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AL-SALĀM REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2017 WWW.ALSALAMREIT.COM.MY AL-SALĀM REIT ANNUAL REPORT 2017 1 THE CONTENTS AL-SALĀM REIT ANNUAL REPORT 2017 SECTION 3 STRATEGIC SECTION 2 PERFORMANCE DRIVING FORCE 34 Management Discussion & SECTION Analysis 1 18 Trust Structure 46 Investor & Public Relations 19 Organisation Structure CORPORATE 48 Market Report Summary 20 The Board of Directors 52 Summary of Investment Portfolio 28 The Shariah Committee OUTLOOK 30 Management Profile 6 Highlights & Insights 2017 7 Policy, Objective & Strategies 8 Corporate Profile 9 Corporate Information 10 Letter to Stakeholders 12 Salient Features 13 Financial Performance 14 Trading Performance 2 AL-SALĀM REIT ANNUAL REPORT 2017 SECTION 6 FINANCIAL SECTION 5 ESSENCE OF REPORTS 110 SECTION Manager’s Report 4 CORPORATE 116 Independent Auditors’ Report 121 Statement of Profit or Loss & SUSTAINABILITY GOVERNANCE Other Comprehensive Income 123 Statements of Financial STATEMENT Position 86 Board Charter 125 Statement of Changes In Equity 96 Corporate Governance Statement 70 About This Report 126 Statements of Cash Flows 104 Audit Committee Report 71 Our Journey Towards a 128 Notes of the Financial 106 Statement on Risk Management Statements Sustainable REIT and Internal Report 72 Governance and Accountability 164 Statement by the Manager 74 Engaging Our Stakeholders 165 Declaration by the Director of 76 Assessing Materiality Matters the Manager 78 Sustainable REIT 166 Shariah Committee Report 80 Our Environment 167 Trustee’s Report 81 Our People 168 Analysis of Unit Holdings 83 Our Community AL-SALĀM REIT ANNUAL REPORT 2017 3 4 AL-SALĀM REIT ANNUAL REPORT 2017 SECTION 1 CORPORATE OUTLOOK 6 Highlights & Insights 2017 7 Policy, Objective & Strategies 8 Corporate Profile 9 Corporate Information 10 Letter to Stakeholders 12 Salient Features 13 Financial Performance 14 Trading Performance AL-SALĀM REIT ANNUAL REPORT 2017 5 HIGHLIGHTS & INSIGHTS 2017 PROPERTY VALUE REVENUE NET PROPERTY INCOME % % % 18 14 18 12 57 17 63 55 17 11 8 10 Retail Office F&B Restaurants F&B Non-Restaurants RM MILLION 56.9NET PROPERTY INCOME RM927.5 MILLION 31 PROPERTY VALUE NUMBER OF PROPERTIES SEN 6.00DISTRIBUTION PER UNIT RM MILLION 80.0GROSS REVENUE % 6.0DISTRIBUTION YIELD MILLION SF 1.9GROSS FLOOR AREA RM MILLION 580.0MARKET CAPITALISATION 6 AL-SALĀM REIT ANNUAL REPORT 2017 POLICY, OBJECTIVE & STRATEGIES POLICY OBJECTIVE The Manager’s key objective is to provide Unitholders Al-Salām REIT is an Islamic REIT established with the with regular and stable distributions, sustainable long principal investment policy of investing, directly and term unit price and distributable income and capital indirectly, in a diversified Shariah-compliant portfolio with growth of Al-Salām REIT. In the long run, through its income producing Real Estate which are used primarily for key investment strategies, Al-Salām REIT maintains commercial retail, office and industrial purposes in Malaysia an optimum level of financing and equity capital as well as real estate-related assets. structure. STRATEGIES CAPITAL AND RISK MANAGEMENT STRATEGY ACQUISITION GROWTH ACTIVE ASSET MANAGEMENT STRATEGY The Manager will endeavour to employ STRATEGY an appropriate mix of debt and equity The Manager will source for and acquire in financing acquisitions, seek to The Manager will seek to optimise the properties that fit within Al-Salām manage financing and refinancing risk rental rates, occupancy rates and net REIT’s investment strategy to enhance and to adopt an active financing rate lettable area of the subject Properties returns to Unitholders and capitalise management strategy to manage in order to improve the returns from Al- on opportunities for future income and the risks associated with changes in Salām REIT’s property portfolio. NAV growth. financing rates. AL-SALĀM REIT ANNUAL REPORT 2017 7 CORPORATE PROFILE AL-SALĀM REAL ESTATE INVESTMENT TRUST is a Malaysia-based real estate KOMTAR, @Mart Kempas, 22 KFC investment trust (REIT). It is a and Pizza Hut Restaurant outlets, diversified Islamic REIT in Malaysia 5 non-restaurant properties and a with assets strategically located in College building. Johor Bahru as well as in major towns throughout Malaysia. Al-Salām REIT The Fund is managed by Damansara was listed on the Main Market of Bursa REIT Managers Sdn Berhad (DRMSB Malaysia on 29 September 2015. or The Manager) a wholly-owned subsidiary of Johor Corporation (JCorp). The principal activity of the trust is to The Manager is a Capital Markets invest in Shariah-compliant properties. Services License holder, authorised to The Fund’s segments include Retail, carry out fund management activities Office, Food and Beverage (F&B), in relation to REIT. which consist of restaurant and non- restaurant outlets. As at 31 December 2017, the REIT asset size stood at RM927.5 million The Fund’s property portfolio with a market capitalisation of includes KOMTAR JBCC, Menara RM580.0 million. 8 AL-SALĀM REIT ANNUAL REPORT 2017 CORPORATE INFORMATION PROPERTY MANAGER MANAGER EXASTRATA SOLUTIONS SDN. BHD DAMANSARA REIT MANAGERS SDN (926251-A) BERHAD (717704-V) E-5-4, 4th Floor, East Wing Subang Square, Jalan SS 15/4G Registered Office: 47500 Subang Jaya Level 16, Menara KOMTAR Selangor Darul Ehsan SOLICITOR Johor Bahru City Centre Tel : (+603) 5632 7686 ABDUL RAMAN SAAD & ASSOCIATES 80000 Johor Bahru Fax : (+603) 5613 1686 Advocates & Solicitors Johor Darul Takzim Email : [email protected] C-2-1, Pacific Place Commercial Centre Tel : (+607) 226 7692 / 226 7476 Website : www. exastrata.net Jalan PJU 1A/4, Ara Damansara Fax : (+607) 222 3044 47301 Petaling Jaya SERVICE PROVIDER Selangor Darul Ehsan Principal Place Of Business: SYNERGY MALL MANAGEMENT SDN BHD Tel : (+603) 7859 9229 Unit 1-19-02, Level 19, Block 1 (905962-U) Fax : (+603) 7734 5777 V SQUARE, Jalan Utara Level 5, Menara KOMTAR Email : [email protected] 46200 Bandar Petaling Jaya Johor Bahru City Centre Website : www.arsa.com.my Petaling Jaya 80000 Johor Bahru Selangor Darul Ehsan Johor Darul Takzim INDEPENDENT PROPERTY VALUER Tel : (+603) 7932 1692 / 7932 3692 Tel : (+607) 267 9900 CHESTON INTERNATIONAL (KL) SDN BHD Fax : (+603) 7932 0692 Fax : (+607) 267 9926 (647245-W) Suite 2A, 2nd Floor, Plaza Flamingo TRUSTEE AUDITOR No. 2, Tasik Ampang AMANAHRAYA TRUSTEES BERHAD DELOITTE PLT (LLP0010145-LCA) Jalan Hulu Kelang (766894-T) Level 16, Menara LGB 68000 Ampang Tingkat 2, Wisma AmanahRaya II 1 Jalan Wan Kadir, Taman Tun Dr. Ismail Selangor Darul Ehsan No. 21, Jalan Melaka 60000 Kuala Lumpur Tel : (+603) 4251 2599 50100 Kuala Lumpur Tel : (+603) 7610 8888 Fax : (+603) 4251 6599 Tel : (+603) 2036 5000 / 2036 5129 Fax : (+603) 7226 8986 Email : [email protected] Fax : (+603) 2072 0320 Website : www.deloitte.com/my Website : www.chestonint.com Email : [email protected] Website : www.artrustees.com.my REGISTRAR STOCK EXCHANGE LISTING JOHOR CORPORATION Main Market of Bursa Malaysia SHARIAH COMMITTEE MEMBER Level 16, Menara KOMTAR Securities Berhad 1. Dato’ (Dr) Haji Nooh bin Gadot Johor Bahru City Centre Stock Name: ALSREIT 2. Professor Madya Dr. Ab. 80000 Johor Bahru Stock Code: 5269 Halim bin Muhammad Johor Darul Takzim 3. Professor Dr. Mohamad Tel : (+603) 219 5064 WEBSITE @ Md Som bin Sujimon Fax : (+603) 223 3175 www.alsalamreit.com.my AL-SALĀM REIT ANNUAL REPORT 2017 9 WE HAVE WORKED TOWARDS STRENGTHENING OUR UNITHOLDERS’ VALUE “ BY FOCUSING ON THE IMPROVEMENT IN THE OCCUPANCY OF THE MULTI TENANCY ASSETS AND THE GROWTH OF ASSET VALUE. THE CURRENT ASSET SIZE OF AL-SALĀM REIT STANDS AT RM927.5 MILLION AND IS EXPECTED TO GROW EVEN FURTHER IN FY2018 BY RM270 MILLION. 10 AL-SALĀM REIT ANNUAL REPORT 2017 ” LETTER TO STAKEHOLDERS DEAR VALUED STAKEHOLDERS, Year 2017 marked our commitment towards the sustainability initiatives with the inclusion of Sustainability On behalf of the Board of Directors of the Manager Statement in this Annual Report. Following the adoption of (the Board), it gives me great pleasure to present the Sustainability Framework, the Sustainability Steering Al-Salām REIT’s (the Fund) Annual Report and Committee was formed at the Manager level whilst audited financial statements for the financial year the composition of our property managers and service ended 31 December 2017. providers forming the Sustainability Working Committee. With the implementation of the sustainability practices In the reporting year, we have worked hard towards at various levels, we are committed to strike a balance strengthening our Unitholders’ value by our focus on the between financial performance, social engagement and following 2 main areas: environmental stewardship. (i) Improvement in the occupancy of the existing assets On this note, I would like to extend my heartfelt gratitude to – occupancy rate for the multi tenancy assets particularly the Board members for their valuable guidance and to the KOMTAR JBCC has improved steadily from 81% during the Shariah Committee for their wisdom towards the success of Initial Public Offering to 95% as at 31 December 2017 whilst Al-Salām REIT. Our achievement will not be attainable without Menara KOMTAR and @Mart Kempas have consistently the support and commitment of employees of the Manager. maintaining its occupancy rate at above 90%, showing the resilience of the assets in the current challenging market. During the year, Dato’ Mani a/l Usilappan had resigned from the Board. On a personal note as well as on behalf of the (ii) Growth of asset value - our portfolio value has Board, I would like to extend my appreciation to Dato’ Mani increased by RM5.4 million to RM927.5 million as at 31 for his contribution to Al-Salām REIT. The Board wishes December 2017. The asset size of Al-Salām REIT is expected Dato’ Mani well in his future undertakings. I would also like to to grow even further in FY2018 by RM270 million with the extend my heartiest welcome to Dato’ Dr Rahah binti Ismail proposed acquisition of Mydin Hypermarket Gong Badak as the new Independent Non-Executive Director effective and 22 properties owned by QSR Group of Companies.