ASX ANNOUNCEMENT Announcement No. 16/07 The Manager Corporate Announcement Office Australian Stock Exchange 2 October 2007 ALE PROPERTY GROUP (ALE) ANNUAL REPORT 2007 Please find attached a copy of the ALE Annual Report that will be mailed to ALE’s stapled security holders on Tuesday 2 October 2007. For further information, please contact ALE’s Managing Director, Andrew Wilkinson on (02) 8231 8588. - Ends - Contact: Brendan Howell Company Secretary ALE Property Group 02 8231 8588 Website: www.alegroup.com.au ALE PROPERTY GROUP ANNUAL REPORT JUNE 2007 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 7 U A . M O C P. U O R G E L A . W W W WWW.ALEGROUP.COM.AU Top shelf results ALE Property Group owns a portfolio of 103 pubs located throughout the five mainland states of Australia. CONTENTS Chairman’s Message 7 Financial Highlights 8 Managing Director’s Report 9 Management Team 13 Property Portfolio 14 Board of Directors 22 Corporate Governance 23 Financial Reports 25 Management Statement Letter 99 Stapled Security Holder Information 100 Investor Information and Corporate Directory IbC The quality of the Group’s assets and its risk and capital management policies have once again enabled ALE to outperform expectations in delivering top shelf returns to security holders June 2006 June 2005 GROWTH IN ACCUMULATED VALUE (MARKET VALUE AND DISTRIbUTIONS) ALE Other LPTs June 2004 Front cover and opposite left: The Breakfast Creek Hotel is “an institution” in Brisbane. Opposite right: The Queens Tavern in Highgate, Perth was first established as a pub in 1899. See www. thequeens.com.au for more information. 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. Registered Office Level 7, 1 O’Connell Street Sydney NSW 2000 Telephone (02) 8231 8588 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 confirmed 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. The Annual Report and the Half-Year Report are released to the ASX and posted on the ALE website in August and February respectively. The Annual Report and Half-Year Report are not mailed to stapled security holders, unless requested. The registry have and will continue to mail forms on a regular basis to enable stapled security holders to elect to receive the Annual Reports each year. 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. ASX announcements are also included on the site on a regular basis. Annual Tax Statement Accompanying the final 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, Westin Hotel, 1 Market Place, Sydney at 10 am on 13 November 2006. A copy of the notice of meeting will be mailed to stapled security holders and made available to download from ALE’s website in October 2007. Security Holder Enquiries Please contact the registry if you have any questions about your holding or payments. Company Secretary Mr Brendan Howell Level 7, 1 O’Connell Street Sydney NSW 2000 Telephone (02) 8231 8588 Auditors PricewaterhouseCoopers 201 Sussex Street Sydney NSW 2000 For 2008, subject to approval by the shareholders at the AGM KPMG 10 Shelly Street Sydney NSW 2000 Lawyers Allens Arthur Robinson Deutsche Bank Place Corner Hunter and Phillip Streets 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 (02) 8235 8150 www.computershare.com.au d e t i m L i y t P i s e t a c o s s A & r r a B s s o R y b d e c u d o r p d n a d e n g s e D i June 2007 The accumulated total value from a $1.00 investment in ALE from the November 2003 IPO to 30 June 2007 is $5.54 The accumulated total value from a $1.00 investment in the S&P/ASX Property 300 index for the same period is $2.27 4 c 0 5 . 3 3 t s a e l t a 3 , 2 c 0 5 . 2 3 1 % 0 2 + Income distribution growth over four years 1 Annualised 2 June 2007 total distribution is 103.1% higher than June 2006 income distribution 3 June 2007 income distribution is 25.4% higher than June 2006 income distribution 4 On an unchanged portfolio basis and subject to acquisitions, gearing levels and other financial criteria Income distribution Capital distribution Total distribution guidance c 7 0 . 0 2 c 0 0 . 6 1 c 5 8 . 2 1 1 c 5 5 1 1 . 4 0 n u J 5 0 n u J 6 0 n u J 7 0 n u J 8 0 n u J TOTAL DISTRIBUTION (ceNTS peR SecURITy) ALE performance outpaces the LPT market 77.7 68.4 07 06 05 04 17.0 26.3 25.9 39.0 49.9 32.8 TOTAL ReTURNS (%) ALE total return LPT 300 total return 2 Above right: The New Brighton Hotel in Sydney, NSW is located on the Corso and is less than 50 metres from the world famous Manly Beach. The New Brighton has recently been refurbished by ALH. 3 2007 total distribution represented 32.5% of the 2003 $1.00 IPO subscription price ALE investors contributed equity in 2003 at an initial price of $1.00. For the year to 30 June 2007 ALE paid a total distribution (both income and capital) of 32.5 cents per security. ALE is delivering capital management initiatives while also preserving ALE’s capacity to make further acquisitions. . 5 2 3 4 Major investments by ALH are enhancing the offering at ALE’s properties ALH is making leasehold additions and enhancements to ALE’s buildings. ALH takes the development risk and funds those initiatives. ALH has been particularly active in adding Dan Murphy outlets. ALE acquires an icon hotel in the growing market of Perth ALE settled the acquisition of the Balmoral Hotel, Victoria Park in Perth in August 2007. At a price of $6.0 million this will provide an acquisition yield of 6.3% plus growth of Perth based CPI into the future. The next market rent review in February 2008 is linked to turnover and will increase by at least CPI. Whole of property portfolio value assessed at $881.1 million 07 06 791.2 (+10.3%) 717.6 SUm Of INDIvIDUAL pROpeRTy vALUeS ($m) Whole of property portfolio value delivers an 11.4% premium ALE has revalued each of its freehold properties. DTZ independently assessed that the capitalisation rates (or net property yields) for a representative one- third sample had reduced to 6.07%. DTZ separately assessed that the properties on a whole of portfolio basis would attract an 11.4% premium to the sum of individual properties value. This premium has regard for the current market demand from larger investors for quality portfolios of properties of significant scale. This capitalisation rate was based on a sum of the individual properties value. 5 Above left: A recent Dan Murphy addition at Albany Creek Tavern, Albany Creek, QLD. Above centre, right: The Balmoral Hotel in Perth was first established as a pub in the 1930s. 3 . 1 1 4 . 9 2 2 . 1 4 . 2 2 . 0 6 . 4 1 ) 1 . 0 ( ) 2 . 0 ( 6 0 y f t fi o r p e l b a t u b i r t s i D s e s a e r c n I t s o C x a T d n a L s e s a e r c n I e s n e p x E t s e r e t n I h t w o r G e m o c n I y t r e p o r P s g n i v a S t s o C t n e m e g a n a M h t w o r G e m o c n I t s e r e t n I s n i a G e u l a V r i a F e l b a t u b i r t s i D 7 0 y f t fi o r p e l b a t u b i r t s i D + Increasing property values (increased values and a portfolio premium) + Gearing reduced (reduced from 68% to 63%) + Long term hedging (average term of seven years) DISTRIBUTABLe pROfIT GROwTh ($m) + Long term finance (average maturity date of seven years) + Total distribution growth (guidance of at least 33.5 cents for FY08) 6 OuTLOOk ALE’s “quality” will continue to deliver impressive results Distributable profit for the year rose to $29.4 million, representing a 101.4% increase over the previous period. ALE expects to pay total distributions of at least 33.5 cents per stapled security for the year ending 30 June 2008 on an unchanged portfolio basis.” ‘‘ Dear investor, On behalf of your Board, it is my pleasure to report to you on the performance for the period ended 30 June 2007. The strategy It has been and continues to be your Board’s strategy to safeguard ALE’s high quality property portfolio with its long term and highly secure lease arrangements and • provide you, our investors, with the highest possible, long term, secure, tax efficient cash flow, growing these distributions over time by at least the rate of growth in CPI manage operations efficiently in order to achieve low costs maintain an efficient capital structure including an appropriate constant level of gearing and use of low cost debt instruments • • while at the same time maintaining • an appropriate approach to risk and liability management best practice regarding protection of investors’ interests through strong compliance with our regulatory and contractual obligations, effective corporate governance practices and regular and transparent stakeholder communication, and appropriate oversight of the management of our property portfolio including additional property acquisitions where appropriate. • • Your Board believes that through this long term and fundamental approach, the market will best come to realise the inherent value in ALE’s securities. The Board believes that continued progress has been made on all elements of its strategy in the year under review. The results Following on from three years of strong results, ALE has again achieved significant growth in the distributions. For the year ended 30 June 2007, ALE has paid total distributions (both income and ongoing capital) totalling 32.5 cents per stapled security. This is 103.4% higher than last year and 3.5% higher than guidance provided by the Board in May 2007. ALE expects to pay total distributions of at least 33.5 cents per stapled security for the year ending 30 June 2008 on an unchanged portfolio basis. ALE has also seen significant growth in capital value and distributable profit. Distributable profit for the year rose to $29.4 million, representing a 101.4% increase over the previous period. This is in part due to efficient management and the continuing careful management of expenses. ALE is pleased for the fourth successive year, to report that the value of the portfolio has increased significantly – this year by $81.6 million, or 11.4%. This is a direct result of the continuing strong investor demand for high quality properties. ALE has invested significant Board and management 7 time in maintaining an efficient capital structure. To date two important capital management initiatives have been announced and implemented. First, ALE decided to institute a policy of paying half-yearly capital distributions of at least 50% of the component of the property valuation increase that directly relates to the increase in net rent. All other things being equal, the policy is expected to assist in maintaining ALE’s gearing levels. It is the Board’s intention that this be an ongoing policy having regard to gearing levels and other acquisition opportunities. Secondly, ALE obtained ASIC approval to undertake an on-market buyback of up to 10% of ALE securities. To date, significant progress has been made with the aim of completing the buyback by May 2008. In August 2007, ALE purchased the Balmoral Hotel, Perth, WA for $6.0 million. ALE continues to review Perth and other capital city markets for value accretive opportunities. The Board and Audit, Compliance and Risk Management Committee’s focus on risk management continues. Over and above the high quality rental covenant and long term leases that ALE currently enjoys, the examination and consideration of both enterprise and financial risk continue. In times of volatility the ALE Board considers the reduced risk arising from the ALE assets and financial structure to be a key strength of the business. I express my gratitude to Managing Director Andrew Wilkinson and his team for their continued excellent performance this year. In particular, the team’s innovation in capital management during the year will provide substantial long term benefits and reduced risk to security holders. The Board continues to review its corporate governance functions in light of market best practice. An internal review of both the Board’s and Audit, Compliance and Risk Management Committee’s performance is being undertaken, the results of which will be reported at this year’s annual general meeting. This year’s AGM will be held at the Westin Hotel, Sydney at 10am on 13 November 2007. An agenda will be sent out to stapled security holders in advance of the meeting. Once again, thank you for your continued support of ALE. peter warne Chairman cHAIrMAn’s MEssAgE fInAncIAL HIgHLIgHTs Distributable profit increased to $29.4 million for fY07 8 Distributable Profit2 Distribution per Security Property Values4 Gearing3 Total Security Holder Return Net Assets per Security4 Net Assets per Security5 fy041 fy05 fy06 fy07 chANGe $8.0m 7.50¢ $576.7m 80% 49.9% $1.41 n/a $11.7m 12.85¢ $651.5m 72% 68.4% $2.17 n/a $14.6m 16.00¢ $717.6m 68% 39.0% $2.64 n/a $29.4m 32.50¢ $791.2m 63% 77.7% $3.37 $4.36 $14.8m 16.50¢ $73.6m (5%) 38.7% $0.73 n/a 1 FY04 effectively commenced November 2003 2 Distributable Profit includes add backs for non-cash accounting items 3 Total Liabilities as a % of Total Assets (sum of individual properties basis) 4 On a sum of individual properties basis 5 On a whole of property portfolio basis NOvemBeR 03 LISTING TO jUNe 07 hIGhLIGhTS Growth in... Income Distribution Total Distribution Net Assets (sum of individual) Net Assets (whole of portfolio) Accounting Net Profit Market Capitalisation Total Security holder Return 20.1% p.a. 41.2% p.a. 39.6% p.a. 49.8% p.a. $3.9m to $97.7m $90.8m to $398.9m 61.2% p.a. mAjOR ANNOUNcemeNTS (See www.alegroup.com/ investors/announcements) 21 August 2007 June full-year results June full-year report 3 july 2007 ALE delivers 77.7% total return 22 june 2007 Investor update 18 june 2007 ALE acquires Balmoral Hotel, WA 14 june 2007 FY07 distribution declaration 4 january 2007 ALE tops return tables 23 may 2007 Increase in property valuations Capital distribution policy update 2 may 2007 ASIC approves on-market buyback 28 february 2007 Distribution increase 20 february 2007 December half-year results December half-year report 12 December 2006 Increase in property values Interim distribution declaration 9 November 2006 AGM presentation AGM 2006 results Rent reviews and distribution guidance 2 November 2006 ALE tops three year return tables In ALE’s fourth year of operation it is particularly pleasing to report a strong result. ALE has also strengthened its risk management position while at the same time delivering on a number of capital management initiatives. significant growth in both distributions and property values are just a few of the many highlights for the year.” ‘‘ 9 MAnAgIng DIrEcTOr’s rEPOrT MAnAgIng DIrEcTOr’s rEPOrT continued 100 75 50 25 0 * * 4 0 5 0 6 0 7 0 8 0 9 0 0 1 1 1 TAX DefeRReD DISTRIBUTION eXpecTATIONS (%) 10 Tax deferred CGT concessional * At least 75% tax deferred I am delighted to report to you for the fourth successive year a very pleasing result for ALE. Significant increases in distributions and property values have been achieved, together with a reduction in risk and addition of value through an innovative capital management programme. Distributable profit $29.4 million (up by 101.4%) For the year ended 30 June 2007 ALE substantially increased its distributable profit and has paid total distributions of $29.6 million, or 32.50 cents per stapled security. This is 103.1% higher than the total distribution for 2006 and 15.9% higher than the guidance given halfway through the year. Major contributors to distributable profit include: Income Property income $49.9 million (up by 4.9%) • ALE’s total income from its properties rose 4.9% during the year, driven by an average inflation rate across the portfolio of 3.82% and the full year impact of rental income from ALE’s acquisition of the Berwick Inn, Victoria. Interest income $1.4 million (up by 21.1%) • ALE holds cash on deposit in order to provide security for its senior debt facilities and provide liquidity for its ongoing operations, and ALE’s efficient cash management combined with higher short term interest rates have led to higher interest income during the year. • Expenses Cash interest expense $29.2 million (up by 0.7%) • $2.1 million (net of costs) reduction in cash interest expenses (on a like for like basis) due to refinancing in May 2006 2006 interest expense included one-off refinancing net benefits (realisation of interest rate swap benefits, less refinancing costs), and marginal increase in interest expense due to 100% debt funding of the Berwick Inn purchase in February 2006. • • Land tax $1.3 million (up by 13.7%) • ALE pays land tax in Queensland only. The large land tax increase this year was due to a large revaluation of the Queensland portfolio by the Government. All other regular property outgoings are paid by ALE’s tenant, Australian Leisure and Hospitality Group Limited (ALH). • Management expenses $2.8 million (down by 29.4%) ALE was able to reduce expenses across a range of • management items prior year included significant expenses associated with acquisitions that did not proceed, and ALE’s internal management structure enabled ALE’s management expense ratio (MER) to remain at just 0.24%. This is one of the lowest in the listed property trust (LPT) sector and preserves significant value for ALE’s investors when compared to the fee structures adopted by externally managed trusts. • Fair value adjustments identified for distribution (up $11.3 million, new policy) • The distribution of identified fair value adjustments arising from inflation linked rental related revaluations contributed $11.3 million to ALE’s ongoing capital distributions for the year. See details later under capital management. Net accounting profit $97.7 million Net profit for ALE includes a number of non-cash items and in particular the revaluations of all of ALE’s freehold properties during the year. Including these non-cash items, ALE’s net profit for the year was $97.7 million, with the major contributing factors being property revaluations (before disposals) of $81.6 million: • DTZ revalued 35 of ALE’s properties during the year. Based upon advice from DTZ, the Directors revalued the balance of the properties on a state by state pro-rata basis total sum of individual properties value of $791.2 million, excludes the $6.0 million Balmoral Hotel in Perth, acquired after the balance date. The total also excludes four properties sold to ALH for $8.6 million the sum of individual properties revaluation showed an improvement in the average property capitalisation rate from 6.58% to 6.07% (excluding the three development properties) and DTZ also valued the freehold assets on a whole of portfolio basis during the year. DTZ’s valuation of $881.1 million ascribed an 11.4% premium to the sum of individual properties valuation based on a view of what a purchaser would pay for a portfolio of ALE’s size and quality. This value equates to a capitalisation rate of 5.44% and a net asset per security of $4.36 as at 30 June 2007. • • • 5 4 3 2 1 0 6 3 . 4 $ 7 3 . 3 $ o w t h r e t g 0 8 . 2 $ 4 6 . 2 $ s s e t a d ) n 1 4 . 2 $ o m p n u o 7 1 . 2 $ 5 0 n u J 5 0 c e D 6 0 n u J 6 0 c e D 7 0 n u J 0 % p . a . ( c 4 1 4 . 1 $ 4 0 n u J 8 3 . 1 $ 4 0 c e D 0 0 . 1 $ * O P I INcReASING NeT ASSeTS ($) Portfolio premium * November 2003 Risk management ALE continues to enjoy the strong A- rental covenant provided by ALH, a company ultimately 75% owned by Woolworths Limited. The leases are all triple net and have an average lease term of 21 years plus four options of 10 years each. At the end of FY06 ALE arranged an award winning refinancing of its existing commercial mortgage backed securities (CMBS) and achieved a more efficient, longer term and asset-matched debt structure. It included the first issue by an Australian listed property trust of a (AAA-rated) Capital Inflation Indexed Bond (CIB). This enabled lower cash interest payments, extended the debt and interest rate hedging terms while also matching the interest expense to ALE’s inflation-linked rental stream. As at 30 June 2007, ALE’s: • • weighted average cash borrowing rate has reduced to 5.71% gearing has reduced to 63.2%, compared with gearing of 88.6% at IPO and 68.2% one year before net cash flow generated by ALE (rental income less management expenses and land tax) covered net cash interest obligations by 1.65 times weighted average debt term is now seven years with debt maturities ranging from May 2011 to November 2023, and weighted average interest rate hedging term is now seven years with swap and fixed interest maturities ranging from November 2009 to November 2023. • • • As part of the May 2006 refinancing, ALE arranged additional CMBS funding facilities of $74 million. At 30 June 2007 those facilities remained undrawn and available for: • funding the on-market buyback of the remaining 6 million securities yet to be acquired before May 2008 making ongoing capital distributions, and funding the equity component of further property acquisitions. • • In addition, ALE has obtained approvals from a trading bank for a $20 million working capital facility. This facility is expected to be used for short term funding requirements. capital management ALE has and will continue to undertake a number of capital management initiatives with the aim of adding value for ALE’s stapled security holders. These include: On-market security buyback In May 2007, ALE obtained ASIC approval to undertake an on-market buyback of up to 10% of ALE stapled securities. The buyback will close on the earlier of the buyback of 9.08001 million securities or 1 May 2008. The ultimate amount of capital committed to the buyback programme will depend upon the ongoing market price and availability of ALE securities. To the end of August 2007, approximately 3.7 million securities have been purchased at an (ex distribution equivalent) average price of $4.13 per security. The purchases have been entirely funded by surplus cash balances. Going forward the purchase of the remaining 5.4 million securities will be funded by existing undrawn debt facilities. 11 Ongoing capital distribution policy During the year ALE instituted a policy of paying half-yearly ongoing capital distributions of at least 50% of the component of the property valuation increase that directly attributes to the increase in net rent. All other things being equal, the policy is expected to assist in maintaining ALE’s gearing levels as the inflation adjusted rental streams are reflected in revaluations. It is the Board’s intention that this be an ongoing policy having regard to the trust’s gearing levels and other acquisition opportunities. Going forward the payment of ongoing capital distributions will be funded by existing undrawn debt facilities. The policy resulted in ongoing capital distributions of $11.3 million or 12.43 cents per security being paid in respect of the 2007 year. Acquisitions ALE continues to seek suitable opportunities to add to its existing portfolio on a basis consistent with its acquisition criteria. During 2007, ALE selectively reviewed a number of opportunities that were consistent with the criteria. While ALE is in an excellent position to make value accretive acquisitions, management and the Board will continue to be patient and disciplined to ensure that the quality and value of its property holdings are maintained. MAnAgIng DIrEcTOr’s rEPOrT continued M $525 $500 $475 $450 $425 $400 $375 $350 $325 $300 p.a. 6.0% 5.9% 5.8% 5.7% 5.6% 5.5% 5.4% 5.3% 5.2% 7 0 c e D 8 0 n u J 8 0 c e D 9 0 n u J 9 0 c e D 0 1 n u J 0 1 c e D 1 1 n u J heDGING AND INTeReST RATeS Average Fixed/Swapped Interest Rate (RH axis) Amount of Fixed/Swapped Debt (LH axis) 12 In August 2007, ALE settled the Balmoral Hotel for $6.0 million (at independent valuation) on an acquisition yield of 6.3% p.a. The property has been operating as a pub in Perth for more than 70 years. The property is leased to ALH on a long term lease. ALE continues to review Perth and other capital city markets for similar value accretive opportunities. Two of the remaining development properties are under development by Foster’s Group Limited (Foster’s) and ALH. The Burleigh Heads Hotel, Queensland was opened for operation in July 2007. It is expected that following satisfactory due diligence the freehold property will be settled for the pre-agreed $6.7 million before 31 December 2007. Likewise, the Narrabeen Hotel, NSW is expected to be completed in October 2007 and will be settled in a similar time frame. These property settlements are already funded. The Parkway Hotel, NSW has not yet commenced development. Discussions are continuing with ALH and Foster’s. The outcomes of these discussions will be communicated to security holders upon finalisation of an agreement. ALH and Foster’s are assuming the development risks for each of these three properties. fy07 distributions ALE increased total distributions per security to 32.50 cents in the current year, a growth rate of 103.1% over 16.00 cents in FY06. The 16.80 cents final distribution was paid on 31 August 2007 to stapled security holders on ALE’s register as at 5pm on 25 June 2007. The total distribution was also above the guidance of at least 31.40 cents per stapled security provided in May 2007 and pays out 100.5% of distributable income generated during the year. ALE’s FY07 distribution was 95.37% tax deferred and 4.63% CGT concessional. The CGT concessional component arises from the gains on the sale of four properties. Outlook The outlook for the year to June 2008 remains positive. Current expectations are for a CPI increase of between 2.0% and 2.5% for the year ending September 2007. The actual CPI increase will be announced in late October 2007 and will be reflected in rental increases commencing November 2007 and total distributions in February and August 2008. ALE expects distributions to be 100% tax deferred for FY08 and FY09 and at least 75% tax deferred for FY10 and FY11. Interest savings achieved through the May 2006 refinancing will continue to have a positive impact on future earnings. Management will continue to work to identify opportunities where interest hedging and savings may be achieved. In terms of acquisitions, ALE remains focused on property with long term secure leases both in the pub and other commercial property sectors. ALE will continue to pursue value accretive opportunities. Given ALE’s current interest rate hedging and gearing position, inflation indexed increases in property rentals substantially flow through to stapled security holders as a multiple of inflation in terms of income distribution growth. To some extent this growth will be reduced from interest expenses arising from the debt funding of the above mentioned capital management initiatives. In addition, ALE provides guidance that, on an unchanged portfolio basis, it expects to pay total distributions of at least 33.50 cents per security for the full year ending 30 June 2008. This guidance is based upon the distribution of around 4.00 cents per security of capitalised interest accruing to the balance of the CIB. In future years the Board of ALE will make a decision regarding the distribution of the CIB capitalised interest and ongoing capital distributions having regard to acquisition opportunities, gearing levels and other matters. Once again, I thank ALE’s Board, management team and investors for their continued support in what has been a year of significant performance. Andrew wilkinson Managing Director Andrew Slade BEc (Actuarial Studies) Investment and Acquisitions Manager – Securitised Property michael clarke BCom, MMan, CA Finance Manager and Assistant Company Secretary Andrew joined ALE in July 2005. Andrew has 17 years experience in investment banking and structured finance. Andrew spent 10 years with Oxley Corporate Finance, where he was involved with a range of structured, project and property finance transactions, the latter involving major Australian companies and listed property trusts. For the last seven years Andrew has acted as principal of Slade Financial Consulting, where he has provided advice on structured property and asset based financing 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. Michael joined ALE in October 2006. Michael has over 25 years experience in accounting, taxation and financial management. Michael previously held senior financial positions with subsidiaries of listed public companies and spent 12 years working for Grant Thornton. Michael has also owned and managed his own accounting practice. Michael has a Bachelor of Commerce degree from the University of New South Wales and a Master of Management from Macquarie Graduate School of Management. Michael is a member of the Institute of Chartered Accountants in Australia. Andrew wilkinson BBus, CFTP Managing Director 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 banking, corporate finance and funds management. 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 eight 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. 13 Brendan howell BEc, GDipAppFin Company Secretary and Compliance Officer The company secretary is Mr Brendan Howell. Brendan 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 over 17 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 over seven 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. MAnAgEMEnT TEAM 3PrOPErTY POrTfOLIO 0 1 Our portfolio comprises 103 quality properties strategically located in all mainland states 14 ALE’s focus is on quality properties, those that feature great locations, secure and long term rental covenants and indexing rentals (a selection of these premium properties is featured in the following pages). Current market conditions are not offering significantly higher returns for high risk or low quality properties. Accordingly, ALE is continuing to only add high quality properties. New SOUTh wALeS (including Sydney city and suburban locations) – 12 hotels – Blacktown Inn Hotel, Blacktown / Brown Jug Hotel, Fairfield / Colyton Hotel, St Marys / Crows Nest Hotel, Crows Nest / Kirribilli Hotel, Milsons Point / Melton Hotel, Auburn / Narrabeen Sands Hotel, Narrabeen / New Brighton Hotel, Manly / Parkway Hotel, Frenchs Forest / Pioneer Tavern, Penrith / Pymble Hotel, Pymble / Smithfield Hotel, Smithfield QUeeNSLAND cOAST – 14 hotels – Anglers Arms Hotel, Southport / Balaclava Hotel, Cairns (Earlville) / Burleigh Heads Hotel, Burleigh Heads / CBX Hotel, Caloundra / Dalrymple Hotel, Garbutt / Edge Hill Tavern, Manoora, Cairns / Kirwan Tavern, Townsville / Miami Hotel, Miami / Mount Pleasant Hotel, North Mackay / Noosa Reef Hotel, Noosa Heads / Palm Beach Hotel, Palm Beach / Pelican Waters Hotel, Pelican Waters / The Vale Hotel and Aikenvale Motel, (Aikenvale), Townsville / Wilsonton Hotel, Wilsonton, Toowoomba QUeeNSLAND (including Brisbane city and suburban locations) – 23 hotels – Albany Creek Tavern, Albany Creek / Albion Hotel, Albion / Alderley Arms Hotel, Alderley / Breakfast Creek Hotel, Breakfast Creek / Camp Hill Hotel, Camp Hill / Chardons Corner Hotel, Annerly / Edinburgh Castle Hotel, Kedron / Ferny Grove Tavern, Ferny Grove / Four Mile Creek Hotel, Strathpine / Hamilton Hotel, Hamilton / Holland Park Hotel, Holland Park / Kedron Park Hotel, Kedron Park / Lawnton Tavern, Lawnton / Mt Gravatt Hotel, Mt Gravatt / Nudgee Beach Hotel, Nudgee / Oxford 152, Bulimba / Prince of Wales Hotel, Nundah / Racehorse Hotel, Booval / Redland Bay Hotel, Redland Bay / Royal Exchange Hotel, Toowong / Springwood Tavern, Springwood / Stones Corner Tavern, Stones Corner / Sunnybank Hotel, Sunnybank SOUTh AUSTRALIA (including Adelaide city and suburban locations) – 9 hotels – Aberfoyle Hub Tavern, Aberfoyle Park / Enfield Hotel, Clearview / Eureka Hotel, Salisbury / Exeter Hotel, Exeter / Finsbury Hotel, Woodville North / Gepps Cross Hotel, Blair Athol / Hendon Hotel, Royal Park / Stockade Tavern, Salisbury / Ramsgate Hotel, Henley Beach vIcTORIA (including melbourne city and suburban locations) – 42 hotels – Ashley Hotel, Braybrook / Bayswater Hotel, Bayswater / Berwick Inn, Melbourne / Blackburn Hotel, Blackburn / Blue Bell Hotel, Wendouree / Burvale Hotel, Nunawading / Club Hotel, Ferntree Gully / Cramers Hotel, Preston / Davey’s Hotel, Frankston / Deer Park Hotel, Deer Park / Doncaster Inn Hotel, Doncaster / Elsternwick Hotel, Elwood / Eltham Hotel, Eltham / Ferntree Gully Hotel & Motel, Ferntree Gully / Gateway Hotel, Corio / Keysborough Hotel, Keysborough / Mac’s Hotel, Melton / Meadow Inn Hotel, Fawkner / Mitcham Hotel, Mitcham / Morwell Hotel, Morwell / Mountain View Hotel, Glen Waverly / Olinda Creek Hotel, Lilydale / Pier Hotel/21st Century, Frankston / Plough Hotel, Mill Park / Prince Mark Hotel, Doveton / Rifle Club Hotel, Williamstown / Rose Shamrock and Thistle Hotel, Reservoir / Royal Exchange Hotel, Traralgon / Royal Hotel (Sunbury), Sunbury / Royal Hotel Essendon, Essendon / Sandbelt Hotel, Moorabbin / Sandown Park Hotel, Noble Park / Sandringham Hotel, Sandringham / Somerville Hotel, Somerville / Stamford Inn Hotel, Rowville / Sylvania Hotel, Campbellfield / Tudor Inn Hotel, Cheltenham / The Vale Hotel (previously the Springvale Hotel), Mulgrave / Victoria Hotel, Shepparton / Village Green Hotel, Glen Waverly / Westmeadows Tavern, Westmeadows / Young & Jackson Hotel, Melbourne weSTeRN AUSTRALIA (including perth city and suburban locations) – 3 hotels – Balmoral Hotel, Victoria Park, Perth / Queens Tavern, Highgate / Sail and Anchor Pub Brewery, Fremantle 15 PrOPErTY POrTfOLIO continued s1New Brighton hotel 71 The corso, manly, NSw The New Brighton at Manly is located on Sydney’s northern beaches. It is positioned on the Corso pedestrian mall that leads to the world famous Manly Beach and is a popular destination for both the local community as well as a large number of interstate and international tourists. The hotel is an icon in the area and well known for both its Lounge Bar and Shark Bar. It has stood in its place since 1880! See more at www. newbrightonhotel.com.au l e a W h t u o s w e n 16 17 Berwick Inn 1-9 high Street Berwick, vIc i a r o t c Melbourne’s CBD.V The Berwick Inn was established in Melbourne’s south-eastern suburbs in 1857 as the Border Hotel. The first local police court was held at the hotel in 1865 and it also served as a licensing court. Located in the heart of Berwick, it is today part of Victoria’s largest and fastest-growing municipality (the City of Casey). Berwick is about 45km south-east of i 2 PrOPErTY POrTfOLIO continued At an acquisition yield of 6.3%, the Balmoral Hotel is value accretive” ‘‘ 18 Ramsgate hotel 328 Seaview Road, henley Beach, SA Henley is regarded as the best beach in the Adelaide metropolitan area. The Ramsgate is well located within a short walk of the beach and is also close to the local community amphitheatre and a long beach pier. Henley Beach is around 10km directly east of Adelaide’s CBD and boasts a range of local attractions.See more at www.ramsgatehotel.com.au 3 a i l a r t s u A h t u o s 4 Balmoral hotel victoria park, perth, wA The Balmoral Hotel was first established as a pub in the 1930s. Over time the property has been significantly expanded and in recent years it has been refurbished throughout and remains one of Perth’s landmark pubs. Victoria Park is located just under 5km across the Swan River from the Perth CBD on the Albany Highway. n r e t s e W a i l a r t s u A 19 PrOPErTY POrTfOLIO continued 20 5 Burleigh heads hotel Burleigh heads, Gold coast, QLD The original hotel was developed in the 1950s. Foster’s, ALH and their development partner completed a comprehensive reconstruction of the hotel in July 2007. ALE owns the hotel and part of the carpark while the development partner owns and is on-selling the adjoining developments. The property is located adjacent to the beach at Burleigh Heads and is less than 15 minutes from Gold Coast Airport. l d n a s n e e u Q 21 l d n a s n e e u Q pelican waters Boulevard, pelican waters, QLD 6pelican waters hotel Redeveloped in 2004, the Pelican Waters Hotel sits on the waterfront only 5km from Caloundra, on Queensland’s beautiful Sunshine Coast. The hotel is serviced by a ferry providing local residents convenient access to the hotel. peter h warne BA Chairman and Non-Executive Director 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 of BTAL was acquired by Macquarie Bank Limited in 1999. Peter is also a board member of three other listed entities being ASX Limited, Macquarie Bank Limited and WHK Group Limited. Peter graduated from Macquarie University with a Bachelor of Arts, majoring in Actuarial Studies. He qualified as an associate of, and received a Certificate of Finance and Investment from, the Institute of Actuaries, London. 22 Andrew wilkinson BBus, CFTP Managing Director Andrew’s qualifications and experience are outlined on page 13. john henderson BBldg, MRICS, AAPI Non-Executive Director 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. BOArD Of DIrEcTOrs james mcNally BB (Land Economy), DipLaw Executive Director James was appointed as an executive director of the Company in June 2003. James has over 14 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. 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. helen wright LLB, MAICD Non-Executive Director Helen was appointed as a non-executive director of the Company in September 2003. Helen was a partner of Freehills, a leading Australian firm of lawyers, from 1986 to 2003. She practiced as a commercial lawyer specialising in real estate projects including development and financing and related taxation and stamp duties. Helen is the Statutory and Other Offices Remuneration Tribunal for NSW and also the Local Government Remuneration Tribunal. Until recently Helen was a member of the Boards of the Sydney Harbour Foreshore Authority, Australian Technology Park Precinct Management, and Cooks Cove Redevelopment Authority. Prior boards include Australia Day Council of NSW, Darling Harbour Authority, UNSW Press Limited and MLC Homepack Limited. Helen has a Bachelor of Laws from the University of NSW, and in 1994 completed the Advanced Management Program at the Harvard Graduate School of Business. cOrPOrATE gOVErnAncE 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 first place, on matters which are sensitive, extraordinary or of a strategic nature. In carrying out its responsibilities, the Board undertakes to serve the interests of stapled security holders, employees, customers and the broader community honestly, fairly, diligently and in accordance with applicable laws. Board composition The full Board determines the Board size and composition, subject to limits imposed by the Company’s Constitution. The Board has determined that it is currently appropriate to have five directors, three of whom, including the Chairman, are non-executive. The three non-executive directors, Peter Warne, John Henderson and Helen Wright, are independent directors as defined under section 601JA of the Corporations Act, and satisfy the principles of independence as outlined in the Australian Securities Exchange (ASX) Corporate Governance Council Recommendations. The Chairman is selected by the full Board annually at the first 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 financial report commencing on page 30. To assist the Board in undertaking its own performance evaluation and that of directors, this year it appointed a specialist governance adviser to review the performance of the Board. The adviser’s review is presently being undertaken with a view to identifying any concerns and where possible suggesting enhancements to current practice. Under the Company’s Constitution, a director may not hold office for a continuous period in excess of three years or past the third annual general meeting following the director’s appointment, whichever is the longer, without submitting for re-election. If no director would otherwise be required to submit for re-election but the Australian Securities Exchange (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 office since their last election. James McNally will be retiring and standing for re-election as a director of the Company at its next AGM. 23 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 four members, being three non-executive independent directors and an independent consultant. Helen Wright, an independent director, has been appointed as Chair of the Committee. The other members of the Committee are Peter Warne and John Henderson, also independent directors, and independent consultant David Lawler. 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 fulfil 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 financial report on page 30. Given the small number of staff within the Company, the Company does not have an internal audit function. 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 2007. 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 5 appropriate, removing the Managing Director (MD) 4 ratifying the appointment of and, where appropriate, the removal of the Acquisitions Manager, Finance Manager and the Company Secretary input to and final approval of management’s development of corporate strategy and performance objectives review and ratification of systems of risk management and internal compliance and control, codes of conduct, and legal compliance 6 7 monitoring of senior management performance and implementation of strategy, and ensuring appropriate resources are available 8 approving and monitoring the progress of major capital expenditure, capital management, acquisitions and divestitures 9 approving and monitoring financial and other reporting, and 10 establishing and maintaining ethical standards. cOrPOrATE gOVErnAncE continued 24 During the year the Committee had an independent review completed of ALE’s internal controls. The review confirmed that the procedures and controls had been maintained at appropriate levels. The Committee also conducted a tender for external audit services and, after consideration of the corporate governance benefits and potential cost savings, the Committee and Board decided to appoint KPMG to replace PricewaterhouseCoopers as the new external auditor of the Group. Shareholders will be asked to approve the appointment of the new external auditor at the Company’s Annual General Meeting on 13 November 2007. Board and executive remuneration Details of Board and executive remuneration are set out in the directors’ report in the financial report commencing on page 30. 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 officer 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 is not a material supplier or customer of the Company or other Group member, or an officer of or otherwise associated directly or indirectly with a material supplier or customer 5 has no material contractual relationship with the Company or 4 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 7 reasonably be perceived to, materially interfere with the director’s ability to act in the best interests of the Company, and 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 Limited (Next Financial) which acts as an Investment Manager. Next Financial holds on behalf of its clients 4,254,837 stapled securities 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 that Peter Warne’s independence and the confidentiality of information are maintained. Peter Warne is a director of Macquarie Bank Limited (“Macquarie”). Macquarie has provided banking services and corporate advice to ALE in the past and may continue to do so in the future. Mr Warne does not take part in any decisions to appoint Macquarie in relation to banking services or corporate advice provided by Macquarie to ALE. for gain of another person. Each director and employee must ensure that any information in their possession that is not publicly available and which may have a material effect on the price or value of ALE’s stapled securities, ALE Notes or any derivatives based on either of these (collectively “ALE Securities”) is not provided to anyone who may be influenced to subscribe for, buy or sell ALE Securities. Directors, employees and their associates may buy or sell ALE Securities only during the four week periods commencing the business day after: • • • 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. All directors and employees are also precluded from buying or selling ALE Securities at anytime while ALE is undertaking an on-market buyback of ALE Securities. 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. Details of directors’ and employees’ holdings in ALE Securities are set out in the directors’ report in the financial report on page 29. 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. Remuneration committee ASX corporate Governance council principles 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 financial report on page 30. 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 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 recommendation relating to Nomination Committees. 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 fulfil these functions. CONTENTS Directors’ report 26 Consolidated income statements 36 Consolidated balance sheets 37 Consolidated statements of Changes in equity 38 Consolidated Cash flow statements 39 Notes to the Consolidated financial statements 40 Directors’ Declaration 66 independent audit report to stapled security holders 67 investor information and Corporate Directory IBC 25 25 ALE ProPErty GrouP AnnuAL FinAnciAL rEPort 30 JunE 2007 COmPRisiNG AUsTRALiAN LEisURE ANd ENTERTAiNmENT PROPERTY TRUsT ANd iTs CONTROLLEd ENTiTiEs ABN 92 648 441 429 Top shelf results ALE PROPERTY GROUP ANNUAL REPORT 30 JUNE 2007 diRECTORs’ REPORT The aLe Property Group (“aLe”) comprises australian Leisure and entertainment Property Trust (“Trust”) and its controlled entities including aLe Direct Property Trust (“sub Trust”), aLe finance Company Pty Limited (“finance Company”) and australian Leisure and entertainment Property Management Limited (“Company”) as the responsible entity of the Trust. The registered office and principal place of business of the Company is: Level 7 1 O’Connell street sydney 2000 The directors of the Company present their report, together with the consolidated financial report of aLe, for the year ended 30 June 2007. Directors The following persons were directors of the Company during the year and up to the date of this report unless otherwise stated: Name appointed Type P h Warne (Chairman) J P henderson h i Wright a f O Wilkinson (Managing Director) J T McNally independent non-executive independent non-executive independent non-executive executive executive 8 september 2003 19 august 2003 8 september 2003 16 November 2004 26 June 2003 Principal activities The principal activities of aLe consist of investment in property and property funds management. There has been no significant change in the nature of these activities during the year. 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 year. 26 Matters subsequent to the end of the financial year On 26 July 2007 aLe completed the purchase of the balmoral hotel in Western australia at a cost of $6,000,000. The acquisition was funded from existing cash reserves. The directors are not aware of any matter or circumstance occurring after balance date which may affect aLe’s operations, the results of those operations or the state of affairs of aLe. Likely developments and expected results of operations aLe will continue to maintain its defined strategy of identifying opportunities to increase the profitability of aLe and its value to its stapled security holders. in accordance with the leases of its investment properties, aLe will receive increases in rental income in line with increases in the consumer price index. The directors are not aware of any other future development likely to significantly affect the operations and/or results of aLe. Distributions and dividends Trust distributions payable to stapled security holders, based on the number of stapled securities on issue at the respective record dates, for the year were as follows: final Trust income distribution for the year ending 30 June 2007 to be paid on 31 august 2007 final Trust ongoing distribution of fair value adjustments to investment properties for the year ending 30 June 2007 to be paid on 31 august 2007 interim Trust income distribution for the year ending 30 June 2007 paid on 28 february 2007 interim Trust ongoing distribution of fair value adjustments to investment properties for the year ending 30 June 2007 paid on 28 february 2007 Total distribution for the year ending 30 June 2007 30 June 2007 cents per security 30 June 2006 cents per security 30 June 2007 $’000 30 June 2006 $’000 10.57 9.20 9,595 8,354 6.23 – 5,655 – 9.50 6.80 8,655 6,174 6.20 32.50 – 5,648 – 16.00 29,553 14,528 No provisions for or payments of Company dividends have been made during the year. (2006: nil) Review and results of operations aLe produced a profit of $97.7 million for the year ended 30 June 2007. (30 June 2006: $52.2 million) The table below separates the cash components of profit that are available for distribution from the non-cash components of profit. The directors believe this will assist stapled security holders in understanding the results of operations and distributions of aLe. Profit after income tax for the year Plus /(Less) Unrealised fair value adjustments to investment properties Unrealised fair value adjustments to derivatives Gain on disposal of investment properties swap interest net benefit received/receivable (included in fair value adjustments to derivatives) employee share based payments finance costs – non-cash income tax expense Adjustments for non-cash items Profit after income tax adjusted for non-cash items fair value adjustments to investment properties identified for distribution Total available for distribution Distribution paid or provided for Available and under/(over) distributed for the year Earnings and distribution per stapled security: basic and diluted earnings earnings available for distribution income distribution Distribution of fair value adjustments to investment properties Total distribution Note 10(a) 10(d) 10(b) 10(c) Percentage increase 86.9% 23.9% 25.4% – 103.1% 30 June 2007 $’000 30 June 2006 $’000 97,732 52,207 (81,617) (5,933) (449) 1,057 3 5,758 1,541 (79,640) 18,092 11,303 29,395 29,553 (158) 30 June 2007 Cents 107.48 19.90 20.07 12.43 32.50 (50,256) (7,028) – 3,406 8 14,813 1,428 (37,629) 14,578 – 14,578 14,528 50 30 June 2006 Cents 57.50 16.06 16.00 – 16.00 27 Summary of financial highlights for the year: basic and diluted earnings per stapled security increased by 86.9% compared to the June 2006 year. earnings available for distribution before fair value and other non-cash accounting items increased by 23.9% and income distribution increased by 25.4% compared to the June 2006 year. Total distribution per stapled security increased by 103.1% from 16.00 cents to 32.50 cents compared to the June 2006 year. investment property revaluations (excluding development properties) increased portfolio value by 10.6% from $695.5 million to $769.1 million compared to June 2006. Net assets per stapled security increased by 27.7% from $2.64 to $3.37 compared to June 2006. ALE PROPERTY GROUP ANNUAL REPORT 30 JUNE 2007 diRECTORs’ REPORT (continued) Information on directors Mr Peter Warne BA 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 of bTaL was acquired by Macquarie bank Limited in 1999. Peter is also a board member of three other listed entities being asX Limited, Macquarie bank Limited and WhK Group Limited. Peter graduated from Macquarie University with a bachelor of arts, majoring in actuarial studies. he qualified as an associate of, and received a Certificate of finance and investment from, the institute of actuaries, London. Mr John Henderson BBldg, MRICS, AAPI Non-Executive Director Experience and expertise John was appointed as a non-executive director of the Company in august 2003. 28 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. Ms Helen Wright LLB, MAICD Non-Executive Director Experience and expertise helen was appointed as a non-executive director of the Company in september 2003. helen was a partner of freehills, a leading australian firm of lawyers, from 1986 to 2003. she practiced as a commercial lawyer specialising in real estate projects including development and financing and related taxation and stamp duties. helen is the statutory and Other Offices remuneration Tribunal for NsW and also the Local Government remuneration Tribunal. Until recently helen was a member of the boards of the sydney harbour foreshore authority, australian Technology Park Precinct Management, and Cooks Cove redevelopment authority. Prior boards include australia Day Council of NsW, Darling harbour authority, UNsW Press Limited and MLC homepack Limited. helen has a bachelor of Laws from the University of NsW, and in 1994 completed the advanced Management Program at the harvard Graduate school of business. Mr Andrew Wilkinson BBus, 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 banking, corporate finance and funds management. 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 eight 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. Mr James McNally BBus (Land Economy), DipLaw Executive Director Experience and expertise James was appointed as an executive director of the Company in June 2003. James has over 14 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. 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. Company secretary Brendan Howell BEc, GDipAppFin Experience and expertise The company secretary is Mr brendan howell. brendan was appointed to the position of company secretary in april 2007, having previously held the position from september 2003 to september 2006. 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 over 17 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 administrating listed and unlisted property trusts. for over eight 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. Independent member of Audit, Compliance and Risk Management Committee (ACRMC) Mr David Lawler BBus, CPA Independent ACRMC Member. Experience and expertise David was appointed to aLe’s aCrMC on 9 December 2005 and has 25 years experience in internal auditing in the banking and finance industry. he was the Chief audit executive for Citibank in the Philippines, italy, switzerland, Mexico, brazil, australia and hong Kong. he was Group auditor for the Commonwealth bank of australia. David is an audit committee member of the australian Office of financial Management, the Defence Materiel Organisation, the australian Trade Commission, the australian sports anti- Doping authority and National iCT australia. David is a director of australian settlements Limited and chairman of it audit and risk committee. David has a bachelor of business studies from Manchester Metropolitan University in the UK. he is a fellow of CPa australia and immediate past President of the institute of internal auditors-australia. Directorships of listed entities within the last three years The following director held directorships of other listed entities within the last three years and from the date appointed up to the date of this report unless otherwise stated: Director Directorships of listed entities Type appointed resigned P h Warne P h Warne P h Warne P h Warne P h Warne asX Limited (a) sfe Corporation Limited (a) Macquarie Capital alliance Group WhK Group Limited Macquarie bank Limited Non-executive Non-executive Non-executive Non-executive Non-executive July 2006 february 2005 february 2005 May 2007 July 2007 June 2007 (a) in July 2006, the australian stock exchange Limited (asX) and sfe Corporation Limited (sfe) merged with the sfe becoming a wholly owned subsidiary of the asX. sfe was delisted in July 2006. Peter was appointed to the board of the asX on 25 July 2006. Special responsibilities of directors The following are the special responsibilities of each director: Director special responsibilities 29 P h Warne J P henderson h i Wright a f O Wilkinson J T McNally Chairman of the board. Member of the audit, Compliance and risk Management Committee (aCrMC) and of the remuneration Committee. Member of the aCrMC. Member of the remuneration Committee. Chair of the aCrMC. Chair of the remuneration Committee. Chief executive Officer and Managing Director of the Company. responsible Officer of the Company under the Company’s australian financial services Licence (afsL). responsible Officer of the Company under the Company’s afsL. Directors’ and key management personnel interests in stapled securities and options The following directors, key management personnel and their associates held or currently hold the following stapled security interests in the Company: Name role Number held at the start of the year Purchases / (sales) Number held at 30 June 2007 P h Warne J P henderson h i Wright a f O Wilkinson a J slade M J Clarke Non-executive Director Non-executive Director Non-executive Director executive Director investment and acquisitions Manager finance Manager 650,000 55,000 100,000 68,000 12,000 – 50,000 54,000 – 309,650 – 1,500 700,000 109,000 100,000 377,650 12,000 1,500 ALE PROPERTY GROUP ANNUAL REPORT 30 JUNE 2007 diRECTORs’ REPORT (continued) Meetings of directors The numbers of meetings of the Company’s board of directors held and of each board committee during the year ended 30 June 2007 and the number of meetings attended by each director at the time the director held office during the year were: bOarD MeeTiNGs held1 attended aCrMC held1 attended reMUNeraTiON COMMiTTee attended held1 Director P h Warne J P henderson h i Wright a f O Wilkinson J T McNally 11 11 11 11 11 11 11 11 11 11 7 7 7 – – 7 5 7 7 – – 6 2 2 2 – – 2 2 2 – – n/a n/a Member of audit, Compliance and risk Management Committee D J Lawler n/a n/a 1 “held” reflects the number of meetings which the director or member 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 The information provided under these headings includes remuneration disclosures that are required under accounting standard aasb 124 related Party Disclosures. These disclosures have been transferred from the financial report and have been audited. 30 A Principles used to determine the nature and amount of remuneration (audited) The objectives of aLe’s executive reward framework are 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 creation of value for stapled 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 stapled security holders – performance linkage/alignment of executive compensation with outcomes for security holders – 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 stapled security 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 the reward framework’s employee’ 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 aLe over a number of periods with greater emphasis given to the current year. Over the year ended 30 June 2007 the total return on aLe’s stapled securities (inclusive of distribution returns) was 77.7% (2006: 39.4%). 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 KPis 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 2007, the KPis link to sTi plans were based on Company, business and personal objectives. The KPis required performance in seeking value accretive acquisitions, 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 KPis 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. Long-term incentives (LTI) a long-term incentive in the form of performance rights over aLe stapled securities is proposed to be provided to the Managing Director, Mr Wilkinson and acquisitions Manager, Mr slade. The terms of the performance rights are currently subject to discussions between the board and Mr Wilkinson and Mr slade. 31 The Performance rights provide the opportunity to receive fully paid stapled securities for nil cost. The receipts of stapled securities is contingent on achieving a performance hurdle over a specified oerformance period. The performance hurdles will also be agreed as part of those discussions. Under asX listing rules, shareholder approval will be sought for the grant of Performance rights to the Managing Director, Mr Wilkinson at the annual General Meeting on 13 November 2007. The grant of Performance rights to the acquisitions Manager, Mr slade, will be completed and announced to the market in compliance with asX Listing rules. Options over 300,000 stapled securities previously issued to Mr Wilkinson fully vested on 10 November 2006 and were exercised on 20 December 2006. Stapled security options granted No options over unissued stapled securities of aLe were granted during or since the end of the year. Stapled security performance rights granted No performance rights over unissued stapled securities were granted during the year. Remuneration report (continued) 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 were set by the board prior to listing in 2003. The board may 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 from 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 stapled securities. Directors’ fees The current base remuneration was last reviewed with effect from september 2003. The directors’ fees are 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 stapled security holders. The maximum currently stands at $400,000 per annum, comprised of $325,000 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 Director’s 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. 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 executive pay is competitive with the market. executive pay is also reviewed on promotion. There is no guaranteed base pay increase in any executive contract. 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 (KPis) including the financial performance of the Company during the year in question. ALE PROPERTY GROUP ANNUAL REPORT 30 JUNE 2007 diRECTORs’ REPORT (continued) Remuneration report (continued) B Details of remuneration (audited) Amount of remuneration Details of the remuneration of the key management personnel for the current year and for the comparative year are set out below in tables 1 and 2. The cash bonuses were dependent on the satisfaction of performance conditions as set out in the section headed “short-term incentives”, above. all other elements of remuneration were not directly related to performance. Table 1 Remuneration details 1 July 2006 to 30 June 2007 Details of the remuneration of the Key Management Personnel for the year 30 June 2007 are set out in the following table: Key MaNaGeMeNT PersONNeL shOrT TerM eMPLOyee beNefiTs POsT eMPLOyMeNT beNefiTs eqUiTy baseD PayMeNT Name role salary & fees $ sTi bonus $ Non Monetary $ superannuation $ Non-executive Director Non-executive Director Non-executive Director P h Warne J P henderson h i Wright a f O Wilkinson executive Director executive Director J T McNally Company secretary b r howell investment and a J slade acquisitions Manager finance Manager Group financial Controller and Company secretary M J Clarke D s barkas1 32 1 – Mr barkas resigned effective 20 april 2007 110,092 70,000 64,220 257,314 75,000 57,500 142,793 44,278 – – – 75,000 – – 40,000 15,000 – – – – – – – – 9,908 – 5,780 12,686 – – 12,686 3,992 Options $ – – – 2,891 – – Total $ 120,000 70,000 70,000 347,891 75,000 57,500 – – 195,479 63,270 97,101 918,298 – 130,000 18,900 18,900 8,963 54,015 – 124,964 2,891 1,124,104 Table 2 Remuneration details 1 July 2005 to 30 June 2006 Details of the remuneration of the Key Management Personnel for the year 30 June 2006 are set out in the following table: Key MaNaGeMeNT PersONNeL shOrT TerM eMPLOyee beNefiTs POsT eMPLOyMeNT beNefiTs eqUiTy baseD PayMeNT Name role salary & fees $ sTi bonus $ Non Monetary $ superannuation $ Non-executive Director Non-executive Director Non-executive Director P h Warne J P henderson h i Wright a f O Wilkinson executive Director executive Director J T McNally Company secretary b r howell investment and a J slade acquisitions Manager Group financial Controller and Company secretary D s barkas1 110,092 70,000 64,220 261,758 75,000 75,000 – – – 100,000 – – 138,831 40,000 – – – – – – – 9,908 – 5,780 12,139 – – Options $ – – – 7,993 – – Total $ 120,000 70,000 70,000 381,890 75,000 75,000 11,539 – 190,370 99,803 894,704 20,000 160,000 26,600 26,600 10,477 49,843 – 156,880 7,993 1,139,140 Cash bonuses for each cash bonus included in the above tables, the percentage of the available bonus that was awarded for the current 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 a J slade M J Clarke Paid % 100 100 100 forfeited % - - - Remuneration report (continued) C Service agreements 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 for Mr Wilkinson, 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 2003 and November 2007 (except if the Company is subject to takeover, then to february 2007) are also provided. The board and Mr Wilkinson have agreed to extend the contract to 13 Novermber 2007. in the event of the termination of Mr Wilkinson’s employment contract, amounts may be payable for unpaid accrued entitlements, proportion of bonus 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. at the annual general meeting of the Company to be held on 13 November 2007, the exact terms of Mr Wilkinson’s new contract will be put to a shareholder vote. The terms will be advised to the market upon final agreement but no later than the date the Notice of Meeting is mailed to shareholders. The employment contracts of Mr slade and Mr Clarke may be terminated at one month’s 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 Compliance 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 were granted in November 2003 to Mr Wilkinson as disclosed in an asX announcement dated 10 November 2003. Mr Wilkinson had 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. These options were excercised on 20 December 2006. 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 and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option. as mentioned above, the issue of performance rights to Mr Wilkinson is subject to approval at this year’s annual general meeting. Stapled securities under option There are no unissued stapled securities under option at the date of this report. Stapled securities issued on the exercise of options The following stapled securities were issued during the year ended 30th June 2007 on the exercise of options granted under the company’s equity based compensation arrangements. No further shares have been issued since that date. No amounts are unpaid on any of the shares. Date options granted issue price of securities Number of securities issued 10 November 2003 $1.036 300,000 300,000 Insurance of officers During the financial year, the Company paid a premium of $28,325 (2006: $29,844) 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 these persons in the discharge of their duties. The constitution provides that the Company will meet the legal costs of these persons. This indemnity is subject to certain limitations. Environmental regulation Whilst aLe 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. at two properties ongoing testing and monitoring is being undertaken and minor remediation work is required, however, aLe is indemnified against any remediation amounts likely to be required. 33 Past employment with external auditor Mr Wilkinson, Managing Director, previously held a position as a corporate finance partner without any audit responsibilities of aLe’s external auditor PricewaterhouseCoopers. Mr Wilkinson resigned his partnership prior to accepting the appointment as Chief executive Officer of aLe on 24 November 2003. 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. The board of directors has considered the position and in accordance with the advice received from the aCrMC 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 aCrMC 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 auditor’s 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. ALE PROPERTY GROUP ANNUAL REPORT 30 JUNE 2007 diRECTORs’ REPORT (continued) Details of amounts paid or payable to the auditor (PricewaterhouseCoopers) for audit and non-audit services provided during the year are set out below: Audit services PricewatehouseCoopers australian firm: audit and review of the financial reports of the Group and other audit work required under the Corporations act 2001 – in relation to current year – in relation to prior year Total remuneration for audit services Other assurance services PricewatehouseCoopers australian firm: General accounting advice (including aifrs) Due diligence – acquisitions not proceeding assurance services – internal control review Total remuneration for other assurance services Total remuneration for assurance services Taxation services PricewatehouseCoopers australian firm: Tax compliance services Due diligence services Tax consulting services Total taxation services 34 30 June 2007 $ 30 June 2006 $ 149,437 28,357 177,794 135,400 1,500 136,900 18,893 – – 18,893 196,687 5,300 – 38,685 43,985 26,173 142,250 9,000 177,423 314,323 9,000 223,000 25,135 257,135 Auditor’s independence declaration a copy of the auditor’s independence declaration as required under section 307C of the Corporations act 2001 is set out on page 35. Rounding of amounts aLe is an entity of the kind referred to in Class Order 98/100, issued by the australian securities and investments Commission, relating to the “rounding off” of amounts in the directors’ 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. Peter H Warne Director sydney Dated this 21st day of august 2007 Auditor’s Independence Declaration as lead auditor for the review of australian Leisure and entertainment Property Trust for the year ended 30 June 2007, 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 Trust and the entities it controlled during the period. S J Hadfield Partner PricewaterhouseCoopers sydney 21 august 2007 35 Liability is limited by a scheme approved under Professional standards Legislation. ALE PROPERTY GROUP ANNUAL REPORT 30 JUNE 2007 CONsOLidATEd iNCOmE sTATEmENTs FOR THE YEAR ENdEd 30 JUNE 2007 Revenue rent from investment properties interest from investment arrangements Distributions interest from cash deposits Total revenue Other income Gain on disposal of investment properties fair value adjustments to investment properties fair value adjustments to derivatives Other income Total other income Total revenue and other income Expenses finance costs (cash and non-cash) Management fees queensland land tax expense Other expenses Total expenses Profit before income tax income tax expense Profit after income tax Profit attributable to the stapled security holders of ALE 36 Note CONsOLiDaTeD PareNT eNTiTy 2007 $’000 2006 $’000 2007 $’000 2006 $’000 2 2 3 4 14 14 6 5 8 9 47,972 1,963 – 1,430 51,365 449 81,617 5,933 – 87,999 139,364 35,952 – 1,309 2,830 40,091 99,273 1,541 97,732 45,583 2,003 – 1,181 48,767 – 50,256 7,028 600 57,884 106,651 47,259 – 1,151 4,606 53,016 53,635 1,428 52,207 – – 31,700 35 31,735 – – (600) – (600) 31,135 12,723 2,335 – 105 15,163 15,972 – 15,972 – – 25,589 4 25,593 – – 77 – 77 25,670 12,573 2,276 – 100 14,949 10,721 – 10,721 97,732 52,207 15,972 10,721 basic and diluted earnings per stapled security Distribution per stapled security for the year 10(a) 10(e) 107.48 32.50 57.50 16.00 17.59 32.50 Cents Cents Cents Cents 11.81 16.00 The above consolidated income statements should be read in conjunction with the accompanying notes. RECONCILIATION OF DISTRIBUTIONS TO STAPLED SECURITY HOLDERS Profit attributable to the stapled security holders of ALE adjustments for non-cash items Profit after income tax adjusted for non-cash items fair value adjustments to investment properties identified for distribution Total available for distribution Distribution paid or provided for Available and undistributed for the year 10 10(g) 10 97,732 (79,640) 52,207 (37,629) 15,972 2,378 10,721 3,807 18,092 14,578 18,350 14,528 11,303 29,395 29,553 (158) – 14,578 14,528 50 11,303 29,653 29,553 100 – 14,528 14,528 – basic and diluted earnings per stapled security before fair value, income tax and other amounts is disclosed in Note 10 of this financial report. CONsOLidATEd BALANCE sHEETs As AT 30 JUNE 2007 Current assets Cash and cash equivalents receivables Derivatives – interest rate swaps Loans and deposits – investment properties Current tax asset Other Total current assets Non-current assets investment properties Loans and deposits – investment properties investments in controlled entities Plant and equipment Deferred tax asset Total non-current assets Total assets Current liabilities Payables Derivatives – interest rate swaps Provisions Other Total current liabilities Non-current liabilities borrowings Deferred tax liability Total non-current liabilities Total liabilities Net assets Equity Contributed equity retained profits reserve Total equity Note CONsOLiDaTeD PareNT eNTiTy 2007 $’000 2006 $’000 2007 $’000 2006 $’000 11 12 7 15 13 14 15 17 16 21 18 7 19 19 20 22 23 24 25 24,765 398 11,514 19,576 – 1,180 57,433 769,110 2,551 – 51 1,001 772,713 830,146 6,026 1,475 15,283 31 22,815 497,805 3,605 501,410 524,225 305,921 80,241 225,680 – 305,921 28,992 1,012 5,250 13,662 7 55 48,978 695,470 8,465 – 101 578 704,614 753,592 7,599 229 8,415 4,327 20,570 492,065 1,648 493,713 514,283 239,309 81,787 157,501 21 239,309 1,184 18,167 170 – – 12 19,533 – – 210,943 – – 210,943 230,476 2,973 682 15,251 – 18,906 144,317 – 144,317 163,223 67,253 80,225 (12,972) – 67,253 305 24,714 88 – – 12 25,119 – – 210,943 – – 210,943 236,062 2,773 – 8,354 – 11,127 142,539 – 142,539 153,666 82,396 81,787 609 – 82,396 37 Net assets per stapled security $3.37 $2.64 $0.74 $0.91 The above consolidated balance sheets should be read in conjunction with the accompanying notes. ALE PROPERTY GROUP ANNUAL REPORT 30 JUNE 2007 CONsOLidATEd sTATEmENTs OF CHANGEs iN EQUiTY FOR THE YEAR ENdEd 30 JUNE 2007 Total equity at the beginning of the year adjustment on adoption of aasb 132 and aasb 139 to retained profits Deferred tax asset recognised on adoption of aasb 132 and aasb 139 Restated total equity at the beginning of the year Profit for the year Total recognised income and expenses for the year Transactions with equity holders in their capacity as equity holders: employee share options stapled securities issued stapled securities purchased and cancelled Distribution paid or payable Total equity at the end of the year Note CONsOLiDaTeD PareNT eNTiTy 2007 $’000 2006 $’000 2007 $’000 2006 $’000 239,309 196,812 82,396 81,787 – – 4,544 266 – – 239,309 97,732 201,622 52,207 82,396 15,972 4,416 – 86,203 10,721 97,732 52,207 15,972 10,721 23 10 3 311 (1,881) (29,553) (31,120) 305,921 8 – – (14,528) (14,520) 239,309 – 281 (1,843) (29,553) (31,115) 67,253 – – (14,528) (14,528) 82,396 The above consolidated statements of changes in equity should be read in conjunction with the accompanying notes. 38 CONsOLidATEd CAsH FLOW sTATEmENTs FOR THE YEAR ENdEd 30 JUNE 2007 Note CONsOLiDaTeD PareNT eNTiTy 2007 $’000 2006 $’000 2007 $’000 2006 $’000 Cash flows from operating activities Distributions received receipts from tenant and others (inclusive of goods and services tax) Payments to suppliers and employees (inclusive of goods and services tax) interest received – bank deposits and investment arrangements interest received – interest rate swap terminations interest received – interest rate swaps CMbs prepayment interest – May 2006 borrowing costs paid Net cash inflow from operating activities 26 Cash flows from investing activities investment property acquisition investment property additions Proceeds from disposal of properties Payments for plant and equipment Net cash outflow from investing activities Cash flows from financing activities CMbs issued – february 2006 CMbs repaid – May 2006 CMbs issued – May 2006 Cib issued – May 2006 CMbs and Cibs prepaid borrowing costs Proceeds from issue of stapled securities borrowings from/(repayments to) other group entities stapled securities purchased under buyback programme Distributions paid Net cash outflow from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the year – – 31,700 25,589 45,375 54,127 – – (8,210) (8,539) (2,240) (1,074) 3,386 – 1,057 – (30,194) 11,414 – – 8,598 (12) 8,586 – – – – – 311 – 3,120 2,729 729 (558) (33,087) 18,521 (15,000) (882) – (28) (15,910) 15,000 (345,000) 225,000 125,873 (1,801) – 28 – – – (10,945) 18,543 4 740 – (10,937) 14,322 – – – – – – – – – – 281 – – – – – – – – – – – 39 – 6,555 (1,858) (1,881) (22,657) (24,227) (4,227) – (12,168) 6,904 9,515 28,992 19,477 (1,843) (22,657) (17,664) 879 305 1,184 – (12,168) (14,026) 296 9 305 Cash and cash equivalents at the end of the year 11 24,765 28,992 The above consolidated cash flow statements should be read in conjunction with the accompanying notes. ALE PROPERTY GROUP ANNUAL REPORT 30 JUNE 2007 NOTEs TO THE CONsOLidATEd FiNANCiAL sTATEmENTs Note 1 Summary of significant accounting policies The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been consistently applied to all the years presented unless otherwise stated. The financial report includes separate financial statements for australian Leisure and entertainment Property Trust (“the Trust”) as an individual entity and the consolidated entity, the aLe Property Group (“aLe”), consisting of the Trust and its subsidiaries. (a) Basis of preparation This general purpose financial report has been prepared in accordance with australian accounting standards, other authoritative pronouncements of the australian accounting standards board, Urgent issues Group interpretations and the Corporations act 2001. Compliance with IFRS australian accounting standards include australian equivalents to international financial reporting standards (aifrs). Compliance with aifrs ensures that the consolidated financial statements and notes of australian Leisure and entertainment Property Trust comply with international financial reporting standards (ifrs). The parent entity financial statements and notes also comply with ifrs except that it has elected to apply the relief provided to parent entities in respect of certain disclosure requirements contained in asb 132 financial instruments: Disclosure and Presentation. Early adoption of standards The Group has elected to apply the revised pronouncement aasb 101 Presentation of financial statements (issued October 2006) to annual reporting periods beginning 1 July 2007. This includes applying the pronoucement to the comparatives in accordance with aasb 108 accounting Policies, Changes in accounting estimates and errors. No adjustments to any of the financial statements were required for the above pronouncement, but certain disclosures are no longer required and have therefore been omitted. Historical cost convention These consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and liabilities (including derivative instruments) at fair value through profit or loss, certain classes of property, plant and equipment and investment property. 40 Critical Accounting Estimates The preparation of financial statements in conformity with aifrs requires the use of certain critical accounting estimates. it also requires management to exercise its judgement in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are believed to be reasonable under the circumstances. fair value estimates of investment properties and derivatives are particularily reliant on estimates and assumptions. (b) Accounting for ALE aLe, the stapled entity, was formed by stapling together the units in the Trust and the shares in the Company. for the purposes of financial reporting, the stapled entity reflects the consolidated entity. The parent entity and deemed acquirer in this arrangement is the Trust. The basis of this approach is consistent with current practice in relation to the financial reporting obligations of stapled entities under UiG 1013 interpretation Consolidated financial reports in relation to Pre-Date-of-Transition stapled arrangements. The consolidated results reflect the performance of the Trust and its subsidiaries including the Company from 1 July 2006 to 30 June 2007. The stapled securities of aLe are quoted on the australian stock exchange under the code LeP and comprise one unit in the Trust and one share in the Company. The unit and the share are stapled together under the terms of their respective constitutions and can not be traded separately. each entity forming part of aLe is a separate legal entity in its own right under the Corporations act 2001 and australian accounting standards. The Company is the responsible entity of the Trust. (c) Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries as at balance date and the results for the period then ended. The Trust and its controlled entities together are referred to in this financial report as aLe or the consolidated entity. entities are fully consolidated from the date on which control is transferred to the Trust. They are deconsolidated from the date that control ceases. subsidiaries are all those entities (including special purpose entities) over which aLe has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether aLe controls another entity. all balances and effects of transactions between the subsidiaries of aLe have been eliminated in full. (d) Cash and cash equivalents for the purposes of the cashflow statement, cash and cash equivalents includes cash at bank, deposits at call and short term money market securities which are readily convertible to cash. (e) Receivables Trade debtors are recognised initially at fair value and subsequently measured at amortised cost, less provision for doubtful debts. Trade receivables are generally due for settlement within 30 days. Note 1 Summary of significant accounting policies (continued) Collectibility of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. a provision for doubtful receivables is established when there is objective evidence that all amounts due may not be collected according to the original terms of the receivables. The amount of any provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the income statement. Investment property (f) Properties (including land and buildings) held for long term rental yields and that are not occupied by aLe are classified as investment properties. investment property is initially brought to account at cost which includes the cost of acquisition, stamp duty and other costs directly related to the acquisition of the properties. The properties are subsequently revalued and carried at fair value. fair value is based on active market prices, adjusted for any difference in the nature, location or condition of the specific asset or where this is not available, an appropriate valuation method which may include discounted cashflow projections and the capitalisation method. The fair value reflects, among other things, rental income from the current leases and assumptions about future rental income in light of current market conditions. it also reflects any cash outflows that could be expected in respect of the property. subsequent expenditure is capitalised to the properties’ carrying amount only when it is probable that future economic benefits associated with the item will flow to aLe and the cost of the item can be reliably measured. Land and buildings (including integral plant and equipment) that comprise investment property are not depreciated. The carrying value of the investment property is reviewed at each reporting date and is independently revalued at least every three years. Changes in the fair values of investment properties are recorded in the income statement. (g) Plant and equipment Plant and equipment including office fixtures, fittings and operating equipment are stated at historical cost less depreciation. historical cost includes expenditure that is directly attributable to its acquisition. subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to aLe and the cost of the item can be reliably measured. all other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Depreciation Land is not depreciated. Depreciation on depreciable plant and equipment (office fixtures, fittings and operating equipment) is calculated using the straight line method or diminishing method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives. The estimated useful life of depreciable plant and equipment is as follows: 41 furniture, fittings and equipment software Leasehold improvements 4 – 13 years 3 years 3 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. an asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the income statement. (h) Investments and financial assets financial assets classified as loans and deposits are non derivative financial assets with fixed or determinable payments that are not quoted in an active market and arise when money and services are provided to a debtor with no intention of selling the receivable. Loans and receivables are carried at amortised cost using the effective interest rate method. Under this method, fees, costs, discounts and premiums directly related to the financial asset are spread over its effective life. (i) Trade and other payables These amounts represent liabilities for goods and services provided to aLe prior to the end of the period which are unpaid at the balance sheet date. The amounts are unsecured and are usually paid within 30 days of recognition. (j) Borrowings interest bearing liabilities are initially recognised at cost, being the fair value of the consideration received, net of issue and other transaction costs associated with the borrowings. after initial recognition, interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method. Under this method, fees, costs, discounts and premiums directly related to the financial liability are spread over the expected life of the borrowings on an effective interest rate basis. interest bearing liabilities are classified as current liabilities unless an unconditional right exists to defer settlement of the liability for at least 12 months after the balance sheet date. ALE PROPERTY GROUP ANNUAL REPORT 30 JUNE 2007 NOTEs TO THE CONsOLidATEd FiNANCiAL sTATEmENTs (continued) Note 1 Summary of significant accounting policies (continued) (k) Derivatives Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. aLe designates certain derivatives as either; (1) hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); or (2) hedges of the cash flows of recognised assets and liabilities and highly probable forecast transactions (cash flow hedges). aLe documents at the inception of the hedging transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. aLe also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items. The fair values of various derivative financial instruments used for hedging purposes are disclosed in note 7. To date aLe has not designated any of its derivatives as cash flow hedges and accordingly aLe has valued them all at fair value with movements recorded in the income statement. (l) Provisions Provisions are recognised when there is a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses. (m) Distributions and dividends Provisions is made for the amount of any distributions or dividends declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the financial year but not distributed at the balance date. (n) Contributed equity Ordinary units and ordinary shares are classified as contributed equity. incremental costs directly attributable to the issue of new units, shares or options are shown in contributed equity as a deduction, net of tax, from the proceeds. 42 Distributions to stapled security holders that include a return of capital are shown in equity as a transfer from (reduction of contributed) equity. (o) Revenue recognition rental income from operating leases is recognised on a straight line basis over the lease term. an asset will be recognised to represent the portion of an operating lease revenue in a reporting period relating to fixed increases in operating lease revenue in future periods. These assets will be recognised as a component of investment properties. interest and investment income is brought to account on a time proportion basis using the effective interest rate method and if not received at balance date is reflected in the consolidated balance sheet as a receivable. (p) Expenses expenses including operating expenses, queensland land tax and other outgoings are brought to account on an accruals basis. borrowing costs are recognised using the effective interest rate method. (q) Employee benefits (i) Wages and salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months of the reporting date are recognised as a current liability in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised as an expense when the leave is taken and measured at the rates paid or payable. (ii) Shares based payments after 7 November 2002 and vested after 1 January 2005 The fair value of options granted are recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the options. The fair value at grant date is independently determined using a black-scholes option pricing model that takes into account the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the non-tradable nature of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk- free interest rate for the term of the option. The fair value of the options granted excludes the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. at each balance date, the entity revises its estimate of the number of options that are expected to become exercisable. The employee benefit expense recognised each period takes into account the most recent estimate. Upon the exercise of options, the balance of the share-based payments reserve relating to those options is transferred to contributed equity. Note 1 Summary of significant accounting policies (continued) (q) Employee benefits (continued) (iii) Bonus plans Liabilities and expenses for bonuses are recognised where contractually obliged or where there is a past practice that has created a constructive obligation. (iv) Long service leave aLe will begin to recognise liabilities for long service leave when employees reach a qualifying period of continuous service. The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. expected future payments are discounted using market yields at the reporting date on national government bonds with the terms to maturity and currency that match, as closely as possible, the estimated future cash flow. (v) Retirement benefit obligations aLe pays fixed contributions to employees’ funds and aLe’s legal or constructive obligations are limited to these contributions. The contributions are recognised as an expense as they become payable. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. (r) Income tax (i) Trusts Under current legislation, Trusts are not liable for income tax, provided that their taxable income and taxable realised gains are fully distributed to security holders each financial year. (ii) Companies The income tax expense or revenue for the reporting period is the tax payable on the current reporting period’s taxable income based on the australian company tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of the assets and liabilities and their carrying amounts in the financial statements and to unused tax losses. Deferred tax balances are calculated using the balance sheet method. Under this method, temporary differences arise between the carrying amount of assets and liabilities in the financial statements and the tax bases for the corresponding assets and liabilities. however, an exception is made for certain temporary differences arising from the initial recognition of an asset or liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not effect either accounting profit or taxable profit or loss. similarly, no deferred tax asset or liability is recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities settled. 43 Deferred tax assets are recognised for temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax assets and liabilities are offset when there is a legally enforceable right to the offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. (s) Earnings per stapled security (i) Basic earnings per stapled security basic earnings per stapled security are calculated by dividing the profit attributable to the equity holders of aLe by the weighted average number of stapled securities outstanding during the reporting period. (ii) Diluted earnings per stapled security Diluted earnings per stapled security adjusts the figures used in the determination of basic earnings per stapled security to take into account the after income tax effect of interest and other financing costs associated with dilutive potential stapled securities and the weighted average number of stapled securities assumed to have been issued for no consideration in relation to dilutive potential stapled securities. (t) Goods and services tax (GST) revenues, expenses and assets are recognised net of the amount of associated GsT, unless the GsT incurred is not recoverable from the taxation authority. in this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. receivables and payables are stated inclusive of the amount of GsT receivable or payable. The net amount of GsT recoverable from, or payable to, the taxation authority is included with other receivables or payables in the balance sheet. Cash flows are presented on a gross basis. The GsT components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flow. ALE PROPERTY GROUP ANNUAL REPORT 30 JUNE 2007 NOTEs TO THE CONsOLidATEd FiNANCiAL sTATEmENTs (continued) Note 1 Summary of significant accounting policies (continued) (u) Financial risk management aLe’s activities expose it to a variety of financial risks: market risk (including fair value interest rate risk), credit risk, liquidity risk and cash flow risk. aLe’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of aLe. aLe uses derivative financial instruments such as interest rate swaps to hedge certain risk exposures (note 36 provides further information). (v) New accounting standards and UIG interpretation Certain new accounting standards and UiG interpretations have been published that are not mandatory for 30 June 2007 reporting periods. aLe’s assessment of the impact of these new standards and interpretations is set out below. (i) AASB 7 Financial Instruments: Disclosures and AASB 2005-10 Amendments to Australian Accounting Standards [AASB 132, AASB 101, AASB 114, AASB 117, AASB 133, AASB 139, AASB 1, AASB 4, AASB 1023 & AASB 1038] aasb 7 and aasb 2005-10 are applicable to annual reporting periods beginning on or after 1 January 2007. The Company has not adopted the standards yet. application of the standards will not affect any of the amounts recognised in the financial statements, but will impact the type of information disclosed in relation to the Company’s financial instruments. (ii) AASB-l 10 Interim Financial Reporting and Impairment aasb-l 10 is applicable to reporting periods commencing on or after 1 November 2006. The company has not recognised an impairment loss in relation to goodwill, investments in equity instruments or financial assets carried at cost in an interim reporting period but subsequently reversed the impairment loss in the annual report. application of the interpretation will therefore have no impact on the Company’s financial statements. (w) Segment reporting a business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different to those of other business segments. a geographical segment is engaged in providing products or services within a particular economic environment and is subject to risks and returns that are different from those of segments operating in other economic environments. 44 (x) Functional and presentation currency items included in the financial statements of each of the aLe entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in australian dollars, which is aLe’s functional and presentation currency. (y) Critical accounting estimates and assumptions estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. fair value estimates of investment properties and derivatives are particularly reliant on estimates and judgements. (z) Rounding of amounts The financial report of aLe has been prepared in accordance with Class Order 98/100 issued by the australian securities and investments Commission, relating to the ‘’rounding off’’ of amounts in the financial report to the nearest thousand dollars, unless otherwise stated. amounts in the financial report have been rounded off in accordance with that Class Order. Note 2 Rent from investment properties and interest from investment arrangements rent from investment properties interest from investment arrangements as at 30 June 2007 the weighted average investment property capitalisation rate used to determine the value of the investment properties was 6.07% (2006: 6.57%) and the weighted average investment arrangements loan interest as a percentage of investment property loans, deposits and costs equated to a yield of 8.99% (2006: 8.65%). all of aLe’s investment property lease rentals and interest from investment arrangements are reviewed to state based CPi annually and are not subject to fixed increases. Note 3 Distributions Distributions Trust distribution from the sub Trust to the Trust. as this is a transaction within the consolidated group it is eliminated on consolidation. Note 4 Operating bank and term deposit interest Interest income as 30 June 2007 the weighted average interest rate earned on cash was 6.12% (2006: 5.83%) Note 5 Finance costs (cash and non-cash) Finance costs – cash Commercial Mortgage backed securities (CMbs) interest Capital indexed bonds (Cib) interest aLe Notes interest Other expenses Finance costs – non-cash Cib interest capitalised amortised costs – CMbs retired May 06 amortised costs – CMbs/Cib issued May 06 amortised costs – aLe Notes amortised costs – aLe Notes premium Cash and non-cash refinancing costs Pre May 2006 CMbs prepayment break costs Write-off unmortised balance of prepaid costs – refinanced pre May 2006 CMbs Finance costs (cash and non-cash) Net cash costs relating to financing and interest rate derivatives finance costs – cash a net swap interest benefit is included in fair value adjustments to derivatives (Note 6) Note CONsOLiDaTeD PareNT eNTiTy 2007 $’000 2006 $’000 2007 $’000 2006 $’000 47,972 1,963 49,935 45,583 2,003 47,586 – – – – – – – – – – 31,700 31,700 25,589 25,589 1,430 1,430 1,181 1,181 35 35 4 4 45 (a) (b) (c) (d) (e) (f) (g) (h) (i) 14,650 4,436 10,898 210 30,194 3,825 – 155 1,337 441 5,758 20,371 454 10,898 165 31,888 527 2,789 21 1,227 409 4,973 – – 10,898 47 10,945 – – – 1,337 441 1,778 – – 10,898 39 10,937 – – – 1,227 409 1,636 – 558 – – – – 35,952 9,840 10,398 47,259 – – 12,723 – – 12,573 30,194 31,888 10,945 10,937 (j) (1,057) 29,137 (3,406) 28,482 – 10,945 (2,248) 8,689 ALE PROPERTY GROUP ANNUAL REPORT 30 JUNE 2007 NOTEs TO THE CONsOLidATEd FiNANCiAL sTATEmENTs (continued) Note 5 Finance costs (cash and non-cash) (continued) (a) Variable rate interest expense on CMbs issued during May 2006, with a scheduled maturity of November 2011, Note 5(j) provides further information. (b) fixed rate interest expense of 3.40% (including credit margin) on indexing Cib balance issued during May 2006 with a scheduled maturity of November 2023. expense is recognised on an effective rate basis. (c) fixed rate interest expense of 7.265% on aLe Notes issued during November 2003 with a scheduled maturity of september 2011. expense is recognised on an effective rate basis. (d) Other borrowing costs such as rating fees and liquidity fees. (e) Cib capitalised interest is calculated with reference to prevailing inflation rates. interest that is capitalised is added to the balance of the Cib to calculate interest payable in future periods. The capitalised interest is payable by aLe on maturity of the Cib which is scheduled for November 2023. (f) establishment costs of CMbs retired during May 2006 are fully amortised. (g) establishment costs of CMbs issued during May 2006 are amortising over the period of May 2006 to May 2011 on an effective rate basis. (h) establishment costs of aLe Notes issued during November 2003 are amortising over the period of November 2003 to september 2011 on an effective rate basis. (i) Premium of $3.750 million payable on maturity of aLe Notes is amortising over the period of November 2003 to september 2011 on an effective rate basis. (j) Variable rate CMbs borrowings totalling $225 million are 100% swapped to fixed interest rates by interest rate swaps as at balance date to November 2009. further interest rate swaps are in place beyond November 2009. During the year ended 30 June 2007 $1.057 million of net swap interest was received/receivable. in reconciling profit after tax to amounts available for distribution to stapled security holders, the non-cash finance costs have been added back thereby recognising that their non-cash nature increases the amounts available for distribution. (Note 10 contains further information) 46 Note CONsOLiDaTeD PareNT eNTiTy 2007 $’000 2006 $’000 2007 $’000 2006 $’000 Note 6 Current year fair value adjustments to derivatives interest rate swaps fair value adjustments net gain swap interest net benefit received/receivable swap net interest receivable at balance date 5,018 1,057 (142) 5,933 3,648 3,406 (26) 7,028 (600) – – ( 600) (2,171) 2,248 – 77 swap interest net benefit received/receivable less swap interest receivable at balance date is equal to swap interest net benefit actually received during the year. This amount represents a realisation of fair value and is additional to the movement in the unrealised fair value of swaps. Note 7 Derivative assets/(liabilities) asset (Liability) Net asset/(liability) CONsOLiDaTeD PareNT eNTiTy Note 2007 $’000 2006 $’000 11,514 (1,475) 10,039 5,250 (229) 5,021 2007 $’000 170 (682) ( 512) 2006 $’000 88 – 88 (a) Instruments used by the Group The Group is party to derivative financial instruments in the normal course of business in order to hedge exposure to fluctuations in interest rates in accordance with the Group’s financial risk management policies (refer note 36). Interest rate swap contracts borrowings of the Group bear an average variable interest rate of 6.598%. it is policy to protect part of the loans from exposure to increasing interest rates. accordingly the Group has entered into interest rate swap contracts under which it is obliged to receive interest at variable rates and to pay interest at fixed rates. swaps currently in place cover 100% of variable rate borrowings (2006 – 100%) of the borrowings’ principal outstanding and are timed to expire as each loan repayment falls due. The fixed interest rates range between 5.685% and 5.900% (2006 – 5.685% and 5.900%%) and the variable rates are between 0.20% and 0.34% above the bbsW which at balance date was 6.35% (2006 – 5.89%). at 30 June 2007, the notional principal amounts and periods of expiry of the interest rate swap contracts are as follows: Less than 1 year 1 – 2 years 2 – 3 years 3 – 4 years 4 – 5 years Greater than 5 years CONsOLiDaTeD 2007 $ 2006 $ – – 80,000,000 30,000,000 – 115,000,000 225,000,000 – – – 80,000,000 30,000,000 115,000,000 225,000,000 47 The contracts require settlement of net interest receivable or payable each 90 days. The settlement dates coincide with the dates on which interest is payable on the underlying debt. The contracts are settled on a net basis. The average weighted term of the interest rate hedges in relation to the total borrowings of the Group is 7.11 years. The gain or loss from remeasuring the hedging instruments at fair value is taken directly to the profit and loss statement. in the year ended 30 June 2007 a gain of $5,018,000 was transferred to the profit and loss (2006: gain of $3,648,000). Note 8 Other expenses accounting services acquisition proposal due diligence annual reports auditors’ remuneration Corporate advisory services Depreciation expense – plant & equipment insurance Legal fees Occupancy costs Other expenses Property condition and compliance audits registry fees salaries, fees and related costs staff training Taxation services Travel and accommodation Trustee and custodian fees CONsOLiDaTeD PareNT eNTiTy 2007 $’000 2006 $’000 2007 $’000 2006 $’000 34 97 66 178 105 63 79 91 76 320 98 74 1,340 12 45 30 122 2,830 69 2,189 13 137 (29) 67 85 58 75 345 106 67 1,233 12 31 32 116 4,606 – – – – – – – – – 1 – – – – – – 104 105 – – – – – – – – – 1 – – – – – – 99 100 ALE PROPERTY GROUP ANNUAL REPORT 30 JUNE 2007 NOTEs TO THE CONsOLidATEd FiNANCiAL sTATEmENTs (continued) Note CONsOLiDaTeD PareNT eNTiTy 2007 $’000 2006 $’000 2007 $’000 2006 $’000 Income tax Note 9 Current tax expense/(benefit) Deferred tax expense Deferred income tax expense included in income tax expense comprises: Decrease/(increase) in deferred tax asset (Decrease)/increase in deferred tax liabilities 21 22 Reconciliation of income tax expense to prima facie tax payable Profit before the income tax expense (Less:) Profit attributable to the entities not subject to tax Profit before income tax expense subject to tax Tax at the australian tax rate 30% (2005:30%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: expenditure held on balance sheet share based payments entertainment Under provision in prior years 48 Income tax expense Amounts recognised directly in equity aggregate current and deferred tax arising in the year and not recognised in net profit or loss but directly debited or credited to equity: fair value adjustments to derivatives Note 10 Distributions reconciliation of profit after tax to amounts available for distribution: 7 1,534 1,541 (423) 1,957 1,534 99,273 (94,034) 5,239 1,572 – 1 1 (33) 1,541 (7) 1,435 1,428 (213) 1,648 1,435 53,635 (48,908) 4,727 1,418 (9) 2 1 16 1,428 – – (266) (266) – – – – – – – – – – – – 15,972 (15,972) – 10,721 (10,721) – – – – – – – – – – – – – – – – – Profit after income tax for the year (a) 97,732 52,207 15,972 10,721 Plus /(Less) Profit on sale of investment properties fair value adjustments to investment properties fair value adjustments to derivatives swap interest net benefit received/receivable (included in fair value adjustments to derivatives) employee share based payments finance costs – non-cash refinancing costs – non-cash income tax expense Adjustments for non-cash items Profit after income tax adjusted for non-cash items (b) Plus /(Less) fair value adjustments to investment properties identified for distribution Total available for distribution Distribution paid or provided for Available and under/(over) distributed for the year (c) (d) (e) (f) (449) (81,617) (5,933) 1,057 3 5,758 – 1,541 (79,640) 18,092 11,303 29,395 29,553 (158) – (50,256) (7,028) 3,406 8 4,973 9,840 1,428 (37,629) 14,578 – 14,578 14,528 50 – – 600 – – 1,778 – – 2,378 – – (77) 2,248 – 1,636 – – 3,807 18,350 14,528 11,303 29,653 29,553 100 – 14,528 14,528 – Note 10 Distributions (continued) CONsOLiDaTeD PareNT eNTiTy 2007 stapled securities On issue 2006 stapled securities On issue 2007 stapled securities On issue 2006 stapled securities On issue Note Weighted average number of stapled securities used as the denominator in calculating earnings per stapled security at (a) and (b) below. stapled securities on issue at the end of the year used in calculating distribution per stapled security at (e) below. 31 90,928,711 90,800,100 90,928,711 90,800,100 31 90,660,614 90,800,100 90,660,614 90,800,100 (a) basic and diluted earnings per stapled security 107.48 57.50 17.59 Cents Cents Cents Cents 11.81 (b) basic and diluted earnings per stapled security before fair value adjustments, non cash amortisation of borrowing costs and prepaid advisory fees (c) fair value adjustments to investment properties identified for distribution (g) (d) Total available for distribution (e) Distribution per stapled security (f) available and under/(over) distributed for the year 19.90 16.06 20.21 16.00 12.23 32.13 32.50 (0.37) – 16.06 16.00 0.06 12.23 32.44 32.50 (0.06) 0.00 16.00 16.00 0.00 (g) Fair value adjustments to investment properties identified for distribution for year ending 30 June 2007 aLe has resolved to distribute 50% of the component of the investment property valuation increases that are directly attributable to increases in net rent resulting from annual consumer price index (CPi) rent reviews (as opposed to movement attributable to capitalisation rates). CPi rent reviews directly attributed to the valuation increase were $22.4 million as at 31 December 2006. 50% of this amount, being $11.3 million, or 12.43 cents per stapled security, is to be paid with each of the December 2006 (6.20 cents per stapled security) and June 2007 distributions (6.23 cents per stapled security). 49 it is aLe’s intention that the payment of capital distributions will be at least 12.40 cents per stapled security as an ongoing policy having due regard to aLe’s capital structure and potential acquisition opportunities with the objective of preserving aLe’s gearing levels. Note 11 Cash assets and cash equivalents Cash at bank and in hand Deposits at call Cash reserve CONsOLiDaTeD PareNT eNTiTy 2007 $’000 2006 $’000 2007 $’000 10,665 7,832 6,268 24,765 4,783 18,709 5,500 28,992 416 – 768 1,184 2006 $’000 5 300 – 305 The cash reserve of $5.5 million is required to be held as a cash reserve as part of the terms of the CMbs and Cib issues in order to provide liquidity for CMbs and Cib obligations to scheduled maturities of 20 May 2011 and 20 November 2023 respectively and $0.768 million of deposits at call is required to be held as collateral for certain Trust interest rate derivatives. During the year ended 30 June 2007 all cash assets were placed on deposit with either the aNZ banking Group Limited, Commonwealth bank of australia Limited or Macquarie bank Limited. as at 30 June 2007 the weighted average interest rate on all cash assets was 5.99% (2006: 5.83%). ALE PROPERTY GROUP ANNUAL REPORT 30 JUNE 2007 NOTEs TO THE CONsOLidATEd FiNANCiAL sTATEmENTs (continued) Note 12 Receivables accounts receivable interest receivable Loan to related party – the Company Loan to related party – the sub Trust accounts receivable comprise expenditure incurred by aLe that is recoverable from its tenant, australian Leisure and hospitality Group Limited, or from the foster’s Group Limited and other parties. Note 13 Other Current Other prepaid expenses Note 14 investment properties – at fair value Investment properties Reconciliation a reconciliation of the carrying amounts of investment properties at the beginning and end of the year is set out below: Carrying amount at beginning of the year additions acquisitions Disposals – at December 2006 fair value Net gain from fair value adjustments Carrying amount at the end of the year 50 CONsOLiDaTeD PareNT eNTiTy 2007 $’000 259 139 – – 398 2006 $’000 2007 $’000 2006 $’000 880 132 – – 1,012 – 8 1,671 16,488 18,167 – – 699 24,015 24,714 1,180 1,180 55 55 769,110 695,470 695,470 173 – (8,150) 81,617 769,110 625,000 – 20,214 – 50,256 695,470 12 12 – – – – – – – 12 12 – – – – – – – Note 14 Investment properties (continued) Property New South Wales blacktown inn, 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 Tavern, Penrith Pymble hotel, Pymble smithfield Tavern, smithfield Total New South Wales properties Queensland albany Creek Tavern, albany Creek albion hotel, albion alderley arms hotel, alderley anglers arms hotel, southport balaclava hotel, Cairns breakfast Creek hotel, breakfast Creek Camp hill hotel, Camp hill CbX Caloundra hotel, Caloundra Chardons Corner hotel, annerly Dalrymple hotel, Townsville edge hill Tavern, Manoora 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 Tavern, Miami Mount Gravatt hotel, Mount Gravatt Mount Pleasant Tavern, Mackay Noosa reef hotel, Noosa heads Nudgee beach hotel, Nudgee 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, Townsville Wilsonton hotel, Toowoomba Woree Tavern, Cairns Total Queensland properties 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 Oct-05 Nov-03 Nov-03 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 Jun-04 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 Nov-03 Cost including additions $’000 5,472 5,660 8,208 8,772 5,849 3,114 8,867 5,849 2,830 4,151 58,772 8,396 4,434 3,303 4,434 3,304 10,659 2,265 4,331 1,416 3,208 2,359 3,114 5,849 3,672 6,604 3,774 2,454 2,265 4,434 4,434 4,057 3,208 1,794 6,874 3,020 5,000 6,886 4,237 1,699 3,397 1,794 5,189 5,755 9,150 5,377 8,208 5,661 4,529 1,039 171,583 Valuation type and date fair Value at 30 June 2007 $’000 fair Value at 30 June 2006 $’000 fair Value gains/ (losses) 30 June 2007 $’000 b b b b b a a a a b a a a b a a b b b a a b b b a b C a b a b b b a b b b b C b b b b a a b b b C 8,080 8,350 12,060 12,920 8,360 4,400 12,710 8,170 3,730 6,260 85,040 11,270 6,790 4,870 6,650 4,680 13,700 3,440 6,580 2,030 4,560 3,750 4,570 8,320 5,560 8,490 5,970 – 3,250 6,830 6,270 6,440 4,780 2,740 10,710 4,570 7,320 10,400 6,150 – 5,060 2,740 7,600 8,550 12,860 8,420 12,020 8,630 6,430 – 243,000 7,100 7,300 10,600 11,400 7,300 3,900 11,200 7,600 3,450 5,500 75,350 10,500 5,800 4,300 5,700 4,100 12,000 2,900 5,500 1,800 4,050 3,100 3,900 7,100 4,900 7,700 5,100 3,200 2,900 5,750 5,400 5,400 4,000 2,300 9,700 3,900 6,300 8,800 5,200 2,150 4,300 2,600 6,500 7,200 11,400 7,500 10,200 7,300 5,500 1,250 217,200 978 1,048 1,457 1,519 1,058 498 1,508 568 279 761 9,674 768 988 569 948 577 1,700 538 1,080 228 508 649 668 1,219 660 788 868 148 349 1,078 869 1,038 778 439 1,010 668 1,018 1,599 950 48 758 138 1,098 1,349 1,458 918 1,818 1,328 931 (2) 32,542 51 ALE PROPERTY GROUP ANNUAL REPORT 30 JUNE 2007 NOTEs TO THE CONsOLidATEd FiNANCiAL sTATEmENTs (continued) Note 14 Investment properties (continued) Property South Australia aberfoyle hub Tavern, aberfoyle Park enfield hotel, Clearview eureka Tavern, salisbury exeter hotel, exeter finsbury hotel, Woodville North Gepps Cross hotel, blair athol hendon hotel, royal Park ramsgate hotel, henley beach stockade Tavern, salisbury Total South Australian properties Date acquired Nov-03 Nov-03 Nov-03 Nov-03 Nov-03 Nov-03 Nov-03 Nov-03 Nov-03 Victoria Nov-03 ashley hotel, braybrook Nov-03 bayswater hotel, bayswater feb-06 berwick inn, berwick Nov-03 blackburn hotel, blackburn Nov-03 blue bell hotel, Wendouree Nov-03 burvale hotel, Nunawading Nov-03 Club hotel – fTG, ferntree Gully Nov-03 Cramers hotel, Preston Nov-03 Daveys, frankston Nov-03 Deer Park hotel, Deer Park Nov-03 Doncaster inn, Doncaster Nov-03 elsternwick hotel, elwood eltham hotel, eltham Nov-03 ferntree Gully hotel/Motel, ferntree Gully Nov-03 Nov-03 Gateway hotel, Corio Nov-03 Keysborough hotel, Keysborough Nov-03 Mac’s Melton hotel, Melton Nov-03 Meadow inn hotel/Motel, fawkner Nov-03 Mitcham hotel, Mitcham Nov-03 Morwell hotel, Morwell Nov-03 Mountain View hotel, Glen Waverly Nov-03 Olinda Creek hotel, Lilydale Nov-03 Pier hotel, frankston Nov-03 Plough hotel, Mill Park Nov-03 Prince Mark hotel, Doveton Nov-03 rifle Club hotel, Williamstown Nov-03 rose shamrock & Thistle, reservoir Nov-03 royal hotel – essendon, essendon Nov-03 royal exchange, Traralgon Nov-03 royal hotel – sunbury, sunbury Nov-03 sandbelt Club hotel, Moorabbin Nov-03 sandown Park hotel/Motel, Noble Park Nov-03 sandringham hotel, sandringham Nov-03 somerville hotel, somerville Nov-03 stamford inn, rowville Nov-03 sylvania hotel, Campbellfield Nov-03 Tudor inn, Cheltenham Nov-03 The Vale hotel, Mulgrave Nov-03 Victoria hotel, shepparton Nov-03 Village Green hotel, Mulgrave Nov-03 Westmeadows Tavern, Westmeadows young & Jacksons, Melbourne Nov-03 Total Victorian properties Cost including additions $’000 3,303 2,454 3,303 1,888 1,605 2,171 1,605 3,774 4,435 24,538 3,963 9,905 15,888 9,433 1,982 9,717 5,095 8,301 2,548 6,981 12,169 3,303 4,717 4,718 3,114 9,622 6,886 8,113 8,584 1,511 7,169 3,963 8,019 8,490 9,810 2,737 2,642 4,340 2,171 3,114 10,849 6,321 4,529 2,642 12,733 5,377 5,472 5,566 2,265 12,546 2,737 6,132 266,174 52 Valuation type and date fair Value at 30 June 2007 $’000 fair Value at 30 June 2006 $’000 fair Value gains/ (losses) 30 June 2007 $’000 b a b b b b a a b b b a b b b a a a b a b b a b b b b b a a b a b a b b b a b b b b a b a b b b a b b 4,730 3,600 4,720 2,780 2,320 3,280 2,370 5,580 6,580 35,960 5,890 14,760 17,660 13,780 3,190 15,130 7,450 13,670 4,180 10,810 17,420 4,990 7,430 7,930 5,130 14,090 9,950 11,730 12,470 2,420 11,730 5,780 11,400 12,330 14,500 4,450 4,020 6,460 3,500 4,520 16,890 9,200 7,330 4,360 18,660 7,850 8,410 8,180 3,780 18,170 4,140 8,410 394,150 4,200 3,350 4,200 2,500 2,100 2,900 2,150 5,000 5,900 32,300 5,400 13,400 16,000 12,600 2,900 13,800 6,900 12,200 3,600 9,800 16,200 4,500 6,800 7,400 4,650 12,800 9,100 10,700 11,400 2,300 10,500 5,300 10,600 11,200 13,500 4,100 3,700 5,900 3,300 4,100 15,400 8,400 6,700 4,000 17,000 7,300 7,500 7,700 3,450 16,200 3,800 7,700 359,800 528 248 518 278 218 378 218 578 679 3,643 488 1,358 1,655 1,179 288 1,327 549 1,468 578 1,009 1,217 488 629 527 479 1,288 848 1,028 1,069 118 1,228 479 797 1,128 999 348 318 559 198 418 1,488 798 628 359 1,659 548 708 678 329 1,969 339 709 34,274 Note 14 Investment properties (continued) Property Western Australia queens Tavern, highgate sail & anchor hotel, freemantle Wanneroo Villa Tavern, Wanneroo Total Western Australian properties Total investment properties Date acquired Nov-03 Nov-03 Nov-03 Cost including additions $’000 4,812 3,114 1,134 9,060 530,127 Valuation type and date fair Value at 30 June 2007 $’000 fair Value at 30 June 2006 $’000 fair Value gains/ (losses) 30 June 2007 $’000 a b C 6,880 4,080 – 10,960 769,110 5,860 3,610 1,350 10,820 695,470 Reconciliation of fair value gains/losses for year ending 30 June 2007 fair value as 30 June 2006 Disposals during the year ended 30 June 2007 additions during year ended 30 June 2007 Carrying amount before 30 June 2007 valuations fair value at 30 June 2007 fair value gain for year ended 30 June 2007 independent valuations conducted during april 2007 with a valuation date of 30 June 2007. Valuation type and date a b Directors’ valuations conducted May 2007 with a valuation date of 30 June 2007. C Property sold in June 2007 and therefore no revaluation done as at June 2007. 1,018 468 (2) 1,484 81,617 695,470 (8,150) 173 687,493 769,110 81,617 Investment properties all investment properties are freehold and 100% owned by aLe and are comprised of land, buildings and fixed improvements. The plant and equipment, liquor, gaming licences and certain development rights are held by the tenant. Leasing arrangements The investment properties are leased to a single tenant under long-term “triple net” operating leases with rentals payable monthly in advance. aLe has incurred no lease incentive costs to date. 53 Valuation of investment properties The basis of valuation of investment properties is fair value being the amounts for which the properties could be exchanged between willing parties in an arm’s length transaction, based on current prices in an active market for similar properties in the same location and condition and subject to similar leases. Independent valuations as at 30 June 2007 in accordance with aLe’s policy of independently valuing at least one-third of its property portfolio annually, 35 properties were independently valued as at 30 april 2007 and reconfirmed at 30 June 2007. The independent valuations are identified as “a” in the investment property table under the column labelled “Valuation type and date” (above). all of these valuations were completed by Peter spiller (aaPi) of DTZ australia (NsW) Pty Ltd. Directors’ valuations as at 30 June 2007 35 of aLe’s portfolio of 99 completed properties (an additional three property acquisitions remain subject to completion, refer to Note 15) were independently valued as at 30 april 2007. The remaining 64 completed properties were subject to directors’ valuations as at 31 May 2007, identified as “b”. The directors’ valuations were determined by taking each property’s net rent as at 31 May 2007 and capitalising it at a rate equal to the latest independently determined capitalisation rate for that property adjusted by the average change in capitalisation rate evident in the 30 april 2007 independent valuations on a state by state basis. Call option hotels aLe and its sole tenant, australian Leisure and hospitality Group Limited (“aLh”) entered into deeds granting call options during November 2003 over four of aLe’s properties being the imperial hotel, Petrie hotel and Woree Tavern all located in queensland and the Wanneroo Villa Tavern located in Western australia. The call options gave aLh the right to acquire these properties from aLe at market value at the date that the call options were exercised. On 28th february 2007 aLh exercised the call options. The four properties were sold on 22 June 2007 for a total value of $8,620,000 resulting in a net profit on disposal, after sale costs, of $449,000. since the call option hotels were acquired for $6,326,000 in November 2003, the fair value gains have totalled $2,294,000, being 36% of the acquisition prices. Conditional acquisition of development properties During November 2003 aLe entered into conditional sale contracts with subsidiaries of foster’s Group Limited to acquire seven properties that were subject to development plans. The conditional sale contracts are conditional upon satisfactory completion of the developments. at 30 June 2007, three of the properties are yet to be acquired (Note 15 contains further information). ALE PROPERTY GROUP ANNUAL REPORT 30 JUNE 2007 NOTEs TO THE CONsOLidATEd FiNANCiAL sTATEmENTs (continued) Note 15 Loans and deposits – investment properties Current Non-Current CONsOLiDaTeD PareNT eNTiTy 2007 $’000 19,576 2,551 2006 $’000 13,662 8,465 2007 $’000 – – 2006 $’000 – – Deposits and acquisition costs on all of the properties are classified as non-current assets due to them forming a part of the acquisition of investment properties (a non-current asset) under the conditional sale contracts (Note 14 contains further information). The loan amounts are classified as current as they are repayable at settlement/completion of development. 54 Total loans and deposits – investment properties Total investment properties (note 14) Total investment properties and loans and deposits – investment properties As at 30 June 2007 Property Current burleigh heads hotel, burleigh heads Narrabeen sands hotel, Narrabeen Parkway hotel, frenchs forest, NsW Non-current burleigh heads hotel, burleigh heads Narrabeen sands hotel, Narrabeen Parkway hotel, frenchs forest, NsW As at 30 June 2006 Property Current Narrabeen sands hotel, Narrabeen Parkway hotel, frenchs forest, NsW Non-current burleigh heads hotel, burleigh heads Narrabeen sands hotel, Narrabeen Parkway hotel, frenchs forest, NsW expected acquisition quarter ending $’000 Deposits (10% of purchase price) $’000 Loans (90% of purchase price) $’000 Dec 2007 Dec 2007 Dec 2007 Dec 2007 Dec 2007 Dec 2007 Dec 2006 Dec 2006 Dec 2007 Dec 2006 Dec 2006 – – – – 658 879 638 2,175 2,175 – – – 658 879 638 2,175 2,175 5,914 7,914 5,748 19,576 – – – – 19,576 7,914 5,748 13,662 5,914 – – 5,914 19,576 expected acquisition quarter ending $’000 Deposits (10% of purchase price) $’000 Loans (90% of purchase price) $’000 Costs $’000 – – – – 114 152 110 376 376 Costs $’000 – – – 114 152 110 376 376 Total acquisition costs $’000 5,914 7,914 5,748 19,576 772 1,031 748 2,551 22,127 769,110 791,237 Total acquisition costs $’000 7,914 5,748 13,662 6,686 1,031 748 8,465 22,127 695,470 717,597 Total loans and deposits – investment properties Total investment properties (note 14) Total investment properties and loans and deposits – investment properties aLe paid deposits and made loans to subsidiaries of foster’s Group Limited during November 2003 equal to the purchase prices in the conditional sale contracts for each of the properties. aLe receives monthly interest on the loans equal to the rent otherwise payable on the properties. as at 30 June 2007 the annual interest payable was $1,990,000 (June 2006: $1,914,000). This equates to a weighted average interest rate of 10.17% (June 2006: 9.78%) on the loan amount of $19,576,000 (June 2006: $20,723,000) and a weighted average interest rate of 8.99% (June 2006: 8.80%) on the purchase price of $22,898,000 (June 2006: $22,898,000). Under the conditional sale contracts aLe is to acquire legal title to each of these properties on completion of the relevant development at the purchase price agreed at the November 2003 exchange of contracts. independent valuations are to be undertaken on each of the developments when complete and, if necessary, the purchase price is to be adjusted down to reflect the value. if the completion valuation results in an increase in value there is to be no adjustment to the purchase price. aLe and members of the foster’s Group Limited had rights to rescind the conditional sale contracts in the event that the developments were not completed by November 2005. formal agreements were completed between the parties during July 2006 expanding the extension of the applicable sunset dates to enable the completion of the developments over extended timetables. Upon completion of the burleigh heads and Narrabeen properties aLe becomes entitled to pre-agreed rental income totalling $1,314,693 per annum. Note 15 Loans and deposits – investment properties (continued) The Parkway development has not commenced. aLe, aLh and foster’s Group Limited are in discussions to resolve this issue. aLe’s position is protected by the contractual agreements currently in place. Details of those agreements are set out in aLe’s 2003 product disclosure statement. CONsOLiDaTeD PareNT eNTiTy 2007 $’000 2006 $’000 2007 $’000 2006 $’000 Note 16 Plant and equipment furniture, fittings and equipment at Cost accumulated depreciation software at Cost accumulated depreciation Office fitout at Cost accumulated depreciation Total at Cost accumulated depreciation Net book value Movement in Plant and Equipment: Furniture, fittings and equipment Net book value at the beginning of the year additions Depreciation charge Net book value at the end of the year Software Net book value at the beginning of the year additions Depreciation charge Net book value at the end of the year Office fitout Net book value at the beginning of the year additions Depreciation charge Net book value at the end of the year Total Net book value at the beginning of the year additions Disposals Depreciation charge Net book value at the end of the year Note 17 Unlisted units in controlled trust Investment in controlled entities sub Trust The Trust owns 100% of the issued units of the sub Trust. 63 (34) 29 80 (60) 20 85 (83) 2 228 (177) 51 34 4 (9) 29 36 8 (24) 20 31 – (29) 2 101 12 – (62) 51 – – 59 (25) 34 72 (36) 36 85 (54) 31 216 (115) 101 46 – (12) 34 32 29 (25) 36 61 – (30) 31 139 29 – (67) 101 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 55 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 210,943 210,943 210,943 210,943 ALE PROPERTY GROUP ANNUAL REPORT 30 JUNE 2007 NOTEs TO THE CONsOLidATEd FiNANCiAL sTATEmENTs (continued) Note 18 Payables Trade creditors interest accrued on CMbs interest accrued on Cib interest accrued on aLe Notes Other accruals Note 19 Provisions and other liabilities (a) Provisions Provision for distribution Provision for annual leave Provision for superannuation (b) Current liabilities – other Unearned rental income for the month of July 2006 received in June 2006 GsT on unearned rental income for the month of July 2006 received in June 2006 Unearned interest income 56 Note 20 Borrowings Non-current borrowings Comprising (net of amortised costs): CMbs – issued May 2006 Cib – issued May 2006 aLe Notes – issued November 2003 CMBS Opening balance issued february 2006 repaid May 2006 issued May 2006 Prepaid borrowing costs capitalised amortisation of prepaid borrowing costs capitalised Closing balance CIB Opening balance issued May 2006 Capitalised interest Prepaid borrowing costs capitalised amortisation of prepaid borrowing costs capitalised Closing balance ALE Notes Opening balance Prepaid borrowing costs amortisation of prepaid borrowing costs capitalised Premium payable at maturity – accrued Closing balance CONsOLiDaTeD PareNT eNTiTy 2007 $’000 2006 $’000 2007 $’000 2006 $’000 62 1,708 506 2,747 1,003 6,026 15,251 32 – 15,283 – – 31 31 254 1,355 492 2,747 2,751 7,599 8,354 46 15 8,415 3,905 391 31 4,327 – – – 2,747 226 2,973 15,251 – – 15,251 – – – – – – – 2,747 26 2,773 8,354 – – 8,354 – – – – 497,805 492,065 144,317 142,539 224,381 129,107 144,317 497,805 224,251 – – – (7) 137 224,381 125,275 – 3,825 (11) 18 129,107 142,539 – 1,337 441 144,317 224,251 125,275 142,539 492,065 330,000 15,000 (345,000) 225,000 (768) 19 224,251 – 125,873 527 (1,128) 3 125,275 141,731 – 605 203 142,539 – – 144,317 144,317 – – 142,539 142,539 – – – – – – – – – – – – – – – – – – – – – – – – 142,539 – 1,337 441 144,317 141,731 – 605 203 142,539 Note 20 Borrowings (continued) a fixed rate of interest of 3.40% p.a. (including credit margin) applies to the Cib and is payable quarterly with the outstanding balance of the Cib escalating quarterly in line with the relevant consumer price index. The amount of the outstanding balance escalation is referred to as capitalised interest and is not payable until maturity of the Cib. $225.0 million of CMbs and $125.9 million of Cib borrowings were issued in May 2006 and are secured by, among other things, first ranking real property mortgages over all but the four call option properties. The CMbs and Cib have scheduled maturity dates of 20 May 2011 and 20 November 2023 respectively. $150.0 million of aLe Notes were issued on 7 November 2003 with an expected maturity date of 30 september 2011. a 2.5% redemption premium of $3.75 million is payable on the maturity date. aLe’s $225.0 million of CMbs variable interest rate exposure is fully hedged (100% fixed) up until November 2009. The hedges extend until November 2013. This has been achieved by the use of variable rate borrowings swapped to fixed rates by using interest rate swaps. Note 5 provides further information on aLe’s borrowings. Assets pledged as securities The aLe Notes are unsecured. The carrying amounts of assets pledged as security for CMbs borrowings, Cib borrowings and interest rate derivatives are: CONsOLiDaTeD Current assets Cash reserve Non-current assets Total investments properties Less: Properties not subject to mortgages imperial hotel, beenleigh, qLD Petrie hotel, Petrie, qLD Woree Tavern, Cairns, qLD Wanneroo Villa Tavern, Wanneroo, Wa Properties subject to first mortgages Total assets 2007 $’000 2006 $’000 6,268 5,500 769,110 695,470 – – – – 769,110 775,378 (3,200) (2,150) (1,250) (1,350) 687,520 693,020 57 in the unlikely event of a default by aLe’s tenant, australian Leisure and hospitality Group Limited (aLh), if the assets pledged as security are insufficient to fully repay CMbs and Cib borrowings, the CMbs and Cib holders are also entitled to recover the amount unpaid from the business assets of aLh. CONsOLiDaTeD PareNT eNTiTy 2007 $’000 2006 $’000 2007 $’000 2006 $’000 Note 21 Deferred tax asset Deferred tax asset 1,001 578 The balance comprises temporary differences attributable to: Amounts recognised in profit or loss Derivatives – interest rate swaps employee benefits acquisition proposal due diligence costs (2006) Cib amortisation Other accruals Tax losses Net deferred tax assets Movements: Opening balance at 1 July 2006 Change on adoption of aasb 132 and aasb 139 Credited / (charged) to the income statement (note 9) Credited / (charged) to equity Closing balance at 30 June 2007 Deferred tax assets to be recovered within 12 months Deferred tax assets to be recovered after more than 12 months 238 9 286 – 107 361 1,001 578 – 423 – 1,001 572 429 1,001 71 19 381 28 79 – 578 99 266 213 – 578 196 382 578 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – ALE PROPERTY GROUP ANNUAL REPORT 30 JUNE 2007 NOTEs TO THE CONsOLidATEd FiNANCiAL sTATEmENTs (continued) CONsOLiDaTeD PareNT eNTiTy 2007 $’000 2006 $’000 2007 $’000 2006 $’000 Note 22 Deferred tax liability Deferred tax liability 3,605 1,648 The balance comprises temporary differences attributable to: Amounts recognised in profit or loss Derivatives – interest rate swaps interest income earned but not received Cib interest amortisation Cib and CMbs amortisation of costs Prepaid expense Net deferred tax liability Movements: Opening balance at 1 July 2005 Charged / (credited) to income statement (note 9) Closing balance at 30 June 2006 Deferred tax liabilities to be recovered after more than 12 months Deferred tax liabilities to be recovered within 12 months 3,403 14 110 78 – 3,605 1,648 1,957 3,605 3,591 14 3,605 1,575 15 47 10 1 1,648 – 1,648 1,648 1,632 16 1,648 – – – – – – – – – – – – – – – – – – – – – – – – Note 23 Contributed equity balance at the beginning of the period exercise on 20 December 2006 of options over 300,000 stapled securities at a price of $1.036 each. 58 Proceeds received Transfer from reserve – share based payments stapled securities cancelled as part of on-market security buy back programme Movements in the number of fully paid stapled securities during the period were as follows: stapled securities on issue: balance at the beginning of the period issue of stapled securities stapled securities cancelled upon buyback Balance at the end of the period 81,787 81,787 81,787 81,787 311 24 – – 281 – – – (1,881) 80,241 – 81,787 (1,843) 80,225 – 81,787 Number of stapled securities Number of stapled securities Number of Units Number of Units 90,800,100 300,000 (439,486) 90,660,614 90,800,100 – – 90,800,100 90,800,100 300,000 (439,486) 90,660,614 90,800,100 – – 90,800,100 Stapled securities 90,800,100 fully paid aLe stapled securities were issued at $1.00 per stapled security during November 2003 and 300,000 stapled securities were issued at $1.036 per stapled security on the exercise of options on 20 December 2006. each stapled security comprises one share in the Company and one unit in the Trust. They cannot be traded or dealt with separately. stapled securities entitle the holder to participate in dividends/distributions and the proceeds on any winding up of aLe in proportion to the number of and amounts paid on the securities held. On a show of hands every holder of stapled securities present at a meeting in person or by proxy, is entitled to one vote. On a poll each ordinary shareholder is entitled to one vote for each fully paid share and each unitholder is entitled to one vote for each fully paid unit. No income voting units (NIVUS) The Trust issued 9,080,010 of no income voting units (NiVUs) to the Company fully paid at $1.00 each in November 2003. The NiVUs are not stapled to shares in the Company, have an issue and withdrawal price of $1.00, carry no rights to income from the Trust and entitle the holder to no more than $1.00 per NiVUs upon the winding-up of the Trust. The Company has a voting power of 9.37% in the Trust as a result of the issue of NiVUs. The NiVUs are disclosed in the Company and the Trust financial reports but are not disclosed in the aLe Property Group financial report as they are eliminated on consolidation. On Market Stapled Security buyback On 2 May 2007 the company announced its intention to buy back up to 9,080,010 stapled securities on-market. between 2 May 2007 and 30 June 2007 the company purchased and cancelled 439,486 stapled securities. Contributed equity was reduced by the total cost of $1,881,000. Note 24 Retained profits balance at the beginning of the year adjustment on adoption of aasb 132 and aasb 139 Deferred tax asset recognised on adoption of aasb 132 and aasb 139 Profit attributable to stapled security holders Total available for appropriation Distributions provided for or paid during the year Balance at the end of the year Retained earnings balance at the end of the year is comprised of the following amounts: fair value adjustments – investment properties (non-cash) fair value adjustments – investment properties (non-cash) – distributed fair value adjustments – investment properties (non-cash) – not distributed fair value adjustments to derivatives (non-cash) – not distributed Total fair value adjustments not distributed Transfers from contributed equity to June 2005 amortised costs – CMbs repaid May 2006 amortised costs – CMbs issued May 2006 amortised costs – aLe Notes issued November 2006 amortised costs – aLe Notes premium Capitalised interest – Cib issued May 2006 amortised costs – Cib issued May 2006 Profit on sale of investment properties income tax expense Total non cash expenses added back to profit to arrive at profit available for distribution Other amounts not distributed Note 25 Reserve balance at the beginning of the year employee share based payments Transfer to contributed equity upon exercise of options CONsOLiDaTeD PareNT eNTiTy 2007 $’000 2006 $’000 157,501 – – 97,732 255,233 (29,553) 225,680 115,012 4,544 266 52,207 172,029 (14,528) 157,501 2007 $’000 609 – – 15,972 16,581 (29,553) (12,972) 247,132 165,515 – (11,303) – (11,303) 235,829 9,897 245,726 6,223 (17,280) (156) (4,374) (1,462) (4,352) (21) 449 (2,603) (29,799) 3,530 225,680 21 3 (24) – 165,515 5,021 170,536 6,223 (17,280) (19) (3,037) (1,022) (527) (2) – (1,062) (22,949) 3,691 157,501 13 8 – 21 (11,303) (512) (11,815) 6,223 – – (4,374) (1,462) – – – – (5,836) (1,544) (12,972) – – – – 2006 $’000 – 4,416 – 10,721 15,137 (14,528) 609 – – – 88 88 6,223 – – (3,037) (1,022) – – – – (4,059) (1,643) 609 – – – – 59 Options over unissued stapled securities of aLe were granted during a previous financial period to andrew Wilkinson as disclosed in an asX announcement dated 10 November 2003. Mr Wilkinson exercised the right to subscribe for 300,000 shares at a fixed price of $1.036 on 20 December 2006. Upon exercise each option was converted to one ordinary unit and 1 ordinary share. On 20 December 2006 the options were exercised resulting in the issue of 300,000 stapled securities. The options value disclosed above as part of key management remuneration is the assessed fair value at grant date of the options, 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 and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option. ALE PROPERTY GROUP ANNUAL REPORT 30 JUNE 2007 NOTEs TO THE CONsOLidATEd FiNANCiAL sTATEmENTs (continued) Note 26 Reconciliation of profit after income tax to net cash inflows from operating activities Profit for the year Plus/(Less): fair value adjustment to investment property fair value adjustment to derivative financial instruments fair value adjustment to interest rate swaps finance costs amortisation – May 2006 refinancing finance costs amortisation Gain on disposal of investment property Capitalised interest on Cib issued May 2006 stapled security based payments – employee options Depreciation Decrease/(increase) in receivables Decrease/(increase) in curent tax asset Decrease/(increase) in deferred tax asset Decrease/(increase) in other assets increase/(Decrease) in payables increase/(Decrease) in provisions increase/(Decrease) in other liabilities increase/(Decrease) in deferred tax liability Net cash inflow from operating activities for the year Note 27 Key management personnel disclosures 60 CONsOLiDaTeD PareNT eNTiTy 2007 $’000 2006 $’000 2007 $’000 2006 $’000 97,732 52,207 15,972 10,721 (81,617) (5,018) – – 1,933 (449) 3,825 3 62 615 7 (423) (1,315) (1,573) (29) (4,296) 1,957 11,414 (50,256) (7,028) 3,406 9,840 4,446 – 527 8 68 (719) (7) (213) (16) 611 29 3,970 1,648 18,521 – 600 – – 1,778 – – – – (7) – – – 200 – – – 18,543 – (77) 2,248 – 1,636 – – – – 100 – – (8) 4 – (302) – 14,322 (a) Directors The following persons were directors of aLe Property Group comprising australian Leisure and entertainment Property Trust and its controlled entities during the financial year: Name P h Warne (Chairman) J P henderson h i Wright a f O Wilkinson (Managing Director) J T McNally Type Non-executive Non-executive Non-executive executive executive appointed 8 september 2003 19 august 2003 8 september 2003 16 November 2003 26 June 2003 (b) Other key management personnel The following persons also had authority and responsibility for planning, directing and controlling the activities of aLe, directly or indirectly, during the year: Name Title andrew slade Darren barkas brendan howell Michael Clarke investment and acquisitions Manager Group financial Controller and Company secretary1 Compliance Officer and Company secretary2 finance Manager 1 – Darren barkas resigned as Group financial Controller and Company secretary on 20 april 2007. 2 – brendan howell was appointed Company secretary on 20 april 2007. Note 27 Key management personnel disclosures (continued) (c) Compensation for key management The following table sets out the compensation for key management personnel in aggregate. refer to the remuneration report in the Directors’ report for details of the remuneration policy and compensation details by individual. short term employee benefits Post employment benefits share based payments CONsOLiDaTeD 2007 $ 2006 $ 1,067,198 54,015 2,891 1,124,104 1,081,304 49,843 7,993 1,139,140 aLe has taken advantage of the relief provided by Corporations regulation Cr2M.6.04 and has transferred the detailed remuneration disclosures to the Directors’ report. The relevant information can be found in the remuneration report on pages 30 to 33. The following directors, key management personnel and their associates held or currently hold the following stapled security interests in the Company: Name role Number held at the start of the year Purchases / (sales) Number held at 30 June 2007 P h Warne J P henderson h i Wright a f O Wilkinson M J Clarke a J slade Non-executive Director Non-executive Director Non-executive Director executive Director finance Manager investment and acquisitions Manager 650,000 55,000 100,000 68,000 – 12,000 50,000 54,000 – 309,650 1,500 – 700,000 109,000 100,000 377,650 1,500 12,000 Note 28 Remuneration of Auditors Audit services PricewatehouseCoopers australian firm: 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 Total remuneration for audit services Other assurance Services PricewatehouseCoopers australian firm: General accounting advice (including aifrs) Due diligence services Controls assurance services Total remuneration for other assurance services Total remuneration for assurance services Taxation services PricewatehouseCoopers australian firm: Tax compliance services Due diligence services Tax consulting services Total taxation services CONsOLiDaTeD PareNT eNTiTy 2007 $ 2006 $ 2007 $ 2006 $ 61 149,437 28,357 177,794 135,400 1,500 136,900 18,893 – – 18,893 196,687 5,300 – 38,685 43,985 26,173 142,250 9,000 177,423 314,323 9,000 223,000 25,135 257,135 – – – – – – – – – – – – – – – – – – – – – – – – ALE PROPERTY GROUP ANNUAL REPORT 30 JUNE 2007 NOTEs TO THE CONsOLidATEd FiNANCiAL sTATEmENTs (continued) Note 29 Related party transactions (a) Parent entity, subsidiaries and associates Details are set out in note 33. (b) Key management personnel Key management personnel and their compensation is set out in note 27. (c) Transactions with related parties for the year ended 30 June 2007 the Company had charged the Trust $2,334,810 in management fees (2006:$2,276,000) and the finance Company had charged the sub-Trust $21,614,426 in interest (2006:$20,642,000). Peter Warne is a director of Next financial Limited (‘Next”), which is a private investment manager which operates accounts on behalf of investors. all of Next’s investment securities are held by fortis Clearing sydney Pty Ltd (“fortis”) and Merrill Lynch as custodian for clients. fortis held 2,286,269 stapled securities of aLe as at 30 June 2007 (2006:4,254,837) and Merrill Lynch held 1,395,128 stapled securities of aLe as at 30 June 2007 (2006: Nil). Mr Warne does not make any investment decisions as part of his role at Next which relate to securities in aLe. Peter Warne is a director of Macquarie bank Limited (“Macquarie”). Macquarie has provided banking services and corporate advice to aLe in the past and may continue to do so in the future. Mr Warne does not take part in any decisions to appoint Macquarie in relation to banking services or corporate advice provided by Macquarie to aLe. (d) Terms and conditions all related party transactions are conducted on normal commercial terms and conditions. Outstanding balances are unsecured and are repayable in cash and callable on demand. Note 30 Commitments (a) Capital commitments The Group is required to acquire certain properties under development under the conditional sale contracts (these amounts are fully represented in investment property deposits and in the loan to the foster’s Group Limited). 62 The Group has entered into a contract for the fit-out of new office premises located at 1 O’Connell street sydney. The amount to be paid under this contract is estimated to be $88,000 (inclusive of GsT) payable following the completion of the fit-out in July 2007. The Group settled the acquisition of the balmoral hotel in July 2007 for a total acquisition price, excluding acquisition costs, of $6,000,000. Other than these amounts the directors are not aware of any other capital commitments as at the date of this report. (b) Lease commitments The Company entered into a non-cancellable operating lease for its office premises at Level 8, 15-19 bent street sydney. This lease expired on 21 July 2007. The Company has entered into a non-cancellable operating lease for its new office premises at Level 7, 1 O’Connell street sydney The minimum net lease commitments under theses leases are: Commitments for minimum lease payments in relation to non- cancellable operating leases are payable as follows: Within one year Later than one year but not later than five years Later than five years Note 31 Earnings per stapled security CONsOLiDaTeD PareNT eNTiTy 2007 $’000 110 274 – 384 2006 $’000 2007 $’000 2006 $’000 74 4 – 78 – – – – – – – – CONsOLiDaTeD PareNT eNTiTy 30 June 2007 $’000 cps 30 June 2006 $’000 cps 30 June 2007 $’000 cps 30 June 2006 $’000 cps basic and diluted earnings per stapled security 107.48 57.50 17.59 11.81 Number of stapled securities Number of stapled securities Number of stapled securities Number of stapled securities Weighted average number of stapled securities used as the denominator in calculating 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 cps = cents per stapled security 90,928,711 90,800,100 90,928,711 90,800,100 90,928,711 90,800,100 90,928,711 90,800,100 Note 32 Contingent liabilities and contingent assets Put and call options for each of the investment properties, at the end of the initial lease term of 25 years (2028 for most of the portfolio), and at the end of each further term (four lots of ten year terms), there is a call option for the landlord (or its nominee) and a put option for the tenant to require the landlord (or its nominee) to buy plant, equipment, goodwill, inventory, all then current consents, licenses, permits, certificates, authorities or other approvals, together with any liquor license, held by the tenant in relation to the premises. The gaming license is to be included or excluded at the tenant’s option. These assets are to be purchased at current value as determined by the valuation methodology set out in the lease. The landlord must pay the purchase price on expiry of the lease. Bank guarantee The Company has entered into a bank guarantee of $58,135 in respect of its office tenancy at Level 7, 1 O’Connell street sydney. This guarantee may give rise to a liability if the Company does not meet its obligations under the terms of the lease. The Company has entered into a bank guarantee of $23,834 in respect of its office tenancy at Level 8, 15-19 bent street, sydney. This guarantee may give rise to a liability if the Company does not meet its obligations under the terms of the lease. The lease of these premises expired on 21 July 2007 and the bank guarantee is expected to be relinquished in full. Investments in controlled entities Note 33 The Trust owns 100% of the issued equity of the sub Trust. The sub Trust owns 100% of the issued equity of the finance Company. The Trust owns none of the issued equity of the Company, but is deemed to be its “acquirer” under aifrs. in addition, the Trust owns 100% of the issued equity of aLe Direct Property Trust No.2 which in turns owns 100% of the issued equity of aLe finance Company No.2 Pty Limited. both of these trust subsidiaries are dormant. Note 34 Segment information Business segment aLe operates solely in the property investment and property funds management industry and has no business segmentation. Geographical segment aLe owns property solely within australia. Note 35 Events occurring after reporting date On 26 July 2007 aLe completed the purchase of the balmoral hotel in Western australia at a cost of $6,000,000. The acquisition was funded from existing cash reserves. 63 On 2 May 2007 the company announced its intention to buy back up to 9,080,010 stapled securities on-market. Note 23 contains further information on the buy back. subsequent to year end the company has continued to purchase shares in accordance with the buy back programme. The directors are not aware of any other matter or circumstance occurring after balance date which may materially affect the state of affairs of aLe and are not aware of any matter or circumstance occurring after balance date which may materially affect aLe’s operations or the results of those operations. Note 36 AASB 132 Financial Instruments: Disclosure and Presentation and AASB 139 Financial Instruments: Recognition and Measurement aLe has taken the exemption available under aasb 1 first-time adoption of australian equivalents to international financial reporting stanrdards to apply aasb 132 financial instruments: Disclosure and Presentation and aasb 139 financial instruments: recognition and Measurement from 1 July 2005. for further information please refer to our annual report for the year ending 30 June 2006. (a) Interest rate derivatives Potential variability in future distributions arise predominantly from financial assets and Liabilities bearing variable interest rates. for example, if financial Liabilities exceed financial assets and interest rates rise, to the extent that interest rate derivatives (swaps) are not available to fully hedge the exposure, distribution levels would be expected to decline from the levels that they would otherwise have been. aLe also has long term leased property assets and fixed interest rate liabillities that are currently intended to be held until maturity. The market value of these assets and liabilities are also expected to change as long term interest rates fluctuate. for example, as long term interest rates rise the market value of both property assets and fixed interest rate liabilities may fall (all other market variables remaining unchanged). These movements in property assets and fixed interest rate liabillities impact upon the net equity value of aLe. The contracts are settled on a net basis and the net amount receivable or payable at the reporting date is included in derivatives – interest rate swaps. The contracts require settlement of net interest receivable or payable every 90 days. The settlement dates coincide with the dates on which interest is payable on the underlying CMbs debt. (b) Interest rate risk aLe’s exposure to the interest rate risk and the effective weighted interest rate by maturity periods is set out in the following table. for interest rates applicable to each class of asset or liability refer to individual notes to the financial statements. exposure arises predominantly from liabilities bearing variable interest rates as the consolidated entity intends to hold fixed assets and liabilities to maturity. ALE PROPERTY GROUP ANNUAL REPORT 30 JUNE 2007 NOTEs TO THE CONsOLidATEd FiNANCiAL sTATEmENTs (continued) Note 36 AASB 132 Financial Instruments: Disclosure and Presentation and AASB 139 Financial Instruments: Recognition and Measurement (continued) fiXeD iNTeresT MaTUriNG iN floating interest rate $’000 Notes 1 year or less $’000 1 to 5 years $’000 More than 5 years $’000 Non interest bearing $’000 Total $’000 2007 Financial assets Cash and cash equivalents receivables Loans to foster’s Group Weighted average interest rate Financial liabilities Payables borrowings – aLe Notes borrowings – CMbs borrowings – Cib Derivatives – interest rate swaps Weighted average interest rate Net financial assets/ (liabilities) 11 12 15 18 20 20 20 20 10,665 – – 10,665 5.75% – – 225,000 – (225,000) – – 14,100 – 19,576 33,676 8.60% – – – – – – – – – – – – – – – – – – – – – 210,000 210,000 5.78% – 150,000 – 130,225 15,000 295,225 5.50% – 398 – 398 – 6,026 – – – – 6,026 – 24,765 398 19,576 44,739 7.85% 6,026 150,000 225,000 130,225 – 511,251 5.55% 10,665 33,676 (210,000) (295,225) (5,628) (466,512) 64 fiXeD iNTeresT MaTUriNG iN floating interest rate $’000 Notes 1 year or less $’000 1 to 5 years $’000 More than 5 years $’000 Non interest bearing $’000 Total $’000 2006 Financial assets Cash receivables Loans to foster’s Group Limited Weighted average interest rate Financial liabilities Payables borrowings – aLe Notes borrowings – CMbs borrowings – Cib Derivatives – interest rate swaps Weighted average interest rate Net financial assets/ (liabilities) 11 12 15 18 20 20 20 20 4,783 – – 4,783 5.65% – – 225,000 – (225,000) – – 24,209 – 13,662 37,871 7.06% – – – – – – – – – 5,914 5,914 11.53% – – – 126,400 110,000 110,000 6.04% – – – – – – 150,000 – – 115,000 391,400 4.64% – 1,012 – 1,012 – 7,599 – – – – 7,599 – 28,992 1,012 19,576 49,580 7.31% 7,599 150,000 225,000 126,400 – 508,999 4.87% 4,783 37,871 (104,086) (391,400) (6,587) (459,419) Note 36 AASB 132 Financial Instruments: Disclosure and Presentation and AASB 139 Financial Instruments: Recognition and Measurement (continued) (c) Credit Risk aLes’ major credit risk is the risk that the tenant will fail to perform its contractual obligations including honouring the terms of the lease agreements either in whole or in part. Credit risk has been minimised primarily by ensuring, on a continous basis, that the tenant has appropriate financial standing and by the various security arrangements that are in place. a secondary credit risk for aLe exists in respect of the loans to foster’s Group Limited made by aLe under the conditional sale contracts of properties under development. Credit risk has been minimised primarily by ensuring, on a continous basis, that the foster’s Group Limited has appropriate financial standing and by the various security arrangements that are in place. The credit risk on financial assets of aLe which have been recognised in the Consolidated balance sheet is generally the carrying amount net of any provision for doubtful debts. (d) Liquidity and cash flow risk Liquidity risk is the risk that aLe will experience difficulty in either realising or otherwise raising sufficient funds to satisfy commitments. Cash flow risk is the risk that the future cash flows will fluctuate from the expected. The risk management guidelines adopted are designed to minimise liquidity and cash flow risk by monitoring and planning for significant exposures to large creditors and ensuring counterparties have appropriate financial standing. (e) Market risk Market risk is the risk that the value of aLe’s investment properties will fluctuate as a result of changes in market prices. To the extent controllable, this risk is managed by ensuring that all activities are transacted in accordance with mandates, overall investment strategy and within approved limits. Market risk analysis is conducted regularly on a total portfolio basis. in order to have the CMbs and Cib rated, aLe has put in place a liquidity facility equal to approximately six months debt service of the CMbs and Cib. 65 ALE PROPERTY GROUP ANNUAL REPORT 30 JUNE 2007 diRECTORs’ dECLARATiON in the directors’ opinion: (a) the financial statements and notes set out on pages 36 to 65 are in accordance with the Corporations act 2001 including: (i) complying with accounting standards, the Corporations regulations 2001 and other mandatory professional reporting requirements; and (ii) giving a true and fair view of the Company’s and consolidated entity’s financial position as at 30 June 2007 and of their performance for the financial year ended on that date; and (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. (c ) The actual remuneration disclosures set out on pages 30 to 33 of the directors’ report comply with accounting standards aasb 124 related Party Disclosures and the Corporations regulations 2001. The directors have been given the declarations by the Managing Director and the finance Manager and Company secretary as required by section 295a of the Corporations act 2001. This declaration is made in accordance with a resolution of the directors. Peter H Warne Director sydney Dated this 21st day of august 2007 66 Independent auditor’s report to the stapled security holders of ALE Property Group Report on the financial report and the AASB 124 Remuneration disclosures contained in the directors’ report We have audited the accompanying financial report of aLe Property Group (the Group), which comprises the balance sheet as at 30 June 2007, and the income statement, statement of changes in equity and cash flow statement for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration for both australian Leisure and entertainment Property Trust (the Trust) and aLe Property Group (the consolidated entity). The consolidated entity comprises the Trust and the entities it controlled at the year’s end or from time to time during the financial year. We have also audited the remuneration disclosures contained in the directors’ report. as permitted by the Corporations Regulations 2001, the Trust has disclosed information about the remuneration of directors and executives (“remuneration disclosures”), required by accounting standard aasb 124 Related Party Disclosures, under the heading “remuneration report” in pages 30 to 33 of the directors’ report and not in the financial report. Directors’ responsibility for the financial report and the AASB 124 Remunerations disclosures contained in the directors’ report The directors of australian Leisure and entertainment Property Management Limited (the responsible entity) are responsible for the preparation and fair presentation of the financial report in accordance with australian accounting standards (including the australian accounting interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal control relevant to the preparation and fair presentation of a financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. in Note 1, the directors also state, in accordance with accounting standard aasb 101 Presentation of Financial Statements, that compliance with the australian equivalents to international financial reporting standards ensures that the financial report, comprising the financial statements and notes, complies with international financial reporting standards. The directors of the responsible entity are also responsible for the remuneration disclosures contained in the directors’ report. 67 Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with australian auditing standards. These auditing standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. Our responsibility is to also express an opinion on the remuneration disclosures contained in the directors’ report based on our audit. an audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report and the remuneration disclosures contained in the directors’ report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report and the remuneration disclosures contained in the directors’ report, whether due to fraud or error. in making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report and the remuneration disclosures contained in the directors’ report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. an audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report and the remuneration disclosures contained in the directors’ report. Our procedures include reading the other information in the annual report to determine whether it contains any material inconsistencies with the financial report. for further explanation of an audit, visit our website http://www.pwc.com/au/financialstatementaudit. Our audit did not involve an analysis of the prudence of business decisions made by directors or management. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. ALE PROPERTY GROUP ANNUAL REPORT 30 JUNE 2007 Matters relating to the electronic presentation of the audited financial report This audit report relates to the financial report and remuneration disclosures of australian Leisure and entertainment Property Trust and aLe Property Group for the financial year ended 30 June 2007 included on the aLe Property Group’s web site. The directors of the responsible entity 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 and remuneration disclosures identified above. it does not provide an opinion on any other information which may have been hyperlinked to/from the financial report or remuneration disclosures. 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 and remuneration disclosures to confirm the information included in the audited financial report and remuneration disclosures presented on this web site. Independence in conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Auditor’s opinion on the financial report in our opinion: (a) the financial report of aLe Property Group is in accordance with the Corporation Act 2001, including: (i) giving a true and fair view of the australian Leisure and entertainment Property Trust and aLe Property Group’s financial position as at 30 June 2007 and of their performance for the year ended on that date; and (ii) complying with australian accounting standards (including the australian accounting interpretations) and the Corporations Regulations 2001; and (b) the financial report also complies with international financial reporting standards as disclosed in Note 1. Auditor’s opinion on the AASB 124 Remuneration disclosures contained in the directors’ report in our opinion, the remuneration disclosures that are contained in pages 30 to 33 of the directors’ report comply with accounting standard aasb 124. 68 PricewaterhouseCoopers SJ Hadfield Partner sydney 21 august 2007 CONTENTS Directors’ report 70 Income statement 79 Balance sheet 80 statement of changes in equity 81 statement of cash flows 82 Notes to the financial statements 83 Directors’ Declaration 96 Independent audit report to the shareholders 97 stapled security holder Information 100 Investor Information and corporate Directory IBC AustrAliAn leisure And entertAinment ProPerty mAnAgement limited AnnuAl FinAnciAl rePort 30 June 2007 69 69 ABN 45 105 275 278 Top shelf results AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 30 JUNE 2007 DIREcTORS’ REPORT The directors of australian Leisure and entertainment Property Management Limited (the “company”) present their report for the year ended 30 June 2007. The registered office and principal place of business of the company is: Level 7 1 O’connell street sydney 2000 Directors The following persons were directors of the company during the whole of the year and up to the date of this report unless otherwise stated: Name appointed Type P h Warne (chairman) J P henderson h I Wright a f O Wilkinson (Managing Director) J T McNally Independent non-executive Independent non-executive Independent non-executive executive executive 8 september 2003 19 august 2003 8 september 2003 16 November 2004 26 June 2003 Principal activities During the year the principal activities of the company consisted of property funds management and acting as responsible entity for the australian Leisure and entertainment Property Trust (the “Trust”). There has been no significant change in the nature of these activities during the year. Dividends No provisions for or payments of company dividends have been made during the year (2006: nil). 70 Review of operations a summary of the revenue and results for the year is set out below: Revenue Management fees Interest income Total revenue Other income Total income Expenses salaries, fees and related costs acquisition proposal due diligence Other expenses Total expenses Profit/(Loss) before income tax Income tax (benefit) Profit/(Loss) attributable to the shareholders of the Company Basic and diluted earnings per share Dividend per share for the year Net assets per share 30 June 2007 $ 30 June 2006 $ 2,334,810 66,570 2,401,380 – 2,401,380 1,319,870 96,581 1,036,425 2,452,876 (51,496) (7,025) (44,471) 2,276,395 45,143 2,321,538 600,000 2,921,538 1,214,597 2,188,800 740,963 4,144,360 (1,222,822) (370,462) (852,360) cents cents (0.49) – cents 8.75 (0.94) – cents 8.82 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 year. 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 company and its value to its shareholders. The directors are not aware of any future developments likely to significantly affect the operations and/or results of the company. Information on directors Mr Peter 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 of BTaL was acquired by Macquarie Bank Limited in 1999. Peter is also a board member of three other listed entities being asX Limited, Macquarie Bank Limited and WhK Group Limited. Peter graduated from Macquarie University with a Bachelor of arts, majoring in actuarial studies. he qualified as an associate of, and received a certificate of finance and Investment from, the Institute of actuaries, London. 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. 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 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 the statutory and Other Offices remuneration Tribunal for NsW and and also the Local Government remuneration Tribunal. Until recently helen was a member of the Boards of the sydney harbour foreshore authority, australian Technology Park Precinct Management, and cooks cove redevelopment authority. Prior boards include australia Day council of NsW, 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. Mr Andrew 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 banking, corporate finance and funds management. 71 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 eight 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. 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 14 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. 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. AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 30 JUNE 2007 DIREcTORS’ REPORT (continued) Company Secretary Brendan Howell B.Econ, G.Dip App Fin (Sec Inst) Independent member of Audit, Compliance and Risk Management Committee (ACRMC) Experience and expertise The company secretary is Mr Brendan howell. Brendan was appointed to the position of company secretary in april 2007, having previously held the position from september 2003 to september 2006. 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 over 17 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 over seven 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 David Lawler B.Bus, CPA, Independent ACRMC Member. Experience and expertise David has 25 years experience in internal auditing in the banking and finance industry. he was the chief audit executive for citibank in the Philippines, Italy, switzerland, Mexico, Brazil, australia and hong Kong. he was Group auditor for the commonwealth Bank of australia. David is an audit committee member of the australian Office of financial Management, the Defence Materiel Organisation, the australian Trade commission, the australian sports anti- Doping authority and National IcT australia. David is a director of australian settlements Limited and chairman of its audit and risk committee. David has a Bachelor of Business studies from Manchester Metropolitan University in the UK. he is a fellow of cPa australia and immediate past President of the Institute of Internal auditors-australia. Directorships of listed companies within the last three years The following director held directorships of other listed entities within the last three years and from the date appointed up to the date of this report unless otherwise stated: Directorships of listed entities Director appointed resigned Type 72 P h Warne P h Warne P h Warne P h Warne P h Warne asX Limited (a) sfe corporation Limited (a) Macquarie capital alliance Group WhK Group Limited Macquarie Bank Limited Non-executive Non-executive Non-executive Non-executive Non-executive July 2006 february 2005 february 2005 May 2007 July 2007 June 2007 (a) In July 2006, the australian stock exchange Limited (asX) and sfe corporation Limited (sfe) merged with the sfe becoming a wholly owned subsidiary of the asX. sfe was delisted in July 2006. Peter was appointed to the board of the asX on 25 July 2005. Special responsibilities of directors The following are the special responsibilities of each director: Director special responsibilities P h Warne J P henderson h I Wright a f O Wilkinson J T McNally chairman of the Board. Member of the audit, compliance and risk Management committee (acrMc). Member of the remuneration committee. Member of the acrMc. Member of the remuneration committee. chair of the acrMc. chairman of the remuneration committee. chief executive Officer and Managing Director of the company. responsible Officer of the company under the company’s australian financial services Licence (afsL). responsible Officer of the company under the company’s afsL. Directors’ and key management personnel interests in stapled securities and options The following directors, key management personnel and their associates hold the following stapled security interests in the company: Number held at the start of the year Number held at 30 June 2007 Name role P h Warne J P henderson h I Wright a f O Wilkinson a J slade M J clarke Non-executive Director Non-executive Director Non-executive Director executive Director Investment and acquisitions Manager finance Manager 650,000 55,000 100,000 68,000 12,000 – Purchases / (sales) 50,000 54,000 – 309,650 – 1,500 700,000 109,000 100,000 377,650 12,000 1,500 Meetings of directors The numbers of meetings of the company’s board of directors held and of each board committee during the year ended 30 June 2007 and the number of meetings attended by each director at the time the director held office during the year were: Director held1 attended held1 attended held1 attended BOarD MeeTINGs aUDIT, cOMPLIaNce aND rIsK MaNaGeMeNT reMUNeraTION cOMMITTee MeeTINGs P h Warne J P henderson h I Wright a f O Wilkinson J T McNally 11 11 11 11 11 11 11 11 11 11 Member of audit, compliance and risk Management committee D J Lawler n/a n/a 7 7 7 – – 7 5 7 7 – – 6 2 2 2 – – 2 2 2 – – n/a n/a 73 1 “held” reflects the number of meetings which the director or member 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 The information provided under these headings includes remuneration disclosures that are required under accounting standard aasB 124 related Party Disclosures. These disclosures have been transferred from the financial report and have been audited. A Principles used to determine the nature and amount of remuneration (audited) The objectives of aLe’s executive reward framework are 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 creation of value for stapled 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 stapled security holders – performance linkage/alignment of executive compensation with outcomes for security holders – 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 stapled security 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. AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 30 JUNE 2007 DIREcTORS’ REPORT (continued) 74 Remuneration report (continued) alignment to the reward framework’s employee’ interests: – rewards capability and experience – reflects competitivte 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 aLe over a number of periods with greater emphasis given to the current year. Over the year ended 30 June 2007 the total return on aLe’s stapled securities (inclusive of distribution returns) was 77.7% (2006: 39.4%). 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 were set by the Board prior to listing in 2003. The Board may 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 from 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 stapled securities. Directors’ fees The current base remuneration was last reviewed with effect from september 2003. The directors’ fees are 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 stapled security holders. The maximum currently stands at $400,000 per annum, comprised of $325,000 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 Director’s 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. base pay is set to reflect the market for comparable roles. Base pay for senior executives is reviewed annually to ensure that executive pay is competitive with the market. executive pay is also reviewed on promotion. There is no guaranteed base pay increase in any executive contract. 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 (KPIs) 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 KPIs 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 2007, the KPIs link to sTI plans were based on company, business and personal objectives. The KPIs required performance in seeking value accretive acquisitions, 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 KPIs 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. Long-term incentives (LTI) a long-term incentive in the form of performance rights over aLe stapled securities is proposed to be provided to the Managing Director, Mr Wilkinson and acquisitions Manager, Mr slade. The terms of the performance rights are currently subject to discussions between the Board and Mr Wilkinson and Mr slade. The Performance rights provide the opportunity to receive fully paid stapled securities for nil cost. The receipts of stapled securities is contingent on achieving a performance hurdle over a specified performance period. The performance hurdles will also be agreed as part of those discussions. Under asX listing rules, shareholder approval will be sought for the grant of Performance rights to the Managing Director, Mr Wilkinson at the annual General Meeting on 13 November 2007. The grant of Performance rights to the acquisitions Manager, Mr slade, will be completed and announced to the market in compliance with asX Listing rules. Options over 300,000 stapled securities previously issued to Mr Wilkinson fully vested on 10 November 2006 and were exercised on 20 December 2006. 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 Stapled security options granted No options over unissued stapled securities of aLe were granted during or since the end of the year. Stapled security performance rights granted No Performance rights over unissued stapled securities were granted during the year. Remuneration report (continued) B Details of remuneration (audited) Amount of remuneration Details of the remuneration of the key management personnel for the current year and for the comparative year are set out below in tables 1 and 2. The cash bonuses were dependent on the satisfaction of performance conditions as set out in the section headed “short-term incentives”, above. all other elements of remuneration were not directly related to performance. Table 1 Remuneration details 1 July 2006 to 30 June 2007 Details of the remuneration of the Key Management Personnel for the year ended 30 June 2007 are set out in the following table: Key MaNaGeMeNT PersONNeL shOrT TerM eMPLOyee BeNefITs POsT eMPLOyMeNT BeNefITs eqUITy BaseD PayMeNT Name role salary & fees $ sTI Bonus $ Non Monetary $ superannuation $ Options $ – – – 2,891 – – Total $ 120,000 70,000 70,000 347,891 75,000 57,500 – – 195,479 63,270 Options $ – – – 7,993 – – Total $ 120,000 70,000 70,000 381,890 75,000 75,000 – 190,370 Non-executive Director Non-executive Director Non-executive Director P h Warne J P henderson h I Wright a f O Wilkinson executive Director executive Director J T McNally company secretary B r howell Investment and a J slade acquisitions Manager finance Manager Group financial controller and company secretary1 M J clarke D s Barkas1 110,092 70,000 64,220 257,314 75,000 57,500 142,793 44,278 – – – 75,000 – – 40,000 15,000 – – – – – – – – 9,908 – 5,780 12,686 – – 12,686 3,992 97,101 918,298 – 130,000 18,900 18,900 8,963 54,015 – 124,964 2,891 1,124,104 75 1 Darren Barkas resigned as Group financial controller and company secretary on 4th april 2007. Table 2 Remuneration details 1 July 2005 to 30 June 2006 Details of the remuneration of the Key Management Personnel for the year ended 30 June 2006 are set out in the following table: Key MaNaGeMeNT PersONNeL shOrT TerM eMPLOyee BeNefITs POsT eMPLOyMeNT BeNefITs eqUITy BaseD PayMeNT Name role salary & fees $ sTI Bonus $ Non Monetary $ superannuation $ Non-executive Director Non-executive Director Non-executive Director P h Warne J P henderson h I Wright a f O Wilkinson executive Director executive Director J T McNally company secretary B r howell Investment and a J slade acquisitions Manager Group financial controller and company secretary D s Barkas 110,092 70,000 64,220 261,758 75,000 75,000 – – – 100,000 – – 138,831 40,000 – – – – – – – 9,908 – 5,780 12,139 – – 11,539 99,803 894,704 20,000 160,000 26,600 26,600 10,477 49,843 – 156,880 7,993 1,139,140 Cash bonuses for each cash bonus included in the above tables, the percentage of the available bonus that was awarded for the current 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 a J slade M J clarke Paid % 100 100 100 forfeited % - - - AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 30 JUNE 2007 DIREcTORS’ REPORT (continued) 76 Remuneration report (continued) C Service agreements 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 for Mr Wilkinson, 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. The Board and Mr Wilkinson have agreed to extend the contract to 13 November 2007. In the event of the termination of Mr Wilkinson’s employment contract, amounts may be payable for unpaid accrued entitlements, proportion of bonus 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. at the annual general meeting of the company to be held on 13 November 2007, the exact terms of Mr Wilkinson’s new contract will be put to a shareholder vote. The terms will be advised to the market upon final agreement but no later than the date the Notice of Meeting is mailed to shareholders. The employment contracts of Mr slade and Mr clarke may be terminated at one month’s 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 compliance 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 were granted in November 2003 to Mr Wilkinson as disclosed in an asX announcement dated 10 November 2003. Mr Wilkinson had 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. These options were exercised on 20 December 2006. The options value disclosed above as part of specified executive remuneration was 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 and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option. as mentioned above, the issue of performance rights to Mr Wilkinson is subject to approval at this year’s annual general meeting. Stapled securities under option There are no unissued stapled securities under option at the date of this report. Stapled securities issued on the exercise of options The following stapled securities were issued during the year ended 30th June 2007 on the exercise of options granted under the company’s equity based compensation arrangements. No further shares have been issued since that date. No amounts are unpaid on any of the shares. Date options granted Issue price of securities Number of securities issued 10 November 2003 $1.036 300,000 300,000 Insurance of officers During the financial year, the company paid a premium of $28,325 (2006: $29,844) 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. 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. at two properties ongoing monitering is being undertaken and further work is required, however, the company is indemnified against any remediation amounts likely to be required. Past employment with external auditor Mr Wilkinson, Managing Director, previously held a position as a corporate advisory partner without any audit responsibilities of aLe’s external auditor Pricewaterhousecoopers. Mr Wilkinson resigned his partnership prior to accepting the appointment as chief executive Officer of aLe on 24 November 2003. 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. The board of directors has considered the position and in accordance with the advice received from the acrMc 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 acrMc 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 auditor’s 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. Details of amounts paid or payable to the auditor (Pricewaterhousecoopers) for audit and non-audit services provided during the year are set out below: 30 June 2007 $ 30 June 2006 $ Audit services Pricewatehousecoopers australian firm: audit and review of the financial reports of the Group and other audit work required under the corporations act 2001 – in relation to current year – in relation to prior year Total remuneration for audit services Other assurance services Pricewatehousecoopers australian firm: General accounting advice (including aIfrs) Due diligence – acquisitions not proceeding assurance services – internal control review Total remuneration for other assurance services Total remuneration for assurance services Taxation services Pricewatehousecoopers australian firm: Tax compliance services Due diligence services Tax consulting services Total taxation services 149,437 28,357 177,794 135,400 1,500 136,900 18,893 – – 18,893 196,687 5,300 – 38,685 43,985 26,173 142,250 9,000 177,423 314,323 9,000 223,000 25,135 257,135 Auditor’s independence declaration a copy of the auditor’s independence declaration as required under section 307c of the corporations act 2001 is set out on page 78. This report is made in accordance with a resolution of the directors. 77 Peter H Warne Director sydney Dated this 21st day of august 2007 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 30 JUNE 2007 Auditor’s Independence Declaration as lead auditor for the review of australian Leisure and entertainment Property Trust for the year ended 30 June 2007, 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 Trust and the entities it controlled during the period. S J Hadfield Partner Pricewaterhousecoopers 78 sydney 21 august 2007 INcOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2007 Revenue Management fees Interest income Total revenue Other income Total income accounting services acquisition proposal due diligence annual report auditors’ remuneration corporate advisory services Depreciation expense – plant & equipment Insurance Legal fees Occupancy costs Other expenses registry fees salaries, fees and related costs staff training Taxation services Travel and accommodation Total expenses Profit/(Loss) before income tax Income tax (benefit) Profit/(Loss) after income tax Profit/(Loss) attributable to the shareholders of the Company Basic and diluted earnings/ (loss) per share Dividends paid and payable per share The above income statement should be read in conjunction with the accompanying notes. Note 30 June 2007 $ 30 June 2006 $ 2 3 3 4 5 2,334,810 66,570 2,276,395 45,143 2,401,380 2,321,538 – 600,000 2,401,380 2,921,538 33,877 96,581 65,582 177,794 105,366 62,945 79,488 78,928 75,782 196,078 73,512 1,319,870 11,950 45,185 29,938 69,028 2,188,800 12,788 136,900 (28,521) 66,987 85,285 57,973 74,516 124,902 66,513 1,214,597 11,897 30,535 32,160 2,452,876 4,144,360 (51,496) (7,025) (44,471) (1,222,822) (370,462) (852,360) (44,471) (852,360) cents cents (0.49) – (0.94) – 79 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 30 JUNE 2007 BALANcE SHEET AS AT 30 JUNE 2007 Current assets cash and cash equivalents receivables Prepayments and other assets Total current assets Non-current assets Plant and equipment Investment in related party Deferred tax asset Total non-current assets Total assets Current liabilities Payables Provisions Loan from related party current tax liability Total current liabilities Non-current liabilities Deferred tax liability Total non-current liabilities Total liabilities Net assets 80 Equity contributed equity retained losses reserves Total equity Net assets per share The above balance sheet should be read in conjunction with the accompanying notes. Note 30 June 2007 $ 30 June 2006 $ 7 8 6 9 10 11 12 13 5 14 15 16 17 102,860 260,790 90,762 454,412 483,114 851,028 38,279 1,372,421 50,635 9,080,010 476,155 9,606,800 10,061,212 102,354 9,080,010 472,153 9,654,517 11,026,938 404,004 31,583 1,670,824 – 2,106,411 732 732 2,107,143 7,954,069 2,258,234 61,174 699,144 1,918 3,020,470 1,837 1,837 3,022,307 8,004,631 9,095,028 (1,140,959) – 7,954,069 9,080,010 (1,096,488) 21,109 8,004,631 cents 8.75 cents 8.82 STATEMENT OF cHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2007 Total equity at the beginning of the Year Profit / (Loss) for the year Total recognised income and expenses for the year Transactions with equity holders in their capacity as equity holders: Issue of shares shares cancelled under share buyback programme employee share options Total transactions with equity holders in their capacity as equity holders Total equity at the end of the year Note 30 June 2007 $ 30 June 2006 $ 8,004,631 (44,471) (44,471) 8,848,999 (852,360) (852,360) 30,000 (38,982) 2,891 (6,091) 7,954,069 – – 7,992 7,992 8,004,631 Total recognised income and expense for the year is attributable to members of the company. The above statement of changes in equity should be read in conjunction with the accompanying notes. 81 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 30 JUNE 2007 STATEMENT OF cASH FLOWS FOR THE YEAR ENDED 30 JUNE 2007 Cash flows from operating activities Other revenue (management fee and expense recovery) Payments to suppliers and employees Interest received – bank deposits and investment arrangements Net cash inflow from operating activities Cash flows from investing activities Payments for plant and equipment Net cash (outflow) from investing activities Cash flows from financing activities share brought back under share buyback programme shares issued Net cash (outflow) from financing activities Net increase in cash and cash equivalents held cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year The above statement of cash flows should be read in conjunction with the accompanying notes. 30 June 2007 $ 30 June 2006 $ 8,234,121 (8,662,114) 67,946 (360,047) 10,172,856 (9,856,116) 38,397 355,137 (11,225) (11,225) (28,705) (28,705) (38,982) 30,000 (8,982) (380,254) 483,114 102,860 – – – 326,432 156,682 483,114 Note 21 7 82 NOTES TO THE FINANcIAL STATEMENTS Note 1 Summary of significant accounting policies The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been consistantly applied to all years presented, unless otherwise stated. (a) Basis of preparation This general purpose financial report has been prepared in accordance with australian accounting standards, other authorative pronouncements of the australian accounting standards Board, Urgent Issues Group Interpretations and the corporations act 2001. Compliance with IFRS australian accounting standards include australian equivalents to International financial reporting standards (aIfrs). compliance with aIfrs ensures that the consolidated financial statements and notes of australia Leisure and entertainment Property Trust comply with International financial reporting standards (Ifrs). The parent entity financial statements and notes also comply with Ifrs except that it has elected to apply the relief provided to parent entities in respect of certain disclosure requirements contained in asB 132 financial Instruments: Disclosure and Presentation. Early adoption of standards The Group has elected to apply the revised pronouncement aasB 101 Presentation of financial statements (issued October 2006) to annual reporting periods beginning 1 July 2007. This includes applying the pronoucement to the comparatives in accordance with aasB 108 accounting Policies, changes in accounting estimates and errors. No adjustments to any of the financial statements were required for the above pronouncement, but certain disclosures are no longer required and have therefore been omitted. Historical cost convention These consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and liabilities (including derivative instruments) at fair value through profit or loss, certain classes of property, plant and equipment and investment property. Critical Accounting Estimates The preparation of financial statements in conformity with aIfrs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the company’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are believed to be reasonable under the circumstances. 83 (b) Cash and cash equivalents for the purposes of the cash flow statement, cash and cash equivalents includes cash at bank, deposits at call and short term money market securities which are readily convertible to cash. (c) Receivables Trade debtors are recognised initially at fair value and subsequently measured at amortised cost, less provision for doubtful debts. Trade receivables are due for settlement no more than 30 days from the recognition. collectibility of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. a provision for doubtful receivables is established when there is objective evidence that all amounts due may not be collected according to the original terms of the receivables. The amount of any provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the income statement. (d) Investments and financial assets financial assets classified as loans and deposits are non derivative financial assets with fixed or determinable payments that are not quoted in an active market and arise when money and services are provided to a debtor with no intention of selling the receivable. Loans and deposits are carried at amortised cost using the effective interest rate method. Under this method, fees, costs, discounts and premiums directly related to the financial asset are spread over its effective life. (e) Plant and equipment Plant and equipment including office fixtures, fittings and operating equipment are stated at historical cost less depreciation. historical cost includes expenditure that is directly attributable to its acquisition. subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the company and the cost of the item can be measured reliably. all other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Depreciation Depreciation on depreciable plant and equipment (office fixtures, fittings and operating equipment) is calculated using the straight line method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives. The estimated useful life of depreciable plant and equipment is as follows: furniture, fittings and equipment software Leasehold improvements 4 – 13 years 3 years 3 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. an asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 30 JUNE 2007 NOTES TO THE FINANcIAL STATEMENTS (continued) Note 1 Summary of significant accounting policies (continued) Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the income statement. (f) Trade and other payables These amounts represent liabilities for goods and services provided to the company prior to the end of the period which are unpaid at the balance sheet date. The amounts are unsecured and are usually paid within 30 days of recognition. (g) Provisions Provisions are recognised when there is a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses. (h) Dividends Provisions is made for the amount of any dividends declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the financial year but not distributed at the balance date. (i) Earnings per stapled security (i) Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to the equity holders of the company by the weighted average number of shares outstanding during the reporting period. (ii) Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential shares. (j) Contributed equity Ordinary shares are classified as contributed equity. 84 Incremental costs directly attributable to the issue of new units, shares or options are shown in contributed equity as a deduction, net of tax, from the proceeds. (k) Employee benefits (i) Wages and salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months of the reporting date are recognised as a current liability in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised as an expense when the leave is taken and measured at the rates paid or payable. (ii) Shares based payments after 7 November 2002 and vested after 1 January 2005 The fair value of options granted is recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the options. The fair value at grant date is independently determined using a Black-scholes option pricing model that takes into account the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the non-tradable nature of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk- free interest rate for the term of the option. The fair value of the options granted excludes the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. at each balance date, the entity revises its estimate of the number of options that are expected to become exercisable. The employee benefit expense recognised each period takes into account the most recent estimate. Upon the exercise of options, the balance of the share-based payments reserve relating to those options is transferred to contributed equity. (iii) Bonus plans Liabilities and an expenses for bonuses are recognised where contractually obliged or where there is a past practice that has created a constructive obligation. (iv) Long service leave The company will begin to recognise liabilities for long service leave when employees reach a qualifying period of continuous service. The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. expected future payments are discounted using market yields at the reporting date on national government bonds with the terms to maturity and currency that match, as closely as possible, the estimated future cash flow. (v) Retirement benefit obligations The company pays fixed contributions to employee’s funds and the company’s legal or constructive obligations are limited to these contributions. The contributions are recognised as an expense as they become payable. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. Note 1 Summary of significant accounting policies (continued) (l) Revenue Management fee income is brought to account on an accruals basis, and if not received at balance date is reflected in the balance sheet as a receivable. (m) Interest income Interest income is recognised on a time proportion basis using the effective interest method. (n) Expenses expenses including operating expenses and other outgoings are brought to account on an accruals basis and, if not paid at balance date, are reflected in the balance sheet as payables. (o) Income tax The income tax expense or revenue for the reporting period is the tax payable on the current reporting period’s taxable income based on the australian company tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of the assets and liabilities and their carrying amounts in the financial statements and to unused tax losses. Deferred tax balances are calculated using the balance sheet method. Under this method, temporary differences arise between the carrying amount of assets and liabilities in the financial statements and the tax bases for the corresponding assets and liabilities. however, an exception is made for certain temporary differences arising from the initial recognition of an asset or liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not effect either accounting profit or taxable profit or loss. similarly, no deferred tax asset or liability is recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities settled. Deferred tax assets are recognised for temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax assets and liabilities are offset when there is a legally enforceable right to the offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. 85 current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. (p) Goods and services tax (GST) revenues, expenses and assets are recognised net of the amount of associated GsT, unless the GsT incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. receivables and payables are stated inclusive of the amount of GsT receivable or payable. The net amount of GsT recoverable from, or payable to, the taxation authority is included with other receivables or payables in the balance sheet. cash flows are presented on a gross basis. The GsT components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flow. (q) New accounting standards and UIG interpretation certain new accounting standards and UIG interpretations have been published that are not mandatory for 30 June 2007 reporting periods. The company’s assessment of the impact of these new standards and interpretations is set out below. (i) AASB 7 Financial Instruments: Disclosures and AASB 2005-10 Amendments to Australian Accounting Standards [AASB 132, AASB 101, AASB 114, AASB 117, AASB 133, AASB 139, AASB 1, AASB 4, AASB 1023 & AASB 1038] aasB 7 and aasB 2005-10 are applicable to annual reporting periods beginning on or after 1 January 2007. The company has not adopted the standards yet. application of the standards will not affect any of the amounts recognised in the financial statements, but will impact the type of information disclosed in relation to the company’s financial instruments. (ii) AASB-l 10 Interim Financial Reporting and Impairment aasB-l 10 is applicable to reporting periods commencing on or after 1 November 2006. The company has not recognised an impairment loss in relation to goodwill, investments in equity instruments or financial assets carried at cost in an interim reporting period but subsequently reversed the impairment loss in the annual report. application of the interpretation will therefore have no impact on the company’s financial statements. (r) Critical accounting estimates and assumptions estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. (s) Financial risk management The company’s activities expose it to a variety of financial risks; market risk (including currency risk, fair value interest rate risk and price risk), credit risk, liquidity risk and cash flow interest rate risk. The company’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the company. (Note 26 provides further information) AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 30 JUNE 2007 NOTES TO THE FINANcIAL STATEMENTS (continued) Note 2 Management fees Management fees fees charged to the Trust by the company for management and responsible entity services. expense recovery and management fee receipts (exclusive of GsT) of $8,234,121 (2006: $10,172,856) disclosed in the statement of cash flows is comprised predominantly of recoveries of Trust expenditure paid by the company and then recovered from the Trust. No margins or fees are charged by the company on recoverable costs, as a result expense recoveries are not disclosed in the income statement as revenue but are netted off against the relevant expenses incurred. Note 3 Transaction costs and other income acquisition proposal due diligence amounts (recovered) following non completion Net costs incurred costs incurred and recovery received by the company, as responsible entity for the Trust, in relation to potential property acquisitions that did not proceed to completion. 86 Note 4 Auditors’ remuneration Audit services Pricewatehousecoopers australian firm: 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 Total remuneration for audit services Other assurance services Pricewatehousecoopers australian firm: General accounting advice (including aIfrs) Due diligence services controls assurance services Total remuneration for other assurance services Total remuneration for assurance services Taxation services Pricewatehousecoopers australian firm: Tax compliance services Due diligence services Tax consulting services Total taxation services 30 June 2007 $ 30 June 2006 $ 2,334,810 2,276,395 96,581 – 96,581 2,188,800 (600,000) 1,588,800 149,437 28,357 177,794 135,400 1,500 136,900 18,893 – – 18,893 196,687 5,300 – 38,685 43,985 26,173 142,250 9,000 177,423 314,323 9,000 223,000 25,135 257,135 Income tax expense/(benefit) Note 5 current tax expense / (benefit) Deferred tax (benefit) (Increase) in deferred tax asset Increase/(Decrease) in deferred tax liabilities Reconciliation of income tax expense to prima facie tax payable Profit/(Loss) before the income tax expense Tax at the australian tax rate 30% Tax effect of amounts which are deductible (taxable) in calculating taxable income: expenditure held on balance sheet share based payments entertainment Under provision in prior years Income tax (benefit) Note 6 Plant and equipment furniture, fittings and equipment at cost accumulated depreciation software at cost accumulated depreciation Office fitout at cost accumulated depreciation Total at cost accumulated depreciation Net book value 30 June 2007 $ (1,918) (5,107) (7,025) (4,002) (1,105) (5,107) 30 June 2006 $ 1,918 (372,380) (370,462) (374,217) 1,837 (372,380) (51,496) (1,222,822) (15,449) (366,847) – 868 510 7,046 8,424 (7,025) 63,318 (33,800) 29,518 80,089 (60,282) 19,807 84,616 (83,306) 1,310 (9,203) 2,398 735 2,455 (3,615) (370,462) 59,712 (24,828) 34,884 72,468 (35,901) 36,567 84,616 (53,713) 30,903 228,023 (177,388) 50,635 216,796 (114,442) 102,354 87 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 30 JUNE 2007 NOTES TO THE FINANcIAL STATEMENTS (continued) Note 6 Plant and equipment (continued) Movement in Plant and Equipment: Furniture, fittings and equipment Net book value at the beginning of the year additions Disposals Depreciation charge Net book value at the end of the year Software Net book value at the beginning of the year additions Disposals Depreciation charge Net book value at the end of the year Office fitout Net book value at the beginning of the year additions Disposals Depreciation charge Net book value at the end of the year Total Net book value at the beginning of the year additions Disposals Depreciation charge Net book value at the end of the year Note 7 Cash and cash equivalents cash at bank Deposits at call 88 (a) as at 30 June 2007 the weighted average interest rate earned on cash was 6.12% (2006: 5.64%). (b) The deposits represents office occupancy security deposits. Note 8 Receivables accounts receivable Interest receivable Note 9 Trust No Income Voting Units (NIVUs) Investment in related party The company was issued $9,080,010 of NIVUs in the Trust for cash consideration of $6,200,010 and non-cash consideration of $2,880,000 in November 2003. The NIVUs have only been issued to the company and are held by the company in order to satisfy the net tangible asset condition in its australian financial services License. The NIVUs are not stapled to shares in the company, have an issue and withdrawal price of $1.00, carry no rights to income from the Trust and entitle the holder to no more than $1.00 per NIVUs upon the winding up of the Trust. The company has a voting power of 9.37% in the Trust as a result of the issue of NIVUs. 30 June 2007 $ 30 June 2006 $ 34,884 3,606 – (8,972) 29,518 36,567 7,621 – (24,381) 19,807 30,903 – – (29,593) 1,310 102,354 11,227 – (62,946) 50,635 47,276 – – (12,392) 34,884 32,857 28,705 – (24,995) 36,567 60,502 – – (29,599) 30,903 140,635 28,705 – (66,986) 102,354 (a) (b) 20,807 82,053 102,860 459,196 23,918 483,114 258,350 2,440 260,790 847,213 3,815 851,028 9,080,010 9,080,010 Note 10 Deferred tax asset Deferred tax assets The balance comprises temporary differences attributable to: Amounts recognised in profit or loss employee benefits acquisition proposal due diligence Other accruals Other provisions Tax losses Net deferred tax assets Movements: Opening balance at 1 July 2006 credited / (charged) to the income statement (note 5) closing balance at 30 June 2007 Deferred tax assets to be recovered within 12 months Deferred tax assets to be recovered after more than 12 months Note 11 Payables Trade creditors creditor accruals Note 12 Provisions Provision for annual leave Provision for superannuation Note 13 Loan from related party Loan from the Trust The loan is non interest bearing, of no fixed term and is repayable on demand. Note 14 Deferred tax liability Deferred tax liability The balance comprises temporary differences attributable to: Amounts recognised in profit or loss Interest income earned but not received Prepaid expense Net deferred tax liability Movements: Opening balance at 1 July 2006 charged to income statement (note 5) closing balance at 30 June 2007 Deferred tax liabilities to be recovered within 12 months Deferred tax liabilities to be recovered after more than 12 months 30 June 2007 $ 30 June 2006 $ 476,155 472,153 9,475 285,984 103,604 3,090 74,002 476,155 472,153 4,002 476,155 285,499 190,656 476,155 77,167 326,837 404,004 31,583 – 31,583 18,611 381,312 72,230 – – 472,153 97,936 374,217 472,153 186,169 285,984 472,153 264,370 1,993,864 2,258,234 89 45,902 15,272 61,174 1,670,824 699,144 732 1,837 732 – 732 1,837 (1,105) 732 732 – 732 1,145 692 1,837 – 1,837 1,837 1,837 – 1,837 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 30 JUNE 2007 NOTES TO THE FINANcIAL STATEMENTS (continued) Note 15 Contributed equity (a) Share Capital Issued share capital 90,660,614 (2006: 90,800,100) fully paid (b) Movements in Ordinary Share Capital Opening balance exercise of options On-market share buyback Balance at the end of the period Movements in the number of fully paid shares Shares on issue Opening balance exercise of options On-market share buyback closing balance (c) Shares fully paid stapled securities in the company were issued at $1.00 per stapled security. each stapled security comprises one $0.10 share in the company and one $0.90 unit in the Trust. They cannot be traded or dealt with separately. stapled securities entitle the holder to participate in dividends/distributions and the proceeds on any winding up of the company in proportion to the number of and amounts paid on the securities held. On a show of hands every holder of stapled securities present at a meeting in person or by proxy, is entitled to one vote. On a company poll each ordinary shareholder is entitled to one vote for each fully paid share, and on a Trust poll each unitholder is entitled to one vote for each fully paid unit. 90 (d) Share buyback On 2 May 2007 the company announced its intention to buyback up to 9,080,010 stapled securities on-market. Between 2 May 2007 and 30th June 2007 the company purchased and cancelled 439,486 ordinary shares. contributed equity was reduced by the total cost of $38,982. Note 16 Retained losses Balance at the beginning of the year Net Profit/(Loss) attributable to ordinary shareholders Balance at the end of the year Note 17 Reserves Share-based payments reserve Balance at the beginning of the year employee share option expense Transfer to share capital on exercise of options Balance at the end of the year Note 18 Segment information 30 June 2007 $ 30 June 2006 $ 9,095,028 9,080,010 9,080,010 54,000 (38,982) 9,095,028 9,080,010 – – 9,080,010 No. of shares No. of shares 90,800,100 300,000 (439,486) 90,660,614 90,800,100 – – 90,800,100 (1,096,488) (44,471) (1,140,959) (244,128) (852,360) (1,096,488) 21,109 2,891 (24,000) – 13,117 7,992 – 21,109 Business segment The company operates solely in the property funds management industry and has no business segmentation. Geographical segment The company operates solely within australia. Note 19 Events occurring after reporting date On 2 May 2007 the company announced its intention to buy back up to 9,080,010 stapled securities on-market. Note 15 contains further information on the buy back. subsequent to year end the company has continued to purchase shares in accordance with the buy back programme. The directors are not aware of any matter or circumstance occurring after balance date which may materially affect the company’s operations, the results of those operations or the state of affairs of the company. 30 June 2007 $ 30 June 2006 $ Note 20 Contingent liabilities Bank guarantee The company has entered into a bank guarantee of $58,135 in respect of its office tenancy at Level 7, 1 O’connell street, sydney. This guarantee may give rise to a liability if the company does not meet its obligations under the terms of the lease. The company has entered into a bank guarantee of $23,834 in respect of its office tenancy at Level 8, 15-19 Bent street, sydney. This guarantee may give rise to a liability if the company does not meet its obligations under the terms of the lease. The lease of these premises expired on 21 July 2007 and the bank guarantee is expected to be relinquished in full. The directors are not aware of any other material contingent liabilities as at the date of this report. Note 21 Reconciliation of profit after income tax to net cash inflows from operating activities (Loss) for the year Depreciation Non cash employee benefits expense – share based payments (Increase)/decrease in receivables (Increase)/decrease in other assets (Increase)/decrease in deferred tax asset Increase/(decrease) in loan from related party Increase/(decrease) in provisions Increase/(decrease) in payables Increase/(decrease) in current tax liability Increase/(decrease) in deferred tax liability Net cash inflows from operating activities (44,471) 62,946 2,891 590,237 (52,483) (4,002) 971,680 (29,591) (1,854,231) (1,918) (1,105) (360,047) (852,360) 66,986 7,992 (664,941) (7,004) (374,217) 349,297 27,895 1,797,734 1,918 1,837 355,137 91 Note 22 Commitments (a) Capital commitments The company has entered into a contract for the fit-out of new office premises located at 1 O’connell street sydney. The amount to be paid under this contract is estimated to be $88,000 (inclusive of GsT) payable following the completion of the fit-out in July 2007. The directors are not aware of any other capital commitments as at the date of this report. (b) Lease commitments The company has entered into a non-cancellable operating lease for its office premises at Level 8, 15-19 Bent street sydney. This lease expired on 21 July 2007. The company has entered into a non-cancellable operating lease for its new office premises at Level 7, 1 O’connell street sydney. The minimum net lease commitments under theses leases are: commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: Within one year Later than one year but not later than five years Later than five years 109,635 273,970 – 383,605 73,361 3,867 – 77,228 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 30 JUNE 2007 NOTES TO THE FINANcIAL STATEMENTS (continued) Note 23 Related party transactions (a) Parent entity, subsidiaries, joint ventures and associates The company has no parent entity, subsidiaries, joint ventures or associates. (b) Key management personnel Key Management Personnel and their compensation is set out in note 24. (c) Transaction with related parties for the year ended 30 June 2007 the company had charged the Trust $2,334,810 in management fees (2006:$2,276,000). Peter Warne is a director of Next financial Limited (‘Next”), which is a private investment manager which operates accounts on behalf of investors. all of Next’s investment securities are held by fortis clearing sydney Pty Ltd (“fortis”) and Merrill Lynch as custodian for clients. fortis held 2,286,269 stapled securities of aLe as at 30 June 2007 (2006:4,254,837) and Merrill Lynch held 1,395,128 stapled securities of aLe as at 30 June 2007 (2006: Nil). Mr Warne does not make any investment decisions as part of his role at Next which relate to securities in aLe. Peter Warne is a director of Macquarie Bank Limited (“Macquarie”). Macquarie has provided banking services and corporate advice to aLe in the past and may continue to do so in the future. Mr Warne does not take part in any decisions to appoint Macquarie in relation to banking services or corporate advice provided by Macquarie to aLe. (d) Terms and conditions all related party transactions are conducted on normal commercial terms and conditions. Outstanding balances are unsecured and are repayable in cash and callable on demand. Note 24 Key management personnel (a) Directors The following persons were directors of the company during the financial year: Name Type appointed 92 P h Warne (chairman) J P henderson h I Wright a f O Wilkinson (Managing Director) J T McNally Independent non-executive Independent non-executive Independent non-executive executive executive 8 september 2003 19 august 2003 8 september 2003 16 November 2003 26 June 2003 (b) Other key management personnel The following persons also had authority and responsibility for planning, directing and controlling the activities of the company, directly or indirectly, during the year. Name Title andrew slade Darren Barkas Brendan howell Michael clarke Investment and acquisitions Manager Group financial controller and company secretary1 compliance Officer and company secretary2 finance Manager 1 Darren Barkas resigned as Group financial controller and company secretary on 20 april 2007. 2 Brendan howell was appointed company secretary on 20 april 2007. (c) Compensation for key management personnel The following table sets out the compensation for key management personnel in aggregate. refer to the renumeration report in the Directors’ report for details of the renumeration policy and compensation details by individual. short term employee benefits Post employment benefits share based payments 30 June 2007 $ 30 June 2006 $ 1,067,198 54,015 2,891 1,124,104 1,081,304 49,843 7,993 1,139,140 The company has taken advantage of the relief provided by the corporations regulations cr2M.6.04 and has transferred the detailed remuneration disclosures to the directors’ report. The relevant information can be found in the remuneration report on pages 73 to 76. Note 24 Key management personnel (continued) (d) Equity holdings of key management personnel The following directors, key management personnel and their associates held or currently hold the following shares in the company: Name role P h Warne J P henderson h I Wright a f O Wilkinson D s Barkas a J slade M J clarke Non-executive Director Non-executive Director Non-executive Director executive Director Group financial controller and company secretary Investment and acquisitions Manager finance Manager Note 25 Earnings per share Number held at the start of the year 650,000 55,000 100,000 68,000 48,327 12,000 – Purchases / (sales) 50,000 54,000 – 309,650 – – 1,500 (a) Basic Earnings per share Attributable to equity holders of the Company Basic and diluted earnings per equity holders of the company Attributable to security holders of the stapled entity Basic and diluted earnings per stapled security Basic and diluted earnings per stapled security before financing costs attributable to the company security holders divided by the average number of securities Basic and diluted earnings per stapled security using realised operating income. Number held at 30 June 2007 700,000 109,000 100,000 377,650 48,327 12,000 1,500 30 June 2007 $ 30 June 2006 $ (0.49) (0.94) (0.49) (0.49) (0.94) (0.94) 93 Number Number (b) Weighted average number of shares used as the denominator Weighted average number of shares used as the denominator in calculating earnings per share 90,928,711 90,800,100 Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share 90,928,711 90,800,100 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 30 JUNE 2007 NOTES TO THE FINANcIAL STATEMENTS (continued) Note 26 AASB 132 Financial Instruments: Disclosure and Presentation and AASB 139 Financial Instruments: Recognition and Measurement (a) Interest rate risk The company’s exposure to the interest rate risk and the effective weighted interest rate by maturity periods is set out in the following table. for interest rates applicable to each class of asset or liability refer to individual notes to the financial statements. exposure arises predominantly from assets bearing variable interest rates as the company intends to hold fixed assets and liabilities to maturity. fIXeD INTeresT MaTUrING IN floating interest rate $’000 Notes 1 year or less $’000 1 to 5 years $’000 More than 5 years $’000 Non interest bearing $’000 Total $’000 30 June 2007 Financial assets cash receivables Weighted average interest rate Financial liabilities Payables Loan from related party Weighted average interest rate Net financial assets/ (liabilities) 7 8 11 13 20,507 – 20,507 5.75% 82,053 – 82,053 5.20% – – – – – – – – 20,507 82,053 – – – – – – – – – – – – – – – – – – 300 260,790 261,090 – 102,860 260,790 363,650 1.50% 404,004 1,670,824 2,074,828 – 404,004 1,670,824 2,074,828 – (1,813,738) (1,711,178) 94 fIXeD INTeresT MaTUrING IN floating interest rate $’000 Notes 1 year or less $’000 1 to 5 years $’000 More than 5 years $’000 Non interest bearing $’000 Total $’000 30 June 2006 Financial assets cash receivables Weighted average interest rate Financial liabilities Payables Loan from related party Weighted average interest rate Net financial assets/ (liabilities) 7 8 11 13 458,896 – 458,896 5.65% 23,918 – 23,918 5.60% – – – – – – – – 458,896 23,918 – – – – – – – – – – – – – – – – – – 300 851,028 851,328 – 483,114 851,028 1,334,142 2.04% 2,258,234 699,144 2,957,378 – 2,258,234 699,144 2,957,378 – (2,106,050) (1,623,236) Note 26 AASB 132 Financial Instruments: Disclosure and Presentation and AASB 139 Financial Instruments: Recognition and Measurement (continued) (b) Credit Risk credit risk is the risk that the Trust will fail to perform its contractual obligations to the company, including honouring the terms of its constitution, either in whole or in part. credit risk has been minimised primarily by ensuring that the Trust has appropriate financial standing. The credit risk on financial assets of the company which have been recognised in the balance sheet is generally the carrying amount net of any provision for doubtful debts. (c) Liquidity and cash flow risk Liquidity risk is the risk that the company will experience difficulty in either realising or otherwise raising sufficient funds to satisfy commitments. cash flow risk is the risk that the future cash flows will fluctuate. The risk management guidelines adopted are designed to minimise liquidity and cash flow risk through actively managing significant exposures to large creditors and ensuring counterparties have appropriate financial standing. (d) Net fair value of assets and liabilities The net fair value of assets and liabilities included in the balance sheet approximates their carrying value. 95 AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 30 JUNE 2007 DIREcTORS’ DEcLARATION In the directors’ opinion: (a) the financial statements and notes set out on pages 79 to 95 are in accordance with the corporations act 2001, including (i) complying with accounting standards, the corporations regulations 2001 and other mandatory professional reporting requirements; and (ii) giving a true and fair view of the company’s financial position as at 30 June 2007 and of its performance as for the financial year ended on that date; and (b) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. (c ) The actual remuneration disclosures set out on pages 73 to 76 of the directors’ report comply with accounting standards aasB 124 related Party Disclosures and the corporations regulations 2001. This declaration is made in accordance with a resolution of the directors. Peter H Warne Director sydney Dated this 21st day of august 2007 96 Independent auditor’s report to the members of Australian Leisure and Entertainment Property Management Limited Report on the financial report and the AASB 124 Remuneration disclosures contained in the directors’ report We have audited the accompanying financial report of australian Leisure and entertainment Property Management Limited (the company), which comprises the balance sheet as at 30 June 2007, and the income statement, statement of changes in equity and cash flow statement for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration for australian Leisure and entertainment Property Management Limited. We have also audited the remuneration disclosures contained in the directors’ report. as permitted by the corporations regulations 2001, the company has disclosed information about the remuneration of directors and executives (“remuneration disclosures”), required by accounting standard aasB 124 related Party Disclosures, under the heading “remuneration report” in pages 73 to 76 of the directors’ report and not in the financial report. Directors’ responsibility for the financial report and the AASB 124 Remunerations disclosures contained in the directors’ report The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with australian accounting standards (including the australian accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal control relevant to the preparation and fair presentation of a financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 1, the directors also state, in accordance with accounting standard aasB 101 Presentation of Financial Statements, that compliance with the australian equivalents to International financial reporting standards ensures that the financial report, comprising the financial statements and notes, complies with International financial reporting standards. 97 The directors of the company are also responsible for the remuneration disclosures contained in the directors’ report. Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with australian auditing standards. These auditing standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. Our responsibility is to also express an opinion on the remuneration disclosures contained in the directors’ report based on our audit. an audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report and the remuneration disclosures contained in the directors’ report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report and the remuneration disclosures contained in the directors’ report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report and the remuneration disclosures contained in the directors’ report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. an audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report and the remuneration disclosures contained in the directors’ report. Our procedures include reading the other information in the annual report to determine whether it contains any material inconsistencies with the financial report. for further explanation of an audit, visit our website http://www.pwc.com/au/financialstatementaudit. Our audit did not involve an analysis of the prudence of business decisions made by directors or management. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 30 JUNE 2007 Matters relating to the electronic presentation of the audited financial report This audit report relates to the financial report and remuneration disclosures of australian Leisure and entertainment Property Management Limited for the financial year ended 30 June 2007 included on the aLe Property Group’s web site. The directors of the responsible entity are responsible for the integrity of the australian Leisure and entertainment Property Management Limited’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 and remuneration disclosures identified above. It does not provide an opinion on any other information which may have been hyperlinked to/from the financial report or remuneration disclosures. 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 and remuneration disclosures to confirm the information included in the audited financial report and remuneration disclosures presented on this web site. Independence In conducting our audit, we have complied with the independence requirements of the corporations act 2001. Auditor’s opinion on the financial report In our opinion: (a) the financial report of australian Leisure and entertainment Property Management Limited is in accordance with the Corporation Act 2001, including: (i) giving a true and fair view of the australian Leisure and entertainment Property Management Limited’s financial position as at 30 June 2007 and of its performance for the year ended on that date; and (ii) complying with australian accounting standards (including the australian accounting Interpretations) and the Corporations Regulations 2001; and (b) the financial statements and notes also comply with International financial reporting standards as disclosed in Note 1. auditor’s opinion on the aasB 124 remuneration disclosures contained in the directors’ report In our opinion, the remuneration disclosures that are contained in pages 73 to 76 of the directors’ report comply with accounting standard aasB 124. 98 PricewaterhouseCoopers SJ Hadfield Partner sydney 21 august 2007 Level 7, 1 O’connell Street Sydney NSW 2000 Telephone: + 61 02 8231 8588 Facsimile: + 61 02 8231 8500 www.alegroup.com.au Web: 21 august, 2007 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 2007. Dear Directors, We confirm to the best of our knowledge and belief that the financial reports for the year ended 30 June 2007 of: – aLe Property Group, being australian Leisure and entertainment Property Trust and its controlled entities; – australian Leisure and entertainment Property Management Limited; and – aLe finance company Pty Limited present a true and fair view, in all material respects, of the financial 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. 99 We confirm that all risk management and internal compliance and control systems are operating efficiently and effectively in all material respects. yours sincerely andrew Wilkinson Managing Director Michael clarke finance Manager Brendan howell company secretary AUSTRALIAN LEISURE AND ENTERTAINMENT PROPERTY MANAGEMENT LIMITED ANNUAL REPORT 30 JUNE 2007 STAPLED SEcURITY HOLDER INFORMATON The equity holder information set out below was applicable as at 31 august 2007. A. Distribution of equity securities analysis of number of equity security holders by size of holding: Number of securities 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over Total cLass Of eqUITy secUrITy Number of stapled security holders Number of No income Voting Unit (NIVUs) holders 155 870 621 1,021 57 2,724 - - - - 1 1 The stapled securities are listed on the asX and each stapled security is comprised of one share in australian Leisure and entertainment Property Management Limited (“company”) and one unit in australian Leisure and entertainment Property Trust (“Trust”). The NIVUs have been issued by the Trust to the company. There were six holders of less than a marketable parcel of stapled securities. B. Equity security holders The name of the 20 largest holders of stapled securities are as listed below: 100 rank Name 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Bell Potter Nominees Limited hsBc custody Nominees (australia) Limited J P Morgan Nominees australia Limited fortis clearing Nominees Pty Limited UBs Wealth Management australia Nominees Pty Limited aNZ Nominees Limited Lady Jean falconer Griffin hedley Leisure & Gaming Property services Limited T W hedley Pty Limited citicorp Nominees Pty Limited National Nominees Limited citicorp Nominees Pty Limited rBc Dexia Investor services australia Nominees Pty Limited Mr Jeremy Nicholas ferris and Mrs Dorothy May ferris and Mr Kenneth charles ferris argo Investments Limited caergwrle Investments Pty Limited Oakleigh Nominees Pty Limited sandhurst Trustees Limited Mr Michael John steven arthur saltaire Pty Limited C. Substantial holders substantial holders of aLe (as per notices received as at 31 august 2007) are set out below: stapled security holder hedley Leisure and Gaming Property services Limited ING australia holdings Limited and related corporations australia and New Zealand Banking Group Limited Deutsche Bank Group Number of stapled securities 15,997,456 4,837,136 3,222,045 3,185,956 3,067,249 2,410,136 1,859,120 1,819,814 1,561,606 1,499,103 1,347,541 1,212,570 870,168 662,780 610,000 500,000 372,858 262,369 250,001 245,066 45,792,974 % of issued capital 18.22% 5.51% 3.67% 3.63% 3.49% 2.74% 2.12% 2.07% 1.78% 1.71% 1.53% 1.38% 0.99% 0.75% 0.69% 0.57% 0.42% 0.30% 0.28% 0.28% 52.13% Number held 19,378,876 6,185,103 5,104,417 5,180,924 Percentage of voting rights 22.07% 7.04% 5.81% 5.90% aNZ and each of the aNZ subsidiaries is taken under s 608(3)(a) of the corporations act 2001 to have the same relevant interest in aLe Property Group as ING australia Limited (“INGa”), by reason of aNZ having voting power above 20% in INGa. D. Voting rights The voting rights attaching to each class of equity securities are set out below: (a) Stapled securities On a show of hands every stapled security holder present at a meeting in person or by proxy shall have one vote and upon a poll each stapled security will have one vote. (b) NIVUS each NIVUs entitles the company one vote at a meeting of the Trust. 9,080,000 NIVUs have been issued by the Trust to the company and 90,800,100 units have been issued by the Trust to stapled securities holders. 2,998,049 units have been cancelled via the on-market stapled security buy back programme currently in progress by the company. The NIVUs therefore represent 9.37% of the voting rights of the Trust. ALE Property Group owns a portfolio of 103 pubs located throughout the five mainland states of Australia. CONTENTS Chairman’s Message 7 Financial Highlights 8 Managing Director’s Report 9 Management Team 13 Property Portfolio 14 Board of Directors 22 Corporate Governance 23 Financial Reports 25 Management Statement Letter 99 Stapled Security Holder Information 100 Investor Information and Corporate Directory IbC The quality of the Group’s assets and its risk and capital management policies have once again enabled ALE to outperform expectations in delivering top shelf returns to security holders June 2006 June 2005 GROWTH IN ACCUMULATED VALUE (MARKET VALUE AND DISTRIbUTIONS) ALE Other LPTs June 2004 Front cover and opposite left: The Breakfast Creek Hotel is “an institution” in Brisbane. Opposite right: The Queens Tavern in Highgate, Perth was first established as a pub in 1899. See www. thequeens.com.au for more information. 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. Registered Office Level 7, 1 O’Connell Street Sydney NSW 2000 Telephone (02) 8231 8588 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 confirmed 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. The Annual Report and the Half-Year Report are released to the ASX and posted on the ALE website in August and February respectively. The Annual Report and Half-Year Report are not mailed to stapled security holders, unless requested. The registry have and will continue to mail forms on a regular basis to enable stapled security holders to elect to receive the Annual Reports each year. 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. ASX announcements are also included on the site on a regular basis. Annual Tax Statement Accompanying the final 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, Westin Hotel, 1 Market Place, Sydney at 10 am on 13 November 2006. A copy of the notice of meeting will be mailed to stapled security holders and made available to download from ALE’s website in October 2007. Security Holder Enquiries Please contact the registry if you have any questions about your holding or payments. Company Secretary Mr Brendan Howell Level 7, 1 O’Connell Street Sydney NSW 2000 Telephone (02) 8231 8588 Auditors PricewaterhouseCoopers 201 Sussex Street Sydney NSW 2000 For 2008, subject to approval by the shareholders at the AGM KPMG 10 Shelly Street Sydney NSW 2000 Lawyers Allens Arthur Robinson Deutsche Bank Place Corner Hunter and Phillip Streets 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 (02) 8235 8150 www.computershare.com.au d e t i m L i y t P i s e t a c o s s A & r r a B s s o R y b d e c u d o r p d n a d e n g s e D i