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ANNUAL REPORT 2015
FRASERS HOSPITALITY TRUST
RISK MANAGEMENT
ENTERPRISE-WIDE RISK
MANAGEMENT
The objective of enterprise-wide
risk management (“ERM”) is to
identify key risks and put in place
controls, and to allocate appropriate
resources to proactively manage
the identified risks. Enterprise-wide
risk reporting is facilitated through
a web-based Corporate Risk
Scorecard system which enables the
reporting of risks and risk status on
a common platform in a consistent
and cohesive manner. The ERM
framework covers key areas such as
investment, financial management
and operating activities. Risks are
reported and monitored using a
Risk Scorecard which captures risks,
mitigating measures, timeline for
action items and risk ratings. Where
applicable, Key Risk Indicators
(“KRIs”) are established to monitor
risks. The Risk Scorecard and KRIs
are presented in the form of a Key
Risk Dashboard and reviewed by
the Management and the REIT
Manager’s ARC Committee on a
regular basis.
Risk tolerance statements setting
out the nature and extent of
significant risks which the REIT
Manager is willing to take in
achieving its strategic objectives
in respect of FH-REIT have been
formalised and adopted. The risk
tolerance statements are reviewed
periodically.
The REIT Manager has implemented
a Comfort Matrix Framework,
which provides an overview of
the mitigating measures, and
assurance processes of key financial,
compliance, IT and operational risks.
KEY RISKS IN FY2015
Investment Risk
All investment proposals are
evaluated against a comprehensive
set of investment criteria and due
diligence is carried out to mitigate
potential investment risks. The
acquisition must be aligned with
FHT’s investment mandate. The
evaluation process for all investment
activities includes consideration of
the location, guest mix, building
condition, competitive conditions,
expected investment return,
long-term sustainability of asset
performance and growth potential.
Regulatory and Compliance Risk
FHT has global operations and is
subject to the laws and regulations
of the markets it operates in.
FHT comprises FH-REIT, a
Singapore-based REIT, and FH-BT,
a Singapore-based business trust
registered under the Business Trust
Act (“BTA”). The REIT Manager and
the Trustee-Manager, being the
responsible entities of FH-REIT
and FH-BT, respectively, each has
their own board of directors (which
comprise the same persons) and its
own set of procedures in relation to
corporate governance.
Due to the different legislative
and regulatory requirements in
relation to a REIT as compared
with a business trust, the corporate
governance procedures and
disclosure requirements in relation
to the REIT Manager are different
from those in relation to the
Trustee-Manager.
The Managers have in place
policies and procedures to facilitate
compliance with applicable laws
and regulations. Management keeps
abreast of latest developments
in relevant laws and regulations
through training and attending talks
and briefings.
Foreign Currency Risk
The entities within the stapled group
normally conduct their business
in their respective functional
currencies.
The stapled group’s foreign
currency risk mainly relates to its
Australian dollar (“AUD”), Sterling
pounds (“GBP”), Malaysian ringgit
(“MYR”) and Japanese yen (“JPY”)
denominated investments and
distribution income and interest
income from its foreign subsidiaries.
The REIT Manager monitors the
stapled group’s foreign currency
exposures on an ongoing basis and
limits its exposure to fluctuations in
exchange rates by using derivative
financial instruments or other
suitable financial products.
It is the Managers’ policy to hedge
the stapled group’s anticipated
foreign currency exposure in
respect of distribution income, net
of anticipated payments required in
the same currency, from its foreign
subsidiaries at least six months
forward by using foreign currency
forward exchange contracts and
certain currency derivatives.
Investment in overseas assets are
hedged naturally to the extent that
borrowings are taken up in their
respective foreign currency. The net
position of the foreign exchange
risk of these investments in overseas
assets are not hedged as such
investments are long term in nature.
Interest Rate Risk
Interest rate risk is the risk that the
fair value of future cash flows of
FHT’s financial instruments will
fluctuate because of changes in
market interest rates.
FHT’s exposure to changes in
interest rates relate primarily to its
interest-earning financial assets
and interest-bearing borrowings.
Interest rate risk is actively managed
by the REIT Manager on an ongoing
basis with the primary objective
of limiting the extent to which net
interest expense could be affected
by adverse movements in interest
rates. The REIT Manager adopts a
policy of fixing the interest rates
