Al-Aqar-REIT’s earnings to rise next year

PETALING JAYA: Al-Aqar Healthcare Real Estate Investment Trust’s (Al-Aqar-REIT) new assets purchase could lift its earnings next year by 1.1%, translating to a 2026 distribution yield of 5.9%.

CIMB Research said this was lower than the current yield of 6.1%.

The research house said it was slightly negative on the REIT’s proposed acquisitions and lease renewals.

The inclusion of a new rental income stream in Al-Aqar REIT’s portfolio would only partially cushion the negative impact of about 3.7% from a lower yield upon lease renewals for 2026.

The research house acknowledged Al-Aqar REIT’s continued efforts to expand its portfolio, but believes the yield from the proposed asset acquisitions and lease renewals may be lower than its current portfolio’s average.

If the proposed acquisitions are fully funded through borrowings, Al-Aqar-REIT’s gearing level as of 2026 could rise up to 48%, which is 2% below the regulatory limit of 50%.

CIMB Research retained its “hold” call on the stock with a target price of RM1.33 a share.

The upside for the REIT included higher rental revisions and earnings-accretive merger and acquisition (M&A) activity and lower costs.

Downside risks include lower rental revisions and earnings-dilutive M&A, and rising costs.

Al-Aqar-REIT has proposed to acquire two new hospital properties: a new 15-storey hospital building at KPJ Ampang Puteri Specialist Hospital (KPJ Ampang Puteri) for RM131mil and a new 10-storey hospital building at KPJ Penang Specialist Hospital (KPJ Penang) for RM110mil.

Following the acquisition, Al-Aqar REIT’s portfolio value will rise by 14.6% to RM1.8bil, aligning with its long-term goal of reaching RM2.5bil by 2029.

Upon completion of the acquisition, Al-Aqar-REIT will lease back the properties to KPJ Healthcare for a 15-year term.

The initial annual rental is fixed at RM8.2mil for KPJ Ampang Puteri and RM6.9mil for KPJ Penang, with a 2% annual rent escalation, implying a rental yield of 6.25%, which is below the portfolio’s yield of 6.85% as of 2024.

Al-Aqar-REIT also proposed the renewal of leases for five properties: KPJ Penang Specialist Hospital, Taiping Medical Centre and TMC Health Centre, KPJ Seremban Specialist Hospital, KPJ Healthcare University College and KPJ International College this August.

The proposed lease renewals for the five properties are at rental yields of between 6% and 6.1%, lower than the 6% to 7.3% range recorded in 2023.