Annual Report 2007 - The Link REIT

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92 The Link Real Estate Investment Trust Annual Report 2007 Notes to the Consolidated Financial Statements 3 Summary of significant accounting policies (continued) (r) Financial risk factors (continued) (ii) (iii) Credit risk The Group has no significant concentrations of credit risk. The carrying amount of accounts receivable included in the consolidated balance sheet represents the Group’s maximum exposure to credit risk in relation to its financial assets. The Manager is of the opinion that credit risk of rental receivables are fully covered by the security deposits from corresponding tenants. Interest rate risk The Group’s exposure to changes in interest rates relates primarily to interest-earning financial assets and interest-bearing financial liabilities. Interest rate risk is managed by the Manager on an ongoing basis with the primary objective of limiting the extent to which net interest expense could be affected by adverse movements in interest rates. The Group has put in place interest rate swap arrangements to minimise the variability in cash flows attributable to changes in interest rates. This involvesfi xing the portion of interest payable on its underlying debt liabilities viafinancial derivatives. (iv) (v) Liquidity risk The Group monitors and maintains a level of cash and cash equivalents deemed adequate by management to finance the Group’s operations. In addition, the Group also monitors and observes the REIT Code concerning the leverage limits. Insurable risks Insurance policies of the Group are reviewed regularly by independent insurance advisors and include mainly property damage all risks, business interruption and public liability insurance. 4 Critical accounting estimates and judgements The preparation of the consolidatedfinancial statements in conformity with HKFRS 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. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. 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 a material adjustment to the carrying amounts of assets and liabilities within the nextfinancial year are discussed below.
Annual Report 2007 The Link Real Estate Investment Trust 93 Notes to the Consolidated Financial Statements 4 Critical accounting estimates and judgements (continued) The fair value of each investment property is individually determined at each balance sheet date by independent valuers based on a market value assessment, on an existing use basis. The valuers have relied on the discounted cashflow analysis and the capitalisation of income approach as their primary methods, supported by the direct comparison method. These methodologies are based upon estimates of future results and a set of assumptions specific to each property to reflect its tenancy and cashflow profile. The fair value of each investment property reflects, among other things, rental income from current leases and assumptions about rental income from future leases in the light of current market conditions. The fair value also reflects, on a similar basis, any cash outflows that could be expected in respect of the property. In estimating the fair value of itsfinancial instruments, the Group uses valuation techniques such as dealer quotes and discounted cashflows. The Group also makes assumptions that are based on market conditions existing at each balance sheet date. The carrying amounts of accounts and other receivables, deposits and prepayments, security deposits, accounts payable, receipts in advance and accruals are assumed to approximate their fair values. The fair value is estimated by discounting the future contractual cashflows at the current market interest rate that is available to the Group. 5 Revenues Revenues recognised during the year/period comprise: Year ended Period ended 31 March 2007 31 March 2006 HK$’M HK$’M Rental income from retail properties 2,832 968 Gross rental receipts from carparks 881 305 3,713 1,273 Other revenues Air-conditioning service fees 236 80 Other property related income 5 1 241 81 Total revenues 3,954 1,354 Lease arrangements with tenants provide for base monthly rental charges and recovery of certain outgoings. Additional rents based on business turnover amounting to HK$32 million (Period ended 31 March 2006: HK$9 million) have been included in the rental income.
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Stock Code: 823 The Link Real Estat
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Annual Report 2007 The Link Real Es
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Annual Report 2007 - The Link REIT

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