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51 MACQUARIE MEAG PRIME REIT
ANNUAL REPORT 2007
RISK
MANAGEMENT
As stated in the Corporate Governance Report above,
the Manager revised its enterprise risk management
framework for MMP REIT (“RMF”). The RMF
establishes procedures and protocol to identify and
initiate mitigation of enterprise risks, which may
arise in the management and operations of MMP
REIT, particularly in the areas of asset acquisitions,
asset integration, financial risk management, and
environmental, health and safety (“EHS”). To address
each of these areas, the Manager has either adopted
policies, hired or designated staff with specific expertise
in that area, and continues to assess the potential impact
of risks which may arise and the necessary response or
process to effectively mitigate those risks.
Asset Acquisition Process
Prior to any new acquisition, each of the key risks
attributable to the acquisition or the subsequent
management of the asset is assessed and rated.
Functional heads in the Manager or the Property
Manager are responsible for this process. Checklists
and/or “sign-offs” are provided to the Board to confirm
that all key risks have been considered and addressed or
mitigated successfully.
Asset Integration Process
Following every successful acquisition, it is imperative
that each asset is quickly integrated into the existing
MMP REIT portfolio, from financial, operational and
compliance perspectives. This process is activated before
the closing of each acquisition, and completed as soon
as practicable thereafter. Checklists and/or “sign-offs”
are provided to the Board, together with quarterly
asset management reports, to confirm that all key risks
associated with this process have been considered and
addressed or mitigated successfully.
Environmental, Health and Safety (“EHS”)
The Manager developed and began to implement a
robust EHS protocol in 2007, with the support of
Macquarie Bank Limited (“MBL”). This protocol
complies with local legislative requirements and has
been put in place for the Singapore assets of MMP
REIT. A qualified EHS manager oversees the process,
to ensure that risks associated with EHS aspects of the
assets are appropriately minimised and/or mitigated.
Together with the Manager’s asset management team,
the EHS manager is responsible for ensuring that assets
not located in Singapore are also appropriately managed
from an EHS perspective.
Robust Financial Risk Management Policy
MMP REIT’s returns are primarily from net operating
income and capital appreciation of its assets, however,
these are exposed to three major financial risks – interest
rate risk, foreign exchange risk and liquidity risk with
additional risks including credit and operational risk.
The Manager has therefore implemented a policy of
actively managing financial market risks to provide
certainty and stability of distributions to unitholders,
whilst maintaining or increasing unitholders’ equity.
This is achieved by entering into hedges to stabilise
interest costs and to stabilise the Singapore dollar
equivalent of foreign currency income and foreign
currency net investments. The Manager’s overall
strategy for MMP REIT in this respect is to hedge the
majority of exposures within limits stipulated, having
regard to the availability of hedge instruments and their
associated cost.
The policy contains the parameters and processes
for managing these risks, and defines the roles and
responsibilities of those who manage the process.