culture, inform our behaviours, and help define how we work together: • Obsess about customers – Predict their needs and do everything in our power to satisfy them. • Do the right thing – Act with integrity and do what we say. • Think big – Anything is possible. We can always find a better way. • Get it done together – We’re surrounded by an amazing team. Do it better by working together. • Own it – Feel empowered to make decisions and take action to deliver our Mission. • Share your humanity – Build a supportive, diverse, and thriving workplace. Risk Culture Vision – Within this context, the Manager strives for a risk aware culture, where individuals and groups are encouraged, feel comfortable and are proactive in making transparent, balanced risk-return decisions that are in the long-term interests of MUST. The Board is responsible for the governance of risk across the REIT and ensuring sound risk management and internal control systems. This includes the overall risk strategy based on risk appetite, risk identification, risk measurement and assessment, risk monitoring and reporting, as well as risk control and mitigation. The Board is supported by the Audit and Risk Committee (ARC) for the oversight of risk management and delegates this through a governance framework that is centred on the three lines of defence model: • MUST’s 1st line of defence includes the management team and respective leaders of the Manager, also referred to as business units and functional support groups. They are ultimately accountable for the risks they assume and for the day-to-day management of the risks and related controls. • The 2nd line of defence includes the oversight functions such as the Risk Management and Legal & Compliance teams. The ARC also contributes to the oversight of risktaking and risk mitigation activities. • The 3rd line of defence comprises the outsourced Internal Audit team, which provides independent assurance that controls are adequate, effective and appropriate relative to the risk inherent in the business, and that risk mitigation programmes and risk oversight functions are effective in managing risks. As part of MUST's ERM Framework, risk identification and risk assessment are conducted quarterly to identify key material risks, which include new and emerging risks, that MUST may face in delivering its strategic objectives, as well as identify the opportunities that it can leverage on. Risktaking activities are managed within the REIT’s overall risk appetite and approved by both the ARC and the Board. Risk appetite defines the amount and types of risks MUST is willing to assume, which comprises risk philosophy, risk appetite statements and risk limits and tolerances. The risk management and reporting are reviewed and tabled to the ARC quarterly and the Board half-yearly for their validation and approval. Mitigating actions to be undertaken to counteract the material risks are also brought to the attention of the ARC and the Board at quarterly and half-yearly meetings respectively. Risk identification and assessments are conducted with the involvement of the ARC and the management team via a top-down approach as well as bottom-up engagement with the risk owners. This also requires business units and functional support groups to identify and assess key and evolving risks arising from their activities on an ongoing basis. A standard inventory of risks is used in all aspects of risk identification, measurement and assessment, as well as monitoring and reporting. Where new key risks are identified, they are mapped and updated into the existing ERM Framework to ensure the ongoing relevance of the identified risks for MUST. Risk limits and tolerances are reviewed by the ARC and the Board on an annual basis to ensure that they remain appropriate, taking into consideration MUST’s overall risk objectives and risk management plans, business strategy and changing external environment. In the process of reviewing the year-end financial results, the Board also conducts an assessment on the prospects of MUST, with reference to the key risk indicators of MUST, including occupancy rates, net property income yield, aggregate leverage and interest rate, in relation to the key risks disclosed on pages 56 to 59 of the Annual Report. This assessment is forward-looking for up to 24 months, which enables the Board to plan and prepare for potential risks impacting MUST's long-term objectives while staying adaptable and responsive to evolving market conditions or regulatory changes. Risk reduction strategies and activities are defined individually for each risk and can include full or partial risk offset, full risk elimination or risk reduction within limits. Financial risk mitigation tactics include ensuring aggregate risk exposures remain within MUST’s risk appetite and limits. In addition, another tactic is to follow MUST’s approved plans so as to reduce aggregate risk exposure and keep them within risk limits. The identification and assessment of external environment for emerging risks plays a pivotal role in the ERM Framework. The ability to detect and adapt to changes in the environment may not only prevent problems arising but also help the Manager identify new opportunities. The risk reporting will be presented to the ARC and the Board to highlight the risk profile, risk dashboard on high risks, unresolved major risk issues and new or emerging risks as well as key risk indicators, among other things. The following describes the risk management strategies to identify certain key risks. / 55 / MANULIFE US REIT
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