10 Things You Must Know About Al-Aqar Healthcare REIT

Al-Aqar Healthcare REIT (Al-Aqar) was listed on 10 August 2006 under its former name: Al-Aqar KPJ REIT. At that time, it had an initial portfolio of 6 properties valued at RM 461.3 million. 11 years since its listing, Al-Aqar has enlarged its portfolio to 22 healthcare properties valued at RM 1.4 billion as at 30 September 2017. Here, I’ll list down 10 things you need to know about Al-Aqar before you invest.

#1: Stock Symbol

Ticker Symbol: KLSE: ALAQAR / KLSE: 5116
Market Capitalization: RM 983.1 million (31 January 2018)

Share Price: RM 1.35 (31 January 2018)

Industry: Reit

Syariah Compliant: Yes

#2: The Business

Here are the key developments of Al-Aqar since its listing:

  1. 2006 – 2012
    Al-Aqar has embarked on an aggressive expansion plan by acquiring 19 properties during the period. This includes 2 healthcare properties in Indonesia and 1 age care centre in Australia. This has substantially increased its portfolio from 6 properties to 25 properties in a period of 6 years.
  2. 2012 – September 2017
    Since then, Al-Aqar has disposed of the Selesa Tower (2017) and the 2 healthcare properties in Indonesia. It has trimmed its portfolio down to 22 properties currently.

Source: Annual Reports of Al-Aqar Healthcare REIT

Source: Annual Reports of Al-Aqar Healthcare REIT

#3: The Financials

As a result, Al-Aqar has recorded substantial growth in revenue, net property income and realized earnings from 2006 to 2012. Since then, it has reported a stable financial performance from 2012 to 2016:  

  1. Revenue has maintained RM 100 – 110 million a year.
  2. Net Property Income has maintained at RM 95 – 105 million a year.
  3. Realized Earnings have grown marginally from RM 52.2 million to RM 61.5 million.

Distributions per unit (DPU) has been stable. Al-Aqar has maintained DPU at 7.50 sen – 8.00 sen a year since 2010.

Source: Annual Reports of Al-Aqar Healthcare REIT

Source: Annual Reports of Al-Aqar Healthcare REIT

#4: Major Acquisitions

There is no major acquisition of new investment properties announced made by Al-Aqar Healthcare REIT. But, here is a minor acquisition.

On 8 December 2017, Al-Aqar Healthcare REIT has entered into a sale and purchase agreement with Selangor Specialist Hospital Sdn Bhd, 60%-owned subsidiary of KPJ Healthcare Bhd to acquire 5-storey car park block together with a half basement level and an open roof level for RM 13 million.

On 27 December 2017, this acquisition has been completed.

#5: Lease Expiry

Al-Aqar Healthcare REIT derives income from its properties under the lease arrangements where the contractual lease term is for 15 years with an option to renew for a further 15 years. The contractual lease term is divided into 5 rental terms of 3 years each which shall be renewable upon their expiry.

#6: Sponsor Strength

KPJ Healthcare Bhd is the sponsor and a substantial shareholder of Al-Aqar. It is presently one of the leading providers of healthcare services in Malaysia. Al-Aqar has been granted Rights of First Refusal (ROFR) for hospitals under KPJ Healthcare Bhd. According to KPJ Healthcare Bhd, the hospital operator has revealed that it has invested RM 1.29 billion to add another 7 hospitals to its network over the next 3 – 4 years starting in the year 2016. They include:

  1. KPJ Bandar Dato’ Onn, Johor Bahru
  2. KPJ BDC Specialist Hospital, Kuching
  3. KPJ Miri Specialist Hospital, Miri
  4. KPJ Damansara 2 Specialist Hospital, Selangor
  5. KPJ Batu Pahat Specialist Hospital, Batu Pahat
  6. KPJ Kluang Specialist Hospital, Kluang
  7. Medical Tower, Ibrahim International Business District, Johor Bahru

#7: Debt Profile

As at 30 September 2017, Al-Aqar has made partial one-off repayment of its Sukuk Ijarah –  Islamic Medium Term Notes (IMTN) of RM 80 million. The RM 80 million was derived from the disposal of Selesa Tower in 2017. Hence, Al-Aqar has reduced its IMTN from RM 653.9 million in September 2016 to RM 573.7 million in September 2017. The IMTN is expected to come due in May 2018, thus, Al-Aqar is undertaking steps to refinance the IMTN.

Hence, with RM 573.7 million in IMTN, Al-Aqar has a gearing ratio of 37.1%, thus, is in line with the benchmark of 50% set by Securities Commission of Malaysia.

#8: Valuation

As I write, Al-Aqar is trading at RM 1.35 a unit.

As at 30 September 2017, Al-Aqar has reported having RM 1.215 in net asset value a unit. Thus, its current P/NAV works out to be 1.11.

Al-Aqar adopts a distribution policy to declare and pays out at least 90% of its distributable income on a semi-annual basis. For the last 12 months, Al-Aqar has paid out 7.70 sen in DPU.

If Al-Aqar is able to maintain its DPU at 7.70 sen for the next 12 months, its gross dividend yield is expected to be 5.70%. For individual investors, it is prudent to deduct 10% withholding tax from 6.93 sen when calculating your net dividend yield, as such, I would expect net dividend yield to be 5.13%.

#9: Investors Relation

For further enquiries or to request for additional investment information on Al-Aqar’s Investors Relation matters, you may contact:

Sahrin bin Munir

Designation: Senior Executive Business Development & Investors Relation

Email: sahrin@drmsb.com.my

Website: http://www.alaqar.com.my/index.php/contact

#10: Major Shareholders

The substantial shareholders of Al-Aqar with their latest shareholdings as at 31 January 2018 are as followed:

– Johor Corporation: 41.77%

– Lembaga Tabung Haji: 12.91%

– Kumpulan Wang Persaraan (Diperbadankan): 11.24%

– Employees Provident Fund Board: 8.39%

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