27. CAPITAL AND FINANCIAL RISK MANAGEMENT
(continued)
Fair value hierarchy
(continued)
Level 3 fair values
The reconciliation from the beginning balances to the ending balances for Level 3 fair value
measurements of investment properties is disclosed in Note 4.
The following table shows the key unobservable inputs used in the valuation models:
Valuation methods
Key unobservable inputs
Inter-relationship between
key unobservable inputs and
fair value measurement
Capitalisation approach
• Capitalisation rate (5.75%)
(2013: from 5.00% to
6.75%)
The fair value increases as
capitalisation rates decreases.
Discounted cash flows
approach
• Discount rates
(from 7.00% to 11.00%)
(2013: from 8.75% to
11.00%)
The fair value increases as
discount rates and terminal
rates decreases.
• Terminal rates
(from 4.00% to 6.50%)
(2013: from 5.50% to
6.75%)
Term and reversion
approach
• Term and reversion rates
(from 4.25% to 10.50%)
(2013: from 5.50% to
7.00%)
The fair value increases as
term and reversion rates
decreases.
Key unobservable inputs
Key unobservable inputs correspond to:
• Investment property yields derived from specialised publications from the related markets
and comparable transactions.
• Discount rate, based on the risk-free rate for 10-year bonds issued by the government in
the relevant market.
Offsetting financial assets and financial liabilities
The disclosures set out in the tables below include financial assets and financial liabilities that:
• are offset in the Trust’s statements of financial position; or
• are subject to an enforceable master netting arrangement, irrespective of whether they are
offset in the statement of financial position
Financial instruments such as loans and receivables and financial liabilities are not disclosed in
the tables below unless they are offset in the statements of financial position.
The Trust’s derivative transactions that are not transacted on an exchange are entered into under
International Swaps and Derivatives Association (“ISDA”) Master Agreements. In certain
circumstances, for example when a termination event such as a default occurs, all outstanding
transactions under the agreement are terminated, the termination value is assessed and only a
single net amount is due or payable in settlement of all transactions.
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