121
120
STARHILL
GLOBAL
REIT
Annual
Report
FY 2014/15
Notes to the
Financial Statements
The Trust has a corporate rating of BBB+ from Standard and Poor’s as at 30 June 2015 (2013: BBB+) and remained within the
Aggregate Leverage limit of 60.0% (2013: 60.0%) during the current period.
There were no changes in the Group’s approach to capital management during the current period.
Financial risk management
Overview
The Group’s returns are primarily from net operating income and capital appreciation of its assets. However, these returns are
exposed to financial risks including credit, liquidity, interest rate and foreign currency risks. Where appropriate, the Manager
may hedge against the volatility of interest costs, foreign currency net income and foreign currency investments.
The Group has a system of controls in place to create an acceptable balance between the cost of the financial risks occurring
and the cost of managing these risks. The Manager continuously monitors the Group’s financial risk management process to
ensure that an appropriate balance between risk and control is achieved. Financial risk management policies and systems are
reviewed regularly to reflect changes in market conditions and the Group’s activities.
The financial risk management policies contain the parameters and processes for managing these risks, and define the roles and
responsibilities of those who manage the process. The policies are described in greater detail below.
Credit risk
Credit risk is the potential financial loss resulting from the failure of a tenant or a counterparty to settle its financial and
contractual obligations to the Group, as and when they fall due.
Exposure to credit risk
The carrying amount of financial assets represents the Group’s and the Trust’s respective maximum exposure to credit risk,
before taking into account any collateral held. The maximum exposure to credit risk by type of financial assets at the reporting
date was:
Group
Trust
Note
30 June 2015
$’000
31 December 2013
$’000
30 June 2015
$’000
31 December 2013
$’000
Loans and receivables
Trade and other receivables
9
3,013
7,102
3,291
10,561
Cash and cash equivalents
10
51,571
58,038
9,708
14,359
Total loans and receivables
54,584
65,140
12,999
24,920
Held for trading
Derivative financial instruments
8
4,575
2,676
4,478
2,418
Total held for trading
4,575
2,676
4,478
2,418
59,159
67,816
17,477
27,338
The Group has established credit limits for its tenants and monitors their balances on an ongoing basis. Credit evaluations are
performed by the Group before lease agreements are entered into with tenants.
The tenant profile of the Group is generally well-diversified, except for two (2013: two) major tenants (Note 25), which
accounted for 35.9% (2013: 37.9%) of the Group’s revenue for the 18 months ended 30 June 2015. There are no arrears owing
from these major tenants as at 30 June 2015. In addition, the long-term lease in David Jones Building and Myer Centre Adelaide
contributed 4.9% and 0.5% respectively to the Group’s revenue for the 18 months ended 30 June 2015.
Cash and fixed deposits are placed with financial institutions which are regulated and have sound credit ratings. Given these
sound credit ratings, the Group does not expect any counterparty to fail to meet its obligations.
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities
that are settled by delivering cash or another financial asset.
The Group monitors its liquidity risk and maintains a level of cash and cash equivalents deemed adequate to finance its
operations and to mitigate the effects of fluctuations in cash flows. The Group ensures that it has sufficient cash on demand to
meet expected operational expenses for a reasonable period, including the servicing of financial obligations. As at 30 June 2015,
the Group has undrawn and committed revolving credit facilities of up to $250 million (2013: $227.5 million) and cash and cash
equivalents of approximately $51.6 million (2013: $58.0 million).
In addition, the Group also monitors and observes the Property Fund Appendix issued by MAS concerning limits on
total borrowings.
Foreign currency risk
The Group is exposed to foreign currency risk arising from its investments in Australia, Malaysia, China and Japan. The income
generated from these investments and net assets are denominated in foreign currencies, mainly Australian dollar (“A$”),
Ringgit Malaysia (“RM”), Chinese Renminbi (“RMB”) and Japanese Yen (“JPY”).
The Group’s exposures to various foreign currencies (expressed in Singapore dollar equivalent), which relate primarily to its net
foreign currency investments as at balance sheet date are as follows:
A$
$’000
RM
$’000
RMB
$’000
JPY
$’000
Total
$’000
Group
30 June 2015
Net balance sheet exposure
295,691
284,969
66,446
4,882
651,988
31 December 2013
Net balance sheet exposure
150,744
310,052
80,437
3,379
544,612
The Trust’s exposures to various foreign currencies (expressed in Singapore dollar equivalent), which relate primarily to its use
of financial instruments as at balance sheet date are as follows:
A$
$’000
RM
$’000
RMB
$’000
JPY
$’000
Total
$’000
Trust
30 June 2015
Net balance sheet exposure
–
–
–
(68,456)
(68,456)
31 December 2013
Net balance sheet exposure
4,621
–
–
(84,347)
(79,726)
Income hedging
Approximately 67% (2013: 66%) of the Group’s revenue is derived in Singapore dollars for the 18 months ended 30 June 2015.
The Group has used a combination of local currency denominated loans and short term foreign exchange forward contracts to
partially hedge its overseas net income.
The Group continues to proactively monitor the exchange rates and may use more foreign exchange forward contracts or
other suitable financial derivatives to hedge the impact of exchange rate fluctuations on the distributions to unitholders,
where appropriate.
