KUALA LUMPUR: Al-Aqar Real Estate Investment Trust (Reit) may dispose of lower-yielding assets to free up capital for future acquisitions, according to AmInvestment Bank Bhd.
The research house said asset disposals would provide the REIT with greater financial flexibility to pursue higher-return opportunities amid elevated gearing levels.
It noted that Al-Aqar’s gearing stood at 48 per cent, leaving limited room for additional borrowings to finance acquisitions.
Disposing of lower-yielding assets, particularly wellness centres generating yields about 40 basis points below the portfolio average, could strengthen its financial position.
AmInvestment estimated that disposing of all its wellness centres, along with Jeta, could reduce gearing by three to four percentage points to about 44 per cent.
“We believe Al-Aqar is taking a pragmatic approach by relying on shorter-term financing while waiting for a better opportunity to lock in longer-term rates,” it said in a note.
On potential acquisitions, AmInvestment said Al-Aqar’s sponsor still held 13 hospitals outside the Reit, as well as a new wing at Puteri Hospital, which could be considered for future injections.
The new wing, attached to an existing sponsor-owned hospital, has an estimated book value of RM158 million.
AmInvestment said the Reit’s acquisition track record provided some comfort, noting that two acquisitions in 2025 were priced at 97 to 100 per cent of cost-based valuations.
However, it said distribution per unit accretion remained crucial to protecting unitholder returns.
Al-Aqar is also targeting RM2.5 billion in investment properties by 2028, compared with its current portfolio value of RM1.9 billion.
“Al-Aqar recently lodged its RM3.0 billion Islamic debt programme covering commercial papers and sukuk under a single ceiling. This provides greater refinancing flexibility,” it said.
However, AmInvestment said rising yields had complicated refinancing decisions, with Al-Aqar seeking to lock in long-term sukuk financing only when costs fell within the 4.5 to 4.8 per cent range.
Otherwise, the Reit would rely on shorter-term commercial papers while waiting for more favourable rates.
The research house maintained its “Hold” recommendation on Al-Aqar but lowered its target price to RM1.20 from RM1.25.
This followed a 0.5 per cent reduction in its distributable income forecasts for financial years 2026 to 2028 to reflect higher financing costs.
It said the implied gross target yield remained unchanged at 6.2 per cent, representing a 230-basis-point spread over the 10-year Malaysian Government Securities yield.