ALE Property Group Annual Report 2005

Plain-text annual report

in good company ALE PROPERTY GROUP ANNUAL REPORT JUNE 2005 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 5 Pelican Waters Hotel, Qld New Brighton Hotel, NSW During the year the ownership of the portfolio’s tenant changed hands. With the tenant now controlled by major retailer Woolworths Limited (75%) and Bruce Mathieson Group (25%), our income quality and value has been enhanced. ALE Property Group is now in very good company. investor information corporate directory Stock Exchange Listing The ALE Property Group (ALE) is listed on the Australian Stock Exchange (ASX). Its stapled securities are listed under ASX code: LEP and its ALE Notes are listed under ASX code: LEPHB. Distribution Reinvestment Plan ALE has not established a distribution reinvestment plan. Electronic Payment of Distributions Security holders may nominate a bank, building society or credit union account for payment of distributions by direct credit. Payments are electronically credited on the payment dates and conﬁ rmed by mailed payment advice. Security holders wishing to take advantage of payment by direct credit should contact the registry for more details and to obtain an application form. Publications The Annual Report is the main source of information for stapled security holders. In addition, a half-year report for the six months to December is released to the ASX and posted on the ALE website in February each year. The half year report is also mailed on request. Periodically ALE may also send releases to the ASX covering matters of relevance to investors. These releases are also posted to the ALE website. Website The ALE website, www.alegroup.com.au, is a useful source of information for security holders. It includes details of ALE‘s property portfolio, current activities and future prospects. Annual Tax Statement Accompanying the ﬁ nal stapled security distribution payment, normally in August each year, will be an annual tax statement which details the tax deferred components of the year’s distribution. Distributions Stapled security distributions are paid twice yearly, normally in February and August. Annual General Meeting The Annual General Meeting of the Company and a meeting of the Trust will be held at the Barnet Room, Level 6, The Westin, Sydney on 21st October 2005 at 10am. A copy of the Notice of Meetings will be mailed to stapled security holders and made available to download from ALE’s website in September 2005. Security Holder Enquiries Please contact the registry if you have any questions about your holding or payments. Registered Ofﬁ ce Level 8, 15-19 Bent Street Sydney NSW 2000 Telephone (02) 8231 8588 Company Secretary Mr Brendan Howell Level 8, 15-19 Bent Street Sydney NSW 2000 Telephone (02) 8231 8588 Auditors PricewaterhouseCoopers 201 Sussex Street Sydney NSW 2000 Lawyers Allens Arthur Robinson 2 Chiﬂ ey Square 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 ALE 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 Facsimile: (03) 9473 2500 www.computershare.com.au Front and back cover: Breakfast Creek Hotel, Qld contents quality of income 2 23.5 year lease term 3 compounding value 4 acquisitions 5 prime locations 6 impressive results 8 chairman’s message 9 management team 10 managing director’s report 11 board of directors 18 corporate governance 19 ﬁ nancial reports 21 management statement letter 107 stapled security holder information 108 investor information and corporate directory inside back cover Designed and produced by Ross Barr & Associates Pty Limited …in very good company ALE Property Group – Owns freehold property assets for ALE Property Group that equates to… ALE Notes support Lease agreements Foster’s Group • Former owner of assets • Global beverage company Supply agreement Australian Leisure & Hospitality Group (ALH) • Holds operating assets • Operates pubs 25% Bruce Mathieson Group • An experienced operator of pubs Joint venture 75% Woolworths • A stable and secure retailer • Number one in market share • Signiﬁ cant growth aspirations • An Australian icon 1 quality of income the new ownership of our tenant provides security of cash ﬂ ow Sail and Anchor Pub Brewery, WA Far left: Albany Creek Tavern, Qld Left: The Young & Jackson Hotel, Vic m r e t e s a e l i i g n n a m e r r a e 23.5y our pub portfolio is leased exclusively to ALH and the remaining term is unmatched in the listed property trust sector ALH also holds four 10 year options to renew that extend the potential term currently remaining to 63.5 years. The property portfolio has currently been operating as pubs for an average of 55 years. 3 the new ownership of our tenant provides security of cash ﬂ ow compounding value material revaluation • A- credit quality tenant* • CPI indexing rental income • Strong demand for pub properties • Strong demand for properties with long term leases A- * See Standard & Poor’s press release (27 January 2005) on ALE’s website Above: Pymble Hotel, NSW Right: The Ramsgate Hotel, SA 4 Pelican Waters Hotel, Qld acquisitions ALE is seeking to acquire additional high quality properties that complement its existing portfolio Potential acquisitions: • Pubs and other commercial properties • Properties with high quality tenants • Properties with long term indexed or ﬁ xed increase rental streams • Properties which are strategic to the tenant’s business • Properties currently under development by ALH and its development partners 5 prime locations our properties are situated in prime coastal or capital city locations – where the majority of people live, work and socialise �� melbourne �� Sandown Park Hotel, Vic �� 90%1 of the Adelaide population live within a 20km radius of the CBD 72%1 of the adelaide �� Melbourne population live within a 30km radius of the CBD �� 6 �� 85%1 of the Brisbane population live within a 30km radius of the CBD �� brisbane �� Breakfast Creek Hotel, Qld �� sunshine coast �� sydney �� 87%1 of the Sydney population live within a 30km radius of the CBD �� gold coast 1 Proportion of population living in sample area Source: ABS Census Data 2001; UrbisJHD New Brighton Hotel, NSW 7 impressive results Net Proﬁ t Change from PDS Forecast ($m) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � FY05 FY041 Change Net Proﬁ t After Tax Distributable Proﬁ t2 $5.3m $3.9m $1.4m $11.7m $8.0m $3.7m Distribution per Stapled Security 12.85¢ 7.50¢ 5.35¢ Portfolio Value $651.5m $576.7m $74.8m Stapled Security Price Net Assets per Stapled Security $2.06 $2.17 $1.31 $1.41 75¢ 76¢ 1 FY04 effectively commenced November 2003 2 Distributable Proﬁ t includes add backs for non-cash accounting items 8 It is my pleasure to report to you on the performance of ALE Property Group (ALE) for the year ended 30 June 2005. This year, ALE has experienced substantial growth in both net proﬁ t and the capital value of its property portfolio. ALE has achieved net proﬁ t this year of $5.3 million, an increase of $1.4 million over last year and $1.8 million higher than forecast in the PDS/Prospectus (PDS) at the time of our listing on the Australian Stock Exchange (November 2003). This performance has resulted in ALE being able to pay distributions of $11.7 million to our security holders or 12.85 cents per security, 11.2% higher than for the same period last year (annualised) and 17.9% higher than forecast in the PDS. In October 2004, the tenant of our existing 105 pub portfolio, Australian Leisure and Hospitality Group Limited (ALH), was taken over by Bruandwo Pty Limited, a joint venture company owned by Woolworths Limited (75%) and the Bruce Mathieson Group (25%). This has had a materially positive impact on ALE in a number of ways. Firstly, ALH now enjoys a credit quality of A-, according to Standard & Poor’s. Further, we believe the operating capability of ALH has been enhanced by the combined industry expertise and resources of the joint owners, Woolworths and the Bruce Mathieson Group. As a consequence, ALE’s long term and inﬂ ation- indexed lease cash ﬂ ow now comes from a more creditworthy tenant with increased operational expertise in its underlying business. In June 2005, the Board revalued the entire pub portfolio following an independent valuation undertaken by DTZ Australia. Improvements in the ALH lease credit quality as well as increased market activity in the pub sector resulted in a material upward revaluation of the portfolio to $651.5 million, an increase of $74.8 million (13.0%) over June 2004 and $115.3 million (21.5%) over the November 2003 purchase price. Following the revaluation, the Net Assets per stapled security has risen by 53.9% to $2.17 at 30 June 2005. The increase in value has caused ALE’s gearing (debt/total assets) to fall from 88.6% on listing to 69.5% at 30 June 2005. Interest rates are 100% hedged until 2008 and then partly hedged until 2013. The Board continues to monitor capital markets to ensure that ALE’s ﬁ nancing arrangements provide both efﬁ ciency and certainty to ALE security holders. ALE’s management team has continued to perform well under the leadership of Managing Director, Andrew Wilkinson, providing robust and efﬁ cient management in which we have a lot of conﬁ dence. ALE has recently moved to expand its management team with the appointment of Andrew Slade in July 2005 as Investment and Acquisitions Manager – Securitised Property. The Board has a sharp focus on both compliance and risk management. This will continue as the Group grows and responds to any changes in the market or the Group operations. ALE has recently completed a Board review conducted by a specialist governance adviser. The ﬁ ndings of this review were that the size and skills of the Board are appropriate for the current activities of the Group and that the Board is functioning well. The adviser suggested how the Board may need to evolve if the activities of the Group change in the future. The adviser also suggested various minor improvements to processes which may enhance the performance of the Board which the Board is still considering . The Board of ALE continues to focus on improving stapled security holder value and maintaining a disciplined and patient approach to evaluating new acquisition opportunities. These are assessed with speciﬁ c attention paid to the term of lease, the quality of tenant, and the value of the underlying property. The Board expects ALE to deliver continued sound performance in the year ahead underpinned by its long term inﬂ ation-linked income stream and fully hedged debt arrangements. The board has scheduled this year’s annual general meeting to be held at The Westin, Sydney at 10am on 21st October 2005. At this meeting the board will present to stapled security holders an update of the activities of the group, and provide guidance on the likely distribution for 2006. Thank you for your continuing support. Peter Warne Chairman chairman’smessage 9 Andrew Wilkinson BBus, CFTP Managing Director Andrew joined ALE as Chief Executive Ofﬁ cer at the time of its listing in November 2003 and was appointed Managing Director of ALE in November 2004. Andrew has 25 years experience in banking and corporate ﬁ nance and was previously a corporate ﬁ nance partner with PricewaterhouseCoopers. Andrew specialised in providing ﬁ nancial and strategic advice on signiﬁ cant property and infrastructure portfolios and was one of the founding members of the NSW Government’s Infrastructure Council. Andrew’s career also includes 15 years in ﬁ nance and investment banking with organisations including ANZ Capel Court and Schroders where he was involved in leading the ﬁ nancing arrangements for a range of major projects. Andrew has a Bachelor of Business degree from the University of Technology, Sydney and is a professional member of the Finance and Treasury Association. Andrew Slade BEcon (Actuarial Studies) Investment and Acquisitions Manager – Securitised Property Brendan Howell BEcon, GDipAppFin (Sec Inst) Company Secretary and Compliance Ofﬁ cer Andrew joined ALE in July 2005. Andrew has 15 years experience in investment banking and structured ﬁ nance. Andrew spent 10 years with Oxley Corporate Finance, where he was involved with a range of structured, project and property ﬁ nance transactions, the latter involving major Australian companies and listed property trusts. For the last ﬁ ve years Andrew has acted as principal of Slade Financial Consulting, where he has provided advice on structured property and asset-based ﬁ nancing arrangements for the private sector as well as for the NSW and SA Governments. Andrew has a Bachelor of Economics degree, majoring in Actuarial Studies, from Macquarie University. Brendan has 15 years experience in the funds management industry and was formerly an associate member of both the Securities Institute of Australia and the Institute of Chartered Accountants in Australia. 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 and a half 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 degree from the University of Sydney and a Graduate Diploma in Applied Finance and Investment from the Securities Institute of Australia. Darren Barkas BCom, GDipAppFin (Sec Inst), CPA, ASIA Group Financial Controller and Assistant Company Secretary Darren joined ALE as Property Trust Manager in January 2004 and was appointed Group Financial Controller and Assistant Company Secretary in March 2005. Darren has 19 years of broad accounting, taxation, ﬁ nancial control and management experience. Darren joined ALE from the property division of AMP Capital Investors. During his seven years at AMP, Darren was responsible for a broad range of accounting, reporting, treasury, taxation, analysis, registry and general ﬁ nancial 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 currently undertaking a Graduate Diploma in Applied Corporate Governance with Chartered Secretaries Australia. Darren is a member of CPA Australia and the Securities Institute of Australia and is enrolled in the Afﬁ liates Program of Chartered Secretaries Australia. Andrew Slade Brendan Howell Darren Barkas management team 10 Pelican Waters Hotel, Qld I am pleased to report that ALE has not only performed well in the past year but also has a promising outlook. In summary, the net proﬁ t result exceeded expectations, property values have increased materially and the market performance of ALE’s stapled securities have placed ALE in a position where it may competitively acquire additional high quality property assets. managing director’s Andrew Wilkinson report 11 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �� Increase in Distribution per Stapled Security � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Growth in Property Value Increase in Net Proﬁ t In the year to June 2005, increased revenue and continuing effective cost management have contributed to a signiﬁ cant increase in net proﬁ t over last year. Contributing factors include: • Property income – lease payments under ALE’s long term leases to ALH increased in line with average state based consumer price index of 2.1%. This was a slightly lower rate of inﬂ ation than that anticipated at the time of our listing, resulting in property income being marginally ($0.2 million) below that forecast in the PDS. • Interest income – ALE’s cash management efﬁ ciency more than made up for any small shortfalls in rental income. $1.2 million of bank interest income was achieved, a result signiﬁ cantly higher than the PDS forecast of $0.4 million. ALE holds cash on deposit in order to provide security for the Commercial Mortgage Backed Securities (CBMS) arrangements, fund liquidity and to support modest acquisition opportunities. • Land tax – Queensland land tax (which by law must be paid by the land owner) is the only property outgoing routinely paid by ALE. All other routine outgoings are paid by ALH. ALE’s land tax expense this year of $1.1 million was marginally lower than the PDS forecast of $1.2 million. Although Queensland property values increased, the savings arising from delayed development property completions helped deliver a favourable result. • Interest expense – at the time of listing, ALE was able to lock in an average interest rate (across its various debt facilities) of 6.524%, which was well below its PDS forecasts. Annual interest savings of around $1.0 million below PDS forecasts were locked in until November 2008. • Management expense – this year, management expenses were lower than the PDS forecast of $3.0 million. ALE’s internalised management structure helped deliver a management expense ratio (MER) of just 0.24% of gross assets. This compares very favourably to the wider Listed Property Trust sector which averages around 0.70% (BDO LPT survey 2004). While a number of other property trusts pay performance fees to external managers, ALE’s signiﬁ cant current year outperformance ﬂ ows directly to its stapled security holders. Increase in Distribution ALE has declared a total distribution to its security holders of $11.7 million for the full year, or 12.85 cents per stapled security, a 11.2% increase on the (annualised) distribution for 2004, and 17.9% more than the PDS forecast of 10.9 cents. The full year distribution is 100% tax deferred. Change of Ownership of ALH As mentioned by our chairman, the tenant of our existing 105 pub portfolio, ALH, was taken over by a joint venture of Woolworths and the Bruce Mathieson Group. This has had a positive impact on ALE. ALH’s credit quality has improved according to leading debt rating agency, Standard & Poor’s, and the operating capability of ALH now beneﬁ ts from the combined expertise and operating resources of the joint owners, Woolworths and the Bruce Mathieson Group. ALE’s long term, inﬂ ation-indexed lease cash ﬂ ows come from a very credible tenant with signiﬁ cant growth aspirations in a market where it clearly occupies the number one position. Property Portfolio Valuation As noted last year, our policy is to have at least one third of our portfolio independently valued each year. This year, given the change in the ownership of ALH and the identity of the new owners, we decided to have the entire portfolio revalued. The valuation was performed by DTZ, a recognised valuer of securitised pub properties in many markets including the United Kingdom where it has recently valued around 9,000 pubs for major listed companies that own the freehold properties. In mid June 2005, we were delighted to announce that on the basis of the independent valuation, the Board had materially increased the carrying value of our properties to $651.5 million, an increase of $74.8 million (or 13.0%) over June 2004 and $115.3 million (or 21.5%) over the November 2003 purchase price. This value reﬂ ects an improvement in the average capitalisation rate of our freehold properties to 6.87%. New Brighton Hotel, 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 Burleigh Heads Hotel 4 The Esplanade, Burleigh Heads, Qld CBX 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 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 Breakfast Creek Hotel, Qld 13 Blacktown Inn Hotel 80 Blacktown Road, Blacktown, NSW Parkway Hotel 5 Frenchs Forest Road, Frenchs Forest, NSW Pioneer Tavern Cnr Maxwell Street and The Northern Road, Penrith, NSW Pymble Hotel 1134 Paciﬁ c Highway, Pymble, NSW Smithﬁ eld Hotel 671 The Horsley Drive, Smithﬁ eld, NSW Brown Jug Hotel 47 Stanbrook Parade, Fairﬁ eld, NSW Colyton Hotel 12 Great Western Highway, St Marys, NSW Crows Nest Hotel 1 – 3 Willoughby Road, Crows Nest, NSW Kirribilli Hotel 37 Broughton Street, Milsons Point, NSW Melton Hotel 163 Parramatta Road, Auburn, NSW Narrabeen Sands 1260 Pittwater Road, Narrabeen, NSW New Brighton Hotel 71 The Corso, Manly, NSW 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 Aberfoyle Hub Tavern The Hub Shopping Centre Taylors Road, Aberfoyle Park, SA Enﬁ eld Hotel 184 Hampstead Road, Clearview, SA Eureka Hotel 10 Park Terrace, Salisbury, SA Exeter Hotel 152 Semaphore Road, Exeter, SA Breakfast Creek Hotel, Qld Kirwan Tavern 154 Thurwingowa Drive Townsville, Qld Finsbury Hotel 49 Hanson Road, Woodville North, SA Petrie Hotel Dayboro Road, Petrie, Qld Gepps Cross Hotel 560 Main North Road, Blair Athol, SA Prince of Wales 1154 Sandgate Road, Nundah, Qld Hendon Hotel 110 Tapleys Hill Road, Royal Park, SA Racehorse Hotel 215 Brisbane Road, Booval, Qld Stockade Tavern 2 Gawler Street, Salisbury, SA Redland Bay Hotel The Esplanade, Redland Bay, Qld The Ramsgate Hotel 328 Seaview Road, Henley Beach, SA Royal Exchange Hotel 10 High Street, Toowong, Qld Springwood Tavern 43 Springwood Road, Springwood, Qld Stones Corner Tavern 346 Logan Road, Stones Corner, Qld 14 Ashley Hotel 226 Ballarat Road, Braybrook, Vic Deer Park Hotel 760 Ballarat Road, Deer Park, Vic Bayswater Hotel 780 Mountain Highway, Bayswater, Vic Doncaster Inn Hotel 855 Doncaster Road, Doncaster, Vic Blackburn Hotel 111 Whitehorse Road, Blackburn, Vic Elsternwick Hotel 259 Brighton Road, Elwood, Vic Blue Bell Hotel Howitt Street, Wendouree, Vic Eltham Hotel 746 Main Street, Eltham, Vic Burvale Hotel 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 Ferntree Gully Hotel & Motel 1130 – 2 Burwood Highway, Ferntree Gully, Vic Gateway Hotel 218 – 230 Princes Highway, Corio, Vic 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 The increase in value was driven by: • • • Increased net rent – property income increased by 2.1% in the current year. The value of the upcoming scheduled rent review due in November 2005 was conservatively excluded from the valuer’s assessment. Improved income security – the change of ownership of ALH resulted in an improvement of ALH’s credit quality as assessed by Standard & Poor’s. The valuer also considered the experience of the new management within the ALH business. These factors were considered to provide a much more secure income stream from a valuation perspective and therefore justiﬁ ed a strengthening of the capitalisation rate used. Increased appetite for quality tenanted pubs – the pub sector as a whole has experienced a general strengthening of capitalisation rates, particular for assets with strong corporate “triple-net” income streams such as those in ALE’s portfolio. In accordance with accounting standards, the properties were valued by DTZ on an individual or stand alone property basis. DTZ further advised that the value of the whole portfolio or groups of pub properties may transact at a premium to the individual property values recorded in the accounts. DTZ were not asked to advise of the size of that premium. Development Properties As at June 2005, ALE has four development properties yet to be completed. Whilst these properties have experienced delays in construction, ALE is not exposed to any property development risks. During the development period, ALE continues to earn interest on loans relating to the development properties under a continuing contract with the Foster’s Group Limited. The interest is indexed annually in line with inﬂ ation. ALE currently expects that, upon completion, the properties will carry values higher than their respective purchase prices. The latest ALH estimate for transfer of each of the remaining development properties to ALE is as follows: • Caloundra Hotel (CBX), Qld October 2005 • Narrabeen Hotel, NSW March 2006 • Burleigh Heads Hotel, Qld December 2007 ALH is presently in discussions with the developer for the Parkway Hotel in NSW. Once these discussions are concluded, ALE will advise of any revised development arrangements that it approves for this hotel. Performance For the year ended 30 June, 2005, ALE was the second best performing listed property trust in Australia. Our share price increased from $1.31 to $2.06 over the year, which, combined with a total distribution of 12.85 cents per security, represents a 68.4% pre-tax internal rate of return on funds invested for the 12 month period. Capital Management At the date of listing, ALE was able to increase the efﬁ ciency of its capital structure by leveraging its rental stream’s long term and high-quality nature. Since IPO, increases in ALE’s property portfolio value and stapled security price mean that ALE’s gearing (debt/total assets) has fallen from 88.6% at IPO to 69.5% at 30 June 2005. ALE’s capital structure at 30 June 2005 is as follows: • $330 million of commercial mortgage backed securities (CMBS) – in various tranches, with interest rates fully hedged to between November 2008 and November 2011; and • $150 million of ALE Notes – trades on the ASX (Code LEPHB), paying ﬁ xed interest until September 2011; • $187 million in security holder equity – as per the market valuation of ALE stapled securities listed on the ASX (code LEP). The ALE management team, in conjunction with advisers, is continually investigating capital management options in order to maximise efﬁ ciency and therefore value for stapled security holders. ALE’s current debt arrangements include built-in prepayment options which allow for ﬂ exibility in funding arrangements going forward. Performance – ALE was the second best performing LPT for the year ending 30 June 2005 ALE v ASX Property 300* �� Breakfast Creek Hotel, Qld ALE S&P Property 300 * rebased to 100 at 11 November 2003 15 ALE has a current policy of maintaining 100% hedging of interest rates for a minimum average term to maturity of two and a half years and a maximum of ﬁ ve years. In conjunction with its consideration of capital management, ALE and its advisers continually monitor interest rate markets in order to evaluate any longer term hedging opportunities. On 1 September 2005, with 10 year Government Bonds at their lowest point since listing, ALE capitalised on the interest rates available in the long term swap market to extend its interest rate hedging and therefore lock in lower rates on the group’s debt after November 2008. In two transactions, each of $50m, ALE has secured new hedging at a weighted average interest rate that is 0.59% pa lower than its existing rates in the post November 2008 period. Following this hedging extension, ALE has a weighted average term of hedging of 5.5 years. ALE’s hedging proﬁ le is shown in the graph below. Acquisition Strategy In a recently released independent research report by Macquarie, ALE has been assessed as having one of the highest projected distribution growth proﬁ les when compared to other Australian listed property trusts. As a consequence, ALE is also priced at one of the lowest current trading yields (FY06 distribution divided by current market price). This outlook by Macquarie not only provides investors with a positive total return perspective but also places ALE in a competitive position to consider value accretive acquisitions. As previously stated, ALE is adopting a patient and disciplined approach to the consideration of potential acquisitions and is working with its advisers to target properties with the following characteristics: • long term leases with indexed rent; • high credit quality tenants; • a strategic importance to the tenant’s core businesses; and • development risks and ongoing property outgoings covered by the tenants or third parties. During the year ALE considered a number of acquisitions which came close to meeting our criteria. Some of these properties are no longer being considered, whereas others are still under discussion and evaluation. Looking Forward The year ahead is looking positive for ALE. In accordance with our lease agreements with ALH, November 2005 will see an anticipated step up in rent across the portfolio at around 2.5% in line with the CPI for each state. Given ALE’s current interest rate management position, increases in triple-net property rental substantially ﬂ ow through to stapled security holders as higher distributions, creating a multiplier effect on distribution growth. Queensland land tax rates decreased from 1.8% to 1.5% of unimproved capital value from 1 July 2005. Consistent with the price appreciation of our properties, the unimproved capital value of our Queensland freehold properties has most recently been assessed at approximately $93.7 million. Subject to any further movements in values, the annual land tax liability should fully reﬂ ect this latest assessment in 2008, after a three year phase-in period. ALE will continue to monitor land value assessments and object to any where it believes it is appropriate to do so. Over and above ALE’s built-in distribution growth from the existing property portfolio, we see the opportunity to add further value through various capital management initiatives and through exercising our competitive acquisition capabilities. Finally, I would like to take this opportunity to thank ALE’s Board and management team for their support and dedication in delivering a very strong result for our investors in 2005. Andrew Wilkinson Managing Director Interest Rate Hedging Proﬁ le Macquarie’s Forecast of Total Return for LPTs (next ﬁ ve years) ALE has low distribution yield, highest expected growth and total return ) % ( d o i r e p g n i r u d d e g d e h t b e d e g a r e v A �� 16 ) a p % ( n r u t e R l a t o T �� E L A � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Period ending n Hedging as at 30 June 2005 n Extension Hedging (1 September 2005) ALE n FY06 Distribution Yield n Five-year Distribution Growth (pa) S&P/ASX 200 Listed Property Trusts n FY06 Distribution Yield n Five-year Distribution Growth (pa) Source: Macquarie, 24 July 2005 Note: This is not a forecast by ALE Property Group * ALE’s distribution for 2006 is expected to be 100% tax-deferred. This may provide some investors with additional after-tax returns. 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 Pymble Hotel, NSW Mitcham Hotel 566 Maroondah Highway, Mitcham, Vic Sandringham Hotel Cnr Beach and Bay Roads, Sandringham, Vic Tudor Inn Hotel 1281 Nepean Highway, Cheltenham, Vic Morwell Hotel 311 – 327 Princes Drive, Morwell, Vic Somerville Hotel Cnr Station and Edward Streets, Somerville, Vic Mountain View Hotel 186 Springvale Road, Glen Waverly, Vic Stamford Inn Hotel Cnr Stud & Wellington Roads, Rowville, Vic Sylvania Hotel 1631 Sydney Road/ Hume Highway, Campbellﬁ eld, Vic The Vale Hotel (previously the Springvale Hotel) 2277 Dandenong Road/ Princes Highway, Mulgrave, 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 Riﬂ e Club Hotel 121 Victoria Street Williamstown, Vic Rose Shamrock and Thistle Hotel 709 Plenty Road, Reservoir, Vic Victoria Hotel Cnr Wyndham and Fryer Streets, Shepparton, Vic Village Green Hotel Cnr Springvale and Ferntree Gully Roads, Glen Waverly, 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 Peter H Warne BA Chairman and Independent Director Peter was appointed Chairman and non-executive Director of ALE in September 2003. Peter began his career with the NSW Government Actuary’s Ofﬁ ce and the NSW 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, a member of the Advisory Board of the Australian Ofﬁ ce of Financial Management and a Director of SFE Corporation Limited, Austraclear Limited and Macquarie Capital Alliance Group. Peter graduated from Macquarie University with a Bachelor of Arts, majoring in Actuarial Studies. He qualiﬁ ed as an associate of, and received a Certiﬁ cate of Finance and Investment from, the Institute of Actuaries, London. Andrew Wilkinson BBus, CFTP Managing Director James McNally BBus (Land Economy), DipLaw Executive Director Helen Wright LLB, MAICD Independent Director Andrew’s qualiﬁ cations and experience are outlined on page 10. James was appointed as an executive Director of ALE in June 2003. Helen was appointed as a non- executive Director of ALE in September 2003. John Henderson BBldg, MRICS, AAPI Independent Director John was appointed as a non- executive Director of ALE in August 2003. 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, is an associate of the Australian Property Institute and is a licensed real estate agent. James has over 10 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 Ofﬁ cer for a number of companies that hold an Australian Financial Services Licence, including ALE. James’ qualiﬁ cations include a Bachelor of Business in Land Economy (Hawkesbury Agricultural College) and a Diploma of Law (Legal Practitioners Administrations Board). He is a registered valuer and licensed real estate agent. Helen Wright was a partner of Freehills, a leading Australian ﬁ rm of lawyers, from 1986 to 2003. She practised as a commercial lawyer specialising in real estate projects, including development and ﬁ nancing and related taxation and stamp duties. Helen is a member of the Boards of Sydney Harbour Foreshore Authority, UNSW Press Limited, Australian Technology Park Precinct Management, and Cooks Cove Redevelopment Authority; was Deputy Chair of the Australia Day Council of NSW to December 2002; and 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 University of NSW, and in 1994 completed the Advanced Management Program at Harvard Graduate School of Business. directors board of Peter Warne Andrew Wilkinson John Henderson James McNally Helen Wright 18 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 during the year ended 30 June 2005. Roles of the Board and Management The Board’s responsibilities encompass the following: 1. review and approval of the strategic direction of ALE; 2. oversight of ALE, including its controls and accountability systems; 3. appointing and, where appropriate, removing the Managing Director (MD); 4. ratifying the appointment of and, where appropriate, the removal of the Acquisitions Manager, Group Financial Controller and the Company Secretary; 5. input to and ﬁ nal approval of management’s development of corporate strategy and performance objectives; 6. review and ratiﬁ cation 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 ﬁ nancial and other reporting; and 10. establishing and maintaining ethical standards. The Board delegates to the MD responsibility for implementing strategic direction, and for managing the day-to-day operations of ALE. The MD consults with the Chairman, in the ﬁ rst 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 ﬁ ve 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 deﬁ ned 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 ﬁ rst meeting following the annual general meeting (AGM), and is an independent director. The Board has implemented an annual performance evaluation process for management, directors, the Board and its Committees. Part of this process is to also ensure that the Board and its Committees maintain an appropriate balance of skills, experience and expertise. Details of the performance evaluation process for management are set out in the Directors’ Report in the Concise Financial Report commencing on page 26. To assist the Board in undertaking its own performance evaluation and that of directors, it recently appointed a specialist governance adviser to review the performance of the Board. The adviser’s report was favourable and provided a number of minor suggestions that the Board may consider going forward to further enhance current practice. The Board will continue to review its own performance and that off its directors and Committees on an annual basis, and may obtain the assistance of external consultants where required to assist it in this process. Under the Company’s Constitution, a director may not hold ofﬁ ce 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 ASX Listing Rules require that an election of directors be held, the director to retire at the AGM is the director who has been longest in ofﬁ ce since their last election. John Henderson 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. corporate governance 19 Under the ASX Corporate Governance Council Recommendations, from 1 July 2005 the Chair of the Audit, Compliance and Risk Management Committee may not be the same person that chairs the Board. As Peter Warne is Chairman of the Board, he has recently resigned as Chairman of the Audit, Compliance and Risk Management Committee, and Helen Wright, an Independent director, has been appointed as Chair of the Committee in his place. Peter Warne remains on the Committee as an independent member. 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. The Board has, however, determined that the Audit, Compliance and Risk Management Committee fulﬁ ll this role. Details of the members of the Audit, Compliance and Risk Management Committee and their attendance at meetings are set out in the Directors’ Report in the Concise Financial Report on page 26. Given the small number of staff within the Company, the Company does not have an internal audit function. Board and Executive Remuneration Details of Board and Executive remuneration are set out in the Directors’ report in the Concise Financial Report commencing on page 26. Independence and Materiality Thresholds The Board considers that a director is independent if the director is a non-executive director and: 1. is not a substantial shareholder of the Company or an ofﬁ cer of, or otherwise associated directly with, a substantial shareholder of the Company; 2. within the last three years has not been employed in an executive capacity by the Company or another group member; or been a director after ceasing to hold any such employment; 3. within the last three years has not been a principal of a material professional adviser or a material consultant to the Company or another group member, or an employee materially associated with the service provided; 4. is not a material supplier or customer of the Company or other group member, or an ofﬁ cer of or otherwise associated directly or indirectly with a material supplier or customer; 5. has no material contractual relationship with the Company or another group member other than as a director of the Company; 6. has not served on the board for a period which could, or could reasonably be perceived to, materially interfere with the director’s ability to act in the best interests of the Company; and 7. is free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the director’s ability to act in the best interests of the Company. Peter Warne is also a director and the Chairman of Next Financial Pty Limited (Next Financial) which acts as an Investment Manager. Next Financial holds on behalf of its clients 4,417,420 stapled secturities in the ALE Property Group. Peter Warne is not involved in any of the decision making processes regarding Next Financial’s holding in the ALE Property Group. Procedures have been put into place to ensure Peter Warne’s independence and conﬁ dentiality of information are maintained. 20 Remuneration Committee The Board has established a Remuneration Committee composed of three non-executive independent directors. Peter Warne is chairman of the committee. Details of members and meetings held are set out in the Directors’ Report in the Concise Financial Report on page 26. 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 inﬂ uenced 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 AGM. 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 ASX, 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 ASX. The Board encourages full participation of security holders at the AGM. The external auditor will attend the AGM to answer any questions concerning the audit and content of the auditor’s report. ALE Website All information provided to the ASX is also 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 Distributions are paid to security holders every six months. ASX Corporate Governance Council Principles ALE has adopted best practice corporate governance principles consistent with the ASX Corporate Governance Council Principles of Good Corporate Governance and Best Practice Recommendations. ALE has not fully complied with the following recommendation: • 2.4 – Nomination 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 a separate Nomination Committee, and that the Board will fulﬁ ll these functions. Combined Annual Concise Financial Report FOR THE PERIOD 1 JULY 2004 TO 31 JUNE 2005 Consisting of the combined 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 Discussion and analysis of combined statements of ﬁnancial performance, ﬁnancial position and cashﬂows Combined statement of ﬁnancial performance Combined statement of ﬁnancial position Combined statement of cash ﬂows Notes to the ﬁnancial statements Directors’ declaration Independent review report to the stapled security holders 22 33 35 36 37 38 51 52 21 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 year ended 30 June 2005. 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 full year ended 30 June 2005. Accordingly, this report includes the combined results of the Company and the Trust. Directors The following persons were directors of the Company during the whole of the ﬁnancial year and up to the date of this report unless otherwise stated: Name Non-executive directors P H Warne (Chairman) J P Henderson H I Wright Executive directors A F O Wilkinson (Managing Director) J T McNally Appointed 8 September 2003 19 August 2003 8 September 2003 16 November 2004 26 June 2003 Principal activities During the year 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 year. Distributions and dividends Trust distributions paid or payable to stapled security holders during the ﬁnancial year were as follows: 2005 $’000 26 June 2003 to 30 June 2004 $’000 Interim Trust distribution for the year ended 30 June 2005 of 6.25 cents (2004: nil) per stapled security paid on 28 February 2005 5,675 – Final Trust distribution for the year ended 30 June 2005 of 6.60 cents (2004: 7.50 cents) per stapled security to be paid 31 August 2005 5,993 11,668 6,810 6,810 No provisions for or payments of Company dividends have been made during the ﬁnancial year (2004: nil). 22 ALE PROPERTY GROUP ANNUAL CONCISE REPORT 30 JUNE 2005 Review of operations A summary of the combined revenue and results for the ﬁnancial year is set out below: Income Property rents and loan interest Bank interest Expenses Borrowing costs excluding (non cash) amortisation Borrowing costs (non cash) amortisation Operating expenses Land tax expense Income tax (beneﬁt) Net proﬁt after income tax Net assets per stapled security 2005 $’000 26 June 2003 to 30 June 2004 $’000 45,996 1,175 47,171 31,523 6,248 2,981 1,139 41,891 (49) 5,329 $2.17 29,479 715 30,194 20,238 3,995 1,565 545 26,343 (51) 3,902 $1.41 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. 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 year. Matters subsequent to the end of the ﬁnancial year On 1 September 2005 the Group entered into two further forward dated interest rate swap transactions in respect of its $480m debt facilities. The swaps were $50m at 5.5375% pa ﬁxed (excluding credit margin) from November 2008 to November 2012 and $50m at 5.5475% pa ﬁxed (excluding credit margin) from November 2008 to November 2013. The directors are not aware of any other 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. 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 value to the stapled security holders. Further information on likely developments in the operations of the Group and the expected results of operations have not been included in this report because the directors believe that it would be likely to result in unreasonable prejudice to the Group. 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. On three of the properties ongoing testing is being undertaken and if further work is required indemnities are held in excess of any expenditure amounts required. 23 directors’ report Information on directors Mr Peter H Warne B.A, Chairman and Non–Executive Director. Experience and expertise Peter was appointed as Chairman and non-executive director of the Company in September 2003. Peter began his career with the NSW Government Actuary’s Ofﬁce and the NSW 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 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. Other current directorships of listed entities Non-executive director of SFE Corporation Limited and Macquarie Capital Alliance Group. Former directorships of listed entities in the last three years None. Special responsibilities – Chairman of the board. – Member of the audit, compliance and risk management committee (resigned as Chairman on 15 August 2005, continuing as member). – Chairman of the remuneration committee. Mr John Henderson B.Bldg, MRICS, AAPI, Non-Executive Director. Experience and expertise John was appointed as a non-executive director of the Company in August 2003. 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, is an associate of the Australian Property Institute and is a licensed real estate agent. Other current directorships of listed entities None. Former directorships of listed entities in the last three years None. Special responsibilities – Member of the audit, compliance and risk management committee. – Member of the remuneration committee. Ms Helen Wright LL.B, MAICD, Non-Executive Director. Experience and expertise Helen was appointed as a non-executive director of the Company in September 2003. Helen Wright 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. Helen is a member of the Boards of the Sydney Harbour Foreshore Authority, Australian Technology Park Precinct Management, and Cooks Cove Redevelopment Authority; was Deputy Chair of the Australia Day Council of NSW to December 2002; and serves on the Advisory Council to The Little Company of Mary (Calvary hospitals). Prior boards include Darling Harbour Authority, UNSW Press Limited and MLC Homepack Limited. Helen has a Bachelor of Laws from University of NSW, and in 1994 completed the Advanced Management Program at the Harvard Graduate School of Business. Other current directorships of listed entities None. Former directorships of listed entities in the last three years None. Special responsibilities – Chair of the audit, compliance and risk management committee. (appointed Chair 15 August 2005). – Member of the remuneration committee. 24 ALE PROPERTY GROUP ANNUAL CONCISE REPORT 30 JUNE 2005 James’ qualiﬁcations include a Bachelor of Business in Land Economy (Hawkesbury Agricultural College) and a Diploma of Law (Legal Practitioners Admission Board). He is a registered valuer and licensed real estate agent. Other current directorships of listed entities None. Former directorships of listed entities in the last three years None. Special responsibilities – Responsible Ofﬁcer of the Company under the Company’s Australian Financial Services License. Mr Brendan R Howell BEcon, GDipAppFin (Sec Inst). Company secretary Mr Howell was appointed to the position of company secretary in September 2003. 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, and 15 years’ experience in the funds management industry. He was formerly an associate member of both the Securities Institute of Australia and the Institute of Chartered Accountants in Australia. Brendan has a property and accounting background and has previously held senior positions with a leading Australian trustee company administering listed and unlisted property trusts. For the past six and half 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. Mr Andrew F O Wilkinson B. Bus. CFTP, Managing Director. Experience and expertise Andrew was appointed Managing Director of the Company in November 2004. He joined ALE as Chief Executive Ofﬁcer at the time of its listing in November 2003. Andrew has over 25 years experience in the banking and corporate ﬁnance. He was previously a corporate ﬁnance partner with PricewaterhouseCoopers where he specialised in providing ﬁnancial and strategic advice on signiﬁcant property and infrastructure portfolios. Over his 8 year period with the ﬁrm he held a number of senior positions and was also one of the founding members of the NSW Government’s Infrastructure Council. Andrew’s prior 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. Other current directorships of listed entities None. Former directorships of listed entities in the last three years None. Special responsibilities – Managing Director of the Company. – Responsible Ofﬁcer of the Company under the Company’s Australian Financial Services License. Mr James McNally B.Bus (Land Economy). Dip. Law, Executive Director. Experience and expertise James was appointed as an executive director of the Company in June 2003. 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 the Company. 25 directors’ report Directors’ and speciﬁed executive interests in stapled securities and options The following directors, speciﬁed executive and their associates held or currently hold stapled security interests in the Group: Name Director/speciﬁed executive Balance at the start of the year Purchases / (sales) Number of securities held P H Warne J P Henderson H I Wright A F O Wilkinson D S Barkas Director Director Director Director Speciﬁed Executive 453,400 25,000 100,000 31,998 – 179,010 30,000 – 21,000 46,810 632,410 55,000 100,000 52,998 46,810 The following director held or currently holds options over stapled securities of the Group: Name Director/speciﬁed executive A F O Wilkinson Director Balance at the start of the year 300,000 Purchases / (sales) Number of options held – 300,000 Meetings of directors The numbers of meetings of the Company’s board of directors held during the year ended 30 June 2005 and the number of meetings attended by each director at the time the director held ofﬁce during the year were: Director P H Warne J P Henderson H I Wright A F O Wilkinson J T McNally Board meetings Held1 Attended 13 13 13 7 13 13 11 13 7 13 Audit, Compliance and Risk Management Committee meetings Held1 Attended Remuneration Committee meeting Held1 Attended 6 6 6 – – 6 5 6 – – 1 1 1 – – 1 1 1 – – 1 “Held” reﬂects the number of meetings which the director was eligible to attend. Remuneration report The remuneration report is set out under the following main headings: A Principles used to determine the nature and amount of remuneration B Details of remuneration C Service agreements D Equity-based compensation A Principles used to determine the nature and amount of remuneration The objectives of the Company’s executive reward framework is to ensure that reward for performance is transparent, reasonable, competitive and appropriate for the results delivered. The framework aligns executive reward with achievement of strategic objectives and creating of value for share holders, and conforms with market best practice for the delivery of reward. The Board ensures that executive reward satisﬁes the following key criteria for good reward governance practices: – competitiveness and reasonableness – acceptability to share holders – performance linkage/alignment of executive compensation – transparency – capital management 26 ALE PROPERTY GROUP ANNUAL CONCISE REPORT 30 JUNE 2005 Remuneration report (continued) In consultation with external remuneration consultants, the Company has structured an executive remuneration framework that is market competitive and complementary to the reward strategy of the organisation. Alignment to stapled security holders interests: – has economic proﬁt as a core component of plan design – focuses on sustained growth in stapled security holder wealth, consisting of distributions, dividends and growth in share price and delivering constant return on assets as well as focusing the executive on key non-ﬁnancial drivers of value – attracts and retains high calibre executives Alignment to program participants’ interests: – rewards capability and experience – reﬂects competitive reward for contribution to growth in stapled security holders wealth – provides a clear structure for earning rewards – provides recognition for contribution The framework provides a mix of ﬁxed and variable pay and a blend of short and long-term incentives. As executives gain seniority within the Company, the balance of this mix shifts to a higher proportion of ‘at risk’ rewards, depending upon the nature of the executive’s new role. The overall level of executive reward takes into account the performance of the Group over a number of periods with greater emphasis given to the current year. Over the past year, the Group’s proﬁt from ordinary activities after income tax has grown by $1.427m (or 36.6%) from $3.902m to $5.280m and stapled security holders’ wealth (inclusive of distribution returns) has grown by 68.4%. Non-executive directors Fees and payments to non-executive directors reﬂect the demands which are made on and the responsibilities of the directors. Non-executive directors’ fees and payments are reviewed annually by the Board. The Board may also obtain the advice of independent remuneration consultants to ensure that non- executive directors’ fees and payments are appropriate and in line with the market. The Chairman’s fees are determined independently to the fees of the non-executive directors, based on comparative roles in the external market. The Chairman is not present at any discussion relating to the determination of his own remuneration. Non-executive directors do not receive options over shares. Directors’ fees The current base remuneration was last reviewed with effect from September 2003. The directors’ fees are all inclusive of committee fees. Non-executive directors’ fees are determined within an aggregate directors’ fee pool limit which will be periodically recommended for approval by share holders. The maximum currently stands at $335,000 per annum, comprised of $260,000 per annum for non-executive directors and $75,000 per annum for the executive director (inclusive of a responsible ofﬁcer fee of $5,000 per annum) and excluding the managing directors’ remuneration. The maximum amount for non-executive directors can only be increased at a general meeting of the Company. Retirement allowances for directors No retirement allowances for directors are offered by the Company in line with recent guidance on non-executive directors’ remuneration. 27 directors’ report Remuneration report (continued) Executive pay The executive pay and reward framework has three components, the combination of which comprises the executive’s total remuneration: – base pay and beneﬁts – short-term performance incentives – long-term incentives – other remuneration such as superannuation Base pay and beneﬁts Structured as a total employment cost package which may be delivered as a combination of cash and prescribed non-cash beneﬁts at the discretion of the executives and the board. Executives are offered a competitive base pay that comprises the ﬁxed component of their remuneration. External remuneration consultants provide analysis and advice to ensure base pay is set to reﬂect the market for comparable roles. Base pay for senior executives is reviewed annually to ensure that the executives pay is competitive with the market. An executive’s pay is also reviewed on promotion. There is no guaranteed base pay increase in any of the executives’ contracts. Short-term incentives (STI) The short-term incentive arrangements in place at the Company have been designed to link annual STI bonus awards to executive performance against agreed key performance indicators (KPI’s) including the ﬁnancial performance of the Company during the year in question. Each executive has a target STI opportunity depending on the accountabilities of the role and the impact on the performance of the Company. Each year the remuneration committee considers the appropriate targets and KPI’s to link the STI plan and the level of payout if targets are met. This includes setting any maximum payout under the STI plan and minimum levels of performance to trigger payments of STI. For the year end 30 June 2005, the KPI’s link to STI plans were based on Company, individual, business and personal objectives. The KPI’s required performance in managing operating and funding costs, compliance with legislative requirements, increasing security holder value as well as other key strategic non-ﬁnancial measures linked to drivers of performance in future economic periods. The board is responsible for assessing whether the KPI’s have been met. To facilitate this assessment, the board receives detailed reports on performance from management. The STI payments may be adjusted up or down in line with over or under achievement against the target performance levels. This is at the discretion of the board. The STI target annual payment is reviewed annually. Shares options granted No options over unissued shares of the Company were granted during or since the end of the ﬁnancial year . B Details of remuneration Amount of remuneration Details of the remuneration of each director and the speciﬁc executive of the Company, paid or payable by the Company for the year ended 30 June 2005 are set out in the following tables. The cash bonuses are dependent on the satisfaction of performance conditions are set out in the section headed “Short-term incentives”, above. All other elements of remuneration are not directly related to performance. 28 ALE PROPERTY GROUP ANNUAL CONCISE REPORT 30 JUNE 2005 Remuneration report (continued) Directors of the Company Name Non-executive directors P H Warne (Chairman) J P Henderson H I Wright Executive directors A F O Wilkinson* (Managing Director) J T McNally (Director) Total Cash Salary and Fees 110,092 70,000 64,220 191,954 81,250 517,516 Cash Bonus Superannuation Total – – – 65,000 – 65,000 9,908 – 5,780 15,081 – 30,769 120,000 70,000 70,000 272,035 81,250 613,285 * Mr Wilkinson was appointed Managing Director on 16 November 2004. Before this appointment he was the Company’s Chief Executive Ofﬁcer. Amounts shown above include all of Mr Wilkinson’s remuneration during the reporting period, whether as Managing Director or Chief Executive Ofﬁcer. Amounts received in his position as Managing Director amounted to $191,784, made up of cash salary and fees of $117,895, cash bonus of $65,000 and superannuation of $8,889. Speciﬁed executive of the Company Name Cash Salary Cash Bonus Non monetary beneﬁts Superannuation Total D S Barkas* (Group Financial Controller & Assistant Company Secretary) 127,282 20,000 6,800 10,462 164,544 * Mr Barkas was appointed Group Financial Controller & Assistant Company Secretary on 16 March 2005. Before this he was the Company’s Property Trust Manager. Amounts shown above include all of Mr Barkas’ remuneration during the reporting period, whether as Group Financial Controller and Assistant Company Secretary or Property Trust Manager. Amounts received in his position as Group Financial Controller and Assistant Company Secretary amounted to $55,377, made up of cash salary and fees of $25,578, non monetary beneﬁt of $6,800, cash bonus of $20,000 and superannuation of $3,000. Cash bonuses and options For each cash bonus included in the above tables, the percentage of the available bonus that was awarded for the ﬁnancial year and the percentage that was forfeited because a person did not meet the performance criteria is set out below. Name A F O Wilkinson D S Barkas Paid $ 65,000 20,000 Forfeited % 13.3 0.0 C Service agreement On 10 November 2003, the Company entered into a three year service agreement with Managing Director, Mr Wilkinson. The agreement stipulates the minimum base salary, inclusive of superannuation, for each of the ﬁrst three years as being $225,000, to be reviewed annually by the board. A short-term incentive (which if earned, would be paid as a cash bonus each year) and a long-term incentive in the form of options over stapled securities, exercisable between November 2006 and November 2007 (except if the Company is subject to takeover, then to February 2007) are also provided. 29 directors’ report Remuneration report (continued) C Service agreement (continued) In the event of the termination of Mr Wilkinson’s employment contract, amounts are payable for unpaid accrued entitlements, proportion of bonus and option entitlements as at the date of termination. In the event of redundancy termination amounts are payable for base salary, inclusive of superannuation and bonus and option entitlements for the balance of the contract. Mr Barkas’ employment contract may be terminated at one months notice. There are no other director or executive service agreements. Letters of appointment have been entered into by each director (excluding the Managing Director) conﬁrming their remuneration and obligations under the Corporations Law and Company constitution. A letter of appointment has been entered into with MIA Services Pty Limited for the use of the services of Brendan Howell as Company Secretary and as a Responsible Ofﬁcer of the Company on a continuous basis that may be terminated at any time. D Equity-based compensation Options over un-issued stapled securities of the Group were granted during the last ﬁnancial period to Andrew Wilkinson as disclosed in an ASX Announcement dated 10 November 2003. Mr Wilkinson has the right to subscribe for up to 300,000 shares at a ﬁxed price of $1.036 exercisable from 10 November 2006 or earlier, if Mr Wilkinson’s employment is terminated other than for cause or unsatisfactory performance. The options will remain exercisable until 10 November 2007, unless the Group is subject to a takeover, in which case the period of exercise would be reduced to 11 February 2007. The options value disclosed above as part of speciﬁed executive 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 $24,000 at grant date has been independently determined by using a Black-Scholes option pricing model. This technique takes 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, expected price volatility of the underlying share and the expected dividend yield and the risk-free interest rate for the term of the option. Stapled securities under option Unissued stapled securities of the Group under option at the date of this report are as follows: Date option granted 10 November 2003 Expiry date Issue price of stapled securities Number under option 10 November 2007* $1.036 300,000 * Unless ALE Property Company is subject to a takeover, in which case the period of exercise would be shortened to 11 February 2007. Stapled securities issued on the exercise of options No stapled securities of the Group have been issued on the exercise of options, to date. Insurance of ofﬁcers During the ﬁnancial year, the Company paid a premium of $41,766 (2004: $40,746) to insure the directors and ofﬁcers of the Company. The auditors of the Company are in no way 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. 30 ALE PROPERTY GROUP ANNUAL CONCISE REPORT 30 JUNE 2005 Remuneration report (continued) Non-audit services The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the Company are important. Details of amounts paid or payable to the auditor (PricewaterhouseCoopers) for audit and non-audit services provided during the year are set out below: The board of directors has considered the position and in accordance with the advice received from the audit committee is satisﬁed that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisﬁed that the provision of non-audit services by the auditor, as set out below, did not compromised the auditor independence requirements of the Corporations Act 2001 for the following reasons: – all non-audit services have been reviewed by the audit committee to ensure that they do not impact the impartiality and objectivity of the auditor – none of the services undermine the general principles relating to auditor independence as set out in Professional Statement F1, including reviewing or auditing the auditors own work, acting in a management or decision making capacity for the Company, acting as an advocate for the Company or jointly sharing economic risk and rewards A copy of the auditors’ independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 32. Audit and review of the ﬁnancial reports of the Group and other audit work under the Corporations Act 2001 – in relation to current year – in relation to prior year Due diligence service Controls assurance services Tax compliance services Tax consulting services General accounting advice (including AIFRS) 2005 $ 2004 $ 125,705 60,000 31,300 7,000 15,000 24,190 29,944 293,139 103,000 – – 14,000 – 34,000 8,750 159,750 Rounding 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 6th day of September 2005 31 Auditors’ independence declaration As lead auditor for the audit of ALE Property Group for the year ended 30 June 2005, I declare that to the best of my knowledge and belief, there have been: (a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of ALE Property Group, comprising Australian Leisure and Entertainment Property Management Limited and Australian Leisure and Entertainment Property Trust and the entities it controlled during the period. S J Hadﬁeld Partner Sydney 6 September 2005 32 ALE PROPERTY GROUP ANNUAL CONCISE REPORT 30 JUNE 2005 discussion and analysis of the combined ﬁnancial statements The following commentary is to assist stapled security holders in reviewing and interpreting the combined results of the Group for the year ended 30 June 2005. The discussion and analysis of the year ended 30 June 2005 results are based upon comparisons of the 30 June 2005 results to those of the period ended 30 June 2004. It is most important to note that the Group commenced operations during the comparative period of 26 June 2003 to 30 June 2004. During November 2003 the Group acquired its ﬁrst investments properties, issued the bulk of its stapled securities and issued all of its existing debt, being $150m of ALE Notes and $330m of Commercial Mortgage Back Securities. As a result of the comparative period being a commencement period some key differences have been annualised in order to improve comparability. Combined statement of ﬁnancial performance Net proﬁt after tax was for the year ended 30 June 2005 of $5,329,000 was $1,427,000 (or 36.6%) higher than the $3,902,000 net proﬁt after tax of the comparative period. – Total revenue from ordinary activities – was higher by $923,000 (or 2.0%) after annualisation. The key drivers of the 2.0 % increase were a portfolio rental review which resulted in a 2.1% increase in the property rental income and loan interest income from November 2004 and stringent cashﬂow management and investment procedures which boosted bank interest earnings by an annualised 6.4%. – Borrowing costs (including non cash amortisation) – were higher by $18,000 (or 0.003%) after annualisation. The Group had a fully hedged weighted average interest rate established at IPO of 6.524% and as at 30 June 2005 of 6.527%. – Land tax expense – was higher by $304,000 or 36.5% after annualisation. In all states other than Queensland ALH, as tenant, pays the land tax rather than the Group. The key drivers of the increase were strong increases in Queensland land values and the fact that the comparative period amount of $545,000 only included one day of land tax on three Queensland properties acquired by the Group on 30 June 2004. – Property valuation expenses – were higher by $134,000 (or 121.8%). Annualisation is not appropriate as the valuations are only performed annually. The comparative period valuation covered one third of the portfolio whereas the current valuation covered the entire freehold portfolio. – Acquisition proposal due diligence costs of $177,000 were incurred in relation to due diligence on potential investment property acquisitions that did not proceed to completion. – Other costs of $2,560,000 representing an increase of $313,000 (or 13.9%) after annualisation. This increase was due to a number of factors including, a progressive stafﬁng of the Group in the comparative period, Group ofﬁce relocation in August 2004 and increased operational activity during the current period. Combined statement of ﬁnancial position Total assets were $690,939,000 as at 30 June 2005 compared to $625,511,000 as at 30 June 2004. The increase of $65,428,000 (or 10.5%) was driven by a revaluation increment to property investments of $74,800,000, a decrease in cash of $3,613,000, a decrease in amortisation of prepaid borrowing costs of $5,769,000 and a net increase in other assets of $10,000. Total liabilities were $494,127,000 as at 30 June 2005 compared to $497,160,000 as at 30 June 2004. The decrease of $3,033,000 (or 0.6%) was driven by a reduction in payables of $2,678,000, a decrease in provisions of $819,000, and increase in ALE Notes premium of $479,000 and a decrease in other liabilities of $15,000. Net assets were $196,812,000 as at 30 June 2005 compared to $128,351,000 as at 30 June 2004. The increase of $68,461,000 (or 53.3%) is as a result of the movements in total assets and total liabilities. 33 discussion and analysis of the combined ﬁnancial statements Combined statement of ﬁnancial position (continued) Equity was $196,812,000 as at 30 June 2005 compared to $128,351,000 as at 30 June 2004. The increase of $68,461,000 (or 53.3%) was driven by an increase in asset revaluation reserve of $74,800,000, an increase in accumulated losses of $116,000 and a decrease in contributed equity of $6,223,000. The Group’s distribution to stapled security holders of available operating cashﬂows (which exceeded accounting income due to non cash expenses) resulted in the decrease to contributed equity. The net assets per stapled security as at 30 June 2005 were $2.17 compared to $1.41 as at 30 June 2004. Combined statement of cash ﬂows Net cash inﬂow from operating activities included 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 outﬂow from investing activities was an outﬂow of $168,000 relating to the ﬁt-out of the Group’s ofﬁce premises, website design and construction and other ﬁxed assets. Net cash outﬂow from ﬁnancing activities was an outﬂow of $12,485,000 which was the total of the June 2004 distribution of $6,810,000 and the December 2004 distribution of $5,675,000. The net decrease in cash held during the year of $3,613,000 was due to a net decrease in payables of $2,678,000, a net decrease in provisions of $819,000 and other net decreases of $116,000. 34 ALE PROPERTY GROUP ANNUAL CONCISE REPORT 30 JUNE 2005 combined statement of ﬁnancial performance FOR THE YEAR ENDED 30 JUNE 2005 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 Property valuation expenses Acquisition proposal due diligence Salaries, fees and related costs Insurance for directors and ofﬁcers Insurance other Legal fees Corporate advisory services Occupancy costs Annual reports Registry fees Accounting fees Tax reviews and advice Interest rate risk advice 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 per stapled security held for the full ﬁnancial year Note 2 2(a) 3 4 5 6 2005 $’000 26 June 2003 to 30 June 2004 $’000 45,996 1,175 47,171 31,523 6,248 1,139 244 177 991 42 70 143 92 92 52 62 65 68 49 834 41,891 5,280 29,479 715 30,194 20,238 3,995 545 110 – 555 41 35 73 35 26 55 37 26 34 86 452 26,343 3,851 (49) (51) 5,329 74,800 3,902 40,459 74,800 40,459 80,129 11,668 Cents 5.87 12.85 44,361 6,810 Cents 4.30 7.50 The above combined statement of ﬁnancial performance should be read in conjunction with the accompanying notes. 35 combined statement of ﬁnancial position AS AT 30 JUNE 2005 Current Assets Cash assets Receivables Prepayments and other assets Development property loans Total Current Assets Non-Current Assets Property investments Development property – loans, deposits and costs Prepayments and other assets Plant & equipment Deferred tax asset 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 ALE Notes premium Deferred tax liability Total Non-Current Liabilities Total Liabilities Net Assets Equity Contributed equity Asset revaluation reserve Accumulated losses Total Equity Net assets per stapled security Note 2005 $’000 2004 $’000 7 8 10 9 10 8 11 11 12 19,477 385 5,793 11,746 37,401 625,000 14,713 13,585 141 99 653,538 690,939 7,016 6,026 302 13,344 330,000 150,000 783 – 480,783 494,127 196,812 81,787 115,259 (234) 196,812 $ 2.17 23,090 325 6,018 11,746 41,179 550,200 14,713 19,344 16 59 584,332 625,511 9,694 6,845 309 16,848 330,000 150,000 304 8 480,312 497,160 128,351 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. 36 ALE PROPERTY GROUP ANNUAL CONCISE REPORT 30 JUNE 2005 combined statement of cash ﬂows FOR THE YEAR ENDED 30 JUNE 2005 Note 2005 $’000 26 June 2003 to 30 June 2004 $’000 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) Recoveries of payments to suppliers – Foster’s Group Limited Interest received from Foster’s Group Limited and bank term deposits Borrowing costs Net cash inﬂow 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 Plant and equipment Net cash (outﬂow) from investing activities Cash ﬂows from ﬁnancing activities Proceeds from issue of stapled securities Proceeds from interest bearing liabilities Distributions paid Net cash (outﬂow)/inﬂow from ﬁnancing activities Net (decrease)/increase in cash held Cash at beginning of the ﬁnancial period Cash at the end of the ﬁnancial period 7 Non-cash ﬁnancing activities The above combined statement of cash ﬂows should be read in conjunction with the accompanying notes. 48,143 30,215 (11,008) – 3,505 (31,600) 9,040 – – – – (450) (168) – – (12,485) (12,485) (3,613) 23,090 19,477 – (1,344) 447 2,560 (14,568) 17,310 (509,741) (23,409) (2,600) (168) (20) (536,220) 62,000 480,000 – 542,000 23,090 – 23,090 28,800 37 notes to the combined ﬁnancial statements 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 – Borrowing costs excluding amortisation CMBS interest expense inclusive of all swaps ALE Notes interest expense Rating and liquidity fees Note 4 – Borrowing costs (non-cash) amortisation Prepaid borrowing costs Amortisation of ALE Notes premium The prepaid borrowing costs had no cashﬂow impact on the Group as they were funded by the issue of Group stapled securities (Note 8 (a) contains further information). The ALE Notes premium is accrued and will have no cashﬂow impact on the Group until payment on expiry of the ALE Notes (Note 16 (b) contains further information). Non-cash borrowing costs represent available operating cash amounts that may be used to fund distributions to stapled security holders. Note 5 – Distributions Distributions recognised during the ﬁnancial year: Interim Trust distribution for the ﬁnancial year ended 30 Jun 05 of 6.25 cents per stapled security (2004: nil) paid 28 Feb 05 Final Trust distribution for the ﬁnancial year ended 30 Jun 05 of 6.60 cents per stapled security (2004: 7.50 cents) to be paid 31 Aug 05 2005 $’000 26 June 2003 to 30 June 2004 $’000 43,766 2,230 45,996 1,175 47,171 20,429 10,898 196 31,523 5,769 479 6,248 27,468 2,011 29,479 715 30,194 13,089 7,077 72 20,238 3,691 304 3,995 5,675 5,993 11,668 – 6,810 6,810 No dividends were paid or are payable by the Company for the full year ended 30 June 2005 (2004: nil). 38 ALE PROPERTY GROUP ANNUAL CONCISE REPORT 30 JUNE 2005 Note 6 – Earnings per stapled security 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 7 – Cash assets Cash at bank Deposits Cash reserve In order to have the CMBS rated, the cash reserve, which is equal to approximately three months debt service of the CMBS has been set aside by the Group for the term of the CMBS and is therefore restricted. As at 30 June 2005, the cash assets of the Group had a weighted average interest rate of 5.59% (2004: 5.40%). Note 8 – Prepayments and other assets Current Corporate advisory services prepaid to 30 June 2005 Prepaid expenses Other assets Capitalised borrowing costs Non-Current Rental deposits Capitalised borrowing costs Total Cents 5.87 5.87 Cents 4.30 4.30 No. of securities No. of securities 90,800,100 90,800,100 90,800,100 90,800,100 2005 $’000 2004 $’000 202 13,775 5,500 19,477 3,643 13,947 5,500 23,090 (a) (b) (b) – 40 – 5,753 5,793 – 13,585 13,585 19,378 174 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 30 June 2005. The Group has expensed the fee as at 30 June 2005. (b) Reconciliation of capitalised borrowing costs: Opening unamortised lead manager’s incentive fee Amount expensed during the period Closing balance 25,109 (5,769) 19,340 28,800 (3,691) 25,109 39 notes to the combined ﬁnancial statements Note 8 – Prepayments and other assets (continued) 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 lead 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 was capitalised as a borrowing cost and will continue to be expensed over the remaining term of the ﬁve year period to which it relates. Note 9 – Investment properties Reconciliation A reconciliation of the carrying amounts of investment properties at the beginning and end of the current ﬁnancial year is set out below: Carrying amount at the beginning of the year Additions Revaluation increment Carrying amount at the end of the year Cost Including Additions $’000 5,470 5,659 8,205 8,771 5,847 3,112 8,865 5,847 2,830 4,150 Date Acquired Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Independent Valuation and Carrying Amount 2005 $’000 6,600 6,900 9,900 10,600 6,850 3,700 10,500 6,800 3,250 5,100 Property New South Wales Blacktown Hotel, Blacktown Brown Jug Hotel, Fairﬁeld Heights Colyton Hotel, Colyton Crows Nest Hotel, Crows Nest Kirribilli Hotel, Kirribilli Melton Hotel, Auburn New Brighton Hotel, Manly Pioneer Hotel, Penrith Pymble Hotel, Pymble Smithﬁeld Tavern, Smithﬁeld Total New South Wales Properties 2005 $’000 550,200 – 74,800 625,000 2004 $’000 – 509,741 40,459 550,200 Asset Revaluation Reserve Increase/ (Decrease) 2005 $’000 Asset Revaluation Reserve Increase/ (Decrease) 2004 $’000 800 700 1,000 1,000 450 300 800 400 150 600 330 541 695 829 553 288 835 553 270 350 Carrying Amount 2004 $’000 5,800 6,200 8,900 9,600 6,400 3,400 9,700 6,400 3,100 4,500 58,756 70,200 64,000 6,200 5,244 Queensland Nov 03 Albany Creek Tavern, Albany Creek Nov 03 Albion Hotel, Albion Nov 03 Alderley Arms Hotel, Alderley Nov 03 Anglers Arms Hotel, Southport Nov 03 Balaclava Hotel, Cairns Banyo Tavern, Nudgee Nov 03 Breakfast Creek Hotel, Breakfast Creek Nov 03 Nov 03 Camp Hill Hotel, Camp Hill Nov 03 Chardons Corner Hotel, Annerly 8,394 4,433 3,301 4,433 3,301 3,018 10,657 2,264 1,415 9,600 5,200 4,100 5,300 3,800 3,500 11,700 2,750 1,500 9,000 4,800 3,500 4,600 3,500 3,200 11,500 2,400 1,500 600 400 600 700 300 300 200 350 – 606 367 199 167 199 182 843 136 85 40 ALE PROPERTY GROUP ANNUAL CONCISE REPORT 30 JUNE 2005 Note 9 – Investment properties (continued) Independent Valuation and Carrying Amount 2005 $’000 Cost Including Additions $’000 3,207 3,112 5,847 3,672 6,602 3,773 2,452 2,264 4,433 4,433 4,055 1,792 3,207 2,358 6,874 4,999 6,885 4,237 1,698 3,395 1,792 5,187 5,753 9,148 5,376 8,205 5,659 4,527 1,037 3,700 3,600 6,600 4,600 7,400 4,600 2,900 2,700 5,300 5,100 4,800 2,200 3,700 3,000 8,300 5,600 8,000 4,800 1,900 3,900 1,900 5,900 6,700 10,300 6,500 9,600 6,700 5,300 1,100 Asset Revaluation Reserve Increase/ (Decrease) 2005 $’000 Asset Revaluation Reserve Increase/ (Decrease) 2004 $’000 200 300 400 300 300 700 200 300 500 400 500 300 400 500 900 (100) 600 300 100 200 (200) 400 700 300 700 900 600 400 – 293 188 353 628 498 127 248 136 367 267 245 108 93 142 526 701 515 263 102 305 308 313 247 852 424 495 441 373 63 Carrying Amount 2004 $’000 3,500 3,300 6,200 4,300 7,100 3,900 2,700 2,400 4,800 4,700 4,300 1,900 3,300 2,500 7,400 5,700 7,400 4,500 1,800 3,700 2,100 5,500 6,000 10,000 5,800 8,700 6,100 4,900 1,100 167,195 194,150 179,600 14,550 12,405 3,301 2,452 3,301 1,886 1,603 2,169 1,603 3,773 4,433 4,000 3,150 4,100 2,350 1,950 2,850 2,100 4,850 5,500 3,800 2,900 3,900 2,200 1,800 2,600 1,800 4,400 5,200 200 250 200 150 150 250 300 450 300 499 448 599 314 197 431 197 627 767 24,521 30,850 28,600 2,250 4,079 Date Acquired Nov 03 Nov 03 Nov 03 Jun 04 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Jun 04 Nov 03 Nov 03 Jun 04 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Property Queensland (continued) Dalrymple Hotel, Townsville Edinburgh Castle Hotel, Kedron Ferny Grove Tavern, Ferny Grove Four Mile Creek, Strathpine Hamilton Hotel, Hamilton Holland Park Hotel, Holland Park Imperial Hotel, Beenleigh Kedron Park Hotel, Kedron Park Kirwan Tavern, Townsville Lawnton Tavern, Lawnton Miami Hotel, Miami Mount Pleasant Tavern, Mackay Mt Gravatt Hotel, Mount Gravatt Newmarket Hotel, Cairns Noosa Reef Hotel, Noosa Heads Oxford 152, Bulimba Palm Beach Hotel, Palm Beach Pelican Waters, Caloundra Petrie Hotel, Petrie Prince of Wales Hotel, Nundah Racehorse Hotel, Booval Redland Bay Hotel, Redland Bay Royal Exchange Hotel, Toowong Springwood Hotel, Springwood Stones Corner Hotel, Stones Corner Sunnybank Hotel, Sunnybank Vale Hotel Motel, Townsville Wilsonton Hotel, Toowoomba Woree Tavern, Cairns Total Queensland Properties South Australia Aberfoyle Hub, Aberfoyle Park Enﬁeld, Clearview Eureka, Salisbury Exeter, Exeter Finsbury, Woodville North Gepps Cross, Blair Athol Hendon, Royal Park Ramsgate, Henley Beach Stockade Tavern, Salisbury Total South Australian Properties 41 notes to the combined ﬁnancial statements Note 9 – Investment properties (continued) Cost Including Additions $’000 3,961 9,903 9,431 1,981 9,714 5,093 8,300 2,546 6,979 12,166 3,301 4,716 4,716 3,112 9,620 6,885 8,111 8,583 1,509 7,168 3,961 8,017 8,488 9,809 2,735 2,641 4,338 2,169 3,112 10,846 6,319 4,527 2,641 12,732 5,376 5,470 5,564 2,264 12,544 2,735 6,131 Date Acquired Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Independent Valuation and Carrying Amount 2005 $’000 5,000 12,600 11,700 2,700 12,400 6,500 10,900 3,400 9,200 15,100 4,200 6,300 6,900 4,300 12,000 8,500 10,000 10,600 2,100 9,800 4,900 9,500 10,500 12,600 3,800 3,400 5,500 2,900 4,000 14,400 7,800 6,200 3,800 15,900 6,800 7,000 7,100 3,200 15,100 3,700 7,100 Asset Revaluation Reserve Increase/ (Decrease) 2005 $’000 Asset Revaluation Reserve Increase/ (Decrease) 2004 $’000 700 2,000 1,600 600 2,100 1,000 2,000 600 1,800 2,100 700 1,300 1,800 1,000 1,800 1,100 1,300 900 500 2,100 500 900 1,500 2,100 900 600 900 600 600 2,800 900 1,400 1,000 2,200 1,000 1,200 1,200 800 1,600 700 600 339 697 669 119 586 407 600 254 421 834 199 284 384 188 580 515 589 1,117 91 532 439 583 512 691 165 159 262 131 288 754 581 273 159 968 424 330 336 136 956 265 369 Carrying Amount 2004 $’000 4,300 10,600 10,100 2,100 10,300 5,500 8,900 2,800 7,400 13,000 3,500 5,000 5,100 3,300 10,200 7,400 8,700 9,700 1,600 7,700 4,400 8,600 9,000 10,500 2,900 2,800 4,600 2,300 3,400 11,600 6,900 4,800 2,800 13,700 5,800 5,800 5,900 2,400 13,500 3,000 6,500 250,214 319,400 268,400 51,000 18,186 Property Victoria Ashley, Braybrook Bayswater, Bayswater Blackburn, Blackburn Blue Bell, Wendouree Burvale, Nunawading Club Hotel, Ferntree Gully Cramers, Preston Daveys, Frankston Deer Park, Deer Park Doncaster Hotel/Motel, Doncaster Elsternwick, Elwood Eltham, Eltham Ferntree Gully Hotel, Ferntree Gully Gateway, Corio Keysborough, Keysborough Mac’s Melton, Melton Meadow Inn, Fawkner Mitcham, Mitcham Morwell, Morwell Mountain View, Glen Waverly Olinda Creek, Lilydale Pier, Frankston Plough, Mill Park Prince Mark, Doveton Riﬂe Club, Williamstown Rose Shamrock & Thistle, Reservoir Royal Essendon, Essendon Royal Exchange, Traralgon Royal Sunbury, Sunbury Sandbelt Club, Moorabbin Sandown Park, Noble Park Sandringham, Sandringham Somerville, Somerville Stamford, Rowville Sylvania, Campbellﬁeld Tudor Inn, Cheltenham Vale, Mulgrave Victoria, Shepparton Village Green, Mulgrave Westmeadows, Westmeadows Young & Jackson, Melbourne Total Victorian Properties 42 ALE PROPERTY GROUP ANNUAL CONCISE REPORT 30 JUNE 2005 Note 9 – Investment properties (continued) Cost Including Additions $’000 Date Acquired Independent Valuation and Carrying Amount 2005 $’000 Nov 03 Nov 03 Nov 03 4,810 3,113 1,132 5,635 3,465 1,300 Asset Revaluation Reserve Increase/ (Decrease) 2005 $’000 Asset Revaluation Reserve Increase/ (Decrease) 2004 $’000 535 165 100 290 188 67 Carrying Amount 2004 $’000 5,100 3,300 1,200 9,055 10,400 9,600 800 545 509,741 625,000 550,200 74,800 40,459 Property Western Australia Queens Tavern, Highgate Sail & Anchor Hotel, Freemantle Wanneroo Villa Tavern, Wanneroo Total Western Australian Properties Total Investment Properties Valuation of investment properties The basis of valuation of investment properties is fair value being the amounts for which the properties could be exchanged , on a stand alone property by property basis, 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 at least one-third of its property portfolio annually, all of the Group’s investment properties were independently valued as at 30 June 2005. The revaluations were completed by Peter Spiller (AAPI) of DTZ Australia (NSW) Pty Ltd. 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 subject to development at the time. The conditional sale contracts are conditional upon satisfactory completion of the developments. At 30 June 2005, four of the properties are yet to be acquired. (Refer Note 10 for further information). 43 notes to the combined ﬁnancial statements Note 10 – Development properties – loans, deposits and costs As at 30 June 2005: Property Deposits at 10% of Purchase Price $’000 Loans to Foster’s Group Limited $’000 Acquisition Costs $’000 Current Caloundra Hotel, Caloundra, QLD Narrabeen Sands Hotel, Narrabeen, NSW Non-Current Caloundra Hotel, Caloundra, QLD Narrabeen Sands Hotel, Narrabeen, NSW Burleigh Heads Hotel, Burleigh Heads, QLD Parkway Hotel, Frenchs Forest, NSW Total As at 30 June 2004: Current Caloundra Hotel, Caloundra, QLD Narrabeen Sands Hotel, Narrabeen, NSW Non-Current Caloundra Hotel, Caloundra, QLD Narrabeen Sands Hotel, Narrabeen, NSW Burleigh Heads Hotel, Burleigh Heads, QLD Parkway Hotel, Frenchs Forest, NSW Total Note 11 – Interest bearing liabilities – – – 426 879 657 638 2,600 2,600 – – – 426 879 657 638 2,600 2,600 Commercial mortgage backed securities (CMBS) ALE Notes on issue 3,832 7,914 11,746 – – 5,915 5,748 11,663 23,409 3,832 7,914 11,746 – – 5,915 5,748 11,663 23,409 – – – 74 152 114 110 450 450 – – – 74 152 114 110 450 450 Total Cost $’000 3,832 7,914 11,746 500 1,031 6,686 6,496 14,713 26,459 3,832 7,914 11,746 500 1,031 6,686 6,496 14,713 26,459 2005 $’000 330,000 150,000 480,000 2004 $’000 330,000 150,000 480,000 The CMBS borrowings are secured by, among other things, ﬁrst ranking real property mortgages over all 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 (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 using interest rate swaps. 44 ALE PROPERTY GROUP ANNUAL CONCISE REPORT 30 JUNE 2005 Note 11 – Interest bearing liabilities (continued) The Group’s weighted average interest rate as at year end 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 (refer Note 22(d)) Total Group weighted average interest rate Note 12 – Asset Revaluation Reserve Note (i) Nature and purpose of reserve The assets revaluation reserve is used to record increments and decrements in the fair vale value of investment properties. (ii) Movements in reserve Balance at the beginning of the ﬁnancial year Movements in valuations of investment properties 9 Balance at the end of the ﬁnancial year Note 13 – Segment information 2005 % 6.400 6.660 6.479 7.265 6.724 (0.824) 6.527 2005 $’000 2004 % 6.210 6.660 6.346 7.265 6.633 (0.227) 6.524 2004 $’000 40,459 74,800 115,259 – 40,459 40,459 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 14 – Events occurring after reporting date The directors are not aware of any signiﬁcant events since the reporting date. 45 notes to the combined ﬁnancial statements Note 15 – Impacts of adopting Australian equivalents to IFRS The Australian Accounting Standards Board (AASB) is adopting International Financial Reporting Standards (IFRS) for application to reporting periods beginning on or after 1 January 2005. The AASB has issued Australian equivalents to IFRS, and the Urgent Issues Group has issued interpretations corresponding to IASB interpretations originated by the International Financial Reporting Interpretations Committee or the former Standing Interpretations Committee. These Australian equivalents to IFRS are referred to hereafter as AIFRS. The adoption of AIFRS will be ﬁrst reﬂected in the Group’s ﬁnancial statements for the half-year ending 31 December 2005 and the year ending 30 June 2006. To comply with the AIFRS for the ﬁrst time the Group will be required to restate its comparative ﬁnancial statements to reﬂect the application of AIFRS to that comparative period. Most adjustments required on transition to AIFRS will be made, retrospectively, against opening retained earnings as at 1 July 2004. The Group has initiated a project to manage the transition to AIFRS, under the management of the Group Financial Controller. All of the AIFRS have been analysed and the required accounting policy changes have been identiﬁed. In some cases, choices of accounting policies are available, including elective exemptions under Accounting Standard AASB1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards. These choices have been analysed to determine the most appropriate accounting policy for the Group. The known or reliably estimable impacts on the ﬁnancial report for the year ended 30 June 2005 had it been prepared using AIFRS are set out below. The expected material ﬁnancial effects of adopting AIFRS are shown for each line item in the statement of ﬁnancial performance and the statement of ﬁnancial position with descriptions of the differences. No material impacts are expected in relation to the statement of cash ﬂows. Although the adjustments disclosed in this note are based upon management’s best knowledge of expected standards and interpretations and current facts and circumstances, the adjustments may change. For example, amended or additional standards or interpretations may be issued by the AASB and IASB. Therefore, until the Group prepares its ﬁrst full AIFRS ﬁnancial statements the possibility cannot be excluded that the accompanying disclosures may have to be adjusted. 46 ALE PROPERTY GROUP ANNUAL CONCISE REPORT 30 JUNE 2005 Note 15 – Impacts of adopting Australian equivalents to IFRS (continued) Impact on the combined statement of ﬁnancial performance Existing AGAAP 2005 $’000 Effect of Change 2005 $’000 Note AIFRS 2005 $’000 (a) (b) Revenue and expenses from ordinary activities Property rental income & loan interest Revaluation of investment properties Interest income Total revenue from ordinary activities Borrowing costs excluding amortisation Borrowing costs (non-cash) amortisation Land tax expense Property valuation expenses Acquisition proposal due diligence Salaries, fees and related costs Insurance for directors and ofﬁcers Insurance other Legal fees Corporate advisory services Occupancy costs Annual reports Registry fees Accounting fees Tax reviews and advice Interest rate risk advice 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 45,996 – 1,175 47,171 31,523 6,248 1,139 244 177 991 42 70 143 92 92 52 62 65 68 49 834 41,891 – 74,800 – 74,800 – – – – – 8 – – – – – – – – – – – 8 45,996 74,800 1,175 121,971 31,523 6,248 1,139 244 177 999 42 70 143 92 92 52 62 65 68 49 834 41,899 5,280 74,792 80,072 (49) – (49) 5,329 74,792 80,121 Net increment in asset valuations 74,800 (74,800) 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 – – 74,800 (74,800) 80,129 11,668 (8) – 80,121 11,668 Cents Cents Cents Basic and diluted earnings per stapled security Distributions per stapled security held for the full ﬁnancial year 5.87 12.85 – – 88.24 12.85 47 notes to the combined ﬁnancial statements Note 15 – Impacts of adopting Australian equivalents to IFRS (continued) Impact on the combined statement of ﬁnancial position Existing AGAAP 2005 $’000 Effect of Change 2005 $’000 Note Current Assets Cash assets Receivables Prepayments and other assets Loans Total Current Assets Non-Current Assets Deferred tax asset Property investments Development property – loans, deposits and costs Prepayment 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 ALE Notes premium Deferred tax liability Total Non-Current Liabilities Total Liabilities Net Assets Equity Contributed equity Asset revaluation reserve Share based payments reserve Accumulated (losses) / retained proﬁts Total Equity Net assets per stapled security 19,477 385 5,793 11,746 37,401 99 625,000 14,713 13,585 141 653,538 690,939 7,016 6,026 302 13,344 330,000 150,000 783 – 480,783 494,127 196,812 81,787 115,259 – (234) 196,812 $ 2.17 – – – – – – – – – – – – – – – – – – – – – – – – (115,259) 13 115,246 – – (a) (b) AIFRS 2005 $’000 19,477 385 5,793 11,746 37,401 99 625,000 14,713 13,585 141 653,538 690,939 7,016 6,026 302 13,344 330,000 150,000 783 – 480,783 494,127 196,812 81,787 – 13 115,012 196,812 $ 2.17 48 ALE PROPERTY GROUP ANNUAL CONCISE REPORT 30 JUNE 2005 Note 15 – Impacts of adopting Australian equivalents to IFRS (continued) (a) Investment properties Under the new AASB140 Investment Property, if investment properties are measured at fair value, net of applicable tax, gains or losses arising from changes in fair value are recognised in the net proﬁt or loss for the period in which they arise. This will result in a change to the current accounting policy which requires that fair value increments be recognised in the asset revaluation reserve in the statement of ﬁnancial position, except to the extent that they reverse a decrement previously recognised as an expense in the proﬁt and loss account, and fair value decrements be recognised in the proﬁt and loss account, except to the extent that they reverse an increment previously recognised in the asset revaluation reserve. If the policy required by AASB 140 had been applied during the year ended 30 June 2005 retained earnings at 30 June 2005 would have been $115,259,000 higher, revaluation of investment properties for the year ended 30 June 2005 would have been $74,800,000 higher and the asset revaluations reserve at 30 June 2005 would have been $115,259,000 lower. (b) Equity based compensation beneﬁts Under AASB 2 Share-based Payment, the Group is required to recognise an expense for those options issued to employees after 7 November 2002 that vest after 1 January 2005. The options are measured at their grant date based on their fair value and the aggregate amount is allocated evenly over the vesting period. This will result in a change to the current accounting policy, under which no expense is recognised for options granted over un-issued shares to the Managing Director for nil monetary consideration. The fair value of the options issued to Andrew Wilkinson on 10 November 2003 was $24,000 at grant date. The vesting period is three years ending 10 November 2006. If the policy required by AASB 2 had been applied during the year ended 30 June 2005 then, – the salaries, fees and related costs would have been $8,000 higher, with a corresponding increase in the net movement in the share based payment reserve; and – the accumulated losses would have been $13,000 higher with a corresponding increase in the share based payment reserve. (c) Financial instruments The Group will be taking advantage of the exemption available under AASB 1 to apply AASB 132 Financial Instruments : Disclosure and Presentation and AASB 139 Financial Instruments: Recognition and Measurement only from 1 July 2005. This allows the Group to apply previous Australian generally accepted accounting principles (Australian GAAP) to the comparative information of ﬁnancial instruments within the scope of AASB 132 and AASB 139 for the 31 December 2005 and 30 June 2006 ﬁnancial reports. Changes applicable from 1 July 2005: Fair value of interest rate swaps In accordance with AASB 139, interest rate swaps as derivatives are initially recognised at fair value on the date the swap agreements are entered into and are subsequently remeasured to their fair value. Changes in fair value are either taken to the statement of ﬁnancial performance or an equity reserve, depending on whether the criteria for hedge accounting are satisﬁed at the transition date (1 July 2005). The Group does not intend on achieving hedge accounting, changes in the fair value of the swaps will be recognised in the statement of ﬁnancial performance. Capitalised borrowing establishment costs (lead manager’s incentive fee) Under AASB 139, capitalised borrowing establishment costs will be reclassiﬁed to interest bearing liabilities thereby reducing the value of the related liability. Amortisation of the capitalised borrowing costs, which will accrete the interest bearing liabilities to the principal payable at maturity, will change from a straight-line basis to an effective yield basis. This will result in lower amortisation charges through the statement of performance at the start of the debt facility term and higher amortisation charges at the end the debt facility term. 49 notes to the combined ﬁnancial statements Note 15 – Impact of adopting Australian equivalents to IFRS (continued) Loans and receivables and ﬁnancial liabilities Their classiﬁcations will remain unchanged. Consistent with AASB 139, measurement of these instruments will initially be at fair value with subsequent measurement at amortised cost, using the effective interest rate method. Consequently, the amortisation of the redemption premium on the ALE Notes will change from a straight line basis to an effective yield basis to accrete the ALE Notes to the principal payable at maturity. Disclosure and presentation of equity Currently “Units on Issue” are treated as equity. According to AASB 132, “Units on Issue” are treated as a ﬁnancial liability if the constitution requires the scheme to buy back units at the option of the unit holder. This occurs at the termination date of the Trust and Sub-Trust and is set at the eightieth anniversary of the commencement date less 1 day. In order to resolve this, the wording in the trust constitutions was changed on 28 June 2005 to ensure the “Units on Issue” satisfy the criteria for them to continue to be classiﬁed as equity. Management is of the view that going forward the debt and equity classiﬁcation applicable to the “Units on Issue” and the Group’s stapled securities will remain unchanged under AIFRS. Note 16 – 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. 50 ALE PROPERTY GROUP ANNUAL CONCISE REPORT 30 JUNE 2005 directors’ declaration The directors declare that in their opinion, the Concise Financial Report for the Group for the period ended 30 June 2005 as set out on pages 33 to 50 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 2005. 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 16, is available on request. The directors have been given the declarations by the Managing Director and Group Financial Controller and Assistant Company Secretary, as Chief Executive Ofﬁcer and Chief Financial Ofﬁcer equivalents, as required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the directors. P Warne Director Sydney Dated this 6th day of September 2005 51 Independent audit report to the stapled securityholders of ALE Property Group Matters relating to the electronic presentation of the audited ﬁnancial report This audit report relates to the concise ﬁnancial report of ALE Property Group for the ﬁnancial year ended 30 June 2005 included on ALE Property Group’s web site. The directors of Australian Leisure and Entertainment Property Management Limited are responsible for the integrity of the ALE 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 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 ﬁnancial report to conﬁrm the information included in the audited ﬁnancial report presented on this web site. Audit opinion In our opinion, the concise ﬁnancial report of ALE Property Group (the Group) for the year ended 30 June 2005 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 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 and notes to the ﬁnancial statements and the directors’ declaration for the Group, comprising Australian Leisure and Entertainment Property Management Limited and Australian Leisure and Entertainment Property Trust and the entities it controlled, for the year ended 30 June 2005. 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 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. For further explanation of an audit, visit our website http://www.pwc.com/au/ ﬁnancialstatementaudit. We also performed an independent audit of the full ﬁnancial report of the Group for the ﬁnancial year ended 30 June 2005. Our audit report on the full ﬁnancial report was signed on 16 August 2005 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. 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 6 September 2005 S J Hadﬁeld Partner 52 ALE PROPERTY GROUP ANNUAL CONCISE REPORT 30 JUNE 2005 Annual Concise Financial Report FOR THE PERIOD 1 JULY 2004 TO 31 JUNE 2005 Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278 Contents Directors’ report Discussion and analysis of statement of ﬁnancial performance, statement of ﬁnancial position and statement of cash ﬂows Statement of ﬁnancial performance Statement of ﬁnancial position Statement of cash ﬂows Notes to the ﬁnancial statements Directors’ declaration Independent review report to the shareholders 54 66 67 68 69 70 75 76 53 directors’ report The directors of Australian Leisure and Entertainment Property Management Limited (the “Company”) present their report for the year ended 30 June 2005. Directors The following persons were directors of the Company during the whole of the ﬁnancial year and up until the date of this report unless otherwise stated: Name Non-executive directors P H Warne (Chairman) J P Henderson H I Wright Executive directors A F O Wilkinson (Managing Director) J T McNally Appointed 8 September 2003 19 August 2003 8 September 2003 16 November 2004 26 June 2003 Principal Activities During the period the principal activity of the Company consisted of property funds management and acting as responsible entity for the Australian Leisure and Entertainment Property Trust (the “Trust”). Dividends No provisions for or payments of Company dividends have been made during the ﬁnancial year (2004: nil). Review of Operations A summary of the revenue and results for the ﬁnancial year is set out below: Income Management fee income Bank interest Expenses Operating expenses Income tax (beneﬁt) / expense Net (loss) after income tax Net assets per share 2005 $ 26 June 2003 to 30 June 2004 $ 2,185,120 996,548 20,382 2,997 2,205,502 999,545 2,337,906 1,196,088 2,337,906 1,196,088 (39,368) (93,036) 0.10 (58,568) (137,975) 0.10 54 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY MANAGEMENT LIMITED ANNUAL CONCISE REPORT 30 JUNE 2005 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 ﬁnancial year The directors are not aware of any matter or circumstance occurring after balance date which may affect the Company’s operations, the results of those operations or the state of affairs of the Company. Likely Developments and expected results of operations The Company will continue to maintain its deﬁned strategy of identifying opportunities to increase the proﬁtability of the ALE Property Group (the “Group”) and its value to its shareholders. Further information on likely developments in the operations of the Company and the expected results of operations have not been included in this report because the directors believe that it would be likely to result in unreasonable prejudice to the Company. 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. On three of the properties ongoing testing is being undertaken and if further work is required indemnities are held in excess of any expenditure amounts required. 55 directors’ report Information on directors Mr Peter H Warne B.A, Chairman and Non–Executive Director. Experience and expertise Peter was appointed as Chairman and non-executive director of the Company in September 2003. Peter began his career with the NSW Government Actuary’s Ofﬁce and the NSW 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 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. Other current directorships of listed entities Non-executive director of SFE Corporation Limited and Macquarie Capital Alliance Group. Former directorships of listed entities in the last three years None. Special responsibilities – Chairman of the board. – Member of the audit, compliance and risk management committee (resigned as Chairman on 15 August 2005, continuing as member). – Chairman of the remuneration committee. Mr John Henderson (B.Bldg, MRICS, AAPI), Non-Executive Director. Experience and expertise John was appointed as a non-executive director of the Company in August 2003. 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, is an associate of the Australian Property Institute and is a licensed real estate agent. Other current directorships of listed entities None. Former directorships of listed entities in the last three years None. Special responsibilities – Member of the audit, compliance and risk management committee. – Member of the remuneration committee. Ms Helen Wright LL.B, MAICD, Non-Executive Director. Experience and expertise Helen was appointed as a non-executive director of the Company in September 2003. Helen Wright 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. Helen is a member of the Boards of the Sydney Harbour Foreshore Authority, Australian Technology Park Precinct Management, and Cooks Cove Redevelopment Authority; was Deputy Chair of the Australia Day Council of NSW to December 2002; and serves on the Advisory Council to The Little Company of Mary (Calvary hospitals). Prior boards include Darling Harbour Authority, UNSW Press Limited and MLC Homepack Limited. Helen has a Bachelor of Laws from University of NSW, and in 1994 completed the Advanced Management Program at the Harvard Graduate School of Business. Other current directorships of listed entities None. Former directorships of listed entities in the last three years None. Special responsibilities – Chair of the audit, compliance and risk management committee. (appointed Chair 15 August 2005). – Member of the remuneration committee. 56 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY MANAGEMENT LIMITED ANNUAL CONCISE REPORT 30 JUNE 2005 James’ qualiﬁcations include a Bachelor of Business in Land Economy (Hawkesbury Agricultural College) and a Diploma of Law (Legal Practitioners Admission Board). He is a registered valuer and licensed real estate agent. Other current directorships of listed entities None. Former directorships of listed entities in the last three years None. Special responsibilities – Responsible Ofﬁcer of the Company under the Company’s Australian Financial Services License. Mr Brendan R Howell BEcon, GDipAppFin (Sec Inst). Company secretary Mr Howell was appointed to the position of company secretary in September 2003. 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, and 15 years’ experience in the funds management industry. He was formerly an associate member of both the Securities Institute of Australia and the Institute of Chartered Accountants in Australia. Brendan has a property and accounting background and has previously held senior positions with a leading Australian trustee company administering listed and unlisted property trusts. For the past six and half 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. Mr Andrew F O Wilkinson (B. Bus. CFTP), Managing Director. Experience and expertise Andrew was appointed Managing Director of the Company in November 2004. He joined ALE as Chief Executive Ofﬁcer at the time of its listing in November 2003. Andrew has over 25 years experience in the banking and corporate ﬁnance. He was previously a corporate ﬁnance partner with PricewaterhouseCoopers where he specialised in providing ﬁnancial and strategic advice on signiﬁcant property and infrastructure portfolios. Over his 8 year period with the ﬁrm he held a number of senior positions and was also one of the founding members of the NSW Government’s Infrastructure Council. Andrew’s prior 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. Other current directorships of listed entities None. Former directorships of listed entities in the last three years None. Special responsibilities – Managing Director of the Company. – Responsible Ofﬁcer of the Company under the Company’s Australian Financial Services License. Mr James McNally (B.Bus (Land Economy). Dip. Law), Executive Director. Experience and expertise James was appointed as an executive director of the Company in June 2003. 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 the Company. 57 directors’ report Directors’ and speciﬁed executive interests in shares and options The following directors, speciﬁed executive and their associates held or currently hold share interests in the Company: Name Director/speciﬁed executive Purchases / (sales) Balance at the start of the year P H Warne J P Henderson H I Wright A F O Wilkinson D S Barkas Director Director Director Director Speciﬁed Executive 453,400 25,000 100,000 31,998 – 179,010 30,000 – 21,000 46,810 Number of shares held 632,410 55,000 100,000 52,998 46,810 The following director held or currently holds options over shares of the Company: Name Director/speciﬁed executive A F O Wilkinson Director Balance at the start of the year 300,000 Purchases / (sales) Number of options held – 300,000 Meetings of directors The numbers of meetings of the Company’s board of directors held during the year ended 30 June 2005 and the number of meetings attended by each director at the time the director held ofﬁce during the year were: Director P H Warne J P Henderson H I Wright A F O Wilkinson J T McNally Board meetings Held1 Attended 13 13 13 7 13 13 11 13 7 13 Audit, Compliance and Risk Management Committee meetings Held1 Attended Remuneration Committee meeting Held1 Attended 6 6 6 – – 6 5 6 – – 1 1 1 – – 1 1 1 – – 1 “Held” reﬂects the number of meetings which the director was eligible to attend. 58 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY MANAGEMENT LIMITED ANNUAL CONCISE REPORT 30 JUNE 2005 Remuneration report The remuneration report is set out under the following main headings: A Principles used to determine the nature and amount of remuneration B Details of remuneration C Service agreements D Equity-based compensation A Principles used to determine the nature and amount of remuneration The objectives of the Company’s executive reward framework is to ensure that reward for performance is transparent, reasonable, competitive and appropriate for the results delivered. The framework aligns executive reward with achievement of strategic objectives and creating of value for security holders, and conforms with market best practice for the delivery of reward. The Board ensures that executive reward satisﬁes the following key criteria for good reward governance practices: – competitiveness and reasonableness – acceptability to share holders – performance linkage/alignment of executive compensation – transparency – capital management In consultation with external remuneration consultants, the Company has structured an executive remuneration framework that is market competitive and complementary to the reward strategy of the organisation. Alignment to stapled security holders interests: – has economic proﬁt as a core component of plan design – focuses on sustained growth in stapled security holder wealth, consisting of distributions, dividends and growth in share price and delivering constant return on assets as well as focusing the executive on key non-ﬁnancial drivers of value – attracts and retains high calibre executives Alignment to program participants’ interests: – rewards capability and experience – reﬂects competitive reward for contribution to growth in stapled security holders wealth – provides a clear structure for earning rewards – provides recognition for contribution The framework provides a mix of ﬁxed and variable pay and a blend of short and long-term incentives. As executives gain seniority within the Company, the balance of this mix shifts to a higher proportion of ‘at risk’ rewards, depending upon the nature of the executive’s new role. The overall level of executive reward takes into account the performance of the Group over a number of periods with greater emphasis given to the current year. Over the past year, the Group’s proﬁt from ordinary activities after income tax has grown by $1.427m (or 36.6%) from $3.902m to $5.280m and stapled security holders’ wealth (inclusive of distribution returns) has grown by 68.4%. Non-executive directors Fees and payments to non-executive directors reﬂect the demands which are made on and the responsibilities of the directors. Non-executive directors’ fees and payments are reviewed annually by the Board. The Board may also obtain the advice of independent remuneration consultants to ensure that non-executive directors’ fees and payments are appropriate and in line with the market. The Chairman’s fees are determined independently to the fees of the non-executive directors, based on comparative roles in the external market. The Chairman is not present at any discussion relating to the determination of his own remuneration. Non-executive directors do not receive options over securities. 59 directors’ report Remuneration report (continued) Directors’ fees The current base remuneration was last reviewed with effect from September 2003. The directors’ fees are all inclusive of committee fees. Non-executive directors’ fees are determined within an aggregate directors’ fee pool limit which will be periodically recommended for approval by share holders. The maximum currently stands at $335,000 per annum, comprised of $260,000 per annum for non-executive directors and $75,000 per annum for the executive director (inclusive of a responsible ofﬁcer fee of $5,000 per annum) and excluding the managing directors’ remuneration. The maximum amount for non-executive directors can only be increased at a general meeting of the Company. Retirement allowances for directors No retirement allowances for directors are offered by the Company in line with recent guidance on non-executive directors’ remuneration. Executive pay The executive pay and reward framework has three components, the combination of which comprises the executive’s total remuneration: – base pay and beneﬁts – short-term performance incentives – long-term incentives – other remuneration such as superannuation Base pay and beneﬁts Structured as a total employment cost package which may be delivered as a combination of cash and prescribed non-cash beneﬁts at the discretion of the executives and the board. Executives are offered a competitive base pay that comprises the ﬁxed component of their remuneration. External remuneration consultants provide analysis and advice to ensure base pay is set to reﬂect the market for comparable roles. Base pay for senior executives is reviewed annually to ensure that the executives pay is competitive with the market. An executive’s pay is also reviewed on promotion. There is no guaranteed base pay increase in any of the executives’ contracts. Short-term incentives (STI) The short-term incentive arrangements in place at the Company have been designed to link annual STI bonus awards to executive performance against agreed key performance indicators (KPI’s) including the ﬁnancial performance of the Company during the year in question. Each executive has a target STI opportunity depending on the accountabilities of the role and the impact on the performance of the Company. Each year the remuneration committee considers the appropriate targets and KPI’s to link the STI plan and the level of payout if targets are met. This includes setting any maximum payout under the STI plan and minimum levels of performance to trigger payments of STI. For the year end 30 June 2005, the KPI’s link to STI plans were based on Company, individual, business and personal objectives. The KPI’s required performance in managing operating and funding costs, compliance with legislative requirements, increasing security holder value as well as other key strategic non-ﬁnancial measures linked to drivers of performance in future economic periods. The board is responsible for assessing whether the KPI’s have been met. To facilitate this assessment, the board receives detailed reports on performance from management. The STI payments may be adjusted up or down in line with over or under achievement against the target performance levels. This is at the discretion of the board. The STI target annual payment is reviewed annually. 60 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY MANAGEMENT LIMITED ANNUAL CONCISE REPORT 30 JUNE 2005 Remuneration report (continued) Security options granted No options over unissued stapled securities were granted during or since the end of the ﬁnancial year. B Details of remuneration Amount of remuneration Details of the remuneration of each director and the speciﬁc executive of the Company, paid or payable by the Company for the year ended 30 June 2005 are set out in the following tables. The cash bonuses are dependent on the satisfaction of performance conditions are set out in the section headed “Short-term incentives”, above. All other elements of remuneration are not directly related to performance. Directors of the Company Name Non-executive directors P H Warne (Chairman) J P Henderson H I Wright Executive directors A F O Wilkinson* (Managing Director) J T McNally (Director) Total Cash Salary and Fees 110,092 70,000 64,220 191,954 81,250 517,516 Cash Bonus Superannuation Total – – – 65,000 – 65,000 9,908 – 5,780 15,081 – 30,769 120,000 70,000 70,000 272,035 81,250 613,285 * Mr Wilkinson was appointed Managing Director on 16 November 2004. Before this appointment he was the Company’s Chief Executive Ofﬁcer. Amounts shown above include all of Mr Wilkinson’s remuneration during the reporting period, whether as Managing Director or Chief Executive Ofﬁcer. Amounts received in his position as Managing Director amounted to $191,784, made up of cash salary and fees of $117,895, cash bonus of $65,000 and superannuation of $8,889. Speciﬁed executive of the Company Name Cash Salary Cash Bonus Non monetary beneﬁts Superannuation Total D S Barkas* (Group Financial Controller & Assistant Company Secretary) 127,282 20,000 6,800 10,462 164,544 * Mr Darren Barkas was appointed Group Financial Controller & Assistant Company Secretary on 16 March 2005. Before this he was the Company’s Property Trust Manager. Amounts shown above include all of Mr Barkas’ remuneration during the reporting period, whether as Company Financial Controller and Assistant Company Secretary or Property Trust Manager. Amounts received in his position as Group Financial Controller and Assistant Company Secretary amounted to $55,377, made up of cash salary and fees of $25,578, non monetary beneﬁt of $6,800, cash bonus of $20,000 and superannuation of $3,000. Cash bonuses and options For each cash bonus included in the above tables, the percentage of the available bonus that was awarded for the ﬁnancial year and the percentage that was forfeited because a person did not meet the performance criteria is set out below. Name A F O Wilkinson D S Barkas Paid $ 65,000 20,000 Forfeited % 13.3 0.0 61 directors’ report Remuneration report (continued) C Service agreement On 1 November 2003, the Company entered into a three year service agreement with Managing Director, Mr Wilkinson. The agreement stipulates the minimum base salary, inclusive of superannuation, for each of the ﬁrst three years as being $225,000, to be reviewed annually by the board. A short-term incentive (which if earned, would be paid as a cash bonus each year) and a long-term incentive in the form of options over shares, exercisable between November 2006 and November 2007 (except if the Company is subject to takeover, then to February 2007) are also provided. In the event of the termination of Mr Wilkinson’s employment contract, amounts are payable for unpaid accrued entitlements, proportion of bonus and option entitlements as at the date of termination. In the event of redundancy termination amounts are payable for base salary, inclusive of superannuation and bonus and option entitlements for the balance of the contract. Mr Barkas’ employment contract may be terminated at one months notice. There are no other director or executive service agreements. Letters of appointment have been entered into by each director (excluding the Managing Director) conﬁrming their remuneration and obligations under the Corporations Law and Company constitution. A letter of appointment has been entered into with MIA Services Pty Limited for the use of the services of Brendan Howell as Company Secretary and as a Responsible Ofﬁcer of the Company on a continuous basis that may be terminated at any time. D Shared-based compensation Options over un-issued stapled securities were granted during the last ﬁnancial period to Andrew Wilkinson as disclosed in an ASX Announcement dated 10 November 2003. Mr Wilkinson has the right to subscribe for up to 300,000 securities at a ﬁxed price of $1.036 exercisable from 10 November 2006 or earlier, if Mr Wilkinson’s employment is terminated other than for cause or unsatisfactory performance. The options will remain exercisable until 10 November 2007, unless the ALE Property Company is subject to a takeover, in which case the period of exercise would be reduced to 11 February 2007. The options value disclosed above as part of speciﬁed executive 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 $24,000 at grant date has been independently determined by using a Black-Scholes option pricing model. This technique takes 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, expected price volatility of the underlying share and the expected dividend yield and the risk-free interest rate for the term of the option. Stapled securities under option Unissued stapled securities under option at the date of this report are as follows: Date option granted 10 November 2003 Expiry date Issue price of stapled securities Number under option 10 November 2007* $1.036 300,000 * Unless ALE Property Company is subject to a takeover, in which case the period of exercise would be reduced to 11 February 2007 Stapled securities issued on the exercise of options No stapled securities have been issued on the exercise of options, to date. 62 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY MANAGEMENT LIMITED ANNUAL CONCISE REPORT 30 JUNE 2005 Remuneration report (continued) D Shared-based compensation (continued) Insurance of ofﬁcers During the ﬁnancial year, the Company paid a premium of $41,766 (2004: $40,746) to insure the directors and ofﬁcers of the Company. The auditors of the Company are in no way 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. Non-audit services The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the Company are important. Details of amounts paid or payable to the auditor (PricewaterhouseCoopers) for audit and non-audit services provided during the year are set out below: The board of directors has considered the position and in accordance with the advice received from the audit committee is satisﬁed that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisﬁed that the provision of non-audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: – all non-audit services have been reviewed by the audit committee to ensure that they do not impact the impartiality and objectivity of the auditor – none of the services undermine the general principles relating to auditor independence as set out in Professional Statement F1, including reviewing or auditing the auditors own work, acting in a management or decision making capacity for the Company, acting as an advocate for the Company or jointly sharing economic risk and rewards. A copy of the auditors’ independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 65. During the period the auditor of the Group earned the following remuneration: Audit and review of the ﬁnancial reports of the Group and other audit work under the Corporations Act 2001* – in relation to current year – in relation to prior year Due diligence service Controls assurance services Tax compliance services Tax consulting services General accounting advice (including AIFRS) * Includes amounts allocated to the Company of $74,300 (2004: $41,200). 2005 $ 2004 $ 125,705 60,000 31,300 7,000 15,000 24,190 29,944 293,139 103,000 – – 14,000 – 34,000 8,750 159,750 63 directors’ report Rounding amounts The Company 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 6th day of September 2005 64 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY MANAGEMENT LIMITED ANNUAL CONCISE REPORT 30 JUNE 2005 Auditors’ independence declaration As lead auditor for the audit of Australian Leisure and Entertainment Property Management Limited for the year ended 30 June 2005, I declare that to the best of my knowledge and belief, there have been: (a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Australian Leisure and Entertainment Property Management Limited during the period. S J Hadﬁeld Partner Sydney 6 September 2005 65 discussion and analysis of the ﬁnancial statements The following commentary is to assist shareholders in reviewing and interpreting the results of the Company for the year ended 30 June 2005. Statement of ﬁnancial performance Net loss after tax was $93,036. The material aspects of the actual result were: – Management fee income from the Trust was $2,185,120. – Management costs – total for the period was $2,337,906 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. – Taxation beneﬁt of $39,368 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 As at 30 June 2005 total assets were $9,692,625, total liabilities were $843,626 and net assets were $8,848,999. The reduction in net assets of $93,036 from the 30 June 2004 total of $8,942,035 is a result of the net loss after tax of $93,036. At 30 June 2005 the Company held $156,682 of cash at bank to provide for the Company’s day to day liquidity requirements. The net asset per share issued at 30 June 2005 was $0.10 and as at 30 June 2004 was $0.10. Statement of cash ﬂows Net cash inﬂow from operating activities includes the payment of the Company’s expenses incurred in managing the affairs of the Group and the reimbursement for these expenses from the Trust during the year. Net cash inﬂow from operating activities was $217,245. Net cash outﬂow from investing activities was an outﬂow of $168,033 relating to the ﬁt-out of the Company’s ofﬁce premises, website design and construction and other ﬁxed assets. There were no cash ﬂows from ﬁnancing activities during the year. The net increase in cash held of $49,212 results from the net cash inﬂow from operating activities of $217,245 and the net cash outﬂow from investing activities of $168,033. 66 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY MANAGEMENT LIMITED ANNUAL CONCISE REPORT 30 JUNE 2005 statement of ﬁnancial performance FOR THE YEAR ENDED 30 JUNE 2005 Note 2 3 Revenue and expenses from ordinary activities Management fees Interest income Total revenue from ordinary activities Salaries, fees and related costs Acquisition proposal due diligence Legal fees Insurance for directors and ofﬁcers Auditor’s remuneration for audit services – relating to current year Auditor’s remuneration for audit services – relating to prior year Insurance other Annual reports Registry fees Information systems Occupancy costs Accounting fees Tax reviews and advice Corporate advisory services Interest rate risk advice ASX and ASIC fees Travel and accommodation Depreciation – plant & equipment Marketing expenses Communications expenses Dues and subscriptions Other expenses 2005 $ 26 June 2003 to 30 June 2004 $ 2,185,120 20,382 2,205,502 971,204 177,343 143,012 41,766 125,750 60,000 69,791 51,967 62,131 35,721 91,622 64,762 68,277 91,783 48,820 39,805 27,068 22,248 20,744 11,726 10,243 102,123 996,548 2,997 999,545 540,398 – 73,069 40,746 103,000 – 34,873 55,000 36,775 26,455 25,570 26,343 34,000 34,855 86,075 3,217 10,078 3,514 10,904 1,896 2,125 47,195 Total expenses from ordinary activities 2,337,906 1,196,088 (Loss) from ordinary activities before income tax beneﬁt (132,404) (196,543) Income tax (beneﬁt) Net (loss) after income tax attributable to shareholders of the Company Total revenues, expenses and valuation adjustments attributable to shareholders of the Company recognised directly in equity Total changes in equity attributable to shareholders of the Company other than those resulting from transactions with shareholders as owners (39,368) (58,568) (93,036) (137,975) – – (93,036) (137,975) Cents Cents Basic and diluted (loss) per share Dividends per share held for the full ﬁnancial year 4 (0.10) – (0.15) – The above statement of ﬁnancial performance should be read in conjunction with the accompanying notes. 67 statement of ﬁnancial position AS AT 30 JUNE 2005 Current Assets Cash assets Receivables Loan to related party Prepayments Total Current Assets Non-Current Assets Deferred tax asset Receivables Plant and equipment Investment in related party Total Non-Current Assets Total Assets Current Liabilities Payables Provisions Loan from related party Total Current Liabilities Total Liabilities Net Assets Equity Contributed equity Accumulated losses Total Equity Net assets per share The above statement of ﬁnancial position should be read in conjunction with the accompanying notes. 2005 $ 2004 $ 156,682 186,087 – 31,275 374,044 97,936 – 140,635 9,080,010 107,470 220,378 646,548 22,315 996,711 58,568 5,958 16,545 9,080,010 9,318,581 9,161,081 9,692,625 10,157,792 460,500 33,279 349,847 843,626 843,626 468,154 34,931 712,672 1,215,757 1,215,757 8,848,999 8,942,035 9,080,010 (231,011) 9,080,010 (137,975) 8,848,999 8,942,035 0.10 0.10 68 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY MANAGEMENT LIMITED ANNUAL CONCISE REPORT 30 JUNE 2005 statement of cash ﬂows FOR THE YEAR ENDED 30 JUNE 2005 Cash ﬂows from operating activities Expense recoveries Management fees and expense recoveries from related parties Cash payments in the course of operations Interest received Net cash inﬂow from operating activities Cash ﬂows from investing activities Payments for investments Payments for property, plant and equipment Net cash (outﬂow) from investing activities Cash ﬂows from ﬁnancing activities Proceeds from issue of shares Net cash inﬂow 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 The above statement of cash ﬂows should be read in conjunction with the accompanying notes. 2005 $ 26 June 2003 to 30 June 2004 $ 269,166 8,890,000 (8,961,779) 19,858 – 1,062,672 (937,183) 2,040 217,245 127,529 – (168,033) (6,200,010) (20,059) (168,033) (6,220,069) – – 6,200,010 6,200,010 49,212 107,470 156,682 107,470 – 107,470 – – 2,880,000 2,880,000 69 notes to the ﬁnancial statements Note 1 – Summary of signiﬁcant accounting policies 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. Note 2 – Management fees Management fees Fees charged to the Trust by the Company for management and responsible entity services. 2005 $ 26 June 2003 to 30 June 2004 $ 2,185,120 996,548 Note 3 – Acquisition proposal due diligence Acquisition proposal due diligence 177,343 – Costs incurred by the Company, as responsible entity for the Trust, in relation to potential property acquisitions that did not proceeded to completion. Note 4 – Earnings per share Weighted average number of shares used as the denominator Cents Cents (0.10) (0.10) (0.15) (0.15) No. of shares No. of shares 90,800,100 90,800,100 90,800,100 90,800,100 Basic (loss) per share Diluted (loss) per share Weighted average number of shares used as the denominator in calculating basic earnings per share Weighted average number of shares and potential shares used as the denominator in calculating diluted earnings per share Note 5 – Segment information Business Segment The Company operates solely in the property funds management industry. Geographical Segment The Company operates solely within Australia. Note 6 – Events occurring after reporting date The directors are not aware of any signiﬁcant events since the reporting date. 70 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY MANAGEMENT LIMITED ANNUAL CONCISE REPORT 30 JUNE 2005 Note 7 – Impacts of adopting Australian equivalents to IFRS The Australian Accounting Standards Board (AASB) is adopting International Financial Reporting Standards (IFRS) for application to reporting periods beginning on or after 1 January 2005. The AASB has issued Australian equivalents to IFRS, and the Urgent Issues Group has issued interpretations corresponding to IASB interpretations originated by the International Financial Reporting Interpretations Committee or the former Standing Interpretations Committee. These Australian equivalents to IFRS are referred to hereafter as AIFRS. The adoption of AIFRS will be ﬁrst reﬂected in the Group’s ﬁnancial statements for the half-year ending 31 December 2005 and the year ending 30 June 2006. To comply with the AIFRS for the ﬁrst time the Company will be required to restate its comparative ﬁnancial statements to reﬂect the application of AIFRS to that comparative period. Most adjustments required on transition to AIFRS will be made, retrospectively, against opening retained earnings as at 1 July 2004. The Company has initiated a project to manage the transition to AIFRS, under the management of the Group Financial Controller. All of the AIFRS have been analysed and the required accounting policy changes have been identiﬁed. In some cases, choices of accounting policies are available, including elective exemptions under Accounting Standard AASB1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards. These choices have been analysed to determine the most appropriate accounting policy for the Company. The known or reliably estimable impacts on the ﬁnancial report for the year ended 30 June 2005 had it been prepared using AIFRS are set out below. The expected material ﬁnancial effects of adopting AIFRS are shown for each line item in the statement of ﬁnancial performance and the statement of ﬁnancial position with descriptions of the differences. No material impacts are expected in relation to the statement of cash ﬂows. Although the adjustments disclosed in this note are based upon management’s best knowledge of expected standards and interpretations and current facts and circumstances, the adjustments may change. For example, amended or additional standards or interpretations may be issued by the AASB and IASB. Therefore, until the company prepares its ﬁrst full AIFRS ﬁnancial statements the possibility cannot be excluded that the accompanying disclosures may have to be adjusted. 71 notes to the ﬁnancial statements Note 7 – Impacts of adopting Australian equivalents to IFRS (continued) Impact on the statement of ﬁnancial performance Revenue and expenses from ordinary activities Management fees Interest income Total revenue from ordinary activities Salaries, fees and related costs Acquisition proposal due diligence Legal fees Auditor’s remuneration for audit services – relating to current year Auditor’s remuneration for audit services – relating to prior year Insurance for directors and ofﬁcers Insurance other Annual reports Registry fees Information systems Occupancy costs Accounting fees Tax reviews and advice Corporate advisory services Interest rate risk advice ASX and ASIC fees Travel and accommodation Depreciation – plant & equipment Marketing expenses Communications expenses Dues and subscriptions Other expenses Existing AGAAP 2005 $ Effect of Change 2005 $ Note AIFRS 2005 $ 2,185,120 20,382 2,205,502 – – – 2,185,120 20,382 2,205,502 (a) 971,204 177,343 143,012 125,750 60,000 41,766 69,791 51,967 62,131 35,721 91,622 64,762 68,277 91,783 48,820 39,805 27,068 22,248 20,744 11,726 10,243 102,123 7,993 – – – – – – – – – – – – – – – – – – – – – 979,197 177,343 143,012 125,750 60,000 41,766 69,791 51,967 62,131 35,721 91,622 64,762 68,277 91,783 48,820 39,805 27,068 22,248 20,744 11,726 10,243 102,123 Total expenses from ordinary activities 2,337,906 7,993 2,345,899 (Loss) from ordinary activities before income tax expenses Income tax (beneﬁt) / expense Net (loss) after income tax attributable to shareholders of the Company Total revenues, expenses and valuation adjustments attributable to share holders of the Company recognised directly in equity Total changes in equity attributable to share holders of the Company other than those resulting from transactions with share holders as owners (132,404) (7,993) (140,397) (39,368) – (39,368) (93,036) (7,993) (101,029) – – – (93,036) (7,993) (101,029) 72 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY MANAGEMENT LIMITED ANNUAL CONCISE REPORT 30 JUNE 2005 Note 7 – Impacts of adopting Australian equivalents to IFRS (continued) Impact on the combined statement of ﬁnancial position Existing AGAAP 2005 $ Effect of Change 2005 $ Note AIFRS 2005 $ Current Assets Cash assets Receivables Prepayments and other assets Total Current Assets Non-Current Assets Deferred tax asset Plant and equipment Investment in related party Total Non-Current Assets Total Assets Current Liabilities Payables Provisions Loan from related party Total Current Liabilities Total Liabilities Net Assets Equity Contributed equity Share base payment reserve Accumulated losses Total Equity 156,682 186,087 31,275 374,044 97,936 140,635 9,080,010 9,318,581 9,692,625 460,500 33,279 349,847 843,626 843,626 8,848,999 – – – – – – – – – – – – – – – 156,682 186,087 31,275 374,044 97,936 140,635 9,080,010 9,318,581 9,692,625 460,500 33,279 349,847 843,626 843,626 8,848,999 (a) (a) 9,080,010 – (231,011) 8,848,999 – 13,117 (13,117) 9,080,010 13,117 (244,128) – 8,848,999 73 notes to the ﬁnancial statements Note 7 – Impacts of adopting Australian equivalents to IFRS (continued) (a) Equity based compensation beneﬁts Under AASB 2 Share-based Payment, the Company is required to recognise an expense for those options issued to employees after 7 November 2002 that vest after 1 January 2005. The options are measured at their grant date based on their fair value and the aggregate amount is allocated evenly over the vesting period. This will result in a change to the current accounting policy, under which no expense is recognised for options granted over un-issued securities to the managing director for nil monetary consideration. The fair value of the options issued to Andrew Wilkinson on 10 November 2003 was $24,000 at grant date. The vesting period is three years ending 10 November 2006. If the policy required by AASB 2 had been applied during the year ended 30 June 2005 then, – the salaries, fees and related costs would have been $7,993 higher, with a corresponding increase in the net movement in the share based payment reserve; and – the accumulated losses would have been $13,117 higher with a corresponding increase in the share based payment reserve. b) Financial instruments The Company will be taking advantage of the exemption available under AASB 1 to apply AASB 132 Financial Instruments : Disclosure and Presentation and AASB 139 Financial Instruments: Recognition and Measurement only from 1 July 2005. This allows the Company to apply previous Australian generally accepted accounting principles (Australian GAAP) to the comparative information of ﬁnancial instruments within the scope of AASB 132 and AASB 139 for the 31 December 2005 and 30 June 2006 ﬁnancial reports. Changes applicable from 1 July 2005: Loans and receivables and ﬁnancial liabilities Their classiﬁcations will remain unchanged. Consistent with AASB 139, measurement of these instruments will initially be at fair value with subsequent measurement at amortised cost, using the effective interest rate method. Note 8 – 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 74 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY MANAGEMENT LIMITED ANNUAL CONCISE REPORT 30 JUNE 2005 directors’ declaration The directors declare that in their opinion, the Concise Financial Report for the Company for the year ended 30 June 2005 as set out on pages 66 to 74 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 2005. 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 8, is available on request. The directors have been given the declarations by the Managing Director and Group Financial Controller and Assistant Company Secretary, as Chief Executive Ofﬁcer and Chief Financial Ofﬁcer equivalents, as required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the directors. P Warne Director Sydney Dated this 6th day of September 2005 75 Independent audit report to the members of Australian Leisure and Entertainment Property Management Limited Matters relating to the electronic presentation of the audited ﬁnancial report This audit report relates to the concise ﬁnancial report of Australian Leisure and Entertainment Property Management Limited for the ﬁnancial year ended 30 June 2005 included on ALE Property Group’s web site. The directors of Australian Leisure and Entertainment Property Management Limited are responsible for the integrity of the ALE 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 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 ﬁnancial report to conﬁrm the information included in the audited ﬁnancial report presented on this web site. Audit opinion In our opinion, the concise ﬁnancial report of Australian Leisure and Entertainment Property Management Limited (the Company) for the year ended 30 June 2005 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 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 and notes to the ﬁnancial statements and the directors’ declaration for the Company for the year ended 30 June 2005. 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 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. For further explanation of an audit, visit our website http://www.pwc.com/au/ ﬁnancialstatementaudit. We also performed an independent audit of the full ﬁnancial report of the Company for the ﬁnancial year ended 30 June 2005. Our audit report on the full ﬁnancial report was signed on 16 August 2005 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. 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 6 September 2005 S J Hadﬁeld Partner 76 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY MANAGEMENT LIMITED ANNUAL CONCISE REPORT 30 JUNE 2005 Annual Concise Financial Report FOR THE PERIOD 1 JULY 2004 TO 31 JUNE 2005 Australian Leisure and Entertainment Property Trust ARSN 106 063 049 Contents Directors’ report Discussion and analysis of consolidated statements of ﬁnancial performance, ﬁnancial position and cash ﬂows Consolidated statement of ﬁnancial performance Consolidated statement of ﬁnancial position Consolidated statement of cash ﬂows Notes to the consolidated ﬁnancial statements Directors’ declaration Independent review report to the unitholders 78 89 91 92 93 94 105 106 77 directors’ report The directors of Australian Leisure and Entertainment Property Management Limited (the “Company”) as Responsible Entity for Australian Leisure and Entertainment Property Trust (the “Trust”) present their report for the Trust and its controlled entities (the “Consolidated Entity”) for the year ended 30 June 2005. This report includes the consolidated results of the Trust and its wholly owned sub trust Australian Leisure and Entertainment Direct Property Trust (the “Sub Trust”), and the Sub Trust’s wholly owned special ﬁnancing vehicle ALE Finance Company Pty Limited (the “Finance Company”). The Company and the Trust together form the ALE Property Group (the “Group”). Directors The following persons were directors of the Company during the whole of the year and up until the date of this report unless otherwise stated: Name Non-executive directors P H Warne (Chairman) J P Henderson H I Wright Executive directors A F O Wilkinson (Managing Director) J T McNally Appointed 8 September 2003 19 August 2003 8 September 2003 16 November 2004 26 June 2003 Principal activities During the year the principal activity of the Consolidated Entity consisted of investment in property. There has been no signiﬁcant change in these activities during the year. Distributions Trust distributions paid or payable to unitholders during the ﬁnancial year were as follows: 2005 $’000 26 June 2003 to 30 June 2004 $’000 Interim Trust distribution for the year ended 30 June 2005 of 6.25 cents (2004: nil) per stapled security paid on 28 February 2005 5,675 – Final Trust distribution for the year ended 30 June 2005 of 6.60 cents (2004: 7.50 cents) per stapled security to be paid 31 August 2005 5,993 11,668 6,810 6,810 78 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY TRUST ANNUAL CONCISE REPORT 30 JUNE 2005 Review of Operations A summary of the consolidated revenue and results of the Consolidated Entity is set out below: Income Property rents and loan interest Bank interest Expenses Borrowing costs Land tax expense Other expenses Income tax (beneﬁt) / expense Net Income Net assets per ordinary unit 2005 $’000 19 August 2003 to 30 June 2004 $’000 45,996 1,155 47,151 37,771 1,139 2,828 41,738 (10) 5,423 $2.07 29,479 712 30,191 24,233 545 1,365 26,143 8 4,040 $1.28 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. 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 ﬁnancial year, other than those changes otherwise identiﬁed in this ﬁnancial report. Matters subsequent to the end of the ﬁnancial year On 1 September 2005 the Consolidated Entity entered into two further forward dated interest rate swap transactions in respect of its $480m debt facilities. The swaps were $50m at 5.5375% pa ﬁxed (excluding credit margin) from November 2008 to November 2012 and $50m at 5.5475% pa ﬁxed (excluding credit margin) from November 2008 to November 2013. The directors are not aware of any other 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. Likely developments and expected results of operations The Consolidated Entity will continue to maintain its deﬁned strategy of identifying opportunities to increase the proﬁtability of the Consolidated Entity and its value to its unitholders . Further information on likely developments in the operations of the Consolidated Entity and the expected results of operations have not been included in this report because the directors believe that it would be likely to result in unreasonable prejudice to the Consolidated Entity. 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. On three of the properties ongoing testing is being undertaken and if further work is required indemnities are held in excess of any expenditure amounts required. 79 directors’ report Information on directors Mr Peter H Warne B.A, Chairman and Non–Executive Director. Experience and expertise Peter was appointed as Chairman and non-executive director of the Company in September 2003. Peter began his career with the NSW Government Actuary’s Ofﬁce and the NSW 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 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. Other current directorships of listed entities Non-executive director of SFE Corporation Limited and Macquarie Capital Alliance Group. Former directorships of listed entities in the last three years None. Special responsibilities – Chairman of the board. – Member of the audit, compliance and risk management committee (resigned as Chairman on 15 August 2005, continuing as member). – Chairman of the remuneration committee. Mr John Henderson (B.Bldg, MRICS, AAPI), Non-Executive Director. Experience and expertise John was appointed as a non-executive director of the Company in August 2003. 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, is an associate of the Australian Property Institute and is a licensed real estate agent. Other current directorships of listed entities None. Former directorships of listed entities in the last three years None. Special responsibilities – Member of the audit, compliance and risk management committee. – Member of the remuneration committee. Ms Helen Wright LL.B, MAICD, Non-Executive Director. Experience and expertise Helen was appointed as a non-executive director of the Company in September 2003. Helen Wright 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. Helen is a member of the Boards of the Sydney Harbour Foreshore Authority, Australian Technology Park Precinct Management, and Cooks Cove Redevelopment Authority; was Deputy Chair of the Australia Day Council of NSW to December 2002; and serves on the Advisory Council to The Little Company of Mary (Calvary hospitals). Prior boards include Darling Harbour Authority, UNSW Press Limited and MLC Homepack Limited. Helen has a Bachelor of Laws from University of NSW, and in 1994 completed the Advanced Management Program at the Harvard Graduate School of Business. Other current directorships of listed entities None. Former directorships of listed entities in the last three years None. Special responsibilities – Chair of the audit, compliance and risk management committee. (appointed Chair 15 August 2005). – Member of the remuneration committee. 80 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY TRUST ANNUAL CONCISE REPORT 30 JUNE 2005 James’ qualiﬁcations include a Bachelor of Business in Land Economy (Hawkesbury Agricultural College) and a Diploma of Law (Legal Practitioners Admission Board). He is a registered valuer and licensed real estate agent. Other current directorships of listed entities None. Former directorships of listed entities in the last three years None. Special responsibilities – Member of the audit, compliance and risk management committee. – Responsible Ofﬁcer of the Company under the Company’s Australian Financial Services License. Mr Brendan R Howell BEcon, GDipAppFin (Sec Inst). Company secretary Mr Howell was appointed to the position of company secretary in September 2003. 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, and 15 years’ experience in the funds management industry. He was formerly an associate member of both the Securities Institute of Australia and the Institute of Chartered Accountants in Australia. Brendan has a property and accounting background and has previously held senior positions with a leading Australian trustee company administering listed and unlisted property trusts. For the past six and half 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. Mr Andrew F O Wilkinson (B. Bus. CFTP), Managing Director. Experience and expertise Andrew was appointed Managing Director of the Company in November 2004. He joined ALE as Chief Executive Ofﬁcer at the time of its listing in November 2003. Andrew has over 25 years experience in the banking and corporate ﬁnance. He was previously a corporate ﬁnance partner with PricewaterhouseCoopers where he specialised in providing ﬁnancial and strategic advice on signiﬁcant property and infrastructure portfolios. Over his 8 year period with the ﬁrm he held a number of senior positions and was also one of the founding members of the NSW Government’s Infrastructure Council. Andrew’s prior 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. Other current directorships of listed entities None. Former directorships of listed entities in the last three years None. Special responsibilities – Responsible Ofﬁcer of the Company under the Company’s Australian Financial Services License. Mr James McNally (B.Bus (Land Economy) Dip. Law), Executive Director. Experience and expertise James was appointed as an executive director of the Company in June 2003. 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 the Company. 81 directors’ report Directors’ and speciﬁed executive interests in units and options The following directors, speciﬁed executive and their associates held or currently hold unit interests in the Trust: Name Director/speciﬁed executive P H Warne J P Henderson H I Wright A F O Wilkinson D S Barkas Director Director Director Director Speciﬁed Executive Balance at the start of the year 453,400 25,000 100,000 31,998 – Purchases / (sales) 179,010 30,000 – 21,000 46,810 Number of units held 632,410 55,000 100,000 52,998 46,810 The following director held or currently holds options over units of the Trust: Name A F O Wilkinson Director Director Balance at the start of the period 300,000 Purchases / (sales) Number of options held – 300,000 Meetings of directors The numbers of meetings of the Company’s board of directors held during the year ended 30 June 2005 and the number of meetings attended by each director at the time the director held ofﬁce during the year were: Director P H Warne J P Henderson H I Wright A F O Wilkinson J T McNally Board meetings Held1 Attended 13 13 13 7 13 13 11 13 7 13 Audit, Compliance and Risk Management Committee meetings Held1 Attended Remuneration Committee meeting Held1 Attended 6 6 6 – – 6 5 6 – – 1 1 1 – – 1 1 1 – – 1 “Held” reﬂects the number of meetings which the director was eligible to attend. Remuneration report The remuneration report is set out under the following main headings: A Principles used to determine the nature and amount of remuneration B Details of remuneration C Service agreements D Equity-based compensation A Principles used to determine the nature and amount of remuneration The objectives of the Company’s executive reward framework is to ensure that reward for performance is transparent, reasonable, competitive and appropriate for the results delivered. The framework aligns executive reward with achievement of strategic objectives and creating of value for share holders, and conforms with market best practice for the delivery of reward. The Board ensures that executive reward satisﬁes the following key criteria for good reward governance practices: – competitiveness and reasonableness – acceptability to share holders – performance linkage/alignment of executive compensation – transparency – capital management 82 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY TRUST ANNUAL CONCISE REPORT 30 JUNE 2005 Remuneration report (continued) In consultation with external remuneration consultants, the Company has structured an executive remuneration framework that is market competitive and complementary to the reward strategy of the organisation. Alignment to stapled security holders interests: – has economic proﬁt as a core component of plan design – focuses on sustained growth in stapled security holder wealth, consisting of distributions, dividends and growth in share price and delivering constant return on assets as well as focusing the executive on key non- ﬁnancial drivers of value – attracts and retains high calibre executives Alignment to program participants’ interests: – rewards capability and experience – reﬂects competitive reward for contribution to growth in stapled security holders wealth – provides a clear structure for earning rewards – provides recognition for contribution The framework provides a mix of ﬁxed and variable pay and a blend of short and long-term incentives. As executives gain seniority within the Company, the balance of this mix shifts to a higher proportion of ‘at risk’ rewards, depending upon the nature of the executive’s new role. The overall level of executive reward takes into account the performance of the Group over a number of periods with greater emphasis given to the current year. Over the past year, the Group’s proﬁt from ordinary activities after income tax has grown by $1.427m (or 36.6%) from $3.902m to $5.280m and stapled security holders’ wealth (inclusive of distribution returns) has grown by 68.4%. Non-executive directors Fees and payments to non-executive directors reﬂect the demands which are made on and the responsibilities of the directors. Non-executive directors’ fees and payments are reviewed annually by the Board. The Board may also obtain the advice of independent remuneration consultants to ensure that non-executive directors’ fees and payments are appropriate and in line with the market. The Chairman’s fees are determined independently to the fees of the non-executive directors, based on comparative roles in the external market. The Chairman is not present at any discussion relating to the determination of his own remuneration. Non-executive directors do not receive options over shares. Directors’ fees The current base remuneration was last reviewed with effect from September 2003. The directors fees are all inclusive of committee fees. Non-executive directors’ fees are determined within an aggregate directors’ fee pool limit which will be periodically recommended for approval by share holders. The maximum currently stands at $335,000 per annum, comprised of $260,000 per annum for non-executive directors and $75,000 per annum for the executive director (inclusive of a responsible ofﬁcer fee of $5,000 per annum) and excluding the managing directors’ remuneration. The maximum amount for non-executive directors can only be increased at a general meeting of the Company. Retirement allowances for directors No retirement allowances for directors are offered by the Company in line with recent guidance on non- executive directors’ remuneration. 83 directors’ report Remuneration report (continued) Executive pay The executive pay and reward framework has three components, the combination of which comprises the executive’s total remuneration: – base pay and beneﬁts – short-term performance incentives – long-term incentives – other remuneration such as superannuation Base pay and beneﬁts Structured as a total employment cost package which may be delivered as a combination of cash and prescribed non-cash beneﬁts at the discretion of the executives and the board. Executives are offered a competitive base pay that comprises the ﬁxed component of their remuneration. External remuneration consultants provide analysis and advice to ensure base pay is set to reﬂect the market for comparable roles. Base pay for senior executives is reviewed annually to ensure that the executives pay is competitive with the market. An executive’s pay is also reviewed on promotion. There is no guaranteed base pay increase in any of the executives’ contracts. Short-term incentives (STI) The short-term incentive arrangements in place at the Company have been designed to link annual STI bonus awards to executive performance against agreed key performance indicators (KPI’s) including the ﬁnancial performance of the Company during the year in question. Each executive has a target STI opportunity depending on the accountabilities of the role and the impact on the performance of the Company. Each year the remuneration committee considers the appropriate targets and KPI’s to link the STI plan and the level of payout if targets are met. This includes setting any maximum payout under the STI plan and minimum levels of performance to trigger payments of STI. For the year end 30 June 2005, the KPI’s link to STI plans were based on Company, individual, business and personal objectives. The KPI’s required performance in managing operating and funding costs, compliance with legislative requirements, increasing security holder value as well as other key strategic non-ﬁnancial measures linked to drivers of performance in future economic periods. The board is responsible for assessing whether the KPI’s have been met. To facilitate this assessment, the board receives detailed reports on performance from management. The STI payments may be adjusted up or down in line with over or under achievement against the target performance levels. This is at the discretion of the board. The STI target annual payment is reviewed annually. Shares options granted No options over unissued shares of the Company were granted during or since the end of the ﬁnancial year . B Details of remuneration Amount of remuneration Details of the remuneration of each director and the speciﬁc executive of the Company, paid or payable by the Company for the year ended 30 June 2005 are set out in the following tables. The cash bonuses are dependent on the satisfaction of performance conditions are set out in the section headed “Short-term incentives”, above. All other elements of remuneration are not directly related to performance. 84 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY TRUST ANNUAL CONCISE REPORT 30 JUNE 2005 Remuneration report (continued) Directors of the Company Name Non-executive directors P H Warne (Chairman) J P Henderson H I Wright Executive directors A F O Wilkinson* (Managing Director) J T McNally (Director) Total Cash Salary and Fees 110,092 70,000 64,220 191,954 81,250 517,516 Cash Bonus Superannuation Total – – – 65,000 – 65,000 9,908 – 5,780 15,081 – 30,769 120,000 70,000 70,000 272,035 81,250 613,285 * Mr Wilkinson was appointed Managing Director on 16 November 2004. Before this appointment he was the Company’s Chief Executive Ofﬁcer. Amounts shown above include all of Mr Wilkinson’s remuneration during the reporting period, whether as Managing Director or Chief Executive Ofﬁcer. Amounts received in his position as Managing Director amounted to $191,784, made up of cash salary and fees of $117,895, cash bonus of $65,000 and superannuation of $8,889. Speciﬁed executive of the Company Name Cash Salary Cash Bonus Non monetary beneﬁts Superannuation Total D S Barkas* (Group Financial Controller & Assistant Company Secretary) 127,282 20,000 6,800 10,462 164,544 * Mr Darren Barkas was appointed Group Financial Controller & Assistant Company Secretary on 16 March 2005. Before this he was the Company’s Property Trust Manager. Amounts shown above include all of Mr Barkas’ remuneration during the reporting period, whether as Company Financial Controller and Assistant Company Secretary or Property Trust Manager. Amounts received in his position as Group Financial Controller and Assistant Company Secretary amounted to $55,377, made up of cash salary and fees of $25,578, non monetary beneﬁt of $6,800, cash bonus of $20,000 and superannuation of $3,000. Cash bonuses and options For each cash bonus included in the above tables, the percentage of the available bonus that was awarded for the ﬁnancial year and the percentage that was forfeited because a person did not meet the performance criteria is set out below. Name A F O Wilkinson D S Barkas Paid $ 65,000 20,000 Forfeited % 13.3 0.0 C Service agreement On 10 November 2003, the Company entered into a three year service agreement with Managing Director, Mr Wilkinson. The agreement stipulates the minimum base salary, inclusive of superannuation, for each of the ﬁrst three years as being $225,000, to be reviewed annually by the board. A short-term incentive (which if earned, would be paid as a cash bonus each year) and a long-term incentive in the form of options over stapled securities, exercisable between November 2006 and November 2007 (except if the Company is subject to takeover, then to February 2007) are also provided. 85 directors’ report Remuneration report (continued) C Service agreement (continued) In the event of the termination of Mr Wilkinson’s employment contract, amounts are payable for unpaid accrued entitlements, proportion of bonus and option entitlements as at the date of termination. In the event of redundancy termination amounts are payable for base salary, inclusive of superannuation and bonus and option entitlements for the balance of the contract. Mr Barkas’ employment contract may be terminated at one months notice. There are no other director or executive service agreements. Letters of appointment have been entered into by each director (excluding the Managing Director) conﬁrming their remuneration and obligations under the Corporations Law and Company constitution. A letter of appointment has been entered into with MIA Services Pty Limited for the use of the services of Brendan Howell as Company Secretary and as a Responsible Ofﬁcer of the Company on a continuous basis that may be terminated at any time. D Equity-based compensation Options over un-issued shares of ALE Property Company were granted during the last ﬁnancial period to Andrew Wilkinson as disclosed in an ASX Announcement dated 10 November 2003. Mr Wilkinson has the right to subscribe for up to 300,000 stapled securities at a ﬁxed price of $1.036 exercisable from 10 November 2006 or earlier, if Mr Wilkinson’s employment is terminated other than for cause or unsatisfactory performance. The options will remain exercisable until 10 November 2007, unless the ALE Property Company is subject to a takeover, in which case the period of exercise would be reduced to 11 February 2007. The options value disclosed above as part of speciﬁed executive 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 $24,000 at grant date has been independently determined by using a Black-Scholes option pricing model. This technique takes 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, expected price volatility of the underlying share and the expected dividend yield and the risk-free interest rate for the term of the option. Units under option Unissued units of the Trust under option at the date of this report are as follows: Date option granted 10 November 2003 Expiry date Issue price of stapled securities Number under option 10 November 2007* $1.036 300,000 * Unless ALE Property Group is subject to a takeover, in which case the period of exercise would be shortened to 11 February 2007. Units issued on the exercise of options No units of the Trust have been issued on the exercise of options, to date. Insurance of ofﬁcers During the ﬁnancial year, the Company paid a premium of $41,766 (2004: $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. 86 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY TRUST ANNUAL CONCISE REPORT 30 JUNE 2005 Remuneration report (continued) Non-audit services The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the Company are important. Details of amounts paid or payable to the auditor (PricewaterhouseCoopers) for audit and non-audit services provided during the year are set out below: The board of directors has considered the position and in accordance with the advice received from the audit committee is satisﬁed that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisﬁed that the provision of non-audit services by the auditor, as set out below, did not compromised the auditor independence requirements of the Corporations Act 2001 for the following reasons: – all non-audit services have been reviewed by the audit committee to ensure that they do not impact the impartiality and objectivity of the auditor – none of the services undermine the general principles relating to auditor independence as set out in Professional Statement F1, including reviewing or auditing the auditors own work, acting in a management or decision making capacity for the Company, acting as an advocate for the Company or jointly sharing economic risk and rewards A copy of the auditors’ independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 88. Audit and review of the ﬁnancial reports of the Group and other audit work under the Corporations Act 2001* – in relation to current year – in relation to prior year Due diligence service Controls assurance services Tax compliance services Tax consulting services General accounting advice (including AIFRS) * Includes amounts allocated to the Trust of $74,282 (2004: $41,200). 2005 $ 2004 $ 125,705 60,000 31,300 7,000 15,000 24,190 29,944 293,139 103,000 – – 14,000 – 34,000 8,750 159,750 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 6th day of September 2005 87 Auditors’ Independence Declaration As lead auditor for the audit of Australian Leisure and Entertainment Property Trust for the year ended 30 June 2005, I declare that to the best of my knowledge and belief, there have been: (a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the review; and (b) no contraventions of any applicable code of professional conduct in relation to the review. This declaration is in respect of Australian Leisure and Entertainment Property Trust and the entities it controlled during the period. S J Hadﬁeld Partner Sydney 6 September 2005 88 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY TRUST ANNUAL CONCISE REPORT 30 JUNE 2005 discussion and analysis of the combined ﬁnancial statements The following commentary is to assist unitholders in reviewing and interpreting the results of the Trust and Consolidated Entity for the year ended 30 June 2005. The discussion and analysis of the year ended 30 June 2005 results are based upon comparisons of the 30 June 2005 results to those of the period ended 30 June 2004. It is most important to note that the Group commenced operations during the comparative period of 26 June 2003 to 30 June 2004. During November 2003 the Group acquired its ﬁrst investments properties, issued the bulk of its stapled securities and issued all of its existing debt, being $150m of ALE Notes and $330m of Commercial Mortgage Back Securities. As a result of the comparative period being a commencement period some key differences have been annualised in order to improve comparability. Consolidated statement of ﬁnancial performance Net proﬁt after tax was for the year ended 30 June 2005 of $5,423,000 was $1,383,000 (or 34.2%) higher than the $4,040,000 net proﬁt after tax of the comparative period. – Total revenue from ordinary activities – was higher by $908,000 (or 2.0%) higher after annualisation. The key drivers of the 2.0 % increase were a portfolio rental review which resulted in a 2.1% increase in the property rental income and loan interest from November 2004 and stringent cashﬂow management and investment procedures which boosted bank interest earnings by an annualised 5.0%. – Borrowing costs (including non cash amortisation) – were higher by $18,000 (or 0.00%) after annualisation. The Trust had a fully hedged weighted average interest rate established at IPO of 6.524% and as at 30 June 2005 of 6.527%. – Land tax expense – was higher by $304,000 (or 36.5%) after annualisation. In all states other than Queensland ALH, as tenant, pays the land tax rather than the Trust. The key drivers of the increase were strong increases in Queensland land values and the fact that the comparative period amount of $545,000 only included one day of land tax on three Queensland properties acquired by the Trust on 30 June 2004. – Property valuation expenses – were higher by $133,000 (or 120.9%). Annualisation is not appropriate as the valuations are only performed annually. The comparative period valuation covered one third of the portfolio whereas the current valuation covered the entire of the portfolio. – Other costs of $2,585,000 versus a comparative total of $1,255,000 represent an increase of $663,000 (or 34.5%) after annualisation. The annualised increase of 34.5% is mainly due to increased management fees charged by the Company as a result of a progressive stafﬁng of the Group during the comparative period, due diligence activities and increased operational activity during the current period. Consolidated statement of ﬁnancial position Total assets were $690,677,000 as at 30 June 2005 compared to $625,171,000 as at 30 June 2004. The increase of $65,506,000 (or 10.5%) was driven by a revaluation increment to property investments of $74,800,000, a decrease in cash of $3,662,000, a decrease in amortisation of prepaid borrowing costs of $5,769,000 and a net increase in other assets of $59,000. Total liabilities were $493,633,000 as at 30 June 2005 compared to $496,682,000 as at 30 June 2004. The decrease of $3,049,000 (or 0.6%) was driven by a reduction in payables of $2,697,000, a decrease in provisions of $817,000, and increase in ALE Notes premium of $479,000 and a decrease in other liabilities of $14,000. Net assets were $197,044,000 as at 30 June 2005 compared to $128,489,000 as at 30 June 2004. The increase of $68,555,000 (or 53.3%) is as a result of the movements in total assets and total liabilities. Equity was $197,044,000 as at 30 June 2005 compared to $128,489,000 as at 30 June 2004. The increase of $68,555,000 (or 53.3%) was driven by an increase in revaluation reserve of $74,800,000, an increase in accumulated losses of $18,000 and a decrease in contributed equity of $6,223,000. The Trust’s distribution to unitholders of available operating cashﬂows (which exceeded accounting income due to non cash expenses) resulted in the decrease to contributed equity. The net asset per stapled security as at 30 June 2005 were $2.07 compared to $1.32 as at 30 June 2004. 89 discussion and analysis of the combined ﬁnancial statements Consolidated statement of cash ﬂows Net cash inﬂow from operating activities includes 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. There were no cash ﬂows from investing activities during the year. Net cash outﬂow from ﬁnancing activities was an outﬂow of $12,485,000 which was the total of the June 2004 distribution of $6,810,000 and the December 2004 distribution of $5,675,000. The net decrease in cash held during the year of $3,662,000 was due to a net decrease in payables of $2,697,000, a net decrease in provisions of $817,000 and other net decreases of $148,000. 90 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY TRUST ANNUAL CONCISE REPORT 30 JUNE 2005 consolidated statement of ﬁnancial performance FOR THE YEAR ENDED 30 JUNE 2005 Revenue and expenses from ordinary activities Property rental income and loan interest Distribution income Interest income Total revenue from ordinary activities Borrowing costs excluding amortisation Borrowing costs (non-cash) amortisation Management fees Land tax expense Property valuation expenses Other expenses Total expenses from ordinary activities Proﬁt from ordinary activities before income tax expenses Income tax (beneﬁt) / expense Net proﬁt after income tax expenses attributable to unitholders of the Trust Net increase in asset revaluation reserve Total revenues, expenses and valuation adjustments attributable to unitholders of the Trust recognised directly in unitholders’ funds Total changes in equity attributable to unitholders of the Trust other than those resulting from transactions with unitholders as owners Distributions paid and payable Basic and diluted earnings per ordinary unit Distribution per ordinary unit held for the full ﬁnancial year Note 2 2 (a) 3 4 5 6 2005 $’000 19 August 2003 to 30 June 2004 $’000 45,996 – 1,155 47,151 31,523 6,248 2,185 1,139 243 400 41,738 5,413 (10) 5,423 74,800 29,479 – 712 30,191 20,238 3,995 997 545 110 258 26,143 4,048 8 4,040 40,459 74,800 40,459 80,223 44,499 11,668 6,810 Cents 5.97 12.85 Cents 4.45 7.50 The above consolidated statement of ﬁnancial performance should be read in conjunction with the accompanying notes. 91 consolidated statement of ﬁnancial position AS AT 30 JUNE 2005 Current Assets Cash assets Receivables Loan to related party Prepayments and other assets Loans Total current assets Non-Current Assets Property investments Development property, loans deposits and costs Prepayments and other assets Deferred tax asset Total non-current assets Total assets Current Liabilities Payables Loan from related party Provisions Other Total current liabilities Non-current Liabilities Interest bearing liabilities – CMBS Interest bearing liabilities – ALE Notes ALE Notes premium Deferred tax liability Total non-current liabilities Total liabilities Net Assets Unitholders’ funds Contributed equity Asset revaluation reserve Accumulated losses / retained proﬁts Total Unitholders’ funds Net assets per ordinary unit Net assets per no income voting unit (NIVUS) Note 2005 $’000 2004 $’000 7 8 10 9 10 8 11 11 12 19,321 199 350 5,762 11,746 37,378 625,000 14,713 13,585 1 653,299 690,677 6,554 – 5,993 303 22,983 174 66 5,951 11,746 40,920 550,200 14,713 19,338 – 584,251 625,171 9,251 – 6,810 309 12,850 16,370 330,000 150,000 783 – 480,783 493,633 197,044 81,787 115,259 (2) 197,044 $2.07 $1.00 330,000 150,000 304 8 480,312 496,682 128,489 88,010 40,459 20 128,489 $1.32 $1.00 The above consolidated statement of ﬁnancial position should be read in conjunction with the accompanying notes 92 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY TRUST ANNUAL CONCISE REPORT 30 JUNE 2005 consolidated statement of cash ﬂows FOR THE YEAR ENDED 30 JUNE 2005 Note 2005 $’000 19 August 2003 to 30 June 2004 $’000 Cash ﬂows from operating activities Receipts from customers (inclusive of goods and services tax) Expense recoveries from related parties 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 inﬂow / (outﬂow) from operating activities Cash ﬂows from investing activities Acquisition of property investments Deposits paid on property investments Pre-acquisition costs on property investments Investment in related parties Loan to Foster’s Group Limited Net cash (outﬂow) from investing activities Cash ﬂows from ﬁnancing activities Proceeds from issue of units Proceeds from interest bearing liabilities Distributions paid Net cash (outﬂow) / inﬂow from ﬁnancing activities Net (decrease) / increase in cash held Cash at beginning of the ﬁnancial period Cash at the end of the ﬁnancial period 7 Non-cash ﬁnancing activities 48,443 315 (11,820) – 3,485 (31,600) 8,823 – – – – – – – – (12,485) (12,485) (3,662) 22,983 19,321 – 30,215 – (1,469) 447 2,558 (14,568) 17,183 (509,741) (2,600) (450) – (23,409) (536,200) 62,000 480,000 – 542,000 22,983 – 22,983 28,800 The above consolidated statement of cash ﬂows should be read in conjunction with the accompanying notes 93 notes to the ﬁnancial statements 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 (a) Interest income from: Bank term deposit interest Note 3 – Borrowing costs excluding amortisation CMBS interest expense inclusive of all swaps ALE Notes interest expense Other borrowing costs Note 4 – Borrowing costs (non-cash) amortisation Prepaid borrowing costs Amortisation of ALE Notes premium The prepaid borrowing costs had no cashﬂow impact on the Consolidated Entity as they were funded by the issue of Trust units (Note 8 (a) contains further information). The ALE Notes premium is accrued and will have no cashﬂow impact on the Consolidated Entity until payment on expiry of the ALE Notes. Note 5 – Distributions Distributions recognised during the ﬁnancial year: Interim Trust distribution for the ﬁnancial year ended 30 Jun 05 of 6.25 cents per stapled security (2004: nil) paid 28 Feb 05 Final Trust distribution for the ﬁnancial year ended 30 Jun 05 of 6.60 cents per stapled security (2004: 7.50 cents) to be paid 31 Aug 05 2005 $’000 19 August 2003 to 30 June 2004 $’000 43,766 2,230 45,996 1,155 47,151 20,429 10,898 196 31,523 5,769 479 6,248 27,468 2,011 29,479 712 30,191 13,089 7,077 72 20,238 3,691 304 3,995 5,675 5,993 11,668 – 6,810 6,810 94 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY TRUST ANNUAL CONCISE REPORT 30 JUNE 2005 Note 6 – Earnings per unit Weighted average number of units used as the denominator Basic earnings per unit Diluted earnings per unit 2005 Cents 5.97 5.97 2004 Cents 4.45 4.45 No. of Units No. of Units Weighted average number of ordinary units used as the denominator in calculating basic earnings per units 90,800,100 90,800,100 Weighted average number of ordinary units and potential ordinary units used as the denominator in calculating diluted earnings per unit 90,800,100 90,800,100 Note 7 – Cash Assets Cash at bank Deposits Cash reserve * 69 13,752 5,500 19,321 3,559 13,924 5,500 22,983 * In order to have the CMBS rated, the cash reserve, which is equal to approximately three months service of the CMBS has been set aside by the Consolidated Entities for the term of the CMBS and is therefore restricted. As at 30 June 2005, the cash assets of the Consolidated Entity had a weighted average interest rate of 5.60% (2004: 5.40%). Note 8 – Prepayments and other assets Current Corporate advisory services Prepaid other expenses Capitalised borrowing costs Non-Current Capitalised borrowing costs Total (a) (b) (b) – 8 5,754 5,762 13,585 19,347 174 8 5,769 5,951 19,338 25,289 (a) On 10 November 2003 $300,000 was paid to Macquarie Bank Limited for advisory services to 30 June 2005. (b) Reconciliation of capitalised borrowing costs: Lead manager’s incentive fee paid Amount expensed during the period Closing balance 25,109 (5,769) 19,340 28,800 (3,691) 25,109 Under the lead manager’s incentive offer as originally agreed between Foster’s Group Limited and the lead manager, Macquarie Equity Capital Markets Limited, the lead 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 was capitalised as a borrowing cost and will continue to be expensed over the remaining time of the ﬁve year period to which it relates. 95 notes to the ﬁnancial statements Note 9 – Investment properties Reconciliation A reconciliation of the carrying amounts of investment properties at the beginning and end of the current ﬁnancial year is set out below: Carrying amount at the beginning of the year Additions Revaluation increment Carrying amount at the end of the year Cost Including Additions $’000 5,470 5,659 8,205 8,771 5,847 3,112 8,865 5,847 2,830 4,150 Date Acquired Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Independent Valuation and Carrying Amount 2005 $’000 6,600 6,900 9,900 10,600 6,850 3,700 10,500 6,800 3,250 5,100 Property New South Wales Blacktown Hotel, Blacktown Brown Jug Hotel, Fairﬁeld Heights Colyton Hotel, Colyton Crows Nest Hotel, Crows Nest Kirribilli Hotel, Kirribilli Melton Hotel, Auburn New Brighton Hotel, Manly Pioneer Hotel, Penrith Pymble Hotel, Pymble Smithﬁeld Tavern, Smithﬁeld Total New South Wales Properties 2005 $’000 550,200 – 74,800 625,000 2004 $’000 – 509,741 40,459 550,200 Asset Revaluation Reserve Increase/ (Decrease) 2005 $’000 Asset Revaluation Reserve Increase/ (Decrease) 2004 $’000 800 700 1,000 1,000 450 300 800 400 150 600 330 541 695 829 553 288 835 553 270 350 Carrying Amount 2004 $’000 5,800 6,200 8,900 9,600 6,400 3,400 9,700 6,400 3,100 4,500 58,756 70,200 64,000 6,200 5,244 Queensland Nov 03 Albany Creek Tavern, Albany Creek Nov 03 Albion Hotel, Albion Nov 03 Alderley Arms Hotel, Alderley Nov 03 Anglers Arms Hotel, Southport Nov 03 Balaclava Hotel, Cairns Banyo Tavern, Nudgee Nov 03 Breakfast Creek Hotel, Breakfast Creek Nov 03 Nov 03 Camp Hill Hotel, Camp Hill Nov 03 Chardons Corner Hotel, Annerly Nov 03 Dalrymple Hotel, Townsville Nov 03 Edinburgh Castle Hotel, Kedron Nov 03 Ferny Grove Tavern, Ferny Grove Jun 04 Four Mile Creek, Strathpine Nov 03 Hamilton Hotel, Hamilton Nov 03 Holland Park Hotel, Holland Park Nov 03 Imperial Hotel, Beenleigh Nov 03 Kedron Park Hotel, Kedron Park Nov 03 Kirwan Tavern, Townsville Nov 03 Lawnton Tavern, Lawnton 8,394 4,433 3,301 4,433 3,301 3,018 10,657 2,264 1,415 3,207 3,112 5,847 3,672 6,602 3,773 2,452 2,264 4,433 4,433 9,600 5,200 4,100 5,300 3,800 3,500 11,700 2,750 1,500 3,700 3,600 6,600 4,600 7,400 4,600 2,900 2,700 5,300 5,100 9,000 4,800 3,500 4,600 3,500 3,200 11,500 2,400 1,500 3,500 3,300 6,200 4,300 7,100 3,900 2,700 2,400 4,800 4,700 600 400 600 700 300 300 200 350 – 200 300 400 300 300 700 200 300 500 400 606 367 199 167 199 182 843 136 85 293 188 353 628 498 127 248 136 367 267 96 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY TRUST ANNUAL CONCISE REPORT 30 JUNE 2005 Note 9 – Investment properties (continued) Independent Valuation and Carrying Amount 2005 $’000 Cost Including Additions $’000 4,055 1,792 3,207 2,358 6,874 4,999 6,885 4,237 1,698 3,395 1,792 5,187 5,753 9,148 5,376 8,205 5,659 4,527 1,037 4,800 2,200 3,700 3,000 8,300 5,600 8,000 4,800 1,900 3,900 1,900 5,900 6,700 10,300 6,500 9,600 6,700 5,300 1,100 Asset Revaluation Reserve Increase/ (Decrease) 2005 $’000 Asset Revaluation Reserve Increase/ (Decrease) 2004 $’000 500 300 400 500 900 (100) 600 300 100 200 (200) 400 700 300 700 900 600 400 – 245 108 93 142 526 701 515 263 102 305 308 313 247 852 424 495 441 373 63 Carrying Amount 2004 $’000 4,300 1,900 3,300 2,500 7,400 5,700 7,400 4,500 1,800 3,700 2,100 5,500 6,000 10,000 5,800 8,700 6,100 4,900 1,100 167,195 194,150 179,600 14,550 12,405 3,301 2,452 3,301 1,886 1,603 2,169 1,603 3,773 4,433 4,000 3,150 4,100 2,350 1,950 2,850 2,100 4,850 5,500 3,800 2,900 3,900 2,200 1,800 2,600 1,800 4,400 5,200 200 250 200 150 150 250 300 450 300 499 448 599 314 197 431 197 627 767 24,521 30,850 28,600 2,250 4,079 3,961 9,903 9,431 1,981 9,714 5,093 8,300 2,546 6,979 12,166 5,000 12,600 11,700 2,700 12,400 6,500 10,900 3,400 9,200 15,100 4,300 10,600 10,100 2,100 10,300 5,500 8,900 2,800 7,400 13,000 700 2,000 1,600 600 2,100 1,000 2,000 600 1,800 2,100 339 697 669 119 586 407 600 254 421 834 Date Acquired Nov 03 Nov 03 Nov 03 Nov 03 Jun 04 Nov 03 Nov 03 Jun 04 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Property Queensland (continued) Miami Hotel, Miami Mount Pleasant Tavern, Mackay Mt Gravatt Hotel, Mount Gravatt Newmarket Hotel, Cairns Noosa Reef Hotel, Noosa Heads Oxford 152, Bulimba Palm Beach Hotel, Palm Beach Pelican Waters, Caloundra Petrie Hotel, Petrie Prince of Wales Hotel, Nundah Racehorse Hotel, Booval Redland Bay Hotel, Redland Bay Royal Exchange Hotel, Toowong Springwood Hotel, Springwood Stones Corner Hotel, Stones Corner Sunnybank Hotel, Sunnybank Vale Hotel Motel, Townsville Wilsonton Hotel, Toowoomba Woree Tavern, Cairns Total Queensland Properties South Australia Aberfoyle Hub, Aberfoyle Park Enﬁeld, Clearview Eureka, Salisbury Exeter, Exeter Finsbury, Woodville North Gepps Cross, Blair Athol Hendon, Royal Park Ramsgate, Henley Beach Stockade Tavern, Salisbury Total South Australian Properties Victoria Ashley, Braybrook Bayswater, Bayswater Blackburn, Blackburn Blue Bell, Wendouree Burvale, Nunawading Club Hotel, Ferntree Gully Cramers, Preston Daveys, Frankston Deer Park, Deer Park Doncaster Hotel/Motel, Doncaster 97 notes to the ﬁnancial statements Note 9 – Investment properties (continued) Cost Including Additions $’000 3,301 4,716 4,716 3,112 9,620 6,885 8,111 8,583 1,509 7,168 3,961 8,017 8,488 9,809 2,735 2,641 4,338 2,169 3,112 10,846 6,319 4,527 2,641 12,732 5,376 5,470 5,564 2,264 12,544 2,735 6,131 Date Acquired Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Nov 03 Independent Valuation and Carrying Amount 2005 $’000 4,200 6,300 6,900 4,300 12,000 8,500 10,000 10,600 2,100 9,800 4,900 9,500 10,500 12,600 3,800 3,400 5,500 2,900 4,000 14,400 7,800 6,200 3,800 15,900 6,800 7,000 7,100 3,200 15,100 3,700 7,100 Asset Revaluation Reserve Increase/ (Decrease) 2005 $’000 Asset Revaluation Reserve Increase/ (Decrease) 2004 $’000 700 1,300 1,800 1,000 1,800 1,100 1,300 900 500 2,100 500 900 1,500 2,100 900 600 900 600 600 2,800 900 1,400 1,000 2,200 1,000 1,200 1,200 800 1,600 700 600 199 284 384 188 580 515 589 1,117 91 532 439 583 512 691 165 159 262 131 288 754 581 273 159 968 424 330 336 136 956 265 369 Carrying Amount 2004 $’000 3,500 5,000 5,100 3,300 10,200 7,400 8,700 9,700 1,600 7,700 4,400 8,600 9,000 10,500 2,900 2,800 4,600 2,300 3,400 11,600 6,900 4,800 2,800 13,700 5,800 5,800 5,900 2,400 13,500 3,000 6,500 250,214 319,400 268,400 51,000 18,186 Nov 03 Nov 03 Nov 03 4,810 3,113 1,132 5,635 3,465 1,300 5,100 3,300 1,200 535 165 100 290 188 67 9,055 10,400 9,600 800 545 509,741 625,000 550,200 74,800 40,459 Property Victoria (continued) Elsternwick, Elwood Eltham, Eltham Ferntree Gully Hotel, Ferntree Gully Gateway, Corio Keysborough, Keysborough Mac’s Melton, Melton Meadow Inn, Fawkner Mitcham, Mitcham Morwell, Morwell Mountain View, Glen Waverly Olinda Creek, Lilydale Pier, Frankston Plough, Mill Park Prince Mark, Doveton Riﬂe Club, Williamstown Rose Shamrock & Thistle, Reservoir Royal Essendon, Essendon Royal Exchange, Traralgon Royal Sunbury, Sunbury Sandbelt Club, Moorabbin Sandown Park, Noble Park Sandringham, Sandringham Somerville, Somerville Stamford, Rowville Sylvania, Campbellﬁeld Tudor Inn, Cheltenham Vale, Mulgrave Victoria, Shepparton Village Green, Mulgrave Westmeadows, Westmeadows Young & Jackson, Melbourne Total Victorian Properties Western Australia Queens Tavern, Highgate Sail & Anchor Hotel, Freemantle Wanneroo Villa Tavern, Wanneroo Total Western Australian Properties Total Investment Properties 98 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY TRUST ANNUAL CONCISE REPORT 30 JUNE 2005 Note 9 – 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, on a stand alone property by property basis, 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 Consolidated Entity’s policy of independently valuing at least one-third of its property portfolio annually, all of the Consolidated Entity’s investment properties were independently valued as at 30 June 2005. The revaluations were completed by Peter Spiller (AAPI) of DTZ Australia (NSW) Pty Ltd. Investment properties All investment properties are freehold and 100% owned by the Consolidated Entity 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 Consolidated Entity entered into conditional sale contracts with subsidiaries of Foster’s Consolidated Entity 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 2005, four of the properties are yet to be acquired. (Refer Note 10 for further information). Note 10 – Development properties – loans, deposits and costs As at 30 June 2005: Property Deposits at 10% of Purchase Price $’000 Loans to Foster’s Group Limited $’000 Acquisition Costs $’000 Current Caloundra Hotel, Caloundra, QLD Narrabeen Sands Hotel, Narrabeen, NSW Non-Current Caloundra Hotel, Caloundra, QLD Narrabeen Sands Hotel, Narrabeen, NSW Burleigh Heads Hotel, Burleigh Heads, QLD Parkway Hotel, Frenchs Forest, NSW Total – – – 426 879 657 638 2,600 2,600 3,832 7,914 11,746 – – 5,915 5,748 11,663 23,409 – – – 74 152 114 110 450 450 Total Cost $’000 3,832 7,914 11,746 500 1,031 6,686 6,496 14,713 26,459 99 notes to the ﬁnancial statements Note 10 – Development properties – loans, deposits and costs (continued) As at 30 June 2004: Property Deposits at 10% of Purchase Price $’000 Loans to Foster’s Group Limited $’000 Acquisition Costs $’000 Current Caloundra Hotel, Caloundra, QLD Narrabeen Sands Hotel, Narrabeen, NSW Non-Current Caloundra Hotel, Caloundra, QLD Narrabeen Sands Hotel, Narrabeen, NSW Burleigh Heads Hotel, Burleigh Heads, QLD Parkway Hotel, Frenchs Forest, NSW Total Note 11 – Interest bearing liabilities – – – 426 879 657 638 2,600 2,600 Commercial mortgage backed securities (CMBS) ALE Notes on issue 3,832 7,914 11,746 – – 5,915 5,748 11,663 23,409 – – – 74 152 114 110 450 450 Total Cost $’000 3,832 7,914 11,746 500 1,031 6,686 6,496 14,713 26,459 2005 $’000 330,000 150,000 480,000 2004 $’000 330,000 150,000 480,000 The CMBS borrowings are secured by, among other things, ﬁrst ranking real property mortgages over of the investment properties and have scheduled maturity dates of 10 November 2008 and ﬁnal maturity dates of 10 November 2010. A ﬁxed interest rate of 6.66% applies to $100 million of the CMBS borrowings. The ALE Notes are unsecured with a maturity date of 30 September 2011 and a ﬁxed interest rate of 7.265%. 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 using interest rate swaps. The Consolidated Entities weighted average interest rate as at year end 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 (refer Note 22(d)) Total Group weighted average interest rate 2005 % 6.400 6.660 6.479 7.265 6.724 (0.824) 6.527 2004 % 6.210 6.660 6.346 7.265 6.633 (0.227) 6.524 100 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY TRUST ANNUAL CONCISE REPORT 30 JUNE 2005 Note 12 – Asset Revaluation Reserve Note 2005 $’000 2004 $’000 (i) Nature and purpose of reserve The assets revaluation reserve is used to record increments and decrements in the fair vale value of investment properties. (ii) Movements in reserve Balance at the beginning of the ﬁnancial year Movements in valuations of investment properties 9 Balance at the end of the ﬁnancial year Note 13 – Segment information 40,459 74,800 115,259 – 40,459 40,459 Business segment The Consolidated Entity operates solely in the property investment and property funds management industry. Geographical segment The Consolidated Entity owns property solely within Australia. Note 14 – Events occurring after reporting date The directors are not aware of any signiﬁcant events since the reporting date. Note 15 – Impact of adopting Australian equivalents to International Financial Reporting Standards (“IFRS”) The Australian Accounting Standards Board (AASB) is adopting International Financial Reporting Standards (IFRS) for application to reporting periods beginning on or after 1 January 2005. The AASB has issued Australian equivalents to IFRS, and the Urgent Issues Group has issued interpretations corresponding to IASB interpretations originated by the International Financial Reporting Interpretations Committee or the former Standing Interpretations Committee. These Australian equivalents to IFRS are referred to hereafter as AIFRS. The adoption of AIFRS will be ﬁrst reﬂected in the Group’s ﬁnancial statements for the half-year ending 31 December 2005 and the year ending 30 June 2006. To comply with the AIFRS for the ﬁrst time the Trust will be required to restate its comparative ﬁnancial statements to reﬂect the application of AIFRS to that comparative period. Most adjustments required on transition to AIFRS will be made, retrospectively, against opening retained earnings as at 1 July 2004. The Group has initiated a project to manage the transition to AIFRS, under the management of the Group Financial Controller. All of the AIFRS have been analysed and the required accounting policy changes have been identiﬁed. In some cases, choices of accounting policies are available, including elective exemptions under Accounting Standard AASB1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards. These choices have been analysed to determine the most appropriate accounting policy for the Group. The known or reliably estimable impacts on the ﬁnancial report for the year ended 30 June 2005 had it been prepared using AIFRS are set out below. The expected material ﬁnancial effects of adopting AIFRS are shown for each line item in the statement of ﬁnancial performance and the statement of ﬁnancial position with descriptions of the differences. No material impacts are expected in relation to the statement of cash ﬂows. Although the adjustments disclosed in this note are based upon management’s best knowledge of expected standards and interpretations and current facts and circumstances, the adjustments may change. For example, amended or additional standards or interpretations may be issued by the AASB and IASB. Therefore, until the Group prepares its ﬁrst full AIFRS ﬁnancial statements the possibility cannot be excluded that the accompanying disclosures may have to be adjusted. 101 notes to the ﬁnancial statements Note 15 – Impact of adopting Australian equivalents to International Financial Reporting Standards (“IFRS”) (continued) As a result of the Trust taking advantage of the exemption available under AASB 1 to apply AASB 132 Financial Instruments : Disclosure and Presentation and AASB 139 Financial Instruments: Recognition and Measurement only from 1 July 2005, it is managements view that AIFRS would have no impact on the statements of ﬁnancial performance or statement of ﬁnancial position of the parent entity as at 30 June 2005. The following impacts relate to the consolidated entity only. Impact on the consolidated statement of ﬁnancial performance Existing AGAAP 2005 $’000 Effect of Change 2005 $’000 Note AIFRS 2005 $’000 Revenue and expenses from ordinary activities Property rental income & loan interest Revaluation of investment properties Interest income (a) Total revenue from ordinary activities Borrowing costs excluding amortisation Borrowing costs (non-cash) amortisation Management fess Land tax expense 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 43,766 – 3,385 47,151 31,523 6,248 2,185 1,139 243 400 41,738 5,413 (10) – 74,800 – 74,800 – – – – – – – 43,766 74,800 3,385 121,951 31,523 6,248 2,185 1,139 243 400 41,738 74,800 80,213 – (10) 5,423 74,800 80,223 Net increment in asset valuations (a) 74,800 (74,800) – 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 74,800 (74,800) 74,800 80,223 11,688 – – 80,223 11,688 Cents Cents Cents Basic and diluted earnings per ordinary unit Distributions per stapled security held for the full ﬁnancial year 5.97 12.85 – – 88.35 12.85 102 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY TRUST ANNUAL CONCISE REPORT 30 JUNE 2005 Note 15 – Impacts of adopting Australian equivalents to IFRS (continued) Impact on the consolidated statement of ﬁnancial position Existing AGAAP 2005 $’000 Effect of Change 2005 $’000 Note Current Assets Cash assets Receivables Loan to related party Prepayments and other assets Loans Total Current Assets Non-Current Assets Property investments Development property – loans, deposits and costs Prepayments Deferred tax asset 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 ALE Notes premium Deferred tax liability Total Non-Current Liabilities Total Liabilities Net Assets Equity Contributed equity Asset revaluation reserve Accumulated (losses) / retained proﬁts Total Equity Net assets per ordinary unit Net assets per no income voting unit (NIVUS) 19,321 199 350 5,762 11,746 37,378 625,000 14,713 13,585 1 653,299 690,677 6,554 5,993 303 12,850 330,000 150,000 783 – 480,783 493,633 197,044 81,787 115,259 (2) 197,044 $ 2.07 1.00 – – – – – – – – – – – – – – – – – – – – – – – – (115,259) 115,259 – $ – – (a) (a) AIFRS 2005 $’000 19,321 199 350 5,762 11,746 37,378 625,000 14,713 13,585 1 653,299 690,677 6,554 5,993 303 12,850 330,000 150,000 783 – 480,783 493,633 197,044 81,787 – 115,247 197,044 $ 2.07 1.00 (a) Investment properties Under the new AASB140 Investment Property, if investment properties are measured at fair value, net of applicable tax, gains or losses arising from changes in fair value are recognised in the net proﬁt or loss for the period in which they arise. 103 notes to the ﬁnancial statements Note 15 – Impacts of adopting Australian equivalents to IFRS (continued) (a) Investment properties (continued) This will result in a change to the current accounting policy which requires that fair value increments be recognised in the asset revaluation reserve in the statement of ﬁnancial position, except to the extent that they reverse a decrement previously recognised as an expense in the proﬁt and loss account, and fair value decrements be recognised in the proﬁt and loss account, except to the extent that they reverse an increment previously recognised in the asset revaluation reserve. If the policy required by AASB 140 had been applied during the year ended 30 June 2005 retained earnings at 30 June 2005 would have been $115,259,000 higher, revaluation of investment properties for the year ended 30 June 2005 would have been $74,800,000 higher and the asset revaluations reserve at 30 June 2005 would have been $115,529,000 lower. (b) Financial instruments The Trust will be taking advantage of the exemption available under AASB 1 to apply AASB 132 Financial Instruments : Disclosure and Presentation and AASB 139 Financial Instruments: Recognition and Measurement only from 1 July 2005. This allows the Trust to apply previous Australian generally accepted accounting principles (Australian GAAP) to the comparative information of ﬁnancial instruments within the scope of AASB 132 and AASB 139 for the 31 December 2005 and 30 June 2006 ﬁnancial reports. Changes applicable from 1 July 2005: Fair value of interest rate swaps In accordance with AASB 139, interest rate swaps as derivatives are initially recognised at fair value on the date the swap agreements are entered into and are subsequently remeasured to their fair value. Changes in fair value are either taken to the statement of ﬁnancial performance or an equity reserve, depending on whether the criteria for hedging accounting are satisﬁed at the transition date (1 July 2005). The Consolidated Entity does not intend on achieving hedge accounting, changes in the fair value of the swaps will be recognised in the statement of ﬁnancial performance. Capitalised borrowing establishment costs (lead manager’s incentive fee) Under AASB 139, capitalised borrowing establishment costs will be reclassiﬁed to interest bearing liabilities thereby reducing the value of the related liability. Amortisation of the capitalised borrowing costs, which will accrete the interest bearing liabilities to the principal payable at maturity, will change from a straight-line basis to an effective yield basis. This will result in lower amortisation charges through the statement of performance at the start of the debt facility term and higher amortisation charges at the end the debt facility term. Loans and receivables and ﬁnancial liabilities Their classiﬁcations will remain unchanged. Consistent with AASB 139, measurement of these instruments will initially be at fair value with subsequent measurement at amortised cost, using the effective interest rate method. Consequently, the amortisation of the redemption premium on the ALE Notes will change from a straight line basis to an effective yield basis to accrete the ALE Notes to the principal payable at maturity. Disclosure and presentation of equity Currently “Units on Issue” are treated as equity. According to AASB 132, “Units on Issue” are treated as a ﬁnancial liability if the constitution requires the scheme to buy back units at the option of the unit holder. This occurs at the termination date of the Trust and Sub-Trust and is set at the 80th anniversary of the commencement date less 1 day. In order to resolve this, the wording in the trust constitutions was changed on 28 June 2005 to ensure the “Units on Issue” satisfy the criteria for them to continue to be classiﬁed as equity. Management is of the view that going forward the debt and equity classiﬁcation applicable to the “Units on Issue” and the Group’s stapled securities will remain unchanged under AIFRS. Note 16 – 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 104 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY TRUST ANNUAL CONCISE REPORT 30 JUNE 2005 directors’ declaration The directors declare that in their opinion, the Concise Financial Report for the Trust for the year ended 30 June 2005 as set out on pages 89 to 104 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 2005. 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 16, is available on request. The directors have been given the declarations by the Managing Director and Group Financial Controller and Assistant Company Secretary, as Chief Executive Ofﬁcer and Chief Financial Ofﬁcer equivalents, as required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the directors. P Warne Director Sydney Dated this 6th day of September 2005 105 Independent audit report to the unitholders of Australian Leisure and Entertainment Property Trust Matters relating to the electronic presentation of the audited ﬁnancial report This audit report relates to the concise ﬁnancial report of Australian Leisure and Entertainment Property Trust for the ﬁnancial year ended 30 June 2005 included on ALE Property Group’s web site. The directors of Australian Leisure and Entertainment Property Management Limited are responsible for the integrity of the ALE 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 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 ﬁnancial report to conﬁrm the information included in the audited ﬁnancial report presented on this web site. Audit opinion In our opinion, the concise ﬁnancial report of Australian Leisure and Entertainment Property Trust (the Trust) for the year ended 30 June 2005 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 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 and notes to the ﬁnancial statements and the directors’ declaration for Australian Leisure and Entertainment Property Trust (the Trust) for the year ended 30 June 2005. 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 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. For further explanation of an audit, visit our website http://www.pwc.com/au/ ﬁnancialstatementaudit. We also performed an independent audit of the full ﬁnancial report of the Trust for the ﬁnancial year ended 30 June 2005. Our audit report on the full ﬁnancial report was signed on 16 August 2005 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. 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 6 September 2005 S J Hadﬁeld Partner 106 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY TRUST ANNUAL CONCISE REPORT 30 JUNE 2005 Level 8, O’Connell House 15-19 Bent Street Sydney NSW 2000 Australia Telephone: + 61 02 8231 8588 Facsimile: + 61 02 8231 8500 Web: www.alegroup.com.au 15 August, 2005 The Directors Australian Leisure and Entertainment Property Management Limited Level 8 15-19 Bent Street Sydney NSW 2000 Subject: Management Statement Letter to Directors on ALE Property Group’s – Financial Reports for the year ended 30 June 2005. Dear Directors, We conﬁ rm to the best of our knowledge and belief that the Financial Reports for the year ended 30 June 2005 of: – ALE Property Group – Australian Leisure and Entertainment Property Management Limited – Australian Leisure and Entertainment Property Trust and its controlled entities – ALE Finance Company Pty Limited present a true and fair view, in all material respects, of the ﬁ nancial condition and operational results of their respective entities and are in accordance with relevant accounting standards and requirements of the Corporations Act 2001. The above statement is founded on a system of risk management and internal compliance and control which implements the policies adopted by the Board. We conﬁ rm that all risk management and internal compliance and control systems are operating efﬁ ciently and effectively in all material respects. Yours sincerely Andrew Wilkinson Andrew Wilkinson Andrew Wilkinson Andrew Wilkinson Managing Director Darren Barkas Darren Barkas Darren Barkas Darren Barkas Group Financial Controller & Assistant Company Secretary Brendan Howell Brendan Howell Brendan Howell Brendan Howell Company Secretary Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278 Australian Leisure and Entertainment Property Trust ASBN 106 063 049 107 stapled security holder information Voting rights The voting rights are one vote per stapled security. Distribution of stapled security holders as at 23 August 2005 Number of Stapled Securities 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – over Total Number of Stapled Security Holders 74 758 564 1,134 59 2,589 Stapled Securities Held 55,523 2,522,610 4,925,103 33,548,559 49,748,305 90,800,100 % of Stapled Securities 0.06% 2.78% 5.42% 36.95% 54.79% 100.00% There were ﬁve stapled security holders holding parcels of stapled securities with a value of less than $500. Top 20 largest stapled security holders as at 23 August 2005 Rank Stapled Security Holder Number of Stapled Security Holders % of Stapled Securities 11.99% 8.16% 5.54% 4.86% 3.56% 2.22% 2.05% 1.93% 1.26% 0.87% 0.76% 0.72% 0.67% 0.55% 0.55% 0.51% 0.42% 0.38% 0.29% 0.28% 47.57% Number of Stapled Securities 9,595,726 6,418,559 16,014,285 J P Morgan Nominees Australia Limited ANZ Nominees Limited Fortis Clearing Nominees P/L Lady Jean Falconer Grifﬁn RBC Global Services Australia Nominees Pty Limited RBC Global Services Australia Nominees Pty Limited 1 National Nominees Limited 2 3 4 5 Westpac Custodian Nominees Limited 6 Mr Kenneth Charles Ferris + Mrs Dorothy May Ferris 7 8 9 10 Cogent Nominees Pty Limited 11 Citicorp Nominees Pty Limited 12 Pineross Pty Ltd 13 Argo Investments Limited 14 Bond Street Custodians Limited 15 Caergwrle Investments Pty Ltd 16 Mrs Shemara Wikramanayake 17 Bond Street Custodians Limited 18 Mr Michael John Steven Arthur 19 Bow Lane Nominees Pty Ltd 20 Australian Executor Trustees Limited Total 10,884,704 7,412,593 5,034,692 4,417,420 3,236,434 2,015,367 1,859,120 1,750,967 1,146,124 789,786 688,430 650,000 610,000 500,000 500,000 460,500 385,000 341,064 264,503 253,255 43,199,959 Substantial stapled security holders (notices received as at 23 August 2005) Stapled Security Holder UBS Nominees Pty Limited Deutsche Bank Group Total 108 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY TRUST ANNUAL CONCISE REPORT 30 JUNE 2005 Pelican Waters Hotel, Qld New Brighton Hotel, NSW During the year the ownership of the portfolio’s tenant changed hands. With the tenant now controlled by major retailer Woolworths Limited (75%) and Bruce Mathieson Group (25%), our income quality and value has been enhanced. ALE Property Group is now in very good company. investor information corporate directory Stock Exchange Listing The ALE Property Group (ALE) is listed on the Australian Stock Exchange (ASX). Its stapled securities are listed under ASX code: LEP and its ALE Notes are listed under ASX code: LEPHB. Distribution Reinvestment Plan ALE has not established a distribution reinvestment plan. Electronic Payment of Distributions Security holders may nominate a bank, building society or credit union account for payment of distributions by direct credit. Payments are electronically credited on the payment dates and conﬁ rmed by mailed payment advice. Security holders wishing to take advantage of payment by direct credit should contact the registry for more details and to obtain an application form. Publications The Annual Report is the main source of information for stapled security holders. In addition, a half-year report for the six months to December is released to the ASX and posted on the ALE website in February each year. The half year report is also mailed on request. Periodically ALE may also send releases to the ASX covering matters of relevance to investors. These releases are also posted to the ALE website. Website The ALE website, www.alegroup.com.au, is a useful source of information for security holders. It includes details of ALE‘s property portfolio, current activities and future prospects. Annual Tax Statement Accompanying the ﬁ nal stapled security distribution payment, normally in August each year, will be an annual tax statement which details the tax deferred components of the year’s distribution. Distributions Stapled security distributions are paid twice yearly, normally in February and August. Annual General Meeting The Annual General Meeting of the Company and a meeting of the Trust will be held at the Barnet Room, Level 6, The Westin, Sydney on 21st October 2005 at 10am. A copy of the Notice of Meetings will be mailed to stapled security holders and made available to download from ALE’s website in September 2005. Security Holder Enquiries Please contact the registry if you have any questions about your holding or payments. Registered Ofﬁ ce Level 8, 15-19 Bent Street Sydney NSW 2000 Telephone (02) 8231 8588 Company Secretary Mr Brendan Howell Level 8, 15-19 Bent Street Sydney NSW 2000 Telephone (02) 8231 8588 Auditors PricewaterhouseCoopers 201 Sussex Street Sydney NSW 2000 Lawyers Allens Arthur Robinson 2 Chiﬂ ey Square 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 ALE 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 Facsimile: (03) 9473 2500 www.computershare.com.au Front and back cover: Breakfast Creek Hotel, Qld contents quality of income 2 23.5 year lease term 3 compounding value 4 acquisitions 5 prime locations 6 impressive results 8 chairman’s message 9 management team 10 managing director’s report 11 board of directors 18 corporate governance 19 ﬁ nancial reports 21 management statement letter 107 stapled security holder information 108 investor information and corporate directory inside back cover Designed and produced by Ross Barr & Associates Pty Limited in good company ALE PROPERTY GROUP ANNUAL REPORT JUNE 2005 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 5

Continue reading text version or see original annual report in PDF format above