Risk Management
RISK MANAGEMENT FRAMEWORK
The Manager has developed a comprehensive risk
management framework that enables the Board and
Audit And Risk Committee (“ARC”) to review and manage
the risks arising from LMIR Trust’s portfolio of assets from
time to time on a consistent and systematic basis.
4HE FRAMEWORK QUANTIlES KEY PROPERTY RELATED RISKS SUCH AS
OCCUPANCY AND RENTAL RATES CREDIT RELATED RISKS AND lNANCIAL
MARKET RISKS INCLUDING COUNTER PARTY RISKS FOREIGN CURRENCY
EXPOSURE AND INTEREST RATE VOLATILITY 4ENANT AND BUSINESS
sector concentration risks are also monitored as part of
the risk framework. The risk framework is supplemented
by internal processes and procedures that are formalized
in the Manager Organisational and Reporting Structures,
Standard Operating Procedures and Delegation of Authority
guidelines. These cover significant strategic, operational and
financial risks. The overall risk framework is managed by the
Manager who reports to the Board and ARC on a quarterly
basis or whenever it is deemed necessary.
The internal audit function of the Manager has been
OUTSOURCED TO A THIRD PARTY +0-' ,,0 WHO PLANS ITS
internal audit work in consultation with the Manager,
but works independently by submitting its reports to the
ARC for review at Audit And Risk Committee meetings.
RISK MANAGEMENT STRATEGY
Property, financial market, operational and strategic
RISKS AND OTHER EXTERNALITIES SUCH AS REGULATORY CHANGES
natural disasters and act of terrorismmay occur in the normal
course of business. The Manager has an established risk
management strategy to manage these risks as they arise,
and is aligned with its overall business objectives which aim
to balance risks and returns in order to optimise LMIR Trust’s
portfolio values and returns.
Some of the key risks faced and how these are being
monitored and managed are detailed below:
1. OPERATIONAL RISK
The Manager has an established risk management strategy
TOWARDS THE DAY TO DAY ACTIVITIES OF THE PROPERTIES
portfolio, which are carried out by the third party Property
Manager. These include planning and control systems,
operational guidelines, information technology systems,
reporting and monitoring procedures, involving the
management and the Board of Directors of the Manager.
The risk management system is regularly monitored and
EXAMINED TO ENSURE EFFECTIVENESS 4HE RISK MANAGEMENT
framework is designed to ensure that operational risks are
anticipated so that appropriate processes and procedures
can be put in place to prevent, manage, and mitigate
risks that may arise in the management and operation of
LMIR Trust.
2. INVESTMENT RISK
As LMIR Trust’s growth is partly driven by acquisition of
properties, the risk involved in such investment activities is
managed through a rigorous set of investment criteria which
includes accretion yield, growth potential and sustainability,
location and specifications. The key financial projection
assumptions and sensitivity analysis conducted on key
variables are reviewed by the Board. The potential risks
associated with proposed projects and the issues that may
prevent their smooth implementation are to be identified at
the evaluation stage. This enables us to determine actions
that need to be taken to manage or mitigate risks as early
as possible.
3. INTEREST RATE RISK
The Manager adopts a proactive strategy to manage
the risk associated with changes in interest rates on any
loan facilities while seeking to ensure that LMIR Trust’s
ongoing cost of debt capital remains competitive. As at
31December 2014, more than 75%of LMIR Trust borrowings
HAD BEEN LOCKED INTO A lXED INTEREST RATE THROUGH lXED
interest rate borrowings (EMTN notes). Subsequent to the
end of the financial year, LMIR Trust entered into interest
rate swap contracts commencing March 2015 to hedge
against the floating interest rate of the borrowings. With
such interest rate swap contracts in place, 100% of LMIR
4RUST BORROWINGS ARE ON lXED RATES
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LIPPO MALLS INDONESIA RETAIL TRUST ANNUAL REPORT 2014
