AL-SALAM REIT ANNUAL REPORT 2017

AL-SALĀM REIT ANNUAL REPORT 2017 45 The Manager is committed to establishing a sound system of risk oversight and management and internal control to identify, assess, monitor and manage material risks related to the conduct of Al-Salām REIT’s activities. We will continuously aim to improve the management of risk by better understanding the reward-to-risk balance, reduce the risks to acceptable levels and come up with a better mitigation plan for all the risks involves. In managing our operations, the Manager will develop, implement and maintain management systems for all material risks that enable Al-Salām REIT to: RISK MANAGEMENT Risk Acquisition & Investment Risk Competition Risk Tenancy Risk Financing Risk Liquidity Risk Business / Market Risk Tenant Concentration Risk Currency Risk Compliance Risk Explanation Risk that assets to be acquired are not yield- accretive and mixed with problems which may affect the commercial potential. The properties under the portfolio may face increased competition from other existing properties as well as upcoming properties in the surrounding area. Risk that tenants might not be able to fulfil its rental obligation as well as non-renewal of expiring tenancies. Currently, the financing is on a floating basis and as such, Al-Salām REIT will be affected by any significant adverse movement in the interest rate in the mark. Risk that funds are inadequate to meet obligations. Risk that the properties face decline in revenue due to poor market condition, competition and geographical concen- tration. Risk that revenue of Al-Salām REIT is dependent on anchor tenants. Termination or non-renewal of tenancy by the anchor tenants will negatively impact the perfor- mance of the properties. Risk that Al-Salām REIT is exposed to foreign currency and exchange rate fluctuations. Risk that Al-Salām REIT fails to comply with applicable laws and regulations. Mitigation Plan The Manager will ensure proper and reasonable care is in place for any acquisition of assets, which include undertaking thorough due financial, legal as well as building due diligence in ascertaining the viability of the assets to be acquired. The Manager will undertake active asset management strategies by working together with the Property Manager, which include, amongst others, to maximize occupancy rate, rental rates and net lettable area. The Manager together with the Property Manager will ensure that the rental collection is in order and to negotiate early with the tenants of expiring tenancies. The Manager closely monitors the movement of general interest rate in the market. The Manager plans to embark on a sukuk programme and to have a fixed financing or a combination of fixed and floating financing. The Manager does not foresee that Al-Salām REIT will succumb into liquidity risk as the underlying tenants are able to provide long term stable income to the fund. The Manager is confident that given the strategic location of the asset under the portfolio primarily Komtar JBCC, the business and market risk is minimal. In addition, QSR Group being the major tenant of its assets is a leading player quick and service in the restaurant in Malaysia and operating in an economic resilient type of business. The major tenant of Al- Salām REIT properties is QSR Group. The Manager does not foresee any non-renewal of tenancies for QSR Group as the properties were owned and occupied by them prior to injection into Al-Salām REIT. Al-Salām REIT does not own any property abroad and as such is not subject to any fluctuation of exchange rate. The Manager has a designated compliance of officer who is respon- sible for ensuring that all relevant laws guidelines and regulations are duly complied. 2017 2016 RM RM Current: Commodity Murabahah Revolving Credit-i 3,100,000 - Non-current: Commodity Murabahah Term Financing-i 350,000,000 350,000,000 Transaction costs (2,301,033) (3,195,045) 347,698,967 346,804,955 Total Islamic Financing 350,798,967 346,804,955 Total Borrowings (RM Mil) 350.8 346.8 Average Cost Of Debts (%) 4.99 5.11 Fixed/Floating Ratio 100% Floating 100% Floating Average Maturity Period (years) 2 3 Financing Service Cover ratio (times) 3.00 2.96 Gearing ratio (%) 35.5 35.5 • Identify, assess and manage risks in an effective and efficient manner; • Make decisions based on a comprehensive view of the reward-to-risk balance; • Provide greater certainty of the delivery of objectives; and • Satisfy our corporate governance requirements. This will be undertaken by: • Implementing a comprehensive and systematic risk assessment and reporting process across the organisation; • Integrating the outputs of risk specialist functions to provide a holistic view of the risks associated with our business activities; and • Innovation, with corporate governance being exercised through the regular measurement and reporting of our risk management processes.