14 | Ascott Residence Trust Annual Report 2014
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As part of our strategy to reconstitute Ascott Reit’s
portfolio, we monitor closely and evaluate the
properties to ascertain if any of them may have
reached the optimal stage of their life cycle and
should be divested so as to unlock the value of these
properties. The proceeds from the divestment can
then be redeployed for other purposes, including
investing in higher yielding assets.
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Ascott Reit optimises its capital structure and cost
of capital within the borrowing limits set out in the
Property Funds Appendix. Either debt or equity or a
combination of both is used to fund acquisitions and
asset enhancement programmes. Our objectives
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We maintain our gearing at a comfortable range, well
within the borrowing limits allowed under the Property
Funds Appendix. We balance our cost of capital to
optimise returns to Unitholders.
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These sources include bank borrowings, accessing
the debt capital markets through the issuance of
bonds and notes and the issuance of perpetual
securities, an alternative form of equity. In August
2014, Ascott Reit tapped the debt capital market
by issuing a six-year JPY7.0 billion (approximately
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issued a ten-year Euro-denominated bond through
the issuance of EUR80.0 million (approximately
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Furthermore, Ascott Reit made its maiden issuance
of S$150.0 million perpetual securities in October
2014. We also seize opportunities to raise additional
equity capital through the issuance of units, if there is
an appropriate use for such proceeds.
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We adopt a proactive interest rate management
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associated with changes in interest rates on loan
facilities while keeping Ascott Reit’s ongoing cost
of debt competitive. Our interest rate exposure is
managed through the use of interest rate caps,
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Due to the geographical diversity of our portfolio,
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capital values are subject to foreign exchange
movements. In managing the currency risks
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we actively monitor foreign exchange rates and
enter into hedges, where appropriate.
In view of the volatility of certain currencies, we have
also taken a proactive approach in 2014 to enter
into forward foreign currency contracts to hedge
part of Unitholders’ distribution derived in British
Pound, Euro and Japanese Yen. In managing the
currency risks associated with the capital values of
the overseas assets, our borrowings are made in the
same currency as the underlying asset as a natural
hedging strategy, to the extent possible.
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We establish credit limits for customers and monitor
their balances on an ongoing basis. For bookings
by individuals, payments are usually made upfront
and arrears are checked against lease deposits to
minimise losses. Corporate bookings are generally
given more credit days and we adopt a strict policy
of withdrawing credit terms when payments are
outstanding to minimise bad debts.
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Our approach to managing liquidity is to ensure
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when they mature, under both normal and stressed
conditions. In addition to credit facilities, we have a
S$1.0 billion Multi-currency MTN Programme, which
was established in 2009. We have also established a
US$2.0 billion Euro-MTN Programme in 2011.
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The objective of market risk management is to
manage and control market risk exposures while
optimising returns. Market risk is managed through
established investment policies and guidelines.
These policies and guidelines are reviewed regularly
taking into consideration changes in the overall
market environment.
