Al-`Aqar Healthcare REIT Annual Report 2019

With sluggish global demand and increased protectionist tendencies among the major economies, a sustained commitment to deepening regional integration and addressing trade barriers is vital to preserve a vibrant trading environment and build investors’ confidence. It is also important to strengthen Malaysia’s competitiveness in attracting quality investments and to maximize the gains from tax expenditures with better targeting of investments towards economic upgrading, high- value job creation and inclusive growth. (Extracted from Malaysia Economic Monitor, World Bank Group, Global Knowledge & Research Hub In Malaysia, December 2019) MALAYSIAN REIT REIT sector’s growth to be mainly underpinned by organic drivers The sector has seen significant fluctuations of the MGS yields where the 10-year MGS yield fell to 3.19% in year 2019. However, in the light of sustained net DPU yields, the net yield spread has trended higher, ranging from 104 basis points to 195 basis points in 2019. In 2019, the sector was faced with 2 main situations, (i) 25 basis points OPR cut to 3% in May 2019; and (ii) potential exclusion of Malaysia bonds from FTSE Russell’s World Government Bond Index which was first announced in April 2019. Elsewhere, as expected, asset acquisitions in 2019 were limited. The M-REITs’ has growth largely organic in 2019, via positive rental reversions and sustained occupancy rates, while there are MREITs recorded a full-year rental income contribution from assets that were acquired in 2019. For year 2020, it is expected the direct earnings lift to M-REITs to be minimal (via easing of financing costs from variable rate debts). Nevertheless, a lower interest rate environment could encourage more acquisitions by M-REITs, which are generally financed by borrowings. On top of it, 2020’s acquisition pipeline to remain subdued for now, only involving smaller size assets as anticipated major pipeline and developments could only take place from 2021 onwards. The oversupply of retail and office space, particularly in the Klang Valley would remain as major earnings risk to M-REIT, whereas the prime malls with prominent locations and office and industrial assets with long-term tenants will continue to be favoured. In conclusion, the sector’s growth in year 2020 is expected to be mainly underpinned by organic drivers (i.e. positive rental reversions and sustained occupancy rates) as it is expected limited acquisition pipelines of sizeable assets and the net DPU yields is expected to slightly increase from 5.1% to 5.3% compare to 2019. (Extracted from Malaysia 2020 Outlook & Lookout, Maybank IB) Al-`Aqar Healthcare REIT 03 STRATEGIC PERFORMANCE 53