101
100
STARHILL
GLOBAL
REIT
Annual
Report
FY 2014/15
Notes to the
Financial Statements
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The temporary
differences on initial recognition of assets or liabilities that affect neither accounting nor taxable profit are not provided for.
The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of
assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which
the unused tax losses and credits can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable
that the related tax benefit will be realised. The Inland Revenue Authority of Singapore (“IRAS”) has issued a tax ruling dated
20 May 2005 (“Tax Ruling”) on the taxation of the Trust for income earned and expenditure incurred after its listing on the
SGX-ST. Subject to meeting the terms and conditions of the Tax Ruling, the Trustee will not be assessed to tax on the taxable
income of the Trust. Instead, the Trustee and the Manager will deduct income tax at the prevailing corporate tax rate from the
distributions made to unitholders that are made out of the taxable income of the Trust. However, where the beneficial owners
are individuals or qualifying unitholders, the Trustee and the Manager will make the distributions to such unitholders without
deducting any income tax. Also, where the beneficial owners are foreign non-individual unitholders, the Trustee and the
Manager will deduct Singapore income tax at the reduced rate of 10% for such distributions.
A qualifying unitholder is a unitholder who is:
(i)
a Singapore-incorporated company which is a tax resident in Singapore;
(ii) a body of persons, other than a company or a partnership, registered or constituted in Singapore (for example, a town
council, a statutory board, a registered charity, a registered co-operative society, a registered trade union, a management
corporation, a club and a trade and industry association); and
(iii) a Singapore branch of a foreign company.
A foreign non-individual unitholder is one who is not a resident of Singapore for income tax purposes and
(i)
which does not have a permanent establishment in Singapore; or
(ii) which carries on any operation in Singapore through a permanent establishment in Singapore where the funds used to
acquire the units are not obtained from that operation in Singapore.
The Trust is exempt from Singapore income tax under Section 13(12) of the Income Tax Act on the following income:
(i)
dividends;
(ii) interest on shareholder’s loans; and
(iii) foreign-sourced trust distribution
payable by its subsidiaries out of underlying rental income derived from the overseas investment properties. This exemption is
granted subject to certain conditions, including the condition that the Trustee is a tax resident of Singapore.
The Trust’s distribution policy is to distribute at least 90% of its taxable income for the period from 1 January 2014 to
30 June 2015 (2013: 90%). For any remaining amount of taxable income not distributed, tax will be assessed on, and collected
from, the Trustee on such remaining amount (referred to as retained taxable income). In the event where a distribution is
subsequently made out of such retained taxable income, the Trustee and the Manager will not have to make a further deduction
of income tax from the distribution.
The above Tax Ruling does not apply to gains from sale of real properties, if considered to be trading gains derived from a trade
or business carried on by the Trust. Tax on such gains or profits will be assessed, in accordance with Section 10(1)(a) of the
Income Tax Act, Chapter 134 and collected from the Trustee. Where the gains are capital gains, it will not be assessed to tax and
the Trustee and the Manager may distribute the capital gains without tax being deducted at source.
3.13 Segment reporting
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur
expenses including revenues and expenses that relate to transactions with any of the Group’s other components. All operating
segments’ operating results are reviewed regularly by the Group’s Chief Operating Decision Maker to make decisions about
resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.
4. INVESTMENT PROPERTIES
Group
$’000
Trust
$’000
At 1 January 2013
2,713,003
1,903,000
Additions and acquisition of investment property
66,447
659
Divestment
(9,368)
–
Change in fair value of investment properties
137,528
131,841
Translation differences
(53,167)
–
At 31 December 2013
2,854,443
2,035,500
Additions and acquisition of investment property
326,058
–
Divestment
(12,064)
–
Change in fair value of investment properties
9,120
36,000
Translation differences
(61,402)
–
At 30 June 2015
3,116,155
2,071,500
Investment properties are stated at fair value based on valuations performed by independent professional valuers having
appropriate recognised professional qualifications and recent experience in the location and category of property being valued.
In determining the fair value, the valuers have used valuation techniques which involve certain estimates. In relying on the
valuation reports, the Manager has exercised its judgement and is satisfied that the valuation methods and estimates are
reflective of current market conditions. The valuation reports are prepared in accordance with recognised appraisal and
valuation standards. The estimates underlying the valuation techniques in the next financial year may differ from current
estimates, which may result in valuations that may be materially different from the valuations as at balance sheet date.
The valuers have considered the capitalisation approach and/or discounted cash flows in arriving at the open market value
as at the balance sheet date. The capitalisation approach capitalises an income stream into a present value using
single-year capitalisation rates. The income stream used is adjusted to market rentals currently being achieved within
comparable investment properties and recent leasing transactions achieved within the investment property. The discounted
cash flow method involves the estimation and projection of an income stream over a period and discounting the income
stream with an internal rate of return to arrive at the market value. The discounted cash flow method requires the valuer to
assume a rental growth rate indicative of market and the selection of a target internal rate of return consistent with current
market requirements.
At 30 June 2015, investment properties with a carrying value of approximately $843.3 million (2013: $578.4 million)
are mortgaged to secure credit facilities for the Group (Note 13).
Fair value hierarchy
The Group’s investment properties are valued based on unobservable inputs and classified in Level 3 of the fair value hierarchy.
The different levels of the fair value hierarchy are defined in Note 26.
The following table shows the key unobservable inputs used in the valuation models of the investment properties as at 30 June 2015:
Investment properties
Key unobservable inputs
Inter-relationship between key unobservable
inputs and fair value measurement
Commercial properties for leasing • Capitalisation rates from 4.25% to
11.50% depending on the location
(2013: from 4.25% to 11.50%)
• Discount rates from 4.10% to 11.50%
(2013: from 4.10% to 11.50%)
The estimated fair value would increase
if capitalisation rates and discount rates
were lower.
