ALE Property Group
Annual Report 2004

Plain-text annual report

A L E P R O P E R T Y G R O U P A N N U A L R E P O R T J U N E 2 0 0 4 welcome ALE PROPERTY GROUP ANNUAL REPORT JUNE 2004 welcome welcome we welcome you to ALE Property Group’s first Annual Report corporate directory REGISTERED OFFICE Level 8, 15-19 Bent Street Sydney NSW 2000 Telephone (02) 8231 8588 LAWYERS Allens Arthur Robinson 2 Chifley Square Sydney NSW 2000 AUDITORS PricewaterhouseCoopers 201 Sussex Street Sydney NSW 2000 CUSTODIAN (OF AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY TRUST) Trust Company of Australia Limited Level 4, 35 Clarence Street Sydney NSW 2000 TRUSTEE (OF AUSTRALIAN LEISURE AND ENTERTAINMENT DIRECT PROPERTY TRUST) Permanent Trustee Company Limited Level 4, 35 Clarence Street Sydney NSW 2000 REGISTRY Computershare Investor Services Pty Ltd Reply Paid GPO Box 7115 Sydney NSW 2000 Level 3, 80 Carrington Street Sydney NSW 2000 Telephone 1300 302 429 Pelican Waters Hotel, Qld (also featured on cover) Breakfast Creek Hotel, Qld New Brighton Hotel, NSW DESIGNED AND PRODUCED BY ROSS BARR AND ASSOCIATES contents profile of ALE 1 our results 2 our key attributes 4 our objectives 6 our relationship with ALH 8 chairman’s message 9 CEO’s review – our quality portfolio 10 our board 18 corporate governance 19 financials 21 corporate directory inside back cover 1 ALE Property Group ALE Property Group has been established as part of the divestment by Foster’s Group Limited of its hotel operations business. ALE Property Group has acquired a portfolio of pubs located throughout the five mainland States of Australia. Each pub in the portfolio is leased to Australian Leisure & Hospitality Group Limited (ALH) for an initial term of 25 years with four 10-year options to renew. Under the leases, ALH is responsible for all of the regular outgoings, including insurance, maintenance and repairs. 2 welcome we have a solid and stable business which has exceeded prospectus forecasts Net Profit Change for June 2004 ($m) +0.49 3.90 +0.22 +0.08 +0.43 +0.89 1.79 i i i I i 4 0 0 2 e n u J t i f o r P e m o c n t e N t s a c e r o F s g n v a S s t s o C s g n v a S r e h t O s g n v a S x a T d n a L s g n v a S s t s o C g n w o r r o B re k n a B d e s a e r c n t n e m e g a n a M t i f o r P t e N t s e r e t n a u t c A 0 3 I i I l 3 highlights of our strong results • Net Profit $3.90m versus $1.79m prospectus forecast • Earnings before amortisation up 33.2% to $7.97m • Distribution increased from 6.6 cents to 7.5 cents per stapled security • Portfolio revalued to $576.66m (as at 30 June 2004), 7.6% above the November 2003 purchase price • Net Assets per stapled security up 41% from $1.00 to $1.41 sults 4 welcome we have unique characteristics fea 5 some of our key attributes • Our portfolio comprises 105 pub properties across 5 Australian states • All of our properties are leased to ALH for 25 years with options out to 65 years • We are the largest freehold owner of licensed premises in Australia • Distributions are expected to be 100% tax deferred until 2006 • Our borrowings are fully hedged to 2008 pub trust in Australia • We were the first stock exchange listed tures 6 welcome we aim to grow our quality portfolio to build security holder value obje 7 our main objectives • To provide our stapled security holders with a secure and growing distribution • To preserve the quality of the property portfolio and the security of the existing lease covenant • To make acquisitions of quality property with secure lease income that provides an attractive yield ctives 8 welcome we have a unique relationship with ALH, our sole tenant ALE Stapled Security Holders ALH Share Holders ALE Property Group listed property group leases ALH Group Limited listed operating company supply agreements Foster’s Group Limited ALE Property Group (ALE) and Australian Leisure & Hospitality Group Limited (ALH) were formed through the divestment by Foster’s Group Limited (Fosters) of its hotel operations business. In November 2003, ALE purchased from Fosters 98 pubs and entered into conditional contracts to acquire seven pubs under development. Three of those pubs have since been completed, with freehold title being transferred to ALE. Fosters has an obligation to complete all redevelopments underway at the time of the sale, but otherwise retains no operational relationship with ALE. ALH is ALE’s tenant and is responsible for operations. Subject to ALE’s right of approval, ALH has the exclusive right to develop ALE properties and to retain the proceeds from those developments. ALH has an ongoing supply agreement with Fosters. 9 On behalf of your Board, it is my pleasure to report on the performance of ALE Property Group (ALE) since the listing on 12 November 2003 through to 30 June 2004. The first eight months have been profitable for ALE. We exceeded all PDS/Prospectus (PDS) forecasts, and achieved a net profit of $3.9 million, which is $2.1 million higher than anticipated. This performance has allowed us to increase our profit before amortisation to $7.97 million and our distribution to $6.81 million or 7.5 cents per security. The increased distribution takes into account the positive results which are expected to be sustained into the future. ALE has a quality portfolio of 105 pubs that includes icon hotels such as the The Young and Jackson, Sail and Anchor and the Breakfast Creek Hotel. We have one tenant, Australian Leisure Hospitality Group (ALH), and enjoy 100% occupancy and 25-year leases. Whilst ALE is the owner of the properties, our tenant is responsible for operations and for payment of all regular outgoings except Queensland land tax. The quality of the business and secure income flow has allowed us to structure an innovative funding arrangement. The support shown by investors for ALE’s Initial Public Offer (IPO) and debt raising was very pleasing with both the equity and the debt offerings oversubscribed. We have continued to enjoy ongoing positive performance in the price of both the stapled securities and the ALE Notes, with the ALE stapled security price consistently outperforming all ASX/S&P Property Indexes since listing. ALE has built a small but strong executive team with Andrew Wilkinson as CEO. Andrew was previously a corporate finance partner with PricewaterhouseCoopers where he specialised in providing financial and strategic advice on significant property and infrastructure projects. Andrew is supported by Darren Barkas as Property Trust Manager, Brendan Howell as Company Secretary and Compliance Officer and Lori Hamilton-Barrett as Executive Assistant. The Board is pleased with what has been achieved in its first eight months of operation. The management team has, amongst other achievements, established management processes, developed relationships with a number of key external parties and raised the profile of ALE in the financial markets. We commend the management team on their performance to date. It has been a priority of the Board to develop Corporate Governance Guidelines for the business. We have established an Audit, Compliance and Risk Management Committee and developed guidelines for Board practice and Group reporting. Further information on Corporate Governance appears later in this report and can also be found on the ALE internet site at www.alegroup.com.au We continue to consciously observe the developments of the Bruandwo Pty Limited takeover offer for our tenant ALH. Whilst our agreements with ALH remain on foot in the event of such a takeover, we will continue to keep you updated. ALE expects continued solid performance. Our hedged interest rates and long term leases allow us to enjoy strong returns even in an environment of rising interest rates and any property sector uncertainty. We currently anticipate that distributions for the next two years will continue to be higher than those forecast in the PDS. On behalf of my fellow Directors, I thank you for your support of ALE. Peter Warne, Chairman chairman’s message 10 management team Andrew Wilkinson Chief Executive Officer Darren Barkas Property Trust Manager Brendan Howell Company Secretary Andrew has 25 years experience in banking and corporate finance. Previously a corporate finance partner with PricewaterhouseCoopers, Andrew specialised in providing financial and strategic advice on significant property and infrastructure projects and was one of the founding members of NSW Government’s Infrastructure Council. Andrew’s career also includes 15 years in finance and investment banking with organisations including ANZ Capel Court and Schroders where he was involved in leading the financing arrangements for a range of major projects. Andrew has a Bachelor of Business degree from the University of Technology, Sydney. Darren has 18 years of accounting, taxation and financial management experience and joined ALE from the property finance division of AMP Capital Investors. During his seven years at AMP, Darren was responsible for a range of accounting, financial reporting, taxation and general financial management functions in roles that covered a number of AMP’s listed and unlisted property trusts. Darren has a Bachelor of Commerce degree from the University of Wollongong, a Graduate Diploma in Applied Finance and Investment from the Securities Institute of Australia and is a Certified Practicing Accountant (CPA). Brendan has 14 years experience in the funds management industry. Brendan has a property and accounting background and has held senior positions with a leading Australian trustee company administering listed and unlisted property trusts. For the past six years Brendan has been directly involved with MIA Services Pty Limited, a company which specialises in funds management compliance, and acts as an independent consultant and external compliance committee member for a number of property, equity and infrastructure funds managers. Brendan also acts as an independent director for several unlisted public companies, some of which act as responsible entities. Brendan has a Bachelor of Economics from the University of Sydney and a Graduate Diploma in Applied Finance and Investment from the Securities Institute of Australia. ANDREW WILKINSON DARREN BARKAS BRENDAN HOWELL 11 • Interest income – efficient budgeting and cash management procedures have been applied to deliver a material amount above the PDS forecast of interest income. Throughout the period, between $8 million and $18 million of free cash was held on term deposit to provide ALE with liquidity and to support modest acquisition opportunities. • Management costs – our approach has been to establish a management team with a focus on the core activities of our business. This is supplemented, as required, with external advisory and contracting capabilities. As a result, our management costs are 23% below the PDS forecast. Our management expenses as a percentage of assets are 0.5%, well below the 0.7% average for the Australian listed property trust sector. • Land tax – our land tax expense was 29% below the PDS forecast. Seven of our properties were still in development during the first eight months and as a result the commencement of our land tax expenses on these properties was delayed. The above initiatives provided the material elements of the $2.1 million net profit improvement over and above that forecast in the PDS. While the interest savings are expected to be sustainable over the next four years, the extent of the other cost savings will be determined over time as the trust grows beyond its existing portfolio. Blacktown Inn Hotel 80 Blacktown Road, Blacktown, NSW Brown Jug Hotel 47 Stanbrook Parade, Fairfield, NSW Colyton Hotel 12 Great Western Highway, St Mary’s, NSW Crows Nest Hotel 1 – 3 Willoughby Road, Crows Nest, NSW Kirribilli Hotel 37 Broughton Street, Milson’s Point, NSW Melton Hotel 163 Parramatta Road, Auburn, NSW Narrabeen Sands 1260 Pittwater Road, Narrabeen, NSW New Brighton Hotel 71 The Corso, Manly, NSW Parkway Hotel 5 Frenchs Forest Road, Frenchs Forest, NSW Pioneer Tavern Cnr Maxwell Street and The Northern Road, Penrith, NSW Pymble Hotel 1134 Pacific Highway, Pymble, NSW Smithfield Hotel 671 The Horsley Drive, Smithfield, NSW Albany Creek Tavern Cnr Old Northern and Albany Creek Roads, Albany Creek, Qld Albion Hotel 300 Sandgate Road, Albion, Qld Alderley Arms Hotel 2 Samford Road, Alderley, Qld Anglers Arms Hotel 50 Queens Street Southport, Qld Balaclava Hotel 423 Mulgrove Road, Cairns (Earlville), Qld Breakfast Creek Hotel 2 Kingsford Smith Drive, Breakfast Creek, Qld I am pleased to report to you on ALE’s first eight months of operation. During this time we have implemented organisational systems and procedures, formed a management team and developed a strong working relationship with our tenant ALH. Through all of this we have remained focussed on maximising returns for our stapled security holders and I am delighted to report a net profit of $3.9 million, substantially higher than forecast in the PDS issued at the time of the IPO. DRIVING OUR PROFIT PERFORMANCE Our operational focus will continue to be the enhancement of security holder value through the improvement in both the quantum and quality of earnings and minimisation of our expenses. In the period to 30 June 2004, this has been achieved in the following key areas: • Interest expense – Our fully hedged weighted average interest rate established at IPO was 6.524% which was below the lower end of the indicative range in the PDS. Interest and other fee savings have a positive impact on distributable earnings over the period to November 2008 of around $1.2 million per year. Management will continue to work to identify opportunities where interest hedging and savings may be achieved beyond 2008. CEO’s report Burleigh Heads Hotel 4 The Esplanade, Burleigh Heads, Qld Caloundra Hotel 12 Bulcock Street, Caloundra, Qld Camp Hill Hotel 724 Old Cleveland Road, Camp Hill, Qld Chardons Corner Hotel 688 Ipswich Road, Annerly, Qld Dalrymple Hotel 310 Bayswater Road, Garbutt, Qld Edge Hill Tavern (formerly the Newmarket Hotel) 145 – 147 Pease Street, Manoora, Cairns, Qld Edinburgh Castle Hotel 421 Gympie Road, Kedron, Qld Ferny Grove Tavern 1348 Samford Road, Ferny Grove, Qld Albany Creek Tavern, Qld 12 PROPERTY PORTFOLIO VALUATION We were pleased to announce to the market in August 2004 that the value of our portfolio had increased by 7.6% to $576.7 million as at 30 June 2004. This was an increase of $40.5 million over our November 2003 cost inclusive purchase price of $536.2 million. It also compared favourably to the $568.6 million valuation at August 2003. The valuation was completed by Jones Lang LaSalle Hotels and in accordance with our policy of having one third of our portfolio independently valued each year, 35 properties were revalued. The average capitalisation rate of the revalued properties improved from the November 2003 purchase price rate of 8.24% to 7.63% as at 30 June 2004. This result compares favourably with the cap rate in the IPO valuation of 7.77%. The independent valuation of the sample was then extrapolated to the balance of the portfolio by applying it to the same aggregate market movement on a state by state basis. Burleigh Heads Hotel, Qld Artist’s impression Racehorse Hotel, Qld Artist’s impression new developments Based upon the portfolio purchase price of $536.2 million, net assets for the group stood at $1.00 per security at the time of listing. At year end following the revaluation and our operating result, our net assets had increased to $1.41 per stapled security. DEVELOPMENT PROPERTIES At the time of our listing on the ASX, ALE held 98 freehold properties on its balance sheet, while seven remained subject to development. During development, ALE earns interest income equivalent to the applicable rent. As at 30 June 2004, ALE had acquired freehold title for three of the seven development properties. These three properties were acquired for a cost inclusive price of $14.8 million and have been revalued to $16.2 million as at 30 June 2004, an increase of 9.5%. The four remaining development properties are estimated to be completed on the following timetable: CALOUNDRA HOTEL, Caloundra, Qld NARRABEEN SANDS, Narrabeen, NSW PARKWAY HOTEL, Frenchs Forest, NSW Dec 2004 Jun 2005 Jun 2006 BURLEIGH HEADS HOTEL, Burleigh Heads, Qld Dec 2006 ALH arranges for third party developers to bear the development risks on ALE properties, including the implications of any cost and time overruns. Since listing, ALH have indicated that they plan to submit development proposals to ALE for two further properties with the following completion dates: RACEHORSE HOTEL, Booval, Qld MIAMI HOTEL, Miami Beach, Qld Mid 2006 Mid 2007 Approval of these proposals will be considered having regard to the lease provisions and the benefits they provide to our stapled security holders. Four Mile Creek 260 Gympie Road, Strathpine, Qld Hamilton Hotel 442 Kingsford Smith Drive, Hamilton, Qld Holland Park Hotel 945 Logan Road, Holland Park, Qld Imperial Hotel 66 – 72 George Street, Beenleigh, Qld Kedron Park Hotel 693 Lutwyche Road, Kedron Park, Qld Kirwan Tavern 154 Thurwingowa Drive, Townsville, Qld Lawnton Tavern 820 Gympie Road, Lawnton, Qld Miami Hotel 2043 – 2047 Gold Coast Highway, Miami, Qld Mount Gravatt Hotel 1315 Logan Road, Mt Gravatt, Qld Mount Pleasant Hotel Malcomson Street, North Mackay, Qld Noosa Reef Hotel Noosa Drive, Noosa Heads, Qld Nudgee Beach Hotel (formerly the Banyo Tavern) Cnr Approach and Nudgee Roads, Nudgee, Qld Oxford 152 152 Oxford Street, Bulimba, Qld Palm Beach Hotel Corner of 1118 Gold Coast Highway and 5th Avenue, Palm Beach, Qld Pelican Waters Hotel Pelican Waters Boulevard, Pelican Waters, Qld Petrie Hotel Dayboro Road, Petrie, Qld Prince of Wales 1154 Sandgate Road, Nundah, Qld Racehorse Hotel 215 Brisbane Road, Booval, Qld Redland Bay Hotel The Esplanade, Redland Bay, Qld Royal Exchange Hotel 10 High Street, Toowong, Qld Springwood Tavern 43 Springwood Road, Springwood, Qld Stones Corner Tavern 346 Logan Road, Stones Corner, Qld Sunnybank Hotel 275 McCullough Street, Sunnybank, Qld The Vale Hotel and Aikenvale Motel (Qld) 222 Ross River Road, (Aikenvale) Townsville, Qld Wilsonton Hotel 40 Richmond Drive, Wilsonton Toowoomba, Qld Woree Tavern Bruce Highway, Woree, Cairns, Qld 13 Breakfast Creek Hotel, Qld 14 New Brighton Hotel, NSW Aberfoyle Hub Tavern The Hub Shopping Centre Taylors Road, Aberfoyle Park, SA 15 Enfield Hotel 184 Hampstead Road, Clearview, SA Eureka Hotel 10 Park Terrace, Salisbury, SA Exeter Hotel 152 Semaphore Road, Exeter, SA Finsbury Hotel 49 Hanson Road, Woodville North, SA Gepps Cross Hotel 560 Main North Road, Blair Athol, SA Hendon Hotel 110 Tapleys Hill Road, Royal Park, SA Stockade Tavern 2 Gawler Street, Salisbury, SA The Ramsgate Hotel 328 Seaview Road, Henley Beach, SA Ashley Hotel 226 Ballarat Road, Braybrook, Vic Bayswater Hotel 780 Mountain Highway, Bayswater, Vic Blackburn Hotel 111 Whitehorse Road, Blackburn, Vic Blue Bell Hotel Howitt Street, Wendouree, Vic Burvale Hotel Cairns 4 Townsville 3 Toowoomba 1 Sunshine Coast 3 Brisbane 25 Gold Coast 4 Perth 3 Sydney 12 Adelaide 9 Ballarat 1 Geelong 1 Shepparton 1 Melbourne 36 Morwell 1 Traralgon 1 INNOVATIVE CAPITAL STRUCTURE In order to maximise the opportunities and minimise the risks of ALE’s capital structure, a conservative policy has been developed in relation to interest rate hedging. ALE’s debt is currently hedged on the following basis: • $330 million of Commercial Mortgage Backed Securities (CMBS) – a combination of fixed rate bonds and hedging through to between November 2008 and November 2010; • $150 million of ALE Notes – fixed rate notes through to September 2011. The maturity of ALE’s debt hedging presently stands at around five years. ALE will continue to adopt a conservative stance by seeking opportunities to extend the hedging further. At any one time we expect to target a forward hedging programme of between three and five years. I am also proud to announce that ALE’s innovative capital structure has been recognised by the financial community with the following two awards: • INSTO Magazine award for the “Innovative Deal of the Year 2003”; • CFO Magazine award for the “Structured Finance Transaction of the Year 2004”. PERFORMANCE FOCUSSED OPERATIONS Establishing ALE’s operations post float has required a significant volume of work. In the first eight months we have: • developed a comprehensive working protocol with ALH, the tenant of our property portfolio; • established and fostered relationships with a range of external organisations with specialist capabilities in finance, valuation, risk management, property maintenance and law; • instituted systems and procedures to ensure high levels of risk management, compliance and reporting; • attracted investment research from leading investment houses; • raised the profile of ALE through the media and by speaking at various investment and financing conferences. All of these activities have been undertaken to ensure an effective operational environment where ALE’s innovation and performance is recognised and understood. Cnr Springvale Road and Burwood Highway, Nunawading, Vic Club Hotel 848 Burwood Highway, Ferntree Gully, Vic Cramers Hotel 1 Cramer Street, Preston, Vic Davey’s Hotel 510 Nepean Highway, Frankston, Vic Deer Park Hotel 760 Ballarat Road, Deer Park, Vic Doncaster Inn Hotel 855 Doncaster Road, Doncaster, Vic Elsternwick Hotel The Young & Jackson Hotel, Vic 259 Brighton Road, Elwood, Vic Eltham Hotel 746 Main Street, Eltham, Vic Ferntree Gully Hotel & Motel 1130 – 2 Burwood Highway, Ferntree Gully, Vic Gateway Hotel 218 – 230 Princes Highway, Corio, Vic The Ramsgate Hotel, SA Keysborough Hotel Cnr Corrigan and Cheltenham Roads, Keysborough, Vic Mac’s Hotel 322 – 332 High Street, Melton, Vic Meadow Inn Hotel 1431 – 1435 Sydney Road, Fawkner, Vic 16 THE BRUANDWO BID FOR ALH Bruandwo Pty Limited, a company jointly owned by Woolworths Limited and The Bruce Mathieson Group, launched a takeover bid for ALH in July 2004. At this time, we would like to highlight our secure position should this takeover succeed: • If there is a change in control of ALH, the terms of ALE’s lease agreements with ALH remain unchanged. • ALH does not have control of, nor the automatic right to acquire, land or property currently owned by ALE. • ALH has the exclusive right to develop the leased premises and to retain the associated proceeds subject to, among other things, ALE being kept whole. ALE will exercise its rights of approval and endeavour to work with ALH to achieve commercial outcomes that are acceptable to both. • Should ALH at any time wish to assign leases to third parties, it is not released from its obligations under the lease. In any assignment we would seek to ensure that any third party had, among other qualities, the financial capacity, business skills and resources to enable it to fulfil ALH’s obligations under the lease. OUTLOOK The outlook for the year to June 2005 is positive. Current expectations are for a CPI increase of between 2.5% and 3.0% for the year ending 30 September 2004. This will be reflected in rental increases commencing November 2004 in accordance with lease terms. With most of ALE’s expenses fixed or managed within a tight range, we expect that a significant proportion of future rental increases will be available for distribution to our stapled security holders. The September CPI result should be announced around the time of our inaugural Annual General Meeting in October 2004, at which point further guidance will be provided. We remind our security holders that growth in distributions is not dependent upon further development or acquisitions. The existing portfolio alone provides a positive earnings outlook. Finally, may I take this opportunity to thank the Board for its guidance and my management team for its dedication to produce what is without doubt an excellent result. Andrew Wilkinson, Chief Executive Officer As developments unfold we will continue to keep security holders informed. PORTFOLIO GROWTH We have established sound foundations, allowing us to take advantage of acquisition opportunities going forward. ALH and ALE have developed a strong relationship and more specifically, a keen understanding of each other’s requirements. ALE owns Australia’s largest portfolio of freehold pub properties and our tenant ALH is Australia’s largest pub operator. We expect to work with ALH to identify portfolio development opportunuties and new property investments. ALE will apply criteria to each acquisition to ensure that the quality of the existing portfolio is maintained, and where possible, improved upon. We will also selectively consider other property investments where some or all the following features are present: • Long term CPI indexed lease. • Tenant with sustainable capacity to pay rent. • Property that is strategically important to the tenant’s core business. • Other features that provide for the tenant or third parties to assume significant property risks and costs. Over and above these criteria, ALE’s strategy is to add to the portfolio where it contributes to the distribution and capital growth prospects of its stapled security holders. Sandown Park Hotel, Vic Sail and Anchor Pub Brewery, WA Mitcham Hotel 566 Maroondah Highway, Mitcham, Vic Morwell Hotel 311 – 327 Princes Drive, Morwell, Vic Mountain View Hotel 186 Springvale Road, Glen Waverley, Vic Olinda Creek Hotel 161 Main Street, Lilydale, Vic Pier Hotel/21st Century 508 Nepean Highway, Frankston, Vic Plough Hotel Childs Road (Stables Shopping Centre), Mill Park, Vic Prince Mark Hotel Cnr Princes Highway and Power Road, Doveton, Vic Rifle Club Hotel 121 Victoria Street Williamstown, Vic Rose Shamrock and Thistle Hotel 709 Plenty Road, Reservoir, Vic Royal Exchange Hotel 64 Princes Highway, Traralgon, Vic Royal Hotel (Sunbury) 63 Evans Street, Sunbury, Vic Royal Hotel Essendon 871 Mt Alexander Road, Essendon, Vic Sandbelt Hotel Cnr South and Bignell Roads, Moorabbin, Vic Sandown Park Hotel Princes Highway, Noble Park, Vic Sandringham Hotel Cnr Beach and Bay Roads, Sandringham, Vic Somerville Hotel Cnr Station and Edward Streets, Somerville, Vic Stamford Inn Hotel Cnr Stud & Wellington Roads, Rowville, Vic Sylvania Hotel 1631 Sydney Road/Hume Highway, Campbellfield, Vic The Vale Hotel (previously the Springvale hotel) 2277 Dandenong Road/Princes Highway, Mulgrave, Vic Tudor Inn Hotel 1281 Nepean Highway, Cheltenham, Vic Victoria Hotel Cnr Wyndham and Fryer Streets, Shepparton, Vic Village Green Hotel Cnr Springvale and Ferntree Gully Roads, Glen Waverley, Vic Westmeadows Tavern 10 Ardlie Street, Westmeadows, Vic The Young & Jackson Hotel Cnr Swanston and Flinders Streets, Melbourne, Vic Queens Tavern 520 Beaufort Street, Highgate, WA Sail and Anchor Pub Brewery 64 South Terrace, Freemantle, WA Wanneroo Villa Tavern 18 Dundebar Road, Wanneroo, WA 17 Pymble Hotel, NSW 18 our board Peter Warne Chairman and Non-Executive Director Peter began his career with the NSW Government Actuary’s Office and the NSW State Superannuation Board before joining Bankers Trust Australia Limited (BTAL) in 1981. Peter held senior positions in the Fixed Income department, the Capital Markets division and the Financial Markets Group of BTAL and acted as a consultant to assist with integration issues when the investment banking business was acquired by Macquarie Bank Limited in 1999. Peter is Chairman of Capital Markets CRC Limited and Next Financial Pty Ltd. He is also a member of the Advisory Board of the Australian Office of Financial Management and a director of SFE Corporation Limited and Austraclear Limited. Peter graduated from Macquarie University with a Bachelor of Arts, majoring in Actuarial studies. He qualified as an associate of, and received a Certificate of Finance and Investment from, the Institute of Actuaries, London. John Henderson Non-Executive Director John has been a Director of Marks Henderson Pty Ltd since 2001 and is actively involved in the acquisition of investment property. Previously an International Director at Jones Lang LaSalle and Managing Director of the Sales and Investment Division, he was responsible for overseeing the larger property sales across Australasia, liaising with institutional and private investors, and coordinating international investment activities. John graduated from the University of Melbourne and is a member of the Royal Institution of Chartered Surveyors. He is an associate of the Australian Property Institute and a licensed real estate agent. James McNally Executive Director James has over ten years experience in the funds management industry, having worked in both property trust administration and compliance roles for Perpetual Trustees Australia Limited and MIA Services Pty Limited, a company that specialises in compliance services to the funds management industry. James provides compliance and management services to several Australian fund managers. He is currently an external member on a number of compliance committees for various responsible entities and acts as a Responsible Officer for a number of companies that hold an Australian Financial Services Licence, including ALE. James’ qualifications include a Bachelor of Business in Land Economy from the Hawkesbury Agricultural College and a Diploma of Law (Legal Practitioners Admission Board). He is a registered valuer and licensed real estate agent. Helen Wright Non-Executive Director Helen was a partner of Freehills, a leading Australian firm of lawyers, from 1986 to 2003. She practiced as a commercial lawyer, specialising in real estate projects including development and financing and related taxation and stamp duties, and is currently a consultant to Freehills. Helen is a member of the Boards of Sydney Harbour Foreshore Authority, Australian Technology Park Precinct Management, and Cooks Cover Redevelopment Authority; and was Deputy Chair of the Australia Day Council of NSW until December 2002. Helen also serves on the Advisory Board to The Little Company of Mary (Calvary Hospitals). Prior boards include Darling Harbour Authority and MLC Homepack Limited. Helen has a Bachelor of Laws from the University of NSW, and in 1994 completed the Advanced Management Program at Harvard Graduate School of Business. PETER WARNE JOHN HENDERSON JAMES McNALLY HELEN WRIGHT 19 corporate governance The Board of Directors of Australian Leisure and Entertainment Property Management Limited (the “Company”) is accountable to stapled security holders for the performance of ALE. Set out below is a summary of the main corporate governance practices of ALE. These practices have been in effect since ALE stapled securities were listed on the Australian Stock Exchange (ASX) in November 2003. ROLES OF THE BOARD AND MANAGEMENT The Board’s responsibilities encompass the following: review and approval of 1. the strategic direction of ALE; 2. oversight of ALE, including its controls and accountability systems; 3. appointing and, where 4. 5. 6. appropriate, removing the chief executive officer (CEO); ratifying the appointment of and, where appropriate, the removal of the chief financial officer (or equivalent) and the company secretary; input into and final approval of management’s development of corporate strategy and performance objectives; review and ratification of systems of risk management and internal compliance and control, codes of conduct, and legal compliance; 7. monitoring of senior management performance and implementation of strategy, and ensuring appropriate resources are available; 8. approving and monitoring the progress of major capital expenditure, capital management, acquisitions and divestitures; 9. approving and monitoring financial and other reporting; and 10. establishing and maintaining ethical standards. The Board delegates to the CEO responsibility for implementing strategic direction, and for managing the day-to-day operations of ALE. The Chief Executive Officer consults with the Chairman, in the first place, on matters which are sensitive, extraordinary or of a strategic nature. In carrying out its responsibilities, the Board undertakes to serve the interests of stapled security holders, employees, customers and the broader community honestly, fairly, diligently and in accordance with applicable laws. BOARD COMPOSITION The full Board determines the Board size and composition, subject to limits imposed by the Company’s Constitution. The Board has determined that it is currently appropriate to have four Directors, three of whom, including the Chairman, are non-executive. The three non-executive Directors, Peter Warne, John Henderson and Helen Wright, are independent Directors as defined under section 601JA of the Corporations Act, and satisfy the principles of independence as outlined in the ASX Corporate Governance Council Recommendations. The Chairman is selected by the full Board annually at the first meeting following the AGM, and is an independent Director. The Board is in the process of developing and implementing a plan for identifying, assessing and enhancing director competencies. As part of this plan, the Board will maintain an appropriate balance of skills, experience and expertise on the Board. As the Company only operated for eight of the 12 months to 30 June 2004, a performance evaluation of the Board and its members was not deemed appropriate at this early stage. Under the Company’s Constitution, a Director may not hold office for a continuous period in excess of three years or past the third annual general meeting following the Director’s appointment, whichever is the longer, without submitting for re-election. If no Director would otherwise be required to submit for re-election but the Listing Rules require that an election of Directors be held, the Director to retire at the annual general meeting is the Director who has been longest in office since their last election. Mr James McNally will be retiring and standing for re-election as a Director of the Company at its next AGM. INDEPENDENT PROFESSIONAL ADVICE After prior approval of the Chairman, Directors may obtain independent professional advice at the expense of the Company on matters arising in the course of their Board duties. ETHICS AND CONDUCT In accordance with ALE’s Code of Conduct all Directors and employees are expected to perform their duties professionally and act with the utmost integrity and objectivity, striving at all times to enhance the reputation and performance of ALE. AUDIT, COMPLIANCE AND RISK MANAGEMENT COMMITTEE To assist it in carrying out its responsibilities, the Board has established an Audit, Compliance and Risk Management Committee. This is a standing committee that is composed of three non-executive, independent Directors. The Chairman of the Board is also currently the Chairman of the Committee. The Audit, Compliance and Risk Management Committee meets at least four times a year. As the Board comprises 50% or more independent Directors, an independent compliance committee has not been appointed for the Group. The Board has, however, determined that the Audit, Compliance and Risk Management Committee fulfil this role. There were four meetings of the Audit, Compliance and Risk Management Committee in the eight months to 30 June 2004. The members of the Audit, Compliance and Risk Management Committee and their attendance at meetings are as follows: Peter Warne (Chairman) John Henderson Helen Wright Meetings Attended 4 4 3 Given the number of staff within the Company, the Company does not have an internal audit function. Under the ASX Corporate Governance Council Recommendations, from 1 July 2005 the Chairman of the Audit, Compliance and Risk Management Committee may not be the same person that chairs the Board. As Peter Warne is Chairman of both the Board and the Audit, Compliance and Risk Management Committee, he will retire as Chairman of the Committee prior to 30 June 2005, and another independent director will be appointed as Chairman of the Committee in his place. It is proposed that Peter Warne remain on the Committee as an independent member. 20 corporate governance BOARD AND EXECUTIVE REMUNERATION Director and executive current gross annual remuneration (including superannuation contributions and before bonus) is as follows: Peter Warne (Chairman and Non-Executive Director) John Henderson (Non-Executive Director) Helen Wright (Non-Executive Director) James McNally (Executive Director) Andrew Wilkinson (Chief Executive Officer) Brendan Howell (Company Secretary and Compliance Officer) Darren Barkas (Property Trust Manager) $120,000 $70,000 $70,000 $75,000 $225,000 $75,000 $136,250 As part of Andrew Wilkinson’s remuneration package, Andrew has been issued with 300,000 options to acquire stapled securities in ALE at a price of $1.036 per stapled security. The strike price for the options was determined by reference to the average closing price of the stapled securities upon the ASX during the first 20 trading days following the IPO. These options are exercisable from the third anniversary of the Operative Date (i.e. from 24 November 2003) or earlier if his employment is terminated, in accordance with his employment contract. ALE was not required to obtain security holder consent to the grant of options as Andrew Wilkinson is not a director of ALE. Andrew Wilkinson and Darren Barkas will be paid a bonus of $30,000 and $7,500 respectively for their performance in respect of the period ending 30 June 2004. These bonuses are in accordance with their employment contracts and have been pro-rated for the period since the commencement of their employment to 30 June 2004. INDEPENDENCE AND MATERIALITY THRESHOLDS While not relevant for the current period, ALE will determine the materiality of Director independence matters on a case-by-case basis. NOMINATIONS AND REMUNERATIONS COMMITTEE Given the number of staff employed by the Company and the size of the Board, the Board has determined that it does not require separate Nominations and Remunerations Committees, and that the Board will fulfil these functions. TRADING IN SECURITIES ALE has a Trading Policy with which all Directors and employees must comply. Directors, employees and their associates may not utilise information obtained by their position for personal gain or for gain of another person. Each Director and employee must ensure that any information in their possession that is not publicly available and which may have a material effect on the price or value of ALE’s stapled securities, ALE Notes or any derivatives based on either of these (collectively “ALE Securities”) is not provided to anyone who may be influenced to subscribe for, buy or sell ALE Securities. Directors, employees and their associates may buy or sell ALE Securities only during the four- week periods following: • the release of the half-year results; • the release of the full-year results; and • close of the Annual General Meeting. The Chairman may, in special circumstances, authorise the sale by a Director or employee of ALE Securities outside the relevant four-week periods outlined above. All Directors and employees are also precluded from buying or selling ALE Securities at any time if they are aware of price sensitive information that has not been made public. In accordance with provisions of the Corporations Act 2001 and the Listing Rules of the Australian Stock Exchange, Directors advise the ASX of any transaction conducted by them in ALE Securities. INVESTOR RELATIONS ALE is committed to the provision of timely, full and accurate disclosure of material information concerning ALE. ALE has a policy that security holders have equal access to ALE’s information and has procedures to ensure that all price sensitive information is disclosed to the ASX in accordance with the continuous disclosure requirements of the Corporations Act 2001 and the Listing Rules of the Australian Stock Exchange. The Board encourages full participation of security holders at the Annual General Meeting. The external auditor will attend the Annual General Meeting to answer any questions concerning the audit and content of the auditor’s report. FINANCIAL INTEGRITY AND RISK MANAGEMENT During the period the CEO and Property Trust Manager provided statements to the Board confirming the integrity of the financial accounts and compliance of risk management with the policies adopted by the board. ALE WEBSITE All information provided to the ASX is immediately posted on the ALE website, www.alegroup.com.au. The ALE website includes various corporate governance documents and policies, such as the Board’s Charter, ALE’s Code of Conduct and the Audit, Compliance and Risk Management Committee’s Charter. DISTRIBUTIONS Given the short first year of operation, the initial distribution was for the eight months ended 30 June 2004. Future distributions will be paid to security holders every six months. ASX CORPORATE GOVERNANCE COUNCIL PRINCIPLES In the period since listing, ALE has made significant progress in adoption of best practice corporate governance principles consistent with the ASX Corporate Governance Council Principles of Good Corporate Governance and Best Practice Recommendations. While each of these matters have been responded to above, as at the end of the first reporting period at 30 June 2004, ALE has not fully complied with the following recommendations: • 2.4 - The Board should establish a nomination committee • 2.5 – Report in the annual report on director independence materiality thresholds. • 4.3 – Structure the audit committee so that the chair is not the chair of the Board • 7.3 – Report and disclose the CEO/CFO statement to the Board in writing relating to financial integrity and risk management. • 8.1 – Disclose the policy of performance evaluation of the Board, the committee and individual directors • 9.2 – The Board should establish a remuneration committee • 9.4 – Ensure that the payment of equity-based executive remuneration is made in accordance with the thresholds set in plans approved by security holders Where necessary, ALE will develop its policies and procedures and the documentation of them during the course of the next reporting year. 21 Combined Annual Concise Financial Report FOR THE PERIOD 26 JUNE 2003 TO 30 JUNE 2004 Consisting of the combined concise reports of Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278 and Australian Leisure and Entertainment Property Trust ARSN 106 063 049 ALE Property Group contents directors’ report 22 discussion and analysis of combined statements of financial performance, financial position and cash flows 27 combined statement of financial performance 28 combined statement of financial position 29 combined statement of cash flows 30 notes to the financial statements 31 directors’ declaration 37 independent audit report to the stapled security holders 38 22 ALE PROPERTY GROUP ANNUAL CONCISE REPORT 30 JUNE 2004 directors’ report The directors of Australian Leisure and Entertainment Property Management Limited (the “Company”) present their report for ALE Property Group (the “Group”) for the period from 26 June 2003 to 30 June 2004. The Group is comprised of the Company and Australian Leisure and Entertainment Property Trust (the “Trust”) for which the Company acted as Responsible Entity for the period ended 30 June 2004. Accordingly, this report includes the combined results of the Company and the Trust. DIRECTORS The following persons were directors of the Company from the date of their appointment and up until the date of this report unless otherwise stated: Name B R Howell C Wheeler J T McNally J P Henderson P H Warne H I Wright Appointed Resigned 10 September 2003 10 September 2003 26 June 2003 26 June 2003 26 June 2003 19 August 2003 8 September 2003 8 September 2003 REVIEW OF OPERATIONS The Company was incorporated on 26 June 2003. The Trust was constituted on 19 August 2003 and became a registered managed investment scheme on 3 September 2003. The Group’s operations have been consistent with its business objectives outlined in its product disclosure statement dated 26 September 2003. The Group first became entitled to rental income on investment properties from 5 November 2003. On 7 November 2003, $90.8 million of stapled securities were issued by the Group. Each stapled security comprises one share in the Company and one unit in the Trust. The stapled securities were issued at $1.00 each, representing $0.10 for the share and $0.90 for the unit. The shares and the units are stapled together under the terms of their respective constitutions and cannot be traded separately. On 7 November 2003 the Group issued $150 million of unsecured, subordinated, cumulative, redeemable loan notes (“ALE Notes”). The ALE Notes have a scheduled maturity date of 30 September 2011 and were issued at $100 per ALE Note. On 10 November 2003 the Group issued $330 million of commercial mortgage backed securities (“CMBS”) with scheduled maturity dates of 10 November 2008. The CMBS comprised $100 million of fixed rate borrowings and $230 million of variable rate borrowings. The Group’s total variable rate borrowings exposure of $230 million was fully hedged to maturity by the use of interest rate swaps (“swaps”). Overall, a weighted average interest rate of 6.524%, effectively fixed for five years from issue, for the Group’s $480 million of borrowings was achieved. The Group was admitted to the official list of the Australian Stock Exchange (ASX) on 10 November 2003 and the Group’s stapled securities and ALE Notes were both listed on the ASX on 12 November 2003. Net assets per stapled security as at 30 June 2004 are $1.41. PRINCIPAL ACTIVITIES During the period the principal activity of the Group consisted of investment in property and property funds management. There has been no significant change in the nature of these activities during the period. LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS The Group will continue to maintain its defined strategy of identifying opportunities to increase the profitability of the Group and its net asset value. The Group is required to adopt International Financial Reporting Standards (IFRS) as issued by the Australian Accounting Standards Board for reporting periods beginning on or after 1 January 2005. A summary of how the Group is managing this transition and what the likely impacts will be is contained in Note 30 to the Combined Financial Statements (of the full financial report). 23 26 June 2003 to 30 June 2004 $’000 29,479 715 30,194 24,233 1,565 545 26,343 51 3,902 A summary of the combined revenue and results are set out below: Income Property rents and loan interest Bank interest Expenses Borrowing costs Management expenses Land tax expense Income tax benefit Net Profit after Tax As a result of all of the property leases being “triple net” the Group has had minimal direct property outgoings other than land tax on the Queensland properties. DISTRIBUTIONS & DIVIDENDS A provision for Trust distributions of $6,810,008 has been provided for by the Group as at 30 June 2004. No provisions for Company dividends have been made by the Group as at 30 June 2004, no dividends have been paid or are payable for the period ending 30 June 2004. The following directors, specified executives and their associates held or currently hold interests in the Group. Name Director/Specified Executive P H Warne H I Wright J P Henderson A F O Wilkinson Specified Executive Director Director Director INDEMNITIES OF OFFICERS Balance at the Start of the Period 0 0 0 0 Purchase/ (Sales) 453,400 100,000 25,000 31,998 Number of Stapled Securities held at 30 June 2004 453,400 100,000 25,000 31,998 During the financial year, the Group paid a premium of $40,746 to insure the directors and officers of the Group. The auditors of the Group are in no way indemnified out of the assets of the Group. Under the constitution of the Company, current or former directors and secretaries are indemnified to the full extent permitted by law for liabilities incurred by that person in the discharge of their duties. The constitution provides that the Company will meet the legal costs of that person. This indemnity is subject to certain limitations. 24 ALE PROPERTY GROUP ANNUAL CONCISE REPORT 30 JUNE 2004 directors’ report MEETINGS OF DIRECTORS The numbers of meetings of the Company’s board of directors held during the period to 30 June 2004 and the number of meetings attended by each director at the time the director held office during the year were: Director B R Howell C Wheeler J T McNally J P Henderson P H Warne H I Wright Board Meeting Held1 Attended Audit, Compliance and Risk Management Committee Meeting Held1 Attended 1 1 15 14 14 14 1 1 15 14 12 11 – – – 4 4 4 – – – 4 4 3 1 “Held” reflects the number of meetings which the director was eligible to attend. DIRECTORS’ AND SPECIFIED EXECUTIVES’ EMOLUMENTS Non-executive and executive directors’ fees are determined by the board. The current maximum aggregate amount that may be paid in directors fees must not exceed $335,000 per annum, being $260,000 for non-executive directors and $75,000 for the executive director (inclusive of responsible officer fee). The maximum amount for non-executive directors can only be increased at a general meeting of the Company. On appointment, each executive is required to enter into a standard Executive Employment Agreement. Executive remuneration levels are approved by the board and are determined by reference to current market levels and employee performance. The executive remuneration structure currently includes salary, superannuation guarantee contributions and performance related benefits. Where considered appropriate by the board, executive staff may also be offered options in the Group. Details of the nature and amount of each element of the emoluments of each director of the Group and each specified executive of the Group, paid or payable by the Group for the period ending 30 June 2004 are set out in the following tables: NON-EXECUTIVE DIRECTORS OF THE GROUP Name Period C Wheeler J P Henderson P H Warne H I Wright Sub-total non-executive directors 26/06/03 – 10/09/03 19/08/03 – 30/06/04 08/09/03 – 30/06/04 08/09/03 – 30/06/04 EXECUTIVE DIRECTORS OF THE GROUP Name Period J T McNally B R Howell Sub-total executive directors 26/06/03 – 30/06/04 26/06/03 – 10/09/03 Directors Base Fee 0 60,586 89,430 52,065 202,081 Superannuation Contributions 0 0 8,049 4,686 12,735 Directors Base Fee Superannuation Contributions 47,500 0 47,500 0 0 0 Total 0 60,586 97,479 56,751 214,816 Total 47,500 0 47,500 Total – all directors of the Group 249,581 12,375 262,316 B R Howell’s and J T McNally’s fees prior to 10 November 2003, were paid directly by Foster’s Group Limited and are not included in the amounts above. 25 Short Term Incentive 30,000 7,500 Options 4,083 0 0 Total 162,857 70,507 47,500 SPECIFIED EXECUTIVES OF THE GROUP Name Period A F O Wilkinson D Barkas B R Howell 24/11/03 – 30/06/04 29/01/04 – 30/06/04 11/09/03 – 30/06/04 Total 118,141 57,805 47,500 223,446 Base Salary Superannuation Contributions 10,633 5,202 0 15,835 4,083 37,500 280,864 B R Howell’s fees, prior to 10 November 2003, were paid directly by Foster’s Group Limited and are not included in the amounts above. The specified executives held the following positions in the Group: A F O Wilkinson is the Chief Executive Officer. D Barkas is the Property Trust Manager. B R Howell is the Company Secretary. Specified executives are defined as the persons who report or are responsible to the board or to the Chief Executive Officer for the strategic direction and operational management of the Group. NON-EXECUTIVE DIRECTOR OF A SUBSIDIARY BOARD Name Period Base Salary Superannuation Contributions G MacLaren 01/10/03 – 30/06/04 15,000 0 Short Term Incentive 0 Total 15,000 G MacLaren is a director of ALE Finance Company Pty Limited (“Finance Company”) which is a controlled entity of the Trust. STAPLED SECURITIES OPTIONS GRANTED Options over unissued stapled securities of the Group were granted during the financial period to Andrew Wilkinson as disclosed in an ASX Announcement dated 10 November 2003. Andrew Wilkinson has the right to subscribe for up to 300,000 stapled securities at a fixed price of $1.036 exerciseable from 10 November 2006 or earlier if Mr Wilkinson’s employment is terminated other than for cause or unsatisfactory performance. The options will remain exerciseable for a period ending 10 November 2007, unless the Group was subject to a take over in which case the period of exercise would be reduced to 11 February 2007. The options value disclosed above as part of specified executives’ remuneration is the assessed fair value at grant date of options granted, allocated equally over the period from grant date to vesting date. The fair value of $21,000 at grant date has been independently determined by taking the average of using a Black-Scholes option pricing model and the mid-point determined by a binomial option pricing model. These techniques take into account factors such as the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the non-tradable nature of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk- free interest rate for the term of the option. ENVIRONMENTAL REGULATION Whilst the Group is subject to significant environmental regulation in respect of its property activities, the directors are satisfied that adequate systems are in place for the management of its environmental responsibility and compliance with the various licence requirements and regulations. Further, the directors are not aware of any material breaches of these requirements and to the best of their knowledge all activities have been undertaken in compliance with environmental requirements. COMPARATIVE AMOUNTS The Group commenced operations in the current reporting period, as a result no comparative information is available for disclosure in the financial report. 26 ALE PROPERTY GROUP ANNUAL CONCISE REPORT 30 JUNE 2004 directors’ report SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS In the opinion of the directors, there were no significant changes in the state of affairs of the Group that occurred during the period, other than those changes otherwise identified in this financial report. MATTERS SUBSEQUENT TO THE END OF THE PERIOD The directors are not aware of any matter or circumstance occurring after balance date which may affect the Group’s operations, the results of those operations or the state of affairs of the Group. ROUNDING OF AMOUNTS The Group is of the kind referred to in Class Order 98/0100, issued by the Australian Securities and Investments Commission, relating to the “rounding off” of amounts in the directors’ report and financial report. Amounts in the directors’ report and financial report have been rounded off in accordance with the Class Order to the nearest thousand dollars, unless otherwise indicated. This report is made in accordance with a resolution of the directors. P Warne Director Sydney Dated this 1st day of September 2004 discussion and analysis of the combined financial statements 27 The following commentary is to assist stapled security holders in reviewing and interpreting the combined results of the Group for the period ending 30 June 2004. STATEMENT OF FINANCIAL PERFORMANCE Net profit after tax was $3,902,000. This is $2,112,000 higher than the forecast revised net operating income in the Prospectus/PDS issued by the Group in September 2003 (“PDS”). The key differences between the forecast and actual results were: • Interest income – higher cash balances resulting from cost control and management of cash flow along with effective investment of those balances delivered a $487,000 (or 213%) increase above the PDS forecast of interest income. Over and above the $5.5 million of cash required to be placed on deposit for the CMBS, the Group held cash balances and deposits through out the period ranging from around $8 million to $17.5 million to provide the Group with liquidity and to support any modest acquisitions. • Management costs – our management costs (excluding $126,000 of prepaid advisory fees) were $435,000 (or 23%) below the PDS forecast due to savings related to strict cost control measures and the delayed recruitment of staff following IPO. • Land tax – our land tax expenses were $225,000 (or 29%) below the PDS forecast. This was a result of the delayed completion of some of our development properties and permanent reductions on sites where the net land areas have been reduced following completion of development. • Interest expense – our fully hedged weighted average interest rate established at IPO was 6.524%, some 0.211% below the lowest end of the indicative range in the PDS. This reduced rate and other one off differences such, as a 3 day delay from the assumed CMBS drawdown date in the PDS, produced a $886,000 (or 4%) reduction in borrowing costs before amortisation to $20,542,000. The amortisation of prepaid borrowing costs during the period amounted to $3,691,000 leaving an unamortised balance of $25,109,000 to be expensed over the next 4 years (Note 6 contains further information). • Other – various other minor net favourable variances in rental income, amortisation and tax benefit total $79,000. STATEMENT OF FINANCIAL POSITION Total Assets were $625,511,000 as at 30 June 2004. During the period, the Group as part of the IPO, raised $90,800,000 of stapled security equity and $480,000,000 of CMBS and ALE Notes debt to enable the acquisition (inclusive of acquisition costs) of $536,200,000 of the property portfolio from the Fosters Group. The property portfolio was revalued upwards by $40,459,000 during the period. The Group has fixed, through the use of swaps and fix rate debt, the overall costs of debt raised at a rate of 6.524% p.a. As mentioned above, this was less than the range of interest rates forecast in the PDS. The debt is 100% hedged through to November 2008 and then partially through until September 2011. Net assets per stapled security at 30 June 2004 was $1.41. STATEMENT OF CASH FLOWS Significant cash movements reflect the establishment of the Group during the year. Net cash flows from operating activities include the rent earned on the portfolio, the interest earned on cash balances held by the group and the payment of interest expenses on the Group’s borrowings. Net cash flows from investing activities was a significant outflow relating to: • the purchase during the period of a portfolio of 101 investment properties for $509,741,000. • deposits on the remaining four development properties of $2,600,000. • loans to the Foster’s Group Limited in relation to the remaining four development properties of $23,409,000. • acquisition costs of $450,000 on the remaining four development properties. Net cash flows from financing activities was a significant inflow relating to the issue of $330,000,000 of CMBS, $150,000,000 of ALE Notes, and $62,000,000 of stapled security equity. As a non-cash financing activity, the Group also issued $28,800,000 of stapled security equity to Macquarie Equity Capital Markets Limited (MECML) comprising: • $25,920,000 or ordinary units in the Trust. • $2,880,000 of ordinary shares in the Company. in satisfaction of the $28,800,000 payable under the lead manager’s incentive offer. 28 ALE PROPERTY GROUP ANNUAL CONCISE REPORT 30 JUNE 2004 combined statement of financial performance FOR THE PERIOD FROM 26 JUNE 2003 TO 30 JUNE 2004 Revenue and expenses from ordinary activities Property rental income & loan interest Interest income Total revenue from ordinary activities Borrowing costs excluding amortisation Borrowing costs (non-cash) amortisation Land tax expense Salaries and directors’ expenses Auditors’ remuneration Insurance for directors and officers Property valuation expenses Other expenses Total expenses from ordinary activities Profit from ordinary activities before income tax expenses Income tax benefit Net profit after income tax attributable to stapled security holders of the Group Net increment in asset valuations Total revenues, expenses and valuation adjustments attributable to stapled security holders of the Group recognised directly in equity Total changes in equity attributable to stapled security holders of the Group other than those resulting from transactions with stapled security holders as owners Distributions paid and payable Basic and diluted earnings per stapled security Distributions paid and payable per stapled security Note 2 2(a) 4 3 7 3 26 June 2003 to 30 June 2004 $’000 29,479 715 30,194 20,542 3,691 545 555 160 41 110 699 26,343 3,851 51 3,902 40,459 40,459 44,361 6,810 Cents 4.3 7.5 The above Combined Statement of Financial Performance should be read in conjunction with the accompanying notes. combined statement of financial position 29 AS AT 30 JUNE 2004 Current Assets Cash assets Receivables Loans Prepayments and other assets Total current assets Non-Current Assets Deferred tax asset Property investments Development property – loans deposits and costs Prepayments and other assets Property, plant & equipment Total non-current assets Total assets Current Liabilities Payables Provisions Other Total current liabilities Non-current Liabilities Interest bearing liabilities – CMBS Interest bearing liabilities – ALE Notes Deferred tax liability Other Total non-current liabilities Total liabilities Net Assets Equity Contributed Equity Asset Revaluation Reserve Retained Earnings/(Accumulated Losses) Total Equity Net assets per stapled security Note 30 June 2004 $’000 5 6 4 5 6 8 8 23,090 325 11,746 6,018 41,179 59 550,200 14,713 19,344 16 584,332 625,511 9,694 6,845 309 16,848 330,000 150,000 8 304 480,312 497,160 128,351 88,010 40,459 (118) 128,351 $1.41 The above Combined Statement of Financial Position should be read in conjunction with the accompanying notes. 30 ALE PROPERTY GROUP ANNUAL CONCISE REPORT 30 JUNE 2004 combined statement of cash flows FOR THE PERIOD FROM 26 JUNE 2003 TO 30 JUNE 2004 Cash flows from operating activities Receipts from customers (inclusive of goods and services tax) Payments to suppliers and employees (inclusive of goods and services tax) Foster’s Group Limited – recovery of payments to suppliers Interest received Borrowing costs Net cash flows from operating activities Cash flows from investing activities Acquisitions of property investments Loans to Foster’s Group Limited Deposits on development property investments Pre-acquisition costs on property investments Property, plant and equipment Net cash flows used in investing activities Cash flows from financing activities Proceeds from issue of stapled securities Proceeds from interest bearing liabilities Net cash flows from financing activities Net increase in cash held Cash at beginning of the financial period Cash at the end of the financial period Non-cash financing activities 26 June 2003 to 30 June 2004 $’000 30,215 (1,344) 447 2,560 (14,568) 17,310 (509,741) (23,409) (2,600) (450) (20) (536,220) 62,000 480,000 542,000 23,090 – 23,090 28,800 Non-cash Financing Activities $90,800,100 of stapled securities were issued as at 30 June 2004, however, cash proceeds from issue of stapled securities was only $62,000,100. The difference of $28,800,000 is a non-cash item and relates to stapled securities issued to the lead manager in satisfaction of a $28,800,000 fee (exclusive of GST) payable under the lead manager’s incentive offer. Note 6 “Prepayments and Other Assets” contains further information on the manager's incentive fee. The above Combined Statement of Cash Flows should be read in conjunction with the accompanying notes notes to the financial statements 31 NOTE 1 – BASIS OF PREPARATION OF CONCISE FINANCIAL REPORT The combined concise financial report has been prepared in accordance with the requirements of Accounting Standard AASB1039 “Concise Financial Reports”, applicable Urgent Issues Group Consensus Views and the Corporations Act 2001. The financial statements and specific disclosures included in the combined concise financial report have been derived from the aggregated full financial report for the financial period. The combined concise financial report cannot be expected to provide as full an understanding of the combined financial performance, combined financial position and financing and investing activities of ALE Property Group as the full financial report. NOTE 2 – REVENUE Operating activities Rental income Interest received on loans to the Foster’s Group Limited (a) Interest income from: Bank term deposit interest NOTE 3 – DISTRIBUTIONS PAID OR PROVIDED FOR ON STAPLED SECURITIES The distribution comprises: Distribution from the Trust of 7.5 cents per unit Dividend from company of 0.0 cents per share 28 June 2003 to 30 June 2004 $’000 27,468 2,011 29,479 715 30,194 6,810 0 6,810 NOTE 4 – NON-CURRENT ASSETS – INVESTMENT PROPERTIES Property New South Wales Smithfield Tavern, Smithfield Blacktown Hotel, Blacktown Kirribilli Hotel, Kirribilli Crows Nest Hotel, Crows Nest Brown Jug Hotel, Fairfield Heights Colyton Hotel, Colyton Melton Hotel, Auburn New Brighton Hotel, Manly Pioneer Hotel, Penrith Pymble Hotel, Pymble Total New South Wales Properties Acquisition Date 05-Nov-03 05-Nov-03 05-Nov-03 05-Nov-03 05-Nov-03 05-Nov-03 05-Nov-03 05-Nov-03 05-Nov-03 05-Nov-03 58,756 Cost Inclusive Acquisition Price $’000 Latest Valuation as at 30 June 2004 $’000 Revaluation Increase Current Period $‘000 Valuation Type 4,150 5,470 5,847 8,771 5,659 8,205 3,112 8,865 5,847 2,830 Independent Independent Independent Independent Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ 4,500 5,800 6,400 9,600 6,200 8,900 3,400 9,700 6,400 3,100 64,000 350 330 553 829 541 695 288 835 553 270 5,244 32 ALE PROPERTY GROUP ANNUAL CONCISE REPORT 30 JUNE 2004 notes to the financial statements NOTE 4 – NON-CURRENT ASSETS – INVESTMENT PROPERTIES (CONTINUED) Property Queensland Racehorse Hotel, Booval Edinburgh Castle Hotel, Kedron Mt Gravatt Hotel, Mount Gravatt Alderley Arms Hotel, Alderley Holland Park Hotel, Holland Park Four Mile Creek, Strathpine Pelican Waters, Caloundra Anglers Arms Hotel, Southport Wilsonton Hotel, Toowoomba Oxford 152, Bulimba Royal Exchange Hotel, Toowong Sunnybank Hotel, Sunnybank Springwood Hotel, Springwood Albany Creek Tavern, Albany Creek Albion Hotel, Albion Balaclava Hotel, Cairns Banyo Tavern, Nudgee Breakfast Creek Hotel, Breakfast Creek Camp Hill Hotel, Camp Hill Chardons Corner Hotel, Annerly Dalrymple Hotel, Townsville Ferny Grove Tavern, Ferny Grove Hamilton Hotel, Hamilton Imperial Hotel, Beenleigh Kedron Park Hotel, Kedron Park Kirwan Tavern, Townsville Lawnton Tavern, Lawnton Miami Hotel, Miami Mount Pleasant Tavern, Mackay Newmarket Hotel, Cairns Noosa Reef Hotel, Noosa Heads Palm Beach Hotel, Palm Beach Petrie Hotel, Petrie Prince of Wales Hotel, Nundah Redland Bay Hotel, Redland Bay Stones Corner Hotel, Stones Corner Vale Hotel Motel, Townsville Woree Tavern, Cairns Total Queensland Properties South Australia Finsbury, Woodville North Gepps Cross, Blair Athol Stockade Tavern, Salisbury Aberfoyle Hub, Aberfoyle Park Enfield, Clearview Eureka, Salisbury Exeter, Exeter Hendon, Royal Park Ramsgate, Henley Beach Total South Australian Properties Acquisition Date 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 Cost Inclusive Acquisition Price $’000 Latest Valuation as at 30 June 2004 $’000 Revaluation Increase Current Period $‘000 Valuation Type 1,792 3,112 3,207 3,301 3,773 3,672 4,237 4,433 4,527 4,999 5,753 8,205 9,148 8,394 4,433 3,301 3,018 10,657 2,264 1,415 3,207 5,847 6,602 2,452 2,264 4,433 4,433 4,055 1,792 2,358 6,874 6,885 1,698 3,395 5,187 5,376 5,659 1,037 167,195 1,603 2,169 4,433 3,301 2,452 3,301 1,886 1,603 3,773 24,521 Independent Independent Independent Independent Independent Independent Independent Independent Independent Independent Independent Independent Independent Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Independent Independent Independent Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ 2,100 3,300 3,300 3,500 3,900 4,300 4,500 4,600 4,900 5,700 6,000 8,700 10,000 9,000 4,800 3,500 3,200 11,500 2,400 1,500 3,500 6,200 7,100 2,700 2,400 4,800 4,700 4,300 1,900 2,500 7,400 7,400 1,800 3,700 5,500 5,800 6,100 1,100 179,600 1,800 2,600 5,200 3,800 2,900 3,900 2,200 1,800 4,400 28,600 308 188 93 199 127 628 263 167 373 701 247 495 852 606 367 199 182 843 136 85 293 353 498 248 136 367 267 245 108 142 526 515 102 305 313 424 441 63 12,405 197 431 767 499 448 599 314 197 627 4,079 33 NOTE 4 – NON-CURRENT ASSETS – INVESTMENT PROPERTIES (CONTINUED) Property Cost Inclusive Acquisition Price $’000 Acquisition Date Latest Valuation as at 30 June 2004 $’000 Revaluation Increase Current Period $‘000 Valuation Type Victoria 05-Nov-03 Victoria, Shepparton 05-Nov-03 Gateway, Corio 05-Nov-03 Ashley, Braybrook 05-Nov-03 Olinda Creek, Lilydale 05-Nov-03 Sandringham, Sandringham 05-Nov-03 Eltham, Eltham 05-Nov-03 Tudor Inn, Cheltenham 05-Nov-03 Vale, Mulgrave 05-Nov-03 Sandown Park, Noble Park 05-Nov-03 Deer Park, Deer Park 05-Nov-03 Plough, Mill Park 05-Nov-03 Mitcham, Mitcham 05-Nov-03 Keysborough, Keysborough 05-Nov-03 Burvale, Nunawading 05-Nov-03 Bayswater, Bayswater 05-Nov-03 Blackburn, Blackburn 05-Nov-03 Blue Bell, Wendouree 05-Nov-03 Club Hotel, Ferntree Gully 05-Nov-03 Cramers, Preston 05-Nov-03 Daveys,Frankston 05-Nov-03 Doncaster Hotel/Motel, Doncaster Elsternwick, Elwood 05-Nov-03 Ferntree Gully Hotel/Motel, Ferntree Gully 05-Nov-03 05-Nov-03 Mac's Melton, Melton 05-Nov-03 Meadow Inn, Fawkner 05-Nov-03 Morwell, Morwell 05-Nov-03 Mountain View, Glen Waverly 05-Nov-03 Pier, Frankston 05-Nov-03 Prince Mark, Doveton 05-Nov-03 Rifle Club, Williamstown 05-Nov-03 Rose Shamrock & Thistle, Reservoir 05-Nov-03 Royal Essendon, Essendon 05-Nov-03 Royal Exchange, Traralgon 05-Nov-03 Royal Sunbury, Sunbury 05-Nov-03 Sandbelt Club, Moorabbin 05-Nov-03 Somerville, Somerville 05-Nov-03 Stamford, Rowville 05-Nov-03 Sylvania, Campbellfield 05-Nov-03 Village Green, Mulgrave 05-Nov-03 Westmeadows, Westmeadows Young & Jackson, Melbourne 05-Nov-03 Total Victorian Properties Western Australia Sail & Anchor Hotel, Freemantle Queens Tavern, Highgate Wanneroo Villa Tavern, Wanneroo Total Western Australian Properties 10-Nov-03 10-Nov-03 10-Nov-03 Total Investment Properties Opening Revaluation Reserve Closing Revaluation Reserve 2,264 3,112 3,961 3,961 4,527 4,716 5,470 5,564 6,319 6,979 8,488 8,583 9,620 9,714 9,903 9,431 1,981 5,093 8,300 2,546 12,166 3,301 4,716 6,885 8,111 1,509 7,168 8,017 9,809 2,735 2,641 4,338 2,169 3,112 10,846 2,641 12,732 5,376 12,544 2,735 6,131 250,214 3,112 4,810 1,133 9,055 509,741 Independent Independent Independent Independent Independent Independent Independent Independent Independent Independent Independent Independent Independent Independent Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Independent Directors’ Directors’ 2,400 3,300 4,300 4,400 4,800 5,000 5,800 5,900 6,900 7,400 9,000 9,700 10,200 10,300 10,600 10,100 2,100 5,500 8,900 2,800 13,000 3,500 5,100 7,400 8,700 1,600 7,700 8,600 10,500 2,900 2,800 4,600 2,300 3,400 11,600 2,800 13,700 5,800 13,500 3,000 6,500 268,400 3,300 5,100 1,200 9,600 550,200 136 188 339 439 273 284 330 336 581 421 512 1,117 580 586 697 669 119 407 600 254 834 199 384 515 589 91 532 583 691 165 159 262 131 288 754 159 968 424 956 265 369 18,186 188 290 67 545 40,459 0 40,459 34 ALE PROPERTY GROUP ANNUAL CONCISE REPORT 30 JUNE 2004 notes to the financial statements NOTE 4 – NON-CURRENT ASSETS – INVESTMENT PROPERTIES (CONTINUED) Valuation of Investment Properties The basis of valuation of investment properties is fair value being the amounts for which the properties could be exchanged between willing parties in an arm’s length transaction, based on current prices in an active market for similar properties in the same location and condition and subject to similar leases. Independent Valuations In accordance with the Group’s policy of independently valuing one-third of its property portfolio annually, thirty five properties were independently valued as at 30 June 2004. The revaluations were completed by Max A Cooper (AAPI) of Jones Lang LaSalle Hotels. Directors’ Valuations The independent valuation of thirty five properties has been extrapolated to the balance of the portfolio by applying to it the same aggregate market movement, on a state by state basis, as evident in the independent valuation. Investment Properties All investment properties are freehold and 100% owned by the Group and are comprised of land, buildings and fixed improvements. The plant, equipment and liquor and gaming licenses are owned by the tenant. Leasing Arrangements The investment properties are leased to a single tenant under long-term operating leases with rentals payable monthly in advance. Conditional Acquisition of Development Properties During November 2003 the Group entered into conditional sale contracts with subsidiaries of Foster’s Group Limited to acquire seven properties that were under development at the time. The conditional sale contracts are conditional upon satisfactory completion of the developments. At 30 June 2004, four of the properties had yet to be acquired. (Refer to Note 5 for further information). Reconciliation A reconciliation of the carrying amounts of investment properties at the beginning and end of the current financial period is set out below: Carrying amount at 26 June 2003 Acquisitions in the period Revaluation increments Carrying amount at 30 June 2004 30 June 2004 $’000 – 509,741 40,459 550,200 NOTE 5 – DEVELOPMENT PROPERTY – LOANS, DEPOSITS AND COSTS Property Queensland Burleigh Heads Hotel, Burleigh Heads (1) (2) Caloundra Hotel, Caloundra New South Wales Narrabeen Sands Hotel, Narrabeen Parkway Hotel, Frenchs Forest (2) (1) Deposits at 10% of Purchase Price $’000 Loans to Foster’s Group Limited $’000 657 426 1,083 879 638 1,517 5,915 3,832 9,747 7,914 5,748 13,662 Total Total – current Total – non-current 2,600 23,409 (2) (1) – 2,600 11,746 11,663 Total investment properties at cost (Note 4) Purchase Price $’000 Acquisition Costs $’000 Total Cost $’000 6,572 4,258 10,830 8,793 6,386 15,179 26,009 11,746 14,263 114 74 188 152 110 262 450 – 450 6,686 4,332 11,018 8,945 6,496 15,441 26,459 11,746 14,713 509,741 Total investment properties (at cost) and development property – loans, deposits and costs 536,200 35 NOTE 5 – DEVELOPMENT PROPERTY – LOANS, DEPOSITS AND COSTS (CONTINUED) The Group has made loans equal to the estimated completion value of each property less deposits paid to Foster’s Group Limited and receives monthly interest on the loans equal to the rent otherwise payable on the properties, as at 30 June 2004 the monthly interest payable was $182,311 per month. This equates to a weighted average interest rate of 9.35% on the loan amount. The Group will acquire legal title to each of these properties on completion of the relevant development at a price reflecting the completion value estimated at the November 2003 exchange of contracts. For properties where the scope of works definition was not finalised at exchange of conditional sale contracts (being Narrabeen Sands, Burleigh Heads and Parkway), a valuation will be undertaken once the development is complete and, if necessary, the purchase price will be adjusted down to reflect the value. If the completion valuation results in an increase in value there will be no adjustment to the purchase price. Current and Non-Current Assets The Caloundra Hotel and Narrabeen Sands developments are expected to be completed and the properties acquired by the Group by 30 June 2005 as a result the total loan amounts of $11.746 million relating to these two properties are current assets i.e. the loans will be applied against the property acquisitions. All other amounts are non-current assets due to expected development completions post 30 June 2005 for loan amounts or due to the fact that they will not be extinguished as a result of Group property acquisitions in the case of property deposits and pre-acquisition cost amounts. NOTE 6 – PREPAYMENTS AND OTHER ASSETS Current Corporate advisory services prepaid to 30 June 2005 Prepaid expenses Other amounts due Capitalised borrowing costs Non-Current Rental deposits Capitalised borrowing costs Total Note (a) (b) (b) 30 June 2004 $’000 174 30 45 5,769 6,018 6 19,338 19,344 25,362 (a) On 10 November 2003 $300,000 was paid to Macquarie Bank Limited for advisory services to be provided over the nineteen month period ending 30 June 2005. The Group has expensed eight months of this fee as at 30 June 2004. (b) Reconciliation to the total fee: Lead manager’s incentive fee paid Amount expensed period ending 30 June 2004 Closing balance 30 June 2004 28,800 (3,691) 25,109 Under the lead manager’s incentive offer as originally agreed between the Foster’s Group Limited and the lead manager, Macquarie Equity Capital Markets Limited, the manager was entitled to be issued with 48,000 stapled securities for each one tenth of a basis point by which the Group’s weighted average interest rate on borrowings was less than 7.335% up to a maximum of 28.8 million stapled securities at 6.735%. The 6.735% target was surpassed with the weighted average interest rate on borrowings for the Group being 6.524% fixed for five years to 10 November 2008. The fee of $28.8 million has been capitalised as a borrowing cost and will be expensed over the five year period to which it relates. 36 ALE PROPERTY GROUP ANNUAL CONCISE REPORT 30 JUNE 2004 notes to the financial statements NOTE 7 – EARNINGS PER STAPLED SECURITY Weighted average number of stapled securities used as the denominator – Basic earnings per stapled security – Diluted earnings per stapled security Weighted average number of stapled securities are used as the denominator in calculating basic earnings per stapled security Weighted average number of stapled securities and potential stapled securities used as the denominator in calculating diluted earnings per stapled security NOTE 8 – INTEREST BEARING LIABILITIES CMBS ALE Notes on issue Cents 4.3 4.3 No. of Securities 90,800,100 90,800,100 30 June 2004 $’000 330,000 150,000 480,000 The CMBS borrowings are secured by, among other things, first ranking real property mortgages over all but four of the investment properties and have scheduled maturity dates of 10 November 2008 and final maturity dates of 10 November 2010. The ALE Notes are unsecured and have a maturity date of 30 September 2011. The Group’s variable interest rate exposure is fully hedged or fixed up until 10 November 2008 on current borrowings. This has been achieved by the use of variable rate borrowings swapped to fixed rates by interest rate swaps. The Group’s weighted average interest rate as at 30 June 2004 was:– CMBS – $230 million variable rate CMBS – $100 million fixed rate CMBS – $330 million weighted average of variable and fixed ALE Notes – $150 million fixed Total weighted average interest rate of CMBS and ALE Notes Net impact of swaps – net $230 million Total Group weighted average interest rate NOTE 9 – SEGMENT INFORMATION 6.210% 6.660% 6.346% 7.265% 6.633% (0.227%) 6.524% Business Segment The Group operates solely in the property investment and property funds management industry. Geographical Segment The Group owns property solely within Australia. NOTE 10 – EVENTS OCCURRING AFTER REPORTING DATE The directors are not aware of any significant events since the reporting date. NOTE 11 – FULL FINANCIAL REPORT Further financial information can be obtained from the full annual financial report. The full annual financial report and auditors report will be sent to security holders on request, free of charge. Please call 1300 302 429 (freecall) and for International +61 3 9415 4141, and a copy will be forwarded to you. Alternatively, you can access the full annual financial report and the annual concise financial report via the internet on our website: www.alegroup.com.au. 37 directors’ declaration The directors declare that in their opinion, the Concise Financial Report for the Group for the period ended 30 June 2004 as set out on pages 27 to 36 complies with accounting standard AASB 1039: Concise Financial Reports. The financial statements and specific disclosures included in this concise financial report have been derived from the full financial report for the year ended 30 June 2004. The concise financial report cannot be expected to provide as full an understanding of the financial performance, financial position and financing and investing activities of the combined entity as the full financial report, which as indicated in Note 11, is available on request. This declaration is made in accordance with a resolution of the directors. P Warne Director Sydney Dated this 1st day of September 2004 38 ALE PROPERTY GROUP ANNUAL CONCISE REPORT 30 JUNE 2004 independent audit report TO THE STAPLED SECURITYHOLDERS OF AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY GROUP MATTERS RELATING TO THE ELECTRONIC PRESENTATION OF THE AUDITED CONCISE FINANCIAL REPORT This audit report relates to the concise financial report of Australian Leisure and Entertainment Property Group (the Group) for the financial period ended 30 June 2004 included on Australian Leisure and Entertainment Property Group’s web site. The Group’s directors are responsible for the integrity of the Australian Leisure and Entertainment Property Group’s web site. We have not been engaged to report on the integrity of this web site. The audit report refers only to the concise financial report identified below. It does not provide an opinion on any other information which may have been hyperlinked to/from the financial report. If users of this report are concerned with the inherent risks arising from electronic data communications they are advised to refer to the hard copy of the audited concise financial report to confirm the information included in the audited concise financial report presented on this web site. AUDIT OPINION In our opinion, the concise financial report of Australian Leisure and Entertainment Property Group for the period ended 30 June 2004 complies with Australian Accounting Standard AASB 1039: Concise Financial Reports. This opinion must be read in conjunction with the rest of our audit report. SCOPE The concise financial report and directors’ responsibility The concise financial report comprises the combined statement of financial position, combined statement of financial performance, combined statement of cash flows, discussion and analysis of and notes to the financial statements, and the directors’ declaration for Australian Leisure and Entertainment Property Group (the Group) for the period ended 30 June 2004. The directors of Australian Leisure and Entertainment Property Management Limited are responsible for the preparation and presentation of the financial report in accordance with Australian Accounting Standard AASB 1039: Concise Financial Reports. Audit approach We conducted an independent audit of the concise financial report in order to express an opinion on it to the stapled securityholders of the Group. Our audit was conducted in accordance with Australian Auditing Standards, in order to provide reasonable assurance as to whether the concise financial report is free of material misstatement. The nature of an audit is influenced by factors such as the use of professional judgement, selective testing, the inherent limitations of internal control, and the availability of persuasive rather than conclusive evidence. Therefore, an audit cannot guarantee that all material misstatements have been detected. We also performed an independent audit of the full financial report of the Group for the financial period ended 30 June 2004. Our audit report on the full financial report was signed on 30 August 2004, and was not subject to any qualification. In conducting our audit of the concise financial report, we performed procedures to assess whether in all material respects the concise financial report is presented fairly in accordance with Australian Accounting Standard AASB 1039: Concise Financial Reports. We formed our audit opinion on the basis of these procedures, which included: • testing that the information included in the concise financial report is consistent with the information in the full financial report, and • examining, on a test basis, information to provide evidence supporting the amounts, discussion and analysis, and other disclosures in the concise financial report which were not directly derived from the full financial report. When this audit report is included in an Annual Report, our procedures include reading the other information in the Annual Report to determine whether it contains any material inconsistencies with the concise financial report. INDEPENDENCE In conducting our audit, we followed applicable independence requirements of Australian professional ethical pronouncements and the Corporations Act 2001. PricewaterhouseCoopers Sydney 1 September 2004 Mark Haberlin Partner 39 Annual Concise Financial Report FOR THE PERIOD 26 JUNE 2003 TO 30 JUNE 2004 Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278 contents directors’ report 40 discussion and analysis of statement of financial performance, statement of financial position and statement of cash flows 44 statement of financial performance 45 statement of financial position 46 statement of cash flows 47 notes to the financial statements 48 directors’ declaration 49 independent audit report to the shareholders 50 40 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY MANAGEMENT LIMITED ANNUAL CONCISE REPORT 30 JUNE 2004 directors’ report The directors of Australian Leisure and Entertainment Property Management Limited (the “Company”) present their report for the period from 26 June 2003 to 30 June 2004. DIRECTORS The following persons were directors of the Company from the date of their appointment and up until the date of this report unless otherwise stated: Name B R Howell C Wheeler J T McNally P H Warne J P Henderson H I Wright Appointed Resigned 10 September 2003 10 September 2003 26 June 2003 26 June 2003 26 June 2003 8 September 2003 19 August 2003 8 September 2003 REVIEW OF OPERATIONS The Company was incorporated on 26 June 2003 and is the responsible entity for the Australian Leisure and Entertainment Property Trust (the “Trust”). The Trust was constituted on 19 August 2003 and became a registered scheme on 3 September 2003. The Company and the Trust together form the ALE Property Group (the “Group”). The Company’s operations have been consistent with its business objectives outlined in its prospectus and product disclosure statement dated 26 September 2003. On 7 November 2003, $90.8 million of stapled securities were issued by the Group. Each stapled security comprises one share in the Company and one unit in the Trust. The Stapled securities were issued at $1.00 each, representing $0.10 for each share and $0.90 for each unit. The shares and the units are stapled together under the terms of the constitutions and cannot be traded separately. The Group was admitted to the official list of the Australian Stock Exchange (ASX) on 10 November 2003 and the Group’s stapled securities and ALE Notes were both listed on the ASX on 12 November 2003. PRINCIPAL ACTIVITIES During the period the principal activity of the Company consisted of property funds management and acting as responsible entity for the Trust. A summary of the revenue and results are set out below: Income Management fee income Bank interest Expenses Operating expenses Income tax (benefit) Net Loss DIVIDENDS 26 June 2003 to 30 June 2004 $’000 996,548 2,997 999,545 1,196,088 (58,568) (137,975) No provisions for dividends have been made by the Company as at 30 June 2004. As a result none have been paid or are payable as at 30 June 2004. The following Directors of the Company have held or currently hold interests in the Group. 41 INFORMATION ON DIRECTORS The following directors, specified executives and their associates held or currently hold interests in the Company. Name Director/Specified Executive P H Warne H I Wright J P Henderson A F O Wilkinson Specified Executive Director Director Director INDEMNITIES OF OFFICERS Balance at the Start of the Period 0 0 0 0 Purchase/ (Sales) 453,400 100,000 25,000 31,998 Number of Stapled Securities held at 30 June 2004 453,400 100,000 25,000 31,998 During the financial year, the Group paid a premium of $40,746 to insure the directors and officers of the Company. The auditors of the Company are not indemnified out of the assets of the Company. Under the constitution of the Company, current or former directors and secretaries are indemnified to the full extent permitted by law for liabilities incurred by that person in the discharge of their duties. The constitution provides that the Company will meet the legal costs of that person. This indemnity is subject to certain limitations. MEETINGS OF DIRECTORS The numbers of meetings of the Company’s board of directors held during the period to 30 June 2004 and the number of meetings attended by each director at the time the director held office during the year were: Director B R Howell C Wheeler J T McNally J P Henderson P H Warne H I Wright Board Meeting Held1 Attended Audit, Compliance and Risk Management Committee Meeting Held1 Attended 1 1 15 14 14 14 1 1 15 14 12 11 – – – 4 4 4 – – – 4 4 3 1 “Held” reflects the number of meetings which the director was eligible to attend. 42 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY MANAGEMENT LIMITED ANNUAL CONCISE REPORT 30 JUNE 2004 directors’ report DIRECTORS’ AND SPECIFIED EXECUTIVES’ EMOLUMENTS Non-executive and executive directors’ fees are determined by the board. The current maximum aggregate amount that may be paid in directors fees must not exceed $335,000 per annum being, $260,000 for non-executive directors and $75,000 for the executive director (inclusive of responsible officer fee). The maximum aggregate amount payable to non-executive directors can only be increased at a general meeting of the Company. Total directors’ fees paid for the period ending 30 June 2004 were $262,316. On appointment, each executive is required to enter into a standard Executive Employment Agreement. Executive remuneration levels are approved by the board and are determined by reference to current market levels and employee performance. The executive remuneration structure currently includes salary, superannuation guarantee contributions and performance related benefits. Where considered appropriate by the board, executive staff may also be offered options in the Group. Details of the nature and amount of each element of the emoluments of each director of the Company and each specified executive of the Company, paid or payable by the Company are set out in the following tables: NON-EXECUTIVE DIRECTORS OF THE COMPANY Name Period C Wheeler J P Henderson P H Warne H I Wright Sub-total non-executive directors 26/06/03 – 10/09/03 19/08/03 – 30/06/04 08/09/03 – 30/06/04 08/09/03 – 30/06/04 EXECUTIVE DIRECTORS OF THE COMPANY Name Period J T McNally B R Howell Sub-total executive directors 26/06/03 – 30/06/04 26/06/03 – 10/09/03 Directors’ Base Fee 0 60,586 89,430 52,065 202,081 Superannuation Contributions 0 0 8,049 4,686 12,735 Directors’ Base Fee Superannuation Contributions 47,500 0 47,500 0 0 0 Total 0 60,586 97,479 56,751 214,816 Total 47,500 0 47,500 Total – all directors of the Company 249,581 12,375 262,316 B R Howell’s and J T McNally’s fees prior to 10 November 2003, were paid directly by the Foster’s Group Limited and are not included in the amounts above. SPECIFIED EXECUTIVES OF THE COMPANY Name Period A F O Wilkinson D Barkas B R Howell 24/11/03 – 30/06/04 29/01/04 – 30/06/04 11/09/03 – 30/06/04 Total 118,141 57,805 47,500 223,446 Base Salary Superannuation Contributions Short Term Incentive 30,000 7,500 Options 4,083 0 0 Total 162,857 70,507 47,500 10,633 5,202 0 15,835 4,083 37,500 280,864 B R Howell’s fees, prior to 10 November 2003, were paid directly by Foster’s Group Limited and are not included in the amounts above. The specified executives held the following positions in the Group: A F O Wilkinson is the Chief Executive Officer. D Barkas is the Property Trust Manager. B R Howell is the Company Secretary. Specified executives are defined as the persons who report or are responsible to the board or to the Chief Executive Officer for the strategic direction and operational management of the Group. 43 STAPLED SECURITIES OPTIONS GRANTED Options over unissued stapled securities of the Group were granted during the financial period to Andrew Wilkinson as disclosed in an ASX Announcement dated 10 November 2003. Andrew Wilkinson has the right to subscribe for up to 300,000 stapled securities at a fixed price of $1.036 exerciseable from 10 November 2006 or earlier if Mr Wilkinson’s employment is terminated for other than cause or unsatisfactory performance. The options will remain exerciseable for a period ending 10 November 2007, unless the Group was subject to a take over in which case the period of exercise would be reduced to 11 February 2007. The options value disclosed above as part of specified executives’ remuneration is the assessed fair value at grant date of options granted, allocated equally over the period from grant date to vesting date. The fair value of $21,000 at grant date has been independently determined by taking the average of using a Black-Scholes option pricing model and the mid-point determined by a binomial option pricing model. These techniques take into account factors such as the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the non-tradable nature of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk- free interest rate for the term of the option. ENVIRONMENTAL REGULATION Whilst the Company is not subject to significant environmental regulation in respect of its property activities, the directors are satisfied that adequate systems are in place for the management of its environmental responsibility and compliance with the various licence requirements and regulations. Further, the directors are not aware of any material breaches of these requirements and to the best of their knowledge all activities have been undertaken in compliance with environmental requirements. COMPARATIVE AMOUNTS This Company commenced operations in the current reporting period, as a result no comparative information is available for disclosure in the financial report. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS In the opinion of the directors, there were no significant changes in the state of affairs of the Company that occurred during the period, other than those changes otherwise identified in this financial report. MATTERS SUBSEQUENT TO THE END OF THE PERIOD The directors are not aware of any matter or circumstance occurring after balance date which may effect the Company’s operations, the results of those operations or the state of affairs of the Company. This report is made in accordance with a resolution of the directors. P Warne Director Sydney Dated this 1st day of September 2004 44 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY MANAGEMENT LIMITED ANNUAL CONCISE REPORT 30 JUNE 2004 discussion and analysis of the company’s financial statements The following commentary is to assist shareholders in reviewing and interpreting the results of the Company for the period ended 30 June 2004. STATEMENT OF FINANCIAL PERFORMANCE Net loss after tax was $137,975. The material aspects of the actual result were: • Interest and expense reimbursements from the Trust were $999,545. • Management costs – the total for the period was $1,196,088 and included salaries and directors expenses, audit, advisory and legal fees and a range of other expenses incurred in managing the affairs of the Group. • All costs incurred prior to listing were reimbursed by Foster’s Group Limited. • Taxation benefit of $58,568 arising from the loss in the Company. • The reimbursements in the current period did not fully recover the management costs due to minor timing differences. STATEMENT OF FINANCIAL POSITION Total Assets were $10,157,792 as at 30 June 2004. During the period the Company, as part of the IPO, raised $9,080,010 of share equity to fund the acquisition of $9,080,000 of No Income Voting Units (NIVUS) in the Trust. At 30 June the Company held $107,470 of cash at bank to provide for the Company’s day to day liquidity requirements. Net asset per share issued at 30 June 2004 was $0.10. STATEMENT OF CASH FLOWS Significant cash movements reflect the establishment of the Company during the year. Net cash flows from operating activities include the payment of the Company’s expenses incurred in managing the affairs of the Group and the reimbursement of these expenses from the Trust during the period. Net cash flows from investing activities was a significant outflow relating to the purchase of $9,080,000 of NIVUS in the Trust, issued for cash consideration of $6,200,000 and non cash consideration of $2,880,000. There were also some minor equipment acquisitions. Net cash flows from financing activities was a significant inflow relating to the issue of $9,080,010 of shares to stapled security holders for cash consideration of $6,200,010 and non cash consideration of $2,880,000. There was also a loan from the Trust. A further issue of ordinary share equity of $2,880,000 was made to Macquarie Equity Capital Markets Limited in consideration of the lead manager’s incentive offer, which the Company used to acquire $2,880,000 of NIVUS in the Trust. Accordingly these amounts were not included in the cash flows from investing activities and financing activities. 45 statement of financial performance FOR THE PERIOD FROM 26 JUNE 2003 TO 30 JUNE 2004 Note 26 June 2003 to 30 June 2004 $ Revenue and expenses from ordinary activities Management fees Interest income Total revenue from ordinary activities Salaries and directors’ expenses Auditor’s remuneration Legal fees Risk / Debt Management Insurance for directors and officers Annual reports Registry fees Public relations Systems Rent – premises Accounting fees Corporate advisory services Depreciation Other expenses Total expenses from ordinary activities Loss from ordinary activities before income tax benefit Income tax benefit Net loss after income tax attributable to shareholders of the Company Total changes in equity attributable to shareholders of the Company other than those resulting from transactions with shareholders as owners Basic and diluted earnings per share Dividends paid and payable per share 3 2 The above Statement of Financial Performance should be read in conjunction with the accompanying notes. 996,548 2,997 999,545 540,398 159,750 73,069 86,075 40,746 55,000 36,775 34,303 26,455 25,570 17,593 8,400 3,514 88,440 1,196,088 (196,543) 58,568 (137,975) (137,975) Cents (0.15) – 46 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY MANAGEMENT LIMITED ANNUAL CONCISE REPORT 30 JUNE 2004 statement of financial position AS AT 30 JUNE 2004 Current Assets Cash assets Receivables Receivables from related parties Prepayments and other assets Total Current Assets Non-Current Assets Deferred tax asset Receivables Plant & equipment Investment in related party Total Non-Current Assets Total Assets Current Liabilities Payables Provisions Loans from related parties Total Current Liabilities Total Liabilities Net Assets Equity Contributed Equity Retained Earnings Total Equity Net Assets per Share The above Statement of Financial Position should be read in conjunction with the accompanying notes 30 June 2004 $ 107,470 201,566 646,548 41,127 996,711 58,568 5,958 16,545 9,080,010 9,161,081 10,157,792 468,154 34,931 712,672 1,215,757 1,215,757 8,942,035 9,080,010 (137,975) 8,942,035 $0.10 statement of cash flows FOR THE PERIOD FROM 26 JUNE 2003 TO 30 JUNE 2004 Cash flows from operating activities Payments to suppliers and employees (inclusive of Goods and Services Tax) Interest received Net cash flows from operating activities Cash flows from investing activities Payments for investments Payment for Property, Plant and Equipment Net cash flows used in investing activities Cash flows from financing activities Proceeds from issue of shares Proceeds of borrowings from related parties Net cash flows from financing activities Net increase in cash held Cash at beginning of the financial period Cash at the end of the financial period Non-cash investing activities Non-cash financing activities 47 26 June 2003 to 30 June 2004 $ (937,183) 2,040 (935,143) (6,200,010) (20,059) (6,220,069) 6,200,000 1,062,672 7,262,682 107,470 – 107,470 2,880,000 2,880,000 The Company has issued $9,080,010 of shares as at 30 June 2004, however, cash proceeds from the issue were only $6,200,010. The difference of $2,880,000 is a non-cash item and relates to shares issued to the lead manager in part satisfaction of a $28,800,000 fee (exclusive of GST) payable to the lead manager by the Company under the lead manager’s incentive offer. The Company was issued $9,080,000 of No Income Voting Units (NIVUS) in the Trust for cash consideration of $6,200,000 and non cash consideration of $2,880,000. The above Statement of Cash Flows should be read in conjunction with the accompanying notes 48 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY MANAGEMENT LIMITED ANNUAL CONCISE REPORT 30 JUNE 2004 notes to the financial statements NOTE 1 – BASIS OF PREPARATION OF CONCISE FINANCIAL REPORT The concise financial report has been prepared in accordance with the requirements of Accounting Standard AASB1039 “Concise Financial Reports”, applicable Urgent Issues Group Consensus Views and the Corporations Act 2001. The financial statements and specific disclosures included in the concise financial report have been derived from the full financial report for the financial period. The concise financial report cannot be expected to provide as full an understanding of the financial performance, financial position and financing and investing activities of the Company as the full financial report. 26 June 2003 to 30 June 2004 $ – – Cents (0.15) (0.15) No. of Securities 90,800,100 90,800,100 NOTE 2 – DIVIDENDS PAID OR PROVIDED FOR ON ORDINARY SHARES Final dividend for period ended 30 June 2004 nil cents per fully paid share Total dividends provided or paid NOTE 3 – EARNINGS PER SHARE – Basic earnings/(loss) per share – Diluted earnings/(loss) per share Weighted average number of shares used as the denominator Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share NOTE 4 – SEGMENT INFORMATION Business Segment The Company operates solely in the property funds management industry. Geographical Segment The Company operates solely within Australia. NOTE 5 – EVENTS OCCURRING AFTER REPORTING DATE The directors are not aware of any significant events since the reporting date. NOTE 6 – FULL FINANCIAL REPORT Further financial information can be obtained from the full annual financial report. The full annual financial report and auditors report will be sent to security holders on request, free of charge. Please call 1300 302 429 (freecall) and for International +61 3 9415 4141, and a copy will be forwarded to you. Alternatively, you can access the full annual financial report and the annual concise financial report via the internet on our website: www.alegroup.com.au. 49 directors’ declaration The directors declare that in their opinion, the Concise Financial Report for the Company for the period ended 30 June 2004 as set out on pages 44 to 48 complies with accounting standard AASB 1039: Concise Financial Reports. The financial statements and specific disclosures included in this concise financial report have been derived from the full financial report for the period ended 30 June 2004. The concise financial report cannot be expected to provide as full an understanding of the financial performance, financial position and financing and investing activities of the Company as the full financial report, which as indicated in Note 6, is available on request. This declaration is made in accordance with a resolution of the directors. P Warne Director Sydney Dated this 1st day of September 2004 50 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY MANAGEMENT LIMITED ANNUAL CONCISE REPORT 30 JUNE 2004 independent audit report TO THE MEMBERS OF AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY MANAGEMENT LIMITED MATTERS RELATING TO THE ELECTRONIC PRESENTATION OF THE AUDITED CONCISE FINANCIAL REPORT This audit report relates to the concise financial report of Australian Leisure and Entertainment Property Management Limited (the company) for the financial period ended 30 June 2004 included on Australian Leisure and Entertainment Property Group’s web site. The company’s directors are responsible for the integrity of the Australian Leisure and Entertainment Property Group web site. We have not been engaged to report on the integrity of this web site. The audit report refers only to the concise financial report identified below. It does not provide an opinion on any other information which may have been hyperlinked to/from the financial report. If users of this report are concerned with the inherent risks arising from electronic data communications they are advised to refer to the hard copy of the audited concise financial report to confirm the information included in the audited concise financial report presented on this web site. AUDIT OPINION In our opinion, the concise financial report of Australian Leisure and Entertainment Property Management Limited for the period ended 30 June 2004 complies with Australian Accounting Standard AASB 1039: Concise Financial Reports. This opinion must be read in conjunction with the rest of our audit report. SCOPE The concise financial report and directors’ responsibility The concise financial report comprises the statement of financial position, statement of financial performance, statement of cash flows, discussion and analysis of and notes to the financial statements, and the directors’ declaration for Australian Leisure and Entertainment Property Management Limited (the company) for the period ended 30 June 2004. The directors of the company are responsible for the preparation and presentation of the financial report in accordance with Australian Accounting Standard AASB 1039: Concise Financial Reports. Audit approach We conducted an independent audit of the concise financial report in order to express an opinion on it to the members of the company. Our audit was conducted in accordance with Australian Auditing Standards, in order to provide reasonable assurance as to whether the concise financial report is free of material misstatement. The nature of an audit is influenced by factors such as the use of professional judgement, selective testing, the inherent limitations of internal control, and the availability of persuasive rather than conclusive evidence. Therefore, an audit cannot guarantee that all material misstatements have been detected. We also performed an independent audit of the full financial report of the company for the financial period ended 30 June 2004. Our audit report on the full financial report was signed on 30 August 2004, and was not subject to any qualification. In conducting our audit of the concise financial report, we performed procedures to assess whether in all material respects the concise financial report is presented fairly in accordance with Australian Accounting Standard AASB 1039: Concise Financial Reports. We formed our audit opinion on the basis of these procedures, which included: • testing that the information included in the concise financial report is consistent with the information in the full financial report, and • examining, on a test basis, information to provide evidence supporting the amounts, discussion and analysis, and other disclosures in the concise financial report which were not directly derived from the full financial report. When this audit report is included in an Annual Report, our procedures include reading the other information in the Annual Report to determine whether it contains any material inconsistencies with the concise financial report. INDEPENDENCE In conducting our audit, we followed applicable independence requirements of Australian professional ethical pronouncements and the Corporations Act 2001. PricewaterhouseCoopers Sydney 1 September 2004 Mark Haberlin Partner 51 Annual Concise Financial Report FOR THE PERIOD 19 AUGUST 2003 TO 30 JUNE 2004 Australian Leisure and Entertainment Property Trust ARSN 106 063 049 contents directors’ report 52 discussion and analysis of consolidated statements of financial performance, financial position and cash flows 57 consolidated statement of financial performance 58 consolidated statement of financial position 59 consolidated statement of cash flows 60 notes to the consolidated financial statements 61 directors’ declaration 68 independent audit report to the unitholders 69 52 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY TRUST ANNUAL CONCISE REPORT 30 JUNE 2004 directors’ report The directors of Australian Leisure and Entertainment Property Management Limited (the “Company”) as Responsible Entity for Australian Leisure and Entertainment Trust (the “Trust”) present their report for the Trust and its controlled entities (the “Consolidated Entity”) for the period from 19 August 2003 to 30 June 2004. This report includes the consolidated results of the Trust and its wholly owned trust, Australian Leisure and Entertainment Direct Property Trust, and its wholly owned special financing vehicle Australian Leisure and Entertainment Finance Company Pty Ltd. The Company and the Trust together form the ALE Property Group (the “Group”). DIRECTORS The following persons were directors of the Company from the date of their appointment and up until the date of this report unless otherwise stated: Name B R Howell C Wheeler J T McNally J P Henderson P H Warne H I Wright Appointed Resigned 10 September 2003 10 September 2003 26 June 2003 26 June 2003 26 June 2003 19 August 2003 8 September 2003 8 September 2003 REVIEW OF OPERATIONS The Company was incorporated on 26 June 2003. The Trust was constituted on 19 August 2003 and became a registered managed investment scheme on 3 September 2003. The Trust’s operations have been consistent with its business objectives outlined in its product disclosure statement dated 26 September 2003. The Trust first became entitled to rental income on investment properties from 5 November 2003. On 7 November 2003, $90.8 million of stapled securities were issued by the Group. Each stapled security comprises one share in the Company and one unit in the Trust. The Stapled securities were issued at $1.00 each, representing $0.10 for the share and $0.90 for the unit. The shares and the units are stapled together under the terms of their respective constitutions and cannot be traded separately. On 7 November 2003 the Consolidated Entity issued $150 million of unsecured, subordinated, cumulative, redeemable loan notes (“ALE Notes”). The ALE Notes were issued by the Consolidated Entity at $100 per ALE Note for a total of $150 million. On 10 November 2003 the Consolidated Entity issued $330 million of commercial mortgage backed securities (“CMBS”) with initial maturities of five years. The CMBS comprised $100 million of fixed rate borrowings and $230 million of variable rate borrowings. The Consolidated Entity’s total variable rate borrowings exposure of $230 million was fully hedged to maturity by the use of interest rate swaps (“swaps”). A total weighted average interest rate of 6.524%, effectively fixed for five years from issue, for the Consolidated Entity’s $480 million of borrowings was achieved. The Group was admitted to the official list of the Australian Stock Exchange (ASX) on 10 November 2003 and the Group’s stapled securities and ALE Notes were both listed on the ASX on 12 November 2003. Net assets per unit as at 30 June 2004 are $1.42. PRINCIPAL ACTIVITIES During the period the principal activity of the Trust and its controlled entities consisted of investment in property. There has been no significant change in these activities during the period. 53 LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS The Trust will continue to maintain its defined strategy of identifying opportunities to increase the profitability of the Trust and its net asset value. The Trust is required to adopt International Financial Reporting Standards (IFRS) as issued by the Australian Accounting Standards Board for reporting periods beginning on or after 1 January 2005. A summary of how the Consolidated Entity is managing this transition and what the likely impacts will be is contained in Note 28 of the Financial Statements (of the full financial report). A summary of the consolidated revenue and results are set out below: Income Property rents and loan interest Bank interest Expenses Borrowing costs Land tax expenses Other expense Income tax benefit Net Income 19 August 2003 to 30 June 2004 $’000 29,479 712 30,191 24,233 545 1,365 26,143 8 4,040 As a result of all of the property leases being “triple net” the Consolidated Entity has had minimal direct property outgoings other than land tax on the Queensland properties. DISTRIBUTIONS & DIVIDENDS A provision for trust distributions of $6,810,008 has been provided for by the Trust as at 30 June 2004. The following directors and specified executives held or currently hold interests either directly or indirectly in the Group. Name Director/Specified Executive P H Warne H I Wright J P Henderson A F O Wilkinson Specified Executive Director Director Director INDEMNITIES OF OFFICERS Balance at the Start of the Period 0 0 0 0 Purchase/ (Sales) 453,400 100,000 25,000 31,998 Number of Stapled Securities held at 30 June 2004 453,400 100,000 25,000 31,998 During the financial year, the Company paid a premium of $40,746 to insure the directors and officers of the Company. The auditors of the Trust are in no way indemnified out of the assets of the Trust. Under the constitution of the Company, current or former directors and secretaries are indemnified to the full extent permitted by law for liabilities incurred by that person in the discharge of their duties. The constitution provides that the Company will meet the legal costs of that person. This indemnity is subject to certain limitations. 54 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY TRUST ANNUAL CONCISE REPORT 30 JUNE 2004 directors’ report MEETINGS OF DIRECTORS The numbers of meetings of the Company’s board of directors (as Responsible Entity) held during the period to 30 June 2004 and the number of meetings attended by each director at the time the director held office during the year were: Director B R Howell C Wheeler J T McNally J P Henderson P H Warne H I Wright Board Meeting Held1 Attended Audit, Compliance and Risk Management Committee Meeting Held1 Attended 1 1 15 14 14 14 1 1 15 14 12 11 – – – 4 4 4 – – – 4 4 3 1 “Held” reflects the number of meetings which the director was eligible to attend. DIRECTORS’ AND SPECIFIED EXECUTIVES’ EMOLUMENTS Non-executive and executive directors’ fees are determined by the board. The current maximum aggregate amount that may be paid in directors fees must not exceed $335,000 being, $260,000 per annum for non-executive directors and $75,000 for the executive director (inclusive of responsible officer fee). The maximum amount for non-executive directors can only be increased at a general meeting of the Company. Total directors’ fees paid for the period ending 30 June 2004 were $262,316. On appointment, each executive is required to enter into a standard Executive Employment Agreement. Executive remuneration levels are approved by the board and are determined by reference to current market levels and employee performance. The executive remuneration structure currently includes salary, superannuation guarantee contributions and performance related benefits. Where considered appropriate by the board, executive staff may also be offered options in the Group. Details of the nature and amount of each element of the emoluments of each director of the Company and each specified executive of the Company, paid or payable by the Company are set out in the following tables: NON-EXECUTIVE DIRECTORS OF THE COMPANY Name Period C Wheeler J P Henderson P H Warne H I Wright Sub-total non-executive directors 26/06/03 – 10/09/03 19/08/03 – 30/06/04 08/09/03 – 30/06/04 08/09/03 – 30/06/04 EXECUTIVE DIRECTORS OF THE COMPANY Name Period J T McNally B R Howell Sub-total executive directors 26/06/03 – 30/06/04 26/06/03 – 10/09/03 Directors’ Base Fee Superannuation Contributions 0 60,586 89,430 52,065 202,081 0 0 8,049 4,686 12,735 Directors’ Base Fee Superannuation Contributions 47,500 0 47,500 0 0 0 Total 0 60,586 97,479 56,751 214,816 Total 47,500 0 47,500 Total – all directors of the Group 249,581 12,375 262,316 B R Howell’s and J T McNally’s fees prior to 10 November 2003, were paid directly by Foster’s Group Limited and are not included in the amounts above. 55 Short Term Incentive 30,000 7,500 Options 4,083 0 0 Total 162,857 70,507 47,500 SPECIFIED EXECUTIVES OF THE COMPANY Name Period A F O Wilkinson D Barkas B R Howell 24/11/03 – 30/06/04 29/01/04 – 30/06/04 11/09/03 – 30/06/04 Total 118,141 57,805 47,500 223,446 Base Salary Superannuation Contributions 10,633 5,202 0 15,835 4,083 37,500 280,864 B R Howell’s fees, prior to 10 November 2003, were paid directly by Foster’s Group Limited and are not included in the amounts above. The specified executives held the following positions in the Company: A F O Wilkinson is the Chief Executive Officer. D Barkas is the Property Trust Manager. B R Howell is the Company Secretary. Specified executives are defined as the persons who report or are responsible to the board or to the Chief Executive Officer for the strategic direction and operational management of the Trust. NON-EXECUTIVE DIRECTOR OF A SUBSIDIARY BOARD Name Period Base Salary Superannuation Contributions G MacLaren 01/10/03 – 30/06/04 15,000 0 Short Term Incentive 0 Total 15,000 G MacLaren is a director of ALE Finance Company Pty Limited which is a controlled entity of the Trust. STAPLED SECURITIES OPTIONS GRANTED Options over unissued stapled securities of the Group were granted during the financial period to Andrew Wilkinson as disclosed in an ASX Announcement dated 10 November 2003. Andrew Wilkinson has the right to subscribe for up to 300,000 stapled securities at a fixed price of $1.036 exerciseable from 10 November 2006 or earlier if Mr Wilkinson’s employment is terminated other than for cause or unsatisfactory performance. The options will remain exerciseable for a period ending 10 November 2007, unless the Group was subject to a take over in which case the period of exercise would be reduced to 11 February 2007. The options value disclosed above as part of specified executives’ remuneration is the assessed fair value at grant date of options granted, allocated equally over the period from grant date to vesting date. The fair value of $21,000 at grant date has been independently determined by taking the average of using a Black-Scholes option pricing model and the mid-point determined by a binomial option pricing model. These techniques take into account factors such as the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the non-tradable nature of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk- free interest rate for the term of the option. ENVIRONMENTAL REGULATION Whilst the Consolidated Entity is subject to significant environmental regulation in respect of its property activities, the directors of the Company are satisfied that adequate systems are in place for the management of its environmental responsibility and compliance with the various licence requirements and regulations. Further, the directors are not aware of any material breaches of these requirements and to the best of their knowledge all activities have been undertaken in compliance with environmental requirements. 56 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY TRUST ANNUAL CONCISE REPORT 30 JUNE 2004 directors’ report COMPARATIVE AMOUNTS This Trust commenced operations in the current reporting period, as a result no comparative information is available for disclosure in the financial report. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS In the opinion of the directors, there were no significant changes in the state of affairs of the Consolidated Entity that occurred during the period, other than those changes otherwise identified in this financial report. MATTERS SUBSEQUENT TO THE END OF THE PERIOD The directors are not aware of any matter or circumstance occurring after balance date which may affect the Consolidated Entity’s operations, the results of those operations or the state of affairs of the Consolidated Entity. ROUNDING OF AMOUNTS The Trust is a registered scheme of a kind referred to in Class Order 98/0100, issued by the Australian Securities and Investments Commission, relating to the “rounding off” of amounts in the directors’ report and financial report. Amounts in the directors’ report and financial report have been rounded off in accordance with the Class Order to the nearest thousand dollars, unless otherwise indicated. This report is made in accordance with a resolution of the directors. P Warne Director Sydney Dated this 1st day of September 2004 discussion and analysis of the consolidated financial statements 57 The following commentary is to assist unitholders in reviewing and interpreting the results of the Trust and Consolidated Entity for the period ending 30 June 2004. CONSOLIDATED STATEMENT OF FINANCIAL PERFORMANCE Net profit after tax was $4,040,000. As the Prospectus/PDS issued by the Group in September 2003 (“PDS”) only made forecasts in respect of the Group, the key aspects of the Consolidated Entity actual results were: • Interest income – interest income was $2,723,000. This comprised $2,011,000 of interest income from the loans to Foster’s Group Limited relating to the development properties. In addition, $712,000 of interest income was derived from higher cash balances resulting from cost control and management of cash flow along with effective investment of those balances. • Management costs – payments of $997,000 to the Company represent a reimbursement of their expenses with small adjustments for timing differences. • Land tax – our land tax expenses of $545,000 in relation to our Queensland properties. It is less than expected due to the delayed completion of some of our development properties. • Interest expense – our fully hedged weighted average interest rate established at IPO was 6.524%, some 0.211% below the lowest end of the indicative range in the PDS. This reduced rate and other one off differences such, as a 3 day delay from the assumed CMBS drawdown date in the PDS, produced a $886,000 (or 4%) reduction in borrowing costs before amortisation to $20,542,000. The amortisation of prepaid borrowing costs during the period amounted to $3,691,000 leaving an unamortised balance of $25,109,000 to be expensed over the next 4 years (Note 6 contains further information). CONSOLIDATED STATEMENT OF FINANCIAL POSITION Total Assets were $625,171,000 as at 30 June 2004. During the period the Consolidated Entity, as part of the IPO, raised $90,800,100 of unit equity and $480,000,000 of CMBS and ALE Notes debt. This enabled both the acquisition from the Foster’s Group Limited of 101 completed properties and advances back to the Foster’s Group Limited in respect of the 4 remaining development properties for a combined amount of $536.2 million (inclusive of acquisition costs). The $90,800,000 of unit equity was comprised of $81,720,000 of units issued as part of the stapled securities to our investors and $9,080,000 of no income voting units (NIVUS) to the Company. The Consolidated Entity has fixed, through the use of swaps and fix rate debt, the overall costs of debt raised at a rate of 6.524% p.a. As mentioned above, this was less than the range of interest rates forecast in the PDS. The debt is 100% hedged through to November 2008 and then partially through to September 2011. Net assets per ordinary unit and NIVUS units issued at 30 June 2004 was $1.42. CONSOLIDATED STATEMENT OF CASH FLOWS Significant cash movements reflect the establishment of the Trust during the year. Net cash flows from operating activities include the rent earned on the portfolio, the interest earned on cash balances held by the Trust and the payment of interest expenses on the Trust’s borrowings. Net cash flows from investing activities was a significant outflow relating to: • the purchase during the period of a portfolio of 101 investment properties for $509,741,000. • deposits on the remaining four development properties of $2,600,000. • loans to Foster’s Group Limited in relation to the remaining four development properties of $23,409,000. • acquisition costs of $450,000 on the remaining four development properties. Net cash flows from financing activities was a significant inflow relating to the issue of $330,000,000 of CMBS, $150,000,000 of ALE Notes, $55,800,000 million of stapled security equity and $6,200,000 of NIVUS unit equity to the Company. As a non-cash financing activity, the Trust also issued $28,800,000 of securities comprising: • $25,920,000 of unit equity to Macquarie Equity Capital Markets Limited (MECML), and • $2,880,000 of NIVUS unit equity to the Company, who in turn issued $2,880,000 of ordinary equity to MECML in satisfaction of the $28,800,000 payable under the lead manager’s incentive offer. 58 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY TRUST ANNUAL CONCISE REPORT 30 JUNE 2004 consolidated statement of financial performance FOR THE PERIOD FROM 19 AUGUST 2003 TO 30 JUNE 2004 Note 2 2(a) Revenue and expenses from ordinary activities Property rental income and loan interest Interest income Total revenue from ordinary activities Borrowing costs excluding amortisation Borrowing costs (non-cash) amortisation Land tax expense Salaries and directors’ expenses Management fees paid Other expenses Total expenses from ordinary activities Profit from ordinary activities before income tax expenses Income tax expense Net profit after income tax expenses attributable to unitholders of the Trust Net increase in asset revaluation reserve 4 Total revenues, expenses and valuation adjustments attributable to unitholders recognised directly in unitholders’ funds Total changes in equity other than those resulting from transactions with unitholders as owners Statement of Distribution Net profit attributable to members of the Trust Undistributed income at the beginning of the financial period. Transfer from contributed equity Total available for distribution Distributions paid and payable Undistributed income at the end of the financial period Basic and diluted earnings per unit Distribution per unit held for the full period 7 3 19 August 2003 to 30 June 2004 29,479 712 30,191 20,542 3,691 545 15 997 353 26,143 4,048 8 4,040 40,459 40,459 44,499 4,040 2,790 6,830 (6,810) 20 Cents 4.4 7.5 The above Consolidated Statement of Financial Performance should be read in conjunction with the accompanying notes. consolidated statement of financial position 59 AS AT 30 JUNE 2004 Current Assets Cash assets Receivables Prepayments and other assets Development property – loans, deposits and costs Total current assets Non-Current Assets Property investments Development property – loans deposits and costs Prepayments and other assets Total non-current assets Total assets Current Liabilities Payables Provisions Deferred income tax liability Other Total current liabilities Non-current Liabilities Interest bearing liabilities Other Total non-current liabilities Total liabilities Net Assets Unitholders’ funds Units on issue Reserves Undistributed funds Total Unitholders’ funds Net assets per unit Note 30 June 2004 $’000 6 5 4 5 6 8 22,983 240 5,777 11,746 40,746 550,200 14,713 19,512 584,425 625,171 9,251 6,810 8 309 16,378 480,000 304 480,304 496,682 128,489 88,010 40,459 20 128,489 $1.42 The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. 60 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY TRUST ANNUAL CONCISE REPORT 30 JUNE 2004 consolidated statement of cash flows FOR THE PERIOD FROM 26 JUNE 2003 TO 30 JUNE 2004 Cash flows from operating activities Receipts from customers (inclusive of goods and services tax) Payments to suppliers and employees (inclusive of goods and services tax) Foster’s Group Limited – recovery of payments to suppliers Interest received Borrowing costs Net cash flows from operating activities Cash flows from investing activities Acquisition of property investments Deposits paid on property investments Pre-acquisition costs on property investments Loan to Foster’s Group Limited Loan to related parties Net cash flows used in investing activities Cash flows from financing activities Proceeds from issue of units Proceeds from interest bearing liabilities Net cash flows from financing activities Net increase in cash held Cash at beginning of the financial period Cash at the end of the financial period Non-cash financing activities 19 August 2003 to 30 June 2004 $’000 30,215 (407) 447 2,558 (14,568) 18,245 (509,741) (2,600) (450) (23,409) (1,062) (537,262) 62,000 480,000 542,000 22,983 – 22,983 28,800 $90,800,100 of units were issued as at 30 June 2004, however, cash proceeds from the issue of units was only $62,000,100. The difference of $28,800,000 is a non-cash item and related to stapled securities issued to the lead manager in satisfaction of a $28,800,000 fee (GST exclusive) payable under the lead manager’s incentive offer. Note 6 “Prepayments and Other Assets” contains further information on the manager’s incentive fee. The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. notes to the financial statements 61 NOTE 1 – BASIS OF PREPARATION OF CONCISE FINANCIAL REPORT The consolidated concise financial report has been prepared in accordance with the requirements of Accounting Standard AASB1039 “Concise Financial Reports”, applicable Urgent Issues Group Consensus Views and the Corporations Act 2001. The financial statements and specific disclosures included in the consolidated concise financial report have been derived from the consolidated full financial report for the financial period. The consolidated concise financial report cannot be expected to provide as full an understanding of the consolidated financial performance, consolidated financial position and financing and investing activities of the Consolidated Entity as the full financial report. NOTE 2 – REVENUE Operating activities Rental income Interest received on loans to Foster’s Group Limited Interest income (a) Interest income from: Other Parties Note 2(a) NOTE 3 – DISTRIBUTIONS PAID OR PROVIDED FOR ON UNITS Final distribution (7.5 cents per unit) Distribution for the period ended 30 June 2004 NOTE 4 – NON-CURRENT ASSETS – INVESTMENT PROPERTIES 19 August 2003 to 30 June 2004 $’000 27,468 2,011 712 30,191 712 712 6,810 6,810 Property New South Wales Smithfield Tavern, Smithfield Blacktown Hotel, Blacktown Kirribilli Hotel, Kirribilli Crows Nest Hotel, Crows Nest Brown Jug Hotel, Fairfield Heights Colyton Hotel, Colyton Melton Hotel, Auburn New Brighton Hotel, Manly Pioneer Hotel, Penrith Pymble Hotel, Pymble Total New South Wales Properties Acquisition Date 05-Nov-03 05-Nov-03 05-Nov-03 05-Nov-03 05-Nov-03 05-Nov-03 05-Nov-03 05-Nov-03 05-Nov-03 05-Nov-03 Cost Inclusive Acquisition Price $’000 Latest Valuation as at 30 June 2004 $’000 Revaluation Increase Current Period $‘000 Valuation Type 4,150 5,470 5,847 8,771 5,659 8,205 3,112 8,865 5,847 2,830 58,756 Independent Independent Independent Independent Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ 4,500 5,800 6,400 9,600 6,200 8,900 3,400 9,700 6,400 3,100 64,000 350 330 553 829 541 695 288 835 553 270 5,244 62 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY TRUST ANNUAL CONCISE REPORT 30 JUNE 2004 notes to the financial statements NOTE 4 – NON-CURRENT ASSETS – INVESTMENT PROPERTIES (CONTINUED) Property Queensland Racehorse Hotel, Booval Edinburgh Castle Hotel, Kedron Mt Gravatt Hotel, Mount Gravatt Alderley Arms Hotel, Alderley Holland Park Hotel, Holland Park Four Mile Creek, Strathpine Pelican Waters, Caloundra Anglers Arms Hotel, Southport Wilsonton Hotel, Toowoomba Oxford 152, Bulimba Royal Exchange Hotel, Toowong Sunnybank Hotel, Sunnybank Springwood Hotel, Springwood Albany Creek Tavern, Albany Creek Albion Hotel, Albion Balaclava Hotel, Cairns Banyo Tavern, Nudgee Breakfast Creek Hotel, Breakfast Creek Camp Hill Hotel, Camp Hill Chardons Corner Hotel, Annerly Dalrymple Hotel, Townsville Ferny Grove Tavern, Ferny Grove Hamilton Hotel, Hamilton Imperial Hotel, Beenleigh Kedron Park Hotel, Kedron Park Kirwan Tavern, Townsville Lawnton Tavern, Lawnton Miami Hotel, Miami Mount Pleasant Tavern, Mackay Newmarket Hotel, Cairns Noosa Reef Hotel, Noosa Heads Palm Beach Hotel, Palm Beach Petrie Hotel, Petrie Prince of Wales Hotel, Nundah Redland Bay Hotel, Redland Bay Stones Corner Hotel, Stones Corner Vale Hotel Motel, Townsville Woree Tavern, Cairns Total Queensland Properties Acquisition Date 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 Cost Inclusive Acquisition Price $’000 Latest Valuation as at 30 June 2004 $’000 Revaluation Increase Current Period $‘000 Valuation Type 1,792 3,112 3,207 3,301 3,773 3,672 4,237 4,433 4,527 4,999 5,753 8,205 9,148 8,394 4,433 3,301 3,018 10,657 2,264 1,415 3,207 5,847 6,602 2,452 2,264 4,433 4,433 4,055 1,792 2,358 6,874 6,885 1,698 3,395 5,187 5,376 5,659 1,037 167,195 Independent Independent Independent Independent Independent Independent Independent Independent Independent Independent Independent Independent Independent Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ 2,100 3,300 3,300 3,500 3,900 4,300 4,500 4,600 4,900 5,700 6,000 8,700 10,000 9,000 4,800 3,500 3,200 11,500 2,400 1,500 3,500 6,200 7,100 2,700 2,400 4,800 4,700 4,300 1,900 2,500 7,400 7,400 1,800 3,700 5,500 5,800 6,100 1,100 179,600 308 188 93 199 127 628 263 167 373 701 247 495 852 606 367 199 182 843 136 85 293 353 498 248 136 367 267 245 108 142 526 515 102 305 313 424 441 63 12,405 63 NOTE 4 – NON-CURRENT ASSETS – INVESTMENT PROPERTIES (CONTINUED) Property South Australia Finsbury, Woodville North Gepps Cross, Blair Athol Stockade Tavern, Salisbury Aberfoyle Hub, Aberfoyle Park Enfield, Clearview Eureka, Salisbury Exeter, Exeter Hendon, Royal Park Ramsgate, Henley Beach Total South Australian Properties Acquisition Date 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 10-Nov-03 Victoria 05-Nov-03 Victoria, Shepparton 05-Nov-03 Gateway, Corio 05-Nov-03 Ashley, Braybrook 05-Nov-03 Olinda Creek, Lilydale 05-Nov-03 Sandringham, Sandringham 05-Nov-03 Eltham, Eltham 05-Nov-03 Tudor Inn, Cheltenham 05-Nov-03 Vale, Mulgrave 05-Nov-03 Sandown Park, Noble Park 05-Nov-03 Deer Park, Deer Park 05-Nov-03 Plough, Mill Park 05-Nov-03 Mitcham, Mitcham 05-Nov-03 Keysborough, Keysborough 05-Nov-03 Burvale, Nunawading 05-Nov-03 Bayswater, Bayswater 05-Nov-03 Blackburn, Blackburn 05-Nov-03 Blue Bell, Wendouree 05-Nov-03 Club Hotel, Ferntree Gully 05-Nov-03 Cramers, Preston 05-Nov-03 Daveys,Frankston 05-Nov-03 Doncaster Hotel/Motel, Doncaster 05-Nov-03 Elsternwick, Elwood Ferntree Gully Hotel/Motel, Ferntree Gully 05-Nov-03 05-Nov-03 Mac's Melton, Melton 05-Nov-03 Meadow Inn, Fawkner 05-Nov-03 Morwell, Morwell 05-Nov-03 Mountain View, Glen Waverly 05-Nov-03 Pier, Frankston 05-Nov-03 Prince Mark, Doveton 05-Nov-03 Rifle Club, Williamstown 05-Nov-03 Rose Shamrock & Thistle, Reservoir 05-Nov-03 Royal Essendon, Essendon 05-Nov-03 Royal Exchange, Traralgon 05-Nov-03 Royal Sunbury, Sunbury 05-Nov-03 Sandbelt Club, Moorabbin 05-Nov-03 Somerville, Somerville 05-Nov-03 Stamford, Rowville 05-Nov-03 Sylvania, Campbellfield 05-Nov-03 Village Green, Mulgrave 05-Nov-03 Westmeadows, Westmeadows Young & Jackson, Melbourne 05-Nov-03 Total Victorian Properties Cost Inclusive Acquisition Price $’000 Latest Valuation as at 30 June 2004 $’000 Revaluation Increase Current Period $‘000 Valuation Type 1,603 2,169 4,433 3,301 2,452 3,301 1,886 1,603 3,773 24,521 2,264 3,112 3,961 3,961 4,527 4,716 5,470 5,564 6,319 6,979 8,488 8,583 9,620 9,714 9,903 9,431 1,981 5,093 8,300 2,546 12,166 3,301 4,716 6,885 8,111 1,509 7,168 8,017 9,809 2,735 2,641 4,338 2,169 3,112 10,846 2,641 12,732 5,376 12,544 2,735 6,131 250,214 Independent Independent Independent Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Independent Independent Independent Independent Independent Independent Independent Independent Independent Independent Independent Independent Independent Independent Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ Directors’ 1,800 2,600 5,200 3,800 2,900 3,900 2,200 1,800 4,400 28,600 2,400 3,300 4,300 4,400 4,800 5,000 5,800 5,900 6,900 7,400 9,000 9,700 10,200 10,300 10,600 10,100 2,100 5,500 8,900 2,800 13,000 3,500 5,100 7,400 8,700 1,600 7,700 8,600 10,500 2,900 2,800 4,600 2,300 3,400 11,600 2,800 13,700 5,800 13,500 3,000 6,500 268,400 197 431 767 499 448 599 314 197 627 4,079 136 188 339 439 273 284 330 336 581 421 512 1,117 580 586 697 669 119 407 600 254 834 199 384 515 589 91 532 583 691 165 159 262 131 288 754 159 968 424 956 265 369 18,186 64 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY TRUST ANNUAL CONCISE REPORT 30 JUNE 2004 notes to the financial statements NOTE 4 – NON-CURRENT ASSETS – INVESTMENT PROPERTIES (CONTINUED) Property Western Australia Sail & Anchor Hotel, Freemantle Queens Tavern, Highgate Wanneroo Villa Tavern, Wanneroo Total Western Australian Properties Total Investment Properties Opening Revaluation Reserve Closing Revaluation Reserve Acquisition Date 10-Nov-03 10-Nov-03 10-Nov-03 Cost Inclusive Acquisition Price $’000 3,112 4,810 1,133 9,055 509,741 Latest Valuation as at 30 June 2004 $’000 Revaluation Increase Current Period $‘000 Valuation Type Independent Directors’ Directors’ 3,300 5,100 1,200 9,600 550,200 188 290 67 545 40,459 0 40,459 Valuation of Investment Properties The basis of valuation of investment properties is fair value being the amounts for which the properties could be exchanged between willing parties in an arm’s length transaction, based on current prices in an active market for similar properties in the same location and condition and subject to similar leases. Independent Valuations In accordance with the Trust’s policy of independently valuing one-third of its property portfolio annually, thirty-five properties were independently valued as at 30 June 2004. The revaluations were completed by Max A Cooper (AAPI) of Jones Lang LaSalle Hotels. Directors’ Valuations The independent valuation of thirty five properties has been extrapolated to the balance of the portfolio by applying to it the same aggregate market movement, on a state by state basis, as evident in the independent valuation. Investment Properties All investment properties are freehold and 100% owned by the Trust and are comprised of land, buildings and fixed improvements. The plant, equipment and liquor and gaming licenses are owned by the tenant. Leasing Arrangements The investment properties are leased to a single tenant under long-term operating leases with rentals payable monthly in advance. Conditional Acquisition of Development Properties During November 2003 the Trust entered into conditional sale contracts with subsidiaries of Foster’s Group Limited to acquire seven properties that were under development at the time. The conditional sale contracts are conditional upon satisfactory completion of the developments. At 30 June 2004, four of the properties had yet to be acquired. (Refer Note 5 for further information). Reconciliation A reconciliation of the carrying amounts of investment properties at the beginning and end of the current financial period is set out below: Carrying amount at 19 August 2003 Acquisitions in the period Revaluation increments Carrying amount at 30 June 2004 30 June 2004 $’000 – 509,741 40,459 550,200 65 NOTE 5 – DEVELOPMENT PROPERTY – LOANS, DEPOSITS AND COSTS Deposits at 10% of Purchase Price $’000 Loans to Foster’s Group Limited $’000 Purchase Price $’000 Acquisition Costs $’000 Total Cost $’000 Property Queensland Burleigh Heads Hotel, Burleigh Heads (1) (2) Caloundra Hotel, Caloundra New South Wales Narrabeen Sands Hotel, Narrabeen Parkway Hotel, Frenchs Forest Total Total – current Total – non-current (2) (1) (2) (1) Total investment properties at cost (Note 4) 657 426 1,083 879 638 1,517 2,600 – 2,600 5,915 3,832 9,747 7,914 5,748 13,662 23,409 11,746 11,663 6,572 4,258 10,830 8,793 6,386 15,179 26,009 11,746 14,263 114 74 188 152 110 262 450 – 450 6,686 4,332 11,018 8,945 6,496 15,441 26,459 11,746 14,713 509,741 Total investment properties (at cost) and development property – loans, deposits and costs 536,200 The Trust has made loans equal to the estimated completion value of each property less deposits paid to Foster’s Group Limited and receives monthly interest on the loans equal to the rent otherwise payable on the properties, as at 30 June 2004 the monthly interest payable was $182,311 per month. This equates to a weighted average interest rate of 9.35% on the loan amount. The Trust will acquire legal title to each of these properties on completion of the relevant development at a price reflecting the completion value estimated at the November 2003 exchange of contracts. For properties where the scope of works definition was not finalised at exchange of conditional sale contracts (being Narrabeen Sands, Burleigh Heads and Parkway), a valuation will be undertaken once the development is complete and, if necessary, the purchase price will be adjusted down to reflect the value. If the completion valuation results in an increase in value there will be no adjustment to the purchase price. Current and Non-Current Assets The Caloundra Hotel and Narrabeen Sands developments are expected to be completed and the properties acquired by the Trust by 30 June 2005 as a result the total loan amounts of $11.746 million relating to these two properties are current assets i.e. the loans will be applied against the property acquisitions. All other amounts are non-current assets due to expected development completions post 30 June 2005 for loan amounts or due to the fact that they will not be extinguished as a result of Consolidated Entity property acquisitions in the case of property deposits and pre-acquisition cost amounts. 66 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY TRUST ANNUAL CONCISE REPORT 30 JUNE 2004 notes to the financial statements NOTE 6 – PREPAYMENTS AND OTHER ASSETS Current Lead manager’s incentive fee to be expensed over the period 1 July 2004 to 30 June 2005 inclusive Prepayments Non-Current Lead manager’s incentive fee to be expensed over the period 1 July 2005 to 9 November 2008 inclusive Corporate advisory services prepaid to 30 June 2005 (a) (a) (b) Total (a) Reconciliation to the total fee: Lead manager’s incentive fee paid Amount expense period ending 30 June 2004 Closing balance 30 June 2004 19 August 2003 to 30 June 2004 $’000 5,769 8 5,777 19,338 174 19,512 25,289 28,800 (3,691) 25,109 Under the lead manager’s incentive offer as originally agreed between the Foster’s Group Limited and the lead manager, Macquarie Equity Capital Markets Limited, the manager was entitled to be issued with 48,000 units for each one-tenth of a basis point by which the Consolidated Entity’s weighted average cost of debt was less than 7.335% up to a maximum of 28,800,000 stapled securities at 6.735%. The 6.735% target was surpassed with the weighted average cost of debt for the Consolidated Entity being 6.524% fixed for five years on current borrowings and swaps. The fee of $28,800,000 has been capitalised as a borrowing cost and will be expensed over the five year period to which it relates. (b) On 10 November 2003 $300,000 was paid to Macquarie Bank Limited for advisory services to be provided over the nineteen month period ending 30 June 2005. The Consolidated Entity has expensed 8 months of this fee as at 30 June 2004. NOTE 7 – EARNINGS PER UNIT Weighted average number of units used as the denominator – Basic earnings per unit – Diluted earnings per unit Weighted average number of ordinary units used as the denominator in calculating basic earnings per unit Weighted average number of ordinary units and potential ordinary units used as the denominator in calculating diluted earnings per unit Cents 4.4 cents 4.4 cents No. of Securities 90,800,100 90,800,100 NOTE 8 – INTEREST BEARING LIABILITIES Commercial Mortgage Backed Securities ALE Property Trust Notes on issue 67 30 June 2004 $’000 330,000 150,000 480,000 The CMBS borrowings are secured by, among other things, first ranking real property mortgages over all but four of the investment properties and have scheduled maturity dates of 10 November 2008 and final maturity dates of 10 November 2010. The ALE Notes are unsecured and have a maturity date of 30 September 2011. The Consolidated Entity’s variable interest rate exposure is fully hedged (100% fixed) up until 10 November 2008 on current borrowings. This has been achieved by the use of variable rate borrowings swapped to fixed rates by interest rate swaps. The Consolidated Entity’s weighted average interest rate as at 30 June 2004 was:– CMBS – $230 million variable rate CMBS – $100 million fixed rate CMBS – $330 million weighted average of variable and fixed ALE Notes – $150 million fixed Total weighted average interest rate of CMBS and ALE Notes Net impact of swaps – net $230million Total Consolidated Entity weighted average interest rate NOTE 9 – SEGMENT INFORMATION Business Segment The Trust operates solely in the property investment industry. Geographical Segment The Trust owns property solely within Australia. NOTE 10 – EVENTS OCCURRING AFTER REPORTING DATE The directors are not aware of any significant events since the reporting date. 6.210% 6.660% 6.346% 7.265% 6.633% (0.227%) 6.524% NOTE 11 – FULL FINANCIAL REPORT Further financial information can be obtained from the full annual financial report. The full annual financial report and auditors report will be sent to security holders on request, free of charge. Please call 1300 302 429 (freecall) and for International +61 3 9415 4141, and a copy will be forwarded to you. Alternatively, you can access the full annual financial report and the annual concise financial report via the internet on our website: www.alegroup.com.au. 68 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY TRUST ANNUAL CONCISE REPORT 30 JUNE 2004 directors’ declaration The directors declare that in their opinion, the Concise Financial Report for the Trust for the period ended 30 June 2004 as set out on pages 57 to 67 complies with accounting standard AASB 1039: Concise Financial Reports. The financial statements and specific disclosures included in this concise financial report have been derived from the full financial report for the year ended 30 June 2004. The concise financial report cannot be expected to provide as full an understanding of the financial performance, financial position and financing and investing activities of the consolidated entity as the full financial report, which as indicated in Note 11, is available on request. This declaration is made in accordance with a resolution of the directors. P Warne Director Sydney Dated this 1st day of September 2004 independent audit report TO THE UNITHOLDERS OF AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY TRUST 69 MATTERS RELATING TO THE ELECTRONIC PRESENTATION OF THE AUDITED CONCISE FINANCIAL REPORT This audit report relates to the concise financial report of Australian Leisure and Entertainment Property Trust for the financial period ended 30 June 2004 included on Australian Leisure and Entertainment Property Group’s web site. The consolidated entity’s directors are responsible for the integrity of the Australian Leisure and Entertainment Property Group’s web site. We have not been engaged to report on the integrity of this web site. The audit report refers only to the concise financial report identified below. It does not provide an opinion on any other information which may have been hyperlinked to/from the financial report. If users of this report are concerned with the inherent risks arising from electronic data communications they are advised to refer to the hard copy of the audited concise financial report to confirm the information included in the audited concise financial report presented on this web site. AUDIT OPINION In our opinion, the concise financial report of Australian Leisure and Entertainment Property Trust for the period ended 30 June 2004 complies with Australian Accounting Standard AASB 1039: Concise Financial Reports. This opinion must be read in conjunction with the rest of our audit report. SCOPE The concise financial report and directors’ responsibility The concise financial report comprises the consolidated statement of financial position, consolidated statement of financial performance, consolidated statement of cash flows, discussion and analysis of and notes to the financial statements, and the directors’ declaration for Australian Leisure and Entertainment Property Trust (the trust) for the period ended 30 June 2004. The directors of Australian Leisure and Entertainment Property Management Limited (the responsible entity) are responsible for the preparation and presentation of the financial report in accordance with Australian Accounting Standard AASB 1039: Concise Financial Reports. Audit approach We conducted an independent audit of the concise financial report in order to express an opinion on it to the unitholders of the trust. Our audit was conducted in accordance with Australian Auditing Standards, in order to provide reasonable assurance as to whether the concise financial report is free of material misstatement. The nature of an audit is influenced by factors such as the use of professional judgement, selective testing, the inherent limitations of internal control, and the availability of persuasive rather than conclusive evidence. Therefore, an audit cannot guarantee that all material misstatements have been detected. We also performed an independent audit of the full financial report of the trust for the financial period ended 30 June 2004. Our audit report on the full financial report was signed on 30 August 2004, and was not subject to any qualification. In conducting our audit of the concise financial report, we performed procedures to assess whether in all material respects the concise financial report is presented fairly in accordance with Australian Accounting Standard AASB 1039: Concise Financial Reports. We formed our audit opinion on the basis of these procedures, which included: • testing that the information included in the concise financial report is consistent with the information in the full financial report, and • examining, on a test basis, information to provide evidence supporting the amounts, discussion and analysis, and other disclosures in the concise financial report which were not directly derived from the full financial report. When this audit report is included in an Annual Report, our procedures include reading the other information in the Annual Report to determine whether it contains any material inconsistencies with the concise financial report. INDEPENDENCE In conducting our audit, we followed applicable independence requirements of Australian professional ethical pronouncements and the Corporations Act 2001. PricewaterhouseCoopers Sydney 1 September 2004 Mark Haberlin Partner 70 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY TRUST ANNUAL CONCISE REPORT 30 JUNE 2004 stapled security holder information VOTING RIGHTS The voting rights are one vote per stapled security. DISTRIBUTION OF STAPLED SECURITY HOLDERS AS AT 31 AUGUST 2004 Number of Stapled Securities 1 – 1000 1,001 – 5,000 5,001 – 10,000 10,001 – 1,000,000 1,000,001 – over Total Number of Stapled Security Holders 42 771 597 1,302 10 2,722 Stapled Securities Held % of Issued Stapled Securities 32,246 2,580,581 5,298,548 54,366,623 28,522,102 0.03% 2.84% 5.84% 59.88% 31.41% 90,800,100 100.00% There were 6 stapled security holders holding parcels of stapled securities with a value of less than $500. TOP 20 LARGEST STAPLED SECURITY HOLDERS AS AT 31 AUGUST 2004 Rank Stapled Security Holder LADY JEAN FALCONER GRIFFIN NATIONAL NOMINEES LIMITED CITICORP NOMINEES PTY LIMITED RBC GLOBAL SERVICES AUSTRALIA NOMINEES PTY LIMITED FORTIS CLEARING NOMINEES P/L J P MORGAN NOMINEES AUSTRALIA LIMITED ANZ NOMINEES LIMITED 1 2 3 4 5 WESTPAC CUSTODIAN NOMINEES LIMITED 6 7 MR KENNETH CHARLES FERRIS + MRS DOROTHY MAY FERRIS 8 9 10 RBC GLOBAL SERVICES AUSTRALIA NOMINEES PTY LIMITED 11 PINEROSS PTY LTD 12 MRS LYNETTE JOY FAHEY 13 HOBEREAU INVESTMENTS PTY LTD 14 ARGO INVESTMENTS LIMITED 15 CAERGWRLE INVESTMENTS PTY LTD 16 MARGARET LYNDSEY CATTERMOLE 17 GATECALL PTY LTD 18 MRS SHEMARA WIKRAMANAYAKE 19 NATIONAL AUSTRALIA TRUSTEES LIMITED 20 MR MICHAEL JOHN STEVEN ARTHUR Number of Stapled Security Holders 8,035,905 4,615,444 3,181,619 2,908,539 2,640,000 1,859,120 1,614,493 1,460,413 1,200,249 1,006,320 900,000 650,000 600,488 500,000 500,000 500,000 500,000 460,500 450,000 398,000 % of Issued Stapled Securities 8.85% 5.08% 3.50% 3.20% 2.91% 2.05% 1.78% 1.61% 1.32% 1.11% 0.99% 0.72% 0.66% 0.55% 0.55% 0.55% 0.55% 0.51% 0.50% 0.44% Total 33,981,090 37.43% SUBSTANTIAL STAPLED SECURITY HOLDERS (NOTICES RECEIVED AS AT 31 AUGUST 2004) Stapled Security Holder UBS NOMINEES PTY LIMITED DEUTSCHE BANK GROUP Total Number of Stapled Securities 7,699,271 4,750,000 12,449,271 welcome welcome we welcome you to ALE Property Group’s first Annual Report corporate directory REGISTERED OFFICE Level 8, 15-19 Bent Street Sydney NSW 2000 Telephone (02) 8231 8588 LAWYERS Allens Arthur Robinson 2 Chifley Square Sydney NSW 2000 AUDITORS PricewaterhouseCoopers 201 Sussex Street Sydney NSW 2000 CUSTODIAN (OF AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY TRUST) Trust Company of Australia Limited Level 4, 35 Clarence Street Sydney NSW 2000 TRUSTEE (OF AUSTRALIAN LEISURE AND ENTERTAINMENT DIRECT PROPERTY TRUST) Permanent Trustee Company Limited Level 4, 35 Clarence Street Sydney NSW 2000 REGISTRY Computershare Investor Services Pty Ltd Reply Paid GPO Box 7115 Sydney NSW 2000 Level 3, 80 Carrington Street Sydney NSW 2000 Telephone 1300 302 429 Pelican Waters Hotel, Qld (also featured on cover) Breakfast Creek Hotel, Qld New Brighton Hotel, NSW DESIGNED AND PRODUCED BY ROSS BARR AND ASSOCIATES contents profile of ALE 1 our results 2 our key attributes 4 our objectives 6 our relationship with ALH 8 chairman’s message 9 CEO’s review – our quality portfolio 10 our board 18 corporate governance 19 financials 21 corporate directory inside back cover A L E P R O P E R T Y G R O U P A N N U A L R E P O R T J U N E 2 0 0 4 welcome ALE PROPERTY GROUP ANNUAL REPORT JUNE 2004 

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