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Notes to the financial statements
Compound financial instruments
Compound financial instruments comprise the collateral loan that contains embedded derivatives.
The collateral loan is designated as a financial liability at fair value through profit or loss as it relates to
a financial instrument that contains embedded derivatives that significantly modify the cash flows that
would otherwise be required under the contract.
Upon initial recognition, the collateral loan is measured at fair value and transaction costs directly
attributable to the collateral loan are recognised in the Statement of Total Return as incurred. Subsequent
to initial recognition, the collateral loan is measured at fair value, with changes therein recognised in the
Statement of Total Return as finance income or finance costs.
Derivative financial instruments and hedging activities
A-REIT holds derivative financial instruments to hedge its interest rates exposures. Derivative financial
instruments are recognised initially at fair value and attributable transaction costs are recognised in the
Statement of Total Return when incurred. Subsequent to initial recognition, derivatives are measured at
fair value, and changes therein are accounted for as described below:
Cash flow hedges
Changes in the fair value of derivative hedging instruments designated as cash flow hedges are
recognised directly in Unitholders’ funds to the extent that the hedge is effective. The effective portion
of the change in fair value of the derivative is taken to the hedging reserves in Unitholders’ funds. The
amount recognised in the hedging reserves in Unitholders’ funds is removed and included in Statement
of Total Return in the same period as the hedged cash flows affect Statement of Total Return under the
same line item in the Statement of Total Return as the hedged item. Any ineffective portion of changes
in fair value are recognised in the Statement of Total Return.
If the hedging instrument no longer meets the criteria for hedge accounting, expires, or is sold,
terminated or exercised, hedge accounting is discontinued prospectively. The cumulative gain or loss
previously recognised in Unitholders’ funds remains there until the forecast transaction occurs. When the
hedged item is a non-financial asset, the amount recognised in the Unitholders’ funds is transferred to
the carrying amount of the asset when it is recognised. If the forecast transaction is no longer expected
to occur, then the balance in Unitholders’ funds is recognised immediately in the Statement of Total
Return. In other cases, the amount recognised in Unitholders’ funds is transferred to the Statement of
Total Return in the same period that the hedged item affects the Statement of Total Return.
Other derivative financial instruments
Changes in the fair value of derivative financial instruments that are not designated as hedging instruments
in qualifying cash flow hedges are recognised in the Statement of Total Return.
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