AL-SALAM REIT ANNUAL REPORT 2020

51 ANNUAL REPORT 2020 CAPITAL MANAGEMENT The Manager’s capital management strategy for Al-Salām REIT is to maintain an appropriate gearing level and active financing rate to ensure that the Fund is able to service its Islamic financings and liabilities. The capital management strategy also seeks to reduce exposure to fluctuations in financing rates. The approach ensures improved cashflows and cash position while optimising Al-Salām REIT’s distributable income. The following capital management strategies were implemented in FY2020: • Maintaining a diverse range of sources for debt funding. These include Islamic term financing and Sukuk; • Retaining sufficient cash flows and cash position to service all financing obligations • C onstantly reviewing the Fund’s debt portfolio towards identifying optimal debt refinancing strategy towards reducing cost of financing and • A ctively managing the range of maturities of its various financing obligations such as Sukuk to reduce refinancing risk and to optimise the cost of capital. As at 31 December 2020, Al-Salām REIT’s Islamic financing portfolio comprises the following: FY2019 FY2020 Total Borrowings (RM Mil) 597.5 633.9 Average Cost of Financing (%) 5.41 4.27 Fixed/Floating Ratio 100% Floating 100% Floating Average Maturity Period (years) 2 3 Financing Service Cover ratio (times) 3.00 2.57 Gearing ratio (%) 47.8 50.5 2019 (RM) 2020 (RM) Non-Current: Term Financing-i Sukuk Ijarah Less: Transaction cost 87,026,400 - 87,026,400 (1,025,584) 86,100,816 118,000,000 468,000,000 586,000,000 (4,144,099) 581,855,901 Current: Commodity Murabahah Term Financing-i Sukuk Ijarah Less: Transaction cost 350,000,000 162,785,000 512,785,000 (1,253,163) 511,531,837 - 52,000,000 52,000,000 - 52,000,000 Total Islamic Financing 597,532,653 633,855,901 SUKUK IJARAH On 24 August 2020, the Group issued RM520.0 million in nominal value of IMTNs (Issue 2) with a transaction cost amounting RM3.9 million. The issuance was used to refinance the maturity of Issue 1 and CMTF-i amounting to RM162.8 million and RM350.0 million respectively. MANAGEMENT DISCUSSION AND ANALYSIS CAPITAL REVIEW