AL-SALAM REIT ANNUAL REPORT 2020

52 AL-SALĀM REIT MANAGEMENT DISCUSSION AND ANALYSIS CAPITAL REVIEW TERM FINANCING-I On 27 February 2019, Al-Salām REIT obtained the Term Financing (TF-i) of up to RM118.0 million to finance the Proposed Acquisition of 22 QSR Properties. On 19 March 2019, the Fund’s drawdown of RM87.0 million was to complete the acquisition of 17 QSR properties which comprises 16 restaurants and a warehouse. On 17 September 2020, the Fund’s drawdown of an additional RM30.9 million was to complete the acquisition of 5 restaurants properties from QSR. MOVING FORWARD Given that all the Islamic financings are on floating financing basis, the Manager is considering several options to mitigate financing risk in the near future. Nevertheless, on the upside, the Fund has been enjoying the recent reductions in the OPR by Bank Negara Malaysia from 3.00% in November 2019 to 1.75% in July 2020. This has been reflected in the reduction in the Fund’s financing costs from RM33.8 million in FY2019 to RM28.9 million in FY2020. The gearing of Al-Salām REIT as of 31 December 2020 is 50.5%. Although the SC had previously set the maximum gearing limit at 50%, on 12 August 2020 the SC announced that it will temporarily increase the gearing limit of Malaysian REITs from 50% to 60%, effective immediately until 31 December 2022. Al-Salām REIT 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 via implementing placements as well as assessing other cost- effective financing solutions to obtain the most optimal capital structure moving forward. Al-Salām REIT had planned to undertake a placement exercise in Q1 FY2020. However, given the turbulent economic conditions, the Manager proceeded to defer this exercise until market conditions are more favourable. Al-Salām REIT will continue to execute proper stewardship of capital and risk in its pursuit to deliver long term and sustainable value to the unitholders as well as all stakeholders involved.