57 ANNUAL REPORT 2022 KEY RISK FACTORS The Manager promotes 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 identifies and mitigates anticipated or known risks to which the Fund is exposed that could have material impact on the Fund’s operations, performance, financial condition and liquidity. 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 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 and net property income against fixed operation and maintenance costs. Unitholder returns are negatively impacted as a result of lower profitability. Due to the growth of e-commerce and the COVID-19 situation, the retail and office space sectors have been greatly impacted as more and more people adapt to new norms of online shopping and working from home. To mitigate the changes in industry trends, the Manager is planning a repositioning exercise for KOMTAR JBCC. This includes a change in tenant mix, increase casual leasing, more attractive and competitive leasing packages and rental rates to existing and on-boarding tenants. Competition 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 aimed at maximising occupancy, including mall renovations to revitalise the mall and increase footfall. Financial The Fund could face higher financing costs because of two reasons. Firstly, it is exposed to floating profit rates. Secondly, the Fund may face refinancing risk if it is unable to secure financing on favourable terms. The Manager closely monitors the Fund’s cash flow position and financing profile, with the expectation that the Fund will generate enough yield to cover its profit rate expenses. Additionally, the Manager aims to manage the Fund’s gearing level to limit its exposure to profit rate risk. Furthermore, the Manager may consider using hedging strategies, like an Islamic Profit Rate Swap (IPRS), to mitigate the risk associated with profit rates. Additionally, the Manager maintains regular engagement with lending financial institutions to negotiate favourable financing terms for the Fund. By adopting these measures, the Manager can help ensure that the Fund maintains a stable financial position in the long run. MANAGEMENT DISCUSSION AND ANALYSIS
RkJQdWJsaXNoZXIy NDgzMzc=