1 Statement Accompanying Notice of Annual General Meeting (CONT’D) ABOUT US BOUND VITALISE ENERGISE ANNUAL REPORT 2023 RE:
Office F&B Restaurant Industrial & Others Retail OUR BUSINESS NET PROPERTY INCOME 39% 6% 21% 34% REVENUE 52% 23% 15% 10% PROPERTY VALUE 53% 6% 16% 25% RETAIL OFFICE F&B RESTAURANTS INDUSTRIAL & OTHERS LEGEND: F&B RESTAURANT
2023 HIGHLIGHTS RM50.9 million NET PROPERTY INCOME RM275.5 million MARKET CAPITALISATION 1.20 sen DISTRIBUTION PER UNIT (DPU) RM1.24 billion PROPERTY VALUE 54 NUMBER OF PROPERTIES RM76.3 million GROSS REVENUE 2.53% DISTRIBUTION YIELD 2.7 million sq. ft. GROSS FLOOR AREA
REBOUND REVITALISE RE-ENERGISE The cover of our annual report boldly showcases the headline “RE: BOUND VITALISE ENERGISE,” epitomising Al-Salām REIT’s proactive efforts towards strong recovery and growth. A majestic soaring bird graces the cover, serving as a symbol of our company’s rise from adversity to prosperity. After years of fortifying our foundation, Al-Salām REIT stands poised to harvest the fruits of our labour and pursue excellence in the years to come.
SECTION 01: ABOUT US 05 Corporate Profile 06 Corporate Information 07 Trust Structure 08 Organisation Structure 09 Salient Features SECTION 02: BUSINESS OVERVIEW 14 Letter to Stakeholders 18 Five-Year Financial Performance 19 Trading Performance 20 Market Report Summary 24 Management Discussion & Analysis 45 Stakeholder Engagement SECTION 03: SUSTAINABILITY STATEMENT 52 A Cursory Snapshot of Our Sustainability Journey 55 Our Sustainability Performance Highlights 56 Looking Back on Our Reporting Journey 58 A Strategic Approach Toward Sustainable Excellence 64 Identifying Our Material Sustainability Matters 70 Robust Corporate Governance 74 Sustainable Trust Fund 77 Strong Social Relationships 87 Environmental Stewardship 92 Concluding A Year of Progress 93 Performance Data Table 96 GRI Content Index 97 TCFD Content Index SECTION 04: CORPORATE GOVERNANCE 102 The Board of Directors 111 The Shariah Committee 114 The Management Team 118 Corporate Governance Overview Statement 132 Board Audit and Risk Committee Report 139 Board Investment Committee Report 142 Board Nomination and Remuneration Committee Report INSIDE THIS REPORT 14 183 Financial Statements Letter to Stakeholders Get access to Al-Salām REIT’s website Point your camera or QR code scanner at the QR code Open the Camera app or open the dedicated QR code reader SCAN ME Scan this QR Code to view the Annual Report online 146 Board Sustainability Committee Report 149 Statement on Risk Management and Internal Control 162 Additional Compliance Information 164 Shariah Adviser's Report 165 Trustee's Report SECTION 05: OTHER INFORMATION 167 Portfolio Summary and Details 181 Analysis of Unitholdings SECTION 06: FINANCIAL STATEMENTS 184 Manager’s Report 190 Statement by Directors of the Manager 190 Statutory Declaration 191 Independent Auditors’ Report 195 Statements of Comprehensive Income 197 Statements of Financial Position 199 Statements of Changes in Net Asset Value 200 Statements of Cash Flows 201 Notes to the Financial Statements
05 Corporate Profile 06 Corporate Information 07 Trust Structure 08 Organisation Structure 09 Salient Features ABOUT US SECTION 01
CORPORATE PROFILE Al-Salām Real Estate Investment Trust ("Al-Salām REIT") is a Shariah-compliant fund that invests in diversified Shariah-compliant properties. The properties of Al-Salām REIT, which has a diverse portfolio, are strategically located throughout Malaysia. Al-Salām REIT achieved its first milestone on 29 September 2015, when it was listed on Bursa Malaysia Securities Berhad's Main Market with an initial asset value of RM903.1 million. Al-Salām REIT began with 31 properties in 2015 and has grown to 54 properties across Malaysia, including 4 retail outlet, an office building, 42 food and beverage restaurants, 6 industrial assets and a college. Al-Salām REIT's asset value had increased to RM1.24 million as of 31 December 2023 from its initial investment. The Manager of Al-Salām REIT, Damansara REIT Managers Sdn Berhad ("DRMSB" or the "Manager"), is a subsidiary of the Johor Corporation ("JCorp") Group of Companies. DRMSB is licenced to manage Islamic REITs under the Capital Markets and Services Act 2007. Al-Salām REIT's market capitalisation was RM275.5 million as of 31 December 2023. Al-Salām REIT is a diversified Islamic Real Estate Investment Trust in Malaysia with assets strategically located in Johor Bahru as well as in major towns throughout Malaysia. Retail Outlets Office Building Food and Beverage Restaurants College Industrial Buildings 4 1 42 1 6 5 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 LISTING MAIN MARKET OF BURSA MALAYSIA SECURITIES BERHAD Stock Name : ALSREIT Stock Code : 5269 WEBSITE www.alsalamreit.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 REGISTRAR LARKIN SENTRAL PROPERTY BERHAD Lot S8, Podium 1, Menara Ansar, 65, Jalan Trus, 80000 Johor Bahru, Johor. Tel : (+607) 223 5017 Fax : (+607) 223 3275 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 SOLICITORS 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 MOHAMED RIDZA & CO 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 Website: ridzalaw.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 PROPERTY MANAGER EXASTRATA SOLUTIONS SDN BHD (201001042323) W-10-4, 4th Floor, West Wing Subang Square, Jalan SS 15/4G, 47500 Subang Jaya, Selangor. Tel : (+603) 5632 7686 / 5636 7686 Fax : (+603) 5613 1686 Email : admin@exastrata.net Website: www.exastrata.net SERVICE PROVIDER DASB PROPERTY MANAGEMENT SDN BHD (201001022192) Level 5, Menara KOMTAR, Johor Bahru City Centre, 80000 Johor Bahru, Johor. Tel : (+607) 267 9900 Fax : (+607) 267 9926 INDEPENDENT PROPERTY VALUER CHESTON INTERNATIONAL (KL) SDN BHD (200401008141) Suite 2A, 2nd Floor, Plaza Flamingo, No. 2, Tasik Ampang, Jalan Hulu Kelang, 68000 Ampang, Selangor, Malaysia. Tel : (+603) 4251 2599 Fax : (+603) 4251 6599 Email : cikl@chestonint.com Website: www.chestonint.com 6 AL-SALĀM REIT ANNUAL REPORT 2023
TRUST STRUCTURE UNITHOLDERS REIT TRUSTEE REIT PROPERTIES SERVICE PROVIDER PROPERTY MANAGER REIT MANAGER SHARIAH COMMITTEE AMANAHRAYA TRUSTEES BERHAD DASB PROPERTY MANAGEMENT EXASTRATA SOLUTIONS DAMANSARA REIT MANAGERS SDN BERHAD Holding of units Distributions Ownership of Properties Net Property Income Act on behalf of unitholders Trustee’s Fees Management Services Management Fees Advise on Shariah related matters Shariah Adviser’s Fees Property Management Fees Property Management Service 7 ABOUT US
ORGANISATION STRUCTURE (CONT’D) GENERAL MANAGER FINANCE BUSINESS DEVELOPMENT & INVESTOR RELATIONS OPERATIONS CORPORATE SERVICES COMPLIANCE & RISK CHIEF EXECUTIVE OFFICER COMPLIANCE OFFICER BOARD OF DIRECTORS BOARD NOMINATION AND REMUNERATION COMMITTEE BOARD INVESTMENT COMMITTEE BOARD SUSTAINABILITY COMMITTEE BOARD AUDIT AND RISK COMMITTEE 8 AL-SALĀM REIT ANNUAL REPORT 2023
SALIENT FEATURES Name of Fund Type of Fund Listing Category of Fund Listing Date Main Market of Bursa Malaysia Securities Berhad Income and Growth 29 September 2015 (MZIVWMεIH 6IEP Estate Investment Trust 31 December Distribution Policy Stock Name & Code %076)-8 580,000,000 units Fund Size Financial Year End %P 7EPÄQ 6IEP )WXEXI Investment Trust At least 90% of distributable income 9 ABOUT US
10 AL-SALĀM REIT ANNUAL REPORT 2023 SALIENT FEATURES 1. Active Asset Management The Manager will seek to optimise the rental rates, occupancy rates and net lettable area of the subject properties in order to improve the returns from Al-Salām REIT’s property portfolio. The Manager will source for and acquire properties that fit within Al-Salām REIT’s investment strategy to enhance returns to Unitholders and capitalise on opportunities for future income and NAV growth. 2. Acquisition Growth Strategy The Manager will endeavour to employ an appropriate mix of debt and equity in financing acquisitions, seek to manage financing and refinancing risk and to adopt an active financing rate management strategy to manage the risks associated with changes in financing rates. 3. Capital and Risk Management STRATEGIES POLICY OBJECTIVE The Manager’s key objective is to provide Unitholders with regular and stable distributions, sustainable long-term unit price and distributable income and capital growth of Al-Salām REIT. In the long run, through its key investment strategies, Al-Salām REIT maintains an optimum level of financing and equity capital structure. Al-Salām REIT is an Islamic REIT established with the principal investment policy of investing, directly and indirectly, in a diversified shariah-compliant portfolio with income producing real estate which are used primarily for commercial retail, office and industrial purposes in Malaysia as well as real estate-related assets.
14 Letter to Stakeholders 18 Five-Year Financial Performance 19 Trading Performance 20 Market Report Summary 24 Management Discussion & Analysis 45 Stakeholder Engagement BUSINESS OVERVIEW SECTION 02
12 AL-SALĀM REIT ANNUAL REPORT 2023 Statement Accompanying Notice of Annual General Meeting (CONT’D)
13 Statement Accompanying Notice of Annual General Meeting (CONT’D) ABOUT US
LETTER TO STAKEHOLDERS “Dear Valued Stakeholders, On behalf of the Board of Directors of the Manager, it is my privilege and pleasure to present to you the Annual Report and Audited Financial Statements of Al-Salām REIT (the “Fund”) for the financial year ended 31 December 2023 (“FY2023”). In FY2023, the Fund’s revenue sustained its recovery momentum with the influx of foreign tourists, driven by economic growth and depreciation in Malaysian Ringgit. However, the Fund’s distributable income was impacted by external factors, specifically the higher electricity cost and higher financing cost. On a positive note, the value of the Fund’s investment properties increased 1.2% year-on-year to RM1.24 billion as at 31 December 2023, underscoring the strong fundamentals of our properties. The Fund posted a realised profit of RM7.6 million on the back of a RM76.3 million revenue in FY2023. The total income distribution for FY2023 is 1.20 sen per unit totalling RM7.0 million, which represents 92.0% of the income available for distribution. 14 AL-SALĀM REIT ANNUAL REPORT 2023 “
GROSS REVENUE REALISED PROFIT MARKET CAPITALISATION DATO’ HAJI MOHD REDZA SHAH BIN ABDUL WAHID Chairman LETTER TO STAKEHOLDERS ECONOMIC LANDSCAPE In the aftermath of the pandemic, the Johor Bahru-Singapore border activity has witnessed a robust resurgence, notably in the tourism sector. Johor is poised to host around 15 million overnight tourists in 2023, approaching the pre-pandemic figures. Johor Bahru remains a key retail destination and has seen stronger retail spending throughout 2023. Prime shopping malls that are close to the Causeway boarder have seen uptrends in business, leading to increased rental rates, particularly for the prime retail space on ground floors. The industrial property sector continued to see strong demand, primarily propelled by growth in sectors such as electrical & electronics, pharmaceuticals and medical devices, oil & gas, cold chain logistics and automotive subsectors. Furthermore, the rental market for the industrial properties remained robust, with rents consistently climbing since 2019 and there is a rising demand for high-quality warehouses. RM76.3 Million RM7.6 Million RM275.5 Million 15 BUSINESS OVERVIEW
16 AL-SALĀM REIT LETTER TO STAKEHOLDERS ANNUAL REPORT 2023 BUSINESS HIGHLIGHTS The resilience of Al-Salām REIT’s diversified asset portfolio is evident as KOMTAR JBCC continues to undergo rejuvenation as portrayed by the sustained recovery of the Fund’s Net Property Income ("NPI") into FY2023, in tandem with the positive trend in consumer sentiment. @Mart Kempas and Mydin Hypermart Gong Badak continued to demonstrate their resilience as community-centric hypermarkets that provide daily essentials. In addition, the Fund’s sizable triple net lease assets portfolio (comprising Mydin Hypermart Gong Badak and QSR operated properties) continued to contribute to Al-Salām REIT’s core earnings. KOMTAR JBCC, which was affected by the border closure during the pandemic, has seen sustained improvement in FY2023. The resurgence can be attributed to the increased influx of Singaporean tourists and the weakness in Malaysian Ringgit. Towards the end of 2023, the footfall traffic at KOMTAR JBCC signaled a significant recovery in volume to reach pre-pandemic level. As at 31 December 2023, the occupancy rate stood at approximately 63%, representing a marginal improvement compared to the previous year’s 62%. Notably, the gross revenue has significantly improved by RM5.0 million or 41.5%. This improvement is attributed to higher rental income, as well as increased revenue from parking and promotional activities. However, the NPI of the mall only saw an improvement of RM1.4 million. This modest increase is primarily due to higher operating expenses, particularly related to utility costs. Menara KOMTAR expects to maintain its position as a strategic office space in Johor Bahru's central business district as well as having a continuous strong tenancy by JCorp Group of Companies. Assets operated by QSR Brands (M) Holdings Bhd ("QSR") continued to provide income stability on the back of a triple net lease arrangement with Al-Salām REIT. QSR continued to persevere by virtue of their time-tested operational excellence and sustainable market share amidst the challenging business environment. The Fund’s sole education asset, the KPJ International College of Nursing and Health Sciences Johor Bahru ("KPJIC JB"), also generated a steady income from a master lease agreement with KPJ Group’s education arm. On the back of the ongoing recovery, Al-Salām REIT recorded an NPI of RM50.9 million in FY2023 (FY2022: RM51.4 million) on higher revenue of RM76.3 million in FY2023 (FY2022: RM71.8 million). However, the Fund’s total income available for distribution dropped by 52% year-on-year to RM7.6 million (FY2022: RM15.8 million) mainly due to the higher Islamic financing costs of RM34.6 million (FY2022: RM 26.6 million). The rise in Islamic financing costs resulted from the full impact of a 100 basis point increase and a 25 basis point increase in the overnight policy rate ("OPR") during FY2022 and FY2023, respectively. ENSURING SUSTAINABILITY Sustainability is the key to long-term value creation for our various stakeholders, so it was especially important during this challenging time to ensure sustainability across all aspects of the Fund in the economic, environmental, social and governance contexts. We will continue to adopt appropriate sustainability practices into our daily operations to achieve our strategic business objectives while minimising our environmental footprint. At the same time, we are committed to providing our employees with a balanced, safe and healthy workplace. FUTURE PROSPECTS Anticipating the year 2024, we are optimistic on the sustained retail spending momentum at KOMTAR JBCC as well as the Fund’s overall outlook. The Manager has devised a robust strategy for portfolio growth, that aims at diversifying the asset classes and expanding its geographical footprint. PORTFOLIO GROWTH STRATEGIES Growth in New Economies Diversified Core Unlock Value of existing assets Leverage on Sponsor’s Network Strategic long-term foray into data centres Grow in tandem with industrialisation Ride on e-commerce boom and consumerism
17 LETTER TO STAKEHOLDERS BUSINESS OVERVIEW Of utmost importance is the strategic repositioning of KOMTAR JBCC, a collaborative effort involving the Manager, the property manager as well as 3rd party retail advisors. Together, we have replanned the tenant mix and layout configuration, with primary focus on beauty, premium and mainstream fashion, as well as F&B outlets. The mall will also feature al fresco spaces, adding a vibrant and open-air dimension to its offerings. Currently, the mall is undergoing an asset enhancement exercise, with the targeted completion of initial phase set by Q3 2024. The Manager expects a marked improvement to the mall’s yield performance by the end of 2025 and greater success by 2027. Additionally, the Johor Bahru-Singapore Rapid Transit System (“RTS”) scheduled for completion by 2026 also bodes well for Johor, especially KOMTAR JBCC. With a capacity of 10,000 passengers per hour, the Johor Bahru-Singapore RTS is wellequipped to handle the anticipated increase in incoming travelers to the region and the subsequent rise in retail spending. Al-Salām REIT will also undertake the development of the Pedestrian Overhead Bridge ("POB") to connect KOMTAR JBCC to the above-mentioned RTS development via the RTS Link Bukit Chagar Station. Expected to be opened in 2027, measuring 42 metres in length and 4 to 8 metres in width, the air-conditioned POB of KOMTAR JBCC will offer commuters a seamless, safe and convenient link between the station, the mall and the surrounding Ibrahim International Business District ("IIBD"). We are eagerly anticipating several forthcoming catalytic initiatives poised to attract valuable foreign direct investment and foster local economic growth. Among these, the development of the RM25 billion IIBD, Johor-Singapore Special Economic Zone ("SEZ") and Johor-Singapore Special Financial Zone ("SFZ") hold considerable promise. In addition, the potential revival of the Kuala LumpurSingapore high-speed rail ("KL-SG HSR") project provides added confidence in the prospects of Johor’s real estate industry, resulting in a beneficial spillover effect on the office market, particularly on Menara KOMTAR. Moreover, the Manager is exploring avenues for asset diversification and geographical expansion, placing a greater focus on the industrial market segment. Currently, the Manager is assessing opportunities to undertake sale leaseback arrangements involving industrial assets including modern warehouses, factories situated at the major industrial areas across Peninsular Malaysia as well as long term forays into the data centre market segment. Assets under JCorp at major industrial parks in Johor, such as Tanjung Langsat Industrial Park, Muar Furniture Park, Pengerang Industrial Park and the upcoming Sedenak Tech Park (“STeP”), are being considered as part of the long-term asset pipeline for the Fund. With a steadfast commitment to unitholders’ interests, the Manager will thoroughly evaluate any asset acquisitions to ensure alignment with the Fund’s objective of sustainable long-term growth in EPU and DPU. APPRECIATION AND ACKNOWLEDGEMENTS I extend my heartfelt thanks to our dedicated team for their unwavering support and commitment. It is through our collective efforts that we have successfully navigated the complexities of 2023 and are poised for growth in the coming year. 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 NonExecutive 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. On behalf of the Board, I would also like to thank our unitholders, trustees, Shariah Committee, business partners, bankers, government authorities and other stakeholders for their continued support and confidence in the Fund. We are excited about the opportunities that 2024 holds and are confident in our ability to continue to deliver stronger performance in the years ahead. Thank you. DATO’ HAJI MOHD REDZA SHAH BIN ABDUL WAHID Chairman Signing Ceremony of MoU between Al-Salām REIT and MRTS.
18 AL-SALĀM REIT FIVE-YEAR FINANCIAL PERFORMANCE ANNUAL REPORT 2023 Financial Highlights – Group FY2019 FY2020 FY2021 FY2022 FY2023 RM‘000 RM‘000 RM‘000 RM‘000 RM‘000 Statement of Comprehensive Income – Key Data & Financial Ratios Gross Revenue 94,912 86,101 71,543 71,800 76,283 Net Property Income 69,121 64,970 54,994 51,439 50,908 Profit for the Year (Realised) 28,395 14,555 14,644 15,733 7,571 Earnings Per Unit (Realised) (Sen) 4.90 2.51 2.52 2.71 1.31 Statement of Financial Position – Key Data & Financial Ratios Investment Properties 1,187,635 1,189,365 1,177,237 1,224,173 1,239,014 Other Non-current Assets 931 3,686 708 803 1,797 Current Assets 60,614 61,503 75,555 80,138 75,250 Total Asset Value 1,249,180 1,254,554 1,253,500 1,305,114 1,316,061 Current Liabilities 531,919 65,125 17,180 473,105 140,374 Non-Current Liabilities 93,183 592,048 645,080 192,223 529,279 Total Liabilities 625,102 661,747 662,890 665,328 669,653 Net Asset Value (NAV) - Before Income Distribution 624,078 597,381 590,609 639,786 646,408 - After Income Distribution 615,900 590,305 580,169 631,086 645,828 Total Unitholders’ Fund 624,078 597,381 590,609 639,786 646,408 NAV Per Unit (Before Income Distribution) (RM) 1.0760 1.0300 1.0183 1.1031 1.1145 NAV Per Unit (After Income Distribution) (RM) 1.0619 1.0178 1.0003 1.0881 1.1135 Financial Highlights – Fund FY2019 FY2020 FY2021 FY2022 FY2023 RM‘000 RM‘000 RM‘000 RM‘000 RM‘000 Statement of Comprehensive Income – Key Data & Financial Ratios Gross Revenue 94,912 86,101 71,543 71,800 76,283 Net Property Income 69,121 64,970 54,994 51,439 50,908 Profit for the Year (Realised) 28,461 14,614 14,704 15,767 7,600 Income Available for Distribution (Realised) 28,461 12,596 14,704 15,767 7,600 Earnings Per Unit (Realised) (Sen) 4.91 2.52 2.54 2.72 1.31 Distribution Per Unit (DPU) (Sen) 4.75 2.08 2.30 2.50 1.20 Annualised Distribution Yield (%) 5.86 3.78 4.74 6.76 2.53 Management Expenses Ratio (%) 0.60 0.66 0.63 0.69 0.72 Statement of Financial Position – Key Data & Financial Ratios Investment Properties 1,187,635 1,189,365 1,177,237 1,224,173 1,239,014 Other Non-Current Assets 931 3,686 708 803 1,797 Current Assets 58,062 56,021 69,955 74,454 67,639 Total Asset Value 1,246,628 1,249,072 1,247,900 1,299,430 1,308,450 Current Liabilities 529,276 64,713 17,441 468,617 137,517 Non-Current Liabilities 93,183 586,827 640,772 192,220 525,957 Total Liabilities 622,459 651,640 658,213 660,837 663,474 Net Asset Value (NAV) - Before Income Distribution 624,169 597,532 589,687 638,593 644,975 - After Income Distribution 615,991 590,456 579,247 629,893 644,395 Total Unitholders’ Fund 624,169 597,532 589,687 638,593 644,975 NAV Per Unit (Before Income Distribution) (RM) 1.0760 1.0300 1.0167 1.1010 1.1120 NAV Per Unit (After Income Distribution) (RM) 1.0621 1.0180 0.9987 1.0860 1.1110 Unit Price as at 31 December (RM) 0.810 0.550 0.485 0.370 0.475
0 100 200 300 400 500 600 700 580 580 580 580 469.8 319.0 281.3 214.6 0.370 2019 2020 2021 2022 2023 0.00 0.20 0.40 0.60 0.80 1.00 1.20 0 20 40 60 80 100 120 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 Jan Feb Mac Apr May Jun Jul Aug Sep Oct Nov Dec 580 278.4 0.475 0.810 0.550 0.485 0 1 2 3 4 Units In Circulation (million in units) Market Capitalisation (RM million) Unit Price (RM) 2.80% 3.00% 3.88% 2.53% MARKET CAPITALISATION, UNIT PRICE AND UNITS IN CIRCULATION COMPARATIVE YIELD FY2023 Trading Performance 50,626 123,156 89,543 66,206 16,270 13,730 20,850 8,655 42,771 16,225 19,591 0.410 0.410 0.485 0.495 0.450 0.470 0.460 0.460 0.445 0.445 0.475 0.475 Average Trading Volume (unit '000) Closing Market Price (RM) unit '000 10 years Govt Security Al-Salām REIT Distribution Yield 12 month FD Rate Overnight Policy Rate 27,945 19 TRADING PERFORMANCE BUSINESS OVERVIEW Trading Summary FY2019 FY2020 FY2021 FY2022 FY2023 Closing Unit Price (RM) 0.810 0.550 0.485 0.370 0.475 52-weeks Highest Traded Price (RM) 0.940 0.870 0.630 0.520 0.530 52-weeks Lowest Traded Price (RM) 0.780 0.500 0.475 0.330 0.370 Price Movement (%) - (32.1) (11.8) (23.7) 28.4 Annual Total Return (%) 5.9 (28.3) (7.1) (17.0) 30.9 Number of Units in Circulation (unit ‘000) 580,000 580,000 580,000 580,000 580,000 Market Capitalisation (RM’000) 469,800 319,000 281,300 214,600 275,500
20 AL-SALĀM REIT MARKET REPORT SUMMARY ANNUAL REPORT 2023 1. ECONOMIC OVERVIEW 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 rationalisation 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%. Into 2024, the risk for further weakness in consumer spending cries for additional government subsidy rollbacks. The equity market is set to benefit from stable interest rates and increased foreign direct investment. Corporate earnings are projected to see an upswing. (Extracted from Maybank Report: Malaysia 2024 Outlook and Lookouts) 2. MALAYSIAN REIT 9M23 topline growth for M-REITs under our coverage (+15% YoY) was largely contributed by improved occupancies and strong rental growth from their retail and hospitality assets. Occupancy rose YoY for the sub-segments, led by Hospitality, following the recovery in travel. M-REITs’ growth in revenue was also encouraged by partial income contribution from new assets e.g. at PREIT, CLMT, and AXRB. Bottomline growth (9M23: +5% YoY) was however impacted by higher utilities and finance costs. We remain NEUTRAL on the sector going into 2024. We forecast the sector’s CY24E YoY earnings growth to remain decent at +9.1%, to be supported by sustained occupancy and rental rates, coupled with several new asset injections (i.e. into PREIT, CLMT, SREIT, SENTRAL, AXRB and YTLREIT). Elsewhere, we expect Bank Negara to pause on interest rate, and the OPR to stay at 3% throughout 2024. This will provide respite in terms of higher financing cost experienced in 2023. As at end-Sep 2023, the sector’s floating rate debt exposure was 54%; interest costs in CY23E ranged between 3.8% to 5.4% (CY22: 2.8%-4.3%). With global monetary policy tightening at its tail-end, interest should return to high yielding stocks in 2024. M-REITs currently offer an average CY24E net yield of 6.1%, primarily led by YTLREIT (8.4%) and SENTRAL (7.4%). Meanwhile, the sector’s trailing net yield spread (against the 10Y MGS yield) is at its average of 227bps. Our Fixed Income Research Team expects 10Y MGS yield to lower to 3.50% by end-1H24. This translates into a CY24E net yield spread of 192bps. (Extracted from Maybank Report: Malaysia 2024 Outlook and Lookouts)
21 MARKET REPORT SUMMARY BUSINESS OVERVIEW 3. RETAIL Iskandar Malaysia (IM) remains a significant shopping destination for visitors from Singapore, capitalising on the favourable Singapore Dollar – Malaysian Ringgit exchange rate. IM’s proximity to Singapore is driving visitors from the island republic to shop and spend in IM malls. With this trend, the overall occupancy rate improved to pre-pandemic levels at around 75% over 14.8 million sq. ft. space. As of 2023, incoming supplies include Medini Lakeside Mall, The Commune and Horizon Mall @ Horizon Hills, all slated for opening in 2024-2025. Additionally, IM expects Singaporean retailer Mustafa to open in Capital City Mall by the end of 2024, after consideration of the slow progress of planning and construction works. Upon opening of these four malls, there will be an additional 1.63 million sqft retail space in the market. The preference for cashless payment persists with shoppers continuing to favour digital wallet payments in the post-pandemic era. Bank Negara Malaysia (BNM) and the Monetary Authority of Singapore (MAS) have collaboratively introduced a cross-border QRcode payment link between Malaysia and Singapore. This facility enables customers of participating financial institutions to make retail payments seamlessly. Shoppers can now conveniently pay by scanning the DuitNow QR code when shopping in IM. This enhancement has contributed positively to the retail industry. Mall operators are diversifying their strategies to boost footfall. These include collaborations with external partners such as travel agencies and hotels; embracing modern devices; and enhancing infrastructure. Paradigm Mall collaborated with Singapore-based travel agencies and offered mall vouchers to guests staying at their partner hotels to tap into tourism foot traffic. Meanwhile, several mall operators have provided electric vehicle (EV) charging infrastructure in some of their car parking bays anticipating this transition process. Sunway Big Box Retail Park has set up Iskandar Malaysia’s (IM) first Tesla supercharging station to attract Tesla owners from southern Malaysia and Singapore. Other than that, Al-Salām REIT and Mass Rapid Transit Corporation (MRT Corp) are developing a pedestrian overhead bridge linking KOMTAR JBCC and the Rapid Transit System (RTS) Link Bukit Chagar station. The completion of this infrastructure project is anticipated to direct visitors to KOMTAR JBCC. The IM retail sector has generally returned to pre-pandemic levels, propelled by robust spending of Singapore visitors. However, inflation and weaker local currency may diminish local spending power. Meanwhile, in both Batu Pahat and Melaka, mall performance remains relatively stable without notable enhancements. Although there is improved performance in certain spots, retailers and mall operators may still face challenges due to higher costs. Cumulative Supply and Vacancy Rate of Retail Malls in Iskandar Malaysia 0 5 10 15 20 0% 10% 20% 30% 40% 50% 2016 2017 2018 2019 2020 2021 2022 2023e Cumulative Supply Vacancy Rate (%) Total Supply (mil. sq. ft.) Vacancy Rate (%) (Extracted from CBRE/WTW Market Outlook Report 2024)
22 AL-SALĀM REIT MARKET REPORT SUMMARY ANNUAL REPORT 2023 Iskandar Malaysia’s (IM) purpose-built office (PBO) market is experiencing heightened competition, contributed by the substantial influx of new completions in 2023: North Tower in Mid Valley Southkey and Sunway Big Box Office Tower @ Sunway City Iskandar Puteri. About 507,000 sq. ft. of new space has pushed total supply to 5.9 million sq. ft., increasing the vacancy rate to about 50.0% compared to 35.0% in 2022. On upcoming supply, the construction of Medini 10 is slated to resume in 2024 with about 415,000 sq. ft. of space. South Tower in Mid Valley Southkey, UMCity Premium Corporate Office Tower and Menara Bank Rakyat @ Coronation Square are also set to be completed by 2024, totalling about 987,000 sq. ft. of office space. Following that, a co-working space operator will be located in UMCity Premium Corporate Office Tower whereas Menara Bank Rakyat @ Coronation Square will depend on the owner’s occupation. Older PBOs with inadequate amenities are struggling to retain their existing tenants while landlords of newly completed buildings that provide value-added features including Malaysia Digital (MD) accreditation are in a better position to negotiate with prospects. Co-working space operators have been actively expanding in Iskandar Malaysia (IM), including two branches by INFINITY8 in 1H2023 and one by Regus in UMCity Premium Corporate Office Tower after the completion of the office tower. IM co-working space operators may continue to benefit from the paradigm shift in working modes which may pose some pressure on conventional purpose-built office (PBOs). IM PBO supply is beginning to outpace the market demand. While the overall PBO occupancy is anticipated to experience a downturn with the completion of the incoming PBOs. However, rental rates for prime PBOs are expected to hike due to higher costs. Co-working space is rivalling conventional PBOs, hence which landlords should adapt by providing more flexible office solutions while enhancing the quality of space. Cumulative supply Vacancy Rate (%) 2016 2017 2018 2019 2020 2021 2022 2023e 4. OFFICE Supply and Vacancy Rate of PBO in IM Notable New Purposed Built Offices Completions in IM Source: CBRE I WTW Research Source: CBRE I WTW Research 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 60% 50% 40% 30% 20% 10% 0 Development Locality Est. NLA (sq. ft.) North Tower @ Mid Valley Southkey Johor Bahru City Fringe 327,000 Sunway Big Box Office Tower @ Sunway City Iskandar Puteri Iskandar Puteri 180,000 Total New Supply 507,000 cumulative Supply (million sq. ft.) Vacancy Rate (%) Branch Type of Space Occupied Operator Location Size (sq. ft.) Newly Launched Kongsi Work (Molek) Office space in shop office INFINITY 8 Tebrau 10,000 INFINITY 8 Reserve Mid Valley Southkey PBO INFINITY 8 Johor Bahru City Fringe 14,000 Incoming UMCity Premium Corporate Office Tower PBO Regus Medini N/A (Extracted from CBRE/WTW Market Outlook Report 2024) Source: CBRE I WTW Research Notable Co-Working Space Expansions in IM
23 MARKET REPORT SUMMARY BUSINESS OVERVIEW 5. INDUSTRIAL Johor was in fifth position with total approved investments as of 3Q2023 worth RM20.0 billion. The manufacturing sector contributed significantly with about 35.0% (RM7.0billion). Transaction volume and value recorded a substantial y-o-y surge of 55% and 25%, respectively. 875 units changed hands in the first nine months of 2023 worth RM2.98billion, compared to 566 units transacted worth RM2.39 billion in the corresponding period in 2022. Some noteworthy industrial transactions were observed: • September 2023: Eco World Development Group Bhd acquired 403.78-acre freehold land in Mukim of Senai for RM211.06 million from IOI Prima Property Sdn Bhd • November 2023: STT GDC Malaysia 2 Sdn Bhd acquired seven (7) parcels of adjoining freehold/leasehold land totalling 22.39 acres in Nusa Cemerlang Industrial Park for RM117.02 million from Crescendo Corporation Berhad • November 2023: Microsoft Payments (M) Sdn Bhd acquired three (3) parcels of freehold land totalling 60.38 acres in Mukim of Pulai for RM315.17 million from Crescendo Corp Bhd • November 2023: Paragon Globe Bhd proposed to acquire eight (8) parcels of freehold land totalling 115.91-acre for RM146.1 million from UEM Sunrise Renowned developers are active in Iskandar Malaysia’s (IM) industrial developments. Some examples are land acquisitions by Eco World in Senai for a proposed Eco Business Park VI worth RM1.58 billion, and by Paragon Globe in Gerbang Nusajaya for a proposed industrial development worth RM0.96 billion. Besides that, Sunway Group is in a partnership with Equalbase to develop a 136-acre industrial logistic development in Sunway City Iskandar Puteri's Free Commercial Zone. At the same time, SP Setia is converting 308 acres of agricultural land into industrial land in the Gelang Patah locality. Underpinned by Singapore’s constrained data centre capacity, data centre investors and operators are eyeing to set up their facilities in Iskandar Malaysia (IM), leveraging on the availability of land and power supply at lower costs, proximity to Singapore as well as supportive local authorities. In line with this, Jland Group (JLG) announced their expansion plan in May, introducing a 640acre data centre park named Sedenak Tech Park 2 (STeP 2), which is set to be operational in September 2024. Data centre developments in IM are mainly focused in Sedenak Tech Park, Nusajaya Tech Park and YTL Green Data Centre Park. Hotspots near connectivity nodes including Pasir Gudang, Kulai, Senai, and Port of Tanjung Pelepas (PTP) continue to see demand from industrial players. The state government is also refining the ‘Fast Lane’ standard operating procedure (SOP) after its first implementation by the Kulai Municipal Council. Priority is given to the Johor Bahru City Council (MBJB), Iskandar Puteri City Council (MBIP) and Pasir Gudang City Council (MBPG). The realisation of the Johor Fast Lane across the state will create a more business and investor-friendly environment to draw more investors. Company Facility Name Power (MW) Expected Completion Location Airtrunk JHB1 150+ Phase 1: 2024 JB Shanghai DC - Science Co Ltd - MN Holdings Bhd N/A 120 Phase 1: 2024 STeP Princeton Digital Group JH1 150 Phase 1: 2024 STep YTL Power International I Bhd & Nvidia Corp N/A N/A Phase 1: 2024 YTL Green Data Centre Park (Extracted from CBRE/WTW Market Outlook Report 2024) Abbreviation: MW-megawatt, JB-Johor Bahru, STeP-Sedenak Tech Park Source: CBRE I WTW Research
24 AL-SALĀM REIT ANNUAL REPORT 2023 MANAGEMENT DISCUSSION & ANALYSIS FINANCIAL AND BUSINESS REVIEW OVERVIEW OF AL-SALĀM REIT Al-Salām REIT is a diversified Malaysian REIT with a total portfolio asset value of RM1.24 billion. The asset portfolio comprises retail, office, F&B restaurant, industrial and college. FINANCIAL REVIEW Table 1: Key Financial Highlights FY2022 FY2023 Variance RM‘000 RM‘000 (%) Gross Revenue 71,800 76,283 6.2 Net Property Income 51,439 50,908 (1.0) Trust Expenses 32,624 42,543 30.4 Profit for the Year (Realised) 15,733 7,571 (51.9) Income Available for Distribution (Realised) 15,733 7,571 (51.9) EPU (sen) – Realised 2.71 1.31 (51.7) DPU (sen) – Realised 2.50 1.20 (52.0) For FY2023, Al-Salām REIT registered revenue of RM76.3 million, which is an improvement of 6.2% from RM71.8 million recorded in FY2022. The increase in revenue was mainly contributed to by the retail segment, particularly KOMTAR JBCC. Despite the higher revenue, Al-Salām REIT's NPI decreased marginally by 1% year-on-year to RM50.9 million (FY2022: RM51.4 million). The decrease was mainly due to a lower contribution from the office segment and an increase in electricity costs following the introduction of the Imbalance Cost Pass Through ("ICPT") by Tenaga Nasional Berhad. Higher trust expenses were attributable to higher Islamic financing costs of RM36.5 million (FY2022: RM28.4 million), due to the full impact of a 100 basis points and 25 basis points increase in OPR in FY2022 and FY2023 respectively. As such, Al-Salām REIT registered lower realised earnings per unit ("EPU") of 1.31 sen for FY2023 (FY2022: 2.71 sen). SEGMENTAL PERFORMANCE The retail segment reported higher total revenue of RM39.5 million, marking a notable year-on-year increase of 15.8%. This was mainly driven by KOMTAR JBCC, attributable to higher rental, parking and promotional income. However, NPI registered a 7.3% increase yearon-year as the higher total revenue was partially offset by higher operating expenses from all retail outlets. The office segment reported a lower total revenue of RM8.1 million, representing a year-on-year decrease of RM0.6 million. This was due to lower rental rate charged to tenants, despite achieving a higher occupancy rate of 92% (2022: 89%). Consequently, the NPI experienced a year-on-year decrease of RM1.5 million, which was further compounded by a rise in operating expenses totalling RM0.9 million. The F&B segment recorded a slight 2.4% decrease year-on-year in both total revenue and NPI. This was due to the lower provision of rental variable income, as previously mentioned. Notably, the properties maintain a triple net arrangement with a consistent 100% occupancy rate (2022: 100%). The industrial & others segment saw a marginal year-on-year increase of RM0.1 million in total revenue. Correspondingly, the NPI recorded a slight 0.1% increase year-on-year, as the higher revenue was offset by the higher operating expenses.
25 BUSINESS OVERVIEW MANAGEMENT DISCUSSION & ANALYSIS FINANCIAL AND BUSINESS REVIEW Table 2: Segmental Gross Revenue and NPI 2022-2023 Gross Revenue Net Property Income FY2022 FY2023 Change FY2022 FY2023 Change RM‘000 RM‘000 % RM‘000 RM‘000 % KOMTAR JBCC 11,999 16,982 41.5 414 1,788 331.9 @Mart Kempas 8,275 8,652 4.6 4,286 4,220 (1.5) Mydin Hypermart Gong Badak 13,824 13,824 - 13,795 13,799 - Unit No G-104, Megamall Pinang - 35 100.0 - 35 100.0 Total Retail 34,098 39,493 15.8 18,495 19,842 7.3 Menara KOMTAR 8,708 8,141 (6.5) 4,757 3,311 (30.4) Total Office 8,708 8,141 (6.5) 4,757 3,311 (30.4) 42 KFC and/or Pizza Hut Outlets 17,834 17,400 (2.4) 17,801 17,368 (2.4) Total F&B Restaurant 17,834 17,400 (2.4) 17,801 17,368 (2.4) Industrial Premises 8,895 8,917 0.2 8,882 8,901 0.2 KPJIC 2,265 2,332 3.0 1,980 1,967 (0.7) Total Industrial & Others 11,160 11,249 0.8 10,862 10,868 - Property Manager Fee - - - (476) (481) - TOTAL PORTFOLIO 71,800 76,283 6.2 51,439 50,908 (1.0) PROFIT FOR THE YEAR For FY2023, Al-Salām REIT recorded a lower realised profit of RM7.6 million (FY2022: RM15.7 million) and an unrealised profit of RM14.1 million (FY2022: RM49.7 million). The 71.6% year-on-year drop in realised profit was mainly attributable to marginally lower NPI and higher Islamic financing cost. Notably, Islamic financing costs rose by RM8.1 million given the higher profit rates following a series of OPR rate hike throughout 2022 and 2023. The unrealised gain of RM14.1 million was attributable to a fair value gain from the revaluation of investment properties of RM12.6 million and unbilled rental income of RM3.2 million. However, this gain was partially offset by a tax expense of RM0.2 million and allowance for expected credit loss on amount due from receivables of RM1.5 million. DISTRIBUTION PER UNIT Total income available for distribution for FY2023 amounted to RM7.6 million (FY2022: RM15.7 million). The Fund distributed three interim income distributions, totalling 1.10 sen per unit (or total of RM6.4 million) on 10 July 2023, 2 October 2023 and 27 December 2023. Subsequently, on 24 January 2024, the Manager, declared a final income distribution of 0.10 sen per unit totalling RM0.58 million. The total income distribution for FY2023 amounted to 1.20 sen per unit (FY2022: 2.50 sen) totalling RM7.0 million, representing 92% of the income available for distribution.
26 AL-SALĀM REIT MANAGEMENT DISCUSSION AND ANALYSIS FINANCIAL AND BUSINESS REVIEW ANNUAL REPORT 2023 STATEMENT OF FINANCIAL POSITION Al-Salām REIT’s total asset value increased to RM1.32 billion as at 31 December 2023 (FY2022: RM1.31 billion) primarily owing to fair value gain from the revaluation on investment properties of RM12.6 million. Table 3: Performance Benchmarks Performance Benchmarks FY2022 FY2023 Commentary i. Management expense ratio (%) 0.69 0.72 Management expense ratio of 0.72 increased by 4.3% due to an increase in fees and NAV. ii. Distribution Yield (%) 6.76 2.53 Distribution yield has decreased from 6.76% to 2.53% due to lower DPU and higher closing price. iii. Total Return (%) (16.95) 30.90 Total return for the financial year of 30.9% contributed by 28.37% capital gain (FY2022: capital loss of 23.71%) plus distribution yield of 2.53% (FY2022: 6.76%). iv. Average annual total return (11.78) (3.12) The 5-year average annual total return increased due to (5 years) (%) positive return recorded in 2023. v. Average annual total return (17.45) 2.29 The 3-year average annual total return increased due to (3 years) (%) positive return recorded in 2023. vi. NAV per unit 1.0881 1.1135 NAV per unit increased by 2.3% mainly due to gain in fair value (after income distribution) (RM) adjustment of investment properties. Notes: i. The ratio of expenses incurred in operating Al-Salām REIT of RM4.5 million (FY2022: RM4.1 million) to the weighted average NAV of Al-Salām REIT of RM636.0 million (FY2022: RM592.3 million). ii. Based on DPU of 1.20 sen (FY2022: 2.50 sen) divided by its closing price as at 31 December 2023 of RM0.475 (FY2022:RM0.370). iii. Total return represents the change in unit price during the year plus distribution yield for the year. iv. Average annual total return is the sum of the return rates of Al-Salām REIT over a given number of years divided by that number of years. v. Average annual total return is the sum of the return rates of Al-Salām REIT over a given number of years divided by that number of years. vi. Net asset value per unit is determined by deducting the value of all Al-Salām REIT’s liabilities from the total asset value divided by total issued units. STATEMENT OF CASH FLOWS Operating activities Net cash generated from operating activities was RM42.6 million in FY2023 (FY2022: RM51.1 million). This was mainly due to lower collection from tenants. Investing activities Al-Salām REIT spent RM1.6 million for investing activities in FY2023 (FY2022:RM0.03 million). Investing activities relates to acquisition of equipment, capex and pledged deposit with licensed banks.
27 MANAGEMENT DISCUSSION AND ANALYSIS FINANCIAL AND BUSINESS REVIEW BUSINESS OVERVIEW Financing activities Net cash used in financing activities during FY2023 was RM48.7 million (FY2022: RM43.0 million), largely due to payment of Islamic financing costs of RM31.7 million and income distribution of RM15.1 million. Therefore, as at 31 December 2023, the Fund's cash and cash equivalent position stood at RM29.4 million, a decrease of 20.8% yearon-year. Fair Value of Investment Properties As at 31 December 2023, the total value of Al-Salām REIT’s investment properties stood at RM1.24 billion (FY2022: RM1.22 billion), representing a growth of 1.6%. The increase was due to a net fair value gain of RM12.6 million. However, the portfolio’s property yield for FY2023 decreased slightly to 3.89% (2022: 3.95%) mainly attributed to the higher valuation of investment properties, which outweighed the improved performance of KOMTAR JBCC during the financial year. Property Property Fair Value Fair Value Yield Yield @ 31 Dec 2022 @ 31 Dec 2023 2022 2023 (RM‘000) (RM‘000) (%) (%) Retail KOMTAR JBCC 431,000 431,000 0.10 0.41 @Mart Kempas 76,000 78,000 5.64 5.41 Mydin Hypermart Gong Badak 153,183 151,954 6.66i 6.96i Unit No G-104, Megamall Pinang 1,120 1,130 - 5.31ii Office Menara KOMTAR 70,000 70,000 6.80 4.73 F&B Restaurant 42 KFC and/or Pizza Hut Outlets 306,570 313,730 5.81 5.54 Industrial & Others Industrial Premises 150,300 157,000 5.91 5.67 KPJIC 36,000 36,200 5.50 5.43 TOTAL 1,224,173 1,239,014 3.95 3.89 Notes: i. Computed based on NPI (which excludes unbilled rental income). ii. Computed based on annualised yield.
28 AL-SALĀM REIT MANAGEMENT DISCUSSION AND ANALYSIS ANNUAL REPORT 2023 RETAIL SEGMENT Gros Decem 37% Bas ental ssR mber 2023 20% Beauty Food & Fashion Timepie sed on 22% & Wellness Beverage n & Accessories eces & Jewellery Net Lettable % 3% Based On 2024 2025 >2026 Month-to-month 62% 022 63% 2023 Inco Net Let Decem 2 2% Bas ome (%) 22% ttable Area mber 2023 4% Superm Others Beauty Food & Fashion Timepie S perm sed on market 60 80 100 & Wellness Beverage n & Accessories eces & Jewellery market Area (%) ettable 47% 0 60% 57% 6 Net L 5% Inco Superm Others ome (%) 0 20 40 580.00 2019 2020 2021 20 LOCATION: Johor Bahru City Centre, Johor KOMTAR JBCC Located in the heart of the Central Business District of Johor Bahru City Centre, KOMTAR JBCC offers a diverse range of stores that cater to wellness, health, fashion, dining and lifestyle preferences, offering shoppers immersive shopping experiences. ASSET PERFORMANCE Existing Use 4-Level Shopping Mall GFA (sq. ft.) 623,374 NLA (sq. ft.) 402,027 Number of Car Park 1,049 bays Bays Market Value RM431 million Occupancy Rate 63% Tenant Mix by Trade Sector Lease Expiry Profile Average Occupancy Rate (%)
29 MANAGEMENT DISCUSSION AND ANALYSIS BUSINESS OVERVIEW RETAIL SEGMENT Tenant % Total Income Padini 7.14% Brands Outlet 5.39% Kidz Republic 4.24% F.O.S 4.12% Caring Pharmacy 2.70% Sushi Zanmai 2.49% Thai Express 2.45% Kiehl’s 2.27% Bath and Body Work 2.22% MR. D.I.Y. 2.15% Top 10 Tenants CHALLENGES AND PROSPECTS The retail market in Malaysia has undergone significant transformation over the years, making it one of the most dynamic and exciting industries in the country. Malaysia’s retail sector has a rich history that dates back to the early days of trading. With influences from Malay, Chinese, Indian, and indigenous cultures, the market has always been a vibrant melting pot of goods and services. From traditional bazaars to modern shopping malls, the evolution of the retail landscape is remarkable. The rise of e-commerce has revolutionized the way Malaysians shop, and the pandemic has accelerated the shift towards online shopping. Retailers that invested in robust e-commerce platforms and omnichannel strategies experienced growth, while those reliant solely on physical stores faced challenges. Inspired to be the next Klang Valley by 2030, Johor Bharu is currently stands in a season of transition with few catalytic projects, among other Ibrahim International Business District (IIBD), the KL-Singapore High Speed Rail (HSR), the Johor Bharu-Singapore Rapid Transit System (RTS Link) and Coronation Square. Johor Bharu-Singapore Rapid Transit System (RTS Link) Ibrahim International Business District (IIBD)
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