RISK MANAGEMENT AND INTERNAL CONTROLS
Principle 11: The Board is responsible for the governance of risk. The Board should ensure that
Management maintains a sound system of risk management and internal controls to safeguard
shareholders’ interests and the company’s assets, and should determine the nature and extent of the
significant risks which the Board is willing to take in achieving its strategic objectives.
The Board, through the AC, reviews the adequacy of the Manager’s risk management framework and ensures
that a robust system of risk management and internal controls are in place to safeguard the interests of the
Unitholders. The Manager benchmarks its risk management practices against the Risk Governance Guide For
Listed Boards for best standards.
The AC, through the assistance of internal and external auditors, reviews and reports to the Board on the
adequacy of the Manager’s system of controls, including financial, operational and compliance controls put in
place by the management as part of the framework.
The Manager has adopted an enterprise-wide risk management (“ERM”) framework to enhance its risk
management capabilities. Through a structured risk identification process and the use of a risk register, the
key financial, operational and compliance risks identified by the management are documented and presented
against the response strategies and control measures put in place to mitigate those risks. To enhance risk
mitigation, the ERM framework is integrated with the internal auditor’s annual work plan.
The following section presents a brief summary of the Trust’s exposure to financial, operational and compliance
risks and the key measures in addressing these risks.
Financial Risk
In managing the Trust, the Manager adheres to all applicable financial covenants set by lenders as well as
the aggregate leverage limit imposed by MAS in the Property Funds Appendix. To minimise financial risks,
the Manager reviews the capital management policy of the Trust regularly and provides periodic updates to the
Directors. All major capital market initiatives require the prior approval of the Board.
By employing an appropriate mix of debt and equity to finance property acquisitions, maintaining a certain level
of cash for working capital and employing available Shari’ah-compliant derivatives to hedge risk exposure,
the Manager strikes a strategic balance between safeguarding the going concern ability and optimal capital
structure of the Trust with maximising Unitholders’ value. Please refer to pages 15 to 18 for more details.
On 11 June 2014, credit rating agency Standard and Poor’s affirmed the Trust’s ‘BBB-‘ long‐term corporate
credit rating and maintained its stable outlook on the Trust. A credit rating allows the Trust to have an aggregate
leverage up to 60% of its deposited property, as stipulated within the Property Funds Appendix by MAS.
The Trust has complied with the aggregate leverage limit throughout the year.
Operational Risk
The Manager has put in place a manual of standard operating procedures designed to identify, monitor, report
and manage the operational risks associated with the day-to-day management of the Trust. The manual of
standard operating procedures covers key risk areas such as investments and acquisitions, property and lease
management, interested party transactions, finance and accounting, compliance, and information technology
controls, and is periodically reviewed to stay relevant and effective.
SABANA REIT
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ANNUAL REPORT 2014
77
