56 AL-SALAM REIT 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. This approach will ensure an improved cash flow and liquidity position while optimising Al-Salām REIT’s distributable earnings. The following capital management strategies were implemented in FY2022: • Maintaining a diverse range of sources for debt funding. These include Islamic term financing and Sukuk; • Retaining sufficient cash flow and cash position to service all financing obligations; • Ongoing review of the Fund’s debt portfolio to determine the optimal debt refinancing strategy to reduce funding costs; 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 2022, Al-Salām REIT’s Islamic financing portfolio comprises the following: FY2021 FY2022 Total Financings (RM Mil) 635.7 637.3 Average Cost of Financing (%) 3.82 4.17 Fixed/Floating Ratio 100% floating 100% floating Average Maturity Period (years) 3 2 Financing Service Cover ratio (times) 2.45 1.57 Gearing ratio (%) 50.7 48.8 2021 (RM) 2022 (RM) Non Current: Term Financing-i 118,000,000 118,000,000 Business Financing-i 70,000,000 70,000,000 Sukuk Ijarah 451,000,000 - 639,000,000 188,000,000 Less: Transaction Cost (3,343,062) (937,578) Sub total 635,656,938 187,062,422 Current: Sukuk Ijarah - 451,000,000 Less: Transaction Cost - (792,120) Sub total - 450,207,880 Total Islamic Financing 635,656,938 637,270,302 SUKUK IJARAH The outstanding Sukuk Ijarah Issue 2 of RM451.0 million will be due in August 2023. The Manager is in the midst of undertaking steps to refinance the said issuance. MOVING FORWARD Al-Salām REIT’s present gearing of 48.8% places the fund domestically as one of the highest geared REITs. Despite this, the Manager intends to reduce the current debt levels to a more manageable degree in the next year to achieve optimal gearing. To reach this target level, the fund plans to explore cost-effective financing solutions and implement placements to obtain the most favorable capital structure for the future. 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 shareholders as well as all stakeholders involved. The Manager is proceeding to chart pathways towards maintaining a stronger balance sheet and to strengthen our strategic relationships with all parties involved. MANAGEMENT DISCUSSION AND ANALYSIS
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