182
FRASERS HOSPITALITY TRUST ANNUAL REPORT 2015
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL PERIOD FROM 20 JUNE 2014 (DATE OF CONSTITUTION) TO 30 SEPTEMBER 2015
26.
FINANCIAL RISK MANAGEMENT (CONT’D)
(c)
Credit risk (cont’d)
The Stapled Group’s objective is to seek continual revenue growth while minimising losses incurred due
to increased credit risk exposure. The REIT Manager has established credit limits for lessees and monitors
their balances on an ongoing basis. Credit evaluations are performed by the REIT Manager before lease
agreements are entered into with the lessees. Credit risk is also mitigated by the security deposits held for
each lessee. The security deposits were received in cash and is equivalent to eight months of the monthly
Fixed Rent under the Master Lease Agreements.
In addition, Frasers Centrepoint Limited and TCC Land International Limited have granted a corporate
guarantee to FH-REIT for the performance of the Master Lessees and Retail Master Lessee respectively.
Upon default, the corporate guarantors will pay the rent and other sums payable under the Master Lease
Agreement and the Retail Master Lease Agreement respectively.
Information regarding financial assets that are either past due or impaired is disclosed in Note 13.
Cashandcashequivalents areplacedwith reputablefinancial institutions. Thecredit risk related toderivative
financial instruments arises from the potential failure of counterparties to meet their obligations under
the contracts. It is the Stapled Group’s policy to enter into derivative financial instrument transactions
with credit worthy counterparties.
Credit Risk Concentration Profile
At the end of the reporting period, approximately 70.2% of the Stapled Group’s trade and other receivables
were due from related companies of the REIT Manager. Other than this, the Stapled Group has no
significant concentration of credit risk at the reporting date. The maximum exposure to credit risk is
represented by the carrying amount of each financial asset in the Statements of Financial Position.
(d)
Liquidity risk
Liquidity risk is the risk that the Stapled Group will encounter difficulty in meeting its financial obligations
due to shortage of funds. The REIT Manager monitors and maintains a level of cash and cash equivalents
deemed adequate to finance the Stapled Group’s operations for a reasonable period, including the
servicing of financing obligations, and to mitigate the effects of fluctuations in cash flows. In addition,
the REIT Manager also monitors and observes the CIS Code issued by the MAS concerning limits on total
borrowings.
