Kenanga starts covering Al-Aqar Healthcare REIT for its recession-resistant portfolio

KUALA LUMPUR (April 1): Kenanga Investment Bank Bhd has initiated coverage on Al-Aqar Healthcare REIT (KL:ALAQAR) with an 'outperform' call for its recession-proof portfolio, steady distribution per unit projections and decent visibility on sponsor-led assets injection pipeline.

"Al-Aqar REIT's most attractive investment merit is the defensiveness and predictability of its cash flows," Kenanga said in a note on Wednesday.

"Healthcare facilities operate regardless of economic conditions, providing stable demand that is less sensitive to gross domestic product swings or retail spending cycles," it said.

The research house said its investment case is reinforced by long-term lease structures, with many assets leased for five to 15 years to its sponsor, KPJ Healthcare Bhd (KL:KPJ).

At the same time, the strategic sponsor-tenant ecosystem between Al-Aqar REIT and KPJ provides operational familiarity and a visible pipeline for future asset injections, which improve execution confidence.

Kenanga said the REIT’s portfolio has been steadily growing. In March 2025, it bought two hospital extension buildings from KPJ — KPJ Ampang Puteri New Building and KPJ Penang New Building — for RM241 million. This moves the REIT closer to its target asset size of RM2.5 billion by 2028, up about 40% from RM1.65 billion in FY2024.

As of September 2025, Al-Aqar REIT's portfolio consists of 23 properties, including 17 hospitals, three wellness centres, two healthcare colleges, and one retirement village. Hospitals remain the core of the business, contributing roughly 90% of both property value and net property income.

Kenanga forecasts that after a flattish financial year ended Dec 31, 2025 (FY2025), Al-Aqar REIT's core net profit will grow by 6% in FY2026, accounting for new acquisitions and annual rental escalations.

"We anticipate its gross distribution per unit to grow from 7.1 sen in FY2025 to 7.5 sen in FY2026F," the research house added.

Within the REIT sector, Kenanga believes a yield spread of 2.5%, in line with the sector average, is fair for Al-Aqar REIT. This implies a target yield of 6.0%, which is consistent with the REIT's 10-year historical dividend yield. Based on this, Kenanga sets a target price of RM1.25 using a 6.0% yield applied to its FY2026 forecast distribution per unit.

While the outlook remains positive, Kenanga noted that these strengths may be partially offset by key vulnerabilities, including tenant concentration risk, as KPJ is the principal tenant for about 90% of the portfolio and low trading liquidity.

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