Risk Management

Central Pattana recognizes the importance of sustainable risk management to ensure stakeholders of goal attainment while minimizing possible losses. The OSO ERM 2017 framework has been adopted and applied to Central Pattana’s business context. A risk management policy that covers all aspects of the business is then devised and incorporated into the corporate culture. Central Pattana continually reviews risks, taking into account both internal and external factors, risk probability and direct and indirect impacts on the business. The approach not only facilitates risk assessment and identification of major risks, but has also led to the formulation of strategies for monitoring and keeping control of risks manageable. Major risk factors with impacts on Central Pattana’s business are:

Based on its vision of leading the regional property development sector, driven by a growth strategy that stresses security and sustainability, Central Pattana mapped out a strategic plan on development of various asset classes both in Thailand and abroad, Southeast Asia in particular. The strategic plan encompasses Central Pattana’s own investment, joint ventures, and mergers and acquisitions of high-potential businesses, for which foreseeable risks include:

Risks of Economic Slowdown and Political Uncertainty

During 2019, Thailand encountered sluggish economic growth as the export sector was affected by the US-China trade war and the strong Baht. This was coupled with the tourism sector that started to experience slower growth mainly because of the dwindling number of Chinese tourists. Moreover, public and private consumption and investment did not fully favor the country’s economy. Central Pattana’s investment policy was therefore drawn up in response to the prevailing situation. The Company opened new project - Central Village - in August 2019 while undertaking a facelift and expansion of Central Chiangrai and Central Chonburi. Adjustment was made to parts of Central Lardprao to connect the store with the skytrain (Green Line). All these endeavors were meant to satisfy today’s consumers and add value to the assets to accommodate long-term business expansion.

Besides having an investment policy that keeps up with the economic situation, Central Pattana helped develop tenants’ competitiveness to achieve mutually sustainable growth, considering them key business allies. Central Pattana’s sales team and tenant relations team regularly take care of retail shops and follow up on their performances so that joint plans can be drawn up. Central Pattana also provides tenants with advice and support, such as organizing training and seminars to broaden their business horizons. Moreover, sales promotion activities were held with such partners as Central Card and The 1 Card. Central Pattana welcomes feedback and suggestions from tenants so that improvement can be made to the service rendered to retail shops.

Risks of Competition

The real estate business for the retail sector generally remained highly competitive following rising demand Large-scale land developers launched new shopping centers on potential areas both in Bangkok and its perimeter as well as in the provinces considered tourist attractions or prime economic zones This was coupled with changing consumption behavior. Today’s consumers look for products and services through more diverse channels that can better address their lifestyles, for example, making online orders for food and goods and making online payment, or using e-wallet.

To manage risks, Central Pattana designed a strategy to develop its projects into Centers of Life, where the composition of shopping areas, retail shops, and service areas is properly laid out to create a new atmosphere and experience that serve the lifestyles of each different customer group. Activities that meet the needs of customers with similar interests are also held. A digital platform and technology have been applied to augment communication and service sophistication to provide customers with an impressive experience and a touch of modernity.

Shopping centers of a new format have been developed not just to make a difference, but to respond to diverse customer needs. Examples are the launch of Central Village, an open shopping center in the form of a luxury outlet, and the introduction of the first luxury service zone in Central Phuket Floresta to particularly serve key Thai and foreign tourists, who play a more and more prominent role.

Risk from Domestic Investment

Another type of risk is risks of developing new shopping centers, which are capital intensive. The key factors for Central Pattana performance are land acquisition, project planning and design, tenant procurement and customer findings in residential projects.

Many property developers are currently competing to acquire land, especially that located in prime areas. Central Pattana therefore conducts studies and research to identify outstanding locations to develop future projects, acquires land plots before the areas become urbanized, and purchases large plots of land. This helps the Company to purchase land at a reasonable price and support its future business expansion toward mixed-use project development, which combines shopping centers, office buildings, hotels and residential areas.

In developing a project, Central Pattana conducts market research, competitor analyses, studies into project viability and investment cost-effectiveness, target groups, direct and indirect competitors, and other key marketing information for market positioning and winning strategies. Finally, the Copmany tables its findings for committees at the management level and director level to approve before such information finds way into actual design, development, and construction.

Central Pattana has a continuous plan on developing new stores and renovating existing ones. The plan is, however, executed under risk management, which mainly involves 1) expansion of the retail shop tenant base while raising current tenants’ capability, 2) When new shopping malls are open for service, Central Pattana regularly monitors and evaluate their performances such as traffic, lease rates and project’s returns compared with targets. If the performance of any shopping malls does not achieve targets, property management team and sales and marketing team will conduct analyses to further propose suitable corrective measures.

Regarding the risk of developing residential projects, the current market competition has caused certain oversupply in some areas. Consumers’ more careful spending and financial institutions’ more stringent rule on launching financial products have slowed down investment in the residential market sector. To invest in a residential project, Central Pattana needs a careful study and plan, which covers market research, customer and competitor analysis, project design, construction management, and sale and after-sales service. KPIs were tracked, including bookings, customers’ payment record, approval of customers’ loans, and the length of waiting list. Central Pattana launched one residential project in July 2019, Escent Park Ville Chiangmai (the third project in Chiang Mai), which was well received.

Risks of Overseas Investment

Central Pattana has expanded its investment to Southeast Asia to seek long-term growth opportunities while diversifying risk geographically. Potential countries were identified, such as Malaysia and Vietnam, for a feasibility study into customers, competitors, market, social and cultural environment, and relevant laws, knowledge and information obtained from Central Group were also useful for Central Pattana to delve into project viability and returns on investment before presenting the project to the Board for decision-making. Central Pattana, moreover, sought competent and experienced business allies in target countries to take equity in the investment, an approach to reinforce mutual strength.

In March 2019, Central Pattana launched the first shopping center in Malaysia at i-City Project - a 60:40 joint investment between Central Pattana and I-Berhad Group, a well-known property developer listed in Malaysia located in Shah Alam, Selangor, Malaysia, i-City Ultrapolis Project is a mixed-use development featuring office space, a hotel, and residences.

Since foreign investment is a new area, Central Pattana conducted business with caution and restructured the organization to assign units responsible for closely monitoring and following up with the project progress so that Central Pattana could come up with risk management plans and timely solve problems.

Risks of Adaptation to Technological Shift and New Business Model

Dynamic technological change has affected Central Pattana business, and Central Pattana has its own determination to achieve growth through new business models. Adaptation to such changes is vital to project success and Central Pattana’s reputation.

What Central Pattana has done in dealing with risks in its operations included 1) human resource development - in which functional courses were reviewed and knowledge of digital technology has been shared among staff, 2) adjustment and redesign of work processes - in which the Agile and OKR approaches have been adopted in many areas, and 3) change toward digital HR - in which technology and digital tools have been applied to HR practices, ranging from recruitment, personnel development, staff records, to staff welfare.

Human Resources Risk

Human resources are vital to corporate success. Central Pattana keeps a suitable size of workforce well equipped with knowledge and skills. Its staff should be happy at work so that they can dedicate themselves to their duties and responsibilities, thus able to deliver fine performance. Amid the highly competitive labor market, risks of recruitment and retention of quality personnel are of Central Pattana’s great concern.

  • Recruitment of competent personnel from assorted channels. Internally, for instance, Central Pattana investigates job rotation, transfers to hometowns, and promotion, and externally Central Pattana uses social media and websites, searches leading universities’ websites, and launches the Friend Persuades Friend, among others.
  • Designation of key positions in various functions to groom successors. This move would enable such functions to continue uninterrupted when positions become vacant due to retirement or resignation.
  • Personnel competency development. Central Pattana commands concrete methods, including career path planning, individual development planning, and greater synergy with the Central Group in personnel development, including joint curriculum development and ongoing sharing of expertise and experience among affiliates’ executives.
  • Measures designed to retain personnel through ongoing relations activities between employees and Central Pattana, including On Boarding activities for newcomers, New Year Greeting Communication Day, CPN Volunteers, Family Day, and Sport Day. An annual employee survey, called Power of Voice, provides findings and recommendations that find ways into improved processes and work environment. One of Central Pattana’s sustainability missions clearly focuses on employee engagement and their quality of life.
Cyber Security Risk

Central Pattana recognizes cyber threats as a result of dependence on more and more technologies and digitalization. This dependence breeds more information thefts and cyber-attacks, affecting Central Pattana’s business continuity and reputation. Central Pattana therefore issued several risk management measures. For system security, Central Pattana has been developing and enhancing computer systems such as hardware, software and computer network to protect them from new types of attacks. For personnel, Central Pattana created awareness of cyber threats, communicated with employees via several channels such as educating them via e-mail and the Central Pattana newsletter and held a seminar instructed by third-party specialists. To deal with potential incidents, Central Pattana adjusted its business continuity plan (BCP) and disaster recovery plan to align with the environment and computer systems in use. It annually implements a BCP drill and puts cyber insurance in place to mitigate the damage in case of incidents.

Central Pattana strictly observes applicable laws and regulations to ensure a compliant, reliable and transparent conduct of its business operations, compliance risks can be summarized as below:

Compliance Risk Concerning Environmental and Safety Laws

Under Central Pattana’s sustainability policy, which emphasizes environmentally friendly development and management of shopping centers to forge a safe atmosphere, the management system on safety and environmental standards is applied as guidelines to ensure that related units strictly observe Central Pattana’s policies and applicable laws, with preparation for future laws. Outside experts were hired to review and provide recommendations to further ensure that Central Pattana’s practices are correct and appropriate.

Risks of Compliance with Personal Data Protection Act (PDPA)

The Personal Data Protection Act (PDPA), B.E. 2562, was promulgated, with effect from May 2020. Central Pattana, in its operations, deals with personal data of various groups of stakeholders, including customers, tenants, and staff. To get the organization ready before the new law comes into effect, Central Pattana reviewed its work processes that concern personal data, ranging from acquisition, storage, application, transfer, to disposal. Procedures have been established while work processes and the IT system have been adjusted. Policies on applicable legal documents have also been amended.

Fraud and Corruption Risk

Committed to operating its business sustainably, Central Pattana focuses on good corporate governance and an effective internal control system. Besides defining the clear Anti-Corruption Policy and enforcing strict compliance, Central Pattana has joined the Collective Action Coalition against Corruption (CAC) and certified that it formulated an anti-corruption policy and guidelines that fully conforms to CAC’s criteria. Central Pattana also prepares and communicates a Code of Conduct to suppliers and contractors to emphasize its standpoint.

In prohibiting and managing risks arising from corrupt practices, Central Pattana has set up measures to control and monitor key work processes that are at risk of corrupt practices, with an internal audit team conducting risk assessment and spot-checking to reaffirm the correctness, honesty and transparency of these processes, along with prohibiting risky behavior. Communication channels are also opened for stakeholders and whistleblowers to voice their complaints or recommendations directly to the Audit Committee or the President. A committee will be appointed to consider and investigate complaints through a systematic, transparent and accountable process to ensure confidence and trust in its fair investigation process for all related parties.

Central Pattana’s policy is to maintain continued growth contributed by shopping centers, residential, and other businesses that carve suitable investment opportunities. To achieve this objective, Central Pattana must be able to handle the financial risks listed below.

Liquidity Risk

Central Pattana implements a prudent monetary policy regarding capital expenditure. Comprehensive investment analysis is undertaken for each project so that only high-potential projects are submitted to the Investment Committee for meticulous consideration and approval. Regarding the sources of fund, Central Pattana maintains its capital structure with a low debt-to-equity ratio (up to 1) and applies appropriate financial instruments in sourcing capital, such as the preparation to use a Real Estate Investment Trust (REIT) as an alternative funding source.

After its commercial launch, Central Pattana constantly assesses the returns on each project and modifies strategies so that the project would achieve its targeted returns. These measures contribute to reducing financial risk and enabling Central Pattana to maintain a robust financial status, thus increasing Central Pattana’s flexibility in sourcing sufficient funds for future business expansion at appropriate levels of finance costs and rates of return on investment.

Credit Risk

Central Pattana’s credit risk prevention policies include 1) collecting deposits from tenants, 2) terminating leases for tenants who have defaulted on rents for a long time and accelerating coordination to negotiate and find solutions with them, and 3) closely following up debt collection so that most tenants pay their rents in time. In case of overdue payments, related units will cooperate to effectively deal with default payment.

Central Pattana’s core business connects with properties and diverse groups of stakeholders, for example, customers who purchase products and services, tenants and surrounding communities. These groups highly expect that Central Pattana’s operation will ensure their safety. Central Pattana therefore recognizes and commits itself to conducting risk management for safety from dangerous threats, which include:

Natural Disaster Risk

Global warming is causing increased recurrence of abrupt changes in weather conditions with severe impacts. Therefore, many areas of Thailand faced natural disasters such as thunderstorms, floods and earthquakes, which pose major risks to Central Pattana’s properties and services.

Central Pattana requires each shopping center to assess its natural-disaster risks because natural disasters vary in different areas. For example, the North is more prone to thunderstorms, hail storms and earthquakes, while flash floods and monsoons are more common in the South. Central Pattana also put in place risk mitigation measures, such as the requirement to constantly inspect the strength of buildings and facilities, together with preparation of mitigation actions and tools. The latter includes dredging of drainage passages, adding water pumps at flood-prone shopping complexes, finding alternative water sources to alleviate drought, and inviting experts in building structures to assess earthquake impacts and provide recommendations on how to handle future incidents. Central Pattana also reviews and prepares a crisis management plan to cover more scenarios, with regular drills to ensure personnel’s crisis preparedness.

Statistics on natural disasters and the solution outcomes are systematically monitored and collected as incident cases for analysis to improve response plans and the effective management of these plans before reporting them to the Risk Management Committee for acknowledgment and consideration.

Risk Arising from Unrest

Incidents of unrest or terrorism currently pose critical threats to international communities no matter where they are. Recognizing such threats, Central Pattana undertakes the following risk management measures:

  • Coordinate and monitor information provided by government agencies or relevant bodies for an accurate and timely assessment of each situation. The color-code system, which indicates the severity of situation on a real-time basis, is utilized to communicate with relevant parties for proper preparation and responses under specified guidelines.
  • Provide relevant employees with knowledge and training to be alert and capable of observing unsafe incidents, with regular conduct of crisis response drills.
  • Install an adequate number of modern safety equipment, such as Walkthrough Metal Detector and CCTV cameras, which effectively provide detailed recording of incidents and contribute to suppression of unrest incidents.
Other Crisis Risks

Recognizing the importance of business continuity management, Central Pattana’s Business Continuity Management Committee (BCM Committee), chaired by the President, is responsible for establishing policies and supervising formulation of business continuity plans, together with annual business continuity drills for further improvement.