Independent valuations of shopping centres are prepared annually
with the exception of when the shopping centre is under development.
The Directors’ assessment of fair value takes into account annual
independent valuations, that were prepared which take into account
any changes in estimated yield, underlying income and valuations of
comparable centres. In determining the fair value, the capitalisation
of net income method and the discounting of future cash flows to their
present value have been used which are based upon assumptions and
judgement in relation to future rental income, property capitalisation
rate or estimated yield and make reference to market evidence of
transaction prices for similar properties.
Where the centre is undergoing a major redevelopment, the fair value
of the centre is assessed by the Directors at each reporting date and
any increment and decrement recognised. An independent valuation is
obtained on completion of the major redevelopment.
ii) Major redevelopment
The Trust’s development projects include costs incurred for the
current and future redevelopment and expansion of its shopping centre
investment. Development projects include capitalised construction and
development costs and where applicable borrowing costs on qualifying
Development projects are carried at fair value based on Directors’
assessment of fair value at each reporting date taking into account
the expected costs to complete, the stage of completion, expected
underlying income and yield of the development. Any increment or
decrement in the fair value of development projects resulting from
Directors’ assessment of fair value is included in the statement of
comprehensive income in the year in which it arises. On completion,
development projects are reclassified to shopping centre investment
and an independent valuation is obtained.
The assessment of fair value and possible impairment in the fair value
of shopping centre investment and development projects are significant
estimates that can change based on the Trust’s continuous process of
assessing the factors affecting its property.
(b) Revenue recognition
Revenue is recognised to the extent that it is probable that the
economic benefits will flow to the Trust and can be reliably measured.
Rental income from investment properties is accounted for on a
straight line basis over the lease term. Contingent rental income is
recognised as income in the period in which it is earned. If not received
at balance date, revenue is reflected in the balance sheet as receivables
and carried at fair value. Recoveries from tenants are recognised as
income in the year the applicable costs are accrued.
Certain tenant allowances that are classified as lease incentives are
recorded as part of investment properties and amortised over the term
of the lease. The amortisation is recorded against property income.
All other revenues are recognised on an accruals basis.
Expenses are brought to account on an accruals basis.
Under current Australian income tax legislation, the Trust is not
liable for Australian income tax, including capital gains tax, provided
that members are presently entitled to the income of the Trust as
determined in accordance with the Trust’s constitution.
(e) Goods and Services Tax (GST)
Revenues, expenses and assets are recognised net of the amount of
GST except where the GST incurred on purchase of goods and services
is not recoverable from the tax authority, in which case the GST is
recognised as part of the cost of acquisition of the asset or as part of
the expense item as applicable. Receivables and payables are stated
with the amounts of GST included.
The net amount of GST payable or receivable to government authorities
is included as part of receivables or payables in the balance sheet.
Cash flows are included in the cash flow statement on a gross basis and
the GST component of cash flows arising from investing and financing
activities, which is recoverable from, or payable to, the taxation
authority are classified as operating cash flows.
Commitments and contingencies are disclosed net of the amount of
GST recoverable from, or payable to, the taxation authority.
(f) Financing costs
Financing costs include interest, amortisation of discounts or premiums
relating to borrowings and other costs incurred in connection with
the arrangement of borrowings. Financing costs are expensed as
incurred unless they relate to a qualifying asset. A qualifying asset is
an asset which generally takes more than 12 months to be readied for
its intended use or sale. In these circumstances, the financing costs
are capitalised to the cost of the asset. Where funds are borrowed by
the Trust for the acquisition or construction of a qualifying asset, the
associated financing costs are capitalised.
(g) Contributed equity
Issued and paid up capital is recognised at the fair value of the
consideration received by the Trust. Any transaction costs arising
on the issue of ordinary units are recognised directly in equity as a
reduction of the proceeds received.
(h) Derivative and other financial assets and liabilities
The Responsible Entity utilises interest rate swaps to manage the risks
associated with interest rate fluctuations. Such derivative financial
instruments are recognised at fair value.
The Responsible Entity has set defined policies and implemented
a comprehensive hedging program to manage interest rate risks.
Derivative instruments are transacted to achieve the economic
outcomes in line with the Trust’s treasury policy and hedging program
and are not transacted for speculative purposes. Accounting standards
however require compliance with documentation, designation and
effectiveness parameters before a derivative instrument is deemed
to qualify for hedge accounting treatment. These documentation,
designation, and effectiveness requirements cannot be met in all
circumstances. As a result, derivative instruments are deemed not to
qualify for hedge accounting and are recorded at fair value. Gains or
losses arising from the movement in fair values are recorded in the
statement of comprehensive income.
The fair value of derivatives have been determined with reference to
market observable inputs for contracts with similar maturity profiles.
The valuation is a present value calculation which incorporates interest
rate curves and the credit quality of all counterparties.
The accounting policies adopted in relation to other material financial
assets and liabilities are detailed as follows: