MANAGEMENT DISCUSSION AND ANALYSIS Risk Risk Description Mitigation Plan As at 31 December 2022, the Group’s gearing ratio stood at 46%, below the threshold of 50% set by Securities Commission. The high gearing level could impede the future asset acquisitions of Al-`Aqar. The high gearing of Al-`Aqar is a result of the active asset acquisition strategy, aimed at growing the distribution to unitholders. Given the presently resilient asset portfolio, stable rental income, positive growth outlook and solid track record of Al-`Aqar, the Manager does not foresee any risk associated with inability to raise fresh funding, potentially through private placement to reduce gearing and to provide headroom for future asset acquisition. With an increasing emphasis on health and well-being, the general public is expected to shift significantly towards preventive maintenance in the long term, whereby the general public will spend more to prevent health issues from occurring in the first place, rather than relying on reactive measures such as seeking medical attention for an illness. This could lead to a higher demand for primary, long-term care, regenerative treatment, wearable healthcare devices, etc. As at 31 December 2022, hospitals accounted for 84.2% of Al-`Aqar’s total 24 assets. Failure to adapt to future healthcare trends could result in the Group losing its relevance in the healthcare industry. The Manager has established clear plans to diversify Al-`Aqar’s asset portfolio, which include actively exploring assets related to the future healthcare trend, such as ambulatory care centre, confinement centre, senior living care, warehouse and manufacturing plant for drug or health products. Furthermore, the selection of high-quality tenants that are leaders in innovation and growth industries are expected to provide a more sustainable and more profitable portfolio for a longer time. Therefore, a thorough due diligence process on the business models of the tenants is essential to the Manager before executing the acquisition. Cybersecurity breaches, for example, can damage a company’s reputation, which is difficult to insure against. The Group implements the Business Continuity Management (“BCM”) drill or testing, which focuses on IT infrastructure. Only Data Backup Restoration Test was conducted in 2022 and the Manager will get consultation to conduct the BCM Exercise in 2023. 4. Inability to Raise Funding Risk 5. Failure to Adapt to Future Healthcare Trends 6. Cyber Security Risk AL-`AQAR HEALTHCARE REIT ANNUAL REPORT 2022 54
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