TOTAL RETURN (sen) 8.01sen DISTRIBUTION PER UNIT (sen) 7.90sen 121.0 63.2 8.01 1,072.3 6.37 7.90 110.2 67.8 11.81 971.2 6.64 8.10 114.1 65.2 945.0 6.72 7.80 115.7 57.0 943.5 5.20 6.81 106.1 63.4 958.5 5.87 7.75 2023 2023 2023 2023 2023 2023 2021 2021 2021 2021 2021 2021 2022 2022 2022 2022 2022 2022 2020 2020 2020 2020 2020 2020 2019 2019 2019 2019 2019 2019 +9.8% -6.8% -32.2% +10.4% -4.1% -2.5% 4.44 6.63 (4.73) 15 BUSINESS OVERVIEW 1 3 4 5 6 AL-`AQAR HEALTHCARE REIT ANNUAL REPORT 2023
FIVE-YEAR FINANCIAL PERFORMANCE Gross revenue (RM’000) 94,588 103,918 104,245 104,588 115,250 Net property income (RM’000) 88,942 97,974 98,405 98,610 108,764 Profit before tax (RM’000) 73,771 50,126 46,602 58,083 66,378 Profit for the year - realised (RM’000) 61,267 55,137 64,400 66,707 64,694 - unrealised (RM’000) 12,504 (7,545) (17,030) (8,521) 1,824 Earnings per unit - realised (sen) 8.32 7.49 8.75 9.06 7.94 - unrealised (sen) 1.70 (1.02) (2.31) (1.16) 0.22 Investment properties (RM’000) 1,449,400 1,446,376 1,451,912 1,636,015 1,632,750 Total asset value (RM’000) 1,650,199 1,647,844 1,664,797 1,867,100 1,854,869 Net asset value (RM’000) 959,604 967,599 945,419 971,209 1,072,316 NAV per unit - before distribution (RM) 1.3038 1.3147 1.2846 1.2838 1.2772 - after distribution (RM) 1.2836 1.2802 1.2666 1.2628 1.2572 Market Capitalisation (RM’000) 971,500 964,140 853,743 922,913 1,041,101 Distribution Per Unit (sen) 7.75 6.81 7.80 8.10 7.90 Annualised Distribution Yield (%) 5.87 5.20 6.72 6.64 6.37 Gross revenue (RM’000) 106,110 115,710 114,072 110,239 121,022 Net property income (RM’000) 100,326 109,614 108,222 104,199 114,470 Profit before tax (RM’000) 76,148 13,624 72,781 60,036 60,554 Profit for the year - realised (RM’000) 63,409 56,984 65,218 67,766 63,246 - unrealised (RM’000) 12,753 (44,413) 8,331 (7,627) (2,552) Earnings per unit - realised (sen) 8.62 7.74 8.86 9.20 7.76 - unrealised (sen) 1.73 (6.03) 1.13 (1.03) (0.31) Investment properties (RM’000) 1,569,814 1,534,501 1,538,210 1,721,281 1,643,220 Total asset value (RM’000) 1,674,352 1,647,986 1,664,733 1,867,066 1,855,984 Net asset value (RM’000) 958,513 943,490 945,002 971,215 1,072,297 NAV per unit - before distribution (RM) 1.3024 1.2819 1.2840 1.2839 1.2772 - after distribution (RM) 1.2822 1.2474 1.2660 1.2629 1.2572 2023 2022 2019 2020 2021 FINANCIAL HIGHLIGHTS - GROUP FINANCIAL HIGHLIGHTS - FUND 2023 2022 2019 2020 2021 16 BUSINESS OVERVIEW 1 3 4 5 6 AL-`AQAR HEALTHCARE REIT ANNUAL REPORT 2023
Closing Unit Price (RM) 1.32 1.31 1.16 1.22 1.24 52-week Highest Traded Price (RM) 1.55 1.42 1.37 1.25 1.35 52-week Lowest Traded Price (RM) 1.27 1.19 1.09 1.09 1.22 Price Movement (%) 0.8 (0.8) (11.5) 5.17 1.64 Annual Total Return (%) 6.63 4.44 (4.73) 11.81 8.01 Number of Units in Circulation (’000) 735,985 735,985 735,985 756,486 839,598 Market Capitalisation (RM’000) 971,500 964,140 853,743 922,913 1,041,101 TRADING SUMMARY Million units/RM million RM/unit 1.32 1.31 1.16 1.22 MARKET CAPITALISATION, UNIT PRICE AND UNITS IN CIRCULATION 2019 2023 2021 2020 2022 1,200 3.0 1,000 2.5 0 0 200 0.5 400 1.0 600 1.5 800 2.0 Units in circulation (million units) Market Capitalisation (RM million) Closing Unit Price (RM/unit) TRADING PERFORMANCE 1.24 2023 2022 2019 2020 2021 736 736 756 840 736 964 854 923 1,041 972 17 BUSINESS OVERVIEW 1 3 4 5 6 AL-`AQAR HEALTHCARE REIT ANNUAL REPORT 2023
Average Daily Trading Volume (‘000 units) Closing Market Price (RM/unit) Volume (‘000 units) RM/unit FY2023 TRADING PERFORMANCE COMPARATIVE YIELD Jan Overnight Policy Rate 12-month FD rate 10-year Govt Security Al-`Aqar Distribution Yield Dec May Jun Mar Apr Feb Jul Aug Sep Oct Nov 200.0 150.0 7% 0 1% 3% 2% 4% 5% 6% 1.350 1.300 1.250 0.0 1.000 1.050 50.0 1.100 1.150 100.0 1.200 1.25 1.31 1.26 1.25 1.27 1.25 1.28 1.25 1.25 1.24 1.24 1.33 Source: Bank Negara Malaysia, Maybank, Damansara REIT Managers TRADING PERFORMANCE 42.5 31.1 56.8 56.0 61.7 131.0 174.6 127.2 84.5 83.0 135.4 134.5 3.88% 6.37% 3.00% 2.80% 18 BUSINESS OVERVIEW 1 3 4 5 6 AL-`AQAR HEALTHCARE REIT ANNUAL REPORT 2023
MARKET SUMMARY REPORT ECONOMIC OVERVIEW RISING MOMENTUM Malaysia’s GDP growth is forecasted at 4.4% for 2024E (2023E: +3.9%), supported by robust consumer spending, investments in infrastructure and recoveries in trade-related services and manufacturing industries. The global economy is expected to grow at a slower pace of 2.8% in 2024 after a 3.3% of expansion in 2023, driven by slower growths in US and China, and ongoing sluggishness in Europe. This global economic shift is reflected in the declining global composite purchasing index, which indicated a consumer transition from goods to services as the economy reopens post Covid-19. ASEAN-6 on the other hand is expected to pick up the pace through measures taken to support the respective domestic economies such as relaxation of visa requirements for foreign travelers. Headwinds in 2024 include global economic shifts, especially in the US and China geostrategic competition that led to geoeconomic fragmentation. The year 2023 ends with two major conflicts, the Russia-Ukraine war and Israel-Palestine war. The market seems to be factoring in the likelihood of an ongoing deadlock in the Russia-Ukraine conflict and a low probability of the Israel-Palestine issue escalating into a broader Middle East crisis. 2023 has been a year of transition to a more stable domestic political environment for Malaysia, which also enables focus on medium to long term transition of the economy. In the year, there has been various notable blueprints and roadmaps such as MADANI Economy, National Energy Transition Roadmap (NETR), New Industrial Master Plan 2030, 12th Malaysia Plan Mid-Term Review, Hydrogen Economy & Technology Roadmap, and Fiscal Responsibility Act and Energy Efficiency & Conservation Act. 2024 is then the year of execution and implementation of the announced blueprints and roadmaps. Fiscal reforms are high on the execution agenda, with the key element being the implementation of targeted rationalization of fuel subsidy in 2024, together with economic restructuring where the main event is Progressive Wage Policy (PWP), to address the cost-of-living issues, adequacy of retirement savings and equality. Globally, inflation rates have peaked and are seen slowing, signaling the end of the hike cycle for interest rates, with the US Fed keeping the fed funds rate (FFR) at 5.25-5.50%. 2024 FFR outlook is forecasted to have cuts up to 75bps and 100bps in 2025. Bank Negara is also expected to maintain the Overnight Policy Rate at 3.00%. Consumer spending in 2023 has been weakened by the ongoing cost inflation pressures, with signs showing that consumers spending has shifted towards Nestle’s lower-priced mainstream brands. Into 2024, the risk for further weakness in consumer spending cries for additional government subsidy rollbacks. (Extracted from Maybank Report: Malaysia 2024 Outlook and Lookouts) 19 BUSINESS OVERVIEW 1 3 4 5 6 AL-`AQAR HEALTHCARE REIT ANNUAL REPORT 2023
MARKET SUMMARY REPORT HEALTHCARE TRENDS ADAPTING HEALTHCARE IN MALAYSIA: BALANCING GROWTH AND EQUITY AMIDST GLOBAL CHALLENGES The long-term effects of COVID-19, particularly on individuals with pre-existing health conditions, have prompted Malaysia to prioritise health and wellness. The national Agenda of Healthy Malaysia is a key initiative to encourage healthier lifestyles. This focus is essential due to the high rate of deaths from non-communicable diseases (NCDs). Malaysia’s healthcare system, which heavily imports high-tech medical devices, presents a significant market for advanced medical products. The country is also undergoing a digital transformation in healthcare service delivery, creating demand for virtual consultation technologies, electronic medical records systems, and solutions for data privacy and security. Additionally, Malaysia is striving to enhance its healthcare travel ecosystem and strengthen its position in clinical research, leveraging its diverse population for a variety of medical studies. With the absence of travel restrictions, and the holiday season brewing as the year ended in 2023, Covid-19 cases have seen soaring from 200 confirmed cases in November 2023 to a peak of 3,700 confirmed cases daily in December 2023 as reported by Kementerian Kesihatan Malaysia (KKM). Medical experts have stressed that given the immunity obtained from vaccines, infections have been mild on most cases, and hospitals in the Nation are coping, hence there are slim chances on the reintroduction of lockdowns as in the previous years. Living with Covid-19 is a norm to be accepted. This transformation in the healthcare sector has also sculpted the healthcare landscape. Locally, inpatient volume trend, bed occupancy rate (BOR) and surgery numbers are underway to surpass prepandemic levels, positively geared to drive stronger earnings moving forward. Cost control remains a key variable for bottom line growth amid expansions to meet growing demand for local and foreign patients. The return of health tourism, referrals from public hospitals and high insurance penetration also serve as upside potentials for the sector. 20 BUSINESS OVERVIEW 1 3 4 5 6 AL-`AQAR HEALTHCARE REIT ANNUAL REPORT 2023
MARKET SUMMARY REPORT HEALTHCARE TRENDS (CONT’D) Health tourism, which currently accounts for around 4-6% of the country’s total tourism revenue (sourced from Malaysia Healthcare Travel Council) is expected to exceed current levels, due to the attractive pricing, strategic location, and quality of medical services available. The recent announcement for visa-free travel for citizens from China and India acts as a boost to attract inbound health tourists from these countries. Budget 2024 also included an allocation of RM200m to refer patients from public to private hospitals, potentially contributing to additional upsides to top line growth in the private healthcare sector. There are downsides which distort the healthcare industry, such as expansion delays, supply constraints of medical professionals which would cap operational bed numbers. The rising costs of human capital, energy and medical supply would also erode operating margins. However, unprecedented travel restrictions imposed if cases worsen would cut into health tourism and patient numbers, dampening the local healthcare industry growth. Globally, access to care is linked to affordability. As healthcare costs increase, the affordability of care also depends on investments in health and health systems. With public debt reaching a record of US$92 trillion in 2022, developing countries are allocating more funds for debt interest payments than for healthcare and education. The number of countries experiencing high debt levels escalated from 22 in 2011 to 59 in 2022. Approximately 3.3 billion people, or nearly half the global population, now reside in countries where healthcare investment is overshadowed by debt service, particularly in certain developing nations in Africa, Latin America, and Asia (excluding China). Worldwide, healthcare providers can incorporate steps to address inequities which limits access and affordability to healthcare, these include: If healthcare industry players are willing to further narrow the affordability gap in healthcare by incorporating the steps into their policies, focusing less on commercial gains and more on enhancing access and affordability, growth is likely to ensue. This strategic shift towards prioritising public health needs over profit can lead to sustainable development and expansion in the healthcare sector. Extracted from: 1. Maybank: Malaysia Outlook and Lookouts, 2024 2. International Trade Administration: Market Overview, 2024 3. New Straits Times: Health Experts Say Malaysia Prepared For New Wave of Covid-19, 2023 4. Malaysia’s Ministry of Health: Covid Dashboard, 2023 5. Deloitte: Global Health Care Sector Outlook, 2024 • Collaborating to influence multiagency action such as with integrated care systems; • Conducting quality improvement programs focused on health equity; • Leveraging their position as an anchor institution in their vicinity or community; • Promoting targeting of health care delivery to meet regional needs and explicitly aim to lessen health care inequalities; or • Integrating health equity-focused approaches through advocates across initiatives. 21 BUSINESS OVERVIEW 1 3 4 5 6 AL-`AQAR HEALTHCARE REIT ANNUAL REPORT 2023
MARKET SUMMARY REPORT AUSTRALIA AGED CARE SECTOR STILL GOING THROUGH CONSOLIDATION As at December 2022, the number of individuals accessing Home Care Packages witnessed a significant increase, reaching 235,999 people, representing an increase of 19%. The rise can be attributed to the Australian Government’s release of an increased number of packages. The increase in supply into the market has resulted in a reduction of people waiting for a Package at their approved level, with 37,894 people waiting for a Package at their approved level at December 2022, a decrease of 45% in 12 months. Government funding in this sector increased by 23% between FY21 and FY22. This growth is aligned to government policy and consumer preference to remain at home for as long as possible. However, the supply growth is challenged by a very tight labour market and increasing competition amongst providers to attract and retain home care workforce. In FY22, there was a net decrease in the number of providers, falling from 867 in FY21 to 846 in FY22 (19 new entries, 40 exits). The chart below shows historical growth in the number of consumers across the country. This growth is equivalent to a CAGR of 24% over FY18 to FY22, as shown in the chart below. The difference in growth between the Home Care Package consumers (24 percent) and total demand (Home Care Package consumers + waitlist, 15 percent) indicates that unmet demand is slowly decreasing as more packages are released into the market. Both growth measures exceed growth in the 80 years and over population over the same timeframe, which was 3.2 percent, reiterating the fact that there has historically been significant unmet demand. Home Care Services: NUMBER OF HOME CARE CONSUMERS + WAITLIST 40,777 53,203 61,337 72,062 215,743 176,105 142,436 106,707 56,750 91,847 CAGR+15% CAGR+24% HCP consumers People on waitlist FY18 FY22 FY21 FY20 FY19 22 BUSINESS OVERVIEW 1 3 4 5 6 AL-`AQAR HEALTHCARE REIT ANNUAL REPORT 2023
MARKET SUMMARY REPORT AUSTRALIA AGED CARE SECTOR (CONT’D) There are currently 698 providers delivering residential aged care in Australia, a 4.3% decrease in providers in the market since FY21. New requirements in relation to staffing are set to come into effect in 2023, starting with having a registered nurse onsite 24 hours per day from July 2023, and then needing to achieve minimum ‘care minutes’ targets by October 2023. These measures could be considered contributing factors towards the closure of some homes, including recent announcements from Brightwater in Western Australia and Wesley Mission in New South Wales that they will each close three of their homes. There’s a declining trend in demand for residential aged care, resulting in a 5.6% drop in occupancy levels over the past five years. However, the market is still growing in terms of operational places per provider. Meanwhile, as at June 2022, there were 180,750 permanent residents accessing residential aged care, a decrease of 1.7% since June 2021. Despite the drop in occupancy levels and overall demand for residential aged care, the Australian aged care market has continued to grow in terms of the total number of operational places. Chart below shows historical growth in the number of ‘operational places’ across the country. This growth is equivalent to a CAGR of 1.5% over the timeframe. (Extracted from KPMG Aged Care Market Analysis 2023) 0.4 percent compound annual growth in the number of occupied residential aged care places is low relative to the growth in the 85 years and over population over the same timeframe, which was 2.5 percent. This indicates a trend away from residential aged care to an extent. Residential Aged Care: TOTAL AND OCCUPIED RESIDENTIAL AGED CARE PLACES Number of people in care Unoccupied places 30,355 28,076 27,191 24,624 20,545 186,597 2018 2022 2021 2020 2019 188,773 189,610 191,029 189,954 23 BUSINESS OVERVIEW 1 3 4 5 6 AL-`AQAR HEALTHCARE REIT ANNUAL REPORT 2023
The Group: - Gross revenue 110,239 121,022 9.8 - Net Property Income (NPI) 104,199 114,470 9.9 - Profit for the year (realised) 67,766 63,246 (6.7) - EPU (realised) (sen) 9.20 7.76 (15.6) The Fund: - Income available for distribution 63,012 64,694 2.7 - DPU (sen) 8.10 7.90 (2.5) Revenue Malaysia 104,588 115,250 10.2 Australia 5,651 5,772 2.1 Net Property Income (NPI) Malaysia 98,610 108,764 10.3 Australia 5,589 5,706 2.1 MANAGEMENT DISCUSSION AND ANALYSIS Section 1 - FINANCIAL REVIEW Growth % % FY2023 RM’000 RM’000 FY2022 RM’000 RM’000 KEY FINANCIALS The Group’s segmental reporting is based on its geographical location of customers and assets as follows: i. Malaysia ii. Australia Management monitors the operating results of its business units separately for the purpose of making decisions on resource allocation and performance assessment. The segmental performance is evaluated based on operating profit. CONTRIBUTION BY SEGMENT MALAYSIAN SEGMENT The Malaysian segment, as the key contributor, contributed 95.2% (FY2022: 94.9%) to the Group’s total revenue. This segment reported revenue of RM115.2 million in FY2023, an increase of 10.2% from RM104.6 million in FY2022. In terms of NPI, Malaysian segment contributed 95.0% (FY2022: 94.6%) to the Group’s total NPI. This segment reported NPI of RM108.8 million in FY2023, an increase of 10.3% from RM98.6 million in FY2022. The increase was contributed by income from TMC Health (Expansion Building), KPJ Seremban Specialist Hospital (Expansion Building) and KPJ Pasir Gudang Specialist Hospital, which were acquired in December 2022. AUSTRALIAN SEGMENT The Australian segment contributed 4.8% (FY2022: 5.1%) to Group’s total revenue in FY2023. It reported revenue of RM5.8 million in FY2023, a slight increase of 2.1% from RM5.7 million in FY2022. In terms of NPI, this segment contributed 5.0% (FY2022: 5.4%) to Group’s total NPI. Australian segment reported NPI of RM5.7 million in FY2023, an increase of 2.1% from RM5.6 million in FY2022. Growth FY2023 FY2022 24 BUSINESS OVERVIEW 1 3 4 5 6 AL-`AQAR HEALTHCARE REIT ANNUAL REPORT 2023
MANAGEMENT DISCUSSION AND ANALYSIS Section 1 - FINANCIAL REVIEW (CONT’D) Profit for the year was RM60.7 million (FY2022: RM60.1 million) comprising realised profit of RM63.2 million (FY2022: RM67.8 million) and unrealised loss of RM2.5 million (FY2022: RM7.6 million). Despite a higher NPI of RM10.3 million, realised profit decreased 6.7% or RM4.5 million in FY2023, mainly due to an increase in financing cost of RM11.5 million and trust expenses of RM4.6 million. The higher financing cost was due to the drawdown of additional Islamic financing in December 2022 and the full impact of a 100 basis point OPR hike in FY2022, as well as a 25 basis point OPR hike in FY2023. Higher other trust expenses were mainly due to revisions in management fee and professional fees incurred in FY2023. The unrealised loss was mainly related to the fair value adjustment of Jeta Gardens, given the changes in the Australian aged care industry landscape. PROFIT FOR THE YEAR Al-`Aqar’s total asset value decreased by RM11.1 million (or 0.6%) to RM1.8 billion as of the end-FY2023. The decrease was mainly related to fair value losses on investment properties. Al-`Aqar’s financing decreased from RM855.6 million (or 11.4 %) to RM757.7 million, resulting in a lower gearing ratio of 40.8% against 45.8% as at end-FY2022. STATEMENT OF FINANCIAL POSITION STATEMENT OF CASH FLOW FOR EACH ACTIVITY: Total income available for distribution for FY2023 of the Fund was RM64.7 million. The Fund had distributed three interim income distributions for the period from January 2023 to September 2023, totalling 5.90 sen per unit and RM47.9 million. On 24 January 2024, the Fund declared a final income distribution of 2.00 sen per unit, totalling RM16.8 million for the period from October 2023 to December 2023. The said distribution was paid on 29 February 2024. In total, the distribution per unit (‘’DPU’’) for FY2023 is 7.90 sen, a slight decrease of 2.5% compared to the DPU of 8.10 sen for FY2022. The DPU of 8.10 sen for FY2022 was boosted by the cost savings from the refinancing of Al-`Aqar’s Sukuk in FY2021. The distribution totalled RM64.7 million for FY2023, which represents 99.9% of the income available for distribution, the highest payout in the past 10 years. INCOME AVAILABLE FOR DISTRIBUTION OPERATING ACTIVITIES Net cash generated from operating activities increased to RM101.2 million in FY2023 from RM88.9 million in FY2022. This is in line with the increase in NPI. INVESTING ACTIVITIES Investment income jumped by 57.2% to RM1.5 million (FY2022: RM0.9 million) given the higher OPR. FINANCING ACTIVITIES Al-`Aqar utilised RM116.6 million for financing activities during the year. On 27 April 2023, Al-`Aqar has fully redeemed its RM100.0 million of Revolving Credit-i mainly via proceeds from the private placements of RM98.3 million and internal fund of RM1.7 million, in order to provide headroom for future acquisitions. Total financing costs paid were higher as compared to the preceding year, mainly due to an increase in OPR as well as additional financing obtained in December 2022 in relation to the acquisitions of three asset expansions. Cash and cash equivalents stood at RM84.3 million as of end-FY2023, lower by RM11.8 million (or 12.3%) from RM96.1 million as of end-FY2022. 25 BUSINESS OVERVIEW 1 3 4 5 6 AL-`AQAR HEALTHCARE REIT ANNUAL REPORT 2023
MANAGEMENT DISCUSSION AND ANALYSIS Section 1 - FINANCIAL REVIEW (CONT’D) PERFORMANCE BENCHMARK Management expense ratio (%) 0.29 0.58 Management expenses increased due to revision in Manager’s fees expenses Total return (%) 11.81 8.01 Total return for the financial year was lower mainly due to lower distribution yield Average annual total unit price return (5 years) (%) 3.13 5.23 The 5-year average annual total return increased due to higher closing price offset lower DPU in FY2023 Average annual total unit price return (3 years) (%) 3.84 5.03 The 3-year average annual total return increased as higher closing price offset lower DPU in FY2023 Distribution yield (%) 6.64 6.37 Distribution yield has decreased due to higher closing price of RM1.24 and lower DPU of 7.90 sen in FY2023 NAV per unit (RM) 1.2839 1.2772 NAV per unit decreased 0.5% due to higher unit base, following the issuance of new units in April 2023 COMMENTARY FY2023 FY2022 PERFORMANCE BENCHMARK 26 BUSINESS OVERVIEW 1 3 4 5 6 AL-`AQAR HEALTHCARE REIT ANNUAL REPORT 2023
MANAGEMENT DISCUSSION AND ANALYSIS Section 1 - FINANCIAL REVIEW (CONT’D) Investment properties At 1 January 1,538,210 1,721,281 Additions 192,000 - Enhancements 3,656 - Disposal (295) - Transfer to assets classified as held for sale - (76,700) Fair value adjustment (11,258) (5,151) Foreign exchange differences (1,032) 3,790 Total investment properties as at 31 December 1,721,281 1,643,220 KPJ Ampang Puteri Specialist Hospital 137,000 137,000 KPJ Damansara Specialist Hospital 138,000 140,000 KPJ Johor Specialist Hospital 122,000 122,000 KPJ Ipoh Specialist Hospital 89,000 90,000 KPJ Puteri Specialist Hospital 40,000 40,000 KPJ Selangor Specialist Hospital 84,000 84,000 Kedah Medical Centre 53,000 60,000 KPJ Perdana Specialist Hospital 42,000 40,000 KPJ Kuantan Care & Wellness Centre 16,500 16,000 KPJ Sentosa KL Specialist Hospital 31,000 31,000 KPJ Kajang Specialist Hospital 52,000 57,000 Taiping Medical Centre 22,500 22,500 Damai Care & Wellness Centre 12,000 12,000 KPJ International College, Penang 14,100 14,000 Tawakkal Health Centre 47,400 46,000 KPJ Healthcare University, Nilai 102,000 102,000 KPJ Seremban Specialist Hospital 160,000 160,000 KPJ Penang Specialist Hospital 65,000 65,000 KPJ Tawakkal Specialist Hospital 139,000 139,000 KPJ Haemodialysis Kluang 4,700 4,800 KPJ Klang Specialist Hospital 104,000 104,000 KPJ Batu Pahat Specialist Hospital 80,000 80,000 Pasir Gudang Specialist Hospital 90,000 90,000 Jeta Gardens Aged Care & Retirement Village 85,266 79,385 TOTAL PORTFOLIO - based on valuation report 1,730,466 1,735,685 Less: Unbilled rental income (9,185) (11,550) Less: Investment properties classified as held for sale - (76,700) Less: Fair value adjustment of investment property transferred to asset classified as held for sale - (4,215) Total Portfolio Properties as at 31 December 1,721,281 1,643,220 FY2023 FY2023 RM’000 Fair Value RM’000 FY2022 FY2022 RM’000 Fair Value RM’000 Description of property FAIR VALUE OF INVESTMENT PROPERTIES 27 BUSINESS OVERVIEW 1 3 4 5 6 AL-`AQAR HEALTHCARE REIT ANNUAL REPORT 2023
KPJ Healthcare University, Nilai 6.14 MANAGEMENT DISCUSSION AND ANALYSIS Section 1 - FINANCIAL REVIEW (CONT’D) (RM ‘Million) ANNUAL LEASE CONTRIBUTION (RM’MILLION} AND PERCENTAGE CONTRIBUTION (%) 12 10 4 2 0 6 8 Jeta Gardens Aged Care & Retirement Village 5.77 KPJ Ampang Puteri Specialist Hospital 9.30 KPJ Tawakkal Specialist Hospital 9.69 KPJ Damansara Specialist Hospital 8.00 KPJ Johor Specialist Hospital 8.71 KPJ Klang Specialist Hospital 7.46 KPJ Ipoh Specialist Hospital 7.23 KPJ Selangor Specialist Hospital 5.92 KPJ Penang Specialist Hospital 4.65 KPJ Seremban Specialist Hospital 10.37 Kedah Medical Centre 3.86 KPJ Perdana Specialist Hospital 3.17 KPJ Kajang Specialist Hospital 3.84 KPJ Batu Pahat Specialist Hospital 7.63 KPJ Haemodialysis Kluang KPJ Puteri Specialist Hospital 3.02 KPJ Sentosa KL Specialist Hospital KPJ International College, Penang Tawakkal Health Centre 3.52 Damai Wellness Centre 0.32 2.07 1.03 0.97 8.57 8.01 7.69 7.20 6.61 6.31 6.17 5.98 4.89 4.77 KPJ Pasir Gudang Specialist Hospital 5.35 4.42 3.84 3.19 3.17 2.91 2.62 2.50 1.71 Kuantan Wellness Centre 1.39 1.15 0.85 0.80 0.25 5.07 Taiping Medical Centre 1.59 1.32 (%) 28 BUSINESS OVERVIEW 1 3 4 5 6 AL-`AQAR HEALTHCARE REIT ANNUAL REPORT 2023
Section 2 - OPERATIONS REVIEW MANAGEMENT DISCUSSION AND ANALYSIS Following the normalisation of hospital operations postCovid-19, bed occupancy rate at Malaysia’s hospitals reached near full capacity. Consequently, both public and private hospitals have expanded by adding new beds. In 2023, KPJ’s revenue increased by 19.2% to RM3.42 billion, while its net profit increased by 63.3% to RM281.3 million, owing to the growing hospital activities. On 25 August 2023, Al-`Aqar successfully renewed the master lease for five properties. These five properties were valued at RM204.0 million as at 31 December 2023 and contributed RM14.3 million of rental income in FY2023, representing 11.8% of the Group’s total rental income in FY2023. The renewal of this master lease reflects the Manager’s ongoing commitment in strengthening the tenant relationships by enhancing the asset and business value proposition. To rejuvenate the properties, the Manager implements asset enhancement measures such as retrofitting, lift replacement, water pipping replacement and repainting. In collaboration with the tenant, the Manager continuously explores a valuebased asset management strategy, which includes multitenant arrangements and the installation of solar panels and EV charging stations. In FY2023, asset enhancement initiatives totalled RM2.1 million: ASSET ENHANCEMENT INITIATIVES LEASE RENEWALS Completed - Civil and structural 357,500 - Mechanical & Electrical 696,858 - Repainting 460,000 - Expansion NIL Sub Total 1,514,358 Ongoing - Repainting NIL - Civil and structural NIL - Mechanical & Electrical 610,375 - Expansion NIL Sub Total 610,375 TOTAL 2,124,733 AMOUNT RM CATEGORY Under the lease arrangement, the contractual lease term is 15 years, with the option to renew for an additional 15 years. The contractual lease term is mostly divided into five rental terms of 3 years, subject to renewal upon the expiry of each rental term. On 25 August 2023, the Manager renewed the master lease of five properties (“Second Injection Properties”), namely KPJ Perdana Specialist Hospital, KPJ Sentosa KL Specialist Hospital, KPJ Kajang Specialist Hospital, Kedah Medical Centre and Kuantan Care & Wellness Centre. These new lease agreements took effect on 1 October 2023. Looking into 2024, master leases for six properties are set for renewals by the end of October 2024. These six properties are KPJ Seremban Specialist Hospital, KPJ Penang Specialist Hospital, Taiping Medical Centre, Tawakkal Health Centre, KPJ Healthcare University, Nilai and KPJ International College, Penang. Al-`Aqar master lease renewal is as follows: FY2024 6 23% FY2025 1 8% FY2027 2 6% % OF TOTAL RENTAL NO. OF PROPERTIES YEAR 29 BUSINESS OVERVIEW 1 3 4 5 6 AL-`AQAR HEALTHCARE REIT ANNUAL REPORT 2023
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