SDOT2 Financial Report 30 June 2008 - Stockland

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Notes to the financial statements For the year ended 30 June 2007 18 Distributions to unitholders (continued) Distributions to unitholders recognised in the previous financial period by the Trust are: Distribution per Unit Total Amount Date of Payment Tax deferred $’000 2006 31 December 2005 1.2540¢ 1,077 17 February 2006 100% 31 March 2006 0.6350¢ 545 3 May 2006 100% 30 June 2006 0.6310¢ 542 28 August 2006 100% 2,164 19 Notes to the Cash Flow Statement 18 // 2007 2006 Reconciliation of profit from operating activities to net cash flows from operating activities $’000 $’000 Profit from operating activities 29,025 1,150 Amortisation of borrowing costs 203 16 Change in value of investment using the equity method (29,161) - Reclassification of borrowing costs 290 - Change in assets and liabilities: (Increase) in trade and other receivables (43) - (Increase) in other assets (2,019) (5) Increase in trade and other payables 1,842 307 Net cash flows from operating activities 137 1,468 20 Financial instruments (a) Financial risk management The Trust’s activities expose it to a variety of financial risks; credit risk, liquidity risk, cash flow and interest rate risk. The Trust’s overall financial risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Trust’s financial performance. The Trust uses derivative financial instruments to hedge exposure to fluctuations in interest rates. Financial risk management is carried out by a central treasury department under policies approved by the Board of the Responsible Entity. The Board provides written principles of overall risk management, as well as written policies covering specific areas such as mitigating interest rate and credit risks, use of derivative financial instruments and investing excess liquidity. Credit risk Credit risk represents the loss that would be recognised if counterparties fail to perform as contracted. Derivative counterparties and cash transactions are limited to high credit quality financial institutions. The Responsible Entity has policies that limit the amount of credit risk exposure to any one financial institution. Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and cash equivalents, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. The Trust aims at maintaining flexibility in funding by keeping committed credit lines available. Cash flow and fair value interest rate risk The Trust’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Trust to cash flow interest rate risk. Borrowings issued at fixed rates expose the Trust to fair value interest rate risk. The Responsible Entity, on behalf of the Trust, manages the Trust’s cash flow interest rate risk by using floating-to-fixed interest rate swaps. Such interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. Under the interest rate swaps, the Responsible Entity agrees with other parties to exchange, at specified intervals, generally quarterly, the difference between fixed contract rates and floating rate interest amounts calculated by reference to the agreed notional principal amounts. Stockland Direct Office Trust No.2 June 2007
20 Financial instruments (continued) (b) Derivative financial instruments used by the Trust The Trust is party to derivative financial instruments in the normal course of business in order to hedge exposure to fluctuations in interest rates in accordance with the Trust’s financial risk management policies as mentioned above. Interest rate swap contracts The Responsible Entity, on behalf of the Trust, has entered into interest rate swap contracts to manage cash flow risks associated with the interest rates on borrowings that are floating. The interest rate swaps allow the Trust to swap the floating rate borrowings into fixed rates. The Trust does not hold derivative financial instruments for speculative purposes. On 3 June 2005, the Trust entered into two forward swap contracts to hedge the anticipated variable interest rate exposure of the Trust on the debt facilities provided by Westpac Banking Corporation. The first swap provides a fixed rate of 5.72% p.a. on the funds drawn against the Acquisition Tranche 1 facility from 29 September 2005 to 1 July 2008; the second swap provides a fixed rate of 5.81% p.a. on the funds drawn against both the Acquisition Tranche 1 and 2 facilities from 1 July 2008 to 28 June 2013. Notes to the financial statements For the year ended 30 June 2007 Cash flows swap contracts On 28 June 2005, the Trust entered into a forward swap contract to pay 5.75% p.a. and receive the 90 day Bank Bill floating rate of interest on issue of units in the Trust to the public. On 15 June 2007, being lease commencement, two derivative instruments were terminated resulting in a realised gain of $540,000. The two derivative instruments were no longer required, given that the Trust was entitled to receive distribution income from MPT from 15 June 2007. At 30 June 2007, the notional principal amounts and periods of expiry of the interest rate swap contracts are as follows: Swaps on acquisition facilities Swaps on unitholder funds Total swaps 30 June 2007 $’000 $’000 $’000 Less than 1 year - - - 1 – 2 years 103,225 - 103,225 2 – 3 years - - - 3 – 4 years - - - 4 – 5 years - - - Over 5 years 103,225 - 103,225 // 19 Swaps on acquisition facilities Swaps on unitholder funds Total swaps 30 June 2006 $’000 $’000 $’000 Less than 1 year - - - 1 – 2 years 7,425 34,347 41,772 2 – 3 years - - - 3 – 4 years - - - 4 – 5 years - - - Over 5 years 103,225 - 103,225 The contracts require settlement of net interest receivable or payable quarterly. The settlement dates coincide with the dates on which interest is payable on the underlying debt. The swaps meet the hedge accounting criteria per AASB 139 “Financial Instruments: Recognition and Measurement” and have been tested for effectiveness. At 30 June 2007, the swaps are considered to be effective, accordingly the full change in the fair value is recognised in net assets attributable to unitholders. Refer accounting policy at Note 1(h). At balance date, the swap contracts had a fair value of $5,632,000 (2006: $2,687,000) included in other assets on the Balance Sheet. Stockland Direct Office Trust No.2 June 2007
Page 1 and 2: 2007 Stockland Direct Office Trust
Page 3 and 4: Directors’ report— —for the y
Page 5 and 6: Directors’ Report (continued) For
Page 7 and 8: 2007 2006 Notes $’000 $’000 Rev
Page 9 and 10: Unitholders’ Funds Units on Issue
Page 11 and 12: 1 Summary of significant accounting
Page 13 and 14: 1 Summary of significant accounting
Page 15 and 16: 4 Interest income 2007 2006 $’000
Page 17 and 18: 10 Non-current assets - Trade and o
Page 19: 16 Units on issue classified as deb
Page 23 and 24: 21 Related parties Stockland Funds
Page 25 and 26: In the opinion of the Directors of
Page 28: Responsible Entity Stockland Funds

SDOT2 Financial Report 30 June 2008 - Stockland

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