AL-SALAM REIT ANNUAL REPORT 2019

45 ANNUAL REPORT 2019 Risk Management AL-SALĀM REIT • A proactive and effective risk management is a fundamental part of Al-Salām REIT’s business strategy. A sound and robust risk management framework ensures that the Manager is ready to meet challenges and seize opportunities. The Enterprise Risk Management framework, which forms part of Al-Salām REIT's internal controls, provides a holistic and systematic approach to risk management. It outlines the reporting structure, monitoring mechanisms, specific risk management processes and tools, as well as Al-Salām REIT’s policies and limits addressing and managing key risks identified. The Enterprise Risk Management framework also allows the REIT Manager to respond promptly and effectively to changes in the constantly evolving business landscape. In addition, The Manager also hopes to enhance innovation, with corporate governance being exercised through the regular assessments and reporting of our risk management processes. Thorough risk management processes, the Manager identified tops risks faced by the Fund. The brief description of the top risks and the associated the mitigation plans are specified as below: Risk Risk Description Mitigation Plan Acquisition & Investment Risk Risk that assets to be acquired are not yield accretive. • Appointment of advisers and third party service providers to do a thorough assessments of the project viability and sufficiently assess the risk profile of the project to ensure that risks are properly addressed and mitigated according to the action plan. • To minimize the impact of changing market conditions and industrial competitiveness through constant monitoring of the changes, address the issues that arise and undertake proper action plan to address the issues. • To conduct due diligence exercise as part of the Standard Operating Procedure to 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. Competition Risk The properties under the portfolio face increased competition from other existing properties as well as upcoming properties in the surrounding area. The Manager undertakes active marketing and promotional strategies which the aim to maximize occupancy rate, rental rates and net lettable area. Tenancy Risk Risk that tenants might not be able to fulfil its rental obligation as well as renew their expiring tenancies. The Manager will ensure that: • Rental collection timely and monitor rental collection diligently. • Negotiations are undertaken 3 months before the contracts with tenants expire • Monitoring of overdues are carried out and reported by the Property Manager • Aggressive rental collection efforts on overdue rental payments. • There are ongoing strong marketing & promotional campaigns that will drive visitors to our mall and to work with key anchor tenants to promote their businesses. Financing Risk 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 market. The Manager has embarked on a combination of fixed and floating financing via implementation of Interest Profit Rate Swap in on 6 December 2019 for 25% of the size of total loans. Tenant Concentration Risk 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 performance of the properties. The emphasis on tenancy for F&B sectors lease agreement is on Triple Net Lease with a single anchor tenant for 15 years and renewable every 3 years. The long term lease period will allow for sufficient formulation of exit plan for the expiring tenancies or tenant replacement. Compliance Risk Risk that Al-Salām REIT fails to comply with applicable laws and regulations. The Manager has appointed a Compliance Officer to ensure all relevant laws guidelines and regulations are duly complied. Gearing Risk Risk of exceeding the Gearing Threshold Ratio set under the Listed REIT Guidelines The Manager is working towards lowering the Gearing Ratio, which currently stands at 48 percent (December 2019) by sourcing in placements from investors Cyber Security Risk Risk to data breaches and loss of critical data The Manager is formulating Disaster Recovery Plan and Business Continuity Plan to mitigate Cyber Security risks and to ensure that data are recoverable in the case of data breaching, hacking and malware attacks.