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Notes to the financial statements
Overview of risk management
Risk management is integral to the whole business of A-REIT. The Manager of A-REIT has a system of controls
in place to create an acceptable balance between the benefits derived from managing risks and the cost of
managing those risks. The Manager also monitors A-REIT’s risk management process closely to ensure an
appropriate balance between control and business objectives is achieved. Risk management policies and
systems are reviewed regularly to reflect changes in market conditions and A-REIT’s strategic direction.
The Audit Committee of the Manager oversees how management monitors compliance with A-REIT’s risk
management policies and procedures and reviews the adequacy of the risk management framework in relation
to A-REIT’s exposure to those risks. The Audit Committee’s oversight role is assisted by an internal audit function
which is outsourced to an independent professional firm (“Internal Audit”). Internal Audit undertakes both
regular and ad-hoc reviews of risk management controls and procedures, the results of which are reported to
the Audit Committee.
Credit risk
Credit risk is the potential financial loss resulting from the failure of tenants or counterparties of A-REIT, to settle
its financial and contractual obligations, as and when they fall due.
The Manager has an established process to evaluate the creditworthiness of its tenants and prospective tenants
to minimise potential credit risk. Credit evaluations are performed by the Manager before lease agreements
are entered into with prospective tenants. Security in the form of bankers’ guarantees, insurance bonds or cash
security deposits are obtained prior to the commencement of the lease.
The Manager establishes an allowance account for impairment that represents its estimate of losses in respect
of trade and other receivables. The main component of this allowance is estimated losses that relate to specific
tenants or counterparties.
The allowance account is used to provide for impairment losses. Subsequently when A-REIT is satisfied that no
recovery of such losses is possible, the financial asset is considered irrecoverable and the amount charged to the
allowance account is then written off against the carrying amount of the impaired financial asset.
Cash at bank is placed with a financial institution which is regulated.
The maximum exposure to credit risk is represented by the carrying value of each financial asset, including
derivative financial instruments, on the balance sheet.
Liquidity risk
The Manager monitors and maintains a level of cash and cash equivalents deemed adequate to finance A-REIT’s
operations and to mitigate the effects of fluctuations in cash flows. Typically A-REIT ensures that it has sufficient
cash on demand to meet expected operational expenses for a reasonable period, including the servicing of
financial obligations.
A-REIT strives to maintain available banking facilities at a reasonable level to meet its investment opportunities.
A-REIT has in placed various bilateral banking credit facilities and transferable loan facilities totalling $1,220
million (2009: $1,120 million), of which $552 million (2009: $549 million) has been utilised as at 31 March 2010.
In addition, A-REIT also has in place a $1 billion Multicurrency Medium Term Note Programme which was
established on 20 March 2009 to diversify sources of funds for A-REIT. As at 31 March 2010, notes of $275 million
were issued from this programme.
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