PETALING JAYA: The long-term earnings outlook for Al-‘Aqar Healthcare Real Estate Investment Trust (REIT) is expected to remain stable, led by the steady performance of its healthcare assets with distribution yield estimated at 5.4%.
For the financial year 2021 (FY21), its earnings outlook is also expected to be positive, mainly driven by lower maintenance expenses and reduced financing costs.
It is likely that Al-’Aqar may offer rental rebates to its tenants in the second half of FY21, as the performance of hospitals were impacted by the lockdown.
However, the quantum of the rental rebate is expected to be smaller than the one Al-’Aqar offered to tenants in 2020, as the impact of the lockdown this year was less severe than the first movement control order, said MIDF Research.
“Looking beyond FY21, management does not expect the rental rebate to recur in FY22, as performance of hospitals are expected to improve in FY22,’’ the research house added.
Al-‘Aqar recorded net earnings of RM35.1mil, up 35.7% year-on-year, in the first half of FY21, led by lower expenses and lower financing cost.
MIDF said it gathered that Al-‘Aqar redeemed its Sukuk Ijarah Issue Two of RM575mil in May 2021 at a lower sukuk rate, which brings average financing cost lower to 3.6% from 5.3%.
The research house noted that management expects Al-’Aqar to maintain a gearing level of 0.4 times going forward.
While Al-’Aqar remains on an acquisition trail, any future acquisition should be funded by bank borrowings.
Subsequently, borrowings will be pared down by proceeds from a private placement in order to maintain its gearing level of 0.4 times. Its latest gearing level stood at 0.42 times in the second quarter of FY21.
The research house has maintained a “buy’’ call on the REIT with an unchanged target price of RM1.40 a share based on the dividend discount model.
After a recent virtual meeting with the management, the research house has revised its FY21 earnings forecast by -7.5% to factor in the potential rental rebate to tenants.