Annual Report 10/11 - Campus Living Villages

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011 A$’000 Campus Living Villages Annual Report 10/11 Campus Living Australia Trust 2. Financial risk management The consolidated entity’s activities expose it to a variety of financial risks, which include market risk (currency risk and cash flow interest rate risk), credit risk and liquidity risk. The consolidated entity’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the consolidated entity. The consolidated entity uses derivative financial instruments such as interest rate swaps to mitigate cash flow interest rate risk. The consolidated entity uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate and foreign exchange risk, age analysis for credit risk, and cash flow forecasts for liquidity risks. The consolidated entity holds the following financial instruments: June 2011 June 2010 Financial assets Cash and cash equivalents 6 28,714 27,877 Trade and other receivables 7 1,830 1,870 Derivative financial instruments - 56 Other financial assets 9 338 338 Total financial assets 30,882 30,141 Financial liabilities Trade and other payables 13 15,414 14,808 Borrowings 15 434,379 424,073 Derivative financial instruments 15,891 19,109 Total financial liabilities 465,684 457,990 a) Currency risk Management of the consolidated entity monitors the exchange rate fluctuations between the Australian Dollars and the local currencies of the foreign subsidiaries of the CLV Fund on a regular basis. Management have not utilised any derivative financial instruments to date to hedge the foreign currency risk of earnings from subsidiaries in accordance with an agreement with the unit holders of the consolidated entity. Management will institute the appropriate action and utilise the necessary derivative financial instruments should a change in the agreement with the unit holders occur. Loans are made during the year between Australian and foreign subsidiaries of the Fund and are short term loans. Foreign currency contracts are utilised when loans are significant in amount and provided for acquisitions, or repayment of the loan. Derivative instruments are not used for other loans. CLV Accommodation Holdings Pty Limited, a subsidiary of CLAT, has a loan denominated in New Zealand Dollars with a related party CLVNZ Limited (refer note 15) of $11.8m (2010 $16.1m). A change of 10% in exchange rates will result in a change of $1.2m (2010 $2.0m) in profit and borrowings. b) Credit risk Credit risk arises from cash and cash equivalents, deposits with major banks and financial institutions, as well as credit exposure to students and universities, including outstanding receivables and committed transactions. Credit granted to customers is monitored regularly and past due receivables are followed up with customers. Student deposits are used as security and applied against outstanding amounts. Legal contracts provide the basis for collection of outstanding amounts relating to management and development contracts. Only banks and financial institutions with high credit ratings are used to deposit funds. Refer to Trade and other receivables note 7. 71
Campus Living Villages Annual Report 10/11 Campus Living Australia Trust NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2011 A$’000 c) Liquidity risk Cash flow forecasts are utilised to manage liquidity risk. Capital expenditure is funded through borrowings and equity calls from investors. Repayments of borrowings are funded through cash generated from operations, refinancing and equity calls from investors where required. The financing facilities available are included in note 6 (c).The forecasted payments of interest and principal for the financial liabilities of the contractual liabilities are: Due within one year Due within 1-5 years Due after 5 years Total June 2011 Loans from financial institutions - variable 17,421 136,714 233,822 387,957 - swaps 4,335 14,323 7,418 26,076 Total loans from financial institutions 21,756 151,037 241,240 414,033 Lease liabilities - fixed 1,724 6,896 33,618 42,238 Loans from related parties - variable 9,614 49,067 137,728 196,409 Total undiscounted financial liablities 33,094 207,000 412,586 652,680 June 2010 Loans from financial institutions - variable 14,957 106,547 256,176 377,680 - swaps 4,914 17,762 14,792 37,468 Total loans from financial institutions 19,871 124,309 270,968 415,148 Lease liabilities - fixed 1,724 6,896 35,342 43,962 Loans from related parties - variable 9,263 43,295 187,208 239,766 Total undiscounted financial liablities 30,858 174,500 493,518 698,876 d) Cash flow interest rate risk Floating to fixed interest rate swaps are utilised to hedge against cash flow interest rate risks. Such interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. Generally the consolidated entity raises long term borrowings at floating rates and swaps the specified notional principal amount into fixed rates. Under the interest rate swap contracts, the consolidated entity agrees with financial institutions to exchange, at specified intervals (mainly quarterly), the difference between contracted fixed rates and floating-rate interest amounts calculated by reference to agreed notional principal amounts. Interest payments on loans from financial institutions are fixed through the use of interest rate swaps and fixed interest rate loans. The loans in Australia are hedged on a weighted average of 90% (2010: 90%) of total debt and bear interest at a weighted average rate of 6.6% (2010: 6.6%) excluding credit margins. The variable portion of the interest payments is subject to change in floating interest rates and a 50 basis points increase results in $0.1m (2010: $0.1m) additional interest per annum. The carrying amount of borrowings is summarised below: June 2011 June 2010 Loans from financial institutions: - variable 27,740 27,708 - hedged 252,933 234,023 Total loans from financial institutions 280,673 261,731 Lease liabilities - fixed 20,508 20,819 Loans from related parties - variable 133,198 141,523 Total 434,379 424,073 The weighted average interest rates of the borrowings are summarised as: June 2011 June 2010 % % Loans from financial institutions (excluding credit margins) 6.64 6.59 Lease liabilities - fixed 6.90 6.90 Loans from related parties - variable 6.94 7.10 72
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