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FINANCIALS
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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 approximately 99% (2016: 100%) of its debt as at 30 June 2017 using a combination of derivative
financial instruments and fixed rate debt. The weighted average interest rate was approximately 3.16% (2016: 3.09%) per
annum as at 30 June 2017.
As at 30 June 2017, the Group has largely 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 $375 million (2016: $475 million) and A$208 million (2016: A$208
million), 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 1.23% to 2.43% (2016: 0.83% to 2.43%) per
annum.
(ii)
Interest rate caps, with a notional contract amount of $100 million (2016: $175 million), JPY6.3 billion (2016: JPY14.9
billion) and A$63 million (2016: A$126 million), whereby the benchmark interest rates are capped ranging from 1.0% to
5.5% (2016: 1.0% to 5.5%) per annum.
Sensitivity analysis
A change of 1% in interest rate at the reporting date would increase/(decrease) total return by the amounts shown below,
arising mainly as a result of lower/higher interest expense on variable rate borrowings that are not hedged by interest rate
swaps and caps, and changes in fair value of the interest rate derivatives. This analysis assumes that all other variables, in
particular foreign currency rates, remain constant.
Total return
1% increase
$’000
1% decrease
$’000
Group
2017
Variable rate instruments
(1,234)
596
Financial derivatives
6,602
(5,744)
5,368
(5,148)
2016
Variable rate instruments
(1,353)
658
Financial derivatives
13,354
(11,579)
12,001
(10,921)
Trust
2017
Variable rate instruments
(1,136)
590
Financial derivatives
4,347
(3,437)
3,211
(2,847)
2016
Variable rate instruments
(1,250)
658
Financial derivatives
9,000
(7,257)
7,750
(6,599)