136 UNITED HAMPSHIRE US REIT Corporate Governance UHREIT’s risk universe covers risks across strategic, financial, operational, technology and compliance categories. In order to focus risk management efforts on risks that are key to the organisation, the Manager regularly conducts a risk assessment and prioritisation exercise to classify risks based on its potential impact to UHREIT and its likelihood of occurrence. In assessing the potential impact and likelihood of the risks occurring, the internal controls and processes which UHRM has in put in place for each risk are taken into consideration. Where there are gaps in terms of internal controls for any risks, new policies and procedures are put in place by management to mitigate those risks. The residual risks that remain after taking into account the mitigating controls are then ranked and the key risks (the “Key Risks”) are placed under regular monitoring. Indicators are developed for the Key Risks to keep abreast of the probability of such risks occurring. The ARC reports to the Board on the material findings and makes recommendations or seeks guidance from the Board in respect of any material risk issues. The entire ERM exercise is carried out one to two times a year, with the monitoring of the Key Risks conducted every quarter. The Key Risks which have been identified and are currently under monitoring by the Manager are listed out below. Other current, evolving or emerging risks are monitored and reported where significant: 1. MACROECONOMIC RISK Economic downturn, instability and uncertainties in the markets where UHREIT properties are located can have a negative effect on the performance of the properties. The Manager closely monitors the economic data coming out of the countries where the properties are located in order to have good understanding of the economic situation on the ground. At the same time, UHRM actively manages UHREIT’s property portfolio with the objective of protecting and creating value across the property portfolio. The Manager formulates the asset management strategy and works closely with the property managers to optimise and stabilize asset performance. Guidelines relating to tenant mix, lease renewal, rental collections, rationalising operation costs and asset enhancement works are also formulated to benchmark against industry practices and minimise operational risk. In addition, insurance coverage is reviewed annually to ensure that UHREIT’s assets are adequately and appropriately insured. A business continuity plan is in place to minimise exposure to business interruption arising from sudden and major disaster events. The plan is updated and tested regularly to ensure UHREIT is well prepared to respond effectively to disruptions and able to continue its critical business functions, while minimising impact on its people, operations and assets. UHREIT is subject to economic and real estate market risks and may also be adversely affected by changes to the taxation legislation or regulations. In order to manage such risks, the Manager adopts a disciplined approach towards financial management, monitors the U.S. political environment, economic developments and tax regime, and works closely with tax agents and advisors to anticipate and evaluate the impact of any changes in taxation legislation, administrative guidance and regulations on the business of UHREIT and its Unitholders. 2. LIQUIDITY RISK The Manager actively monitors UHREIT’s operational cash flow, debt maturity profile and funding requirements to ensure that UHREIT has sufficient liquid reserves to meet its obligations. In addition, UHREIT has access to various sources of funds from banks and capital markets to minimise over-reliance on a single source for any funding or refinancing requirement. UHREIT also maintains a disciplined approach to leverage, targeting a conservative gearing ratio over the medium term with an upper limit of 45% so as to safeguard against interest rate fluctuations and market downturns.
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