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
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