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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