Manulife US REIT - Annual Report 2020

Key Risks Details Key Mitigation Actions Leasing Risk • MUST is subject to the risk of non-renewal, non-replacement of leases and a decrease in demand for office space. Any downturn in the businesses, bankruptcy or insolvency of a tenant may result in such tenant deciding not to renew its lease at the end of a lease cycle or to terminate the lease before it expires. • The Manager establishes a diversified tenant base, continuously monitors the lease expiry profile and undertakes proactive tenant engagement. • TheManager has also established leasing guidelines to ensure lease concentration risk is mitigated. Credit Risk • Credit risk is the risk of financial loss toMUST should a tenant fail to meet its contractual obligations and arises principally from rental arrears. Some of the factors that affect the ability of tenants to meet their obligations under their leases include poor economies in which they have business operations, competition and their financial position. • The Manager manages credit risk through staggered lease maturities and diversification of revenue sources by ensuring no individual tenant contributes a significant percentage of the gross revenue. • In addition, MUST also obtains security deposits and letters of credit from tenants. Property Management Risk • Poor property management may affect tenant satisfaction and renewal probability. • Cost overruns may reduce NPI and DPU, and negatively impact the valuation of the properties. • The Manager is committed to creating and cultivating environment-friendly, safe and healthy workplaces. • The Manager has established processes and procedures that seek to ensure that the buildings operate efficiently and are well-equipped in managing the risk that arises from the operations and management of the buildings. These include the Building Safety Solution and Life Safety System. Investment Risk • The acquisition of properties contributes to the growth objectives of MUST. • Poor investment decisions or inadequate due diligence may lead to undetected material defects, onerous obligations, breaches of law or regulations, etc. These issues could lead to investments not generating the required target returns. • The risks involved in investment activities are managed through a rigorous and disciplined set of evaluation processes which include, but are not limited to meeting investment criteria, discounted cash flow assessment, yield accretion test, due diligence reviews and independent valuations. • All investment decisions are reviewed and approved by the Board. Information Technology, Business Disruption and System Failure Risks • Unauthorised access, disclosure, modification or deletion of sensitive and confidential data such as market sensitive information that may affect share price, bid information, intellectual property and/or financial information. • Information resources are not securely developed, transmitted or stored and cyber security being compromised. • The Manager has an enterprise-wide business continuity and disaster recovery programme. This includes policies, plans and procedures that seek to minimise the impact of natural or man- made disasters, and is designed to ensure that key business functions can continue normal operations in the event of a major disruption. • The business continuity team also establishes and conducts regular testing. 60 MANULIFE US REIT ENTERPRISE RISK MANAGEMENT