17
Ascott Residence Trust
Annual Report 2015
Overview
Sustainability
Business
Review
Portfolio
Details
Corporate
Governance &
Transparency
Financials &
Additional
Information
Capital and Risk Management
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 AEIs funded
mainly by operating cash flow. Our objectives for capital
and risk management are as follows:
Maintain strong balance sheet by adopting and
maintaining a target gearing range
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.
Secure diversified funding sources from both
financial institutions and capital markets to seize
market opportunities
To finance acquisitions and refurbishment of properties,
we tap into diversified funding sources. 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 2015, Ascott Reit successfully
issued two tranches of seven-year fixed rate notes
under its S$1.0 billion Multicurrency MTN Programme,
which was established in 2009. Fur thermore,
following its maiden issuance of S$150.0 million
perpetual securities at fixed distribution rate of 5.0%
per annum in October 2014, Ascott Reit replicated
its success by raising S$250.0 million of proceeds
from the issuance of perpetual securities at a fixed
distribution rate of 4.68% per annum. The perpetual
securities received strong investor participation with
orders more than four times oversubscribed.
We may seize market opportunities to raise additional
equity capital through the issuance of units, whenever
there is an appropriate use for such proceeds.
Adopt proactive interest rate management
strategy
We adopt a proactive interest rate management policy
by maintaining a target percentage of fixed versus
floating interest rates. We also manage risks 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, interest rate swaps and fixed rate
borrowings. As at 31 December 2015, close to 80% of
Ascott Reit’s total borrowings are on fixed interest rates.
Manage exposu r e to for e i gn exchange
fluctuations
Due to the geographical diversity of our portfolio, cash
flows generated by our assets as well as their capital
values are subject to foreign exchange movements.
In managing the currency risks associated with cash
flow generated by our assets, 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 since 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. In 2015, Ascott Reit also used
cross currency swaps to hedge its investments. On a
portfolio basis, 40% of the foreign currency distribution
income for the year ended 31 December 2015 had
been hedged.
Perform rigorous credit risk management
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.
Ensure sufficient cash flow to minimise liquidity
risk
Our approach to managing liquidity is to ensure that we
have sufficient liquidity to meet our liabilities when they
mature, under both normal and stressed conditions.
In addition to credit facilities, we have a S$1.0 billion
Multicurrency MTN Programme, established in 2009
and we had also established a US$2.0 billion Euro-MTN
Programme in 2011.
Prepare for market uncertainties
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.
