Al-‘Aqar Healthcare REIT’s Q1 2025 Performance: Navigating Headwinds with Strategic Vision
Ever wondered how your favourite healthcare REIT is faring amidst a dynamic economic landscape? Al-‘Aqar Healthcare REIT has just released its first-quarter results for the period ended 31 March 2025, offering a glimpse into its operational and financial health. While facing some headwinds, the REIT demonstrated resilience and strategic foresight, particularly with a notable increase in its total comprehensive income and a promising dividend announcement for unitholders. Let’s dive into the details to understand the performance and future outlook of this prominent Malaysian healthcare REIT.
Core Financial Highlights: A Mixed Bag
The first quarter of 2025 saw Al-‘Aqar Healthcare REIT grappling with a slight dip in its core rental income. Here’s a snapshot of the key figures compared to the same quarter last year:
Gross Rental Income
Q1 2025: RM29.19 million
Q1 2024: RM29.84 million
Change: -2.2%
Net Rental Income
Q1 2025: RM25.03 million
Q1 2024: RM26.05 million
Change: -3.9%
Net Income Before Taxation
Q1 2025: RM15.80 million
Q1 2024: RM16.41 million
Change: -3.7%
Earnings Per Unit (EPU)
Q1 2025: 1.88 sen
Q1 2024: 1.95 sen
Change: -3.6%
While the top-line figures show a slight decline, it’s worth noting that total comprehensive income for the period actually increased by 2.4% to RM15.89 million, compared to RM15.52 million in the same quarter last year. This was largely influenced by positive foreign currency translation differences for foreign operations. Furthermore, the REIT managed to reduce its Islamic financing costs by 1.4% and administrative expenses by a significant 22.0%, reflecting efforts in cost management.
Interestingly, when comparing the current quarter’s net income before taxation to the immediate preceding quarter (Q4 2024), there was a substantial 63.2% jump, from RM9.68 million to RM15.80 million. This significant improvement was mainly attributed to a fair value adjustment of an asset held for sale, which offset a gain on fair value adjustment of investment properties recorded in the previous quarter.
Segmental Performance: Malaysia Holds Strong, Australia Faces Headwinds
A deeper dive into the geographical segments reveals the drivers behind the overall performance:
- Malaysia Segment: Net rental income for the Malaysia segment decreased by 2.3% to RM24.89 million, while net income before taxation saw a modest 1.2% decline to RM15.79 million. This was primarily due to the disposal of Damai Care & Wellness Centre in June 2024 and a revision in the management fee rate effective January 2025.
- Australia Segment: The Australian operations experienced a more pronounced decrease, with net rental income falling by 75.6% to RM0.14 million and net income before taxation dropping by 98.6% to just RM0.01 million. This significant reduction was mainly due to a rental adjustment following the completion of a Business Sale Agreement by the lessee.
Financial Health: Balance Sheet and Cash Flow
As of 31 March 2025, Al-‘Aqar Healthcare REIT’s financial position remained robust:
| Metric | 31 March 2025 (RM) | 31 December 2024 (RM) |
|---|---|---|
| Total Assets | 1,843,393,293 | 1,835,937,437 |
| Total Liabilities | 787,140,292 | 782,394,389 |
| Net Asset Value (NAV) | 1,056,253,001 | 1,053,543,048 |
| NAV per unit (Before distribution) | 1.2580 | 1.2548 |
The increase in total assets and NAV reflects the REIT’s stable asset base. The increase in total liabilities is mainly due to new Islamic financing (CMTF 5) of RM113 million, which was utilized to fully redeem older financings (CMTF 1 & 2) amounting to RM110 million. This strategic refinancing has improved the structure of its debt.
Cash and cash equivalents at the end of the period stood at RM70.83 million, a decrease from RM75.63 million at the start of the year. This was influenced by distributions paid to unitholders and net cash used in financing activities, despite positive cash flow from operating activities.
Distribution to Unitholders
Al-‘Aqar Healthcare REIT has proposed a first interim income distribution for the financial year ending 31 December 2025 of 1.74 sen per unit. This is a positive sign for unitholders, reflecting the REIT’s commitment to providing consistent returns.
Risks and Prospects: Navigating a Dynamic Environment
The REIT’s outlook is shaped by a combination of global economic trends, domestic resilience, and specific healthcare industry dynamics. While the global growth outlook remains supported by positive labour market conditions and less restrictive monetary policy, the escalation in trade tensions and geopolitical uncertainties pose potential headwinds, leading to possible volatility in global financial markets.
Domestically, Malaysia’s economy is expected to be anchored by resilient domestic demand, supported by employment and wage growth, as well as income-related policy measures. Investment activity is also set to be sustained by multi-year projects and national master plans, providing a stable backdrop for Al-‘Aqar’s Malaysian assets.
In the healthcare sector, global trends point towards a strong focus on driving efficiencies, boosting productivity, and accelerating digital transformation. These initiatives, highlighted by surveys from Deloitte, are crucial for healthcare providers and can indirectly benefit REITs like Al-‘Aqar by supporting the financial health and operational stability of their tenants.
A key positive for Al-‘Aqar is the strong performance of KPJ Healthcare Berhad, its primary tenant. KPJ’s increased bed capacity and patient visits, as reported in their Q4 2024 results, indicate a robust foundation for stable and potentially growing rental income for Al-‘Aqar’s healthcare properties. The long-term lease agreements with the KPJ Group provide a secure income stream, which the Manager expects to remain undisrupted.
To further enhance unitholder distributions and bolster its portfolio, Al-‘Aqar is actively pursuing various corporate initiatives. This includes exploring third-party acquisitions of local healthcare properties to boost the Fund’s yield. Furthermore, the anticipated proceeds from the sale of Jeta Gardens Aged Care Facilities are earmarked for either direct distribution to unitholders or for acquiring new local healthcare properties, or a combination of both, providing strategic flexibility.
Al-‘Aqar has also announced several significant corporate proposals that are currently in progress, demonstrating its proactive approach to portfolio management:
- Proposed Disposal: The sale of Jeta Gardens Aged Care Facility for approximately RM74.9 million, announced in December 2023.
- Proposed Acquisitions and Leases: Agreements to acquire and lease new buildings for Ampang Puteri Specialist Hospital (APSH) and Penang Specialist Hospital (PNG), both subsidiaries of KPJ Healthcare Bhd.
- Proposed Lease Renewals: Renewal of lease agreements for several key properties, including KPJ International College of Nursing and Health Sciences, KPJ Seremban Specialist Hospital, Taiping Medical Centre, KPJ Penang Specialist Hospital, and KPJ Healthcare University College.
These proposals, once completed, are expected to further strengthen Al-‘Aqar’s asset base and rental income profile.
Summary and Outlook
Al-‘Aqar Healthcare REIT’s Q1 2025 report paints a picture of a resilient REIT actively navigating a complex environment. While facing some declines in rental income and EPU compared to the same period last year, driven by specific asset disposals and segmental challenges, the REIT demonstrated strong cost management and a significant improvement in net income before taxation compared to the immediate preceding quarter. Its balance sheet remains healthy, and the proposed interim dividend underscores its commitment to unitholder returns.
The strategic initiatives, including the ongoing disposal of Jeta Gardens and the proposed acquisitions and lease renewals with KPJ Group, highlight a forward-looking management approach aimed at enhancing the REIT’s portfolio and ensuring sustainable growth. The strong operational performance of its key tenant, KPJ Healthcare, provides a solid foundation for future rental income stability.
However, potential unitholders should be mindful of the following key points:
- The slight decrease in gross and net rental income, primarily due to asset disposal and management fee adjustments.
- The significant decline in performance from the Australia segment, which requires close monitoring.
- The broader global economic uncertainties, including trade tensions and geopolitical risks, which could impact market sentiment.
- The potential for volatility in global financial markets, which could affect the REIT’s financing costs or asset valuations.
Overall, Al-‘Aqar Healthcare REIT appears to be strategically positioning itself for long-term stability and growth within the resilient healthcare sector, leveraging its strong relationships with key tenants and actively managing its portfolio.
As a senior blogger observing the Malaysian REIT landscape, I see Al-‘Aqar’s latest report as a testament to its proactive management in balancing current operational challenges with strategic moves for future growth. The focus on portfolio optimization and strengthening ties with its core tenant, KPJ Healthcare, seems to be a prudent path forward.
What are your thoughts on Al-‘Aqar’s strategy to balance current challenges with future growth opportunities? Do you think the ongoing corporate proposals will significantly boost its performance in the coming quarters? Share your insights in the comments section below!
