AL-SALAM REIT ANNUAL REPORT 2019

44 ANNUAL REPORT 2019 Capital Management The total transaction costs of RM1,206,570 incurred during the year were debited against the amount of the Islamic financing facility on drawdown date comprising, amongst others, processing and stamping fees, legal advisory fees and other establishment fees. The TF-i has a significant covenant in which the Fund shall at all times, maintain the following criteria: (a) The financing payment cover ratio (“FPCR”) of not less than 1.25 times; and (b) Total debts and Financing over Total Assets Value of not more than 50%; and (c) Minimum security cover of 1.25 times. The financing is used to secure the investment properties amounting to RM121,675,000 (2018: RM nil). Current Commodity Murabahah Term Financing-i Islamic financing facility is a Commodity Murabahah Term Financing-i (“CMTF-i”) dated 14 April 2015 amounting to RM350.0 million from RHB Islamic Bank Berhad and Maybank Islamic Berhad (collectively “the Banks”) to part finance the acquisition of the investment properties of the Fund in 2015. The nominal value of the CMTF-i comprised Tranche 1 and Tranche 2, amounting to RM136.04 million and RM213.96 million, respectively. The CMTF-i profit is payable over a period of 60 months from the date of first disbursement with full repayment of principal sum on the 60th month. The effective profit rate for the CMTF-i will be based on COF + 1.35% per annum for the first 16 months, COF + 1.40% per annum for the next 8 months and COF + 1.50% per annum for the remaining duration of the CMTF-i. The COF is based on each respective Banks’ COF. The average effective profit rate for the CMTF-i is 5.26% (2018: 5.38%). The total transaction costs of RM4,470,060 incurred in 2015 were debited against the amount of the Islamic financing facility on drawdown date comprising, amongst others, processing and stamping fees, legal advisory fees and other establishment fees. The CMTF-i has a significant covenant in which the Group shall at all times, maintain the following criteria: (a) The consolidated net gearing ratio of not more than 1.0 times; and (b) Financing to Value (“FTV”) ratio shall not exceed 50% of security value; and (c) Minimum shareholder’s fund of not less than RM500.0 million; and (d) Minimum finance service cover ratio (“FSCR”) of 1.50 times. The financing is used to secure the investment properties amounting to RM718,852,000 (2018: RM718,898,000). The outstanding RM350,000,000 in nominal value of CMTF-i will be due in May 2020. The Manager is in the midst of undertaking steps to refinance the said issuance. Sukuk Ijarah - Islamic Medium Term Notes On 24 August 2018, ALSREIT Capital Sdn Bhd established a Sukuk Ijarah Programme comprising Islamic Medium Term Notes (“IMTN”) of up to RM1.5 billion in nominal value and issued RM162,785,000 in nominal value of IMTNs (“Issue 1”) with transaction cost amounting RM2,220,460. The Sukuk Ijarah Programme has a significant covenant in which the Group shall at all times, maintain the following Finance Service Cover Ratio (“FSCR”): (a) FSCR at Issuer level of not less than 1.5 times; (b) FSCR at Al-Salām REIT level of not less than 1.5 times; and (c) such other financial covenant(s) as may be determined by the Rating Agency and to be mutually agreed to by ALSREIT Capital Sdn Bhd. The financing is used to secure the investment properties amounting to RM331,108,000 (2018: RM328,001,000). The outstanding RM162,785,000 in nominal value of IMTN of Issue 1 will be due in August 2020. The Manager is in the midst of undertaking steps to refinance the said issuance. Revolving Credit Facilities As of 31 December 2019, the Fund has unutilized revolving credit facilities amounting to RM10,000,000 (2018: RM10,000,000) granted from a financial institution. The said facility is secured by investment properties amounting to RM16,000,000. FUTURE BALANCE SHEET MANAGEMENT Al-Salām REIT’s present gearing of 47.8% places the fund domestically as one of the highest geared REITs. However, the Manager is looking to pare down current debt levels to a more manageable degree with the aim of achieving optimum gearing in the coming year. The fund plans to attain this target level via implementing placements as well as assessing other cost effective financing solutions to obtain the most optimal capital structure moving forward. Al-Salām REIT will continue to execute proper stewardship of capital and risk in it’s pursuit to deliver long term and sustainable value to the shareholders as well as all stakeholders involved. The Manager is proceeding to chart pathways towards maintaining a stronger balance sheet and to strengthen our strategic relationships with all parties involved. AL-SALĀM REIT •