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EC World Real Estate Investment Trust ANNUAL REPORT 2016
Disaster recovery testing is conducted periodically
to validate the system continuity plan. In addition,
network penetration testing is also conducted regularly
to check for potential security gaps.
Foreign Currency Risk
ECW’s cash flows from the operation of the Properties is
denominated in RMB while the Group pays distributions
in Singapore dollars. Therefore, the Group is exposed to
fluctuations in the currency rates of RMB and SGD. The
Manager monitors the exposure of ECW to changes
in foreign exchange rates and utilises various financial
instruments, where appropriate, to hedge against the
currency risk.
Interest Rate Risk
Some of ECW Group’s existing debts carry floating
interest rates, and consequently, the interest cost for
such loans will be subject to fluctuations in interest
rates. Interest rate risk is managed on an ongoing basis
through regular reviews on the optimal mix of fixed and
floating rate borrowings, and with the primary objective
of minimising the impact on net interest expenses that
is caused by adverse movements in interest rates. The
Manager also proactively seeks to minimise the level of
interest rate risk by locking in most of the borrowings
of ECW Group at fixed interest rates.
Investment Risk
The main sources of growth for ECW Group are AEI,
acquisition of properties as well as developments.
The risks involved in such investment activities are
managed through a rigorous set of investment criteria
which includes potential for growth in yield, rental
sustainability and potential for value creation. Also,
key financial assumptions are reviewed and sensitivity
analysis performed on key variables. The potential
risks associated with proposed projects and the issues
that may prevent their smooth implementation or
attainment of projected outcomes are identified at
the evaluation stage. This is to enable the Manager to
devise action plans to mitigate such risks as early as
possible.
Leasing Risk
Strong competition, poor economic and market
conditions are some of the key factors that could result
in key tenants not renewing their leases, and adversely
affecting the leasing performance of our properties.
The Manager establishes a diversified tenant base and
sustainable trade mix and has in place proactive tenant
management strategies which are in line with the
properties’ positioning.
Liquidity Risk
The Manager actively monitors the cash flow position
of ECW Group to ensure that there are sufficient liquid
reserves, in the form of cash and banking facilities, to
finance ECW Group’s operations and AEI. Given ECW
Group’s reliance on external sources of funding, the
health of the debt markets directly affects ECW Group.
In addition, ECW Group has banking facilities as a source
of back-up. ECW Group’s ability to raise funds from both
banks and capital markets will enable it to minimise over-
reliance on a single source of funds for any funding or
refinancing requirements. The Manager will continue to
proactively manage the capital structure of ECW Group
by ensuring its debt maturity profile is spread out without
major concentration of debts maturing in a single year,
and maintaining an optimal aggregate leverage. The
Manager also monitors covenants closely to ensure
compliance.
Project Management Risk
To manage project management risk, the Project
Management teamadopts a rigorous projectmanagement
process to ensure that project cost, quality and time
objectives are met. There are stringent pre-qualification
procedures to appoint well-qualified vendors for projects,
where key criteria such as vendors’ track records and
financial performance are assessed. The Manager will
conduct regular site visits to closely monitor the progress
of projects and manage potential risks of delays, poor
workmanship and cost overruns.
Regulatory and Compliance Risk
Due to the nature of ECW Group’s business, ECW Group
is required to comply with the applicable and relevant
legislation and regulations that include the Listing Manual
of the Singapore Exchange Securities Trading Limited,
the Code on Collective Investment Schemes issued by
the Monetary Authority of Singapore and the tax rulings
issued by the Inland Revenue Authority of Singapore. The
Manager has in place a robust framework that proactively
identifies applicable laws and regulatory obligations, legal
updates and embeds compliance into the day-to-day
operations.