123
122
STARHILL
GLOBAL
REIT
Annual
Report
FY 2014/15
Notes to the
Financial Statements
Capital hedging
In managing the currency risks associated with the capital values of the Group’s overseas assets, borrowings are denominated
in the same currency as the underlying assets to the extent feasible, to provide a natural currency hedge. As the investments in
overseas assets are generally long term in nature, the remaining net positions of the foreign exchange risk on such investments
are not hedged.
Sensitivity analysis
A 10% strengthening of the Singapore dollar against the following currencies at the reporting date would increase/(decrease)
unitholders’ funds and the statement of total return by the amounts shown below. This analysis assumes that all other variables,
in particular interest rates, remain constant.
Group
Trust
Unitholders’
funds
$’000
Statement of
total return
$’000
Unitholders’
funds
$’000
Statement of
total return
$’000
18-month period from 1 January 2014 to 30 June 2015
A$
(29,569)
(660)
–
–
RM
(28,497)
(3,160)
–
–
RMB
(6,645)
758
–
–
JPY
(488)
(264)
–
6,846
Financial derivatives
–
236
–
236
12-month period from 1 January 2013 to 31 December 2013
A$
(15,074)
(2,790)
–
(462)
RM
(31,005)
(1,874)
–
–
RMB
(8,044)
(12)
–
–
JPY
(338)
468
–
8,435
Financial derivatives
–
210
–
210
A 10% weakening of the Singapore dollar against the above currencies would have had the equal but opposite effect on the
above currencies to the amounts shown above, on the basis that all other variables remain constant.
Interest rate risk
In order to protect the Group’s earnings from the volatility in interest rates and provide stability to unitholders’ returns, the
Group may hedge a portion of its interest rate exposure within the short to medium term by using fixed rate debt and interest
rate derivatives.
The Group has hedged 100% (2013: 94%) of its debt as at 30 June 2015 using a combination of derivative financial instruments
and fixed rate debt. The weighted average interest rate was approximately 3.19% (2013: 3.03%) per annum as at 30 June 2015.
As at 30 June 2015, the Group has hedged its exposure to changes in interest rates on its variable rate borrowings by entering
into the following contracts:
(i)
Interest rate swaps, with a notional contract amount of $475 million (2013: $300 million) and A$145 million (2013: nil),
whereby it receives a variable rate equal to the Singapore swap offer rate and Australia bank bill swap bid rate on the
notional amount and pays a fixed interest rate ranging from 0.83% to 2.43% (2013: 0.83% to 1.31%) per annum. These
included forward start swaps with notional amount of $175 million entered into for the purpose of hedging the remaining
tenor of existing borrowings as well as new loans drawn in July 2015.
(ii) Interest rate caps, with a notional contract amount of $175 million (2013: $75 million), JPY14.9 billion (2013: JPY8.6 billion) and
A$126 million (2013: A$63 million), whereby the benchmark interest rates are capped ranging from 1.0% to 5.5%
(2013: 1.0% to 5.5%) per annum. These included forward start caps with notional amount of $100 million, JPY6.3 billion
and A$63 million entered into for the purpose of hedging the remaining tenor of these borrowings.
Sensitivity analysis
For the interest rate swaps and caps, and variable rate instruments, a change of 1% in interest rate at the reporting date would
increase/(decrease) total return by the amounts shown below. This analysis assumes that all other variables, in particular foreign
currency rates, remain constant.
Total return
1% increase
$’000
1% decrease
$’000
Group
18-month period from 1 January 2014 to 30 June 2015
Variable rate instruments
(6,697)
5,158
Financial derivatives
18,910
(17,002)
12,213
(11,844)
12-month period from 1 January 2013 to 31 December 2013
Variable rate instruments
(5,504)
1,695
Financial derivatives
12,889
(12,001)
7,385
(10,306)
Trust
18-month period from 1 January 2014 to 30 June 2015
Variable rate instruments
(4,413)
2,997
Financial derivatives
14,669
(12,930)
10,256
(9,933)
12-month period from 1 January 2013 to 31 December 2013
Variable rate instruments
(4,618)
958
Financial derivatives
12,271
(11,743)
7,653
(10,785)
Fair values versus carrying amounts
The carrying amount of all financial assets and liabilities of the Group and the Trust approximate their respective fair values.
Estimation of fair value
The following summarises the significant methods and assumptions used in estimating the fair values of financial instruments of
the Group and the Trust.
Financial derivatives
The fair values of foreign exchange forward contracts are based on brokers’ quotes. These quotes are tested for reasonableness
by discounting the difference between the contractual forward price and the current forward price for the residual period to
maturity of the contract using a risk-free interest rate (based on government bonds).
The fair values of interest rate swaps and interest rate caps are based on brokers’ quotes. These quotes are tested for
reasonableness by discounting estimated future cash flows based on the terms and maturity of each contract and using
comparable market interest rates for a similar instrument at the measurement date.
