10 FINANCIAL DERIVATIVES Group and Trust 2024 2023 US$’000 US$’000 Current Derivative assets Interest rate swaps used for hedging 2,706 2,584 Non-current Derivative assets Interest rate swaps used for hedging 11,956 30,682 14,662 33,266 Financial derivatives as a percentage of the Group’s net assets 3.4% 5.5% Financial derivatives as a percentage of the Trust’s net assets 3.4% 5.5% The Group has entered into interest rate swaps to manage its exposure to interest rate movements on its floating rate interest-bearing borrowings by swapping the interest expense on these borrowings from floating rates to fixed rates. As at the reporting date, the notional principal amount of the financial instruments was US$380.0 million (2023: US$708.0 million). The changes in fair value of the interest rate swaps are recognised in profit or loss for the financial year. Offsetting financial assets and financial liabilities The Group entered into derivative transactions under International Swaps and Derivatives Association (“ISDA”) master netting agreements. In general, under such agreements, the amounts owed by each counterparty on a single day in respect of all transactions outstanding in the same currency are aggregated into a single net amount that is payable by one party to the other. In certain circumstances – e.g. when a credit event such as a default occurs, all outstanding transactions under the agreement are terminated, the termination value is assessed and only a single net amount is payable in settlement of all transactions. The above ISDA agreements do not meet the criteria for offsetting in the Statements of Financial Position. This is because they create a right of set-off of recognised amounts that is enforceable only following an event of default, insolvency or bankruptcy of the Group or the counterparties. In addition, the Group and its counterparties do not intend to settle on a net basis or to realise the assets and settle the liabilities simultaneously. 174 | MANULIFE US REIT NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2024
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