AL-SALAM REIT ANNUAL REPORT 2020

54 AL-SALĀM REIT MANAGEMENT DISCUSSION AND ANALYSIS RISK MANAGEMENT Focus Areas Disclosures Financing The issuance of strata title for KOMTAR JBCC to enable the financiers to perfect the charge on the property did not meet the timeline set by the financiers on 31 Dec 2018. Due to the delay in securing perfection of transfer and charge over strata titles of KOMTAR JBCC and Menara KOMTAR, the bank has imposed a higher borrowing rates for the financing of the property. The Fund is currently being charged with a higher interest rate of 15 basis points in connection with the strata title issue. The Manager is currently undertaking aggressive engagements with regulatory bodies such as the Majlis Bandaraya Johor Bahru, Fire Department (Bomba) and Jabatan Ukur dan Pemetaan Malaysia (JUPEM) to expedite the process. The target completion is the fourth quarter of 2021. Outsourcing Arrangement Risk The Manager outsources certain core functions such as property management, maintenance and services and leasing to appointed Property Manager and Service Manager. Rise in tenants’ number of complaints, fai lure in securing good tenants and providing good tenancy mix, inefficiencies property management, data errors in management reports and Increase in the frequency of machinery/equipment breakdown are consequences of inadequate monitoring Close monitoring services and performance is required to ensure outsourced service providers perform their duties. The monitoring mechanisms include: • A nnual evaluation of outsourced service providers and tabling the evaluation report to the Board of Directors • Compliance to establish standard operating procedure • Internal audit report • M onitor the number of complaints and time taken to resolve issues • Conduct tenants satisfaction survey Credit Control Debtors ageing has exceeded the 90-days limit. Non- payment of rentals increases the risk of default whilst affecting the cash flow of the Fund The Manager has put in place a credit control policy and will enforce its implementation. This include: • Having a designated credit control unit • Credit control assessment prior to signing the lease agreement • S ecuring a higher deposit, depending on asset type and credit control assessment report Cyber Security Risks Cyber security breaches, for example, can damage a company’s reputation, which is difficult to insure against. Penetration test and IT risk assessment exercise has kicked-off in February 2021 and is expected to be completed in mid-March 2021. The exercise is aimed at ensuring that the cybersecurity and BCM Framework are robust and in place. Disaster Recovery Plan is carried out quarterly Human Capital Risk Succession risk which refers to the fact that a critical role will become vacant and cannot be filled satisfactorily thus, poses an unacceptable impact on the organisation. Strategic implementation of activities and processes designed to decrease the likelihood of lengthy vacancies in critical roles, and limiting the impact of vacancies in critical roles when they do occur is critical. A comprehensive programme to develop Succession Framework will be developed. This will involve, among others: a) talent development programme - its target participants - programme design - roles and responsibilities - nomination process - assessment and selection process - evaluation of participants and program effectiveness b) Role on-boarding c) Retention management d) Capturing and sharing tacit knowledge e) Performance management