NOTES TO THE
FINANCIAL STATEMENTS
Year ended 31 December 2014
24 FINANCIAL INSTRUMENTS (CONT’D)
Market risk (cont’d)
Sensitivity analysis
A 10% strengthening of the Singapore dollar against the following currencies at the reporting date would have
increased/(decreased) Unitholders’ funds and the total return by the amounts shown below. This analysis assumes
that all other variables, in particular interest rates, remain constant.
Group
Trust
Statement of
Total Return
Unitholders’
Funds
Statement of
Total Return
Unitholders’
Funds
$’000
$’000
$’000
$’000
2014
JPY
2,551
(1,566)
43,784
–
MYR
(66)
(13)
(27)
–
2013
JPY
2,618
353
43,916
–
MYR
(11)
(14)
–
–
In respect to the Group, a 10% strengthening or weakening of Singapore dollar against Japanese Yen would have
no significant impact to the Group as the Group borrows loans denominated in Japanese Yen and a Singapore
dollar denominated loan which was overlaid with a cross currency interest rate swap to realign it into an effective
JPY loan, and designated this as a net investment hedge. For the year ended 31 December 2014, the effective
portion of the net investment hedge charged to the Unitholders’ funds amounted to $38.4 million gain (2013: $65.8
million gain).
As at 31 December 2014, the Group would have accounted for a gain of $2.6 million arising from its total outstanding
forward foreign exchange contracts (2013: $2.6 million gain) in the Statement of Total Return if there was a 10%
strengthening of Singapore dollar. These forward foreign exchange contracts are used to mitigate the Group’s
current and future net income from Japan against the depreciation of Japanese Yen.
A 10% weakening of the Singapore dollar against the above currencies would have had an equal but opposite
effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.
Exposure to interest rate risk
The Group’s exposure to changes in interest rates relates primarily to the floating interest rates incurred for its
loans and borrowings. Interest rate risk is managed by the Manager on an ongoing basis with the primary objective
of limiting the extent to which net interest expenses could be affected by adverse movements in interest rates. The
Manager adopts a policy of fixing the interest rates for at least 50% (and up to 100%) of its borrowings through the
use of interest rate hedging financial instruments.
138
PA R K WAY L I F E R E I T
