Risk Management

FUNO continously performs risk assessments; currently the highest governance body in charge of performing risk assessments is the Audit Committee which is 100% independent. To typify breaches, non-identified risks or any other values which may affect our operations, we have hired a third independent party which advises, verifies, examines and performs regular risks assessments.

FUNO regularly publishes different risks to which our properties, the organization or the Real Estate sector, may be exposed. We do so through our annual report, prospectus, web page, presentations, interviews, etc.

Amongst the main risks, we have identified are:

Reliance on our tenants: our operations may suffer if a significant number of tenants or any of our main clients, became incapable of fullfilling their financial obligations to us.	Economic and political conditions in Mexico.
Economic trends in our sector or market.	Changes in applicable legislation and public policies.
Our assets are exposed to climate change risks, natural disasters and metheorological phenomena; such as hurricanes, tropical storms, earthquakes, etc.	Reliance on our executive team for success, we may not be able to find a suitable replacement if their contracts expire or key elements leave the organization.
Employee health and safety risks.	Organized crime in mexican soil, is a major risk for any economic activity in the country. It is definetly one, FUNO takes into account.
Over leverage.

Reliance on our tenants: our operations may suffer if a significant number of tenants or any of our main clients, became incapable of fullfilling their financial obligations to us.

Economic and political conditions in Mexico.

Economic trends in our sector or market.

Changes in laws, regulations and governmental policies, including, without limitation, tax, zoning, environmental and safety laws, governmental fiscal policies, and changes in enforcement thereof.

Natural disasters and metheorological phenomena may affect our assets.

Reliance on our executive team for success, we may not find a suitable replacement if their contracts expire or key elements leave the organization.

Employee health and safety risks.

Organized crime in mexican soil, is a major risk for any economic activity in the country. It is definetly one, funo takes into account.

Adverse changes in local, national or international demographic and economic conditions, such as the recent global economic downturn; vacancies or our inability to rent space on favorable terms; adverse changes in financial conditions of tenants and buyers of properties; inability to collect rent from tenants;

Risk Mitigation

Amongst our major risk mitigation strategies are:

1. Our main risk mitigation strategy is that of diversification. FUNO's tenants come from all sectors, our properties are located countrywide and our portfolio includes commercial, industrial, office and mix use real estate. This diversification has allowed us to maintain stability and business continuity.
2. Constant and reliant tenant communication. At FUNO we strive to offer our tenants, quality properties, but particularly top-notch service. Our organization has ranked amongst the best REIT´s worldwide, due to our service and the close relationship we have forged with our tenants.
3. A collegiate board revises every new contract, from new tenant proposals to other income services (parking, marketing, etc.) regardless of size, income, GLA, location or client. In this way we aim at preventing risks with possible tenants and provide better services to all.
4. Our acquisition process is subject to compliance with several conditions/requirements, including due diligence, general revision, auditing process, environmental assessment, impact assessments, transportation impact study, amongst others. These processes function as check points to minimize acquisition risks.
5. All our properties have been insured; and we required our tenants to have all their merchandise insured as well.
6. On our properties located in coastal or sysmic areas, we have implemented particular safety procedures, emergency management and response protocols to effectively respond to any such emergency.
7. For our properties which have suffered natural phenomena disasters, have been redesigned, planned and projected to minimize recurrence of the same damages.
8. FUNO has a business continuity plan, protecting our critical hardware and software; in the occasion of natural disaster or any human related emergency, our operations may resume shortly or continue without delay.
9. We have taken security and cultural measures. We avoid cash handling in our properties; which also helps as an anti-corruption measure.
10. Every year, we perform a health circuit and medical checkups for our employees and executive team; adding to our individual and organizational health map (see annual report for details). Each employee receives a personalized plan, to improve their health status and reduce disease risks.
11. Human Capital is one of FUNO's most important assets. As an organization, we strive to offer them better development opportunities and benefits.
12. Monitor constantly law proposals, reforms and regulations which may affect our operations. Our risk management culture is one of prevention, hence we rather make precise adjustments to our operations, before they may affect us.
13. FUNO complies with all applicable regulation in its operation, management and development.

FUNO's operations, culture and organizational chart, has been designed to prevent and mitigate risks. We relish on our open-door culture, and the way our offices have been design which promote collaboration amongst employees. These incentivize immediate communication amongst areas to effectively solve problems in case of emergencies.

Risk management in our operations, is performed in a matrixial style; with particular characteristics for every property, operation and activity. In order to ensure integral risk management, for particular cases, we set up multidisciplinary teams which incorporate experience, technical and operational knowledge from different departments, such as: maintenance, architecture and design, acquisitions, finance, law, marketing, tenant coordination, management, collection, human resources and if needed external experts.

In addition, we strive to empower our employees with the right set of tools; to identify, communicate and react in case of operational risks and other emergencies:

• Our operational manuals are continuously updated; including operational risks and important processes, as well as proper response mechanisms to each.
• Ethics line or grievance mechanism, is anonymous and available for any internal or external stakeholder.
• Open door policy with the entire executive team.
• Monthly property assessments and monitoring.
• Property management through exception.

Related-Party Transactions

Commitments and Related Party Agreement