12 PRINCIPAL RISKS
TYPE OF RISK DESCRIPTION AND POSSIBLE IMPACT MITIGATING ACTION TREND
Construction Risk As a developer and investor in new
construction as well as refurbishment
projects, the Company is subject to risks
relating to the planning, execution and
cost of construction works, including the
availability and transportation of materials
and the cost thereof, inclement weather,
contractor risk, execution risk and the
risk of delay. The materialisation of these
risks could have a negative effect on the
implementation of development projects
of the Group.
The Investment Manager regularly monitors
all construction and refurbishment
activities carried out within Group
companies and works closely with the on-
the-ground management team and the
joint venture managers to identify, monitor
and actively manage all construction risks.
The Investment Manager reports to the
Board at each meeting regarding recent
developments in this respect. In the
construction context, the availability and
transportation of construction materials
have been significantly affected by the
Covid-19 pandemic worldwide, thereby
increasing construction costs.
Tourism Risk As an indirect investor in hotel assets, the
Company is subject to numerous risks
relating to the tourism sector, both in
outbound and inbound markets, including
the cost and availability of air travel, the
imposition of travel restrictions by overseas
governments, seasonal variations in cash
flow, demand variations, changes in or
significant disruptions to travel patterns,
risk related to the manager of the hotel
properties, and the materialisation of
these risks could have a negative impact
on specific properties or the Company
generally.
The Investment Manager regularly monitors
the local and regional tourism markets and
meets regularly with the external hotel
management to identify, monitor and
manage global and local tourism risk and to
develop appropriate strategies for dealing
with changing conditions. The Company
aims to maintain a diversified portfolio
of tourism assets spanning various hotel
categories (city hotel / beach resort,
business / leisure travel, luxury / family) in
numerous locations across the island. As
the world reemerges from the Covid-19
pandemic the Investment Manager is
working closely with the external hotel
management to optimise the resumption
of full scale operations at the hotels in
which the Company has an interest.
Valuation Risk Asset valuations may fluctuate materially
between periods due to changes in market
conditions. The combined effects of higher
levels of risk associated with financial and
monetary reforms, the continuation under
the Biden administration of an aggressive
U.S. sanction regime and the slower than
expected recovery of the worldwide
tourism market in the face of the pandemic
have resulted in increased discount rates
and lower income projections, leading to a
rise in the volatility of valuations.
As part of the valuation process, the
Investment Manager engages an
independent third party valuer to provide
an independent valuation report on each
of the indirectly owned real estate assets of
the Group. The valuations are also subject
to review by the Investment Manager’s
Alternatives Pricing Committee.
Dependence on Third
Party Service Providers
The Company is dependent on the
Investment Manager and other third
parties for the provision of all systems
and services relating to its operations
and investments, and any inadequacies
in design or execution thereof, control
failures or other gaps in these systems and
services could result in a loss or damage to
the Company. In addition, the continued
high level of aggression of U.S. sanctions
may limit the pool of service providers
willing or able to work with the Company.
The Board receives reports from its service
providers on internal controls and risk
management at each Board meeting. It
receives assurance from all its significant
service providers as well as back-to-back
assurances where activities are themselves
sub-delegated to other third party providers
with which the Company has no direct
contractual relationship. In the course of
its activities, the Management Engagement
Committee of the Board reviews the
engagements of all third party service
providers on an annual basis. Further
details of the internal controls which are in
place are set out in the Directors’ Report on
pages 30 and following.