95
ANNUAL REPORT 2015
FRASERS HOSPITALITY TRUST
for a portion of its outstanding
borrowings via the use of derivative
financial instruments or other
suitable financial products.
Interest rate derivatives in respect of
FHT’s borrowings have been entered
into to achieve an appropriate mix
of fixed and floating rate exposures
within FHT’s policy. Generally, the
maturities of these interest rate
derivatives follow the maturities of
the related borrowings.
Credit Risk
Credit risk is the potential financial
loss resulting from the failure of
a customer or a counterparty to
settle its financial and contractual
obligations with the stapled group,
as and when they fall due.
FHT’s objective is to seek continual
revenue growth while minimising
losses incurred due to increased
credit risk exposure. The REIT
Manager has established credit
limits for lessees and monitors
their balances on an ongoing basis.
Credit evaluations are performed
by the REIT Manager before lease
agreements are entered into with
the lessees. Credit risk is also
mitigated by the security deposits
held for each lessee.
The security deposits were received
in cash and is equivalent to eight
months of the monthly Fixed Rent
under the Master Lease Agreements.
In addition, Frasers Centrepoint
Limited and TCC Land International
Limited have granted a Corporate
Guarantee to FH-REIT for the
performance of the Master
Lessees and Retail Master Lessee
respectively. Upon default, the
Corporate Guarantors will pay the
rent and other sums payable under
the Master Lease Agreement and
the Retail Master Lease Agreement
respectively.
Cash and cash equivalents are
placed with financial institutions
which are regulated. The credit
risk related to derivative financial
instruments arises from the
potential failure of counterparties
to meet their obligations under the
contracts. It is the stapled group’s
policy to enter into derivative
financial instrument transactions
with credit worthy counterparties.
The stapled group has no significant
concentration of credit risk at
reporting date. The maximum
exposure to credit risk is represented
by the carrying amount of each
financial asset in the Statements of
Financial Position.
Liquidity Risk
Liquidity risk is the risk that the
FHT will encounter difficulty in
meeting its financial obligations
due to shortage of funds. The REIT
Manager monitors and maintains a
level of cash and cash equivalents
deemed adequate to finance FH-
REIT’s operations for a reasonable
period, including the servicing
of financing obligations, and to
mitigate the effects of fluctuations
in cash flows. The debt maturities
of the borrowings are spread
out to mitigate financing risks. In
addition, a sufficient level of working
capital is maintained to meet the
requirements of FHT’s operations.
The REIT Manager also monitors and
observes the CIS Code issued by
the MAS concerning limits on total
borrowings.
Operational Risks
FHT relies on the serviced residence
and hotel operators for the day-
to-day running of the operations.
It reduces its operational risks
through the engagement of
reputable serviced residence and
hotel operators with operational
experience in the respective
markets. The REIT Manager actively
oversees the performance of
the assets and the operators and
perform benchmarking of the
assets’ performance vis-à-vis their
competitors. The interests of these
operators are aligned with FHT’s
through a 100% variable fee model
which links performance of the
assets to fees payable to operators.
Fraud Risk
A Whistle Blowing Policy and Manual
of Authority for the approval of
purchases and payment are in place
to mitigate fraud risk. FHT is subject
to regular internal audit reviews
scheduled based on the internal
audit work plans approved by the
REIT Manager’s ARC Committee.
RISK MANAGEMENT
