S E C T I O N 3 S T R A T E G I C P E R F O R M A N C E 55 MANAGEMENT DISCUSSION AND ANALYSIS RISK MANAGEMENT KEY RISK FACTORS The Manager promotes a proactive and effective risk management which forms 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 Management consistently identified anticipated or known risks that the group is exposed to which may have a material effect on the group’s operations, performance, financial condition, and liquidity and a discussion of the plans or strategies to mitigate such risks. The assessment and discussion of the risks involved outsourced functions which constitute an integral part of risk profiles of the Fund: a) performing due diligence on the nature, scope and complexity of the outsourcing to identify key risk areas and risk mitigation strategies; b) conducting review of its outsourcing arrangement and identifying new risks which may arise; and c) analysing the impact of the outsourcing arrangement on the overall risk profile of the Fund, and whether there are adequate measures and resources in place to mitigate the risks identified. Anticipated and Known Risk Profiles Focus Area Disclosures Sustainable Performance and Competitive Returns to Unitholders Competition Financing Properties become not yield-accretive due to declining net property income as a result of decreasing demand for retail and office spaces. This leads to lower occupancy rates, rental income & NPI against fixed operation and maintenance costs. As a result of declining profitability, the returns to unitholders was adversely affected. The growth of eCommerce and COVID-19 situation have significantly affected the retail and office space as more people become accustomed to the new norm of online shopping and working from home. In order to mitigate the changes in the industrial trends, the Manager is planning a repositioning exercise for KOMTAR JBCC which involves change in tenancy mix, more attractive and competitive leasing packages and rental rates to existing and on-boarding tenants. 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 with the aim to maximise occupancy rate, which include: refurbishment of the mall to revitalise the mall and to increase footfall. 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 December 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 higher financing 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.
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