POSITIONING FOR GROWTH - Mercatus...POSITIONING FOR GROWTH 01 About Mercatus Co-operative Limited 02 Historical Milestones 03 Business Strategy 04 Chairman’s Message 06 Highlights

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A N N U A L R E P O R T 2 0 1 7

POSITIONING FOR

GROWTH

01 About Mercatus Co-operative Limited

02 Historical Milestones

03 Business Strategy

04 Chairman’s Message

06 Highlights of the Year

08 Financial Highlights

09 Operational Review

10 Social Impact

12 Board of Directors

14 Key Management

15 Property Profile

21 Financial Statements

CONTENTS

ABOUT MERCATUS

CO-OPERATIVE LIMITEDMercatus Co-operative Limited

(Mercatus) is the real estate subsidiary of

NTUC Enterprise Co-operative Limited.

Mercatus’ vision is to own and manage

a portfolio of commercial properties to

provide NTUC social enterprises with

access to commercial space and generate

sustainable, long-term returns for the

Labour Movement.

Mercatus was registered under the

Co-operative Societies Act on 31 May

2011. Mercatus’ portfolio comprises

5 strategically located retail and office

properties and 37 strata-titled assets

in Housing Development Board (HDB)

estates and shopping malls with a

combined valuation of $5.2 billion as at

31 December 2017.

Mercatus’ portfolio consists of:

• AMK Hub, a conveniently located

shopping mall in the heart of Ang Mo

Kio town centre;

• Jurong Point, the largest suburban

mall in Singapore;

• NEX, the biggest mall in the

north-east region of Singapore;

• Thomson Plaza, a retail mall located

in Upper Thomson with a rich

community heritage;

• 37 strata-titled assets in HDB estates

and shopping malls island-wide; and

• One Marina Boulevard, a premium

Grade A office building located in

Singapore’s Central Business District.

MERCATUS CO-OPERATIVE LIMITED ANNUAL REPORT 2017 1

HISTORICAL

MILESTONES

July 2012:

Acquired 50%

interest in NEX

– a joint venture

company

holding

December 2017:

Acquired a strata lot at Thomson Plaza

June 2017:

Completed acquisition of Jurong Point

January 2017:

Acquired strata properties in HDB estates

and shopping malls

January 2018:

Completed acquisition of 69.6% of NTUC

Choice Homes from NTUC Enterprise and

NTUC FairPrice

November 2011:

Acquired first property – AMK Hub

May 2011:

Registered in Singapore under the

Co-operative Societies Act

July 2016 :

Acquired One Marina

Boulevard

July 2016:

Acquired strata ownership

in Thomson Plaza

2017

2018

2016

2012

2011

MERCATUS CO-OPERATIVE LIMITED ANNUAL REPORT 20172

BUSINESS

STRATEGY

Mercatus will continue to seek to invest in, develop and manage a diversified,

well-located portfolio of commercial real estate in Singapore. As part of its

growth and diversification strategy, Mercatus will explore overseas opportunities

and various platforms to raise capital.

STRATEGIES

Active Asset Management

• Value creation through asset enhancement initiatives to improve the relevance and attractiveness

of malls to tenants and shoppers.

• Proactive approach to leasing and tenant management to maximise occupancy and achieving stable

rental returns.

• Optimise and constantly refresh tenant mix for both retail and office portfolio.

Strong Parentage

• A subsidiary of NTUC Enterprise, which is a diversified holding co-operative with businesses that

include retail, food, education services for children and adults, healthcare, senior care, and the

insurance.

• Opportunities to leverage on the expertise, scale of operations and robust network of relationships

of its related entities.

Proactive and Prudent Capital Management

• Adopt and maintain optimal capital structure with appropriate gearing levels.

• Maintain flexibility in respect of funding for future capital expenditures and acquisitions.

Strategically Located Quality Assets

• Quality shopping malls in suburban areas and office building in the downtown core of Singapore.

• Strategically located in areas with a good catchment of high-density residential population.

• Good connectivity via convenient access to major transport infrastructure.01

03

04

02

COMPETITIVE STRENGTHS


Dear Members

On behalf of the Board of Directors, I am pleased to present

Mercatus’ Annual Report for the year ended 31 December

2017.

Growth of Mercatus

2017 was a difficult year for the retail industry given the

slower growth in household income in Singapore, increasing

competition from e-commerce as well as the growing

trend of residents traveling overseas to shop. In spite of

these challenges, Mercatus performed commendably and

continued to grow with sound financial management and

operational excellence.

In terms of growth of its portfolio, 2017 was a significant

milestone in Mercatus brief history. In addition to

consolidating the property assets of NTUC FairPrice (FP)

across various locations in Singapore, Mercatus completed

its largest acquisition to date with the purchase of Jurong

Point. By the end of 2017, Mercatus’ assets had grown to

$5.0 billion, up from $1.8 billion in 2016.

Mercatus also completed a share swap with its shareholders,

NTUC Enterprise (NE) and FP, for their shares in NTUC Choice

Homes (NCH) on 2 January 2018. With the completion of

the share swap, Mercatus became a majority shareholder of

NCH with 69.6% shareholdings.

The consolidation of assets from the NTUC group of social

enterprises under Mercatus highlights the importance of

Mercatus’ role as the real estate arm of the Group, and

positions Mercatus as an important financial resource

for the Group, and for preservation of the Group’s capital

through real estate.

As a result of the expansion of Mercatus’ portfolio of assets in

2017, Mercatus’ total revenue increased to $205.9 million, up

from $82.1 million in 2016, with a net surplus of $82.1 million

before contributions, up from $7.9 million in 2016.

In respect of the financial year ended 31 December 2017, the Board of Directors has proposed the issuance of 33 bonus

shares for every 1000 shares held, amounting to a total of $50.8 million, in lieu of dividends. This is subject to approval by

members at the Annual General Meeting.

Building capabilities

2017 also saw Mercatus strengthening its capabilities in capital management and asset management.

In the area of capital management, Mercatus successfully established a $1.0 billion multi-currency Medium Term Note (MTN)

programme with SGX on 9 June 2017. This MTN programme will provide Mercatus access to the debt capital markets beyond

the traditional borrowings from banks.

On 26 July 2017, Mercatus successfully launched its maiden bond issuance of $200.0 million 7-year notes at 2.8% per

annum to tap a wider investor-base. Investors’ response was positive, with the issue heavily over-subscribed, demonstrating

investors’ confidence in Mercatus’ credit standing. Investors’ confidence in Mercatus’ performance and credibility was further

underscored with a successful launch of its second bond issuance on 19 January 2018 of $150.0 million 10-year notes at

3.1% per annum.


CHAIRMAN'S

MESSAGE

In the area of asset and property management, Mercatus

demonstrated its commitment to excellence, innovation and

productivity.

A case in point is One Marina Boulevard (OMB). By enhancing

the lobby areas, optimising prime spaces to accommodate

a wider range of retailers, and improving accessibility,

Mercatus has enabled OMB to compete more effectively in

the Grade A office market in the Marina Bay area.

Overall, the occupancy rate at Mercatus’ properties is

healthy at above 99%, with steady shopper traffic per month.

Mercatus will continue to partner tenants to boost their

sales as well as create greater customer value.

Looking Ahead

The economic climate in 2018 looks more stable, with the

Ministry of Trade and Industry projecting that the economy

would expand slightly in the mid-range of 1.5% to 3.5%.

Stronger economic fundamentals could better support the

retail sector, although structural mismatch in the labour

market would continue to mean more cautious spending by

consumers.

While e-commerce continues to change the way we shop,

we firmly believe that brick-and-mortar retail is well and

alive. Traditional store formats may be on the decline, but

innovative stores that offer greater shopping experiences

will continue to attract shoppers. Shoppers’ expectation of

a mall has also shifted today. They increasingly view it as a

destination for entertainment and new experiences.

The future is bright for shopping malls which find innovative

ways to meet the needs of their shoppers. Data will provide a

rich source of insights to help us determine the best course of

action. Evolution of the retail landscape will take many forms,

be it in terms of a new retail format, new service experience

or new in-store technologies. However, the winning formula

will be one that is based on customer-centricity and creating

a more personalised in-mall experience. In response to

these trends, Mercatus will innovate, digitise and adapt our

business to better engage with our shoppers and tenants,

and to reap productivity gains. In 2018, Mercatus will be

introducing a new digital loyalty programme. Shoppers can

spend their time at our malls more meaningfully by accessing

other digital services in the mall through their smartphones,

such as for e-vouchers, promotional gifts redemption, in-mall

wayfinding and automatic enrolment in lucky draws.

Through the use of Internet-of-Things (IoT) technology,

Mercatus will also convert our shopping malls into smart

buildings progressively from 2018 onwards. The vast

amount of data made available will then improve manpower

productivity, reduce equipment downtime and achieve

energy savings.

To ensure that our malls remain relevant, we have started

incorporating the use of design thinking, a human-centered

approach to business, to bring forth new concepts, services

and spatial design that will better engage our shoppers and

make their time with us a far more enjoyable one.

Mercatus is committed to constantly innovate to improve

its business offerings, as well as enhance its operational

excellence to stay competitive. I am heartened to note that

the management and team are moving in the right direction.

Appreciation

On behalf of the Board, I wish to extend my gratitude to

members for your support. I would also like to express our

deep appreciation to the management and staff for their hard

work and dedication. I am also grateful to my fellow directors

for their counsel and guidance in steering Mercatus forward.

Together, we can expect Mercatus to continue to grow

steadily.

MS MAY NG

CHAIRMAN

CHAIRMAN'S

MESSAGE


HIGHLIGHTS

OF THE YEAR

EXPANDING ASSETS UNDER MANAGEMENT

CONSOLIDATION OF RETAIL STRATA ASSETS FROM FP

ON 1 JANUARY 2017

• The acquisition comprises 37 strata-titled assets within

shopping malls and HDB sites located in major housing

estates across Singapore.

• An aggregate net lettable area of approximately

370,000sf was acquired with the strata spaces leased

mainly to FP to support their retail operations.

ACQUISITION OF JURONG POINT IN JUNE 2017

• Jurong Point is Singapore’s largest suburban mall.

Strategically located within one of the largest residential

areas in Singapore, the acquisition expanded Mercatus’

shopping mall footprint to the western part of Singapore.

The acquisition further enhanced the tenant and income

diversification of Mercatus arising from an enlarged

portfolio and tenant base.

ACQUISITION OF MAJORITY STAKE IN NCH FROM

SHAREHOLDERS

• Completed share swaps with its shareholders NE and FP

for their shares in NCH in January 2018.

• The move supports NE’s plan to consolidate its real

estate business in Mercatus. Mercatus is now a majority

shareholder of NCH with a 69.6% shareholding.

• NCH is a co-operative established with the objective

of building and delivering affordable quality homes in

Singapore. The last development was completed in 2014.

ACTIVE CAPITAL MANAGEMENT

ESTABLISHMENT OF $1.0 BILLION MTN PROGRAMME

• Successfully established and listed its $1.0 billion

multi-currency MTN programme with SGX on 9 June

2017.

• The MTN programme diversifies Mercatus’ sources of

funding and allows Mercatus to secure borrowings of

longer tenures.

SUCCESSFUL ISSUANCE OF BONDS

• Launched its maiden bond issuance on 26 July 2017,

raising $200.0 million, 7-year notes at 2.8% per annum.

• The issue received an order of almost $530.0 million

from 37 accounts (2.6 times subscribed), demonstrating

the investors’ confidence in Mercatus’ performance and

credit standing.

• A second bond issuance of $150.0 million 10-year

notes at 3.1% per annum was successfully launched on

19 January 2018.

One Marina Boulevard


HIGHLIGHTS

OF THE YEAR

INITIATIVES TO BETTER SERVE CUSTOMERS

AND TENANTS

ASSET ENHANCEMENT INITIATIVES AT OMB

• Completed rejuvenation works which improves

accessibility, enhances lobby areas and optimises prime

space for a wider range of retailers.

PARTNERSHIP WITH “LAST MILE DELIVERY” LOGISTICS

PLAYERS TO ENHANCE CUSTOMERS EXPERIENCE

• Jurong Point introduced a multi-brand parcel

self-collection facility ‘Self-Collect @ JP’ in collaboration

with Ninja Van, Singapore Post’s POPStation and

Ta-Q-Bin.

• One of the first in Singapore, the initiative enables

shoppers to collect their online purchases at automated

parcel lockers anytime at a location that is well connected

to main transportation nodes.

• Jurong Point also introduced parcel collection over the

counter with Ezbuy joining the service provider list in

January 2018. This service has been well received by

shoppers.

PROVIDING E-TAILERS A SPACE IN THE MALL

• Introduced ‘Swing By’ at Thomson Plaza, a

co-retailing space to provide e-tailers a shot at retailing

in an offline environment. Mercatus’ sales ambassadors

oversee retail operations and shoppers may meet brand

owners in person, engage in DIY handicrafts and attend

product customisation workshops.

• The co-retail space leverages technologies such as smart

POS system integrated with data analytics, Wi-Fi analytics

for shopper profiling and store heat-mapping enabled by

video analytics.

Jurong Point

‘Swing By’ at Thomson Plaza

Self-Collect @ JP


FINANCIAL

HIGHLIGHTS

Contribution by gross revenue2

(for the month of December 2017)

41%

18%

19%

4%9%9%

56.0% LEVERAGE RATIO1

5.1xINTEREST COVERAGE RATIO

3.1 yearsAVERAGE TERM TO MATURITY

2.0% p.a.AVERAGE COST OF DEBT

$205.9M GROSS REVENUE

$82.1M NET SURPLUS BEFORE

CONTRIBUTIONS

Notes:

(1) Includes Mercatus’ proportionate share of its joint venture borrowings.

(2) Reflects 50% share of NEX’s valuation and gross revenue. NEX’s financial results are accounted for as “share of results of joint venture” in the

Group’s financial statements.

Contribution by valuation2

(as at 31 December 2017)

41%

15%

17%

4%10%13%

AMK Hub

Jurong Point AMK Hub NEX

Retail Strata

Assets

Thomson

Plaza

One Marina

Boulevard


OPERATIONAL

REVIEW

TOP 10 TENANTS CONTRIBUTION: (For the month of December 2017)

LEASE EXPIRY PROFILE

99.7%OCCUPANCY

156.4MSHOPPER TRAFFIC

42.2%OF GROUP NLA

26.1%OF GROSS RENT

1.6%

2022andafter

2018

23.7%

2020

15.6%

2021

34.6%

2019

24.5%

Food & Beverage16.9%

25.9%

15.3%10.9%

12.5%7.6%

10.6%20.4%

10.4%9.3%

7.7%8.1%

4.1%3.7%

2.8%0.8%

2.6%9.7%

2.5%4.2%

2.3%4.5%

1.7%1.3%

1.6%2.6%

Gross Revenue (%) NLA (%)

Beauty & Health

Fashion & Accessories / Kid’s Apparel / Shoes & Bags

Supermarket / Hypermarket

Sundry & Services

Electricals including Information Technology and

Telecommunication

Gifts & Souvenirs / Toys & Hobbies /

Books & Stationery / Sporting Goods

Jewellery & Watches

Others

Department Store

Leisure & Entertainment

Houseware and Furnishing

Education

TRADE CATEGORIES

TOP 10 TENANTS:

• NTUC Fairprice Co-operative Ltd • Isetan (Singapore) Limited

• Microsoft Operations Pte Ltd • Cold Storage Singapore (1983) Pte Ltd

• Allen & Gledhill LLP • NTUC Club

• R E & S Enterprises Pte Ltd • NTUC Foodfare Co-operative Ltd

• Workforce Singapore Agency • BHG (Singapore) Pte. Ltd.

Jurong Point AMK Hub NEX

Retail Strata

Assets

Thomson

Plaza

One Marina

Boulevard


SOCIAL

IMPACT

Mercatus’ retail malls, with healthy shopper traffic, are good platforms to support

social, health and environmental causes. During the year, Mercatus supported

numerous events for non-profit, community and charitable organisations. Mercatus

continues to be committed to creating a positive social impact through our support

of the NTUC-U Care Fund.

‘Mall Watch’ crime

prevention road show

@ AMK Hub

‘Jolly Jamobree’

Christmas carnival

@ AMK Hub• 500 low-income

families were treated

to free carnival rides. • Raised over $10,000 for

NTUC-U Care Fund.

Donation to NTUC-U

Care Fund (established

to better the welfare

of low-income union

members and their

families).

‘Play for Care Charity

Ball Pit’ @ Jurong Point• Funds raised for

NTUC-U Care Fund.


SOCIAL

IMPACT

‘NEX Donation Drive’ in

partnership with

The Salvation Army

Health Promotion

Board’s (HPB) weekly

piloxing session

@ AMK Hub

People Association’s

‘Embracing Parenthood

Celebrations’

programme

@ Jurong Point

‘Adopt a Minions

Plush’ @ NEX• Funds raised donated

to Make-A-Wish

Foundation.


MS MAY NGCHAIRMAN

Ms Ng is the CEO of Pan-United Corporation Ltd. She is also a Director of NTUC Enterprise

Co-operative Limited. Ms Ng was conferred the Meritorious Service award in 2014 by the

NTUC for her continuous support, dedication and significant contribution to the Labour

Movement.

MR WONG HENG TEWDIRECTOR

Mr Wong is currently an Advisory Director in Temasek Holdings. He is also a board member

in Heliconia Capital Management and Azalea Asset Management. Mr Wong was conferred

the Friend of Labour Award in 2014 by the NTUC for his continuous support, dedication and

significant contribution to the Labour Movement.

MR WILLY SHEEDIRECTOR

Mr Shee is the Senior Adviser of CBRE Pte Ltd. He is also a Director of Bund Center Investments

Ltd, Keppel Land Ltd and Ascendas Hospitality Trust.

MR SOONG HEE SANGDIRECTOR

Mr Soong is currently an Independent Non-Executive Director of Keppel-KBS US REIT

Management Pte Ltd. Prior to this, Mr Soong was with GIC Real Estate for 9 years and his

last appointment was Managing Director, GIC Real Estate, London. Prior to that, he was

with CapitaLand for 9 years where he held appointments as Country Director and Managing

Director, London; Deputy CEO of CapitaLand Commercial, CEO of CapitaLand and CEO

(New Markets) of CapitaLand Residential.

MR NG ENG KIONGDIRECTOR

Mr Ng is the Senior Director of Squire Mech Pte Ltd. He is also the Honorary Advisor of the

Singapore Green Building Council. He has been recognized as a BCA Certified Construction

Productivity Professional (Honorary).

BOARD OF

DIRECTORS


AUDIT & RISK

COMMITTEEMr Wong Heng Tew (Chairman)

Mr Ng Eng Kiong

Mr Yeo Chun Fing

(with effect from 1 June 2017)

INVESTMENT

COMMITTEEMs May Ng (Chairman)

Mr Lim Kok Guan

Mr Soong Hee Sang

ESTABLISHMENT

COMMITTEEMs May Ng (Chairman)

Mr Willy Shee

Ms Adeline Sum

CUSTOMERS

EXPERIENCE

COMMITTEE (set up on 7 November 2017)

Mr Willy Shee (Chairman)

Mr Lim Kok Guan

Ms Adeline Sum

MR YEO CHUN FINGDIRECTOR

Mr Yeo is the Assistant Secretary for Financial Affairs in the National Trades Union Congress

(NTUC), General Secretary of the Amalgamated Union of Public Employees (AUPE), Chairman

of AUPE Credit Co-operative Limited and Second Deputy Chairman of Singapore National

Co-operative Federation (SNCF). Mr Yeo was conferred the Friends of MCCY Award in 2017

by the Ministry for Culture, Community and Youth (MCCY) in recognition and appreciation

of his contributions to the development of the co-operative movement.

MR TAN KIAN HUAYDIRECTOR

Mr Tan has over 40 years of experience in the building and construction industry, including

serving as the Managing Director of Obayashi Singapore Pte. Ltd. from 1989 to 2004. He is

currently a fellow and was a former 2nd Vice President of the Society of Project Managers.

MR LIM KOK GUANDIRECTOR

Mr Lim is the Managing Director/Head of Integrated Infrastructure and Support of NTUC

Fairprice Co-operative Limited. He is also a Director of NTUC Choice Homes Co-operative

Limited and a number of Mercatus subsidiaries.

MS ADELINE SUMDIRECTOR

Ms Sum is the Deputy CEO of NTUC Enterprise Co-operative Limited and the Managing

Director of NTUC Fairprice Co-operative Limited. She also holds directorships in

ComfortDelgro Corporation Limited and NTUC Health Co-operative Limited.

BOARD OF

DIRECTORS


MR DAVID POHCHIEF EXECUTIVE OFFICER

Mr Poh was appointed as CEO of Mercatus in 2017. Prior to the appointment, Mr Poh

served on the Mercatus Board and played a key role in the setup of Mercatus in 2011.

Under his leadership, Mercatus acquired 50% ownership in NEX in 2012, consolidated

FP retail properties and OMB in 2016, and made the landmark acquisition of Jurong Point in

2017. Mr Poh also holds the appointment as the Deputy CEO and CFO in Singapore Labour

Foundation.

MS LOKE HUEY TENGCHIEF FINANCIAL OFFICER

Ms Loke has over 18 years of experience in business development, investment, capital

markets, corporate finance and accounting. Before Mercatus, Ms Loke was the CFO of

Mapletree Commercial Trust Management. She had served in different roles within the

Mapletree Group since she joined in May 2004 and was responsible for the public listing of

2 other Mapletree REITs. Prior to Mapletree, Ms Loke was with the PSA Corporation and was

involved in international business development.

MR RAYMOND TANCHIEF OPERATING OFFICER

Prior to joining Mercatus, Mr Tan was Director, Asset Management in ARA Asset Management

Limited, where he was responsible for the retail portfolio of ARA in the region. He was the

Executive Director and Co-founder of Synergistic Real Estate Management & Network Pte Ltd,

a retail development consulting firm for 10 years before he joined ARA.

KEY

MANAGEMENT


PROPERTY PROFILE

AMK HUB

AMK Hub is a conveniently located shopping mall in the heart

of the Ang Mo Kio housing estate. Located at the intersection

of Ang Mo Kio Avenue 3 and Ang Mo Kio Avenue 8, the mall

enjoys prominent frontage, offering high visibility to passing

traffic and shoppers.

AMK Hub celebrated its 10th Anniversary in 2017 and gave

away exciting gifts to shoppers in return for their support

of the mall. For example, 10 lucky shoppers walked away

with $35,000 worth of gold bars during the Chinese New

Year promotion programme. As part of the 10th anniversary

celebration, AMK Hub also organised a live auction event

where shoppers walked away with prizes such as massage

chairs and television sets.

AMK Hub continues to actively support numerous charity

drives and meaningful events for non-profit, community and

charitable organisations. During the Christmas season, AMK

Hub presented ‘A Jolly Jamboree’ for the second time running

and pledged $2 with every purchase of the carnival passes.

Over $10,000 was raised for the NTUC-U Care Fund. AMK Hub

also provided a platform for events including:

• Thye Hua Kwan Moral Society (THK) – Claw game machines

for shoppers to win stuffed toys. Money raised from the

machines will go towards services such as THK’s free meal

centres and free clinics.

• Singapore Heritage Festival 2017 by National Heritage Board

– ‘Tales from Our Shores’ interactive exhibition.

• Info-communications Media Development Authority of

Singapore (IMDA) – A mobile digital truck awareness to

educate shoppers on the transition to digital TV before

analog TV signals are turned-off at end 2017.

• Ang Mo Kio Police South – ‘Mall Watch’ crime prevention

roadshow.

• SAFRA – ‘We Salute Our NSmen’, interactive digital campaign

for shoppers to post salute images on Facebook & Instagram.

$793.0M APPRAISED VALUE

100%OWNERSHIP

$61.9MFY2017 TOTAL REVENUE

320,000 SFNET LETTABLE AREA

(APPROXIMATE)

99 YEARS

COMMENCING FROM

24 AUGUST 2004

LEASE TENURE

100% OCCUPANCY RATE

520,000 SF GROSS FLOOR AREA

(APPROXIMATE)


PROPERTY PROFILE

JURONG POINT

Jurong Point is strategically located within one of the largest residential areas in Singapore, serving more than 270,000 households in HDB flats and private properties. It is directly connected to Boon Lay MRT station as well as a bus interchange within the mall.

Jurong Point is well positioned to attract shopper traffic from the nearby Jurong Lakeside District, as well as the student and education population from Nanyang Technological University and other schools in the catchment.

In 2017, several new initiatives were introduced in Jurong Point to enhance shoppers’ experience. The first of its kind in Singapore, Jurong Point unveiled ‘Self-Collect @ JP’, a multi-brand parcel self-collection facility. Shoppers now enjoy the flexibility of collecting their online purchases from more than one (last-mile) delivery service providers at a single location and in close proximity to Boon Lay MRT and Bus Interchange.

In 2017, several new concepts and retailers were introduced in Jurong Point. These include Ilahui, a fast fashion leisure retail chain which offers consumers the concept of Korean inspired living – delivering a wide variety of good quality products for value prices.

Jurong Point revamped its Japanese Street – ‘Shokutsu Ten’, carving out a new alley offering Ginzushi (for sashimi and chirashi don), Tenfuku Tendon Specialty (for Japanese tendon), Idaten Udon (for udon dishes), Ichiban Bento (for bento sets) and Wadori (for yakitori).

Malaysia Boleh, a food outlet selling Malaysia street food, was also rejuvenated, doubling its previous space to 14,000sf. It seats 600 diners, offering everything from Penang-style fried carrot cake to kway teow kia from Johor Bahru.

Jurong Point was re-certified Green Mark Gold in recognition of its efforts in environmental sustainability.

$2,149.5MAPPRAISED VALUE

100%OWNERSHIP

(OF STRATA SPACE

OWNED)

$69.3MTOTAL REVENUE

(FROM DATE OF

ACQUISITION

30 JUNE 2017)


(APPROXIMATE)

99 YEARS FROM

30 NOVEMBER 1993 (JP1)

AND 20 JUNE 2006 (JP2)

LEASE TENURE

99.6%OCCUPANCY RATE

1,100,000 SFGROSS FLOOR AREA

(APPROXIMATE)


PROPERTY PROFILE

NEX

NEX, one of the largest mall in the north-east region of

Singapore, is situated at the junction of Serangoon Central

and Serangoon Road, and is surrounded by public and private

housing estates. It is approximately 10 km from the city centre

and is connected to the Bus interchange and underground

Serangoon MRT.

NEX continues to bring in large scale and attractive activities

to provide shoppers with interesting experiences. During

the June school holiday, NEX launched the Spider-Man:

Homecoming campaign with an in-mall experience from

1 June 2017 to 9 July 2017. Children dressed up in Spider-Man

costumes and participated in Spider-Man themed games,

such as pitting their web-slinging skills at the game zone.

Adult-sized Spider-Man mascots made special appearances

from 23 June 2017 to 26 June 2017, where families snapped

up limited passes per session to get up close with their

favourite Marvel web-slinging crusader. Families also picked

up memorabilia and merchandises at the retail area.

Currently, NEX boasts renowned international tenants such as

Pedro and Bake Cheese Tart, with new brands Martgo Tokio,

Bike31 and Grand Castella Cake that came on board in 2017.

Like Jurong Point, NEX was re-certified Green Mark Gold in

recognition of its efforts in environmental sustainability.

$893.5M (50%) APPRAISED VALUE

50%OWNERSHIP

$62.2M (50%)FY2017 TOTAL REVENUE


(APPROXIMATE)

99 YEARS

COMMENCING FROM

26 JUNE 2008

LEASE TENURE

99.8%OCCUPANCY RATE

940,000 SF (100%)GROSS FLOOR AREA

(APPROXIMATE)


PROPERTY PROFILE

THOMSON PLAZA

Thomson Plaza is a strata-titled suburban mall with a rich

community heritage located along Upper Thomson Road. It will

be connected to Upper Thomson MRT station when Thomson-

East Coast Line becomes operational in 2020. Mercatus owns

45% of the total retails space in the mall and actively manages

the tenant mix within its area.

Thomson Plaza had noteworthy additions to its tenant mix

during the year. Tenants such as Wine Connection, W Tea

House, Song Kee Fishball Noodles House, Rickson’s Kitchen and

Li Ho! enhanced the food and beverage selection in the mall.

In January 2018, Thomson Plaza launched ‘Swing By’, a

co-retailing space which allows e-tailers to showcase their

products and interact with shoppers.

On 11 December 2017, Mercatus acquired a strata lot located

at Thomson Plaza, bringing Peach Garden Restaurant and

Home-Fix The D.I.Y store into its portfolio. This is in line

with our strategy to continue investing in, developing and

managing a diversified portfolio of commercial real estate in

Singapore.

100%OWNERSHIP

(OF STRATA SPACE

OWNED)

$207.0MAPPRAISED VALUE


(APPROXIMATE)


99 YEARS COMMENCING FROM

15 OCTOBER 1976

LEASE TENURE

97.8% OCCUPANCY RATE

140,000 SF GROSS FLOOR AREA

(APPROXIMATE)


PROPERTY PROFILE

RETAIL STRATA ASSETS

The portfolio of strata assets comprise a mixture of strata-titled

units within shopping malls and HDB sites in various locations

across Singapore. There is a total of 37 strata-titled units

with net lettable area ranging from approximately 1,000sf to

38,000sf. These strata spaces are leased mainly to FP for their

retail operations.

The acquisition of strata assets in January 2017 is in tandem

with NE’s aim to create a greater social impact to do good by

providing access to the social enterprises to meet pressing

social needs in areas like cost of living, health and ageing, and

ensuring a good start for every child.


100%OWNERSHIP

(OF STRATA SPACE

OWNED)

390,000 SFGROSS FLOOR AREA

(APPROXIMATE)

99.4%OCCUPANCY RATE

CORONATION PLAZA:

FREEHOLD; OTHERS:

30-99 YEARS

LEASE TENURE



PROPERTY PROFILE

ONE MARINA BOULEVARD

One Marina Boulevard (OMB), a premium Grade A office, is

located at the intersection of Marina Boulevard and Collyer

Quay, and it is within the Central Business District (CBD) of

Singapore.

OMB embarked on asset enhancement initiatives in 2016

which involved the upgrading of the lift lobbies, lift interiors,

renovation of the main lobby, basement area, toilets, and

improvement to the traffic flow at the drop-off area. The

initiatives were completed in late 2017. As part of the asset

enhancement initiative, OMB introduced self-help kiosks for

visitors to register themselves when they visit offices in OMB.

An alfresco dining concept was also introduced at its main

lobby for people to unwind after a hectic day at work.


100%OWNERSHIP



(APPROXIMATE)

99 YEARS

COMMENCING

FROM 7 JANUARY 2002

LEASE TENURE

100%OCCUPANCY RATE

520,000 SFGROSS FLOOR AREA

(APPROXIMATE)


22 Directors’ Statement

24 Independent Auditors’ Report

29 Statement of Financial Position

30 Consolidated Statement of Comprehensive Income

31 Statement of Changes in Equity

33 Consolidated Statement of Cash Flows

34 Notes to the Financial Statements

FINANCIAL STATEMENTS


DIRECTORS’

STATEMENTYEAR ENDED 31 DECEMBER 2017

The Directors present this annual report to the members together with the audited financial statements of the Co-operative for

the financial year ended 31 December 2017.

(a) the financial statements set out on pages 29 to 72 are drawn up in accordance with the provisions of the Co-operative

Societies Act, Chapter 62 (the “Act”) and Singapore Financial Reporting Standards, so as to give a true and fair view of

the financial position of the Group and of the Co-operative as at 31 December 2017, and of the financial performance,

changes in equity and cash flows of the Group and of the results and changes in equity of the Co-operative for the year

ended 31 December 2017;

(b) at the date of this statement, there are reasonable grounds to believe that the Co-operative will be able to pay its debts

as and when they fall due; and

(c) the receipt, expenditure and investment of monies, acquisition and disposal of assets made by the Co-operative during the

year ended 31 December 2017 have been made in accordance with the By-Laws of the Co-operative and the provisions

of the Act.

The Board of Directors has, on the date of this statement, authorised these financial statements for issue.

(a) Directors

The Directors of the Co-operative in office at the date of this statement are as follows:

May Ng Bee Bee Chairman

Wong Heng Tew Director

Willy Shee Ping Yah Director

Ng Eng Kiong Director

Soong Hee Sang Director

Tan Kian Huay Director

Yeo Chun Fing Director

Lim Kok Guan Director

Adeline Sum Wai Fun Director

(b) Arrangements to enable Directors to acquire shares or debentures

Neither at the end of nor at any time during the financial year was the Co-operative a party to any arrangement whose

object is to enable the Directors of the Co-operative to acquire benefits by means of the acquisition of shares in or

debentures of the Co-operative or any other body corporate.

(c) Directors’ interests in shares or debentures

According to the register of shareholdings kept by the Co-operative, no Director who held office at the end of the financial

year had interests in shares of the Co-operative, or of related corporations, either at the beginning of the financial year

or at the end of the financial year.

(d) Share options

There were no share options granted by the Co-operative during the financial year.

There were no shares issued during the financial year by virtue of the exercise of options to take up unissued shares of

the Co-operative.

There were no unissued shares of the Co-operative under options as at the end of the financial year.


DIRECTORS’

STATEMENTYEAR ENDED 31 DECEMBER 2017

(e) Auditors

The auditors, KPMG LLP, have indicated their willingness to accept re-appointment.

On behalf of the Board of Directors

May Ng Bee Bee

Director

Wong Heng Tew

Director

Singapore

3 April 2018


INDEPENDENT

AUDITORS’ REPORTMEMBERS OF THE CO-OPERATIVEMERCATUS CO-OPERATIVE LIMITED

Report on the financial statements

Opinion

We have audited the financial statements of Mercatus Co-operative Limited (‘the Co-operative’) and its subsidiaries (‘the Group’),

which comprise the consolidated statement of financial position of the Group and the statement of financial position of the

Co-operative as at 31 December 2017, the consolidated statement of comprehensive income, consolidated statement of changes

in equity and consolidated statement of cash flows of the Group and statement of comprehensive income and statement of

changes in equity of the Co-operative for the year then ended, and notes to the financial statements, including a summary of

significant accounting policies, as set out on pages 29 to 72.

In our opinion, the accompanying consolidated financial statements of the Group and the statement of financial position,

statement of comprehensive income and statement of changes in equity of the Co-operative are properly drawn up in accordance

with the provisions of the Co-operative Societies Act, Chapter 62 (‘the Act’) and Financial Reporting Standards in Singapore

(‘FRSs’) so as to give a true and fair view of the state of affairs of the Group and the Co-operative as at 31 December 2017 and of

the results, changes in equity and cash flows of the Group and of the results and changes in equity of the Co-operative for the

year ended on that date.

Basis for opinion

We conducted our audit in accordance with Singapore Standards on Auditing (‘SSAs’). Our responsibilities under those standards

are further described in the ‘Auditors’ responsibilities for the audit of the financial statements’ section of our report. We are

independent of the Group in accordance with the Accounting and Corporate Regulatory Authority Code of Professional Conduct

and Ethics for Public Accountants and Accounting Entities (‘ACRA Code’) together with the ethical requirements that are relevant

to our audit of the financial statements in Singapore, and we have fulfilled our other ethical responsibilities in accordance with

these requirements and the ACRA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to

provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial

statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole,

and in forming our opinion thereon, and we do not provide a separate opinion on these matters.


INDEPENDENT

AUDITORS’ REPORTMEMBERS OF THE CO-OPERATIVE

MERCATUS CO-OPERATIVE LIMITED

Impairment assessment of investment properties ($3,970 million as at 31 December 2017) (Refer to Note 5 to the financial

statements)

The key audit matter How the matter was addressed in our audit

The Group owns a portfolio of investment properties

comprising retail and office units, constituting 80% of the

total assets as at 31 December 2017. These properties are

carried at cost and are subject to an annual review to assess

whether or not they may be impaired.

The Group engages external valuers to appraise the valuations

of these properties, and uses such valuation reports to

determine whether the properties are at risk of being impaired

i.e. an indication of impairment is noted when the external

valuation of the property is lower than the property’s carrying

amount.

The properties at risk of being impaired are then subject

to a detailed impairment review whereby their recoverable

amounts are estimated.

The Group uses a combination of internal and external

valuations in estimating the recoverable amount of its

properties, which is determined to be the higher of the fair

value less costs to sell and value-in-use of these properties.

The fair values of the properties are determined based on the

independent professional valuations undertaken, whereas

the value-in-use estimate of the properties are derived from

discounted cash flow forecasts prepared by management.

The estimation of the recoverable amount of the properties

involves the determination of valuation methodologies,

and the use of estimates and assumptions. Changes to the

estimates and assumptions may have a significant impact to

the recoverable amounts.

Where independent professional valuers are engaged to

appraise the valuations of the Group’s properties, we have

assessed the appropriateness of the valuation methodologies

and accompanying assumptions used by the valuers, taking

into consideration available industry data and prevailing

market conditions.

For properties with indicators of impairment noted, we

evaluated the methodologies and assumptions applied

in the estimation of the properties’ recoverable amount.

These include comparing the key assumptions supporting

management’s value-in-use calculations, particularly the

forecasted cash flows, discount rates, terminal growth rates,

and average revenue growth to available market data.

Findings:

We found that the methodologies used by the external valuers

were consistent with market practices and the assumptions

applied were comparable to market data. The key assumptions

supporting management’s value-in-use calculations were also

in line with the historical trends achieved on the properties,

the Group’s plans for the properties and available market data.

Other information

Management is responsible for the other information contained in the annual report. Other information is defined as all information

in the annual report other than the financial statements and our auditors’ report thereon.

We have obtained all other information prior to the date of this auditors’ report.

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance

conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so,

consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in

the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is

a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.


INDEPENDENT


Responsibilities of management and directors for the financial statements

Management is responsible for the preparation of financial statements that give a true and fair view in accordance with the

provisions of the Act and FRSs, and for such internal controls as management determines is necessary to enable the preparation

of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Group’s ability to continue as a going concern,

disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management

either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

The directors’ responsibilities include overseeing the Group’s financial reporting process.

Auditors’ responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material

misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is

a high level of assurance, but is not a guarantee that an audit conducted in accordance with SSAs will always detect a material

misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the

aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial

statements.

As part of an audit in accordance with SSAs, we exercise professional judgement and maintain professional scepticism throughout

the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design

and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to

provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for

one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override

of internal controls.

• Obtain an understanding of internal controls relevant to the audit in order to design audit procedures that are appropriate

in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal controls.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related

disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit

evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt

on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required

to draw attention in our auditors’ report to the related disclosures in the financial statements or, if such disclosures are

inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our

auditors’ report. However, future events or conditions may cause the Group to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether

the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities

within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction,

supervision and performance of the group audit. We remain solely responsible for our audit opinion.


INDEPENDENT

AUDITORS’ REPORTMEMBERS OF THE CO-OPERATIVE


Auditors’ responsibilities for the audit of the financial statements (Continued)

We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant

audit findings, including any significant deficiencies in internal controls that we identify during our audit.

We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence,

and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence,

and where applicable, related safeguards.

From the matters communicated with the directors, we determine those matters that were of most significance in the audit of

the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors’

report unless the law or regulations preclude public disclosure about the matter or when, in extremely rare circumstances, we

determine that a matter should not be communicated in our report because the adverse consequences of doing so would

reasonably be expected to outweigh the public interest benefits of such communication.

Report on other legal and regulatory requirements

Opinion

In our opinion:

(a) the accounting and other records of those subsidiary corporations incorporated in Singapore of which we are the auditors

have been properly kept in accordance with the Singapore Companies Act, Chapter 50;

(b) the receipt, expenditure and investment of moneys and the acquisition and disposal of assets by the Co-operative during

the year are, in all material respects, in accordance with the By-laws of the Co-operative and the provisions of the Act;

and

(c) proper accounting and other records have been kept by the Co-operative.

Basis for opinion

We conducted our audit in accordance with SSAs. Our responsibilities under those standards are further described in the ‘Auditors’

responsibilities for the compliance audit’ section of our report. We are independent of the Group in accordance with the ACRA

Code together with the ethical requirements that are relevant to our audit of the financial statements in Singapore, and we

have fulfilled our other ethical responsibilities in accordance with these requirements and the ACRA Code. We believe that the

audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion on management’s compliance.

Management’s responsibility for compliance with legal and regulatory requirements

Management is responsible for ensuring that the receipt, expenditure, investment of moneys and the acquisition and disposal

of assets, are in accordance with the By-laws of the Co-operative and the provisions of the Act. This responsibility includes

implementing accounting and internal controls as management determines are necessary to enable compliance with the By-laws

of the Co-operative and the provisions of the Act.


INDEPENDENT


Auditors’ responsibility for the compliance audit

Our responsibility is to express an opinion on management’s compliance based on our audit of the financial statements. We

planned and performed the compliance audit to obtain reasonable assurance about whether the receipt, expenditure, investment

of moneys and the acquisition and disposal of assets, are in accordance with the By-laws of the Co-operative and the provisions

of the Act.

Our compliance audit includes obtaining an understanding of the internal control relevant to the receipt, expenditure, investment

of moneys and the acquisition and disposal of assets; and assessing the risks of material misstatement of the financial statements

from non-compliance, if any, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls.

Because of the inherent limitations in any accounting and internal control system, non-compliances may nevertheless occur and

not be detected.

The engagement partner on the audit resulting in this independent auditors’ report is Yeo Lik Khim.

KPMG LLP

Public Accountants and

Chartered Accountants

Singapore

3 April 2018


STATEMENT OFFINANCIAL POSITION

AS AT 31 DECEMBER 2017

Note Group Co-operative

2017 2016 2017 2016

$’000 $’000 $’000 $’000

Non-current assets

Property, plant and equipment 4 3,543 7,079 419 2,155

Investment properties 5 3,970,316 1,321,498 – 563,951

Investment in subsidiaries 6 – – 692,933 111,643

Investment in an associate 7 2,234 – – –

Investment in a joint venture 8 362,912 376,186 – –

Other investments 9 260,000 – – –

4,599,005 1,704,763 693,352 677,749

Current assets

Other investments 9 195,000 – – –

Trade and other receivables 10 16,925 3,364 3,919,268 1,020,971

Prepayments 285 46 10 32

Cash and cash equivalents 11 156,941 95,799 68,747 61,337

369,151 99,209 3,988,025 1,082,340

Total assets 4,968,156 1,803,972 4,681,377 1,760,089

Non-current liabilities

Rental deposits 31,107 14,174 – 8,471

Loans and borrowings 13 2,333,000 350,000 2,158,000 350,000

Trade and other payables,

including derivatives 14 1,287 639 38 436

2,365,394 364,813 2,158,038 358,907

Current liabilities

Rental deposits 19,573 3,043 – 2,214

Shareholders’ loans 12 – 448,313 – 448,313

Loans and borrowings 13 175,000 113,875 – 113,875

Trade and other payables 14 50,000 43,372 390,993 40,332

244,573 608,603 390,993 604,734

Total liabilities 2,609,967 973,416 2,549,031 963,641

Net assets 2,358,189 830,556 2,132,346 796,448

Equity

Membership shares 15 1,713,857 640,393 1,713,857 640,393

Accumulated profits/(losses) 52,429 4,978 53,388 (21,918)

Other reserves 16 390,218 185,185 365,101 177,973

Equity attributable to members of

the Co-operative 2,156,504 830,556 2,132,346 796,448

Non-controlling interest 201,685 – – –

Total equity 2,358,189 830,556 2,132,346 796,448

The accompanying notes form an integral part of these financial statements.


YEAR ENDED 31 DECEMBER 2017

CONSOLIDATED STATEMENT OFCOMPREHENSIVE INCOME


2017 2016 2017 2016

$’000 $’000 $’000 $’000

Revenue 17 193,473 77,146 222 56,739

Other income 18 12,415 4,909 16,848 4,012

Depreciation expenses (48,282) (16,666) (229) (9,223)

Property tax (16,699) (6,758) (33) (6,064)

Other expenses 19 (46,374) (26,375) (9,813) (19,584)

Finance income 20 420 185 107,784 16,535

Finance costs 20 (32,063) (44,055) (22,665) (44,055)

Share of results of joint venture 8 19,226 19,568 – –

Profit/(loss) before tax

and contributions 82,116 7,954 92,114 (1,640)

Income tax expense 21 (2) (6) – –

Profit/(loss) before contributions 82,114 7,948 92,114 (1,640)

Contributions to:

– Central Co-operative Fund 22 (50) – (25) –

– Singapore Labour Foundation 22 (19,648) – (18,323) –

Profit/(loss) for the year 62,416 7,948 73,766 (1,640)

Profit/(loss) attributable to:

Members of the Co-operative 62,416 7,948 73,766 (1,640)

Non-controlling interests – – – –

62,416 7,948 73,766 (1,640)

Profit/(loss) for the year 62,416 7,948 73,766 (1,640)

Other comprehensive income

Item that is or may be reclassified

subsequently to profit or loss:

Effective portion of changes in

fair value of cashflow hedge (38) – (38) –

Total comprehensive income for

the year 62,378 7,948 73,728 (1,640)

Total comprehensive income

attributable to:

Members of the Co-operative 62,378 7,948 73,728 (1,640)

Non-controlling interests – – – –

Total comprehensive income for

the year 62,378 7,948 73,728 (1,640)



STATEMENT OF

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CONSOLIDATED STATEMENT OF

CASH FLOWSYEAR ENDED 31 DECEMBER 2017

Note Group

2017 2016

$’000 $’000

Cash flows from operating activities

Profit before tax and contributions 82,116 7,954

Adjustments for:

Depreciation of property, plant and equipment 4 1,063 674

Depreciation of investment property 5 47,219 15,992

Property, plant and equipment written off – 468

Share of results of joint venture (19,226) (19,568)

Interest income (420) (185)

Interest expense 32,063 44,055

Operating cash flows before changes in working capital 142,815 49,390

Changes in working capital:

Trade and other receivables and prepayments (9,375) (289)

Trade and other payables 9,298 6,059

Cash generated from operating activities 142,738 55,160

Income tax paid (2) (6)

Net cash flows from operating activities 142,736 55,154

Cash flows from investing activities

Purchase of property, plant and equipment (1,290) (4,433)

Proceeds from disposal of property, plant and equipment 3 101

Interest received 420 195

Dividend received 32,500 35,000

Acquisition of subsidiaries, net of cash acquired 6 5,238 6,529

Purchase of investment property (2,254,240) –

Net cash flows (used in)/from investing activities (2,217,369) 37,392

Cash flows from financing activities

Interest paid (22,225) (43,599)

Proceeds from loans and borrowings 2,158,000 –

Net cash flows from/(used in) financing activities 2,135,775 (43,599)

Net increase in cash and cash equivalents 61,142 48,947

Cash and cash equivalents at beginning of the year 95,799 46,852

Cash and cash equivalents as at end of the year 11 156,941 95,799

Significant non-cash transactions:

During the year, the Group acquired several investment properties and subsidiary from the shareholders of the Co-operative

with no cash involved.



NOTES TO THE

FINANCIAL STATEMENTSYEAR ENDED 31 DECEMBER 2017

These notes form an integral part of the financial statements.

The financial statements were authorised for issue by the Board of Directors on 3 April 2018.

1 Domicile and activities

Mercatus Co-operative Limited (the “Co-operative”) is incorporated in Singapore and constituted under the Co-operative

Societies Act (Chapter 62). The address of the Co-operative’s registered office is No. 1 Marina Boulevard, #15-04 One

Marina Boulevard, Singapore 018989.

The Co-operative is a subsidiary of NTUC Enterprise Co-operative Limited (“NE”), which is also the holding co-operative.

The principal activity of the Co-operative is that of a property owner. The principal activities of the subsidiaries are set

out in Note 6 to the financial statements.

The financial statements of the Group as at and for the year ended 31 December 2017 comprise the Co-operative and its

subsidiaries (together referred to as the “Group” and individually as “Group entities”) and the Group’s interests in a joint

venture and an associate.

2 Basis of preparation

2.1 Statement of compliance

The financial statements have been prepared in accordance with the provisions of the Co-operative Societies Act,

Chapter 62 (the “Act”) and Singapore Financial Reporting Standards (“FRSs”).

2.2 Basis of measurement

The financial statements have been prepared on the historical cost basis except as otherwise described below.

2.3 Functional and presentation currency

Items included in the financial statements of the Group are measured using the currency that best reflects the

economic substance of the underlying transactions, events and conditions relevant to that entity (the “functional

currency”).

These financial statements are presented in Singapore Dollars, which is the Co-operative’s functional currency. All

financial information presented in Singapore Dollars has been rounded to the nearest thousand, unless otherwise

stated.

2.4 Significant accounting estimates and judgements

The preparation of the financial statements in conformity with FRSs requires management to make judgements,

estimates and assumptions that affect the application of accounting policies and the reported amounts of assets,

liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are

recognised in the period in which the estimates are revised and in any future periods affected.

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material

adjustment within the next financial year is described in Note 5 – Impairment assessment of investment properties.


NOTES TO THE


3 Significant accounting policies

The accounting policies set out below have been applied consistently to all periods presented in these financial statements

and have been applied consistently by the Group entities.

3.1 Basis of consolidation

(i) Business combinations

Business combinations are accounted for using the acquisition method in accordance with FRS 103 Business

Combination as at the acquisition date, which is the date on which control is transferred to the Group.

The Group measures goodwill at the acquisition date as:

• the fair value of the consideration transferred; plus

• the recognised amount of any non-controlling interests in the acquiree; plus

• if the business combination is achieved in stages, the fair value of the pre-existing equity interest

in the acquiree,

over the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities

assumed. Any goodwill that arises is tested annually for impairment.

When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.

The consideration transferred does not include amounts related to the settlement of pre-existing

relationships. Such amounts are generally recognised in profit or loss.

Any contingent consideration payable is recognised at fair value at the acquisition date and included in the

consideration transferred. If the contingent consideration that meets the definition of a financial instrument

is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, other

contingent consideration is remeasured at fair value at each reporting date and subsequent changes to

the fair value of the contingent consideration are recognised in profit or loss.

Non-controlling interests (“NCI”) that are present ownership interests and entitle their holders to a

proportionate share of the acquiree’s net assets in the event of liquidation are measured either at fair

value or at the non-controlling interests’ proportionate share of the recognised amounts of the acquiree’s

identifiable net assets, at the acquisition date. The measurement basis taken is elected on a transaction-

by-transaction basis. All other non-controlling interests are measured at acquisition-date fair value, unless

another measurement basis is required by FRSs.

Costs related to the acquisition, other than those associated with the issue of debt or equity securities, that

the Group incurs in connection with a business combination are expensed as incurred.

Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as

transactions with owners in their capacity as owners and therefore no adjustments are made to goodwill

and no gain or loss is recognised in profit or loss. Adjustments to NCI arising from transactions that do

not involve the loss of control are based on a proportionate amount of the net assets of the subsidiary.


NOTES TO THE


3 Significant accounting policies (Continued)

3.1 Basis of consolidation (Continued)

(i) Business combinations (Continued)

Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has

rights to, variable returns from its involvement with the entity and has the ability to affect those returns

through its power over the entity. The financial statements of subsidiaries are included in the consolidated

financial statements from the date that control commences until the date that control ceases.

The accounting policies of subsidiaries have been changed where necessary to align them with the policies

adopted by the Group. Losses applicable to the non-controlling interests in a subsidiary are allocated to

the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance.

(ii) Investments in associate and joint venture

Associate is an entity in which of the Group has significant influence, but not control or joint control, over

the financial and operating policies of the entity. Significant influence is presumed to exist when Group

holds between 20% and 50% of the voting power of another entity. A joint venture is an arrangement in

which the Group has joint control, whereby the Group has rights to the net assets of the arrangement,

rather than rights to its assets and obligations for its liabilities.

Investment in an associate and a joint venture (also referred to as “equity accounted investee”) are

accounted for using the equity method and are recognised initially at cost, which includes transaction

costs. Subsequent to initial recognition, the consolidated financial statements include the Group’s share of

the profit or loss and other comprehensive income of the equity-accounted investees, after adjustments

to align the accounting policies with those of the Group, from the date that significant influence or joint

control commences until the date that significant influence or joint control ceases.

When the Group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount

of the interest, including any long-term investments, is reduced to zero, and the recognition of further

losses is discontinued except to the extent that the Group has an obligation or has made payments on

behalf of the investee.

(iii) Loss of control

Upon the loss of control, the Group derecognises the assets and liabilities of the subsidiary, any

non-controlling interests and the other components of equity related to the subsidiary. Any surplus or

deficit arising on the loss of control is recognised in profit or loss. If the Group retains any interest in the

previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently,

it is accounted for as an equity-accounted investee or as an available-for-sale financial asset depending

on the level of influence retained.

(iv) Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group

transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising

from transactions with equity-accounted investees are eliminated against the investment to the extent of

the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains,

but only to the extent that there is no evidence of impairment.


NOTES TO THE



3.1 Basis of consolidation (Continued)

(v) Accounting for subsidiaries, associate and joint venture by the Co-operative

Investments in subsidiaries, associate and joint venture are stated in the Co-operative’s statement of

financial position at cost less any accumulated impairment losses.

3.2 Property, plant and equipment

(i) Recognition and measurement

Construction work-in-progress are stated at cost less any accumulated impairment losses. Other items

of property, plant and equipment are measured at cost less accumulated depreciation and accumulated

impairment losses.

Cost includes expenditure that is directly attributable to the acquisition of the asset and includes the cost of

dismantling and removing the items and restoring the site on which they are located. Purchased software

that is integral to the functionality of the related equipment is capitalised as part of that equipment.

When parts of an item of property, plant and equipment have different useful lives, they are accounted

for as separate items (major components) of property, plant and equipment.

(ii) Depreciation

Depreciation is based on the cost of an asset less its residual value. Significant components of individual

assets are assessed and if a component has a useful life that is different from the remainder of that asset,

that component is depreciated separately.

Depreciation is recognised as an expense in profit or loss on a straight-line basis over the estimated useful

lives of each component of an item of property, plant and equipment, unless it is included in the carrying

amount of another asset.

No depreciation is charged for construction work-in-progress. Depreciation on other property, plant and

equipment is recognised from the date that the property, plant and equipment are installed and are ready

for use, or in respect of internally constructed assets from the date that the asset is completed and ready

for use.

The estimated useful lives for the current and comparative years are as follows:

Furniture, fittings and equipment 3 to 8 years

Building improvement 3 to 10 years

Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted

if appropriate.

(iii) Subsequent costs

The cost of replacing a component of an item of property, plant and equipment is recognised in the

carrying amount of the item if it is probable that the future economic benefits embodied within the

component will flow to the Group, and its cost can be measured reliably. The costs of the day-to-day

servicing of property, plant and equipment are recognised in profit or loss as incurred.


NOTES TO THE



3.2 Property, plant and equipment (Continued)

(iv) Disposals

The gain or loss on disposal of an item of property, plant and equipment is determined by comparing the

proceeds from disposal with the carrying amount of property, plant and equipment, and is recognised net

within other income or other expenses in profit or loss on the date of disposal.

3.3 Investment properties

Investment properties are held either to earn rental income or capital appreciation or both, but not for sale in the

ordinary course of business, use in the production or supply of goods or services, or for administrative purposes.

Investment properties are stated at cost less accumulated depreciation and accumulated impairment losses.

Cost includes expenditure that is directly attributable to the acquisition of the investment properties. The cost

of self-constructed investment properties includes the cost of materials and direct labour, and any other costs

directly attributable to bringing the investment properties to a working condition for their intended use and

capitalised borrowing costs.

Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives at each

component of investment properties.

The estimated useful lives for the current and comparative years are as follows:

Leasehold land over remaining period of the lease of 99 years

Leasehold buildings and premises 50 years

Freehold buildings and premises 50 years

Investment properties are subject to renovations or improvements at regular intervals. The cost of major

renovations and improvements is capitalised and the carrying amounts of the replaced components are recognised

in profit or loss. The cost of maintenance, repairs and minor improvements is recognised in profit or loss as incurred.

On disposal of an investment property, the difference between the disposal proceeds and the carrying amount

is recognised in profit or loss.

3.4 Financial assets

The Group initially recognises loans and receivables and deposits on the date that they are originated. All other

financial assets are recognised initially on the trade date at which the Group becomes a party to the contractual

provisions of the instrument.

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it

transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially

all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial

assets that is created or retained by the Group is recognised as a separate asset or liability.

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when,

and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to

realise the asset and settle the liability simultaneously.


NOTES TO THE



3.4 Financial assets (Continued)

The Group classifies non-derivative financial assets into the following categories: held-to-maturity financial assets

and loans and receivables.

Held-to-maturity financial assets

If the Group has the positive intent and ability to hold debt securities to maturity, then such financial assets are

classified as held-to-maturity. Held-to-maturity financial assets are initially measured at fair value plus any directly

attributable transaction costs. Subsequent to initial recognition, held-to-maturity financial assets are measured at

amortised cost using the effective interest method, less any impairment losses.

Held-to-maturity financial assets comprise debt securities.

Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active

market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent

to initial recognition, loans and receivables are measured at amortised cost using the effective interest method,

less any impairment losses.

Loans and receivables comprise trade and other receivables and cash and cash equivalents.

Cash and cash equivalents comprise cash on hand, bank balances and fixed deposits that are readily convertible

to a known amount of cash and are subject to an in significant risk of changes in their fair value.

3.5 Impairment of financial assets

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine

whether there is any objective evidence that it is impaired. A financial asset is impaired if objective evidence

indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event has a

negative effect on the estimated future cash flows of that asset that can be estimated reliably.

Objective evidence that financial assets (including equity securities) are impaired can include default or delinquency

by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise,

indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status of borrowers or

issuers in the group, economic conditions that correlate with defaults or the disappearance of an active market

for a security.

Loans and receivables and held-to-maturity investment securities

The Group considers evidence of impairment for loans and receivables and held-to-maturity investment securities

at both a specific asset and collective level. All individually significant loans and receivables and held-to-maturity

financial assets are assessed for specific impairment. All individually significant receivables and held-to-maturity

financial assets found not to be specifically impaired are then collectively assessed for any impairment that has

been incurred but not yet identified. Loans and receivables and held-to-maturity financial assets that are not

individually significant are collectively assessed for impairment by grouping together loans and receivables and

held-to-maturity financial assets with similar risk characteristics.


NOTES TO THE



3.5 Impairment of financial assets (Continued)

Loans and receivables and held-to-maturity investment securities (Continued)

In assessing collective impairment, the Group uses historical trends of the probability of default, the timing of

recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current economic

and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical

trends.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference

between its carrying amount and the present value of the estimated future cash flows, discounted at the asset’s

original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against

loans and receivables or held-to-maturity financial assets. Interest on the impaired asset continues to be recognised.

When the Group considers that there are no realistic prospects of recovery of the asset, the relevant amounts are

written off. If the amount of impairment loss subsequently decreases and the decrease can be related objectively

to an event occurring after the impairment was recognised, then the previously recognised impairment loss is

reversed through profit or loss.

3.6 Impairment of non-financial assets

The carrying amounts of the Group’s non-financial assets are reviewed at each reporting date to determine

whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount

is estimated. An impairment loss is recognised if the carrying amount of an asset or its related cash-generating

unit (“CGU”) exceeds its estimated recoverable amount.

Calculation of recoverable amount

The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax

discount rate that reflects current market assessments of the time value of money and the risks specific to the asset

or CGU. For the purpose of impairment testing, assets that cannot be tested individually are grouped together

into the smallest group of assets that generates cash inflows from continuing use that are largely independent of

the cash inflows of other assets or CGUs.

Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated

to reduce the carrying amounts of the assets in the CGU (group of CGUs) on a pro rata basis.

Reversals of impairment

Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the

loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates

used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s

carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or

amortisation, if no impairment loss had been recognised.


NOTES TO THE



3.7 Financial liabilities

Financial liabilities are recognised initially on the trade date, which is the date that the Group becomes a party to

the contractual provisions of the instrument.

The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expire.

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when,

and only when, the Group currently has a legally enforceable right to offset the amounts and intends either to

settle them on a net basis or to realise the asset and settle the liability simultaneously.

The Group classifies non-derivative financial liabilities into the other financial liabilities category. Such financial

liabilities are recognised initially at fair value less any directly attributable transaction costs. Subsequent to initial

recognition, these financial liabilities are measured at amortised cost using the effective interest method.

Other financial liabilities comprise shareholders’ loans, loans and borrowings, and trade and other payables.

3.8 Derivative financial instruments, including hedge accounting

The Group holds derivative financial instruments to hedge its interest rate risk exposures. Embedded derivatives

are separated from the host contract and accounted for separately if the economic characteristics and risks of the

host contract and the embedded derivative are not closely related, a separate instrument with the same terms as

the embedded derivative would meet the definition of a derivative, and the combined instrument is not measured

at fair value through profit or loss.

On initial designation of the derivative as the hedging instrument, the Group formally documents the relationship

between the hedging instrument and the hedged item, including the risk management objectives and strategy

in undertaking the hedge transaction and the hedged risk, together with the methods that will be used to assess

the effectiveness of the hedging relationship. The Group makes an assessment, both at the inception of the

hedge relationship as well as on an ongoing basis, of whether the hedging instruments are expected to be ‘highly

effective’ in offsetting the changes in the fair value or cash flows of the respective hedged items attributable to

the hedged risk, and whether the actual results of each hedge are within a range of 80% – 125%. For a cash flow

hedge of a forecast transaction, the transaction should be highly probable to occur and should present an exposure

to variations in cash flows that could ultimately affect reported profit or loss.

Derivatives are initially measured at fair value; any attributable transaction costs are recognised in profit or loss

as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are

accounted for as described below.

Cash flow hedges

When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable

to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction that

could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognised in other

comprehensive income and presented in the hedging reserve in equity. Any ineffective portion of changes in the

fair value of the derivative is recognised immediately in profit or loss.

When the hedged item is a non-financial asset, the amount accumulated in equity is retained in other

comprehensive income and reclassified to profit or loss in the same period or periods during which the

non-financial item affects profit or loss. In other cases as well, the amount accumulated in equity is reclassified to

profit or loss in the same period that the hedged item affects profit or loss. If the hedging instrument no longer

meets the criteria for hedge accounting, expires or is sold, terminated or exercised, or the designation is revoked,

then hedge accounting is discontinued prospectively. If the forecast transaction is no longer expected to occur,

then the balance in equity is reclassified to profit or loss.


NOTES TO THE



3.9 Employee benefits

(i) Defined contribution plans

A defined contribution plan is a post-employment benefit plan under which an entity pays fixed

contributions into a separate entity and will have no legal or constructive obligation to pay further amounts.

Obligations for contributions to defined contribution pension plans are recognised as an employee benefit

expense in profit or loss in the periods during which services are rendered by employees.

(ii) Short-term employee benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as

the related service is provided.

3.10 Provisions

A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation

that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle

the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present

obligation at the end of the reporting year, taking into account the risks and uncertainties surrounding the

obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its

carrying amount is the present value of those cash flows.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a

third party, the receivable is recognised as an asset if it is virtually certain that reimbursement will be received and

the amount of the receivable can be measured reliably.

3.11 Membership shares

Membership shares are classified as equity. Incremental costs directly attributable to the issue of membership

shares are recognised as a deduction from equity.

3.12 Revenue

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and

the revenue can be reliably measured, regardless of when the payment is made. Revenue is measured at the fair

value of consideration received or receivable, taking into account contractually defined terms of payment and

excluding taxes or duty.

(i) Rental income

Rental income arising from operating leases on investment properties is accounted for on a straight-line

basis over the lease terms. The aggregate costs of incentives provided to lessees are recognised as a

reduction of rental income over the lease term on a straight-line basis.

(ii) Car park income

Car park income is recognised in profit or loss on an accrual basis.

(iii) Other income

Other income consists of recovery from tenants and management fee income recognised in profit or loss

on an accrual basis.


NOTES TO THE



3.13 Lease payments

When the entities within the Group are lessors of an operating lease

Assets subject to operating leases are included in investment properties and are stated at cost less accumulated

depreciation and accumulated impairment losses. Rental income (net of any incentives given to lessees) is

recognised on a straight-line basis over the lease term.

When the entities within the Group are lessees of an operating lease

Where the Group has the use of assets under operating leases, payments made under the leases are recognised in

profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised in profit

or loss as an integral part of the total lease.

3.14 Finance income and finance costs

Finance income comprises interest income and dividend income. Interest income is recognised as it accrues in

profit or loss, using the effective interest method. Dividend income is recognised in profit or loss on the date that

the Group’s right to receive payment is established.

Finance costs comprise interest expense on borrowings. Borrowing costs that are not directly attributable to the

acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective

interest method.

3.15 Tax

Tax expense comprises current and deferred tax. Current tax and deferred tax is recognised in profit or loss

except to the extent that it relates to a business combination, or items recognised directly in equity or in other

comprehensive income.

Current tax is the expected tax payable or receivable on the taxable income or loss for the financial year, using

tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of

previous years. The amount of current tax payable or receivable is the best estimate of the tax amount expected

to be paid or received that reflects uncertainty related to income taxes, if any.

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities

for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for:

• temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business

combination and that affects neither accounting nor taxable profit or loss; and

• temporary differences related to investments in subsidiaries and joint ventures to the extent that the Group

is able to control the timing of the reversal of the temporary difference and it is probable that they will

not reverse in the foreseeable future.

The measurement of deferred taxes reflects the tax consequences that would follow the manner in which the

Group expects, at the end of the reporting year, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they

reverse, based on the laws that have been enacted or substantively enacted by the reporting date.


NOTES TO THE



3.15 Tax (Continued)

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and

assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax

entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities

will be realised simultaneously.

A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the

extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred

tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that

the related tax benefit will be realised.

In determining the amount of current and deferred tax, the Group takes into account the impact of uncertain

tax positions and whether additional taxes and interest may be due. The Group believes that its accruals for tax

liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations

of tax law and prior experience. This assessment relies on estimates and assumptions and may involve a series

of judgements about future events. New information may become available that causes the Group to change its

judgement regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expense

in the year that such a determination is made.

4 Property, plant and equipment

Furniture,

fittings and

equipment

Building

improvement

Construction

in progress Total

$’000 $’000 $’000 $’000

Group

Cost

At 1 January 2016 2,494 1,795 577 4,866

Additions 642 805 4,648 6,095

Disposals/written-off (185) – (468) (653)

At 31 December 2016 2,951 2,600 4,757 10,308

Additions 1,487 176 184 1,847

Disposals/written-off (5) – – (5)

Reclassification to investment properties

(see note 5) – – (4,317) (4,317)

Transfer 440 – (440) –

At 31 December 2017 4,873 2,776 184 7,833

Accumulated depreciation

At 1 January 2016 2,024 615 – 2,639

Depreciation for the year 328 346 – 674


At 31 December 2016 2,268 961 – 3,229

Depreciation for the year 617 446 – 1,063


At 31 December 2017 2,883 1,407 – 4,290

Carrying amounts

At 1 January 2016 470 1,180 577 2,227

At 31 December 2016 683 1,639 4,757 7,079

At 31 December 2017 1,990 1,369 184 3,543


NOTES TO THE


4 Property, plant and equipment (Continued)

Furniture, fittings and equipment

Building improvement

Construction in progress Total

$’000 $’000 $’000 $’000

Co-operativeCostAt 1 January 2016 2,494 1,795 577 4,866Additions 371 307 331 1,009Disposals (185) – (468) (653)

At 31 December 2016 2,680 2,102 440 5,222Additions 60 – – 60Transfer 440 – (440) –Disposals (2,446) (2,102) – (4,548)

At 31 December 2017 734 – – 734

Accumulated depreciationAt 1 January 2016 2,024 615 – 2,639Depreciation for the year 301 211 – 512Disposals (84) – – (84)

At 31 December 2016 2,241 826 – 3,067Depreciation for the year 229 – – 229Disposals (2,155) (826) – (2,981)

At 31 December 2017 315 – – 315

Carrying amountsAt 1 January 2016 470 1,180 577 2,227

At 31 December 2016 439 1,276 440 2,155

At 31 December 2017 419 – – 419

5 Investment properties

Leaseholdland

Leasehold buildings and

premises

Freehold buildings

and premises Total$’000 $’000 $’000 $’000

GroupCostAt 1 January 2016 424,000 184,594 – 608,594Addition 298,184 466,644 – 764,828

At 31 December 2016 722,184 651,238 – 1,373,422Addition 1,952,448 719,972 19,300 2,691,720Reclassification from property,

plant and equipment (see note 4) – 4,317 – 4,317

At 31 December 2017 2,674,632 1,375,527 19,300 4,069,459

Accumulated depreciationAt 1 January 2016 19,058 16,874 – 35,932Depreciation for the year 6,383 9,609 – 15,992

At 31 December 2016 25,441 26,483 – 51,924Depreciation for the year 20,141 26,692 386 47,219

At 31 December 2017 45,582 53,175 386 99,143

Carrying amountsAt 1 January 2016 404,942 167,720 – 572,662

At 31 December 2016 696,743 624,755 – 1,321,498

At 31 December 2017 2,629,050 1,322,352 18,914 3,970,316


NOTES TO THE


5 Investment properties (Continued)

Leaseholdland

Leasehold buildings and

premises

Freehold buildings

and premises Total

$’000 $’000 $’000 $’000

Co-operative

Cost

At 1 January 2016 and 31 December 2016 424,000 184,594 – 608,594

Disposals (424,000) (184,594) – (608,594)

At 31 December 2017 – – – –

Accumulated depreciation

At 1 January 2016 19,058 16,874 – 35,932

Depreciation for the year 4,620 4,091 – 8,711

At 31 December 2016 23,678 20,965 – 44,643

Disposals (23,678) (20,965) – (44,643)

At 31 December 2017 – – – –

Carrying amounts

At 1 January 2016 404,942 167,720 – 572,662

At 31 December 2016 400,322 163,629 – 563,951

At 31 December 2017 – – – –

Investment properties comprise a number of commercial properties that are leased to related parties and external

customers (collectively, the “lease”). Each of the leases contains an initial non-cancellable period of between 1 to 5 years.

Subsequent renewals are negotiated with the lessee. During the year, contingent rent of $4.4 million (2016: $2.1 million)

was charged and recognised as rental income in profit or loss.

Additions to investment properties for the Group during the financial year related to acquisition of certain investment

properties from external parties as well as from a shareholder of the Co-operative.

The following amounts relating to the investment properties are recognised in the statement of comprehensive income:

Group Co-operative

2017 2016 2017 2016

$’000 $’000 $’000 $’000

Rental income 184,893 71,751 222 51,960

Operating expenses 54,777 22,824 – 16,036

Security

At 31 December 2017, investment properties of the Group with a carrying amount of $555 million (2016: $564 million)

are pledged as security to secure bank loans (see note 13).

Determination of fair value

The Group adopts the cost model to measure the investment properties, and discloses their fair values. External and

independent valuation companies, having appropriate recognised professional qualifications and recent experience in

the locations and category of properties being valued, value the Group’s investment properties.


NOTES TO THE



Determination of fair value (Continued)

The fair values of investment properties for the Group and Co-operative as at 31 December 2017 are $4,299 million and

$Nil (2016: $1,566 million and $766 million) respectively. The valuations are carried out by Jones Lang LaSalle Property

Consultants Pte Ltd and Savills Valuation and Professional Services (S) Pte Ltd (2016: Colliers International Consultancy

& Valuation (Singapore) Pte Ltd, Knight Frank Pte Ltd and DTZ Debenham Tie Leung (SEA) Pte Ltd), which are firms of

independent professional valuers.

The fair values are based on open market values, being the estimated amount for which a property could be exchanged on

the date of the valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing

wherein the parties had each acted knowledgeably, prudently and without compulsion.

In determining the fair value, the valuers have used valuation techniques which involve certain estimates. The key

assumptions used to determine the fair value of investment properties include market corroborated capitalisation yield,

terminal yield, discount rate and average growth rate.

The valuers have considered valuation techniques including the direct comparison method, the capitalisation approach,

and the discounted cash flow approach in arriving at the open market value as at the reporting date. The direct comparison

method involves the analysis of comparable sales of similar properties and adjusting the sales prices to that reflective of

the investment properties. The capitalisation approach capitalises an income stream into a present value using revenue

multipliers or single-year capitalisation rates. The discounted cash flow approach involves the estimation and the projection

of an income stream over a period and discounting the income stream with an approximate rate of return.

Fair value hierarchy (refer to Note 24 for the Group’s framework on fair value measurement)

Investment properties carried at cost but for which fair values are disclosed:

Level 1 Level 2 Level 3 Total

$’000 $’000 $’000 $’000

Group

31 December 2017

Investment properties – – 3,970,316 3,970,316

31 December 2016

Investment properties – – 1,321,498 1,321,498

Co-operative

31 December 2017

Investment properties – – – –

31 December 2016

Investment properties – – 563,951 563,951

During the financial year, there is no transfer of financial assets between Level 1 and 2 and in and out of Level 3 of the

fair value hierarchy.


NOTES TO THE



Level 3 fair values

The following table shows the valuation techniques used in measuring Level 3 fair values.

Group and Co-operative

2017 and 2016 Valuation technique

Investment properties Direct comparison approach

Discounted cash flows

Income capitalisation approach

Impairment assessment

Management performed an annual review of the carrying amounts of investment properties for indicators of impairment.

In 2017, an indicator of impairment was noted for one (2016: nil) of the Group’s investment properties. The recoverable

amount of the investment property (determined to be the higher of fair value less costs to sell and value-in-use) was

estimated using the value-in-use approach and was derived from discounted cash flow forecasts prepared by management.

The recoverable amount of the investment property was determined to be higher than its carrying amount and no

impairment of the property was required.

6 Investment in subsidiaries

Co-operative

2017 2016

$’000 $’000

Unquoted equities, at cost

Beginning of financial year 111,643 1,000

Additions 581,290 110,643

End of the financial year 692,933 111,643

During the financial year ended 31 December 2017:

(a) The Co-operative incorporated a subsidiary, Mercatus Zeta Co-operative Limited for a consideration of $10,000.

(b) The Co-operative incorporated a subsidiary, Mercatus Epsilon Co-operative Limited (“Mercatus Epsilon”), for a

consideration of $10,000. Subsequently, the Group through its subsidiary, Mercatus Epsilon, entered into sale and

purchase agreements with external parties to acquire certain investment properties for an aggregate consideration

of $2,199 million. Contemporaneously, the Co-operative acquired additional shares in Mercatus Epsilon at an

aggregate consideration of $216 million and granted $1,960 million of shareholder loan to Mercatus Epsilon.

(c) The Co-operative entered into a sale and purchase agreement with its subsidiary, Mercatus Alpha Co-operative

Limited (“Mercatus Alpha”), to sell its investment property for a consideration of $565 million. The consideration

was satisfied by way of the Co-operative acquiring additional shares in Mercatus Alpha of $57 million, and granting

a shareholder loan of $508 million to Mercatus Alpha.

(d) The Group, through its subsidiary, Mercatus Beta Co-operative Limited (“Mercatus Beta”), acquired an investment

property from a third party for a consideration of $28 million. Contemporaneously, the Co-operative acquired

additional shares in Mercatus Beta for $3 million and granted $25 million of shareholder loan to Mercatus Beta.


NOTES TO THE


6 Investment in subsidiaries (Continued)

(e) The Group, through its subsidiary, Mercatus Gamma Co-operative Limited (“Mercatus Gamma”), acquired

certain investment properties from its shareholder for a consideration of $439 million. Contemporaneously,

the Co-operative acquired additional shares in Mercatus Gamma for $44 million and granted $395 million of

shareholder loan to Mercatus Gamma.

(f) The Co-operative acquired a subsidiary, NTUC Choice Homes Co-operative Limited (“NCH”) from NE at a

consideration of $262 million. The consideration was satisfied by issuance of 174 million shares to NE. The following

table summarises the recognised amounts of assets acquired and liabilities assumed at the date of acquisition.

$’000

Investment in an associate 2,234

Other investments 455,000

Trade and other receivables 4,425

Cash and bank balances 5,238

Trade and other payables (1,868)

465,029

For the financial year ended 31 December 2017, NCH’s contribution of revenue and profit was immaterial to the

Group.

In 2016, the Co-operative acquired a subsidiary, Mercatus Delta Co-operative Limited (“Mercatus Delta”) from

its holding co-operative, NE, at a consideration of $554 million. At the date of acquisition, 1 July 2016, Mercatus

Delta carried an investment property at fair value of $551 million. The following table summarises the recognised

amounts of assets acquired and liabilities assumed at the date of acquisition.

$’000

Cash and bank balances 6,529

Trade receivables and prepayments 1,124

Investment property 497,920

Trade payables and rental deposits (7,111)

Shareholder’s loan (464,310)

34,152

For the six months ended 31 December 2016, Mercatus Delta contributed revenue and profit of $13 million and

$4 million to the Group’s results respectively. If the acquisition, including novation of shareholders’ loan, had

occurred on 1 January 2016, management estimated that consolidated revenue and consolidated profit for the

year ended 31 December 2016 would have been $90 million and $11 million respectively.


NOTES TO THE



Details of the Co-operative’s subsidiaries are as follow:

Name

Place of

incorporation

and business Principal activities

Effective equity

interest

2017 2016

% %

Subsidiaries of the Co-operative

Mercatus Holdings Pte. Ltd.

(f.k.a. Mercatus Retail Holdings Pte. Ltd.)(1)

Singapore Investment holding 100 100

Mercatus Alpha Co-operative Limited(1) Singapore Property owner 100 50

Mercatus Beta Co-operative Limited(1) Singapore Property owner 100 100

Mercatus Delta Co-operative Limited

(f.k.a. Proventus Co-operative Limited)(1)

Singapore Property owner 100 100

Mercatus Gamma Co-operative Limited(1) Singapore Property owner 100 100

Mercatus Epsilon Co-operative Limited(1) Singapore Property owner 100 –

Mercatus Zeta Co-operative Limited(2) Singapore Dormant 50 –

NTUC Choice Homes Co-operative Limited(1) Singapore Property development

and investment

holding

56.9 –

Subsidiary of Mercatus Beta Co-operative Limited

Thomson Plaza Pte. Ltd.(2) Singapore Dormant 100 –

Subsidiaries of Mercatus Holdings Pte. Ltd.

ASPF II (Mauritius) Limited(3) Mauritius Dormant 100 100

Mercatus Uno Pte. Ltd.

(f.k.a. Mercatus Retail Investments Pte. Ltd.)(2)

Singapore Dormant 100 100

Mercatus Dos Pte. Ltd.

(f.k.a. Mercatus Retail Development Pte. Ltd.)(2)

Singapore Dormant 100 100

Subsidiary of Mercatus Epsilon Co-operative Limited

SMCP Pte. Ltd.(1) Singapore Carpark management

and operation

services

100 –

Subsidiary of NTUC Choice Homes Co-operative Limited

ChoiceHomes Investments Pte. Ltd.(1) Singapore Investment holding

and management

and maintenance of

properties

100 –

Subsidiaries of ChoiceHomes Investments Pte. Ltd.

Punggol Field EC Pte. Ltd.(1) Singapore Property development 60 –

Pasir Ris EC Pte. Ltd.(1) Singapore Property development 60 –

(1) Audited by KPMG LLP, Singapore

(2) Not required to be audited under the laws of country of incorporation

(3) Audited by Deloitte & Touche LLP, Mauritius


NOTES TO THE



Non-controlling interests

The following subsidiaries have non-controlling interests (NCI) that are material to the Group.

Name

Country of

incorporation

Ownership interests

held by NCI

2017 2016

% %

NTUC Choice Homes Co-operative Limited Singapore 43.1 –

Punggol Field EC Pte. Ltd. Singapore 40 –

Pasir Ris EC Pte. Ltd. Singapore 40 –

The following summarised financial information for the above subsidiaries are prepared in accordance with FRS and the

Group’s accounting policies.

NTUC Choice

Homes

Co-operative

Limited

Punggol Field

EC Pte. Ltd.

Pasir Ris EC

Pte. Ltd. Total

$’000 $’000 $’000 $’000

Non-current assets 262,234 – – 262,234

Current assets 204,663 739 1,110 206,512

Current liabilities (4,025) (414) (202) (4,641)

Net assets 462,872 325 908 464,105

Net assets attributable to NCI 199,498 130 363 199,991

Dividend reserves attributable to NCI 1,694 – – 1,694

Total attributable to NCI 201,192 130 363 201,685

7 Investment in an associate

Group

2017 2016

$’000 $’000

Unquoted equity shares, at cost 2,234 –


NOTES TO THE


7 Investment in an associate (Continued)

Associate of NTUC Choice Homes Co-operative Limited (NCH)(1)

Name

Place of

incorporation

and business Principal activities

Effective equity

interest

2017 2016

% %

One Marina Property Services Pte Ltd(2) Singapore Provision of facility

management,

project management,

leasing services and

accounting services

20 –

Subsidiary of One Marina Property Services Pte Ltd

One Marina Integrated Solutions Pte Ltd(2)(3) Singapore Business and

management

consultancy services

100 –

(1) Refer to Note 6 for details on acquisition of subsidiary, NCH, on 31 December 2017

(2) Audited by KPMG LLP, Singapore

(3) The Company is currently in the process of liquidation

The associate is immaterial to the Group and is equity accounted for. The summarised financial information of the associate,

not adjusted for the percentage of ownership held by the Group, is as follows:

2017

$’000

Combined Assets and Liabilities

Total assets 15,700

Total liabilities 4,528

Combined Results

Revenue 18,455

Expenses (17,297)

Profit for the year 1,158

8 Investment in a joint venture

Group

2017 2016

$’000 $’000

Investment, at cost 457,492 457,492

Share of post-acquisition results 97,920 78,694

Dividend received (132,500) (100,000)

Capital reduction (60,000) (60,000)

362,912 376,186

The Group has 50% (2016: 50%) interest in the ownership and voting rights in a joint venture, Gold Ridge Pte Ltd, that

is held through a subsidiary. This joint venture is incorporated in Singapore and is a strategic venture in retail property

investment. The Group jointly controls the venture with partners under a contractual agreement which requires unanimous

consent for all major decisions over the relevant activities.

The Group’s commitments in respect of its interest in Gold Ridge Pte Ltd are disclosed in note 23.


NOTES TO THE


8 Investment in a joint venture (Continued)

The following summarises the financial information of Gold Ridge Pte Ltd based on its financial statements prepared in

accordance with FRS, and the Group’s accounting policies.

Gold Ridge Pte Ltd

2017 2016

$’000 $’000

Revenue 124,419 121,321

Profit from continuing operations/Other comprehensive income for the year 38,452 39,136

Total comprehensive income for the year 38,452 39,136

Profit from continuing operation include:

– Interest income 193 175

– Depreciation and amortisation (21,484) (21,484)

– Interest expense (19,876) (14,590)

– Income tax expense (12,793) (12,955)

Non-current assets 1,534,269 1,551,277

Current assets 53,947 57,736

Non-current liabilities (839,324) (834,484)

Current liabilities (23,068) (22,158)

Net assets 725,824 752,371

Net assets include:

– Cash and cash equivalents 51,355 55,915

– Non-current financial liabilities (excluding deferred tax liabilities) (829,432) (823,475)

Group’s interest in net assets of joint venture at beginning of the year 376,186 391,618

Dividends received during the year (32,500) (35,000)

Share of total comprehensive income 19,226 19,568

Carrying amount of interest in joint venture at end of the year 362,912 376,186

9 Other investments

Group

2017 2016

$’000 $’000

Non-current

Held-to-maturity investments 260,000 –

Current

Held-to-maturity investments 195,000 –

455,000 –

Included in the held-to-maturity investments are unquoted bonds issued by the holding co-operative, NE. The terms and

conditions of the outstanding held-to-maturity investments are as follows:

Nominal interest rate (%)

Interest

payments

Year of

maturity

Group

2017 2016

$’000 $’000

(i) 1.73% Annually 2019 260,000 –

(ii) 1.91% Annually 2018 100,000 –

(iii) 1.77% Annually 2018 75,000 –

(iv) 2.13% Annually 2018 20,000 –

455,000 –


NOTES TO THE


10 Trade and other receivables

Group Co-operative

2017 2016 2017 2016

$’000 $’000 $’000 $’000

Trade receivables 1,619 2,241 – 337

Other receivables 15,306 1,123 6,790 796

Loans to subsidiaries – – 3,870,479 1,006,411

Amounts due from subsidiaries – – 41,999 13,427

Total trade and other receivables 16,925 3,364 3,919,268 1,020,971

Loans to subsidiaries are unsecured, repayable on demand and comprise the following:

(a) $325 million; with the weighted average interest of 2.66% (2016: 2.66%) per annum during the year; and

(b) $3,545 million; with the interest calculated based on (i) 6.5% of the shareholders’ loan amount or (ii) 95% of the

net distributable surplus of each financial year, whichever amount is lower.

The trade receivables consist of mainly rental receivables from tenants of the investment properties. These receivables

are non-interest bearing and are generally due upon billing. They are recognised at their original invoice amounts which

represent their fair values on initial recognition.

Amounts due from subsidiaries are non-trade related, unsecured, non-interest bearing and repayable on demand.

11 Cash and cash equivalents

Group Co-operative

2017 2016 2017 2016

$’000 $’000 $’000 $’000

Cash on hand 2 2 2 2

Cash at bank 104,931 70,471 36,737 36,009

Fixed deposits 52,008 25,326 32,008 25,326

Cash and cash equivalents 156,941 95,799 68,747 61,337

Cash at banks earns interest at floating rates based on daily bank deposit rates. Fixed deposits of the Group placed with

financial institutions have a maturity period of 31 to 90 days (2016: 31 days) from the reporting date and interest rate at

0.6% to 1.0% (2016: 0.15%) per annum.

12 Shareholders’ loans


2017 2016

$’000 $’000

Current

Shareholders’ loans from:

– NTUC Enterprise Co-operative Limited (“NE”) – 283,613

– NTUC Fairprice Co-operative Limited – 164,700

– 448,313


NOTES TO THE


12 Shareholders’ loans (Continued)

The shareholders’ loans were unsecured and repayable on demand. The interest was calculated based on (i) 6.5% of the

shareholders’ loan amount or (ii) 95% of the net distributable surplus of each financial year, whichever amount is lower.

The shareholders’ loans were converted to membership shares of the Co-operative on 1 January 2017.

13 Loans and borrowings

Group Co-operative

2017 2016 2017 2016

$’000 $’000 $’000 $’000

Non-current

Secured bank loans 175,000 350,000 – 350,000

Unsecured bank loans 1,958,000 – 1,958,000 –

Unsecured fixed rate notes 200,000 – 200,000 –

2,333,000 350,000 2,158,000 350,000

Current

Secured loans 175,000 113,875 – 113,875

Terms and conditions of outstanding loans and borrowings are as follows:

2017 2016

Nominal

interest rate

Year of

maturity

Face

value

Carrying

amount

Face

value

Carrying

amount

% $’000 $’000 $’000 $’000

Group

Unsecured bank loans SOR(1)+Margin 2019-2022 1,378,000 1,378,000 – –

Unsecured bank loans COF(2)+Margin 2019 130,000 130,000 – –

Unsecured bank loans 2.38% – 2.64% 2021-2022 450,000 450,000 – –

Secured loans 2.18% – 5% 2017-2019 350,000 350,000 463,875 463,875

Unsecured fixed rate notes 2.80% 2024 200,000 200,000 – –

2,508,000 2,508,000 463,875 463,875

Co-operative

Unsecured bank loans SOR(1)+Margin 2019-2022 1,378,000 1,378,000 – –

Unsecured bank loans COF(2)+Margin 2019 130,000 130,000 – –

Unsecured bank loans 2.38% – 2.64% 2021-2022 450,000 450,000 – –

Secured loans 2.18% – 5% 2017-2019 – – 463,875 463,875

Unsecured fixed rate notes 2.80% 2024 200,000 200,000 – –

2,158,000 2,158,000 463,875 463,875

(1) Swap Offer Rate

(2) Bank’s cost of funds

Security

The secured bank loans are secured over investment properties with carrying amounts of $555 million (see note 5).


NOTES TO THE


13 Loans and borrowings (Continued)

Unsecured fixed rate notes

On 26 July 2017, the Co-operative issued $200 million notes at 2.8% fixed coupon rate under the $1,000 million

Multicurrency Medium Term Note Programme (“MTN”). The $200 million notes matures in 2024 and interest is repayable

semi-annually from the date of issue.

Interest rate swap

The Group entered into an interest rate swap with a counter party to provide fixed rate funding for unsecured bank loans.

Details of the interest swap are set out in note 24.

Reconciliation of movements of liabilities to cash flows arising from financing activities

Loans and

borrowings

$’000

Balance as at 1 January 2017 463,875

Changes from financing cash flows

Proceeds from loans and borrowings 2,158,000

Total changes from financing cash flows 2,158,000

Conversion of term loan to membership shares (113,875)

Balance as at 31 December 2017 2,508,000

14 Trade and other payables, including derivatives

Group Co-operative

2017 2016 2017 2016

$’000 $’000 $’000 $’000

Refundable deposits 2,165 854 1 474

Advance rental billings 1,967 777 – 534

Interest accrual on shareholders’ loans – 29,140 – 29,140

Interest payable on loans and borrowings 9,399 4,042 5,357 4,042

Amount due to a subsidiary – – 364,653 –

Accrued expenses 11,969 5,436 2,285 2,882

Other payables 6,051 3,762 349 3,696

Derivative financial liability 38 – 38 –

Contribution payable to

– Central Co-operative Fund 50 – 25 –

– Singapore Labour Foundation 19,648 – 18,323 –

51,287 44,011 391,031 40,768

Trade and other payables

Current 50,000 43,372 390,993 40,332

Non-current 1,287 639 38 436

51,287 44,011 391,031 40,768

Interest accrual on shareholders’ loans

The interest accrual arises on shareholders’ loans, are unsecured and repayable on demand in cash.


NOTES TO THE


15 Membership shares


2017 2016

No. of shares

(‘000) $’000

No. of shares

(‘000) $’000

Issued and fully paid membership shares,

at par value of $1 each:

In issue at 1 January 640,393 640,393 49,813 49,813

Issued during the year 1,073,464 1,073,464 590,580 590,580

At 1 January and 31 December 1,713,857 1,713,857 640,393 640,393

Rights of member

(a) The membership shares relate to shares held by members where redemption of share is subject to approval of

the Board of Directors.

(b) All members are entitled to redeem their shares at the par value or the net asset value of the Co-operative based

on the latest audited financial position as at the date of redemption, whichever is lower.

(c) The shares do not carry any rights to fixed income.

(d) In accordance with Section 4.5 of the Co-operative’s By-Laws, every member shall, unless otherwise disqualified

under the Act or the By-Laws, have the right to:

(i) avail himself of all services of the Co-operative;

(ii) nominate candidates for election or to be co-opted to office, subject to the provisions of the Act and the

By-Laws;

(iii) be represented by delegates, subject to the provisions of the Act and the By-Laws;

(iv) participate and vote at General Meetings; and

(v) enjoy all other rights, privileges and benefits as prescribed by the By-Laws.

(e) Members are entitled to receive dividends as and when declared by the Co-operative.

(f) In the event of the winding up of the Co-operative, the assets shall be applied first to the cost of liquidation, then

to the discharge of the liabilities of the Co-operative, then to the payment of the share capital or subscription

capital, and then, provided that the By-laws of the Co-operative permit, to the payment of a dividend or patronage

refund at a rate not exceeding that laid down in the Rules or in the By-Laws.

(g) Any monies remaining after the application of the funds to the purposes specified in the above paragraph

(Section 88 of Co-operative Societies Act) and any sums unclaimed after two years under Section 89(2) of the

Act (which relates to claims of creditors), shall not be divided among the members but shall be carried to the

Co-operative Societies Liquidation Account kept by the Registrar of the Co-operative Societies.


NOTES TO THE


15 Membership shares (Continued)

Rights of member (Continued)

(h) A sum carried to the Co-operative Societies Liquidation Account shall be kept in this Account for at least two years.

Out of the Co-operative Societies Liquidation Account such sums may be transferred to the Central Co-operative

Fund, or applied generally for the furtherance of co-operative principles in such manner, as the Minister may

determine from time to time.

During the year, the Co-operative issued 1,073 million membership shares, at par value of $1 each, as consideration for

the acquisition of investment properties and a subsidiary, as well as arising from conversion of shareholders’ and term

loans to membership shares.

Capital risk management policies and objectives

The Co-operative manages its capital to ensure that it will be able to continue as going concern and invests in quality

assets at a fair rate of return and largely capital protected. The Co-operative makes adjustments to its capital structure,

taking into account changes in economic conditions. To maintain or adjust the capital structure, the Co-operative may

adjust the dividend payment to shareholders and return capital to shareholders.

The Group and the Co-operative’s overall strategy remains unchanged during the year.

16 Other reserves

Group Co-operative

2017 2016 2017 2016

$’000 $’000 $’000 $’000

Capital reserve 366,539 176,433 365,139 176,433

Asset replacement reserve 23,717 8,752 – 1,540

Hedging reserve (38) – (38) –

390,218 185,185 365,101 177,973

Capital reserve

Capital reserve emerged from the:

(i) acquisition of investments properties in relation to the property restructuring exercise during the financial year

ended 31 December 2017;

(ii) acquisition of subsidiary under common control during the year ended 31 December 2017.

Asset replacement reserve

In 2016, the asset replacement reserve was established to meet the replacement and renewal expenses for building, plant

and equipment owned and managed by the Group.

Group Co-operative

2017 2017

$’000 $’000

Balance as at 1 January 8,752 1,540

Transfer from/(to) accumulated profits/(losses) 14,965 (1,540)

Balance as at 31 December 23,717 –

Available for use 23,717 –


NOTES TO THE


16 Other reserves (Continued)

Hedging reserve

The hedging reserve comprises the effective portion of the cumulative net change in the fair value of hedging instruments

used in cash flow hedges pending subsequent recognition in profit or loss as the hedged cash flows or items affect profit

or loss.

17 Revenue

Group Co-operative

2017 2016 2017 2016

$’000 $’000 $’000 $’000

Rental income from investment properties 184,893 71,751 222 51,960

Carpark income 3,469 2,982 – 2,469

Advertising and promotion income 5,111 2,413 – 2,310

193,473 77,146 222 56,739

18 Other income

Group Co-operative

2017 2016 2017 2016

$’000 $’000 $’000 $’000

Management fee income 3,162 461 13,323 555

Recovery of staff costs – – 3,396 –

Leasing commission fee income – – – 172

Others 9,253 4,448 129 3,285

12,415 4,909 16,848 4,012

19 Other expenses

Included in other expenses are as follows:

Group Co-operative

2017 2016 2017 2016

$’000 $’000 $’000 $’000

Utilities 8,208 5,988 – 4,391

Marketing expenses 3,059 1,747 – 1,657

Administrative expenses 6,300 4,948 4,042 4,177

Staff costs 11,836 6,064 2,384 6,064

Included in staff costs:

– Defined contribution plans 1,086 975 213 975

Key management personnel

– Employee benefits 1,770 1,055 1,770 1,055

Direct operating expenses arising from rental generating investment properties, including repairs and maintenance, that

are included in other operating expenses amount to $16 million (2016: $7 million).


NOTES TO THE


20 Finance income and Finance costs

Finance income

Group Co-operative

2017 2016 2017 2016

$’000 $’000 $’000 $’000

Interest income:

– Fixed deposits and bank balances 349 166 60 165

– Interest income on shareholder’s loans – – 107,723 16,355

– Others 71 19 1 15

420 185 107,784 16,535

Finance costs

Group Co-operative

2017 2016 2017 2016

$’000 $’000 $’000 $’000

Interest expense:

– Term loan from a shareholder – 5,694 – 5,694

– Shareholders’ loan – 29,140 – 29,140

– Bank loans 29,624 9,221 20,226 9,221

– Medium Term Notes 2,439 – 2,439 –

32,063 44,055 22,665 44,055

21 Income tax expense

Group

2017 2016

$’000 $’000

Current tax

Under provision in respect of previous year 2 6

Reconciliation of effective tax rate

Profit before tax and contributions 82,116 7,954

Share of results of joint venture (19,226) (19,568)

62,890 (11,614)

Tax calculated using Singapore tax rate of 17% 10,691 (1,974)

Exempt income* (10,732) 1,874

Non-deductible expenses 41 100

Under provision in respect of previous year 2 6

2 6

* The income of any co-operative society registered under the Co-operative Societies Act, Chapter 62 is exempted from income tax under

Section 13 (1)(f)(ii) of the Singapore Income Tax Act, Chapter 134.


NOTES TO THE


22 Contributions to Central Co-operative Fund and Singapore Labour Foundation

In accordance with Section 71(2)(a) of the Act, the Co-operative and the co-operatives in the Group are required

to contribute 5% of the first $0.5 million of its surplus resulting from the operations during the year to the Central

Co-operative Fund.

In accordance with Section 71(2)(b) of the Act, the Co-operative and the co-operatives in the Group may opt to contribute

20% of the surplus (excluding capital gains arising from the disposal of any office premises and shares) in excess of

$0.5 million from the operations of the co-operatives to either Central Co-operative Fund or to the Singapore Labour

Foundation (“SLF”).

23 Commitments

As at the reporting date, the following are the outstanding commitments which have not been provided in the financial

statements:

(i) Capital commitment

Capital expenditure contracted at the end of the reporting period but not recognised in the financial statements

relate to purchase of certain property, plant and equipment of the Group amounting to $2 million (2016: $27

million).

(ii) Operating lease commitments

(a) Leases as lessee

The Group and the Co-operative lease its office under a lease agreement which is non-cancellable. Future

minimum lease payments with initial or remaining terms of two years are as follows:

Group Co-operative

2017 2016 2017 2016

$’000 $’000 $’000 $’000

Within one year 285 236 243 236

Between one and five years 42 239 – 239

327 475 243 475

(b) Leases as lessor

The Group and the Co-operative lease out investment properties in Singapore under operating leases.

Future minimum lease payments under non-cancellable leases receivable are as follows:

Group Co-operative

2017 2016 2017 2016

$’000 $’000 $’000 $’000

Within one year 210,304 80,166 – 39,850

Between one and five years 312,885 113,903 – 21,853

More than five years 153,545 153,639 – –

676,734 347,708 – 61,703


NOTES TO THE


23 Commitments (Continued)

(ii) Operating lease commitments (Continued)

(b) Leases as lessor (Continued)

Share of joint venture’s operating lease commitments in relation to investment property is as follows:

Group

2017 2016

$’000 $’000

Within one year 53,527 49,760

Between one and five years 55,006 74,776

More than five years – 7,079

108,533 131,615

24 Financial risk management

Overview

The Group has exposure to the following risks from its activities:

• credit risk;

• liquidity risk; and

• interest rate risk.

This note presents information about the Group’s exposure to each of the above risks, and the Group’s objectives, policies

and processes for measuring and managing the risk.

Risk management framework

The Group’s overall risk management strategy seeks to minimise adverse effects from the volatility of financial markets

on the Group’s financial performance.

The Board of Directors of the Co-operative are responsible for setting the objectives and underlying principles of financial

risk management for the Group. The management then establishes the detailed policies such as authority levels, oversight

responsibilities, risk identification and measurement, and exposure limits, in accordance with the objectives and underlying

principles approved by the Board of Directors.

There has been no change to the Group’s exposure to these financial risks or the manner in which it manages and

measures the risk.

(i) Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to

meet its contractual obligations, and arises principally from the Group’s loans and receivables. The Group has a

credit policy in place which establishes credit limits for tenants and monitor their balances on an ongoing basis.

Credit evaluation are performed on all tenants requiring credit over a certain amount.

The carrying amounts of trade and other receivables and cash and cash equivalents represent the Group’s and

the Co-operative’s maximum exposure to credit risk. Cash and cash equivalents are placed in banks and financial

institutions which are regulated.


NOTES TO THE


24 Financial risk management (Continued)

Risk management framework (Continued)

(i) Credit risk (Continued)

The Group and the Co-operative have no significant concentration of credit risk, except for the loan to a subsidiary

payable to the Co-operative.

The ageing analysis of the trade and other receivables, excluding prepayments and advances, at the reporting

date is as follows:

Group Co-operative

2017 2016 2017 2016

$’000 $’000 $’000 $’000

Not past due 15,486 1,071 3,919,268 1,020,485

Past due 0 – 30 days 1,269 1,039 – 118

Past due 31 – 120 days 170 1,254 – 368

16,925 3,364 3,919,268 1,020,971

Impairment losses

The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of

trade and other receivables. Based on historical default rates, the Group believes that no impairment allowance is

necessary in respect of trade receivables due to the good payment records with the Group.

(ii) Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its

financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing

liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due,

under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the

Group’s reputation.

The following are the contractual maturities of financial liabilities, including estimated interest payments and

excluding the impact of netting agreements:

Carrying

amount

Contractual

cash flows

Cash flows

Within 1 year 1 to 5 years

$’000 $’000 $’000 $’000

Group

2017

Non-derivative financial liabilities

Trade and other payables* 99,962 (99,962) (67,606) (32,356)

Loans and borrowings# 2,508,038 (2,738,903) (226,875) (2,512,028)

2,608,000 (2,838,865) (294,481) (2,544,384)


NOTES TO THE




(ii) Liquidity risk (Continued)

Carrying

amount

Contractual

cash flows

Cash flows

Within 1 year 1 to 5 years

$’000 $’000 $’000 $’000

Group

2016



Shareholders’ loans 448,313 (477,453) (477,453) –

Loans and borrowings 463,875 (483,554) (123,273) (360,281)

972,639 (1,021,458) (646,364) (375,094)

Co-operative

2017


Trade and other payables* 390,993 (390,993) (390,993) –

Loans and borrowings# 2,158,038 (2,383,098) (46,453) (2,336,645)

2,549,031 (2,774,091) (437,446) (2,336,645)

2016



Shareholders’ loans 448,313 (477,453) (477,453) –

Loans and borrowings 463,875 (483,554) (123,273) (360,281)

963,107 (1,011,926) (642,738) (369,188)

* Excludes advance rental billings and interest rate swap

# The contractual cashflows are net of the impact of interest rate swap

Market risk – Cash flow and interest rate risks

Market risk is the risk that changes in market prices will affect the Group’s profit or loss, or the value of its holdings

of financial instruments. The objective of market risk management is to manage and control market risk exposures

within acceptable parameters.

Interest rate risk

The Group seeks to maintain an efficient and optimal interest cost structure using a mix of fixed and variable rate

instruments. The Group’s exposure to cashflow interest rate risks arises mainly from variable-rate bank borrowings.

The Group manages these cashflow interest rate risks using floating-to-fixed interest rate swaps.

Where used, interest rate derivatives are classified as cash flow hedge and stated at fair value within the Group’s

statement of financial position.


NOTES TO THE




(ii) Liquidity risk (Continued)

Interest rate risk (Continued)

At the reporting date, the profile of the variable interest-bearing financial instruments is as follows:


Carrying amount Carrying amount

2017 2016 2017 2016

$’000 $’000 $’000 $’000

Variable rate instruments

Cash at bank 11 104,931 70,471 36,737 36,009

Loans and borrowings^ 13 (1,458,000) – (1,458,000) –

(1,353,069) 70,471 (1,421,263) 36,009

^# Excludes the $50 million term loan which is hedged by the interest rate swap

Cash flow hedge

During the financial year, the Group has hedged its exposure to changes in interest rates of its variable rate

borrowings by entering into an interest rate swap with notional contract amount of $50 million (2016: nil) whereby

it receives variable rates equal to the Singapore swap offer rate on the notional amount and pays fixed interest

rate of 1.55% (2016: nil) per annum. The hedge will be in place for a 3 year tenure to year 2020.

Cash flow sensitivity analysis

The Group’s borrowings at variable rates on which effective hedges have not been entered into are denominated

in Singapore Dollars. If the Singapore Dollar interest rates increase/decrease by 0.5% with other variables held

constant, the profit/(loss) before tax and contributions will increase/(decrease) by the amounts as follows.

Profit/(Loss) before tax and contributions

2017 2016

Increase by Decrease by Increase by Decrease by

0.5% 0.5% 0.5% 0.5%

$’000 $’000 $’000 $’000

Group

Variable rate instruments (6,765) 6,765 352 (352)

Co-operative

Variable rate instruments (7,106) 7,106 (180) 180


NOTES TO THE




(iii) Determination of fair values

A number of the Group’s accounting policies and disclosures require the determination of fair value, for both

financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or

disclosure purposes based on the following methods. When applicable, further information about the assumptions

made in determining fair values is disclosed in the notes specific to that asset or liability.

Unquoted debt securities

The Group establishes fair value of unquoted debt securities by using other valuation techniques. Subsequent

to initial recognition, the fair value of held-to-maturity investments is determined for disclosure purposes only.

Loans and borrowings

Fair values are calculated based on discounted expected future principal and interest cash flows at the market

rate of interest at the reporting date.

Other financial assets and liabilities

The carrying amounts of financial assets and liabilities with maturity of less than one year (including trade and

other receivables, cash and cash equivalents, rental deposits, trade and other payables and shareholders’ loans)

are assumed to approximate their fair values because of the short period to maturity. All other financial assets and

liabilities are discounted to determine their fair values.

(iv) Fair value hierarchy

The table below analyses fair value measurements for financial assets and financial liabilities, by the levels in the

fair value hierarchy based on the inputs to valuation techniques. The different levels are defined as follows:

• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or

liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable

inputs).


NOTES TO THE




(iv) Fair value hierarchy (Continued)

Assets and liabilities not carried at fair value but for which fair values are disclosed

Level 1 Level 2 Level 3 Total

$’000 $’000 $’000 $’000

Group

31 December 2017

Held-to-maturity investments – – 455,000 455,000

Loans and borrowings – – (2,508,000) (2,508,000)

31 December 2016

Loans and borrowings – – (463,875) (463,875)

Co-operative

31 December 2017

Loans and borrowings – – (2,158,000) (2,158,000)

31 December 2016

Loans and borrowings – – (463,875) (463,875)

During the financial year, there is no transfer of financial assets between Level 1 and 2 and in and out of Level 3

of the fair value hierarchy.

Level 3 fair values

The following table shows the valuation techniques used in measuring Level 3 fair values.

Type

Fair value

Valuation technique$’000

Group

2017

Loans and borrowings 2,483,060 Discounted cash flows

Held-to-maturity investments 463,162 Discounted cash flows

2016

Loans and borrowings 461,901 Discounted cash flows

Co-operative

2017

Loans and borrowings 2,144,310 Discounted cash flows

2016

Loans and borrowings 461,901 Discounted cash flows


NOTES TO THE





Accounting classifications and fair values

Fair values versus carrying amounts

The fair values of financial assets and liabilities, together with the carrying amounts shown in the statement of

financial position, are as follows:

Loans and

receivables

Fair value-

hedging

instruments

Other

financial

liabilities Total Fair value

$’000 $’000 $’000 $’000 $’000

Group

2017

Financial assets

Trade and other receivables 16,925 – – 16,925 16,925

Cash and cash equivalents 156,941 – – 156,941 156,941

Held-to-maturity investments 455,000 – – 455,000 463,162

628,866 – – 628,866 637,028

Financial liabilities

Trade and other payables* – – 99,962 99,962 99,962

Interest rate swaps used for hedging – 38 – 38 38

Loans and borrowings – – 2,508,000 2,508,000 2,483,060

– 38 2,607,962 2,608,000 2,583,060

2016

Financial assets

Trade and other receivables 3,364 – – 3,364 3,364


99,163 – – 99,163 99,163



Shareholders’ loans – – 448,313 448,313 448,313

Loans and borrowings – – 463,875 463,875 461,901

– – 972,639 972,639 970,665


NOTES TO THE





Accounting classifications and fair values (Continued)

Fair values versus carrying amounts (Continued)

Loans and

receivables

Fair value-

hedging

instruments

Other

financial

liabilities Total Fair value

$’000 $’000 $’000 $’000 $’000

Co-operative

2017

Financial assets

Trade and other receivables 3,919,268 – – 3,919,268 3,919,268


3,988,015 – – 3,988,015 3,988,015



Interest rate swaps used for hedging – 38 – 38 38

Loans and borrowings – – 2,158,000 2,158,000 2,182,187

– 38 2,548,993 2,549,031 2,573,218

2016

Financial assets

Trade and other receivables – 1,020,971 – 1,020,971 1,020,971

Cash and cash equivalents – 61,337 – 61,337 61,337

– 1,082,308 – 1,082,308 1,082,308



Shareholders’ loans – – 448,313 448,313 448,313

Loans and borrowings – – 463,875 463,875 461,901

– – 963,107 963,107 961,133

* Excludes advance rental billings, interest rate swap and includes rental deposits


NOTES TO THE


25 Related party transactions

Parties are considered to be related if one party has the ability to control the other party or exercise significant influence

over the other party in making financial and operating decisions.

Related party transactions

In addition to the transactions disclosed elsewhere in the financial statements, the following significant related party

transactions were incurred based on terms as agreed between the parties during the financial year:

Group Co-operative

2017 2016 2017 2016

$’000 $’000 $’000 $’000

Rental, advertising and promotion income

from related entities included in revenue 47,045 14,802 12 9,707

Management fee income from related

entities included in other income 159 461 16,754 461

Rental and affiliation expenses to related

entities included in administrative expenses (260) (182) (258) (180)

Management fees and group wide

programme fee paid to related entities

included in other operating expenses (2,172) (1,587) (1,533) (1,165)

26 Subsequent events

On 2 January 2018, the Co-operative acquired a further 12.7% interest in its subsidiary, NTUC Choice Homes Co-operative

Limited (“NCH”) from its shareholder, NTUC Fairprice Co-operative Limited (“FP”), at a consideration of $59 million. The

consideration was satisfied by way of an issuance of 39 million shares in the Co-operative to FP.

On 19 January 2018, the Co-operative issued $150 million notes at 3.1% fixed coupon rate under its existing $1,000

million Multicurrency Medium Term Note Programme (“MTN”). The $150 million notes will mature in 2028 and interest is

repayable semi-annually on the date of issue. The proceeds from the notes were used to part repay a fixed rate bank loan

of $100 million and revolving credit facility of $50 million on 26 January 2018 and 29 January 2018 respectively.

On 26 January 2018, a fixed rate bank loan of $175 million was part repaid from the MTN proceeds of $100 million and

the remaining balances was repaid through internal resources.

27 New standards and interpretations not yet effective

A number of new standards and amendments to standards are effective for annual periods beginning after 1 January 2017

and earlier application is permitted; however, the Group has not early applied the following new or amended standards

in preparing these statements.

The following standards are expected to have a material impact on the Group’s financial statements in the period of

initial application.


NOTES TO THE


27 New standards and interpretations not yet effective (Continued)

Applicable to 2018 financial statements

FRS 109 Financial instruments

FRS 109 replaces most of the existing guidance in FRS 39 Financial Instruments: Recognition and Measurement. It includes

revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for

calculating impairment on financial assets, and new general hedge accounting requirements. It also carries forward the

guidance on recognition and derecognition of financial instruments from FRS 39.

FRS 109 is effective for annual periods beginning on or after 1 January 2018, with early adoption permitted. Retrospective

application is generally required, except for hedge accounting. For hedge accounting, the requirements are generally

applied prospectively, with some limited exceptions. Restatement of comparative information is not mandatory. If

comparative information is not restated, the cumulative effect is recorded in opening equity as at 1 January 2018.

The revised guidance on the classification and measurement of financial instruments, a new expected credit loss model

for calculating impairment on financial assets of FRS 109 that would have an impact on the Co-operative, with effect from

annual periods beginning on or after 1 January 2018, are as described below.

Classification and measurement – The Group does not expect a significant change to the measurement basis arising

from adopting the new classification and measurement model under FRS 109. Loans and receivables that are currently

accounted for at amortised cost will continue to be accounted for using amortised cost model under FRS 109. Debt

instruments currently classified as held-to-maturity and measured at amortised cost which meet the conditions for

classification at amortised cost under FRS 109. New hedge accounting requirements are applied prospectively. All hedging

relationships designated under FRS 39 Financial Instruments: Recognition and Measurement at 31 December 2017 that meet

the criteria for hedge accounting under FRS 109 at 1 January 2018 will be regarded as continuing hedging relationships.

Impairment – The Group plans to apply the simplified approach and record lifetime expected impairment losses on all

trade receivables and cash at bank. The Group does not expect significant financial impact on adoption of FRS 109 and

impairment losses are likely to be insignificant. The Group is currently finalising the testing of its expected credit loss

model and the quantum of the final transition adjustments may be different upon finalisation.

Applicable to financial statements for the year 2019 and after

The following new FRS, amendments to and interpretations of FRS are effective for annual periods beginning after 1

January 2018:

• FRS 116 Leases

FRS 116 Leases

FRS 116 eliminates the lessee’s classification of leases as either operating leases or finance leases and introduces a single

lessee accounting model. Applying the new model, a lessee is required to recognise right-of-use (ROU) assets and lease

liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value.


NOTES TO THE


27 New standards and interpretations not yet effective (Continued)

Applicable to financial statements for the year 2019 and after (Continued)

FRS 116 Leases (Continued)

FRS 116 substantially carries forward the lessor accounting requirements in FRS 17 Leases. Accordingly, a lessor continues

to classify its leases as operating leases or finance leases, and to account for these two types of leases using the FRS 17

operating lease and finance lease accounting models respectively. However, FRS 116 requires more extensive disclosures

to be provided by a lessor.

When effective, FRS 116 replaces existing lease accounting guidance, including FRS 17, INT FRS 104 Determining whether

an Arrangement contains a Lease, INT FRS 15 Operating Leases – Incentives, and INT FRS 27 Evaluating the Substance of

Transactions Involving the Legal Form of a Lease.

FRS 116 is effective for annual periods beginning on or after 1 January 2019, with early adoption permitted if FRS 115 is

also applied.

The Group has performed a preliminary high-level assessment of the new standard on its existing operating lease

arrangements as a lessee (refer to Note 23). Based on the preliminary assessment, the Group does not expect significant

financial impact on the adoption of FRS 116.



No. 1 Marina Boulevard

#15-07/08 One Marina Boulevard

Singapore 018989

T: +65 6213 8001

F: +65 6438 4506

www.mercatus.com.sg

Documents

POSITIONING FOR GROWTH - Mercatus...POSITIONING FOR GROWTH 01 About Mercatus Co-operative Limited 02 Historical Milestones 03 Business Strategy 04 Chairman’s Message 06 Highlights