FINANCIAL STATEMENTS CapitaCommercial Trust

Transcription

1 FINANCIAL STATEMENTS 63 REPORT OF THE EE 64 STATEMENT BY THE MANAGER 65 AUDITORS REPORT TO THE UNITHOLDERS OF CAPITACOMMERCIAL 67 BALANCE SHEETS 69 STATEMENTS OF TOTAL RETURN 70 DISTRIBUTION STATEMENTS 71 STATEMENTS OF MOVEMENTS IN UNITHOLDERS FUNDS 72 PORTFOLIO STATEMENTS 80 CASH FLOW STATEMENTS 84 62

2 REPORT OF THE EE Year ended 31 December 2008 HSBC Institutional Trust Services (Singapore) Limited (the Trustee ) is under a duty to take into custody and hold the assets of CapitaCommercial Trust (the Trust ) and its subsidiary (collectively the Group ) in trust for the holders ( Unitholders ) of units in the Trust (the Units ). In accordance with, inter alia, the Securities and Futures Act, Chapter 289 of Singapore, its subsidiary legislation and the Code on Collective Investment Schemes and the Listing Manual (collectively referred to as the laws and regulations ), the Trustee shall monitor the activities of CapitaCommercial Trust Management Limited (the Manager ) for compliance with the limitations imposed on the investment and borrowing powers as set out in the trust deed dated 6 February 2004 (as amended) (the Trust Deed ) between the Manager and the Trustee in each annual accounting period and report thereon to Unitholders in an annual report which shall contain the matters prescribed by the laws and regulations as well as the recommendations of Statement of Recommended Accounting Practice 7 Reporting Framework for Unit Trusts issued by the Institute of the Certified Public Accountants of Singapore and the provisions of the Trust Deed. To the best knowledge of the Trustee, the Manager has, in all material respects, managed the Trust during the period covered by these financial statements, set out on pages 67 to 133 comprising the Balance Sheets, Statements of Total Return, Distribution Statements, Statements of Movements in Unitholders Funds, Portfolio Statements, Cash Flow Statements and Notes to the Financial Statements in accordance with the limitations imposed on the investment and borrowing powers set out in the Trust Deed, laws and regulations and otherwise in accordance with the provisions of the Trust Deed. For and on behalf of the Trustee, HSBC Institutional Trust Services (Singapore) Limited Johannes Van Verre Director Singapore 26 February

3 STATEMENT BY THE MANAGER Year ended 31 December 2008 In the opinion of the directors of CapitaCommercial Trust Management Limited, the accompanying financial statements set out on pages 67 to 133 comprising the Balance Sheets, Statements of Total Return, Distribution Statements, Statements of Movements in Unitholders Funds, Portfolio Statements, Cash Flow Statements and Notes to the Financial Statements are drawn up so as to present fairly, in all material respects, the financial position of CapitaCommercial Trust (the Trust ) and its subsidiary (collectively the Group ) and of the Trust as at 31 December 2008, the total return, distributable income, movements in Unitholders funds and cash flows of the Group and the Trust for the year then ended in accordance with the recommendations of Statement of Recommended Accounting Practice 7 Reporting Framework for Unit Trusts issued by the Institute of Certified Public Accountants of Singapore and the provisions of the Trust Deed. At the date of this statement, there are reasonable grounds to believe that the Group and the Trust will be able to meet its financial obligations as and when they materialise. For and on behalf of the Manager, CapitaCommercial Trust Management Limited Lynette Leong Chin Yee Director Singapore 26 February

4 AUDITORS REPORT TO THE UNITHOLDERS OF CAPITACOMMERCIAL (Established in the Republic of Singapore pursuant to a trust deed dated 6 February 2004 (as amended)) We have audited the accompanying financial statements of CapitaCommercial Trust (the Trust ) and its subsidiary (collectively the Group ), which comprise the Balance Sheets and Portfolio Statements of the Group and the Trust as at 31 December 2008, and Statements of Total Return, Distribution Statements, Statements of Movements in Unitholders Funds and Cash Flow Statements of the Group and the Trust for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages 67 to 133. Manager s responsibility for the financial statements The Manager is responsible for the preparation and fair presentation of these financial statements in accordance with Statement of Recommended Accounting Practice 7 Reporting Framework for Unit Trusts issued by the Institute of Certified Public Accountants of Singapore. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Trust s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Manager, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 65

5 AUDITORS REPORT TO THE UNITHOLDERS OF CAPITACOMMERCIAL Opinion In our opinion, the consolidated financial statements of the Group and the financial statements of the Trust present fairly, in all material respects, the financial position of the Group and the Trust as at 31 December 2008 and the total return, distributable income, movements in Unitholders funds and cash flows of the Group and the Trust for the year then ended in accordance with Statement of Recommended Accounting Practice 7 Reporting Framework for Unit Trusts issued by the Institute of Certified Public Accountants of Singapore. KPMG LLP Public Accountants and Certified Public Accountants Singapore 26 February

6 BALANCE SHEETS As at 31 December 2008 Note $ 000 $ 000 $ 000 $ 000 Non-current assets Plant and equipment 3 1,267 1, Investment properties 4 6,710,600 5,109,950 5,093,600 3,558,350 Subsidiary 5 * * Joint venture 6 801, ,692 Associate 7 63,886 64,605 44,925 58,850 Available-for-sale unquoted investment 8 10,212 7,763 10,212 7,763 Other asset 9 54,947 54,947 6,785,965 5,238,359 5,951,228 4,475,198 Current assets Inventories Trade and other receivables 11 18,474 4,617 27,749 10,246 Cash and cash equivalents 12 66,683 35,484 62,233 27,800 85,426 40,374 89,982 38,046 Current liabilities Trade and other payables, including derivatives ,086 50,633 87,774 30,769 Current portion of security deposits 13,865 7,326 8,552 4,906 Interest -bearing liabilities , , , ,100 Current tax payable , , , ,441 Net current liabilities (734,269) (180,351) (703,088) (160,395) * Less than $1,000 The accompanying notes form an integral part of these financial statements. 67

7 BALANCE SHEETS As at 31 December 2008 Note $ 000 $ 000 $ 000 $ 000 Non-current liabilities Non-current portion of security deposits 31,275 22,930 21,049 11,843 Interests-bearing liabilities 14 1,514,830 1,097, , ,042 Convertible bonds debt component , ,700 1,896,805 1,120,386 1,352, ,885 Net assets 4,154,891 3,937,622 3,895,767 3,722,918 Represented by: Unitholders funds 4,154,891 3,937,622 3,895,767 3,722,918 Units in issue ( 000) 16 1,397,239 1,384,692 1,397,239 1,384,692 $ $ $ $ Net asset value per Unit The accompanying notes form an integral part of these financial statements. 68

8 STATEMENTS OF TOTAL RETURN Year ended 31 December 2008 Note $ 000 $ 000 $ 000 $ 000 Gross revenue , , , ,130 Property operating expenses 18 (101,814) (66,082) (65,346) (36,700) Net property income 233, , , ,430 Interest income 1,092 1,224 1, Investment income ,127 55,967 Other income Manager s management fees 20 (16,305) (13,646) (8,965) (7,085) Audit fees (291) (245) (238) (197) Borrowing costs 21 (84,062) (49,293) (61,249) (25,792) Professional fees (7,700) (1,569) (7,670) (1,061) Trustee s fees (788) (572) (585) (386) Gain/(loss) on re-measurement of financial derivatives 4,688 (6,121) 4,688 (6,121) Loss on disposal of subsidiary (241) Impairment loss on investment in associate (13,925) Other expenses 22 (6,390) (3,437) (6,271) (3,133) (109,437) (73,472) (31,050) 13,034 Net income before share of profit of associate 124, , , ,464 Share of profit of associate, net of tax 3,877 8,982 Net income 127, , , ,464 Net change in fair value of investment properties 203,798 1,305, ,094 1,135,910 Gain on sale of investment property 625 Total return for the year before tax 331,709 1,415, ,607 1,249,374 Income tax expense 23 (35) (73) (35) Total return for the year 331,674 1,415, ,572 1,249,374 Earnings per Unit 24 cents cents cents cents Basic Diluted The accompanying notes form an integral part of these financial statements. 69

9 DISTRIBUTION STATEMENTS Year ended 31 December $ 000 $ 000 $ 000 $ 000 Amount available for distribution to Unitholders at beginning of the year 65,214 40,641 65,214 40,641 Total return for the year before tax 331,709 1,415, ,607 1,249,374 Net tax and other adjustments (Note A) (178,662) (1,295,546) (132,560) (1,128,952) 153, , , ,422 Amount available for distribution to Unitholders 218, , , ,063 Distributions to Unitholders: Distribution of 2.70 cents per Unit for period from 1/9/2006 to 31/12/ ,325 37,325 Distribution of 4.23 cents per Unit for period from 1/1/2007 to 30/6/ ,524 58,524 Distribution of 4.47 cents per Unit for period from 1/7/2007 to 31/12/ ,896 61,896 Distribution of 5.19 cents per Unit for period from 1/1/2008 to 30/6/ ,949 71, ,845 95, ,845 95,849 Amount available for distribution to Unitholders at end of the year 84,416 65,214 84,416 65,214 Note A Net tax and other adjustments comprise: Non-tax deductible/(chargeable) items: Trustee s fees Net change in fair value of investment properties (203,798) (1,305,837) (164,094) (1,135,910) (Gain)/loss on re-measurement of financial derivatives (4,688) 6,121 (4,688) 6,121 Asset management fees paid and payable in Units 9,240 6,561 1,900 Amortisation of loan transaction costs 3, ,355 Interest expense 7,015 7,015 Impairment loss on investment in associate 13,925 Depreciation Distribution income received from associate 2,832 Other items 6,136 (3,996) 10, Net tax and other adjustments (178,662) (1,295,546) (132,560) (1,128,952) The accompanying notes form an integral part of these financial statements. 70

10 STATEMENTS OF MOVEMENTS IN UNITHOLDERS FUNDS Year ended 31 December $ 000 $ 000 $ 000 $ 000 Net assets at beginning of the year 3,937,622 2,612,414 3,722,918 2,563,034 Operations Net increase in net assets resulting from operations 331,674 1,415, ,572 1,249,374 Unitholders transactions Creation of new Units: Units issued in respect of One George Street s acquisition fee 11,650 11,650 Units issued in respect of Wilkie Edge s acquisition fee 1,370 1,370 Units issued in respect of RCS Trust s asset management fees 7,194 6,359 7,194 6,359 Asset management fees paid/payable in Units Distributions to Unitholders (133,845) (95,849) (133,845) (95,849) Net decrease in net assets resulting from Unitholders transactions (112,723) (89,490) (112,723) (89,490) Total increase in net assets before movement in translation reserve 4,156,573 3,938,819 3,895,767 3,722,918 Foreign currency translation reserve Net movement in translation reserve (1,682) (1,197) Net assets at end of the year 4,154,891 3,937,622 3,895,767 3,722,918 The accompanying notes form an integral part of these financial statements. 71

11 PORTFOLIO STATEMENTS As at 31 December 2008 Description Tenure Term Remaining Term Acquired from Location of Property of Land of Lease of Lease Investment properties Office buildings Singapore Capital Tower Leasehold 99 years 86 years CapitaLand Limited 168 Robinson Road Six Battery Road Leasehold 999 years 817 years Clover Properties 6 Battery Road Pte Ltd HSBC Building Leasehold 999 years 841 years The Hongkong and 21 Collyer Quay Shanghai Banking Corporation Limited Starhub Centre Leasehold 99 years 87 years CapitaLand (Office) 51 Cuppage Road Investments Pte Ltd Robinson Point Freehold NA NA Birchvest Investments 39 Robinson Road Pte Ltd One George Street Leasehold 99 years 93 years George Street Pte Ltd 1 George Street Investment properties Mixed use buildings Singapore Bugis Village Leasehold 99 years 80 years CapitaLand (Office) 62 to 67 Queen Street Investments Pte Ltd 151 to 166 Rochor Road 229 to 253 (odd numbers only) Victoria Street Wilkie Edge Leasehold 99 years 96 years CapitaLand 8 Wilkie Road Selegie Pte Ltd Raffles City** Leasehold 99 years 70 years Tincel Properties 250 & 252 North Bridge (Pte) Ltd Road, 2 Stamford Road and 80 Bras Basah Road * The occupancy rates shown are on committed basis. ** Representing 60% interest in Raffles City. *** The committed occupancy rate as at 20 January 2009 is 67.0%. The accompanying notes form an integral part of these financial statements. 72

12 Existing use Occupancy Rates* At Valuation Percentage of Net Assets % % $ 000 $ 000 % % Commercial ,246,500 1,224, Commercial ,370,500 1,249, Commercial , , Commercial , , Commercial , , Commercial ,146, ,677,400 3,311, Commercial ,400 72, Commercial 52.5*** 176, Commercial ,617,000 1,551, ,863,200 1,623, The accompanying notes form an integral part of these financial statements. 73

13 PORTFOLIO STATEMENTS As at 31 December 2008 Description Tenure Term Remaining Term Acquired from Location of Property of Land of Lease of Lease Investment properties Car park buildings Singapore Golden Shoe Leasehold 99 years 73 years CapitaLand (Office) 50 Market Street Car Park Investments Pte Ltd Market Street Leasehold 99 years 65 years CapitaLand (Office) 146 Market Street Car Park Investments Pte Ltd Investment properties, at valuation Other assets and liabilities (net) Net assets Investment properties Office buildings Singapore Capital Tower Leasehold 99 years 86 years CapitaLand Limited 168 Robinson Road Six Battery Road Leasehold 999 years 817 years Clover Properties 6 Battery Road Pte Ltd HSBC Building Leasehold 999 years 841 years The Hongkong and 21 Collyer Quay Shanghai Banking Corporation Limited Starhub Centre Leasehold 99 years 87 years CapitaLand (Office) 51 Cuppage Road Investments Pte Ltd Robinson Point Freehold NA NA Birchvest Investments 39 Robinson Road Pte Ltd One George Street Leasehold 99 years 93 years George Street Pte Ltd 1 George Street * The occupancy rates shown are on committed basis. The accompanying notes form an integral part of these financial statements. 74

14 Existing use Occupancy Rates* At Valuation Percentage of Net Assets % % $ 000 $ 000 % % Transport , , facilities Transport ,400 61, facilities 170, , ,710,600 5,109, (2,555,709) (1,172,328) (61.5) (29.8) 4,154,891 3,937, Commercial ,246,500 1,224, Commercial ,370,500 1,249, Commercial , , Commercial , , Commercial , , Commercial ,146, ,677,400 3,311, The accompanying notes form an integral part of these financial statements. 75

15 PORTFOLIO STATEMENTS As at 31 December 2008 Description Tenure Term Remaining Term Acquired from Location of Property of Land of Lease of Lease Investment properties Mixed use buildings Singapore Bugis Village Leasehold 99 years 80 years CapitaLand (Office) 62 to 67 Queen Street Investments Pte Ltd 151 to 166 Rochor Road 229 to 253 (odd numbers only) Victoria Street Wilkie Edge Leasehold 99 years 96 years CapitaLand 8 Wilkie Road Selegie Pte Ltd Investment properties Car park buildings Singapore Golden Shoe Leasehold 99 years 73 years CapitaLand (Office) 50 Market Street Car Park Investments Pte Ltd Market Street Leasehold 99 years 65 years CapitaLand (Office) 146 Market Street Car Park Investments Pte Ltd Investment properties, at valuation Other assets and liabilities (net) Net assets * The occupancy rates shown are on committed basis. ** The committed occupancy rate as at 20 January 2009 is 67.0%. The accompanying notes form an integral part of these financial statements. 76

16 Existing use Occupancy Rates* At Valuation Percentage of Net Assets % % $ 000 $ 000 % % Commercial ,400 72, Commercial 52.5** 176, ,200 72, Transport , , facilities Transport ,400 61, facilities 170, , ,093,600 3,558, (1,197,833) 164,568 (30.7) 4.4 3,895,767 3,722, The accompanying notes form an integral part of these financial statements. 77

17 PORTFOLIO STATEMENTS As at 31 December 2008 By Geography (Summary) Percentage of Net Assets % % Singapore Investment properties, at valuation Other assets and liabilities (net) (61.5) (29.8) Net assets On 1 December 2008 (2007: 1 December 2007), independent valuations of Capital Tower, Six Battery Road, HSBC Building, Starhub Centre, Robinson Point, One George Street, Bugis Village, Wilkie Edge, Golden Shoe Car Park and Market Street Car Park were undertaken by Jones Lang LaSalle Property Consultants Pte Ltd (2007: CB Richard Ellis (Pte) Ltd). The Manager believes that the independent valuers have appropriate professional qualifications and recent experience in the location and category of the properties being valued. The valuations were based on capitalisation of income approach and discounted cash flow analysis. The direct comparison approach is used as a check against the derived values. The valuations adopted for the properties were as follows: Properties $ 000 $ 000 Capital Tower 1,246,500 1,224,000 Six Battery Road 1,370,500 1,249,000 HSBC Building 355, ,000 Starhub Centre 332, ,000 Robinson Point 226, ,000 One George Street 1,146,000 Bugis Village 69,400 72,350 Wilkie Edge 176,800 Golden Shoe Car Park 109, ,000 Market Street Car Park 60,400 61,000 5,093,600 3,558,350 The accompanying notes form an integral part of these financial statements. 78

18 PORTFOLIO STATEMENTS As at 31 December 2008 On 1 December 2008 (2007: 1 December 2007), an independent valuation of Raffles City was undertaken by Knight Frank Pte Ltd (2007: CB Richard Ellis (Pte) Ltd). The Manager believes that the independent valuers have appropriate professional qualifications and recent experience in the location and category of the property being valued. The valuations were based on the capitalisation of income approach and discounted cash flow analysis. The direct comparison approach is used as a check against the derived values. The valuations adopted for Raffles City were as follows: Trust s Trust s proportionate proportionate Property interest of 60% interest of 60% $ 000 $ 000 $ 000 $ 000 Raffles City 2,695,000 1,617,000 2,586,000 1,551,600 The net change in fair value of the investment properties has been taken to the Statement of Total Return. Investment properties of the Group comprise mainly commercial properties that are leased to external customers. Generally, the leases contain an initial non-cancellable period of three years. Subsequent renewals are negotiated with the lessee. Contingent rents recognised upon receipt in the Statements of Total Return of the Group and of the Trust amounted to $14,929,000 (2007: $12,517,000) and $75,000 (2007: $153,000) respectively. The accompanying notes form an integral part of these financial statements. 79

19 CASH FLOW STATEMENTS Year ended 31 December $ 000 $ 000 $ 000 $ 000 Operating activities Total return for the year before tax 331,709 1,415, ,607 1,249,374 Adjustments for: Allowance for doubtful receivables Amortisation of lease incentives Asset management fees paid and payable in Units 9,240 6,561 1,900 Borrowing costs 84,062 49,293 61,249 25,792 Depreciation of plant and equipment Foreign exchange differences 570 (381) 9 Gain on sale of investment property (625) (Gain)/loss on re-measurement of financial derivatives (4,688) 6,121 (4,688) 6,121 Interest income (1,092) (1,224) (1,038) (414) Investment income (319) (62,127) (55,967) Loss on disposal of subsidiary (see Note A below) 241 Net change in fair value of investment properties (203,798) (1,305,837) (164,094) (1,135,910) Impairment loss on investment in associate 13,925 Share of profit of associate, net of tax (3,877) (8,982) Operating income before working capital changes 213, , ,655 89,737 Changes in working capital: Trade and other receivables (14,605) 425 (12,531) 5,877 Trade and other payables 32,195 13,253 31,577 2,921 Security deposits 14,884 1,981 12,852 1,071 Cash generated from operations 245, , ,553 99,606 Income tax paid (119) Cash flows from operating activities 245, , ,553 99,606 The accompanying notes form an integral part of these financial statements. 80

20 CASH FLOW STATEMENTS Year ended 31 December $ 000 $ 000 $ 000 $ 000 Investing activities Acquisition of available-for-sale unquoted investment (2,449) (7,763) (2,449) (7,763) Capital expenditure on investment properties (32,749) (43,821) (7,053) (18,440) Acquisitions of investment properties, (see Note B below) (1,296,136) (1,296,136) Disposal of investment property, net of cash disposed (see Note C below) 52,665 Distribution received from associate 2,345 1,125 2,345 1,125 Distribution received from joint venture 53,322 41,226 Interest received 1,112 1,206 1, Investment in associate (29,886) (30,154) Investment income received ,211 Progress payments for Wilkie Edge (54,947) (54,947) Purchase of plant and equipment (821) (660) (341) (512) Redemption of debt securities 24,586 Cash flows from investing activities (1,328,379) (82,081) (1,248,935) (39,277) Financing activities Interest paid (67,000) (48,572) (44,900) (25,314) Payment of transaction costs on borrowings (10,340) (10,340) Distributions to Unitholders (133,845) (95,849) (133,845) (95,849) Issue expenses (288) (288) Proceeds from interest-bearing loans 1,041,200 42,711 1,025,000 72,600 Repayment of interest-bearing loans (86,100) (86,100) Proceeds from issuance of convertible bonds 370, ,000 Cash flows from financing activities 1,113,915 (101,998) 1,119,815 (48,851) Net increase/(decrease) in cash and cash equivalents 31,199 (6,439) 34,433 11,478 Cash and cash equivalents at beginning of the year 35,484 41,923 27,800 16,322 Cash and cash equivalents at end of the year (Note 12) 66,683 35,484 62,233 27,800 The accompanying notes form an integral part of these financial statements. 81

21 CASH FLOW STATEMENTS Year ended December 2008 Notes: (A) Disposal of subsidiary $ 000 $ 000 Plant and equipment 5 Trade and other receivables 63 Trade and other payables (196) Current tax payable (113) Net identifiable assets and liabilities (241) Loss on disposal 241 Cash consideration received, satisfied in cash Cash disposed Net cash inflow/(outflow) (B) Acquisitions of investment properties Net cash outflows from purchases of One George Street and Wilkie Edge are set out below: $ 000 $ 000 $ 000 $ 000 Investment properties (including acquisition costs) 1,309,156 1,309,156 Purchase consideration paid in Units (13,020) (13,020) Net cash outflow 1,296,136 1,296,136 The accompanying notes form an integral part of these financial statements. 82

22 CASH FLOW STATEMENTS Year ended December 2008 (C) Disposal of investment property, net of cash disposed Net cash inflow from disposal of investment property is set out below: $ 000 $ 000 $ 000 $ 000 Investment property 52,383 Cash 1,152 Trade and other receivables 2,228 Trade and other payables (1,419) Security deposits (1,152) Net identifiable assets and liabilities 53,192 Gain on disposal 625 Cash consideration received, satisfied in cash 53,817 Cash disposed (1,152) Net cash inflow 52,665 (D) Significant non-cash transactions During the financial year, there were the following significant non-cash transactions: (i) 4,561,324 (2007: 2,302,858) Units were issued as payment for asset management fees amounting to a value of $8,102,586 (2007: $6,359,507). (ii) 6,123,199 (2007: nil) Units were issued as payment for the acquisition fees of One George Street. Under the Property Funds Guidelines, the acquisition fees paid in respect of transactions with interested parties will have to be in the form of Units. (iii) 1,862,258 (2007: nil) Units were issued as payment for the acquisition fees of Wilkie Edge. Under the Property Funds Guidelines, the acquisition fees paid in respect of transactions with interested parties will have to be in the form of Units. The accompanying notes form an integral part of these financial statements. 83

23 These notes form an integral part of the financial statements. The financial statements were authorised for issue by the Manager and the Trustee on 26 February GENERAL CapitaCommercial Trust (the Trust ) is a Singapore-domiciled unit trust established pursuant to the trust deed dated 6 February 2004 (as amended) (the Trust Deed ) between CapitaCommercial Trust Management Limited (the Manager ) and HSBC Institutional Trust Services (Singapore) Limited (the Trustee ). The Trust Deed is governed by the laws of the Republic of Singapore. The Trustee is under a duty to take into custody and hold the assets of the Trust and its subsidiary (collectively the Group ) in trust for the holders ( Unitholders ) of units in the Trust (the Units ). The Trust was formally admitted to the Official List of the Singapore Exchange Securities Trading Limited (the SGX-ST ) on 11 May 2004 and was included under the Central Provident Fund ( CPF ) Investment Scheme on 11 May The principal activity of the Trust is to invest in income producing real estate and real estate related assets, which are used or substantially used for commercial purposes, with the primary objective of achieving an attractive level of return from rental income and for long-term capital growth. The principal activity of the subsidiary is the provision of treasury services, including lending to the Trust the proceeds from issuance of notes under an unsecured multicurrency medium term note program. The consolidated financial statements relate to the Trust and its subsidiary (collectively the Group ) and the Group s interest in its associate and joint venture. The Trust has entered into several service agreements in relation to management of the Trust and its property operations. The fee structures of these services are as follows: (i) Property management fees Under the property management agreements, property management fees are charged at 3.00% per annum of the net property income of the properties except for HSBC Building which is charged at 0.25% per annum of the net property income. The property management fees are payable monthly in arrears. 84

24 (ii) Manager s management fees Pursuant to the Trust Deed, the Manager s management fees comprise a base component of 0.10% per annum of the value of Deposited Property and a performance component of 5.25% per annum of net income of the Trust for each financial year. Deposited Property refers to all the assets of the Trust, including all its authorised investments for the time being held or deemed to be held upon the trusts of the Trust Deed, except for the following investments: (a) the investment in RCS Trust, a joint venture; (b) the investment in Quill Capita Trust ( QCT ), an associate; and (c) the investment in Malaysia Commercial Development Fund Pte. Ltd. ( MCDF ), an available-for-sale unquoted investment. Commencing from 1 January 2006 up to and including 10 August 2006 (the day prior to the execution of the Trust s third supplemental deed), the Manager was entitled to receive the Manager s management fee in the form of cash and, to the extent required or necessary for the purpose of ensuring that the distribution for each financial year within such period is the same as any forecast and projected distribution for the financial year ended 31 December 2005 as set out in the Introductory Document of the Trust dated 16 March 2004 ( Introductory Document ), in the form of Units issued to the Manager at the prevailing Market Price (as defined in the Trust Deed) quarterly in arrears. Commencing from 11 August 2006 (the date of execution of the Trust s third supplemental deed) up to and including 31 December 2008, the Manager is entitled to receive, at the option of the Manager, the Manager s management fees in the form of cash, wholly in the form of Units or a combination of both, provided that, to the extent required or necessary for the purpose of ensuring that the distribution of each financial year within such period is the same as any forecast and projected distribution for the financial year ended 31 December 2005, as set out in the Introductory Document, the Manager s management fee shall be paid in the form of Units at the prevailing Market Price quarterly in arrears. For the period after 31 December 2008, the Manager is entitled to receive, at the option of the Manager, the Manager s management fees wholly in the form of cash, wholly in the form of Units or a combination of both. When paid in the form of Units, the Manager shall be entitled to receive such number of Units as may be purchased with the relevant amount of the Manager s management fee attributable to such period at an issue price equal to the Market Price. (iii) Trustee s fees Pursuant to the Trust Deed, the Trustee s fees shall not exceed 0.10% per annum of the value of Deposited Property (except for the investment in RCS Trust, a joint venture) (subject to a minimum sum of $8,000 per month) payable out of the Deposited Property of the Trust. The Trustee is also entitled to reimbursement of expenses incurred in the performance of its duties under the Trust Deed. The Trustee s fees are payable quarterly in arrears. 85

25 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2.1 Basis of preparation The financial statements have been prepared in accordance with the Statement of Recommended Accounting Practice 7 ( RAP 7 ) Reporting Framework for Unit Trusts issued by the Institute of Certified Public Accountants of Singapore, and the applicable requirements of the Code on Collective Investment Schemes ( CIS Code ) issued by the Monetary Authority of Singapore ( MAS ) and the provisions of the Trust Deed. The financial statements have been prepared on the historical cost basis, except for investment properties, derivative financial instruments and certain financial assets and financial liabilities which are measured at fair value. The financial statements of the Group and the Trust are presented in Singapore dollars, which is the functional currency of the Trust. All financial information presented in Singapore dollars has been rounded to the nearest thousand, unless otherwise stated. The preparation of the financial statements in conformity with RAP 7 requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are described in the following notes: Note 4 Valuation of investment properties Note 25 Valuation of financial instruments There were no changes in accounting policies during the year. The accounting policies set out below have been applied consistently by the Group. The accounting policies used by the Group have been applied consistently to all periods presented in these financial statements. 86

26 2.2 Consolidation Subsidiary A subsidiary is an entity controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The financial statements of subsidiary are included in the consolidated financial statements from the date that control commences until the date that control ceases. In the Group s Balance Sheet, investments in subsidiary is stated at cost less impairment losses. Joint venture Joint venture is an entity over whose activities the Group has joint control established by contractual agreement and requiring unanimous consent for strategic financial and operating decisions. In the financial statements of the Group, the interest in joint venture is accounted for by including its proportionate share of the jointly controlled entity s net assets, liabilities, income and expenses with the similar item, line by line, in its financial statements. The consolidated financial statements include the assets that the Group controls and the liabilities that it incurs in the course of pursuing the joint operation, share of the income that it earns from the joint operation, from the date that joint control commences until the date that joint control ceases. In the Trust s Balance Sheet, investments in joint venture is stated at cost less impairment losses. In the Trust s Statement of Total Return, the results from joint venture are included to the extent of distributable income received and receivable, provided the Trust s right to receive the distributable income is established before the reporting date. Associate Associate is an entity in which the Group has significant influence, but not control over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20% and 50% of the voting power of another entity. Associate is accounted for using the equity method. The consolidated financial statements include the Group s share of the income and expenses and movements in unitholders funds of associate, after adjustments to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases. When the Group s share of losses exceeds its interest in an associate, the carrying amount of that interest (including any long-term investments) is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the associate. In the Trust s Balance Sheet, investments in associate is stated at cost less impairment losses. In the Trust s Statement of Total Return, the results from these entities are included to the extent of distributable income received and receivable, provided the Trust s right to receive the distributable income is established before the reporting date. 87

27 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.2 Consolidation (continued) Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income or expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with associate and joint venture are eliminated against the investment to the extent of the Group s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. 2.3 Plant and equipment Plant and equipment are stated at cost less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. When parts of an item of plant and equipment have different useful lives, they are accounted for as separate items (major components) of plant and equipment. Depreciation is recognised in the Statement of Total Return on a straight-line basis over their estimated useful lives as follows: Furniture, fittings and equipment 2 to 5 years Depreciation methods, useful lives and residual values are reviewed at each reporting date. The cost of replacing part of an item of plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of plant and equipment are recognised in the Statement of Total Return. Gains or losses arising from the retirement or disposal of plant and equipment are determined as the difference between the estimated net disposal proceeds and the carrying amount of the asset and are recognised in the Statement of Total Return on the date of retirement or disposal. 2.4 Investment properties Investment properties are properties held either to earn rental income or capital appreciation or both. Investment properties are accounted for as non-current assets and are stated at initial cost on acquisition, and at fair value thereafter. The cost of a purchased property comprises its purchase price and any directly attributable expenditure. Transaction costs shall be included in the initial measurement. Fair value is determined in accordance with the Trust Deed, which requires the investment properties to be valued by independent registered valuers at least once a year in accordance with the CIS Code issued by MAS. Any increase or decrease on revaluation is credited or charged to the Statement of Total Return as a net change in fair value of investment properties. When an investment property is disposed off, the resulting gain or loss recognised in the Statement of Total Return is the difference between net disposal proceeds and the carrying amount of the property. 88

28 Investment properties are not depreciated. The properties are subject to continued maintenance and regularly revalued on the basis set out above. 2.5 Foreign operations and foreign currencies Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of Group entities at the exchange rates at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date on which the fair value was determined. Foreign currency differences arising on retranslation are recognised in the Statement of Total Return, except for differences arising on the retranslation of monetary items that in substance form part of the Group s net investment in a foreign operation and available-for-sale equity instruments. Foreign operations The assets and liabilities of foreign operations are translated to Singapore dollars at exchange rates prevailing at the reporting date. The income and expenses of foreign operations are translated to Singapore dollars at exchange rates prevailing at the date of the transactions. Foreign currency differences are recognised in the foreign currency translation reserve. When a foreign operation is disposed off, in part or in full, the relevant amount in the foreign exchange translation reserve is transferred to the Statement of Total Return. 2.6 Financial instruments Derivative financial instruments Derivative financial instruments are used to manage exposures to interest rate risks arising from financing and investment activities. Derivative financial instruments are not used for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments. Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the combined instrument is not measured at fair value through the Statement of Total Return. Derivative financial instruments are recognised initially at fair value; attributable transaction costs are recognised in the Statement of Total Return. Subsequent to initial recognition, derivative financial instruments are remeasured at fair value. The gain or loss on remeasurement to fair value is recognised immediately in the Statement of Total Return. 89

29 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.6 Financial instruments (continued) Economic hedges Hedge accounting is not applied to derivative instruments that economically hedge monetary assets and liabilities. Changes in the fair value of such derivatives are recognised in the Statement of Total Return. Non-derivative financial instruments Non-derivative financial instruments comprise investment in equity securities, trade and other receivables, cash and cash equivalents, trade and other payables, security deposits and interest bearing liabilities. Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs. Subsequent to initial recognition, nonderivative financial instruments are measured as described below. A financial instrument is recognised if the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the Group s contractual rights to the cash flows from the financial assets expire or if the Group transfers the financial asset to another party without retaining control or transfers substantially all the risks and rewards of the asset. Regular way purchases and sales of financial assets are accounted for at trade date, i.e., the date that the Group commits itself to purchase or sell the asset. Financial liabilities are derecognised if the Group s obligations specified in the contract expire or are discharged or cancelled. Cash and cash equivalents comprise cash balances and bank deposits. Bank overdrafts that are repayable on demand and that form an integral part of the Group s cash management are included as a component of cash and cash equivalents for the purpose of the Cash Flow Statement. Available-for-sale financial assets The Group s investments in certain equity securities are classified as available-for-sale financial assets if they are not classified in any of the other categories. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses, and foreign exchange gains and losses on availablefor-sale monetary items, are recognised directly in Unitholders funds. When an investment is derecognised, the cumulative gain or loss in Unitholders fund is transferred to the Statement of Total Return. Available-for-sale financial assets which are unquoted and where the fair value cannot be measured reliably, are stated at cost. Others Other non-derivative financial instruments are measured at amortised cost using the effective interest method, less any impairment losses. 90

30 Convertible bonds The convertible bonds are hybrid instruments comprising a host debt component plus derivative liabilities. The derivative instrument is recognised initially at fair value. The carrying amount of the host debt component is the difference between the cost of the convertible bonds and the fair value of the embedded derivative liability. Any directly attributable transaction costs are allocated to the debt and derivative liabilities components in proportion to their initial carrying amounts. Transaction cost related to the debt component is included in the initial measurement of the host straight bond, whereas transaction cost related to derivative liabilities component is charged to the Statement of Total Return. Subsequent to initial recognition, the debt component is measured at amortised cost using effective interest method. The derivative liabilities are measured at fair value through profit or loss. Interest expense relating to the debt component is recognised in the Statement of Total Return. Impairment of financial assets A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in the Statement of Total Return. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost, the reversal is recognised in the Statement of Total Return. 2.7 Impairment non-financial assets The carrying amounts of the Group s non-financial assets, other than investment properties, inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the assets recoverable amounts are estimated. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that largely are independent from other assets and groups. Impairment losses are recognised in the Statement of Total Return unless it reverses a previous revaluation, credited to equity, in which case it is charged to equity. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis. 91

31 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.7 Impairment non-financial assets (continued) The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash-generating unit. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. 2.8 Unitholders funds Unitholders funds are classified as equity. Incremental costs directly attributable to the issue of Units are recognised as a deduction from equity. 2.9 Revenue recognition Rental income from operating leases Rental income receivable under operating leases is recognised in the Statement of Total Return on a straightline basis over the term of the lease, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased assets. Lease incentives granted are recognised as an integral part of the total rental income. Contingent rentals, which include gross turnover rental, are recognised as income in the accounting period primarily on an accrual basis, estimated based on recent turnover information of the tenants. No contingent rentals are recognised if there are uncertainties due to the possible return of amounts received. Car park income Car park income is recognised on an accrual basis. Interest income Interest income is recognised as it accrues in the Statement of Total Return, using the effective interest method. Dividend income Dividend income is recognised in the Statement of Total Return on the date that the Group s right to receive payment is established. 92