Risk Management

The Manager believes that good risk management practices and strong internal controls are critical components to K-REIT Asia’s business. The Manager also constantly reviews its risk management framework and policy to ensure key business risks of K-REIT Asia are pro-actively managed and mitigated. Key risks identified by the Manager are related to K-REIT Asia’s investment activities, operating activities in its existing properties and financial management. A summary of the key risks identified are as follows:

Investment Risk
The Manager has determined that significant risk lies in investment decisions in the pursuit of new assets. Accordingly, the Manager has set out procedures to be followed when making such decisions. These internal control procedures ensure better risk assessment and enforce the need for comprehensive due diligence in relation to any investment proposal. Well informed and pragmatic decisions are then made as to whether the anticipated return on investment is appropriate having regard to the level of risk involved.

All investments must be reviewed by the Board and approvals are given only after proper analysis has been carried out, including addressing risks involved in any particular transaction and the impact on K-REIT Asia.

Operational Risk
As part of the overall effort to promote sustainability of distributable income, the Manager has put in place a system of measures to ensure the smooth operation of K-REIT Asia’s assets. Some of these include negotiating for favourable terms and covenants, controlling expenses, actively monitoring rental payments from tenants, continuously evaluating our counter-parties and maximising property value. Furthermore, disaster and pandemic business continuity plans are periodically reviewed and modified as and when necessary.

Financial Risk

• Credit Risk
  Prior to signing any major lease agreement, a credit assessment is carried out on each prospective tenant. In addition, security deposits as a multiple of monthly rents are also collected from tenants, reflecting lease tenure and other applicable business risks that may exist. Furthermore, the property portfolio’s tenant trade sector mix is also actively managed to avoid excessive exposure to any one potentially volatile trade sector.

• Interest Rate Risk
  Interest rate risks are managed on an ongoing basis through the use of appropriate term facilities and floating positions. In addition, the interest rate environment is also continuously monitored so as to identify opportunities to refinance higher cost debt where and when appropriate.

• Liquidity Risk
  K-REIT Asia’s cash flow position and working capital are monitored closely to ensure the availability of adequate liquid reserves to meet short term obligations. Furthermore, all essential funding requirements are planned well in advance so as to manage cash position at any point of time more effectively.

• Currency Risk
  Currency risk is not a major concern for K-REIT Asia given that all its borrowings are in Singapore dollars at present. However, as overseas acquisitions are contemplated, it is intended that any debt financing relating to such acquisitions be in the same currency in which the assets are denominated. In addition, other appropriate hedging strategies will be adopted as and when deemed necessary.