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Risk Management
Risk management is integral to the whole business of Sabana
Shari’ah Compliant REIT. The Manager has implemented a
system of controls to create an acceptable balance between
the benefits derived from managing risks and the cost of
managing those risks. The Manager also monitors its risk
management processes closely to ensure an appropriate
balance between controls and business objectives is achieved.
Risk management policies and systems are reviewed regularly
to reflect changes in market conditions and the strategic
direction of the Trust.
The Audit Committee oversees how management monitors
compliance with Sabana Shari’ah Compliant REIT’s risk
management policies and procedures and reviews the
adequacy of the risk management framework in relation to
the Trust’s exposure to those risks.
The Audit Committee’s oversight role is assisted by an
internal audit function which is outsourced to an independent
professional firm (“Internal Audit”). Internal Audit undertakes
both regular and ad-hoc reviews of risk management controls
and procedures, the results of which are reported to the
Audit Committee. For more information on Audit Committee,
please refer to “Corporate Governance” on page 50 – 60 of
the Annual Report.
This fol lowing section presents information about the
Trust’s exposure to various types of risks, the Manager’s
key objectives, policies and processes for measuring and
managing risks, and its approach to capital management.
Market Risk
Sabana Shari’ah Compliant REIT’s portfolio is subject to real
estate market risks such as occupancy and rental rate volatility,
competition, supply and demand, as well as regulations
affecting Singapore’s industrial sector. Such risks are monitored
and reported to the management on an on-going basis, for
actions to be taken as and when required.
Investment Risk
The risks arising from investment activities are managed
through a prudent and disciplined investment approach,
particularly in the area of asset selection and pricing. All
acquisitions have to be yield-accretive.
All investment proposals are subject to vigorous scrutiny by
the Board based on specific investment criteria including but
not limited to yield accretion, location, building specification,
quality of tenant and lease structure. The Board is made aware
of all key risks considered and that they have been addressed
or mitigated appropriately.
Upon receiving the Board’s approval, the investment proposals
are then submitted to the Trustee who is the final approving
authority for all investment decisions.
The Trustee also monitors the compliance of the Manager’s
executed investment transactions with the restrictions under
the Property Funds Appendix and the provisions of the
Trust Deed.
Operational Risk
The Manager has established comprehensive policies and
standard operating procedures (“SOPs”), which are reviewed
and updated regularly, to manage its day-to-day activities
and to mitigate operational risks that may arise. Compliance
to SOPs is ensured through training of employees, regular
checking by the compliance officer and regular follow-up
reviews by Internal Audit.
The Manager also regularly reviews and evaluates its internal
processes by conducting company-wide control self-
assessments, to assess the key risks identified and evaluate
the internal controls put in place.
Compliance Risk
The capital markets services (“CMS”) licence issued by the
MAS to the Manager on 2 November 2010 for real estate
investment trust management pursuant to the SFA will be
valid until 30 September 2013, unless otherwise cancelled or
renewed. Failure to comply with the CMS licensing conditions
could result in the Manager’s licence being cancelled or not
renewed by the MAS, adversely affecting the operations of
the Trust.
The Units of Sabana Shari’ah Compliant REIT were listed on
the SGX-ST on 26 November 2010. Although it is intended that
the Units will remain listed on the SGX-ST, there is no guarantee
of the continued listing of the Units. Sabana Shari’ah Compliant
REIT may not continue to satisfy the listing requirements as
set out in the Listing Manual of the SGX-ST.
Shari’ah non-compliance risk may also arise from Sabana
Shari’ah Compliant REIT’s failure to comply with Shari’ah rules
and principles as determined by the Shari’ah Adviser and
Independent Shari’ah Committee, pertaining to asset selection,
financing, investment and deposit facilities, insurance and risk
management solutions.
ANNUAL REPORT 2011
61
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