26 SECTION 03 AL-`AQAR HEALTHCARE REIT PESTLE ANALYSIS OPERATING ENVIRONMENT The REIT utilises the PESTLE analysis to ensure it is adaptable to additional external factors impacting its operations. This framework allows the REIT to anticipate potential macroeconomic shifts, ensuring that negative external changes are managed effectively, minimising their impact on the REIT’s operations and safeguarding the long-term financial, business, and operational stability. Malaysia’s healthcare expenditure has shown consistent growth, reaching RM84.19 billion in 2023, reflecting a resilient sector that benefits from rising disposable incomes and broader insurance coverage. However, this growth occurs during global economic uncertainty and tariff threats that can dampen consumer sentiment. Monetary policy also plays a critical role, where interest rate cuts lower the cost of financing and improve profits and the value of distributions per unit, hindering asset injections from sponsors due to the availability of more affordable alternatives in other regions. To maintain financial stability, the REIT prioritises long-term master lease structures and yield-accretive acquisitions that align with national economic fundamentals, using lower financing costs to accelerate growth while positioning asset sales as capital recycling opportunities. Macro-Economic Resilience and Financial Stability The healthcare operating landscape is reinforced by long-term policy direction and public sector support. The Health White Paper (“HWP”) tabled on 15 June 2023 outlines a 15-year roadmap focused on healthcare system sustainability, preventive care, digitalisation and enhanced public-private collaboration. Key reform initiatives include a gradual shift toward preventive and value-based care models, expansion of digital health infrastructure such as electronic medical records, and improved integration between public and private healthcare providers. These policy measures are expected to enhance healthcare system efficiency while supporting capacity expansion and service quality improvements across the sector. For private healthcare operators, a supportive policy environment enhances operating stability and demand visibility, which in turn underpins long-term demand for healthcare facilities. Healthcare Infrastructure and Policy Direction Healthcare tourism, particularly in hubs like Kuala Lumpur and Penang, attracts international patients seeking premium services, which stabilises rental income through foreign exchange earnings. Simultaneously, the demographic shift toward an older population ensures a long-term, recession-resilient floor for healthcare utilisation. This rising demand is further amplified by a current shortage of modern, purpose-built hospital facilities, putting pressure on existing infrastructure and increasing the value of healthcare assets. In response to the anticipated demand, the REIT focuses its acquisition strategy on medical tourism hubs and highvalue treatment segments. Al-`Aqar actively supports facility expansions, such as the KPJ Ampang Puteri project, to address overcapacity issues. Strategic Market Growth and Demographic Demand Operating as a Shariah-compliant healthcare REIT requires extensive compliance with more complex requirements than most other industries. This involves taking into consideration clinical regulations, tax frameworks, and religious principles aligned with Shariah Principles. In addition, the supply of healthcare infrastructure remains relatively disciplined, as the development of new hospitals and specialist medical centres is subject to regulatory approvals and licensing requirements, including strict licensing timelines associated with capacity expansion and service enhancement. This contributes to a more controlled supply environment compared to other commercial property segments, helping to mitigate oversupply risks and support sustainable utilisation and occupancy levels for existing healthcare assets. The REIT manages these requirements through regular Shariah reviews and strengthened governance reporting with international bodies like the Junior Chamber International (“JCI”) and Malaysian Society for Quality in Health (“MSQH”). Additionally, the REIT adopted cost pass-through mechanisms where contractually permissible and ensures Sales and Service Tax (“SST”) considerations are integrated into all new lease agreements to protect its income stream from taxdriven cost increases. Regulatory, Tax, and Shariah Governance
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