Kenanga Investment Bank Bhd has initiated coverage on Al-Aqar Healthcare REIT (KL:ALAQAR) with an ‘outperform’ rating, citing its recession-resistant portfolio, stable distribution per unit (DPU) prospects, and visible pipeline of sponsor-led asset injections.
Kenanga highlighted the defensive nature of Al-Aqar REIT’s cash flows, noting that healthcare facilities operate irrespective of economic cycles. This reduces sensitivity to GDP fluctuations or consumer spending swings, providing a predictable income stream. The REIT’s long-term leases, many ranging from five to 15 years with its sponsor, KPJ Healthcare Bhd, further reinforce income stability.
The strategic relationship between Al-Aqar REIT and KPJ ensures operational familiarity and a clear pipeline for future asset injections, improving execution visibility. The REIT’s portfolio has been steadily expanding; in March 2025, it acquired two hospital extension buildings from KPJ — KPJ Ampang Puteri New Building and KPJ Penang New Building — for RM241 million. This growth moves Al-Aqar closer to its target asset size of RM2.5 billion by 2028, up 40% from RM1.65 billion in FY2024.
As of September 2025, the portfolio comprises 23 properties, including 17 hospitals, three wellness centres, two healthcare colleges, and one retirement village. Hospitals remain the core, contributing roughly 90% of both property value and net property income.
Kenanga forecasts a 6% growth in core net profit for FY2026, supported by new acquisitions and annual rental escalations. Gross DPU is expected to increase from 7.1 sen in FY2025 to 7.5 sen in FY2026F. The REIT’s yield is considered fair at 6.0%, in line with the 10-year historical dividend yield, implying a target price of RM1.25.
However, Kenanga cautioned about key vulnerabilities, including tenant concentration risk, with KPJ accounting for around 90% of the portfolio, and relatively low trading liquidity.
Al-Aqar Healthcare REIT illustrates how sector-specific REITs can provide defensive, recession-resistant income, especially in essential services like healthcare. Long-term leases with a single strategic tenant (KPJ) improve income predictability but introduce tenant concentration risk, showing the trade-off between stability and diversification.
I also learned that growth in healthcare REITs is often driven by sponsor-led asset injections, where the REIT acquires additional assets from its sponsor, expanding portfolio size and future income visibility. Finally, yield analysis relative to historical distribution and sector averages helps investors determine fair valuation and target price, providing a structured framework for REIT investment decisions.
Malaysia