Management Discussion and Analysis KEY RISK FACTORS (CONT'D) Anticipated and Known Risk Profiles (Cont'd) Focus Area Mitigation Actions Financial The Fund faces challenges in managing higher financing costs due to the increase in OPR, announced in 2023. The Manager closely monitors the Fund's cash flow position and financing profile, to ensure the investment yield will be generated enough to cover its profit rate expenses. Strategies include: 1. Debt Restructuring Restructure existing debt arrangements to more favorable terms, revising terms to reflect a more stable and sustainable cost of financing. 2. Cost Control and Operational Efficiency Offset any potential and optimizing asset management strategies to preserve profitability and reduce the impact of higher financing costs on overall profitability. 3. Adjusting Gearing Levels Explore various options to optimise capital structure. Credit Control Non-payment of rentals increases the risk of default whilst affecting the cash flow of the Fund 1. Strong Tenant Selection and Screening • Perform thorough due diligence before lease signing (e.g., financial health checks, credit scoring, trade references). 2. Security Deposits and Bank Guarantees • Collecting adequate security deposits or bank guarantees to cover potential defaults. 3. Structured Lease Agreements • Clear payment terms, late payment penalties, and termination clauses in lease contracts. • Building in early warning clauses for non-payment triggers and remedies. 4. Active Credit Control and Monitoring • Set-up strict billing and collection processes (e.g., reminders before due dates, immediate follow-up on late payments). • Monitor tenants’ payment patterns closely to spot early signs of financial distress. 5. Early Legal Action • Initiate swift legal recovery processes for persistent defaulters to minimize loss impact. 38 AL-SALĀM REIT ANNUAL REPORT 2024
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