Annual Report 2015 THE MOMENTUM CONTINUES SAGICORJAMAICA.COM

Transcription

1 Annual Report 2015 THE MOMENTUM CONTINUES SAGICORJAMAICA.COM

2 Contents Overview 3 About Us 4 What We Are Invested In 6 Statement of the Chairman & Chief Executive Officer 9 Notice of Annual General Meeting 10 The Water Park Opening 12 Directors Report 13 Board of Directors 16 Group Structure 17 Corporate Data 18 Hilton Rose Hall s First Year 20 Management s Discussion & Analysis 41 Corporate Governance 44 DoubleTree Orlando Acquisition ABOUT US 3 Community 46 Corporate Social Responsibility Financial Statements 50 Independent Auditors Report 51 Consolidated Statement of Comprehensive Income 52 Consolidated Statement of Financial Position 53 Consolidated Statement of Changes in Shareholders Equity 54 Consolidated Statement of Cash Flows 55 Company Statement of Comprehensive Income 56 Company Statement of Financial Position 57 Company Statement of Changes in Shareholders Equity 58 Company Statement of Cash Flows 59 Notes to the Financial Statements CORPORATE GOVERNANCE 41 Additional Information 109 Disclosure of Shareholdings FORM OF PROXY FINANCIAL STATEMENTS 50

3 STATEMENT OF THE CHAIRMAN & CEO 6 MANAGEMENT S DIRECTORS REPORT 12 DISCUSSION & ANALYSIS 20 DOUBLETREE ACQUISITION 44 SAGICOR REAL ESTATE X FUND 1

4 The Momentum Continues In 2015, three (3) properties, 2 hotels and 1 lot of land for development were added to the portfolio of investments by Sagicor Real Estate X Fund Limited to further increase value for our shareholders. Our reach now expands beyond the borders of the Caribbean. 2 ANNUAL REPORT 2015

5 About Us Sagicor Real Estate X Fund Limited ( X Fund or The Group ), a St Lucian International Business Company, is the largest publicly traded real estate investment company in Jamaica that is listed on the Jamaica Stock Exchange ( JSE ). We are a leading private sector investor in the Jamaican commercial and tourism real estate market, through our investment in the Sigma Real Estate Portfolio (Sigma Real Estate) and through ownership of the Hilton Rose Hall Beach Resort & Spa (Hilton Rose Hall) in Montego Bay and the DoubleTree by Hilton at the entrance of Universal Orlando (DoubleTree Orlando) in Florida through a wholly owned subsidiary, X Fund Properties Limited. Fund to take title for the Hilton Rose Hall which was The Sigma Real Estate Portfolio has property acquired in January On July 31, 2015, X Fund investments in the tourism sector with ownership Properties LLC, a wholly owned subsidary of X Fund of three Jewel Resorts-branded hotels; and the Properties Limited, was incorporated in the State of commercial real estate sector through ownership Delaware, United States of America to hold title for of four office/retail business properties, three DoubleTree Orlando. industrial/warehousing properties and three prime DoubleTree Orlando, which is located at the land holdings slated for development. entrance of Universal Studios, is expected to add X Fund Properties Limited was incorporated on diversity to the Group s revenue stream as its first December 1, 2014 as a wholly owned subsidiary of X non-jamaican property holding. Overview Financial Statements Corporate Governance Community Additional Information SAGICOR REAL ESTATE X FUND 3

6 What We Are Invested In Sagicor Real Estate X Fund Limited is invested indirectly in a mix of real estate properties through its investment in the Sigma Real Estate Portfolio as well as its direct ownership/ operations of hotels via a wholly owned subsidary, X Fund Properties Limited. Tourism The Jewel Resorts chain and Hilton Rose Hall contribute to the tourism market in Jamaica. In 2015, we expanded outside of Jamaica and added to the portfolio of hotels, DoubleTree Orlando which is in close proximity to the popular tourist attraction of Universal Studios, Orlando. Our tourism investments now offer over 1,900 rooms to the tourism market in Jamaica and North America. Office/Retail Business The R. Danny Williams and Sagicor Sigma Buildings are located in the heart of New Kingston, the de facto business centre of St Andrew, and house not only Sagicor but a number of other commercial tenants. The Montego Bay Commercial Centre is located just outside the central business area in Montego Bay, which allows it to benefit from high volumes of daily traffic. Over the years the mix of tenants occupying its 26 units has moved from the traditional retail stores and restaurants to a higher concentration of offices. The strata lots of the Spanish Town Shopping Centre are located along a major thoroughfare in St Catherine and represent the smallest component of the Sigma Real Estate Portfolio. Industrial/Warehouse This segment of the Sigma Real Estate Portfolio includes three properties: the Sagicor Norman Road Industrial Park, the Sagicor Freeport Commercial Centre and the Marcus Garvey Drive Commercial Centre. These properties offer their tenants warehousing/manufacturing space in both Kingston and Montego Bay. The Sagicor Industrial Park at Norman Road comprises seventeen buildings that provide a total of 233,418 square feet of factory/warehousing space. The Sagicor Freeport Complex comprises four office units, twenty-nine warehouses (each with built-in office space) and twenty-two warehousing/light manufacturing spaces disposed over 194,000 square feet. Land for Development Vacant lots at Seymour Avenue, St. Andrew and Curatoe Hill, May Pen have been identifed as prime locations for residential and commercial developments respectively. Work has already commenced at the Curatoe Hill site. The recent acquisition of Northern Estate in St. James will be utilised to enhance the tourism offering at the Hilton Rose Hall property. 4 ANNUAL REPORT 2015

7 We Think Long Term We continue to explore new properties for investment and new Tourism related ventures in and outside of the region. Overview Financial Statements Corporate Governance Community Additional Information SAGICOR REAL ESTATE X FUND 5

8 Statement of the Chairman & Chief Executive Officer We are pleased to report on the activities of Sagicor Real Estate X Fund Limited for the year ended December 31, Sagicor Real Estate X Fund Limited is invested in real estate both through direct ownership of assets, as well as indirectly through ownership of units in the Sigma Real Estate Portfolio. The directly held investments comprise the following two hotel properties: The Hilton Rose Hall Beach Resort & Spa in Montego Bay, Jamaica acquired in January DoubleTree by Hilton at the Entrance of Universal Orlando in Florida, USA acquired in September Indirect investments, through ownership of units in the Sigma Real Estate Portfolio, provide exposure to prime commercial and tourism properties located across Jamaica as follows: Four office/retail business properties Three industrial/warehousing properties Three prime land holdings slated for development Three Jewel Resorts-branded hotels 6 ANNUAL REPORT 2015 Richard Byles, Chairman Rohan Miller, President & CEO

9 $6.61B Total Revenue 2014: $0.96B KEY METRICS $33.86B Total Assets 2014: $14.22B $1.30B Net Profit Attributable to Stockholders 2014: $0.92B $15.65B Stockholders Equity 2014: $9.34B Close Price # Issued shares 2,243,005,125 1,495,336,750 Market Value of issued shares 24,673,056,375 10,631,844,293 Market Cap ranking on JSE 7th 9th 52-week high week low month P/E Actual EPS (after adjustment for rights issue) Return on Average Shareholders Equity 10.38% 10.38% Book value per share Overview Financial Statements Corporate Governance Community Additional Information SAGICOR REAL ESTATE X FUND 7

10 Statement of the Chairman & Chief Executive Officer (Cont d) The acquisition of DoubleTree Orlando, located at the entrance to Universal Studios, represents our first non-jamaican property holding, thereby expanding the geographical diversification of the Group s investments. This acquisition was partly funded by a successful Non- Renounceable Rights Issue by X Fund in September The Rights Issue was made on the basis of two new Ordinary Shares for every five existing Ordinary Shares held by Shareholders. The offer, which closed on 2nd September 2015, was a success and was the largest Rights Issue that has been brokered in the history of the JSE, raising approximately J$5.2 billion. At the end of 2015, X Fund s assets totalled $33.9 billion, representing an increase of 138% over total assets at the end of 2014 ($14.2 billion). This significant growth is partially attributable to the new acquisitions, as well as the growth in the value of the units of the Sigma Real Estate Portfolio. Net profit attributable to stockholders for the year was $1.297 billion, which represents a 41% increase over the previous year of $921 million. The two direct acquisitions in 2015, in keeping with our mandate to expand our activities in tourism, bring the X Fund s combined exposure to tourism properties to approximately 78%. The remaining 12% represents exposure, through Sigma, to commercial properties and land for development. source markets are USA and Canada, which together accounted for over 80% of stopover arrivals. This sector also recorded the highest employment gains in 2015, registering an increase of 13,900 jobs between January and October X Fund s investments in tourism places us in a strong position to actively participate and benefit from the positive outlook for the region. Outlook X Fund will continue to actively seek out viable real estate investment opportunities both directly as well as indirectly through the Sigma Real Estate Portfolio. As the forecast for world tourism remains positive, the expectation is that Jamaica and the Caribbean will continue to see growth in tourism in the near to medium term. The addition of DoubleTree Orlando is expected to positively impact the Group s revenue stream and improve the overall performance in We would like to acknowledge the hard work of our dedicated team for contributing to the continued success of X Fund s operations. We thank you for your confidence in us, as we remain committed to creating value for you, our shareholders for many years to come. World Tourism continues to show growth, based on data from the United Nations World Tourism Organization (UNWTO). Growth is predicted for global tourist arrivals in 2016, but at a slightly lower level than for the previous two years. This increase is expected to stronger in the Americas (4% - 5%), and in Asia (4% - 5%), than in Europe (3.5% - 4.5%). In Jamaica, the Tourism sector continues to be one of the top performing sectors, which is evidenced by its significant contribution to the country s GDP. Data from the Jamaica Tourist Board (JTB) revealed that in 2015 Jamaica s total visitor arrivals increased by 5.3% to 3.7m persons, with an increase in stopover and cruise ship arrivals of 2.1% and 10.2% respectively. Its major Richard Byles Chairman Rohan Miller President & CEO 8 ANNUAL REPORT 2015

11 Notice of Annual General Meeting Notice is hereby given that the Second Annual General Meeting of the Company will be held at the offices of McNamara Corporate Services Inc., Rodney Bay, Gros Islet, Saint Lucia on Monday, June 13, 2016 at 10:00 a.m. for the following purposes: 1. To receive the Audited Accounts and Reports of the Directors and Auditors for the year ended December 31, To consider and, if thought fit, to pass the following Resolution: Resolution No. 1 THAT the Audited Accounts and the Reports of the Directors and Auditors for the year ended December 31, 2015 be and are hereby adopted. 2. To elect Directors: To consider and, if thought fit, to pass the following Resolution: Resolution No. 2 That the election of directors be made en bloc. Resolution No.3 To consider and, if thought fit, to pass the following Resolution: That Directors Michael Fraser and Dr. M. Patricia Downes-Grant who retire by rotation and are eligible for re-election be and are hereby re-elected as Directors of the Company en bloc. 3. To fix the remuneration of the Directors Resolution No. 4 To consider and, if thought fit, to pass the following Resolution: THAT the amount of $11,130, included in the Audited Accounts of the Company for the year ended December 31, 2015 as remuneration for their services as Directors be and is hereby approved. 4. To appoint the Auditors and authorise the Directors to fix the remuneration of the Auditors. To consider and, if thought fit, to pass the following Resolution: Resolution No. 5 THAT PricewaterhouseCoopers, Chartered Accountants, having agreed to continue in office as Auditors, be and are hereby appointed Auditors for the Company to hold office until the conclusion of the next Annual General Meeting at a remuneration to be fixed by the Directors of the Company. Dated the 29th day of April, 2016 BY THE ORDER OF THE BOARD MCSI Inc. Corporate Secretary Note: A member entitled to attend and vote at the meeting is entitled to appoint a proxy to attend and vote instead of him. A proxy need not be a member. Proxy Forms must be lodged with the Company Secretary, MCSI Inc. at its registered offices at 20 Micoud Street, Castries, St. Lucia not less than 48 hours before the time of the meeting. A Form of Proxy is enclosed for your convenience. Overview Financial Statements Corporate Governance Community Additional Information SAGICOR REAL ESTATE X FUND 9

12 The Water Park Opening The state-of-the-art Jewel Lagoon Water Park, at Jewel Runaway Bay Beach & Golf Resort was officially opened on July 21, ANNUAL REPORT 2015

13 Sagicor remains committed to investing in Jamaica and delivering world-class tourism products to Jamaica and the world. Richard Byles Chairman, Sagicor Real Estate X Fund President & CEO, Sagicor Group Jamaica Richard Byles, Chairman of the Sagicor Real Estate X Fund and the President & CEO of Sagicor Group Jamaica, in welcoming guests to the official opening, said that Sagicor remains committed to investing in Jamaica and delivering world-class tourism products to Jamaica and the world. The Honourable Dr. Kenneth Wykeham McNeil, then minister of tourism and entertainment, was the guest speaker, and congratulated Sagicor on the strong show of confidence that they have demonstrated in their investment in the tourism industry and Jamaica. Jewel Runaway Bay Lagoon Water Park is one of the largest water parks in the region and was designed for guests of all ages. The 9,000 sq. ft. water park brings more than over 200,000 gallons of aquatic fun, excitement and relaxation to the all-inclusive Jewel Resort chain in Jamaica. At the end of 2015, in excess of 800,000 guests have utilised the facility since its opening. The opening of the Water Park is a major achievement which will contribute to the earnings of Jewel Runaway Bay, and X Fund will participate in these increased earnings through its investment in Sigma Real Estate. SAGICOR REAL ESTATE X FUND 11

14 Directors Report The Directors are pleased to submit their Report and the Audited Financial Statements for the year ended December 31, The Financial Statements reflect the results of Sagicor Real Estate X Fund Limited (X Fund) J $000 s J$000 s Operating Results: Group Profit before tax 1,465, ,383 Taxation (167,754) (18,896) Net Profit after tax 1,297, ,487 Attributable to Stockholders of the Company 1,297, ,487 Stockholders Equity: Stockholders equity brought forward 9,339,644 8,418,157 Share Capital, opening 7,476,016 7,476,016 Shares issued 5,166,496 - Share Capital, ending 12,642,512 7,476,016 Retained earnings, opening 1,863, ,141 Net profit 1,297, ,487 Dividends paid (239,254) - Retained earnings, ending 2,921,769 1,863,628 Currency translation, opening - - Currency reserve 82,684 - Currency translation, ending 82,684 - Stockholders equity carried forward 15,646,965 9,339,644 Directors Article 102 provides that one-third of the directors shall retire from office at each Annual General Meeting. Directors Michael Fraser and Dr. M. Patricia Downes-Grant retire under this Article and, being eligible, offer themselves for re-election. Dividends Interim dividends of 16 cents per share were paid on June 23, 2015 Auditors The retiring Auditors, PricewaterhouseCoopers, having expressed their willingness to continue in office, will do so and a resolution authorising the Directors to fix the remuneration of the Auditors will be presented at the Annual General Meeting. Chairman April 29, ANNUAL REPORT 2015

15 Board of Directors Richard Owen Byles - Chairman B.Sc. (Econ), M.Sc. Mr. Byles is Chairman of Sagicor Real Estate X Fund Limited, President and Chief Executive Officer of Sagicor Life Jamaica Limited, and Director of Sagicor Group Jamaica Limited. He received his first degree in Economics at the University of the West Indies and a Master of Science in National Development and Planning from the University of Bradford, England. He has held managerial positions in several major corporations in Jamaica including First Life Jamaica Limited, where he was Chairman and Chief Executive Officer, and Pan-Jamaican Investment Limited where he was President and Chief Executive Officer. Mr. Byles is currently Chairman of Sagicor Investments Jamaica Limited, Sagicor Life of the Cayman Islands Ltd., and Desnoes & Geddes Limited ( Red Stripe ). He is Co-Chair of the Economic Policy Oversight Committee (EPOC), a private/public sector committee established to oversee the implementation of the IMF programme in Jamaica. Rohan Miller B.Sc. (Agri.) (Hon), MBA Mr. Miller is the Chief Executive Officer of Sagicor Real Estate X Fund Limited, Chief Executive Officer of Sagicor Investments Jamaica Limited and Executive Vice President and Chief Investment Officer of Sagicor Life Jamaica Limited and Sagicor Life of the Cayman Islands Limited. He was awarded a B.Sc. (Hon.) degree with a major in Agricultural Economics by the University of the West Indies where he studied on scholarship from the Commonwealth Fund for Technical Co-operation. He received an MBA (Beta Gamma Sigma) in Finance from Rutgers University, Graduate School of Management where he was also the recipient of the Christine Dymsza Memorial Scholarship for academic excellence and the Edmund L. Houston Foundation Award for Outstanding Achievement. He leads a team that manages a mix of investments of approximately J$349 billion. He currently sits on the Investment Committee of Sagicor Life Jamaica Limited. Dr. M. Patricia Downes-Grant CBE, BA, MA, MBA, DBA, LLD (Hon) Dr. Downes-Grant joined Sagicor Life Inc in 1991 where she held several senior positions, including Group Chief Operating Officer, and Treasurer and Executive Vice President (Finance and Investments) before being appointed as Chief Executive Officer and President on January 1, She holds an MBA in Finance, an MA in Economics, and a Doctorate in Business Administration (Finance). Prior to joining Sagicor, Dr. Downes- Grant was a Senior Manager in the Management, Consulting and Insolvency Division of Coopers & Lybrand (now PricewaterhouseCoopers). Dr. Downes-Grant has more than 20 years of work experience in the insurance, banking and asset management industry. She is a former Chairman of the Barbados Stock Exchange and Barbados Central Securities Depository and a Director of several companies within the Sagicor Group and the private sector of Barbados. In 2014, Dr. Downes- Grant was honoured for her services to the financial services industry and was awarded a Commander of the British Empire (CBE). Dr. Downes-Grant was conferred recently with an Honorary Doctor of Laws degree by the University of the West Indies. Overview Financial Statements Corporate Governance Community Additional Information SAGICOR REAL ESTATE X FUND 13

16 Board of Directors (Cont d) Dr. The Hon. R. Danvers (Danny) Williams O.J., C.D., J.P., Hon. LL.D (UTech), Hon. LL.D (UWI), CLU Mr. Williams is Chairman of Sagicor Life Jamaica Limited and Sagicor Group Jamaica Limited. He is one of the founders and the Past President and Chief Executive Officer of Life of Jamaica Limited (now Sagicor Life Jamaica Limited). He commenced his working career at the age of 18 years with North American Life Assurance Company and within seven (7) years rose to the position of Branch Manager and, over the next decade, guided the branch to the No. 1 branch office in the North American Life international branch network. He subsequently led a group of Jamaican investors in the establishment of Life of Jamaica Limited. Mr. Williams public and civic services include appointments during the period as Senator, Minister of State and, subsequently, Minister of Industry & Commerce. He has received numerous honours and awards including Doctor of Laws (Hon.) from the University of Technology, Doctor of Laws (Hon.) from the University of the West Indies, Observer Lifetime Achievement Award, induction in the Private Sector Organisation of Jamaica (PSOJ) Hall of Fame, the Caribbean Luminary Award from the American Foundation for the University of the West Indies (AFUWI), the Gleaner Honour Award for Voluntary Service, induction into the Caribbean Association of Insurance and Financial Advisors (CARIFA) Hall of Fame, the YEA Entrepreneurial Spirit Award from the Young Entrepreneurs Association and one of the 50 Living Legacy Awards from the Caribbean Community for Retired Persons (CCRP). He served as President of the Jamaica Association for the Deaf for 10 years and is past Chairman of the Jamaica Association for the Advancement of Literacy, and the National Development Foundation of Jamaica as well as past Vice President of the Jaycees of Jamaica and the West Indies Jaycees. Mr. Williams is currently Chairman of the Jamaica Anti-Doping Commission, Chairman of the Board of Jamaica College Foundation and Director Emeritus of Jamaica Broilers Group Ltd. Michael Fraser J.P. CLU Mr. Fraser is a Chartered Life Underwriter who has worked in the insurance industry in Jamaica for several years. He served as President and Chief Executive Officer of Island Life Insurance Company Limited and Deputy Chief Executive Officer and Chief Marketing Officer of Sagicor Life Jamaica Limited. He is currently the President & Chief Executive Officer of Sagicor Life of the Cayman Islands Limited and is a Director of Sagicor Insurance Brokers Limited. He also serves as a consultant with Sagicor Life Jamaica Limited. He is a Past President of the Life Underwriters Association of Jamaica and, in 1999, was voted Insurance Man of the Year by the Association. In 2005, he was inducted into the Caribbean Insurance Hall of Fame. He is also Vice Chairman of The Jamaica Cancer Society and Chairman of The Jamaica Medical Foundation. 14 ANNUAL REPORT 2015

17 Board of Directors (Cont d) Stephen McNamara Barrister-at-law (Appointed 2014) Stephen McNamara was called to the Bar at Lincoln s Inn, and in St Lucia in He is the senior partner of McNamara & Company, Attorneys-at-Law of St. Lucia. The barrister/solicitor specialises in the representation of foreign investors in St Lucia in the Tourism, Manufacturing and Banking sectors. He served as Chairman of the St Lucia Tourist Board for nine years. He was appointed Non-Executive Chairman of Sagicor Financial Corporation, the Group s Holding Company, on 1 January 2010, having formally served as Vice Chairman since June 2007, and is the Chairman of the Group s main operating subsidiary Sagicor Life Inc. and also of Sagicor USA and a number of other subsidiaries within the Group. Mr. McNamara s St Lucia-based service includes the Board of St Lucia Electricity Services Ltd, where he was elected as the Chairman in December 2015 and as President of the St Lucia Tennis Association. Mr. McNamara was made a Commander of the Order of the British Empire (CBE) in the 2015 Queen s Birthday Honours for public service and services to the legal profession. Also in 2015, he was awarded an honorary doctorate from the University of the West Indies for his outstanding achievements and contribution to the region in the areas of business, sport and general philanthropy for more than forty years. Peter Pearson B.Sc., FCCA, FCA, J.P. Mr. Pearson is a graduate of Cornwall College and a graduate of the University of West Indies from which he holds a BSc. (Management Studies). He is a Fellow of the Institute of Chartered Accountants and a Fellow of the Chartered Association of Certified Accountants. He is a former partner of PricewaterhouseCoopers, Jamaica in charge of the firm s Montego Bay office. He has had significant experience in public accounting in tourism and hospitality, banking, government, among other industries. Mr. Pearson is a director and audit committee member of a number of companies, including two that are listed on the Jamaica Stock Exchange. He has been a Justice of the Peace since Vinay Walia Bachelor of Commerce, A.C.C.A. Mr. Walia is the Co-Managing Director of Guardsman Group, and also serves on the Board of Directors. He joined Guardsman Group as Financial Controller in 1998, before being promoted to Financial Director in 2000 and Co-Managing Director in His responsibilities include providing financial leadership to the Group and its subsidiaries, driving and supporting key strategic growth and profitability initiatives, as well as ensuring full compliance with government and industry regulations as well as corporate policies. Prior to joining Guardsman Group, Mr. Walia had a reputable career in accounting and auditing, first with A.F. Ferguson & Co. (a representative of KPMG Peat Marwick in India), and later with KPMG Peat Marwick in Jamaica. He is a Chartered Certified Accountant (ACCA), and also holds a Bachelor of Commerce degree with Honours from Delhi University. Overview Financial Statements Corporate Governance Community Additional Information SAGICOR REAL ESTATE X FUND 15

18 Sagicor Real Estate X Fund Group Structure AS AT DECEMBER 31, 2015 SHAREHOLDERS (SAGICOR STOCKHOLDERS) SHAREHOLDERS (OTHERS) X FUND 100% 43% X FUND PROPERTIES LTD. (JA) UNITS IN SIGMA REAL ESTATE PORTFOLIO HILTON ROSE HALL X FUND PROPERTIES LLC (DELAWARE) DOUBLETREE ORLANDO 16 ANNUAL REPORT 2015

19 Corporate Data DIRECTORS: Richard O. Byles Chairman Rohan Miller CEO Dr. the Hon. R.D. Williams, O.J., C.D. Michael Fraser Dr. Patricia Downes-Grant Stephen McNamara Vinay Walia Peter Pearson LEADERSHIP TEAM: Rohan D. Miller Chief Executive Officer Corporate Secretary: McNamara Corporate Services Inc. 20 Micoud Street, Castries, Saint Lucia Auditors: PWC PricewaterhouseCoopers Scotiabank Centre, Duke Street, Kingston Bankers: Sagicor Bank Jamaica Limited 17 Dominica Drive Kingston 5 Attorneys Patterson Mair Hamilton Attorney-at-Law Temple Court 85 Hope Road Kingston 6 Registered Office: 20 Micoud Street Castries St. Lucia Territories of Operation St. Lucia Sagicor Real Estate X Fund Limited 20 Micoud Street Castries St. Lucia Jamaica X Fund Properties Limited (wholly owned subsidiary) Barbados Avenue Kingston 5 Jamaica USA X Fund Properties LLC (wholly owned subsidiary of X Fund Properties Limited) 5780 Major Boulevard Orlando, Florida USA Overview Financial Statements Corporate Governance Community Additional Information SAGICOR REAL ESTATE X FUND 17

20 Hilton Rose Hall s First Year X Fund s investment strategy has been to seek out attractive opportunities that will prove profitable as well as complement and enhance the existing portfolio of real estate investments. 18 ANNUAL REPORT 2015

21 In its first full year of operation as part of the Group, the Hilton Rose Hall has already proven to be a strong revenue earner and profitable, whilst further enhancing our existing hotel portfolio. In December 2014 X Fund Properties Limited, a wholly owned subsidiary of X Fund, was formed to hold title for Hilton Rose Hall. The acquisition of the hotel was funded through two debt issues, the first in December 2014 of US$42.3 million, and the second of US$46.8 million in January The hotel acquisition was completed on January 21, The Hilton Rose Hall is a family-oriented all-inclusive resort with 489 rooms, inclusive of 13 suites. The resort offers an outstanding beachfront location with over 70% of the rooms having an ocean view and the other guestrooms overlooking the Resort s beautiful tropical surroundings, the adjacent Cinnamon Hill golf course, or feature majestic mountain vistas. The hotel offers a range of amenities, including seven allinclusive restaurants and bars; 44,000 square feet of meeting space; 1,800 square feet of beach; the Sugar Mill Falls Water Park; Cinnamon Hill Golf Course; Soothe Spa; six tennis courts; gift shop; and a fitness centre. Since acquisition, Hilton Rose Hall has recorded strong performance. Average Occupancy of 80% and an Average Daily Rate of $262 helped to generate Gross Revenue of approximately US$39.3 million with an EBITDA Less FF&E Reserve of approximately US$10.6 million. In its first year of operation the hotel earned a net income of approximately US$4.3 million. SAGICOR REAL ESTATE X FUND 19

22 20 ANNUAL REPORT 2015 Management s Discussion & Analysis

23 Company Overview Sagicor Real Estate X Fund Limited, a St Lucian International Business Company, is the largest publicly traded real estate investment company in Jamaica that is listed on the Jamaica Stock Exchange. We are a leading private sector investor in the Jamaican commercial and tourism real estate market, through our investment in the Sigma Real Estate Portfolio and through ownership of the Hilton Rose Hall in Montego Bay, Jamaica and DoubleTree Orlando in Florida, USA through a wholly owned subsidiary, X Fund Properties Limited. The Group holds a 43% interest in Sigma Real Estate. (compared to $985 million in 2014), with resulting net Sigma Real Estate owns properties in the tourism sector profit from this segment of $778 million. including three Jewel Resorts-branded hotels; as well as In 2015, X Fund expanded its activities in the tourism in the commercial real estate sector, inclusive of four sector with the acquisition of the 489-room Hilton Rose office/retail business properties and three industrial/ Hall Beach Resort & Spa, effective January 2015 and warehouse properties. Additionally, Sigma Real Estate the 742-room DoubleTree by Hilton at the Entrance to owns three prime land holdings slated for development. Universal Orlando in September The acquisition The net earnings in Sigma Real Estate, which forms is expected to add diversity to the Group s revenue the basis for appreciation of the portfolio s unit values, stream as its first non-jamaican property holding. The was based on 2015 revenue of $8.520 billion of which purchase of Hilton Rose Hall and DoubleTree Orlando $6.737 billion was earned by the Jewel hotels, EBITDA of were funded through a combination of long-term $2.677 billion and net profit of $2.282 billion. Sigma Real borrowings of $16.2 billion and a rights issue by X Fund Estate s net earnings also included revaluation gains in September 2015 of $5.2 billion. of $982 million during the period. Capital gains from X Fund s interest in Sigma Real Estate was $1.323 billion Overview Financial Statements Corporate Governance Community Additional Information SAGICOR REAL ESTATE X FUND 21

24 Management s Discussion and Analysis (Cont d) HIGHLIGHTS Dec 2015 Dec 2014 % Change Total Revenue - J$ million 6, % Earnings before interest tax depreciation and amortisation (EBITDA) - J$ million 2, % Net Profit attributable to stockholders J$ million 1, % Earnings per stock unit J$ (restated for rights issue) % Annualised return on average Stockholders Equity (ROE) 10.38% 10.38% 0% Total Assets J$ billion % Stockholders Equity - J$ billion % Book value per share J$ % JSE X Fund share price J$ % SIGMA REAL ESTATE PORTFOLIO REVIEW 5% 4% 2% 2% 2% 1% 1% 25% Sigma Real Estate Portfolio By Asset Value Jewel Dunn's River Jewel Runaway Bay Jewel Paradise Cove R. Danny Williams Building 6% Northern Estates (Cinnamon Hill & Success Estate) Sagicor Sigma Building 7% Sagicor Industrial Park - Norman Road Sagicor Industrial Park - Freeport, Montego Bay Sagicor Montego Bay Commercial Centre 10% 20% Sagicor Industrial Park - Marcus Garvey Drive Seymour Avenue Curatoe Hill - May Pen 15% Spanish Town Shopping Centre Strata Lots THE HOTEL PROPERTIES CONTRIBUTED NET PROFIT OF J$1.29 BILLION, UP 71% FROM THE PREVIOUS YEAR. 22 ANNUAL REPORT 2015

25 Management s Discussion and Analysis (Cont d) Sigma Real Estate Portfolio Sector Breakdown 18% 11% 12% Tourism Office/Retail Business 59% Industrial/Warehouse Land For Development The Sigma Real Estate Portfolio currently holds thirteen (13) properties which comprise prime commercial and resort properties located across Jamaica, as well as three lots slated for development. In terms of asset value, the number one property is Jewel Dunn s River, whereas the lowest in value is the Spanish Town Shopping Centre strata lots. The invested real assets of Sigma Real Estate can be broken down into three broad categories of: (1) Commercial (Non-Hotel) Properties (Office/Retail Business and Industrial/Warehouse); (2) Tourism (Hotel) Properties; (3) Land for Development. During 2015 there were two changes to the property holdings of Sigma Real Estate as follows: 1. The sale of a commercial property located at 78A Hagley Park Road, which was completed in September 2015; 2. The purchase of Northern Estates (land adjacent to the Hilton Rose Hall property) in June 2015, which is earmarked for development. Sigma Real Estate Portfolio Net Income Breakdown 14% 11% 75% Tourism Office/Retail Business Industrial/Warehouse Sigma Real Estate continues to be dominated by the Tourism Properties, which represent 59% of total net asset value of the portfolio, while the Commercial Properties represent 29% and Land for Development the remaining 12%. The Tourism Properties contributed J$1.29 billion or 75% to total net income of Sigma Real Estate, which represents a 71% increase from J$757 million in The net earnings of the Hotel Properties are denominated in US dollars and therefore provide a hedge against devaluation of the Jamaican dollar. The Commercial (Non-Hotel) Properties in Sigma Real Estate contributed approximately J$397 million towards the portfolio s overall net profit, up from J$353 million in The average occupancy across the Commercial Properties in the portfolio was 91%, up from 89% for 2014, with the average rental rate of $787 per square foot, also up from $676 in Overview Financial Statements Corporate Governance Community Additional Information THE AVERAGE OCCUPANCY ACROSS THE COMMERCIAL PROPERTIES IN THE PORTFOLIO WAS 91%, UP FROM 89% FOR SAGICOR REAL ESTATE X FUND 23

26 24 ANNUAL REPORT 2015

27 Resort properties total over J$32.5B in Total Property Value Management s Discussion and Analysis (Cont d) CONSOLIDATED NON-HOTEL PROPERTIES Property Value J$ 6,465,600,000 J$ 6,074,754,000 Area (Sq.Ft) 759, ,271 Occupancy 91% 89% Average Rental Rate. Rate J$ 787 J$ 676 Avg Service Fee J$ 677 J$ 656 Annualised Gross Income J$ 534,847,110 J$ 527,632,293 Annualised Expenses J$ 138,247,012 J$ 174,339,216 Net Income J$ 396,600,097 J$ 353,293,077 Gross Yield 8% 9% Net Yield 6% 6% Hotel Properties In 2015, Total Revenue of the Jamaican Hotel properties was US$96.8 million, of which the Hilton Rose Hall s contribution, acquired in January 2015, was US$39.3 million or 41%. The three Jewel properties contributed the remaining 59%. The DoubleTree Orlando, after four months of operations, contributed US$8.3 million to Total Revenue. The tourism properties offer over 1,900 rooms In 2015, hosted over 1 million guests Employs more than 2,100 employees Overview Financial Statements Corporate Governance Community Additional Information SAGICOR REAL ESTATE X FUND 25

28 Management s Discussion and Analysis (Cont d) CONSOLIDATED HOTEL PROPERTIES Jamaican Investments US Investments Occupancy 79% 77% Average Daily Rate (US$) RevPar (US$) Total Revenue (US$) 96,761,647 8,258,074 EBITDA Less FF&E Reserve (US$) 21,144,452 1,426,753 X Fund Group Net Income Breakdown 8% 6% 86% The two new hotel acquisitions in 2015 have resulted in the Group s exposure (both directly and indirectly), on an asset value basis, being dominated by 5 hotel properties at 78%, and the hotel properties contribution to overall net profit also dominating with 86%. Tourism Office/Retail Business Industrial/Warehouse X Fund Group Exposure by Sector MARKET DYNAMICS 10% 6% 6% 78% GLOBAL ECONOMY Global GDP growth is estimated at 3.1% for 2015 relative to 3.3% for The growth performance occurred within the context of the implementation of accommodative monetary policies in several industrialised economies to mitigate the economic challenges. Tourism Office/Retail Business Industrial/Warehouse Land For Development GLOBAL GDP GROWTH IS ESTIMATED AT 3.1 PER CENT FOR 2015 RELATIVE TO 3.3 PER CENT FOR However, the weaker growth out-turn was largely underpinned by the continued slowdown of the Chinese economy, which has adversely impacted economic activities in several economies including USA, the Euro area and Brazil. Additional downward pressure on commodity prices also arose from a continued increase in global supplies and signs of persistent weakness in global demand. Consequently, the central banks of most major economies maintained an accommodative monetary policy stance with some implementing further measures to stimulate growth. 26 ANNUAL REPORT 2015

29 Management s Discussion and Analysis (Cont d) In particular, faster growth was evidenced in the USA and Japan while the Euro area continued to progress marginally. On the other hand, there was deceleration in growth for the UK, Canada and China during Global growth is projected to increase marginally in 2016 to 3.2% compared to 3.1% in JAMAICAN ECONOMY The global economy in 2015 saw some economies strengthen, while others particularly emerging and developing economies were challenged by falling commodity prices and by tightened financial conditions. In particular, the US economy regained momentum after a slow start at the beginning of the year, while in Latin America and the Caribbean economic activity continues to decelerate at the regional level. However, stronger US growth benefited countries in the Caribbean region, especially those with tighter links through trade, remittances, and tourism. The benefits from the uptick in US economy supported the strong implementation of the GOJ reform agenda and resulted in improved economic conditions in Jamaica. Within the context of the global and local developments, Jamaica s economy experienced an estimated real GDP growth of 0.8% for the calendar year This compares with growth of 0.5% recorded in While more robust expansion in economic activities is required, investment and growth prospects are gradually improving. This is being facilitated by lower oil prices which has improved the current account and reduced inflation to its lowest point in nearly 50 years. Inflation for the calendar year 2015 was 3.7% relative to 6.4% in the previous year. The moderation in price increases, accompanied by other economic reforms, has facilitated the reduction in the central bank 30-day benchmark interest rate to 5.25% from 5.75%, through a reduction of 25bps on two occasions. This occurred under improving economic conditions which underpinned the gradual decline in external financing and debt sustainability risks. As the economic conditions became more conducive for growth, private sector credit increased by 9.6% during 2015, relative to 4.8% over the previous 12-month period. Further, the local stock market benefited from improved confidence in the local economy which spurred increased investment in local companies. This resulted in the JSE Main Index appreciating by approximately 97%. To encourage further investments, reforms focused on reducing the cost of doing business, promoting private sector credit, and lowering electricity costs continued throughout the year. Additionally, the GOJ budget was adjusted to facilitate a modest fiscal stimulus both this year and next to support pro-growth investments. The primary balance target has been lowered by 0.25% of GDP in financial year 2015/16 and 0.5% of GDP in financial year 2016/17. This additional fiscal space will provide an opportunity to increase public spending on capital projects that should boost growth and job creation. The Doing Business 2016, released by the World Bank in October 2015, shows that Jamaica ranked 64 th among 189 countries in 2015, an improvement of 7 positions from the previous year. Notwithstanding the achievement made thus far under the economic programme, the reforms have not filtered to the average Jamaican. The unemployment rate for October 2015 was 13.5%, compared to 14.2% in October Unemployment rates among youths aged years was 32.7% for October Despite substantial job growth in Hotels & Restaurants, unemployment levels remain elevated. However, there are signs that imports are being replaced by domestic production which suggest that employment prospects should continue on an upward trajectory. Additionally, the recent wage agreement with public sector workers will push the wage bill for financial year 2015/2016 to 10.3% of GDP, 0.2% of GDP higher than previously anticipated. To ensure controls on Overview Financial Statements Corporate Governance Community Additional Information SAGICOR REAL ESTATE X FUND 27

30 Management s Discussion and Analysis (Cont d) expenditure levels, the GOJ has noted that starting next fiscal year, there will be a systematic effort to modernise the public sector with an overall reduction in public sector employment through: (i) Divestment of public enterprises and government units; (ii) Enhanced efficiency through shared services; (iii) Commencement of modernisation of select ministries. The International Monetary Fund s (IMF) continuous surveillance, along with the favourable progress reports, has fuelled increasing confidence in the local economy. Although risks to the reform programme are slowly receding, they remain high, partly due to the slow expansion in economic activities. However, the medium-term macroeconomic outlook for the Jamaican economy has improved. With macroeconomic stability now well entrenched, the strengthening in the debt dynamics along with the lowering in the target for the primary surplus should act as a major impetus for expansion in economic activities. The Bank of Jamaica projects growth in the economy within the range of 1.0 per cent to 2.0 per cent for the calendar year The economy should continue to benefit from gains in external competitiveness, further improvements in the business environment as well as the effects of continued implementation of the GOJ growth agenda. TOURISM SECTOR REVIEW 1. Global Environment International tourist arrivals grew by 4.4% in 2015 to reach a total of 1,184 million in 2015, according to the UNWTO World Tourism Barometer. The performance represented the 6th consecutive year of above-average growth, with international arrivals increasing by 4.0% or more every year since the post-crisis year of During 2015 approximately 50 million more tourists (overnight visitors) travelled to international destinations around the world compared to International tourist arrivals in the Americas grew by 5.0% or 9 million to reach 191 million, consolidating the strong results of The region recorded the second fastest growth rate during the year. The appreciation of the US dollar stimulated outbound travel from the United States, benefiting the Caribbean and Central America, both recording 7.0% growth. Similarly, both South America and North America were close to the average with growth of 4.0%. 2. Orlando Environment In addition to tourism, Orlando is a major industrial and high-tech centre. The metro area has a US$13.4 billion technology industry employing over 53,000 people and is a nationally recognised cluster of innovation in digital media, agricultural technology, aviation, aerospace and software design. More than 150 international companies, representing approximately 20 countries, have facilities in Metro Orlando. In 2014, Forbes mgazine recognised Orlando as the top city in the United States for job growth, with a growth rate of 3.7% in the first three quarters of that year, more than double the national average. REGION World 4.7% 4.7% 4.6% 4.2% 4.4% Europe 6.4% 3.9% 4.7% 2.4% 4.9% Asia and the Pacific 6.5% 7.1% 6.9% 5.8% 5.0% Americas 3.6% 4.5% 3.1% 8.4% 5.0% Africa -0.6% 4.6% 4.4% 0.2% -2.7% Middle East -9.5% 2.2% -3.0% 6.7% 2.9% 28 ANNUAL REPORT 2015

31 Management s Discussion and Analysis (Cont d) Total Visitor Arrivals MILLIONS TOTAL STOPOVER CRUISE PASSENGERS Orlando has the 7th largest research park (Central Florida Research Park) in the country, with over 1,027 acres. It is home to over 120 companies, employs more than 10,000 people, and is the hub of the nation s military simulation and training programmes. Metro Orlando is home to the simulation procurement commands for the US Navy, Air Force, Marines and Coast Guard, Orlando s high-technology manufacturing segment, influenced by the presence of such companies as Lockheed Martin, Westinghouse, Cirent Semiconductor, Siemens Telecom Networks and Recoton Corporation, which is making significant gains primarily in the areas of laser and optical technologies, computer simulation and silicon chip manufacturing. Many of the high technology companies are concentrated in business parks like Central Florida Research Park and Orlando Central Park, as well as around the University of Central Florida. 3. Jamaican Environment The increased global tourist travel partly resulted in the higher number of visitors to the island. This was favouably impacted by domestic policy initiatives focused on facilitating increased investments and visitor arrivals. Against this background, total visitor arrivals to the island increased relative to the previous year. Stopover Visitors BY MARKET SHARE 3% 2% 4% 9% 63% 18% USA EUROPE CANADA CARIBBEAN UK OTHERS During 2015, total visitor arrivals increased 5.5% to 3.7 million. This increase was the result of a higher number of cruise ship passenger arrivals and stopover arrivals Stopover Arrivals Total stopover arrivals grew by 2.1% to 2.1 million in This performance was due mainly to increased arrivals from the USA and UK, two of Jamaica s major source markets. These markets grew by approximately 47,692 and 21,786, respectively. Notably, the Canadian market (the second largest source market) with 391,409 visitors recorded a decline of 6.8% or 28,489 less visitors than in Cruise Ship Passenger Arrivals Cruise Ship passenger arrivals grew by 10.2% to 1,568,702. This largely reflected increased ship calls at the three major ports, primarily Montego Bay (up 51.2%) as several ships were diverted from Falmouth Port. This resulted in a decline in the number of cruise passengers visiting Falmouth by 2.6%. However, there was an increase in the number of cruise passengers at the Ocho Rios and Montego Bay ports of 8.5% and 54.7%, respectively. Overview Financial Statements Corporate Governance Community Additional Information SAGICOR REAL ESTATE X FUND 29

32 Management s Discussion and Analysis (Cont d) Tourism Expenditure US$ BILLIONS Commercial Banks Loans & Advances TOURISM SECTOR US$ BILLIONS Economic Impact Within this context, economic activities around the Hotels & Restaurants 1 industry grew by an estimated 2.0% for calendar year 2015 relative to the similar period last year. This was accompanied by an estimated increased tourist expenditure of 4.6% for the period. The sector continues to be the leading earner of foreign exchange for Jamaica. The Jamaica Tourist Board (JTB), through its marketing activities, maintained and reinforced a positive image of Jamaica in the various targeted markets. This initiative is to showcase the authentic natural experiences and the numerous enjoyable, refreshing and relaxing options that are available Employment 2 The average annual employment in the Hotels and Restaurants industry was 95,100 persons compared with 80,500 persons during This represented approximately 7.3% of total employment Loans & Advances At the end of 2015, the stock of Loans & Advances issued to the Hotels & Restaurants industry by commercial banks was $33.8 billion, compared with $29.7 billion at the end of The positive flow of private sector credit into the sector largely reflects increased investment by private firms to benefit from the potential growth Outlook The United Nations World Tourism Organization (UNWTO) forecasts growth in global tourist arrivals for 2016, though at a slightly lower level compared to the previous two years. Based on the current trend and this outlook, UNWTO projects international tourist arrivals to grow by 4% worldwide in By region, growth is expected to be stronger in Asia and the Pacific (4% to 5%) and the Americas (4% to 5%), followed by Europe (3.5% to 4.5%). With global tourist travel expected to increase, local economic activity for the Hotels and Restaurants industry is expected to increase during This growth is predicated on increased stopover arrivals following improved tourist product offerings, and higher cruise passenger arrivals, stemming from the anticipated introduction of new cruise ships to the island during The positive outlook is also supported by the continued expansion in the USA. 1 This industry captures most of tourism s direct contribution to real value added. 2 STATIN estimates. 30 ANNUAL REPORT 2015

33 Management s Discussion and Analysis (Cont d) COMMERCIAL SECTOR REVIEW The performance of the construction sector is used as a gauge for assessing activities in the real estate sector. For Q3 2015, the construction sector of the economy grew by 0.8% which was largely attributable to the continued expansion of road infrastructure, hotel facilities and the expansion of infrastructure for Business Process Outsourcing (BPO). The importance of the BPO sector has been increasing, as it continues to contribute positively to economic activities. FINANCIAL PERFORMANCE Operations Within the context of continued growth in global tourism arrivals, particularly in the Americas, Sagicor Real Estate X Fund undertook strategic initiatives to enhance shareholder s value during financial The Group increased its direct ownership of resort properties through the purchase of the 742-room DoubleTree Orlando. This is in addition to finalising the acquisition of the 489-room Hilton Rose Hall in January The acquisition of both hotel properties largely resulted in The Group net profit increasing 41% to $1,297.4 million, relative to $921.5 million in the previous year. Earnings per share increased from $0.59 to $0.75, despite an increase in the number of issued shares, by 747,668,375 units during the year. In September 2015 the company completed a rights issue, which raised $5.2 billion, to finance the purchase of DoubleTree Orlando. The profits for the year were earned on revenues of $6,612.1 million relative to $962 million in the previous financial year. This largely emanated from hotel revenue of $5,570.5 million compared to zero in The significant investment in the acquisition of Hilton Rose Hall and DoubleTree Orlando properties has added diversity to the Group s revenue stream. Hotel revenue reflected the full-year operation of Hilton Rose Hall and four (4) months of DoubleTree Orlando. Unrealised The short-term prospects for the Jamaican economy are positive, based on continued construction and retrofitting of building space to facilitate the expansion of the BPO sub-sector. New developments in the BPO sub-industry will be supported by the creation of additional space. In addition to BPO expansion, there is planned construction of approximately 3,000 hotel rooms which will sustain the demand for real estate over the near to medium term. Operating Performance J$ BILLIONS NET INCOME 6.61 NET PROFIT 1.30 THE ACQUISITION OF DOUBLETREE & HILTON ROSE HALL RESULTED IN A 41% INCREASE IN GROUP NET PROFIT. Overview Financial Statements Corporate Governance Community Additional Information SAGICOR REAL ESTATE X FUND 31

34 Management s Discussion and Analysis (Cont d) capital gains from investment in the Sigma Real Estate Portfolio totalled $1,323 million, an increase of 34%. These were complemented by Interest Income which contributed $19.4 million relative to $5.6 million in the previous year. Balance Sheet Position J$ BILLIONS 33.9 The substantial growth in revenue was partially offset by the increase in operating costs. At the end of 2015 total operating cost amounted to $4,382.9 million, relative to zero in the previous year. The increase cost was associated with the operations of resort properties under direct control by the group. Further, Interest Expense grew by $741.7 million to $764.1 million, largely associated with the debt capital raised to purchase the newly acquired hotel properties. The Group has structured loans that were raised in 2014 as part of the initial consideration to purchase the Hilton Rose Hall property. This was in addition to the mortgage notes of $11.6 billion used to finalise the acquisition of Hilton Rose Hall and as part financing of DoubleTree. Additionally, 2015 earnings was impacted by the recognition of $167.8 million in corporate taxes. The taxation charge is computed on the profit for the period, adjusted for tax purposes, and comprises income tax at predominantly 1% and 25%. Balance Sheet The Group s Net Asset Value at the end of December 2015 was $15,647.0 million. This is an increase of 67.5% over the $9,339.6 million recorded in The strength of the balance sheet was augmented by capital injection of shareholders, through the successful execution of a rights issue in September Further, the company s total liabilities increased by $13,332.9 million, to $18,212.2 million. This primarily reflected the structured loans and mortgage notes acquired during 2015 as follows: TOTAL ASSETS SHAREHOLDERS EQUITY The two newly acquired properties resulted in an increase in total asset value by $ million to $33,859.1 million. The Group s total assets reflected direct investment in land & building of $18,795.3 million and holdings of units in Sigma Real Estate valued at $10,726.2 million relative to $9,403.2 million in the previous year. The company cash position remains favourable. At the end of the financial year the Group s cash balance amounted to $2,396.1 million. The current ratio is 0.5 which indicates that short-term liabilities outweigh current assets. Net current assets during the year were negative $2,745.5 million relative to a healthy position of $4,718.3 million in This reflects $ million of borrowings due for payment in A loan from Goldman Sachs of $6,107.3 million with a tenor of ten (10) years. Two corporate notes of $1,511.2 million and $3,927.1 million that are due to mature in 2025 and 2055, respectively. 32 ANNUAL REPORT 2015

35 Management s Discussion and Analysis (Cont d) RISK MANAGEMENT In addition to other information set forth in this Annual Report, investors should be mindful of the risks described. These risks are not the only ones facing shareholders. Additional risks not presently known to the Directors or that the Directors may presently consider to be immaterial may also impair X Fund s operations. X Fund s actual results could differ materially from those anticipated as a result of certain factors, including the following risks faced by X Fund. Ordinary Stock Price Fluctuations The trading price of X Fund s shares has fluctuated since its listing on the JSE Main Exchange and may continue to do so in the future. Some of the reasons for fluctuations in the price of the shares include but are not limited to: announcements of developments related to X FUND s business; the issue of additional shares by X FUND from time to time; announcements concerning the properties in the Sigma Real Estate Portfolio; announcements concerning Sagicor Sigma Global Funds in general and Sigma Real Estate Portfolio in particular; general conditions in the economy, the real estate market, and the markets served by any of the major tenants; substantial loss or damage to any of the Sigma Real Estate Portfolio properties by hurricane, fire and other natural disasters; changes in the law regarding several matters including but not limited to taxation, rights of landlords and tenants, planning and the environment. In addition, prices on the stock market may be particularly subject to volatility. In many cases, the fluctuations may be unrelated to the operating performance of the affected companies. As a result, the price of the shares could fluctuate in the future without regard to operating performance. Changes in Government Policies The Government of Jamaica may from time to time affect macroeconomic conditions through fiscal and monetary policies, which may have an adverse impact on the real estate market, the stock market and the performance of X Fund. Risk relating to Marketability of the shares The X Fund s shares, listed on the Jamaica Stock Exchange, may not be readily saleable and shareholders who may want to cash out may not be able to do so or may only be able to do so at a discount. Risks of hurricane, fire and other Acts of God Material events affecting the properties in the Sigma Real Estate Portfolio could also impact X Fund s performance and operating results. These properties are susceptible to loss or damage by fire, hurricane, earthquake, flood and other perils. Although Sigma Real Estate Portfolio intends to maintain insurance on the properties against such perils, there are numerous factors which could expose Sigma Real Estate Portfolio to loss as a result of a fire, hurricane or other such peril. For instance: a) the insurers could delay settlement or deny liability in respect of a claim for a variety of reasons and even if Sigma Real Estate Portfolio were to ultimately prevail, such delay could prevent the repair or reinstatement of the property with consequential loss of rental income and exposure to increased costs of repairs or reinstatement; Overview Financial Statements Corporate Governance Community Additional Information SAGICOR REAL ESTATE X FUND 33

36 34 ANNUAL REPORT 2015

37 Office/Retail Business Properties total over J$3.9B in Total Property Value Management s Discussion and Analysis (Cont d) b) an insurer or reinsurer could become insolvent or otherwise be unable to respond to a loss under the policy of insurance; c) loss of rent is not covered under the insurance policy; d) after a loss, the sitting tenant may elect to relocate to other premises or to close operations in the leased premises and Sigma Real Estate Portfolio may be unable to promptly find a suitable replacement tenant. Taxation Risks The transaction model is tax sensitive. Changes in the tax treatment of international business companies in Saint Lucia or unit trusts in Jamaica or of companies listed on the Jamaica Stock Exchange could materially affect the profitability of X Fund. An increase in property taxes or the introduction of any new tax in respect of hotel properties, or on companies generally, or on rental properties could also reduce X Fund s profit margin through its investments in the Sigma Real Estate Portfolio. The Office/Retail Business Properties offer space to over 37 companies Overview Financial Statements Corporate Governance Community Additional Information SAGICOR REAL ESTATE X FUND 35

38 Management s Discussion and Analysis (Cont d) Foreign Currency Risk Although a few leases provide for rent to be paid in United States dollars, as a general rule rent is payable in Jamaican dollars under the leases relating to the Sigma Real Estate Portfolio properties. Certain costs such as insurance and refurbishing with respect to imported materials such as carpets and elevators may be increased as a result of the devaluation of the Jamaican dollar relative to the United States dollar and other foreign currencies. Accordingly, Sigma Real Estate Portfolio is exposed to the risk that the value of the future cash flows from rental income may fluctuate because of changes in foreign exchange rates. Sigma Real Estate Portfolio does not, at this point, hedge its foreign exchange risks and it has no current plans to do so. Operational Risks In the execution of its business functions, X Fund is exposed to operational risks arising from failures in systems and the processes through which it operates. Critical areas of operational risks include: (a) employee errors - such as failure to renew insurance or to insure for the proper value; (b) accounting errors, data entry errors; and (c) fraud (internal and external) or other criminal activity. Under the Property Management Agreement between Sagicor Property Services Limited ( Sagicor Property ) and Sagicor Jamaica (in its capacity as managing agent for Sigma Real Estate Portfolio), Sagicor Property is required to indemnify Sigma Real Estate Portfolio against loss or damage caused by the gross negligence, or wilful default or fraud of Sagicor Property or any of its employees or agents in the performance of their duties or functions. Sagicor Property seeks to eliminate such risks by maintaining a comprehensive system of internal controls and administrative checks and balances to monitor transactions supported by a robust internal auditing capability. It also maintains an off-site data repository which will enable it to continue operations in the event of catastrophe affecting its operating location. Lessees Risks Although Sagicor Property has taken care to select reputable tenants for the rental properties in the Sigma Real Estate Portfolio, nevertheless changes in the business fortune of a tenant could affect its creditworthiness and business practices. Rental income to Sigma Real Estate Portfolio could therefore be affected by counter-party risk under the relevant leases - that is to say the risk that a tenant may be unable or unwilling to pay its rent on the due date. That risk has been ameliorated somewhat, but not substantially, by requiring tenants to place a security deposit with Sigma Real Estate Portfolio typically one month s rent and in a few cases, two months. Thin Market in Company s Shares The Jamaican stock market is relatively small and the market in X Fund s shares is expected to be relatively thin compared to larger capital markets. That means that trade in small quantities of X Fund s shares can trigger wide swings (up or down) in the market price of the shares and make it easier for the stock price to be manipulated. Sale of substantial block of Shares may cause market price to decline X Fund s shares are freely tradable. Sagicor Life Jamaica Limited (Sagicor Jamaica) and Sagicor Pooled Investment Funds (PIF) are not restricted in the manner or timing of the disposal of any of their shares. It is possible that relatively large blocks of shares may be acquired by pension funds and institutional investors. A sale of a substantial block of shares by any one or more shareholders may cause the market price of the shares to materially decline. The Special Share held by PIF will deter take-over bids The fact that PIF holds the Special Share which gives it control over the election of Directors and other key corporate decisions will make it unlikely that any investor 36 ANNUAL REPORT 2015

39 Management s Discussion and Analysis (Cont d) other than PIF or entities affiliated to PIF would bid for control of X Fund. Such bid if made would usually be expected to be at a premium above the prevailing trading price of the shares. Accordingly, the likelihood of stockholders receiving a take-over bid is reduced, perhaps significantly. Fluctuation Property Value Movement in the market value of the Sigma Real Estate portfolio properties will be reflected in the value of the shares, given X Fund s investment in the unit trust portfolio. Property value may fall for a variety of reasons, including but not limited to, change in government policy or taxation; fall in demand for rentable office and warehouse space (due to economic downturn or other factors triggering a reduction in demand for rentable office and warehouse space) and construction of new and more modern office and warehouse facilities. Affecting Unit Trusts The shares will derive their value from the units in the Sigma Real Estate Portfolio. Any change in the law or regulation which impacts (whether adversely or positively on unit trusts) will, most likely, feed through to the value of the shares. Lack of Diversification The Sigma Real Estate Portfolio is a non-diversified portfolio within the Sagicor Sigma Global Funds (Sagicor Sigma). The lack of diversification means that the Portfolio is particularly exposed to risks affecting the property market. Withdrawal of Concession on withholding on income accruing on units in Unit Trust Gains (both income and capital) accruing upon units in a registered unit trust have, traditionally, been treated as tax free. However, in 1998 the Commissioner of Income Tax advised the then Superintendent of Insurance that a review of the Income Tax Act, as it related to the taxation of unit trusts, had confirmed that income earned on investments in a unit trust was not, in fact, tax-free. The Commissioner further noted that with effect from January 1, 1999 all unit trusts would be required to withhold and pay over the tax from income paid to unit holders at the time of encashment of units. The Commissioner also required the trustees (sic) to specify, presumably in any encashment receipt or similar document, the following information namely: (a) the value of the unit as at January 1, 1999 (or the time of purchase if acquired after that date); (b) income paid or credited on the relevant units; (c) tax withheld; and (d) capital gain or loss. The ruling of the Commissioner seems to have caught the unit trust community by surprise as they appear to have been operating on the basis that all gains (whether income or capital) on units in a unit trust were tax-free. A lobby effort on the part of the four existing unit trusts then in existence (including Sagicor Sigma) then ensued and succeeded in scotching the Commissioner s plan to tax income gains on units in a unit trust. However, the issue could resurface. X Fund has not taken any tax advice on the merits of the Commissioner s position. If the Commissioner is correct and the law is enforced, then it would have a material adverse effect on Sagicor Sigma and other unit trusts and by the same token on the value of the shares. Not only would units likely fall in value but the administrative burden of disaggregating gains on units between income and capital would inevitably increase the cost of administering a unit trust with consequential increase in management fees. Indeed, computer systems supporting unit trust operations might have to be replaced or upgraded to effect the disaggregation which would be required under the law. The thirteen (13) Sigma Real Estate Portfolio properties with buildings are insured along with other major properties against commercial all risks perils. The insurance is subject to an aggregate catastrophe limit Overview Financial Statements Corporate Governance Community Additional Information SAGICOR REAL ESTATE X FUND 37

40 38 ANNUAL REPORT 2015

41 Industrial/Warehouse Properties total over J$2.5 B in Total Property Value Management s Discussion and Analysis (Cont d) for hurricane damage at all locations of US$85,000,000 and US$135,000,000 for earthquake damage subject to a catastrophe deductible of US$50,000 (for hurricane and earthquake) and US$10,000 for non-catastrophe risks such as fire. Average, whereby a claim for loss is reduced proportionately if the property is under-insured, does not apply to the insurance unless the sum insured is less that 85% of the value at risk at the time of the loss. Insurance for consequential loss or loss of rent following property damage only exists in relation to Jewel Dunn s River and the R. Danny Williams Building. Accordingly, loss or damage to any of the other properties by fire or other peril could adversely affect the revenues of the Sigma Real Estate Portfolio and in turn the financial performance of X Fund. In addition, one or more of the insurers and underwriters under the insurance programme may become insolvent and unable to meet its obligations in the event of a claim. The Industrial/Warehouse Properties offer space to over 130 companies Overview Financial Statements Corporate Governance Community Additional Information SAGICOR REAL ESTATE X FUND 39

42 Management s Discussion and Analysis (Cont d) Related Party & Potential Conflict of Interest X Fund is managed by Sagicor Jamaica. Sagicor Jamaica is also providing investment management services to the Sigma Real Estate Portfolio and, along with its subsidiary, PIF, are substantial investors in X Fund. In spite of the multiple roles which Sagicor Jamaica will play, the interests of the various parties are generally aligned. Notwithstanding that the parties all share common interest in the success of X Fund, it is possible that conflicts of interest would arise in the day-to-day operation of X Fund. Sagicor Group Jamaica Limited, as the holding company for the Sagicor Jamaica group of companies ( the Group ), has a robust Corporate Governance and Ethics Committee that comprises non-executive directors. That Committee is charged with the duty of ensuring adherence to best practice standards of corporate governance and ethics within the Group. This Board Committee, among other things, reviews related party transactions and monitors conflict of interest situations to ensure that all such transactions are carried out on an arm s length basis with the utmost integrity. In addition, X Fund has appointed two (2) independent directors, one of whom chairs its Audit Committee. This Committee, from X Fund s standpoint, also monitors and reviews related party transactions and other potential conflict of interest scenarios to ensure strict compliance with best practice benchmarks. STRATEGIC OUTLOOK The Group will focus on the following areas over the medium to long term: Tourism inclusive of hotels and attractions across the North America/Caribbean region Commercial Real Estate specifically Business Process Outsourcing and Industrial/Warehousing We anticipate that tourism will continue to be one of Jamaica s top performing sectors, positively impacting its economy through its significant contribution to employment, both directly through the hotel industry as well as indirectly through such areas as tours and attractions and agriculture. In terms of BPO, we believe it can be a significant driver of employment, and we will seek to invest in the establishment of facilities. Jamaica s geographic location and strong English language skills make near shore opportunities possible, and the country continues to be a targeted location for the establishment of BPO facilities by international companies. Our main aim is to enhance value for shareholders by continuously improving the yields on our real estatelinked investments and we see these two key areas as having the potential to deliver on this commitment. X Fund s goal in risk management is to ensure that it understands, measures, and monitors the various risks that arise and that it adheres strictly to the policies and procedures, which are established to address these potential risks. 40 ANNUAL REPORT 2015

43 Corporate Governance The Articles of Association of Sagicor Real Estate X Fund Limited (X Fund) provides for a Board of Directors of not more than eight (8) persons. The current Board comprises eight (8) Directors. The Board of Directors is responsible for (i) the strategic direction of X Fund which involves setting its business objectives and the plans for achieving them; (ii) execution of the approved business objectives through adequate management and resources; (iii) monitoring the performance of the Sigma Real Estate Portfolio with a view to achieving the strategic objectives and ensuring compliance with all applicable legal and regulatory regimes; and (iv) due and proper accounting to all stakeholders of X Fund including in particular, the stockholders. The Board of Directors of X Fund has established a tradition of best practices in corporate governance as a foundation for long-term success, while committing to internationally accepted standards and practices, including compliance with sound accounting practices. X Fund recognises the need to continuously upgrade its standards of corporate governance through a review process and therefore intends to adopt new standards as they evolve. The Board of Directors met quarterly during the year 2015 except where Special Meetings were required and convened. The Board adheres to the principles outlined in the Corporate Governance Policy which provides clear guidelines on the oversight and decision-making role of the Board. This Policy is available on the Sagicor Website at Investments/Sagicor_X-Fund.pdf The Corporate Governance Policy is to be reviewed every two (2) years in keeping with the Rules of the JSE and therefore will be reviewed in Board Operations During the year 2015, the Board held ten (10) formal Board and Committee meetings; in addition, ad hoc meetings were held to deal with other urgent matters. The critical agenda items which were covered at Board meetings during 2015 included: The approval of the year-end Financials The review and approval of the Quarterly Financial Review and Reports to the Jamaica Stock Exchange Annual General Meeting preparation Approve major investment activities and strategic business initiatives, including the purchase of a hotel by the Company or a subsidiary of the Company Receive and approve decisions of the Board Committees Board Committees and Attendance Records The Committee Members are appointed by the Board of Directors and hold office until otherwise determined by the Board of Directors or until they cease to be directors. The Committees comprise a majority of nonexecutive directors. Representatives of the Investment Manager attend meetings as invitees and participate in the meetings through presentations of discussion documents and development of strategies. Overview Financial Statements Corporate Governance Community Additional Information SAGICOR REAL ESTATE X FUND 41

44 Corporate Governance (Cont d) The table below shows the composition of the Committee and directors attendance at meetings as at December 31, 2015: Directors Attendance: Board and Committee Meetings 2015 Directors Board Total Meetings Audit Committee Total Meetings Investment Committee Total Meetings (Number of Meetings total - 10) held: 6 held: 3 held: 1 Hon R. D. Williams 4-1 Richard Byles 6-0 Dr. Patricia Downes-Grant Michael Fraser Stephen McNamara Rohan Miller Peter Pearson Vinay Walia Directors Remuneration The Board determines the level and structure of fees paid to non-executive directors; executive directors do not receive fees in respect of their office as directors of the Company or any of the companies within the Sagicor Group. The payment of directors fees is in line with other listed companies in the financial sector. Fees are paid quarterly based on an annual retainer. Board/Committee J$ Annual Retainer Audit Committee Investment Committee Board Chairman $0.00 Board Director (ALL) $1,470, Committee Chair $945, $945, Member of Committee $630, $630, ANNUAL REPORT 2015

45 Corporate Governance (Cont d) Board Evaluation All directors were invited to participate in self-evaluation and 360 degrees feedback [Peer review] for the year In keeping with the Corporate Governance Policy, the outcome of the evaluations for 2015 will be discussed by the Board in its first Board Meeting of Audit & Finance Committee/ Investment Committee/ Corporate Governance Committee The Board of X Fund established an Audit & Finance Committee and an Investment Committee to ensure that there is an ongoing review of its corporate integrity and X Fund s ability to achieve its strategic and operational objectives. These Committees will meet quarterly in the absence of any pressing matter or emergency. Audit Committee - The Committee Members are Mr. Peter Pearson (Chairman and independent director), Mr. Vinay Walia (independent director) and Mr. Michael Fraser. Investment Committee Mr. Vinay Walia (Chairman and independent director), Dr. the Hon. R. Danvers Williams, Mr. Richard Byles and Mr. Rohan Miller are the members of this Committee. Corporate Governance Committee - International best practices, the PSOJ Corporate Governance Code recommend that a Corporate Governance Committee be established for corporate entities (although this is not mandated by the Jamaica Stock Exchange (JSE) Rules). The Corporate Governance Policy for X Fund has adopted this recommendation and the Board will establish a Corporate Governance Committee at its first Board Meeting in The Committee will comprise at least 2 independent directors. Director Training At least three (3) of our directors attended and participated in the training sessions on the Key Drivers of the Business conducted for the benefit of Sagicor Directors which was held in October They also participated in Anti-Money Laundering Training Sessions. Going forward, the directors will be invited to participate in the Training Sessions for all Directors of Sagicor Group Jamaica Limited, its subsidiaries and affiliated companies. Dividend Policy At its meeting in May 2015, the Board determined a Dividend Policy which would allow for dividend payments of between 15% and 25% of annual net profits. Overview Financial Statements Corporate Governance Community Additional Information SAGICOR REAL ESTATE X FUND 43

46 DoubleTree Orlando Acquisition In 2015, Sagicor Real Estate X Fund expanded its activities in the tourism sector with the acquisition of the DoubleTree by Hilton at the Entrance to Universal Orlando, Florida. 44 ANNUAL REPORT 2015

47 This acquisition was completed on September 10, 2015, and represents the Group s first non-jamaican real estate property investment. X Fund Properties LLC, a wholly owned subsidiary of X Fund Properties Limited, was incorporated in the State of Delaware, United States of America to hold title for the DoubleTree Orlando property. DoubleTree Orlando was financed with debt of US$51 million and equity from a rights issue which raised approximately J$5.2 billion. Situated on approximately 16.5 acres, the 742 room property (including 19 suites) occupies two 17 story towers, offers 62,800 square feet of flexible indoor and outdoor meeting and event space, as well as five food and beverage outlets, new fitness centre, junior Olympic outdoor pool and jacuzzi. Over 400,000 guests visit this property annually, which is located at the entrance to the Universal Theme Park in Orlando and within easy reach of other well-known attractions such as Disney World, Seaworld, among others. It is within five minutes of the major shopping mall, Orlando International Premium Outlet Mall and 10 minutes from the Orlando Convention Center. President and CEO of Sagicor Real Estate X Fund, Rohan Miller, advised that visitors to the Double Tree Hotel will be encouraged to visit Jamaica or buy Jamaican products through a Try Jamaica campaign. DoubleTree Orlando boasts one of the largest and most spectacular convention and events centres in Orlando. The hotel s 62,000 square feet of meeting space includes a 20,000 square-foot Universal Centre, multi-purpose conference and exhibit space, the elegant Citrus Crown Ballroom, versatile pre-function space and 32 breakout rooms all in variety of configurations, sizes and décor. Due to the meeting rooms flexible floorplan the space can accommodate a wide variety of events including intimate board meetings, full-scale trade shows, and gala receptions. The hotel s function space can accommodate up to 2,300 reception guests and is wired with the latest technology. SAGICOR REAL ESTATE X FUND 45

48 Corporate Social Responsibility Giving back to the communities in which we operate. Above left: Team members from Jewel Dunn s River pose for a photo after their Labour Day activities at Fern Grove Basic School. Above right: Team members from the Jewel Dunn s River outside the St Ann infirmary are all smiles after their work day at the institution. X Fund is pleased to report on the activities undertaken that have benefited the communities surrounding our hotel properties. These activities were the work of our teams at Jewel Runaway Bay, Jewel Dunn s River, Jewel Paradise Cove and the Hilton Rose Hall. Important to any corporation, the tourism sector included, is the impact of corporate social responsibility on the communities in which it operates and, by extension, the wider Jamaica. We pay a tremendous amount of attention to corporate social responsibility which supports and strengthens the communities of which we are a part. Our Jewel Resorts and Hilton Resort know and acknowledge the importance of a healthy, vibrant community and work in tandem with our employees and community members in different ways that benefit our communities, our customers and our stakeholders. We share some of the highlights from Recycling The Hilton Rose Hall, Jewel Dunn s River and Jewel Runaway Bay resorts maintained a robust and well-supported recycling programmes in Team members journeyed into communities and schools to collect empty plastic bottles for recycling, which brought muchneeded awareness to the hotel staff, residents and students who participated in the collection. Discussions were held with residents and students on how to help keep the environment clean and the important role that everyone can play in contributing to the recycling process. At the end of the programme over 901,955 plastic bottles were collected and donated to the local recycling company. 46 ANNUAL REPORT 2015

49 On-The-Job Training Our hotel properties continued to partner with the HEART Trust/NTA, National Youth Service, St. Monica s College, Ocho Rios High, Marcus Garvey Technical High School, Ocho Rios High School, Western Hospitality Institute, Knox Community College, Brown s Town Community College, Moneague College, Barrett Town Training Institute, Rose Hall Vocational Institute, Carl s Practical, College of Hospitality and Citizen Security & Justice Programme to provide the requisite skills for persons from those institutions to gain experience in the tourism industry. Approximately 520 trainees were exposed to extensive training in the areas of housekeeping, banqueting, laundry, bar and kitchen. 95 trainees were hired after successfully completing the on-the-job training. International Coastal Clean-Up On an annual basis, staff members, neighbouring schools and hotels join hands and hearts in a clean-up initiative geared towards reducing the amount of solid waste that is found in the coastal areas. In 2015 over 1,300 plastic/glass bottles were collected as well as other debris. This event brought much awareness to the magnitude of waste being exposed to our coastlines and communities. Wellness & Awareness Fair In an effort to enhance the physical, intellectual, emotional and environmental well-being of members of the community, staff members of Jewel Dunn s River, along with their family and friends, were invited to the annual Wellness and Awareness Fair. Services and offerings were provided by the following companies and individuals: JPS, Jamaica Blood Transfusion Service, Dr. Bell - Psychiatrist, Dr. Lambert-Brown Physician, - Sagicor Bank, Sagicor Insurance, HEART Trust/ NTA; Neutrogena. Attendees including children were treated to a day of fun and entertainment. Hilton Rose Hall invited 100 senior citizens from the surrounding communities for lunch and to participate in similar products and services at Jewel Dunn s River. Global Month at the Infirmary Approximately 35 staffers from the Jewel Dunn s River spent the day at an infirmary in St Ann, pampering the residents, including shampooing and braiding of hair for the women and haircuts for the men. The able team of groundsmen from the resort did the necessary yard work such as clearing of shrubs and weeds, while the other members of the team painted the administrative building. The hotel continues to donate meat cuttings from the butcher shop to the infirmary. Overview Financial Statements Corporate Governance Community Additional Information SAGICOR REAL ESTATE X FUND 47

50 Corporate Social Responsibility (Cont d) GSAT A luncheon hosted by Jewel Runaway Bay, Jewel Dunn s River and Jewel Paradise Cove resorts was held to honour the top GSAT achievers of staff members. Eight students were recognised, three from Jewel Paradise Cove and five from Jewel Runaway Bay. Each child was presented with a school bag filled with school supplies and a cheque valued at J$10,000. Annual Blood Drive The annual blood drive, which took place on September 17, 2015 at Jewel Runaway Bay had over 50 participants including staff from Jewel Paradise Cove and Jewel Dunn s River. Shashalee Benjamin from the Jewel Dunn s River is hard at work doing on clean up duty at the St Ann infirmary on Labour Day. Cornwall Walkathon\ Marathon Staff members and family members from the Hilton Rose Hall Resort & Spa participated in the Cornwall College 5kRun\Walk in aid of the rehabilitation of the school dormitory. The team won the award for the largest team. Tanesha Jarrett from the spa department placed 3rd in the 5k Run. Adoption of Basic Schools The Hilton Rose Hall & Jewel Runaway Bay each adopted a basic school within their communities. Each resort, from time to time makes presentations and lends support through the contribution of supplies to the school community (students and teachers). Among these contributions are treats, Sports Day prizes, bun and cheese during Easter, repairs to school roof, landscaping, supplying and erecting signs. This support is sometimes done with the assistance of hotel guests. The Sagicor booth attracts the attention of patrons of the Jewel s annual Wellness Day fair. 48 ANNUAL REPORT 2015

51 Financial Statements Year Ended December 31, 2015

52 Independent Auditors Report Independent Auditor s Report To the Shareholder of Sagicor Real Estate X Fund Limited We have audited the accompanying consolidated financial statements of Sagicor Real Estate X Fund Limited and its subsidiaries, which comprise the consolidated statement of financial position as at 31 December 2015 and the consolidated statements of comprehensive income, changes in shareholders equity and cash flows for the year then ended, and notes comprising a summary of significant accounting policies and other explanatory information, and the accompanying financial statements of Sagicor Real Estate X Fund Limited standing alone, which comprise the statement of financial position as at 31 December 2015 and statements of comprehensive income, changes in shareholders equity and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Management s responsibility for the consolidated and company stand alone financial statements Management is responsible for the preparation and fair presentation of these consolidated and company stand alone financial statements in accordance with International Financial Reporting Standards and for such internal control as management determines is necessary to enable the preparation of consolidated and company stand alone financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these consolidated and company stand alone financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated and company stand alone financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated and company stand alone financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated and company stand alone financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation of consolidated and company stand alone financial statements that give a true and fair view 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 entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated and company stand alone financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements of Sagicor Real Estate X Fund Limited and its subsidiaries, and the financial statements of Sagicor Real Estate X Fund Limited standing alone present fairly, in all material respects, the financial position of Sagicor Real Estate X Fund Limited and its subsidiaries, and the financial position of Sagicor Real Estate X Fund Limited standing alone as at 31 December 2015, and their financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards. Chartered Accountants 15 March 2016 Registered office: PricewaterhouseCoopers East Caribbean, 20 Micoud Street, Castries, St. Lucia,West Indies Head office: PricewaterhouseCoopers East Caribbean, The Financial Services Centre, Bishop s Court Hill, P.O. Box 111, St. Michael, BB14004, Barbados, West Indies T: +(246) , F: +(246) A full listing of the partners of PricewaterhouseCoopers East Caribbean Firm is available upon request from the Head office. Please see for further details 50 ANNUAL REPORT 2015

53 Consolidated Statement of Comprehensive Income 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) Revenue: Note Interest income 8 19,435 5,637 Net capital gains on financial assets and liabilities 8 1,022, ,141 Hotel revenue 8 5,570,529 - Total revenue 6,612, ,778 Expenses: Direct expenses 9(a) (1,998,624) - Administrative and other operating expenses 9(b) (2,384,278) - Operating Expenses (4,382,902) - Finance costs 11 (764,089) (22,395) Profit before tax 1,465, ,383 Taxation 12 (167,754) (18,896) Net Profit 1,297, ,487 Other Comprehensive Income, net of taxes - Items that may be subsequently reclassified to profit or loss Re-translation of foreign operation 82,684 - Total other income recognised directly in shareholders equity, net of taxes 82,684 - Total Comprehensive Income 1,380, ,487 Earnings per stock unit for profit attributable to the stockholders of the company during the period: Basic and fully diluted (as originally reported) 13 $0.75 $0.62 Basic and fully diluted (restated for rights issue) $0.75 $0.59 Overview Corporate Governance Community Financial Statements Additional Information The accompanying notes on pages 59 to 108 form an integral part of these financial statements. SAGICOR REAL ESTATE X FUND 51

54 Consolidated Statement of Financial Position 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) Note Non-Current Assets Property, plant and equipment 14 19,395,729 - Investment in Sigma Global Fund - Real Estate Portfolio 16 10,726,225 9,403,194 Financial investments ,650 74,738 Current Assets 30,227,604 9,477,932 Inventories 18 98,005 - Receivables ,904 1,956,069 Securities purchased under agreement to resell ,507 2,784,912 Cash resources 22 2,396,101 - Current Liabilities 3,631,517 4,740,981 Bank overdraft Payables ,275 - Borrowings 24 5,422,647 22,599 Taxation payable ,377,006 22,647 Net Current (Liabilities)/Assets (2,745,489) 4,718,334 Stockholders Equity 27,482,115 14,196,266 Share capital 25 12,642,512 7,476,016 Currency translation reserve 82,684 - Retained earnings 27 2,921,769 1,863,628 15,646,965 9,339,644 Non-Current Liabilities Borrowings 24 11,648,564 4,837,775 Deferred income taxes ,586 18,847 11,835,150 4,856,622 27,482,115 14,196,266 Approved for issue by the Board of Directors on March 11, 2016 and signed on its behalf by: Richard Byles Director Rohan Miller Director The accompanying notes on pages 59 to 108 form an integral part of these financial statements. 52 ANNUAL REPORT 2015

55 Consolidated Statement of Changes in Shareholders Equity For year ended 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) Note Currency Translation Reserve Share Capital Retained Earnings Total Balance at 31 December ,476, ,141 8,418,157 Net profit, being total comprehensive income for the year , ,487 Balance at 31 December ,476,016 1,863,628 9,339,644 Net profit for the year - - 1,297,395 1,297,395 Re-translation of foreign operations 82, ,684 Total comprehensive income 82,684-1,297,395 1,380,079 Transaction with owners:- Shares issued during the year 25-5,166,496-5,166,496 Dividends paid (239,254) (239,254) Balance at 31 December ,684 12,642,512 2,921,769 15,646,965 Overview Corporate Governance Community Financial Statements Additional Information The accompanying notes on pages 59 to 108 form an integral part of these financial statements. SAGICOR REAL ESTATE X FUND 53

56 Consolidated Statement of Cash Flows Year ended 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) Note Cash Flows from Operating Activities Net cash provided by operating activities 29 1,777,907 6,002 Cash Flows from Investing Activities Purchase of property, plant and equipment 14 (868,756) - Acquisition of hotels, net of cash acquired 31 (16,915,281) Purchase of investments (6,050,923) (2,699,253) Sale of investments 8,553, ,400 Restricted cash (1,656,597) - Deposit on hotel being acquired - (1,931,076) Interest received 15,483 4,173 Net cash used in investing activities (16,922,169) (4,517,756) Cash Flows from Financing Activities Interest paid (564,715) - Borrowings 11,669,370 4,761,431 Borrowings costs paid (58,354) - Ordinary shares issued 25 5,166,496 - Dividends paid 26 (239,254) - Net provided by investing activities 15,973,543 4,761,431 Increase in cash and cash equivalents 829, ,677 Effect of exchange gains on cash and cash equivalents 1,219 (9,042) Cash and cash equivalents at beginning of year 240,635 - Cash and Cash Equivalents at year end 22 1,071, ,635 The accompanying notes on pages 59 to 108 form an integral part of these financial statements. 54 ANNUAL REPORT 2015

57 Company Statement of Comprehensive Income Year ended 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) Revenue: Interest income 8 8,269 5,428 Net capital gains on financial assets and liabilities 8 1,058, ,141 Dividends from subsidiary ,254-1,306, ,569 Finance costs 11 (271,493) (22,395) Profit before tax 1,034, ,174 Taxation 12 (7,933) (18,844) Net Profit, being total Comprehensive Income 1,026, ,330 Earnings per stock unit for profit attributable to the stockholders of the company during the period: Basic and fully diluted (as originally reported) 13 $0.75 $0.62 Basic and fully diluted (restated for rights issue) $0.75 $0.59 Overview Corporate Governance Community Financial Statements Additional Information The accompanying notes on pages 59 to 108 form an integral part of these financial statements. SAGICOR REAL ESTATE X FUND 55

58 Company Statement of Financial Position 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) Non-Current Assets Note Investment in subsidiary 15 9,518,204 4,804,380 Investment in Sigma Real Estate Portfolio 16 10,726,225 9,403,194 Financial investments 17 79,038 74,738 Current Assets 20,323,467 14,282,312 Receivables 19 17,456 - Securities purchased under agreement to resell , ,635 Cash resources Current Liabilities 120, ,635 Bank overdraft Payables 23 7, ,243 Borrowings 24 5,116,373 22,599 Taxation payable ,124, ,890 Net Current Liabilities (5,003,301) (86,255) 15,320,166 14,196,057 Shareholders Equity Share capital 25 12,642,512 7,476,016 Retained earnings 27 2,650,926 1,863,471 Non-Current Liabilities 15,293,438 9,339,487 Borrowings 24-4,837,775 Deferred income taxes 28 26,728 18,795 26,728 4,856,570 15,320,166 14,196,057 Approved for issue by the Board of Directors on March 11, 2016 and signed on its behalf by: Richard Byles Director Rohan Miller Director The accompanying notes on pages 59 to 108 form an integral part of these financial statements. 56 ANNUAL REPORT 2015

59 Company Statement of Changes in Shareholders Equity Year ended 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) Note Share Capital Retained Earnings Total Balance at 31 December ,476, ,141 8,418,157 Net profit, being total comprehensive income for the year - 921, ,330 Balance at 31 December ,476,016 1,863,471 9,339,487 Net profit, being total comprehensive income for the year - 1,026,709 1,026,709 Transaction with owners:- Shares issued during the year 25 5,166,496-5,166,496 Dividends paid 26 - (239,254) (239,254) Balance at 31 December ,642,512 2,650,926 15,293,438 Overview Corporate Governance Community Financial Statements Additional Information The accompanying notes on pages 59 to 108 form an integral part of these financial statements. SAGICOR REAL ESTATE X FUND 57

60 Company Statement of Cash Flows As at 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) Cash Flows from Operating Activities Note Net profit for the year 1,026, ,330 Items not affecting cash: Interest income (8,269) (5,428) Finance cost 271,493 22,395 Income tax expense 7,933 18,844 Effect of exchange losses on foreign currency balances 264,635 - Fair value gain on units held in Sagicor Sigma Funds (1,323,031) (985,038) Fair value (gain)/loss on other financial investments (596) 340 Loss on revaluation of loan payable - 33,559 Change in operating liabilities: 238,874 6,002 Receivables (17,456) - Payables (296,645) 352,178 Net cash (used in)/provided by operating activities (75,227) 358,180 Cash Flows from Investing Activities Investment in subsidiary 15 (4,713,824) (4,804,380) Purchase of investments (5,300,905) (2,699,253) Sale of investments 5,289,229 2,626,105 Interest received 8,221 4,173 Net cash used in investing activities (4,717,279) (4,873,355) Cash Flows from Financing Activities Interest paid (272,646) - Borrowings - 4,761,431 Ordinary shares issued 25 5,166,496 - Dividends paid 26 (239,254) - Net provided by investing activities 4,654,596 4,761,431 (Decrease)/increase in cash and cash equivalents (137,910) 246,256 Effect of exchange gains on cash and cash equivalents 381 (5,621) Cash and cash equivalents at beginning of year 240,635 - Cash and Cash Equivalents at year end , ,635 The accompanying notes on pages 59 to 108 form an integral part of these financial statements. 58 ANNUAL REPORT 2015

61 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 1. Identification and Principal Activities (a) The company was incorporated on May 31, 2011 with the name Sagicor X Funds SPC Ltd, as an international business company under the International Business Companies Act, Cap of the Revised Laws of Saint Lucia. On February 28, 2014, the company changed its name to Sagicor Real Estate X Fund Limited ( X Fund ). The company is 52.2% owned by the Sagicor Pooled Pension Funds Limited, which is administered by Sagicor Life Jamaica Limited (SLJ). Sagicor Group Jamaica Limited owns 21.1% of the company and Sagicor Real Estate Fund owns 8.2%. One of the primary investment of the company is units in the Sagicor Sigma Real Estate Fund. The fund manager for Sagicor Sigma Real Estate Fund is Sagicor Investments Jamaica Limited (SIJL), which is a wholly owned subsidiary of Sagicor Group Jamaica Limited, the immediate parent of both SLJ and SIJL. The company s main business activity is to invest in real estate activities. On December 1, 2014 X Fund Properties Limited was formed and is a wholly owned subsidiary of Sagicor Real Estate X Fund Limited. X Fund Properties Limited is incorporated and domiciled in Jamaica and has coterminous year with its parent company. Its main business activity is the operation of the Hilton Rose Hall Resort and Spa. On July 31, 2015, X Fund Properties Limited established a wholly-owned subsidiary, X Fund Properties LLC. X Fund Properties LLC is incorporated and domiciled in Delaware, USA and has coterminous year with its parent company. It s main business activity is the operation of the DoubleTree Universal Hotel in Orlando, Florida (the DoubleTree). (b) Rights Issue On July 23, 2015, the company announced the intention to make a Non-Renounceable Rights Issue. The aim of the Rights Issue was to raise approximately J$4,157,036,165 to fund the purchase of the DoubleTree by Hilton at the Entrance to Universal Studios, Orlando, Florida, USA. The company offered 598,134,700 new Ordinary Shares at J$6.95 per New Ordinary Share. This issue price represented a discount of approximately: % to the Closing Price on the Jamaica Stock Exchange (JSE) of the Company s shares on July 31, % to the highest price of J$8.50 at which the Company s shares have traded. The Rights Issue was made on the basis of two new Ordinary Shares for every five existing Ordinary Shares held by shareholders at the close of business day on August 17, Due to the overwhelming demand from shareholders, the offer was up-sized and a further 149,533,675 New Ordinary shares were released. The company raised approximately J$5,196,295,206 before expenses. Overview Corporate Governance Community Financial Statements Additional Information SAGICOR REAL ESTATE X FUND 59

62 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 1. Identification and Principal Activities (Continued) (c) Acquisitions i) On 30 September 2014, Rose Hall Associates Limited Partnership (Owner), Rose Hall Operating Lessee L.L.C (Seller) and Sagicor Life Jamaica Limited as Managing Agent for The Sagicor Sigma Funds, a Unit Trust registered under the Securities (Collective Investment Schemes) Regulations 2013 (together with its permitted assignee and/or nominee) (collectively as the Buyer) entered into an agreement to sell and purchase real estate (including land, the hotel known as Hilton Rose Hall Resort and Spa, improvement and fixtures), owned equipment and personal property along with tenant leases, contracts & equipment leases, licenses, permits and intangibles. Under the terms of the sale and purchase, the nominee, X Fund Properties Limited was registered as the owner on transfer of the property. The purchase of the hotel by X Fund Properties Limited, a wholly owned subsidiary of Sagicor Real Estate X Fund, was finalized in January 2015 for a purchase price of US$85,500,000. See Note 31 for further details. ii) On June 25, 2015 Meristar Sub SG, LP (Owner) and X Fund Properties Limited (together with its permitted assignee and/or nominee) (collectively as the Buyer) entered into an agreement to sell and purchase real estate (including land, building and other improvements) known as DoubleTree by Hilton at the Entrance to Universal Orlando, owned equipment and personal property. Under the terms of the sale and purchase, the nominee, X Fund Properties LLC is the owner of the property. The purchase of the hotel was finalized in September 2015 for a purchase price $75,000,000. See Note 31 for further details. (d) The company s subsidiaries which together with the Company are referred to as the Group. Details of the subsidiaries are as follows: Entity Country of incorporation and place of business Nature of business Proportion of ordinary shares held by the parent company % Proportion of ordinary shares held by the Group % Proportion of ordinary shares held by noncontrolling interests % X Fund Properties Limited Jamaica Hotel Nil X Fund Properties LLC USA Hotel Nil (e) The group entered into a property management agreement with Ambridge Hospitality LLC to manage the hotel properties, Hilton Rose Hall Resort & Spa and DoubleTree Orlando. The property management agreement has an initial term of five years and may be extended or shortened in accordance with the property management agreement. The management agreement may be terminated prior to the expiration of the initial term upon the sale of the hotels to a bona fide third party purchaser, an event of default as defined in the property management agreement, or if a predetermined performance standard is not satisfied. Ambridge Hospitality LLC is entitled to receive a base management fee equal to 2.18% of total operating revenues, as defined. For the year ended 31 December 2015 the Group recognized property management fees of $135,735,000. The Group reimburses Ambridge for expenses incurred relating to hotel operations. 31 December 2015, the Group incurred reimbursable expenses of $102,409,000. For the year ended 60 ANNUAL REPORT 2015

63 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 2. Summary of Significant Accounting Policies (a) Basis of preparation These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), and have been prepared under the historical cost convention as modified by the revaluation of certain fixed and financial assets, investment properties and financial liabilities. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3. Standards, interpretations and amendments to published standards effective in the current year Certain amendments and clarifications to existing standards have been published that became effective during the current financial year. The Group has assessed the relevance of all such new amendments and clarifications and has put into effect the following, which are immediately relevant to its operations. Annual Improvements to IFRSs and cycles, effective for periods beginning on or after 1 July There was no impact from adoption of these amendments and clarifications. Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group At the date of authorisation of these financial statements a number of new standards and amendments to standards are effective for annual periods beginning after 1 January 2015, and have not been applied in preparing these consolidated financial statements. None of these is expected to have a significant effect on the consolidated financial statements of the Group, except the following set out below: IFRS 9, Financial instruments, addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through other comprehensive income (OCI) and fair value through profit or loss. The basis of classification depends on the entity s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in OCI not recycling. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the hedged ratio to be the same as the one management actually use for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under IAS 39. The standard is effective for accounting periods beginning on or after 1 January Early adoption is permitted. The Group is yet to assess IFRS 9 s full impact. Overview Corporate Governance Community Financial Statements Additional Information SAGICOR REAL ESTATE X FUND 61

64 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 2. Summary of Significant Accounting Policies (Continued) (a) Basis of preparation (continued) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group (continued) IFRS 15, Revenue from contracts with customers deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity s contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces IAS 18 Revenue and IAS 11 Construction contracts and related interpretations. The standard is effective for annual periods beginning on or after 1 January 2017 and earlier application is permitted. The Group is assessing the impact of IFRS 15. IFRS 16, Leases, (effective for annual periods beginning on or after 1 January 2019) was issued in January 2016 and replaces IAS 17, Leases. A company can choose to apply IFRS 16 before the effective date but only if it also applies IFRS 15, Revenue from Contracts with Customers. The standard introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognise a right-ofuse asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. IFRS 16 also requires enhanced disclosures to be provided by lessors and lessees that will improve information provided to users of the financial statements. The Group is considering the implications of the standard, the impact on the company and the timing of its adoption. Amendments to IAS 16, Property, Plant and Equipment and IAS 38, Intangible Assets - Clarification of Acceptable Methods of Depreciation and Amortisation, (effective for the periods beginning on or after 1 January 2016). In these amendments, the IASB has clarified that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. The Group does not expect any impact from the adoption of the amendments on its financial statements as it does not use revenue-based depreciation or amortisation methods. Amendments to IAS 27, Associates, (effective for annual periods beginning 1 January 2016). The amendments will allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements. The Group is currently assessing whether to use the equity method in the separate financial statements of the parent company. 62 ANNUAL REPORT 2015

65 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 2. Summary of Significant Accounting Policies (Continued) (a) Basis of preparation (continued) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group (continued) Annual Improvements 2014, (effective for annual periods beginning on or after 1 January 2016). The amendments impact the following standards. IFRS 5 was amended to clarify that change in the manner of disposal (reclassification from "held for sale" to "held for distribution" or vice versa) does not constitute a change to a plan of sale or distribution, and does not have to be accounted for as such. The amendment to IFRS 7 adds guidance to help management determine whether the terms of an arrangement to service a financial asset which has been transferred constitute continuing involvement, for the purposes of disclosures required by IFRS 7. The amendment also clarifies that the offsetting disclosures of IFRS 7 are not specifically required for all interim periods, unless required by IAS 34. The amendment to IAS 19 clarifies that for postemployment benefit obligations, the decisions regarding discount rate, existence of deep market in highquality corporate bonds, or which government bonds to use as a basis, should be based on the currency that the liabilities are denominated in, and not the country where they arise. IAS 34 will require a cross reference from the interim financial statements to the location of "information disclosed elsewhere in the interim financial report". The Group is currently assessing the impact of future adoption of the amendments on its financial statements. Amendment to IAS 1, Presentation of Financial Statements, (effective for annual periods beginning on or after 1 January 2016). This amendment forms part of the IASB s Disclosure Initiative, which explores how financial statement disclosures can be improved. It clarifies guidance in IAS 1 on materiality and aggregation, the presentation of subtotals, the structure of financial statements and the disclosure of accounting policies. The amendment also clarifies that the share of other comprehensive income (OCI) of associates and joint ventures accounted for using the equity method must be presented in aggregate as a single line item, classified between those items that will or will not be subsequently reclassified to profit or loss. The Group is currently assessing the impact of future adoption of the amendments on its financial statement. There are no other IFRS or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group. Overview Corporate Governance Community Financial Statements Additional Information SAGICOR REAL ESTATE X FUND 63

66 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 2. Summary of Significant Accounting Policies (Continued) (b) Basis of consolidation Subsidiaries Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and are deconsolidated from the date that control ceases. All material intra-group balances, transactions and gains are eliminated on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the accounting policies adopted by the Group. The Group applies the acquisition method to account for business combinations. The cost of an acquisition is measured as the fair value of the identifiable assets given, the equity instruments issued and the liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date irrespective of the extent of any minority interest. Acquisition-related costs are expensed as incurred. The excess of the cost of the acquisition, the minority interest recognised and the fair value of any previously held equity interest in the acquiree, over the fair value of the of the net identifiable assets acquired is recorded as goodwill. If there is no excess and there is a shortfall, the Group reassesses the net identifiable assets acquired. If after reassessment, a shortfall remains, the acquisition is deemed to be a bargain purchase and the shortfall is recognised in income as a gain on acquisition. Subsequent ownership changes in a subsidiary, without loss of control, are accounted for as transactions between owners in the statement of changes in equity. Investments in subsidiaries are stated in the company s financial statements initially at cost less impairment. They are subsequently measured at fair value. 64 ANNUAL REPORT 2015

67 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 2. Summary of Significant Accounting Policies (Continued) (c) Foreign currency translation (i) Functional and presentation currency Items included in the financial statements of each of the Group s entities are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The consolidated financial statements are presented in Jamaican dollars, which is the Group s presentation currency. (ii) Transactions and balances Foreign currency transactions or that require settlement, in a foreign currency are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. (iii) Monetary items denominated in foreign currency are translated with the closing rate as at the reporting date. Non-monetary items measured at historical cost denominated in a foreign currency are translated with the exchange rate as at the date of initial recognition; non-monetary items in a foreign currency that are measured at fair value are translated using the exchange rates at the date when the fair value was determined. These rates represent the weighted average rates at which the company trades in foreign currency. Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income, except when deferred in equity as gains or losses from qualifying cash flow hedging instruments. All foreign exchange gains and losses recognised in the statement of comprehensive income are presented net in the statement of comprehensive income within the corresponding item. Foreign exchange gains and losses on other comprehensive income items are presented in other comprehensive income within the corresponding item. Group companies The results and financial position of all the Group s entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: Assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position; Income and expenses for each statement of comprehensive income are translated at average exchange rates at the dates of the transactions; and All resulting exchange differences are recognised as a separate component of stockholders equity in the currency translation reserve. On consolidation, exchange differences arising from the translation of the net investment in foreign entities and borrowings are taken to stockholders equity. When a foreign operation is sold, such exchange differences are recognised in the statement of comprehensive income as part of the gain or loss on sale. Overview Corporate Governance Community Financial Statements Additional Information SAGICOR REAL ESTATE X FUND 65

68 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 2. Summary of Significant Accounting Policies (Continued) (d) Revenue recognition Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group s activities. Revenue is shown net of General Consumption Tax or applicable sales tax, returns, rebates and discounts and after eliminating sales within the Group. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the Group s activities as described below. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. (i) Sales of services Sale of service generated from hotel and other operations are recognised in the accounting period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided. (ii) Sale of goods Sale of goods, mainly from gift shops is recognised when products are sold to customers. Sales are usually in cash or by credit card. (iii) Interest income Interest income is recognised using the effective interest method. (iv) Gain or loss on sale of investment Gain or loss on the disposal or maturity of investment, is determined by comparing sale proceeds with the carrying amount of the investment. This amount is recognised in the income and expenditure. (e) Taxation Taxation expense in the statement of comprehensive income comprises current and deferred tax charges. Current and deferred tax is charged or credited to profit in the statement of comprehensive income, except where they relate to items charged or credited to other comprehensive income or equity, in which case, they are also dealt with in other comprehensive income or equity. Current tax charges are based on taxable profits for the year, which differ from the profit before tax reported because it excludes items that are taxable or deductible in other years, and items that are never taxable or deductible. The company s liability for current tax is calculated at tax rates that have been enacted at year end. Deferred tax is the tax expected to be paid or recovered on differences between the carrying amounts of assets and liabilities and the corresponding tax bases. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Currently enacted tax rates are used in the determination of deferred income tax. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. 66 ANNUAL REPORT 2015

69 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 2. Summary of Significant Accounting Policies (Continued) (f) Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than 90 days maturity from the date of acquisition including cash on hand and deposits held at bank less bank overdrafts and restricted cash. (g) Securities purchased under agreement to resell The purchase of securities under resale agreements are treated as collateralised financing transactions and are recorded at the amount at which the securities were acquired. The related interest income are recorded on the accrual basis. (h) Financial assets A financial instrument is any contract that gives rise to both a financial asset in one entity and a financial liability or equity of another entity. The Group classifies its Investment in Sagicor Sigma Global Fund Real Estate Portfolio and its financial instruments in the category of fair value through profit and loss. Management determines the classification of its financial assets at initial recognition. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading. Financial assets in this category are acquired principally for selling in the short term. Assets in this category are classified as current assets if expected to be settled with 12 months, otherwise they are classified as non-current. Recognition and measurement Regular purchases and sales of financial assets are recognised at the trade date the date on which the Group commits the purchase or sell the asset. Financial assets at fair value through profit or loss are initially recognised at fair value, and transaction cost is expensed in the statement of comprehensive income. Financial assets are derecognised when the right to received cash flows from the financial assets have expired or where the Group has transferred substantially all risks and rewards of ownership. Gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss category are presented in the statement of comprehensive income within net capital gains on investment securities in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in the statement of comprehensive income as part of other statement of comprehensive income when the Group right to receive payment is established. Financial assets and liabilities are offset and the net is reported in the statement of financial position when there is a legally enforceable right to offset and there is an intention to settle on a net basis or to realize the asset and settle the liability simultaneously. Overview Corporate Governance Community Financial Statements Additional Information SAGICOR REAL ESTATE X FUND 67

70 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 2. Summary of Significant Accounting Policies (Continued) (i) Inventories Inventories are stated at the lower of average cost and net realisable value. Cost is determined using the average cost method. In the case of the company, cost represents invoiced cost plus direct inventory-related expenses. Net realisable value is the estimate of the selling price in the ordinary course of business, less the costs of completion and selling expenses. (j) Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the company will not be able to collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the statement of comprehensive income. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited to the statement of comprehensive income. (k) Property, plant and equipment Property, plant and equipment, including owner-managed properties, are recorded at cost less accumulated depreciation. Cost represents the purchase price of the asset and other costs incurred to bring the asset into existing use. Subsequent to their initial recognition, property, plant and equipment are carried at revalued amounts. Revaluations are performed by independent qualified valuers annually. Increases in the carrying values arising from the revaluations are credited to capital reserve. Decreases in the carrying values arising from revaluations are first offset against increases from earlier revaluations in respect of the same assets and are thereafter charged to the statement of comprehensive income. All other decreases in carrying values are charged to the statement of comprehensive income. Any subsequent increases are credited to the statement of comprehensive income up to the respective amounts previously charged. Revaluation surplus realised through the depreciation or disposal of revalued assets are retained in the capital reserve and will not be available for offsetting against future revaluation losses. The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each statement of position date. Depreciation is calculated mainly on the straight line basis at such rates as will write off the carrying value of the assets over the period of their expected useful lives which are estimated as follows: Buildings Furniture, fixtures and equipment Computer equipment Motor vehicles years 7-10 years 3-5 years 5 years 68 ANNUAL REPORT 2015

71 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 2. Significant Accounting Policies (Continued) (k) Property, plant and equipment (continued) Land is not depreciated. No depreciation is provided for construction in progress until they are completed and ready for use. (l) Property, plant and equipment are reviewed for possible impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amounts by which the carrying amount of a cash generating unit exceeds the higher of its fair value less costs to sell and its value in use, which is the estimated net present value of future cash flows to be derived from the cash generating unit. Repairs and maintenance expenses are charged in arriving at profit or loss during the financial period in which they are incurred. The cost of major renovations is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the company. Major renovations are depreciated over the remaining useful life of the related asset. Gains and losses on disposals of property, plant and equipment are determined by reference to their carrying amount and are taken into account in determining profit. Impairment of non-financial assets Property, plant and equipment and other assets, excluding goodwill, are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of an asset s net selling price and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows. (m) Intangible assets Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised on the basis of the expected useful life of five years. Intangible assets with indefinite useful lives are assessed for impairment annually, or more frequently if events changed in circumstances indicate a potential impairment. (n) Trade payables Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. Overview Corporate Governance Community Financial Statements Additional Information SAGICOR REAL ESTATE X FUND 69

72 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 2. Significant Accounting Policies (Continued) (o) Borrowings Bank loans and overdrafts are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the statement of comprehensive income over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates. Preference shares, which are mandatorily redeemable on a specific date, are classified as liabilities. The dividends on these preference shares are recognised in the statement of comprehensive income as finance cost. (p) (q) Share capital Common shares which are non-redeemable, and for which the declaration of dividends is discretionary are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax from the proceeds. Shares are classified as equity when there is no obligation to transfer cash or other assets. Dividends Dividends on ordinary shares are recognised in shareholders equity in the period in which they are approved by the company s Board of Directors. 70 ANNUAL REPORT 2015

73 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 3. Critical Accounting Estimates and Judgements in Applying Accounting Policies The group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year are as follows: Income taxes The group is subject to income taxes. Significant judgement is required in determining the provision for income taxes. The company recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. Purchase price allocation of a business combination In a business combination, the acquirer must allocate the cost of the business combination at the acquisition date by recognising the acquiree s identifiable assets, liabilities and contingent liabilities at fair value at that date. The allocation is based upon certain valuations and other studies performed with the assistance of external valuation specialists. Due to the underlying assumptions made in the valuation process, the determination of those fair values requires estimations of the effects of uncertain future events at the acquisition date and the carrying amounts of some assets, such as intangible assets, acquired through a business combination could therefore differ significantly in the future. As prescribed by IFRS 3 (revised), if the initial accounting for a business combination can be determined only provisionally by the end of the reporting period in which the combination is effected, the acquirer must account for the business combination using those provisional values and has a twelve month period from the acquisition date to complete the purchase price allocation. Any adjustment of the carrying amount of an identifiable asset or liability made as a result of completing the initial accounting is accounted for as if its fair value at the acquisition date had been recognised from that date. The purchase price allocation for the acquisitions of DoubleTree Hotel and Hilton Rose Hall Resort and Spa have been provisionally determined as described in Note 31. Overview Corporate Governance Community Financial Statements Additional Information SAGICOR REAL ESTATE X FUND 71

74 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 4. Financial Risk Management The Group s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Group s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the group s financial performance. The Group s risk management policies are designed to identify and analyse these risks, to set appropriate risk limits and controls, and to monitor the risks and adherence to limits by means of reliable and up-to-date information systems. The Group regularly reviews its risk management policies and systems to reflect changes in markets, products and emerging best practice. The Board of Directors is ultimately responsible for the establishment and oversight of the Group s risk management framework. The Board provides principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, and investment of excess liquidity. (a) Credit risk The Group takes on exposure to credit risk, which is the risk that its customers or counterparties will cause a financial loss for the Group by failing to discharge their contractual obligations. Credit risk is a very important risk for the company s business; management therefore carefully manages its exposure to credit risk. Credit exposures arise principally from the company s receivables from customers and investment activities. The Group structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to a single counterparty or groups of related counterparties and to geographical and industry segments. Credit review process The Sagicor Group s investment manager, Sagicor Life Jamaica Limited, manages the Group s exposure to credit risk relating to investment by reviewing the ongoing financial status of each counterparty. The company s Finance Department has responsibility for conducting credit reviews for customers through regular analysis of the ability of financial institutions and other counterparties to meet repayment obligations. (i) ii) Investments The Group limits its exposure to credit risk by investing mainly in liquid securities, with counterparties that have high credit quality. Accordingly, management does not expect any counterparty to fail to meet its obligations. Receivables The Group exposure to credit risk is influenced mainly by the individual characteristics of each customer. The Finance Department assesses the credit worthiness of customers prior to the Group offering them a credit facility. Customer credit risk are monitored according to their credit characteristics such as whether it is an individual or company, geographic location, industry, aging profile, and previous financial difficulties. Receivables consist primarily of $668,974,740 due to the Group s hotel operations. The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of receivables. The Group addresses impairment assessment in two areas: individually assessed allowances and collectively assessed allowances. The company s average credit period on the sale of service is 30 days. The company has provided fully for all trade receivables that are over 120 days past due based on historical experience which dictates that amounts past due beyond 120 days are generally not recoverable. 72 ANNUAL REPORT 2015

75 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 4. Financial Risk Management (Continued) (a) Credit risk (continued) Maximum exposure to credit risk The group and company s maximum exposure to credit risk at the year-end were as follows: Group Company $000 $000 $000 $000 Trade receivables 448, Other receivable 43, Due from related parties 20,378-17,456 - Financial Investments 105,650 74,738 79,038 74,738 Cash and cash equivalent (excluding cash on hand) 2,391, Securities purchased under agreement to resell 438, , , ,635 i) Ageing analysis of trade receivables that are past due but not impaired 3,447, , , ,373 Trade receivables less than 90 days past due are not considered impaired. At year end, trade receivables as shown below were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default. The ageing analysis of these trade receivables is as follows: Group Company $000 $000 $000 $000 1 to 30 days past due 369, to 60 days past due 63, Over 60 days past due 15, , Overview Corporate Governance Community Financial Statements Additional Information SAGICOR REAL ESTATE X FUND 73

76 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 4. Financial Risk Management (Continued) (a) Credit risk (continued) (ii) Analysis of trade receivables that are past due and impaired At year end, trade receivables as shown below were impaired for which full provision was made. The individually impaired receivables mainly relate to clients whose policy period has expired. Movements on the provision for impairment of trade receivables are as follows: Group Company $000 $000 $000 $000 Provision for receivables impairment 25, , The creation and release of provision for impaired receivables have been included in administration expenses in statement of comprehensive income. Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash. There are no financial assets other than those listed above that were individually impaired. 74 ANNUAL REPORT 2015

77 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 4. Financial Risk Management (Continued) (b) Liquidity risk Liquidity risk is the risk that the group may be unable to meet its payment obligations associated with its financial liabilities when they fall due. Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. The group s liquidity management process includes monitoring future cash flows and liquidity on a daily basis. Liquidity risk management process The company s liquidity management process, as carried out and monitored by the Finance Department, includes: (i) Monitoring future cash flows and liquidity on a daily basis. This incorporates an assessment of expected cash flows and the availability of high grade collateral which could be used to secure funding if required. (ii) Maintaining a portfolio of highly marketable and diverse assets that can easily be liquidated as protection against any unforeseen interruption to cash flow; (iii) Optimising cash returns on investment; The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest-bearing liabilities as they mature, are important factors in assessing the liquidity of the Group and its exposure to changes in interest rates and exchange rates Undiscounted cash flows of financial liabilities The maturity profile of the group and the company s financial liabilities at year end based on contractual undiscounted payments was as follows: 1 to 3 Months 3 to 12 Months The Group 1 to 5 Years Over 5 Years Total 31 December 2015 $000 $000 $000 $000 $000 Borrowings 452,675 5,760,378 3,143,443 23,289,714 32,646,210 Bank overdraft Payables 954, ,275 1,406,986 5,760,378 3,143,443 23,289,714 33,600,521 1 to 3 Months The Company 3 to 12 1 to 5 Months Years Over 5 Years Total 31 December 2015 $000 $000 $000 $000 $000 Borrowings 69,064 5,163, ,232,247 Bank overdraft Payables 7, ,598 76,698 5,163, ,239,881 Overview Corporate Governance Community Financial Statements Additional Information SAGICOR REAL ESTATE X FUND 75

78 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 4. Financial Risk Management (Continued) (b) Liquidity risk (Continued) 1 to 3 Months 3 to 12 Months The Group 1 to 5 Years Over 5 Years Total 31 December 2014 $000 $000 $000 $000 $000 Borrowings 65, ,470 4,970,450-5,236,528 1 to 3 Months The Company 3 to 12 1 to 5 Months Years Over 5 Years Total 31 December 2014 $000 $000 $000 $000 $000 Borrowings 65, ,470 4,970,450-5,236,528 Payables 304, , , ,470 4,970,450-5,540,771 (c) Market risk The group takes on exposure to market risks, which is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risks mainly arise from changes in foreign currency exchange rates and interest rates. Market risk exposures are measured using sensitivity analysis. There has been no change to the group s exposure to market risks or the manner in which it manages and measures the risk. (i) Currency risk Currency risk is the risk that the value of a financial instrument will fluctuate because of changes in foreign exchange rates. The group is exposed to foreign exchange risk arising mainly from the US dollar currency exposure. Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities. The group manages its foreign exchange risk by ensuring that the net exposure in foreign assets and liabilities is kept to an acceptable level by monitoring currency positions. The group further manages this risk by maximising foreign currency earnings and holding foreign currency balances. Payments of foreign liabilities are also made timely. 76 ANNUAL REPORT 2015

79 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 4. Financial Risk Management (Continued) (c) Market risk (continued) (i) Currency risk (continued) Concentration of currency risk The table below summaries the group and company exposure to foreign currency exchange rate risk at 31 December. The Group 2015 J$ US$ Total J J J Financial Assets Securities purchased under agreement to resell 84, , ,507 Financial investments 26,612 79, ,650 Investment in Sigma Real Estate Portfolio 10,726,225-10,726,225 Cash resources 95,988 2,300,113 2,396,101 Receivables 91, , ,904 Total financial assets 11,025,258 3,340,129 14,365,387 Financial Liabilities Borrowings 4,036,882 13,034,329 17,071,211 Bank overdraft Payables 344, , ,275 Total financial liabilities 4,381,577 13,643,945 18,025,522 Net financial position 6,643,681 (10,303,816) (3,660,135) Overview Corporate Governance Community Financial Statements Additional Information SAGICOR REAL ESTATE X FUND 77

80 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 4. Financial Risk Management (Continued) (c) Market risk (continued) (i) Currency risk (continued) Financial Assets The Company 2015 J$ US$ Total J J J Securities purchased under agreement to resell 1, , ,241 Financial investments - 79,038 79,038 Investment in Sigma Real Estate Portfolio 10,726,225-10,726,225 Cash resources Receivables 16, ,456 Non-financial asset : Investment in subsidiary - 9,518,204 9,518,204 Total assets 10,744,219 9,700,002 20,444,221 Financial Liabilities Borrowings - 5,116,373 5,116,373 Bank overdraft Payables 7,598-7,598 Total financial liabilities 7,634 5,116,373 5,124,007 Net financial position 10,736,585 4,583,629 15,320, ANNUAL REPORT 2015

81 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 4. Financial Risk Management (Continued) (c) Market risk (continued) (i) Currency risk (continued) Financial Assets The Group 2014 J$ US$ Total J J J Securities purchased under agreement to resell 198,357 2,585,555 2,784,912 Financial investments - 74,738 74,738 Investment in Sigma Real Estate Portfolio 9,403,194-9,403,194 Receivables - 1,956,069 1,956,069 Total financial assets 9,601,551 4,617,362 14,218,913 Financial Liabilities Borrowings - 4,860,374 4,860,374 Total financial liabilities - 4,860,374 4,860,374 Net financial position 9,601,551 (243,012) 9,358,539 Financial Assets The Company 2014 J$ US$ Total J J J Securities purchased under agreement to resell 198,357 42, ,635 Financial investments - 74,738 74,738 Investment in Sigma Real Estate Portfolio 9,403,194-9,403,194 Non-financial asset : Investment in subsidiary - 4,804,380 4,804,380 Total assets 9,601,551 4,921,396 14,522,947 Financial Liabilities Borrowings - 4,860,374 4,860,374 Payables - 304, ,243 Total financial liabilities - 5,164,617 5,164,617 Net financial position 9,601,551 (243,221) 9,358,330 Overview Corporate Governance Community Financial Statements Additional Information SAGICOR REAL ESTATE X FUND 79

82 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 4. Financial Risk Management (Continued) (c) Market risk (continued) (i) Currency risk (continued) Foreign currency sensitivity The following table indicates the currencies to which the group and company had significant exposure on its monetary assets and liabilities and its forecast cash flows. The change in currency rate below represents management s assessment of the possible change in foreign exchange rates. The sensitivity analysis represents outstanding foreign currency denominated monetary items and adjusts their translation at the year end for changes in foreign currency rates. The sensitivity of the profit was as a result of foreign exchange gains/losses on translation of US dollar denominated receivables, trade payables, borrowings, group balances, investment securities and cash and cash equivalent balances. Change in Currency Rate Effect on Pre-tax Profit The Group Change in Currency Rate Effect on Pre-tax Profit Currency: 2015 % % 2014 USD Revaluation 1 103, ,430 Devaluation 10 (1,030,382) 10 (24,301) Currency: Change in Currency Rate 2015 % The Company Effect on Pre-tax Profit 2015 Change in Currency Rate 2014 % Effect on Pre-tax Profit 2014 USD Revaluation 1 (45,836) 1 2,432 Devaluation , (24,322) 80 ANNUAL REPORT 2015

83 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 4. Financial Risk Management (Continued) (c) Market risk (continued) (i) Interest rate risk Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates. Floating rate instruments expose the group to cash flow interest risk, whereas fixed interest rate instruments expose the group to fair value interest risk. The group s interest rate risk policy requires it to manage interest rate risk by maintaining an appropriate mix of fixed and variable rate instruments. The policy also requires it to manage the maturities of interest bearing financial assets and interest bearing financial liabilities. Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates. The Group and company s exposure to interest rate risk are as follows: 1 to 3 Months 4 to 12 Months 2 to 5 Years The Group Over 5 Years Non- Interest Bearing Total 31 December 2015 $000 $000 $000 $000 $000 $000 Assets Securities purchased under agreement to resell 435, , ,507 Financial investments ,393 3, ,650 Investment in Sigma Real Estate portfolio ,726,225 10,726,225 Receivables , ,904 Cash resources 1,879, ,386 2,396,101 Non-financial assets : Property, plant and equipment ,395,729 19,395,729 Inventories ,005 98,005 Total assets 2,315, ,393 31,441,108 33,859,121 Liabilities Borrowings 21,901 5,158, ,118 11,057, ,999 17,071,211 Bank overdraft Payables , ,275 Non-financial liabilities: Taxation payable Deferred income taxes , ,586 Overview Corporate Governance Community Financial Statements Additional Information 21,901 5,158, ,118 11,057,918 1,573,944 18,,212,156 Total interest repricing gap 2,293,719 (5,158,275) (400,118) (10,955,525) 29,867,164 15,646,965 Cumulative repricing gap 2,293,719 (2,864,556) (3,264,674) (14,220,199) 15,646,965 SAGICOR REAL ESTATE X FUND 81

84 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 4. Financial Risk Management (Continued) (c) Market risk (continued) (i) Interest rate risk (continued) The Company 1 to 3 Months 4 to 12 Months 2 to 5 Years Over 5 Years Non- Interest Bearing Total 31 December 2015 $000 $000 $000 $000 $000 $000 Assets Securities purchased under agreement to resell 103, ,241 Financial investments ,414 2,624 79,038 Investment in Sigma Real Estate Portfolio ,726,225 10,726,225 Receivables ,456 17,456 Cash resources Non-financial asset : Investment in subsidiary ,518,204 9,518,204 Total assets 103, ,414 20,264,664 20,444,221 Liabilities Borrowings - 5,092, ,789 5,116,373 Bank overdraft Payables ,598 7,598 Non-financial liabilities: Taxation payable Deferred income taxes ,728 26,728 Total liabilities - 5,092, ,199 5,150,783 Total interest repricing gap 103,143 (5,092,584) - 76,414 20,206,465 15,293,438 Cumulative repricing gap 103,143 (4,989,441) (4,989,441) (4,913,027) 15,293, ANNUAL REPORT 2015

85 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 4. Financial Risk Management (Continued) (c) Market risk (continued) (i) Interest rate risk (continued) 1 to 3 Months 4 to 12 Months The Group 2 to 5 Years Over 5 Years Non- Interest Bearing Total 31 December 2014 $000 $000 $000 $000 $000 $000 Assets Securities purchased under agreement to resell 240,405 2,544, ,784,912 Financial investments ,237 2,501 74,738 Investment in Sagicor Real Estate Portfolio ,403,194 9,403,194 Receivables ,956,069 1,956,069 Total assets 240,405 2,544,068-72,237 11,362,203 14,218,913 Liabilities Borrowings - - 4,837,775-22,599 4,860,374 Non-financial liabilities: Taxation payable Deferred income taxes ,847 18,847 Total liabilities - - 4,837,775-41,494 4,879,269 Total interest repricing gap 240,405 2,544,068 (4,837,775) 72,237 11,320,709 9, 339,644 Cumulative repricing gap 240,405 2,784,473 (2,053,302) (1,981,065) 9, 339,644 Overview Corporate Governance Community Financial Statements Additional Information SAGICOR REAL ESTATE X FUND 83

86 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 4. Financial Risk Management (Continued) (c) Market risk (continued) (i) Interest rate risk (continued) The Company 1 to 3 Months 4 to 12 Months 2 to 5 Years Over 5 Years Non- Interest Bearing Total 31 December 2014 $000 $000 $000 $000 $000 $000 Assets Securities purchased under agreement to resell 240, ,635 Financial investments ,237 2,501 74,738 Investment in Sagicor Real Estate Portfolio ,403,194 9,403,194 Non-financial assets: Investment in subsidiary ,804,380 4,804,380 Total assets 240, ,237 14,210,305 14,522,947 Liabilities Borrowings - - 4,837,775-22,599 4,860,374 Related parties , ,243 Non-financial liabilities: Taxation payable Deferred income taxes ,795 18,795 Total liabilities - - 4,837, ,685 5,183,460 Total interest repricing gap 240,405 - (4,837,775) 72,237 13,864,620 9, 339,487 Cumulative repricing gap 240, ,405 (4,597,370) (4,525,133) 9, 339,487 Interest rate sensitivity Floating rate instruments expose the group to cash flow interest risk, whereas fixed interest rate instruments expose the group to fair value interest risk. The company earns interest on its investments in debt securities and pays interest on its borrowings (Notes 17 & 24). Accordingly, the group does not have significant exposure to interest rate risk. 84 ANNUAL REPORT 2015

87 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 5. Capital Management The Group s objectives when managing capital are to safeguard its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Board of Directors monitors the return on capital. 6. Fair Value of Financial Instruments The company s objectives when managing capital are to safeguard its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Board of Directors monitors the return on capital. Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm s length transaction. Market price is used to determine fair value where an active market (such as a recognised stock exchange) exists as it is the best evidence of the fair value of a financial instrument. However, market prices are not available for a significant number of the financial assets and liabilities held and issued by the Group. Therefore, for financial instruments where no market price is available, the fair values presented have been estimated using present value or other estimation and valuation techniques based on market conditions existing at the statement of financial position dates. The values derived from applying these techniques are significantly affected by the underlying assumptions used concerning both the amounts and timing of future cash flows and the discount rates. The following methods and assumptions have been used: (i) (ii) (iii) Investments in unit trusts are based on prices quoted by the fund managers. The fair values of financial investments are measured by reference to quoted market prices or dealer quotes when available. The fair value of current assets and liabilities approximate their carrying value due to the short term nature of these instruments. The following table provides an analysis of financial instruments that are measured in the statement of financial position at fair value at 31 December 2015, grouped into Levels 1 to 3 based on the degree to which the fair value is observable: (i) (ii) (iii) Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 fair value measurements are those derived from inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). Overview Corporate Governance Community Financial Statements Additional Information SAGICOR REAL ESTATE X FUND 85

88 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 6. Fair Value of Financial Instruments (Continued) The Group 2015 Level 1 Level 2 Level 3 Total Financial Assets Investments in Sagicor Global Fund - Sigma Real Estate Portfolio ,726,225 10,726,225 Financial investments - 105, , ,650 10,726,225 10,831,875 The Group 2014 Level 1 Level 2 Level 3 Total Financial Assets Investments in Sagicor Global Fund - Sigma Real Estate Portfolio - - 9,403,194 9,403,194 Financial investments - 74,738-74,738-74,738 9,403,194 9,477,932 The Company 2015 Level 1 Level 2 Level 3 Total Financial Assets Investments in Sagicor Global Fund - Sigma Real Estate Portfolio ,726,225 10,726,225 Financial investments - 79,038-79,038-79,038 10,726,225 10,805,263 The Company 2014 Level 1 Level 2 Level 3 Total Financial Assets Investments in Sagicor Global Fund - Sigma Real Estate Portfolio - - 9,403,194 9,403,194 Financial investments - 74,738-74,738-74,738 9,403,194 9,477, ANNUAL REPORT 2015

89 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 6. Fair Value of Financial Instruments (Continued) Reconciliation of level 3 items The Group and The Company $000 $000 Balance at beginning of year 9,403,194 8,418,156 Total gains statement of comprehensive income 1,323, ,038 Balance at end of period 10,726,225 9,403,194 The gains or losses recorded in the statement of comprehensive income are included in Note 8. The following table summarizes the quantitative information about the significant unobservable inputs used to measure the Group s Level 3 financial instruments: Description The Group: Fair value at Investment in Sigma Real Estate Portfolio 10,726,225 9,403,194 Unobservable inputs Range of unobservable inputs Computed unit prices 9,653,603 8,462,875 Relationship of unobservable inputs to fair value If the estimated fair values were higher / lower by 10% Overview Corporate Governance Community Financial Statements Additional Information SAGICOR REAL ESTATE X FUND 87

90 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 7. Segmental Financial Information Management has determined the operating segment based on the reports reviewed by the Board of Directors that are used to make strategic decisions. The Group is managed on a matrix basis, reflecting both line of business and geography. Accordingly, segment information is presented in two formats. The Group is organised into two primary business segments: (a) (b) Hotel operations direct ownership and operation of hotels. Investment in Sigma Real Estate Portfolio indirect investment in real estate via the Sigma Fund. There were no transactions between the operating segments during 2015 or The Group 2015 Sigma Real Hotel Operations Estate Portfolio Other Eliminations Group $'000 $'000 $'000 $'000 $'000 External revenues 5,581,695 1,323,031 8,269-6,912,995 Net capital gains/(losses) on financial assets and liabilities (36,436) (265,016) (300,855) Revenue from other segments Total revenue 5,545,259 1,058,015 8,866-6,612,140 Operating expenses (4,112,899) - - (4,112,899) Depreciation (270,003) (270,003) Finance costs (492,596) (271,493) - - (764,089) Profit before taxation 669, ,522 8,866-1,465,149 Taxation (159,800) (7,865) (89) - (167,754) Net profit 509, ,657 8,777-1,297,395 Segment assets - 22,940,702 10,726, ,792 (7,598) 33,859,121 Segment liabilities 13,068,973 5,143,100 7,681 (7,598) 18,212,156 The Group s geographic information: Jamaica United States of America 2015 Total Revenue 5,627, ,092 6,612,140 Total assets 22,554,263 11,304,858 33,859,121 Geographically, the segments are Jamaica and United States of America. In 2014, the Group s main activities were investments in units in the Sigma Real Estate Portfolio and in a subsidiary which was not operational as at December Activities were limited to Jamaica in ANNUAL REPORT 2015

91 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 8. Revenue Interest Income: The Group The Company Securities purchased under agreement to resell 9,103 4,612 2,925 4,403 Bank deposits 3, Financial assets 7, , ,435 5,637 8,269 5,428 Net capital gains on financial assets and liabilities: Net capital gains on units in Sagicor Global Fund - Sigma Real Estate Portfolio 1,323, ,038 1,323, ,038 Net capital losses gains/(losses) on other investment securities 1,388 (340) 597 (340) Net capital losses on loan payable - (33,559) - (33,559) Net foreign exchange gains/(losses) (302,243) 6,002 (265,016) 6,002 Hotel Income: 1,022, ,141 1,058, ,141 Rooms 4,838, Food and beverage 373, Gift shop 112, Health club 100, Other departments 93, Gains on disposal of property, plant and equipment 2, Other 51, ,570, Overview Corporate Governance Community Financial Statements Additional Information SAGICOR REAL ESTATE X FUND 89

92 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 9. Expenses by Nature Pursuant to an Arrangement dated April 25, 2014, all Initial Public Offering and administrative expenses accruing in respect of the operations of Sagicor Real Estate X Fund Limited (the Company) will be covered by Sagicor Sigma Global Fund - Sigma Real Estate Portfolio for a period of five years. Expenses covered by the Sagicor Sigma Global Fund - Sigma Real Estate Portfolio on behalf of Company were as follows: The Company Auditors remuneration 3,261 2,267 Bond issue costs - 91,423 Director fees 11,130 10,815 Professional fees and other costs 15,155 4,604 29, ,109 Total direct, administration and other operating expenses recognized were: (a) Direct Expenses - The Group The Company Rooms 194, Food and beverage 870, Gift shop 46, Health club 11, Other operated departments 40, Staff costs (Included in Note 10) 834, ,998, ANNUAL REPORT 2015

93 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 9. Expenses by Nature (Continued) (b) Administration and other operating expenses- The Group The Company Advertising and promotion 145, Audit fees 15, Bad debt expense 15, Bank charges 3, Commission expense (travel agents and others) 19, Credit card commissions 82, Depreciation 270, Donations Guest transportation 1, Insurance 98, Irrecoverable general consumption taxes License and permits 1, Management fees to operator of hotel properties 135, Other taxes 30, Professional and legal fees 16, Rent 42, Repairs and maintenance 240, Security 14, Staff costs 523, Trade name fees 229, Utilities 462, Other 35, ,384, Total expenses 4,382, Overview Corporate Governance Community Financial Statements Additional Information SAGICOR REAL ESTATE X FUND 91

94 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 10. Staff Cost Direct and Indirect The Group The Company Salaries: 1,066, Payroll taxes employer s portion 109, Pension 2, Allowances and benefits 165, Other 13, ,357, The average number of persons employed by group and the company was as follows: The Group The Company Full time Part time Finance Costs Interest expense - The Group The Company Amortisation of upfront fees on loan 5, Mortgage Notes 486, Structured loans 271,493 22, ,493 22, ,089 22, ,493 22, ANNUAL REPORT 2015

95 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 12. Taxation The taxation charge is computed on the profit for the period, adjusted for tax purposes, and comprises income tax at predominantly 1% and 25%: The Group The Company $'000 $'000 Current year tax charge Deferred income tax (Note 28) 167,694 18,848 7,933 18, ,754 18,896 7,933 18,844 Reconciliation of applicable tax charge to effective tax charge: Profit before taxation 1,465, ,383 1,034, ,174 Tax calculated at 1% 10,346 9,402 10,346 9,402 Tax calculated at 25% 167, Adjusted for the effects of: Net effect of other charges and allowances (10,032) 19 (20) 20 Income not subject to tax - - (2,393) - Prior year under-provision - 9,422-9,422 Taxation expense 167,754 18,896 7,933 18,844 Tax losses available to the Group at 31 December 2015 for set-off against future taxable profits amount to approximately $1,038,248,000 ( $Nil) and may be carried forward for up to 6 years. Overview Corporate Governance Community Financial Statements Additional Information SAGICOR REAL ESTATE X FUND 93

96 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 13. Earnings per Share (i) Basic earnings per share is calculated by dividing the net profit attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period Net profit attributable to shareholders 1,297, ,487 Weighted average number of ordinary shares in issue ( 000) as previously stated 1,728,616 1,495,337 Effect of rights issue - 62,442 Weighted average number of ordinary shares in issue ( 000) as restated 1,728,616 1,557,779 Basic earnings per share as previously stated $0.75 $0.62 Basic earnings per share restated for rights issue $0.75 $0.59 (ii) Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The company has no dilutive potential ordinary shares at 31 December Property, Plant and Equipment Cost or Valuation - Land & Buildings Computer Equipment The Group Furniture, Fixtures & equipment Capital Work in Progress Total $'000 $'000 $'000 $'000 $'000 Additions 488,246 12, , , ,756 On acquisition of hotels (note 31) 18,451, ,515-18,697,573 Translation adjustment 97,624-2,235-99,859 At 31 December ,036,928 12, , ,200 19,666,188 Accumulated Depreciation - Charges for the year 241,272 1,957 26, ,003 Translation adjustment At 31 December ,675 1,957 26, ,459 Net Book Value - 31 December December ,795,253 10, , ,200 19,395,729 Owner-occupied properties were acquired during the year at market value and will not be revalued until ANNUAL REPORT 2015

97 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 15. Investments in Subsidiary Shares in: X Fund Properties Limited 9,518,204 4,804,380 During September 2015, the company injected additional capital of $4,713,824,000 in one of its subsidiaries, X Fund Properties Limited. 16. Investment in Sigma Real Estate Portfolio The units in the respective funds and values thereof are: The Group & The Company Sigma Real Sigma Real Estate Estate Portfolio Portfolio UNITS Units Units Opening and closing balance 6,858,638,766 6,858,638,766 VALUE Opening balance 9,403,194 8,418,156 Changes in market value of investments 1,323, ,038 Closing balance 10,726,225 9,403,194 Value Per Unit $1.56 $ Financial Investments The Group The Company Government of Jamaica Bonds 102,393 72,237 76,414 72,237 Interest receivable 3,257 2,501 2,624 2, ,650 74,738 79,038 74,738 Overview Corporate Governance Community Financial Statements Additional Information SAGICOR REAL ESTATE X FUND 95

98 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 18. Inventories The Group The Company Beverage 15, Food 39, Gift shop 8, Guest supplies 13, Spa supplies Other 20, , Receivables The Group The Company Trade receivables 473, Less: Provision for bad debts (25,411) , Prepayments 186, Due from related parties (Note 20) 20,378-17,456 - Deposit on hotel being acquired - 1,956, Other receivables 43, ,904 1,956,069 17, Related Party Transactions and Balances Parties are considered to be related if one party has the ability to control or exercise significant influence over the other party in making financial or operational decisions. Related companies include ultimate parent company, parent company, fellow subsidiaries and associated company. Related parties include directors, key management and companies for which the company and its parent company are provided with management services. 96 ANNUAL REPORT 2015

99 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 20. Related Party Transactions and Balances (Continued) (a) Related party transactions The following transactions were carried out with related parties: (i) Revenue and interest income - The Group The Company Revenue - Interest income - Affiliated company- Sagicor Investment Jamaica Limited 9,103 4,612 2,925 4,403 Affiliated company- Sagicor Bank Jamaica Limited The Group The Company (ii) Administration expenses and interest expense Administration and other operating expenses- Sagicor Re Insurance Ltd. 78, Interest expense - Sagicor Group Jamaica Limited 23, Sagicor Life Jamaica Limited 76, Sagicor Life of the Cayman Islands Ltd. 17, Sagicor Sigma Global Funds 230, Sagicor Pooled Pension Funds 44, (iii) Dividends During the year the X Fund Properties Limited paid dividends of $239,254,000 to its immediate parent company, Sagicor Real Estate X Fund Limited. Overview Corporate Governance Community Financial Statements Additional Information SAGICOR REAL ESTATE X FUND 97

100 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 20. Related Party Transactions and Balances (Continued) (b) Key management compensation The Group The Company Salaries Payroll taxes employer s portion Other Directors' emoluments Fees 11,130 10,815 11,130 10,815 Management remuneration (c) Year-end balances arising from operations Year-end balances arising from transactions in the normal course of business are as follows The Group The Company (i) Cash and cash equivalents - Sagicor Bank Jamaica Limited 198, (ii) Securities purchased under agreement to resell- Affiliated company - Sagicor Investment Jamaica Limited 438,507 2,784, , ,635 (iii) Receivable from related parties - Due from Sagicor Global Fund - Real Estate X Fund Limited 16,925-16,925 - Due from Sagicor Sigma Global Funds (Real Estate Portfolio) 3, (iv) Payable to related parties - (v) 20,378-17,456 - Sagicor Sigma Global Funds (230) X Fund Properties Limited - - (7,598) (304,243) Loans to related parties (230) - (7,598) (304,243) Sagicor Group Jamaica Limited 1,987, Sagicor Sigma Global Funds 2,603, Sagicor Pooled Pension Funds 1,019, ANNUAL REPORT 2015

101 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 21. Securities Purchased under Agreements to Resell The Group The Company Securities purchased under agreements to resell 435,905 2,784, , ,405 Interest receivable 2, Securities purchased under agreements to resell 438,507 2,784, , ,635 The Group The Company Jamaican dollar 84, ,357 1, ,357 United States dollar 353,737 2,586, ,190 42, ,507 2,784, , ,635 The effective weighted average interest rates on securities purchased under agreements to resell are as follows: The Group The Company Jamaican dollar United States dollar These deposits have original terms of 180 days or less. 22. Cash and Cash Equivalents 2015 % The Group % % The Company % 2014 Cash in hand 4, Cash at bank 2,391, Cash Resources 2,396, Bank overdraft (36) - (36) - Securities purchased under agreements to resell 331, , , ,635 Restricted cash (1,656,597) Cash and Cash Equivalents 1,071, , , ,635 Overview Corporate Governance Community Financial Statements Additional Information Restricted cash represents cash held by a subsidiary for renovation of the Doubletree Universal Hotel under the Franchise Agreement with Hilton for the said property. SAGICOR REAL ESTATE X FUND 99

102 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 23. Payables The Group The Company Trade 199, Advance deposits 243, Accruals 338, Related parties (Note 20) 230-7, ,243 General Consumption Taxes 23, Other 148, ,275-7, , ANNUAL REPORT 2015

103 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 24. Borrowings Total The Group Related party portion (Note 20) Third party Portion Total The Company Related party portion (Note 20) Third party Portion (a) Structured Products 2015 Tranche A US Indexed (i) 1,239,304-1,239,304 1,239,304-1,239,304 Tranche B USD (ii) 3,853,280-3,853,280 3,853,280-3,853,280 Principal loan balance 5,092,584-5,092,584 5,092,584-5,092,584 Interest payable 23,789-23,789 23,789-23,789 5,116,373-5,116,373 5,116,373-5,116,373 Less current portion (5,116,373) - (5,116,373) (5,116,373) - (5,116,373) (b) Mortgage Notes Tranche B (iii) 1,511,208 1,511, Tranche C (iv) 3,927,145 3,927, Goldman Sachs Loan (v) 6,107,275-6,107, Principal loan balance 11,545,628 5,438,353 6,107, Unamortised balance upfront fees on loan (55,943) - (55,943) Interest payable 194, ,606 21, ,683,904 5,610,959 6,072, Less current portion (279,181) (172,606) (106,575) (c) Other Loan 11,404,723 5,438,353 5,966, Development Loan (vi) 270, , Less current portion (27,093) - (27,093) , , Total Long term borrowings 11,648,564 5,438,353 6,210, Current portion of borrowings 5,422, ,606 5,250,041 5,116,373-5,116,373 Overview Corporate Governance Community Financial Statements Additional Information SAGICOR REAL ESTATE X FUND 101

104 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 24. Borrowings (Continued) The Group The Company Total Related party portion (Note 20) Third party Portion Total Related party portion (Note 20) Third party Portion (a) Structured Products 2014 Tranche A US Indexed (i) 1,177,295-1,177,295 1,177,295-1,177,295 Tranche B USD (ii) 3,660,480-3,660,480 3,660,480-3,660,480 Principal loan balance 4,837,775-4,837,775 4,837,775-4,837,775 Interest payable 22,599-22,599 22,599-22,599 4,860,374-4,860,374 4,860,374-4,860,374 Less current portion (22,599) - (22,599) (22,599) - (22,599) 4,837,775-4,837,775 4,837,775-4,837,775 i) Tranche A US Indexed (The Company) The 5.5% US dollar indexed amortizing notes are structured securities whereby the principal is amortised quarterly with the final repayment by June 2016 with an option to extend a further 18 months. Loan is secured by a debenture over units in the Sigma Real Estate Portfolio and any bonus units issued upon or in respect thereof. ii) iii) iv) Tranche B US Dollar (The Company) The 5.5% US dollar amortizing notes are structured securities whereby the principal is amortised quarterly with the final repayment by June 2016 with an option to extend a further 18 months. Loan is secured by a debenture over units in the Sigma Real Estate Portfolio and any bonus units issued upon or in respect thereof. Tranche B US Dollar (Subsidiary) This Note attracts interest at a rate of 6% per annum, payable quarterly, and matures January The Note carries the option for early encashment by investors at certain anniversaries. Tranche C Jamaican Dollar (Subsidiary) This Note attracts interest at a rate of 8% per annum for the first two years with step up to 11.5% thereafter to maturity in January Interest is paid semi-annually and the Note has no option to early encash. Both Notes in (i) and (ii) above are secured as follows: A registered legal mortgage over the Hilton Rose Hall Resort and Spa. A debenture collateral to the mortgage creating fixed and floating charge over the X Fund Properties Limited assets and undertakings Debt Service Reserve Account containing three months of interest payment obligations 102 ANNUAL REPORT 2015

105 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 24. Borrowings (Continued) v) Goldman Sachs (Subsidiary) The note attracts interest at 4.9% per annum and matures October The mortgage note payable is secured by the investment in hotel property. The mortgage note accrues interest from the date of the loan with interest due monthly, in arrears, and requires principal and interest payments through maturity upon which the outstanding principal is due and payable. The Group may prepay the mortgage note prior to the maturity date only in conjunction with the sale of a property or as a result of casualty or condemnation. vi) This Note is interest free with annual forgiveness of debt over ten years, if certain conditions are met. The loan commenced in November Share Capital 26. Dividend Authorised: 5,000,000,000 ordinary shares US$5,000,000 US$5,000,000 1 special rights redeemable preference share US$1 US$1 US$5,000,001 US$5,000, Issued and fully paid - 2,243,005,125 (2014-1,495,336,750 ordinary shares of J$1.00 par value) 12,642,412 7,475,916 1 special rights redeemable preference share ,642,512 7,476,016 A dividend of $239,254,000 (2014 $Nil) or $0.16 (2014 $Nil) per share was paid during the year. 27. Net Profit and Retained Earnings (i) Net profit dealt with in the financial statements of: (ii) The company 1,026, ,330 Less dividend received from a subsidiary (239,254) - The subsidiaries 509, Retained earnings reflected in the financial statements of: 1,297, ,487 Overview Corporate Governance Community Financial Statements Additional Information The company 2,650,928 1,863,471 The subsidiaries 270, ,921,769 1,863,628 SAGICOR REAL ESTATE X FUND 103

106 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 28. Deferred Income Taxes Deferred income taxes are calculated in full on temporary differences under the liability method using a principal tax rate of 1% for Sagicor Real Estate X Fund Limited and 25% for X Fund Properties Limited. The Group The Company $000 $000 $000 $000 Deferred income taxes (186,586) (18,847) (26,728) (18,795) The movement on the deferred income tax account is as follows: The Group The Company $000 $000 $000 $000 Balance at start of year (18,847) 1 (18,795) 1 Charged to the statement of comprehensive income net loss (167,694) (18,848) (7,933) (18,796) Effect of exchange rate translation (45) Balance at end of year (186,586) (18,847) (26,728) (18,795) Deferred income tax assets and liabilities are attributable to the following items: Deferred tax assets- The Group The Company $000 $000 $000 $000 Interest payable 43, Tax losses unused 259,562-7,843 - Unrealised foreign currency losses 19, Unrealised revaluation loss on loan payable Accrued vacation 6, Deferred tax liabilities- Property plant and equipment (480,781) Interest receivable (798) (80) (28) (28) Unrealised foreign currency gains (2,610) (60) (2,610) (60) Unrealised revaluation gains on investments (32,506) (19,269) (32,506) (19,269) Net deferred tax liability (186,586) (18,847) (26,728) (18,795) 104 ANNUAL REPORT 2015

107 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 28. Deferred Income Taxes (Continued) The amounts shown in the statement of financial position included the following: The Group The Company Deferred tax assets to be recovered after more than 12 months 326, , Deferred tax liabilities to be recovered after more than 12 months (513,287) (19,269) (32,506) (19,269) 29. Consolidated Cash Flows from Operating Activities Cash Flows from Operating Activities Note Net profit 1,297, ,487 Adjustments for: Depreciation ,003 - Loss on revaluation of loan payable - 33,559 Interest income (19,435) (5,637) Fair value gains on units held in Sagicor Sigma Funds (1,323,031) (985,038) Fair value gain on other financial investments (1,388) 340 Effect of exchange losses on foreign currency balances 301,024 - Taxation expense ,754 18,896 Finance cost 764,089 22,395 Changes in operating activities: 1,456,411 6,002 Receivables (534,714) - Inventories (98,005) - Payables 954,275 - Cash provided by operating activities 1,777,967 - Income tax paid (60) - Overview Corporate Governance Community Financial Statements Additional Information Net cash provided by operating activities 1,777,907 6,002 SAGICOR REAL ESTATE X FUND 105

108 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 30. Commitments and Contingencies (i) Franchise Agreements As of December 31, 2015, the hotels, DoubleTree and Hilton Rose Hall Resorts & Spa are operated under a franchise agreements with Hilton Worldwide and its affiliates ( Hilton ) and is licensed as Doubletree and Hilton respectively. In conjunction with the franchise agreement, the Group is obligated to pay Hilton royalty fees of between 4% and 5% of gross room revenue, and fees for marketing, reservations and other related activities of 4% of gross room revenue. DoubleTree Franchise costs incurred under the franchise agreements were US$699,031 for the period from July 31, 2015 through December 31, 2015, and are included in various accounts in the accompanying statement of comprehensive income. The franchise agreement terminates on September 30, In addition, under the franchise agreements, the Group is periodically required to make capital improvements to the hotels in order for them to meet the franchisors brand standards. Additionally, under certain loan covenants, the Group is obligated to fund 2% of gross income from operations to a restricted account for the ongoing replacement or refurbishment of furniture, fixtures and equipment at the hotel. Certain Members of the Group have guaranteed the Group s obligations under the franchise agreement. Hilton Rose Hall Resort & Spa In conjunction with the franchise agreement, the Company is obligated to pay Hilton monthly royalty fees of US$100,000, and monthly program fees of US$50,000. The franchise agreement terminates on January 21, (ii) (iii) Contingencies The Group is party to various claims and routine litigation arising in the ordinary course of business. The Group does not believe that the results of all claims and litigation, individually or in the aggregate, will have a material adverse effect on its business, financial position or results of operations. Other In conjunction with the execution of a Loan Agreement on September 10, 2014, the Members executed an agreement with the Lender guaranteeing certain bad boy acts, environmental liabilities, and timely completion of the property improvement plan required by the franchisor. 106 ANNUAL REPORT 2015

109 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 31. Business Combination (i) DoubleTree Hotel Effective September 15, 2015, the Group acquired the Doubletree Hotel for a contractual purchase price of US$75,000,000, plus adjustments for prorated balances. The purchased price has been allocated to the assets acquired using the estimated fair value at the date of acquisition based on third party appraisal. The valuation is considered Level 3 for valuation technique. The acquired business contributed post acquisition revenues of $985,091,000 and profits of $8,826,000 for the year ended 31 December Details of the net assets acquired and purchase consideration determined on a provisional basis, were as follows: Fair Values Net assets arising on the acquisition: Land and improvements 1,521,862 Building and improvements 7,205,013 Furniture and fixtures 175,677 Net other assets and liabilities 29,395 8,931,947 Purchase consideration - Cash 8,931,947 Net assets acquired 8,931,947 Goodwill - (ii) Hilton Rose Hall Resort & Spa Effective January 2015, the company acquired property for a contractual purchase price of US$85,000,000 plus adjustments for prorated balances. The purchased price has been allocated to the assets acquired using the estimated fair value at the date of acquisition based on third party appraisal. The valuation is considered Level 3 for valuation technique. The acquired business contributed post acquisition revenues of $4,596,604,000 and profits of $501,112,000 for the year ended 31 December Overview Corporate Governance Community Financial Statements Additional Information SAGICOR REAL ESTATE X FUND 107

110 Notes to the Financial Statements 31 December 2015 (expressed in Jamaican dollars unless otherwise indicated) 31. Business Combination (Continued) (ii) Hilton Rose Hall Resort & Spa (continued) Details of the net assets acquired and purchase consideration determined on a provisional basis, were as follows: Fair Values Net assets arising on the acquisition: Land and improvements 2,897,308 Building and improvements 6,826,875 Furniture and fixtures 70,838 Net, other assets and liabilities 119,389 9,914,410 Paid in the current year 7,983,334 Deposited in the prior year 1,931,076 Purchase consideration - Cash 9,914,410 Net assets acquired 9,914,410 Goodwill Operating Leases As at December 31, 2015, the Group received tenant rental income from gift shop and car rental lease agreements. The lease agreements have remaining terms ranging from three to fifteen months. The tenant rental income is recognized on a straight line basis over the lives of the respective leases. The Group recognized rental income of $24,489,000 for the current year. Approximate future minimum rental revenues under non-cancellable operating leases, assuming extension options will be exercised, with initial terms in excess of one year in effect as at 31 December Year ending 31 December: The Group , , Subsequent Event One of the company s subsidiaries, X Fund Properties Limited, issued a US$50,000,000 bond on March 1, 2016 via Private Placement through five Tranches of short term and long term instruments. Four of the five Tranches have fixed coupon ranging between 7% and 11%, with tenure of 2 years to 40 years. The fifth Tranche is fixed for 2 years at 7% and variable thereafter at 200 basis points above the 3 month weighted average Treasury bill yield (WATBY). The bond is secured by a mortgage over the Hilton Rose Hall Resort and Spa. 108 ANNUAL REPORT 2015

111 Disclosure of Shareholdings at 31 December 2015 TOP TEN SHAREHOLDERS SHAREHOLDERS NO OF SHARES PERCENTAGE 1 Sagicor Pooled Diversified Investment Fund 716,638, % 2 Sagicor Group Jamaica Limited 473,414, % 3 Sagicor Pooled Mortgage & Real Estate Fund 413,790, % 4 SLJ Trading A/C - Sagicor Real Estate Fund 183,869, % 5 Sagicor JPS Employees Pension Plan 70,000, % 6 JCSD Trustee Services Ltd - Sigma Optima 45,824, % 7 Sagicor Pooled Equity Fund 39,214, % 8 First Ja/Nat l Hsg Trust Pension Fund 30,000, % 9 Heart Trust / NTA Pension Scheme 28,000, % 10 SJIML A/C ,804, % Total 2,028,555, % Other 214,449, % Total Issued Shares 2,243,005, % SHAREHOLDINGS OF DIRECTORS SHAREHOLDERS SHAREHOLDINGS SHAREHOLDINGS 1 Richard Byles 5,378,905 5,389,505 (Jacinth Byles - connected party) (Pavel Byles - connected party) 10,600 2 R Danny Williams Nil 3 Rohan Miller 500,000 4 Michael Fraser 121,500 (Paulette Fraser - connected party) 5 Patricia Downes-Grant Nil 6 Vinay Walia Nil 7 Peter Pearson Nil 8 Stephen McNamara Nil Overview Corporate Governance Community Financial Statements Additional Information SAGICOR REAL ESTATE X FUND 109

112 Disclosure of Shareholdings (Cont d) SHAREHOLDINGS OF DIRECTORS IN CONNECTED COMPANY SHAREHOLDERS Sagicor Group Shares 1 Richard Byles 25,573,149 2 R Danny Williams (Ravers Limited) 12,332,825 3 Rohan Miller 2,595,465 4 Michael Fraser 1,434,405 5 Patricia Downes-Grant 25,000 6 Vinay Walia Nil 7 Peter Pearson Nil 8 Stephen McNamara Nil 110 ANNUAL REPORT 2015

113 FORM OF PROXY I,.. of. being a member of Sagicor Real Estate X Fund Limited hereby appoint of or failing him of.as my proxy to vote for me on my behalf at the Annual General Meeting of the Corporation at the offices of McNamara Corporate Services Inc., Rodney Bay, Gros Islet, Saint Lucia on Monday, June at 10:00 a.m. and at any adjournment thereof. The Proxy will vote on the undermentioned resolutions as indicated: Resolution No. 1 THAT the Audited Accounts and the Reports of the Directors and Auditors for the year ended December 31, 2015 be and are hereby adopted. Resolution No.2 That the election of directors be made en-bloc. Resolution No. 3 That Directors Michael Fraser and Dr. M. Patricia Downes Grant, who retire by rotation and are eligible for re-election be and are hereby re-elected as Directors of the Company en bloc. Resolution No. 4 THAT the amount of $11,130, included in the Audited Accounts of the Company for the year ended December 31, 2015 as remuneration for their services as Directors be and is hereby approved. Resolution No. 5 THAT PricewaterhouseCoopers, Chartered Accountants, having agreed to continue in office as Auditors, be and are hereby appointed Auditors for the Company to hold office until the conclusion of the next Annual General Meeting at a remuneration to be fixed by the Directors of the Company. For Against NOTE: If this form is returned without any indication as to how the person appointed proxy shall vote, he will exercise his discretion as to how he votes or whether he abstains from voting. As witness my hand this.. day of Signature:. NOTE: (1) If the appointer is a Corporation, this form must be under the Common Seal or under the hand of an officer or attorney duly authorised. (2) To be valid, this proxy must be lodged with the Secretary of the Corporation, 20 Micoud Street, Castries, St. Lucia not less than 48 hours before the time appointed for holding the meeting. A proxy need not be a member of the Company.

114

115

116 REGISTERED OFFICE: 20 Micoud Street Castries St. Lucia Territories of Operation St. Lucia Sagicor Real Estate X Fund Limited 20 Micoud Street Castries St. Lucia Jamaica X Fund Properties Limited (wholly owned subsidiary) Barbados Avenue Kingston 5 Jamaica X Fund Properties LLC (wholly owned subsidiary of X Fund Properties Limited) 5780 Major Boulevard Orlando, Florida USA