ALE Property Group
Annual Report 2017

Plain-text annual report

ANNUAL REPORT 2017 VALUE INCOME GROWTH OPPORTUNITIES “ It is an honour to succeed Peter Warne as Chairman of ALE. On behalf of my fellow Directors, I acknowledge and thank Peter for his outstanding service and leadership as Chairman since ALE listed on the Australian Securities Exchange (ASX) in 2003. Over those nearly 14 years, the accumulated value of a securityholder’s original $1.00 investment, with reinvested distributions, had grown to $14.72 at 30 June 2017. Peter oversaw ALE’s market capitalisation growth from $91 million to more than $900 million today, delivering a total return of around 22% per annum. This is testament to Peter, the Board and management team and a good relationship with a strongly performing tenant.” Robert Mactier Chairman Distribution 20.4cps 2.0% Property Values Net Gearing Hedge Maturity $1,080m 9.1% 42.7% 2.2% 8.4years 1 year 500 400 300 200 100 0 100% of forecast net debt is hedged to November 2025 100% % Net Debt Hedged (LHS) 75% 50% 25% 0% $110m Repaid May 2017 Expires Nov 25 Avg Fixed and Hedged Base Rates (RHS) $225m $150m $148m* Issued March 2017 3.75% 3.50% 3.25% 3.00% 2.75% 2.50% e t a R e s a B d e g d e H / d e x F e g a r e v A i FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 * balance escalates with CPI ALE Property Group Comprising Australian Leisure and Entertainment Property Trust and its controlled entities Report For the Year ended 30 June 2017 ABN 92 648 441 429 ANNUAL REPORT 2017 ALE Property Group (ASX: LEP) ALE Property Group is the owner of Australia's largest portfolio of freehold pub properties. Established in November 2003, ALE owns a portfolio of 86 pub properties across the five mainland states of Australia. All the properties are leased to Australian Leisure and Hospitality Group Pty Limited (ALH). WWW.ALEGROUP.COM.AU Contents Directors' Report Auditor's Independence Declaration Financial Statements Statement of Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Directors' Declaration Independent Auditors Report Investor Information 02 20 21 22 23 24 25 26 50 51 55 DIRECTORS' REPORT For the Year ended 30 June 2017 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 10 6 O'Connell Street Sydney NSW 2000 The directors of the Company present their report, together with the financial statements of ALE, for the year ended 30 June 2017. 1. DIRECTORS The following individuals were directors of the Company during the year and up to the date of this report unless otherwise stated: Name Experience, responsibilities and other directorships Robert Mactier, B.Ec, MAICD Independent Non Executive Director Chairman of the Board Appointed: 28 November 2016 Appointed Chairman: 23 May 2017 Member of the Audit, Compliance and Risk Management Committee (ACRMC) Member of the Nominations Committee Member of the Remuneration Committee Robert's other current roles include Chairman of ASX-listed WPP AUNZ Limited (since 2006) and Consultant to UBS AG in Australia (since June 2007). Between 2006 and January 2017 he served as a non-executive Director of NASDAQ listed Melco Resorts and Entertainment Limited. Robert began his career at KPMG and from January 1986 to April 1990 worked across their audit, management consulting and corporate finance practices. He has extensive investment banking experience in Australia, having previously worked for Citigroup, E.L. & C. Baillieu and Ord Minnett Securities between 1990 and 2006. Robert holds a Bachelor’s degree in economics from the University of Sydney and has been a Member of the Australian Institute of Company Directors since 2007. Phillipa Downes, BSc (Bus Ad), MAppFin, GAICD Independent Non Executive Director Appointed: 26 November 2013 Chair of the ACRMC Member of the Nominations Committee Member of the Remuneration Committee Phillipa (Pippa) is a Director of the Infotrack Group, the ASX Clearing and Settlement companies, the Sydney Olympic Park Authority and is also on the panel of the ASX Appeals Tribunal. Pippa is also a director of the Pinnacle Foundation and was a Managing Director and Equity Partner of Goldman Sachs in Australia until October 2011, working in the Proprietary Investment division. Pippa has had a successful international banking and finance career spanning over 20 years where she has led the local investment, derivative and trading arms of several of the world’s leading Investment Banks. She has extensive experience in Capital Markets, derivatives and asset management. Prior to joining Goldman Sachs in 2004, Ms Downes was a director and the Head of Equity Derivatives Trading at Deutsche Bank in Sydney. When Morgan Stanley was starting its equity franchise in Australia in 1998 she was hired to set up the Derivative and Proprietary Trading business based in Hong Kong and Australia. Ms Downes started her career working for Swiss Bank O’Connor on the Floor of the Pacific Coast Stock Exchange in San Francisco, followed by the Philadelphia Stock Exchange before returning to work in Sydney as a director for UBS. Pippa was previously an appointed Director on the Board of Swimming Australia and the Swimming Australia Foundation. Pippa graduated from the University of California at Berkeley with a Bachelor of Science in Business Administration majoring and Finance and Accounting. Pippa also completed a Masters of Applied Finance from Macquarie University in 1998. Page 2 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2017 Name Experience, responsibilities and other directorships Nancy Milne, OAM, LLB, FAICD Independent Non Executive Director Appointed: 6 February 2015 Member of the ACRMC Member of the Nominations Committee Member of the Remuneration Committee Nancy has been a professional non-executive director for over a decade. She is a former lawyer with over 30 years’ experience with primary areas of legal expertise in insurance, risk management and corporate governance. She was a partner with Clayton Utz until 2003 and a consultant until 2012. She is currently Chairman of the Securities Exchange Guarantee Corporation and deputy chairman of the State Insurance Regulatory Authority. She was previously a director of Australand Property Group, Crowe Horwarth Australasia, State Plus and Novion Property Group (now Vicinity Centres). Nancy has a Bachelor of Laws from the University of Sydney. She is a member of the NSW Council of the Australian Institute of Company Directors and the Institute’s Law Committee. Paul Say, FRICS, FAPI Independent Non Executive Director Appointed: 24 September 2014 Member of the ACRMC Chair of the Nominations Committee Chair of the Remuneration Committee James McNally B.Bus (Land Economy), Dip. Law Non Executive Director Paul has over 30 years’ experience in commercial and residential property management, development and real estate transactions with major multinational institutions. Paul was Chief Investment Officer at Dexus Property Group from 2007 to 2012. Prior to that he was with Lend Lease Corporation for 11 years in various positions culminating with being the Head of Corporate Finance. Paul is a director of GPT Metro Office Fund and Frasers Logistic & Industrial Trust (SGX listed). Paul has a Graduate Diploma in Finance and Investment and a Graduate Diploma in Financial Planning. He is a Fellow of the Royal Institute of Chartered Surveyors, Fellow of the Australian Property Institute and a Licensed Real Estate Agent (NSW, VIC and QLD). Appointed: 26 June 2003 James is an executive and founding director of the company. James has over 20 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’ qualifications include a Bachelor of Business in land economy and a Diploma of Law. James is also a registered valuer and licensed real estate agent. James is not considered an Independent Director as he has held an Executive Director position with ALE for the last three years to 15 April 2017. Peter Warne, B.A, FAICD Independent Non Executive Director Appointed: 8 September 2003 Resigned:23 May 2017 Member of the Audit, Compliance and Risk Management Committee (ACRMC) Member of the Nominations Committee Member of the Remuneration Committee 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 Chairman of Macquarie Group Limited and a board member of ASX Limited. He is also a Director of the Securities Exchanges Guarantee Corporation and NSW Treasury Corporation. 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. Page 3 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2017 Name Experience, responsibilities and other directorships Andrew Wilkinson B.Bus, CFTP, MAICD Managing Director Appointed: 16 November 2004 Chief Executive Officer and Managing Director of the Company Responsible Manager of the Company under the Company’s Australian Financial Services Licence (AFSL) 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 around 35 years’ experience in banking, corporate finance and funds management. He was previously a corporate finance partner with PricewaterhouseCoopers and spent 15 years in finance and investment banking with organisations including ANZ Capel Court and Schroders. 2. OTHER OFFICERS Name Experience Michael Clarke BCom, MMan, CA, ACIS Company Secretary and Finance Manager Appointed: 30 June 2016 Michael joined ALE in October 2006 and was appointed Company Secretary on 30 June 2016. Michael has a Bachelor of Commerce from the University of New South Wales and a Masters of Management from the Macquarie Graduate School of Management. He is an associate member of both the Governance Institute of Australia and the Institute of Chartered Accountants in Australia and New Zealand. Michael has over 30 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. He has also owned and managed his own accounting practice. David Lawler B.Bus, CPA Independent member of ACRMC Appointed: 9 December 2005 David was appointed to ALE’s ACRMC on 9 December 2005 and has over 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. David was Group Auditor for the Commonwealth Bank of Australia. David is the Chairman of the Australian Trade and Investment Commission Audit and Risk Committee, and the National Mental Health Commission Audit Committee, and is an audit committee member of the Australian Office of Financial Management, Cancer Australia, the Department of Foreign Affairs and Trade, the Australian Sports Anti-Doping Authority, and the Australian Maritime Safety Authority. David is Chairman of Australian Settlements Limited. David has a Bachelor of Business Studies from Manchester Metropolitan University in the UK. He is a Fellow of CPA Australia and a past President of the Institute of Internal Auditors – Australia. 3. INFORMATION ON DIRECTORS AND KEY MANAGEMENT PERSONNEL 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 R W Mactier R W Mactier P G Say P G Say Directorships of listed entities WPP AUNZ Limited Melco Resorts and Entertainment Limited (Nasdaq listed) GPT Metro Office Fund Frasers Logistic & Industrial Trust (SGX listed) Appointed as Director December 2006 December 2006 Type Non-executive Non-executive Non-executive August 2014 Non-executive June 2016 Resigned as Director January 2017 September 2016 Page 4 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2017 Directors’ and key management personnel interests in stapled securities and ESSS rights The following directors, key management personnel and their associates held or currently hold the following stapled security interests in ALE: Name R W Mactier P H Warne (Resigned 23 May 2017) P J Downes P G Say N J Milne A F O Wilkinson J T McNally A J Slade M J Clarke D J Shipway Role Non-executive Director Non-executive Director Non-executive Director Non-executive Director Non-executive Director Executive Director Executive Director Capital Manager Company Secretary and Finance Manager Asset Manager Number held at the start of the year - 1,185,000 213,904 25,000 20,000 317,859 55,164 73,611 17,500 4,000 Net movement Number held at the end of the year 50,000 - (24,794) - - 49,878 - (13,611) 500 8,825 50,000 1,185,000 189,110 25,000 20,000 367,737 55,164 60,000 18,000 12,825 The following key management personnel currently hold rights over stapled securities in ALE: Name ESSS Rights A F O Wilkinson A J Slade M J Clarke D J Shipway Role Executive Director Capital Manager Finance Manager Asset Manager Number held at the start of the year Granted during the year Lapsed / Delivered during the year Number held at the end of the year 131,975 66,355 23,024 17,514 27,020 13,510 5,246 1,968 (34,878) (19,092) (8,825) (8,825) 124,117 60,773 19,445 10,657 Meetings of directors The number of meetings of the Company’s Board of Directors held and of each Board committee during the year ended 30 June 2017 and the number of meetings attended by each director at the time the director held office during the year were: Director R W Mactier P H Warne P J Downes P G Say N J Milne A F O Wilkinson J T McNally Board ACRMC Nominations Committee and Remuneration Committee Held1 6 9 10 10 10 10 10 Attended 6 9 10 10 10 10 9 Held1 2 6 7 7 7 n/a n/a Attended 2 6 7 7 7 n/a n/a Held1 2 3 4 4 4 n/a n/a Attended 2 3 4 4 4 n/a n/a Member of Audit, Compliance and Risk Management Committee D J Lawler n/a n/a 7 7 n/a n/a 1 “Held” reflects the number of meetings which the director or member was eligible to attend. 4. 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. Page 5 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2017 5. OPERATIONAL AND FINANCIAL REVIEW Background ALE Property Group is the owner of Australia's largest portfolio of freehold pub properties. Established in November 2003, ALE owns a portfolio of 86 pub properties across the five mainland states of Australia. All of the properties in the portfolio are leased to Australian Leisure and Hospitality Group (ALH) for an average remaining initial lease term of 11.3 years plus options for ALH to extend. ALE's high quality freehold pubs have long term leases that include a number of unique features that add to the security of net income and opportunity for rental growth. Some of the significant features of the leases (for 83 of the 86 properties) are as follows: • • • • • For most of the properties the leases commenced in November 2003 with an initial term of 25 years to 2028; The leases are triple net which require ALH to take responsibility for rates, insurance and essentially all structural repairs and maintenance, as well as land tax in all states except Queensland (three of the 86 properties are double net); Annual CPI rent increases are not subject to any cap and rents do not decline with negative CPI; There is a market rent review in November 2018 that is capped and collared within 10% of the 2017 rent; and There is a full open market rent review (no cap and collar) in November 2028. Significant changes in the state of affairs In the opinion of the directors, the following significant changes in the state of affairs of ALE occurred during the year: • • The 86 individual property values increased by an average of 9.1% to $1,080.2 million; and Net Assets increased by 18.2% to $586.0 million and net borrowings (total borrowings less cash) as a percentage of assets (total assets less cash, derivatives and deferred tax assets) decreased from 44.9% to 42.7%. Current year performance ALE produced a profit after tax of $130.0 million for the year ended 30 June 2017 compared to a profit of $91.2 million for the year ended 30 June 2016. The increase is primarily due to: • • • • • • Fair value adjustments to investment properties remained stable at $89.6 million in the current year due to rental growth and continued reductions in capitalisation rates; Fair value adjustments to derivatives liabilities increased from a $25.2 million decrement in 2016 to a $14.3 million increment in the current year as long term interest rates increased; Rental income increased by 1.5% due to the full year impact of the November 2015 rent review of 1.5% and the part year impact of the November 2016 rent review of 1.4%; Interest income was higher due to additional funds on deposit following the March 2017 AMTN financing ; Finance costs were higher due to the new AMTN borrowings raised in March 2017 overlapping the existing AMTN borrowing that was repaid in May 2017; and Management costs increased during the year due to costs associated with various property related projects. ALE's management expense ratio continues to be one of the lowest in the A-REIT sector. ALE has a policy of paying distributions which are subject to the minimum requirement to distribute taxable income of the trust under the Trust Deed. Distributable Profit is a non-IFRS measure that shows how free cash flow is calculated by ALE. Distributable Profit excludes items such as unrealised fair value (increments)/decrements arising from the effect of revaluing derivatives and investment property, non-cash expenses and non-cash financing costs. During the financial year ALE produced a distributable profit of $29.1 million compared to $29.6 million in the previous financial year. The table below separates the cash components of ALE's profit that are available for distribution from the non-cash components. The directors believe this will assist stapled securityholders in understanding the results of operations and distributions of ALE. Distributable Profit was primarily impacted by the same cash items that affected Operating Profit, namely changes in rent and finance costs. Page 6 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2017 Profit/(loss) after income tax for the year Adjustment for non-cash items Fair value increments to derivatives and investment properties Employee share based payments Finance costs - non-cash Income tax expense Total adjustments for non-cash items Total profit available for distribution Distribution paid or provided for Available and under/(over) distributed for the year Distribution funded as follows Current year distributable profits Prior year undistributed profits Capital and surplus cash Earnings and distribution per stapled security: Basic and diluted earnings Earnings available for distribution Total distribution Current year distributable profits Prior year undistributed profits Capital and surplus cash Financial position 30 June 2017 $’000 30 June 2016 $’000 130,043 91,178 (103,899) 248 2,712 14 (100,925) 29,118 39,937 (10,819) 29,118 - 10,819 39,937 30 June 2017 Cents 66.43 14.87 20.40 14.87 0.00 5.53 20.40 (64,434) 182 2,613 35 (61,604) 29,574 39,154 (9,580) 29,574 6,523 3,057 39,154 30 June 2016 Cents 46.58 15.11 20.00 15.11 3.33 1.56 20.00 Percentage Increase / (Decrease) 42.61% (1.54%) 2.00% ALE's net assets increased by 18.2%, compared with the previous year which was largely attributable to an increase in property values during the year. Investment property valuations increased the value by 9.1% from $990.5 million to $1,080.2 million during the year. The increase in property valuations was attributable to the November 2016 CPI rent increase and average capitalisation rates decreasing from around 5.5% to 5.1% across the portfolio. When assessing statutory valuations the valuers applied both traditional capitalisation rate and discounted cashflow (DCF) based valuation methods. The valuation results reflect a combination of these methods but continue to place significant emphasis upon the traditional capitalisation rate approach. ALE believes that the DCF method can provide a comprehensive view of the quality of the lease and tenant as well as the medium and longer term opportunities for reversion to market based levels of rent. In applying the DCF method the valuers made their own independent assessment of the tenant’s current level of EBITDAR and also adopted industry standard market rental ratios. The valuers also used a range of assumptions they deemed appropriate for each of the individual properties. Based upon their assessments and assumptions the valuers’ DCF valuations represented a weighted average capitalisation rate of around 4.5% for the 33 properties valued. This compares to the rate of around 5.1% which was derived using a combination of the DCF and capitalisation rate methods. Page 7 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2017 Net assets per stapled security increased by 18.2% from $2.53 to $2.99 compared to June 2016, primarily as a result of the increase in property values. ALE’s market capitalisation this year increased by around 2.6% to around $914 million at 30 June 2017. ALE’s capital position remains sound. This is evidenced by a steady reduction in gearing and the maintenance of an investment grade credit rating. ALE’s next debt maturity of $225 million is scheduled to occur in August 2020. During the year net covenant gearing reduced from 44.9% to 42.7%. ALE continues to maintain appropriate headroom to all debt covenants with the nearest equivalent to an average 29% fall in property values. ALE‘s debt capital structure continues to be characterised by the following positive features:  debt structure with two types of fixed rate bonds;  maturity dates that are diversified over the next six years;  100% of net debt hedged for around eight years;  all up cash interest rate of 4.26% p.a. fixed until the next refinancing in August 2020; and  lower gearing of 42.7% (2016: 44.9%). ALE has consistently sought to mitigate interest rate volatility and continues to have long term hedging in place to achieve this objective. Historical performance To provide context to ALE's historical performance, the following data and graphs outline a five year history of key financial metrics. FY13 FY14 FY15 FY16 FY17 Distributable profit ($m) 31.7 31.2 29.1 29.6 29.1 Distribution per Security (cents) 16.00 16.45 16.85 20.00 20.40 Continuing property values ($m)2 781.5 821.6 900.5 990.5 1,080.2 Net gearing 1 1. Total borrowings less cash as a percentage of total assets less cash and derivatives 50.8% 51.7% 47.9% 44.9% 42.7% 2. Includes only the value of properties held as at 30 June 2017 The accumulated value of $1.00 initial public offering (IPO) investment in ALE and reinvested distributions, rights renunciation payments and current market value of securities as at 30 June 2017 totalled $14.72. According to investment bank UBS, for the period ending 30 June 2017, ALE continued to outperform other equity return benchmarks including the AREIT 300 index and the All Ordinaries index for periods including one, three, five and ten years. For the one year period ALE's return of 7.5% outperformed the AREIT 300 index of (5.6%). Distribution per security Gearing Continuing Property Values ($m) 60.0% 40.0% 20.0% 0.0% $1,200 $800 $400 $0 F Y 1 3 F Y 1 4 F Y 1 5 F Y 1 6 F Y 1 7 F Y 1 3 F Y 1 4 F Y 1 5 F Y 1 6 F Y 1 7 F Y 1 3 F Y 1 4 F Y 1 5 F Y 1 6 F Y 1 7 ALE Property Group 20.0 10.0 0.0 Page 8 DIRECTORS' REPORT For the Year ended 30 June 2017 The following chart shows the total annual return of an ALE security since listing in November 2003. 1.Includes ALE’s equity market price of $4.67 as at 30 June 2017 and reinvestment of distributions and 2009 renunciation payment 2.All Ordinaries Accumulation Index 3.BAIC0 Index - Australian credit inflation-linked securities 4.UBS S&P REIT 300 Index 5.BAMST0 Index- composite of the Composite Bond, Inflation and Credit FRN indices Business strategies and future prospects ALE continues to hold a positive outlook for the market rent prospects for the portfolio. In around two years' time the first major review will occur with the fair market rent capped and collared within 10% of the 2017 rent for the majority of properties. There is also a full open fair market rent review (no caps or collars) in November 2028. ALE will continue to seek acquisition opportunities that are of a high quality, meet all specified criteria and represent an accretive value opportunity for securityholders. Even if these opportunities are not available, ALE will continue to work constructively with ALH with a focus on maintaining and exploring the potential to further enhance the properties' existing strong profitability through development or better site utilisation. ALE has continued to preserve the quality of the existing property portfolio. The current debt structure and long term hedging position provides significant certainty around a stable distribution profile for the medium term. ALE's objective is to continue to grow distributions at least in line with increases in the CPI. Material business risks ALE is subject to a number of material business risks that may have an impact on the financial prospects of ALE. These risks and how ALE manages them include: Property valuation risk - the properties that ALE owns have values that are exposed to movements in the Australian commercial property markets as well as the general levels of long and short term interest rates. ALE is unable to control the market forces that impact ALE's property values however ALE constantly monitors the property market to assess general trends in property values. ALE undertakes on- going condition and compliance audits of our properties and has independent valuers perform valuations on one third of the property portfolio on an annual basis. Declines in ALE's property values will reduce NTA and could also reduce headroom to debt covenants. At 30 June 2017 the closest debt covenant would be triggered by a decline of around 29% in property values and a resultant average capitalisation rate of 7.26%. By way of comparison it should be noted that in the last 10 years the highest average capitalisation rate of ALE properties has been 6.60%. ALE therefore considers its exposure to property valuation risk is appropriate. Page 9 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2017 Interest rate risk - ALE currently has $521 million of outstanding borrowings and consequently faces the risk of reduced profitability and distributions should interest rates on borrowings increase materially. To mitigate this risk ALE uses fixed rate borrowings and hedges variable rate borrowings for the medium and long term. Existing arrangements effectively hedge ALE's debt to November 2025 at average base rates of between 3.11% and 3.46%. Refinancing risk - ALE currently has outstanding borrowings representing a gearing level of 42.7% and has a medium term policy of maintaining gearing within a range of 50% to 55%. ALE consequently faces refinancing risk as and when borrowings mature and require repayment. Failure, delays or increased credit margins in refinancing borrowings could subject ALE to a number of risks that could potentially impact future earnings. To mitigate these risks ALE proactively staggers debt maturities, continually monitors debt markets, actively seeks to maintain ALE's current credit rating of Baa2 and maintains relationships with diverse funding markets to ensure multiple funding options are available. ALE has a long track record of consistently approaching debt markets for refinancing well in advance of the scheduled debt maturity dates. Single tenant risk - all 86 of ALE's properties are leased to a single tenant, ALH which is owned by Woolworths Limited (75%) and the Bruce Mathieson Group (25%). In the event of a default in rental payments by the tenant, ALE may be unable to pay interest on borrowings and distributions to securityholders. ALE manages this risk by monitoring the operating performance of each of the hotels and ALH on a regular basis. ALE also has the option of selling properties and/or issuing equity to meet its debt obligations. Regulatory risk – changes to liquor licence regulation or gaming licence regulation could significantly impact the trading performance of the operating businesses of our tenant and therefore impact the EBITDA of our tenant. EBITDA is a key determining factor for market rent reviews and therefore could impact on ALE’s long term profitability. ALE is unable to control regulatory changes that may impact on our properties but monitors potential changes and liaises with ALH to understand the potential impact on hotel profitability. 6. DISTRIBUTIONS AND DIVIDENDS Trust distributions paid out and payable to stapled securityholders, based on the number of stapled securities on issue at the respective record dates, for the year were as follows: 30 June 2017 cents per security 30 June 2016 cents per security 30 June 2017 30 June 2016 $’000 $’000 Final Trust income distribution for the year ending 30 June 2017 to be paid on 5 September 2017 10.25 10.10 20,066 19,773 Interim Trust income distribution for the year ending 30 June 2017 paid on 6 March 2017 Total distribution for the year ending 30 June 2017 10.15 20.40 9.90 20.00 19,871 39,937 19,381 39,154 No provisions for or payments of Company dividends have been made during the year (2016: nil). 7. MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR In the opinion of the Directors of the Company, no transaction or event of a material and unusual nature has occurred between the end of the financial year and the date of this report that may significantly affect the operations of ALE, the results of those operations or the state of affairs of ALE in future financial years. 8. LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS ALE will continue to maintain its defined strategy of identifying opportunities to increase its profitability and value to its stapled securityholders. In accordance with the leases of its investment properties, ALE expects to receive annual increases in rental income in line with increases in the consumer price index until the first major market rent review in November 2018. Apart from the above matters, the directors are not aware of any other future development likely to significantly affect the operations and/or results of ALE. Page 10 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2017 9 REMUNERATION REPORT (Audited) The Remuneration Report presented below is the remuneration report included in the Directors' Report of Australian Leisure and Entertainment Property Management Limited (the “Company”). This report provides details on ALE's remuneration structure, decisions and outcomes for the year ended 30 June 2017 for employees of ALE including the directors, the Managing Director and key management personnel. This information has been audited as required by section 308(3C) of the Act. 9.1 Remuneration Objectives and Approach In determining a remuneration framework, the Board aims to ensure the following: ● ● ● attract, reward and retain high calibre executives; motivate executives to achieve performance that creates value for stapled securityholders; and link remuneration to performance and outcomes achieved. The framework aligns executive reward with achievement of strategic objectives and creation of value for stapled securityholders. To do this the Board endeavours to ensure that executive reward satisfies the following objectives: ● ● ● ● ● ● alignment with ALE's financial, operational, compliance and risk management objectives so as to achieve alignment with positive outcomes for stapled securityholders; alignment with ALE's overall performance; transparent, reasonable and acceptable to employees and securityholders; rewards the responsibility, capability, experience and contribution made by executives; recognises individual executive's contributions towards value accretive outcomes when measured against Key Performance Indicators (KPI's); and market competitive and complementary to the reward strategy of the organisation. The framework provides a mix of fixed and variable remuneration. Since the year ending 30 June 2012 the variable remuneration has been provided through the Executive Incentive Scheme (EIS). Any award under the EIS is paid 50% in cash following the year end and 50% in stapled securities with delivery deferred three years. 9.2 Remuneration Committee The Remuneration Committee ("the Committee") is a committee comprising non-executive directors of the Company. The Committee strives to ensure that ALE's remuneration structure strikes an appropriate balance between the interests of ALE securityholders and rewarding, motivating and retaining employees. The Committee's charter sets out its role and responsibilities. The charter is reviewed on an annual basis. In fulfilling its role the Committee endeavours to ensure the remuneration framework established will: ● ● ● reward executive performance against agreed strategic objectives; encourage alignment of the interests of executives and stapled securityholders; and ensure there is an appropriate mix between fixed and "at risk" remuneration. The Committee operates independently of management in its recommendations to the Board and engages remuneration consultants independently of management. During the year ended 30 June 2017, the Committee consisted of the following: P G Say P H Warne R W Mactier P J Downes N J Milne Non-executive Director Non-executive Director Non-executive Director Non-executive Director Non-executive Director Chairman of Remuneration Committee (Resigned 23 May 2017) (Appointed 22 February 2017) Page 2 of this report provides information on the skills, experience and expertise of the Committee members. The number of meetings held by the Committee and the members' attendance at them is set out on page 5. The Committee considers advice from a wide range of external advisors in performing its role. During the current financial year the Committee did not retain an external consultant to advise on remuneration. Page 11 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2017 9.3 Executive Remuneration Executive remuneration comprises both a fixed component and an 'at risk' component. It specifically comprises: ● ● Fixed Annual Remuneration (FAR) Executive Incentive Scheme (EIS) 9.3.1 Fixed Annual Remuneration (FAR) What is FAR? FAR is the guaranteed salary package of the executive and includes superannuation guarantee levy and salary sacrificed components such as motor vehicles, computers and superannuation. How is FAR set? FAR is set by reference to external market data for comparable roles and responsibilities within similar listed and unlisted entities within Australia. When is FAR Reviewed? FAR is reviewed in December each year with any changes being effective from 1 January of the following year. 9.3.2 Executive Incentive Scheme (EIS) What is EIS? EIS is an "at risk" component of executive remuneration. EIS is used to reward executives for achieving and exceeding annual individual KPIs. The target EIS opportunity for executives varies according to the role and responsibility of the executive. EIS awards comprise 50% cash and 50% deferred delivery stapled securities issued under the Executive Stapled Securities Scheme (ESSS). For executives not invited to participate in the ESSS, the EIS is paid fully in cash. Executive Andrew Wilkinson Andrew Slade Michael Clarke Don Shipway Position Managing Director Capital Manager Company Secretary and Finance Manager Asset Manager 1. EIS awards are at the discretion of the Committee and the Board Standard EIS Target (as a % of FAR) 60% 50% n/a1 n/a1 % of EIS paid as cash 50% 50% 50% 50% % of EIS paid as ESSS 50% 50% 50% 50% How are EIS targets and objectives chosen? At the beginning of each year, in addition to the standard range of operational requirements, the Board sets a number of strategic objectives for ALE for that year. These objectives are dependent on the strategic opportunities and issues facing ALE for that year and may include objectives that relate to the short and longer term performance of ALE. Additionally, specific KPIs are established for all executives with reference to their individual responsibilities which link to the addition to and protection of securityholder value, improving business processes, ensuring compliance with legislative requirements, reducing risks within the business and ensuring compliance with risk management policies, as well as other key strategic non-financial measures linked to drivers of performance in future economic periods. How is EIS performance assessed? The Committee is responsible for assessing whether the KPIs have been met. To facilitate this assessment, the Board receives detailed reports on performance from management. The quantum of EIS payments and awards are directly linked to over or under achievement against the specific KPIs. The Board has due regard to the achievements outlined in section 9.4. Page 12 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2017 How are EIS awards delivered? EIS cash payments are made in August each year following the signing of ALE's full year statutory financial statements. The deferred component comprises an award of stapled securities under the ESSS. Any securities awarded under the ESSS are delivered three years after the award date provided certain conditions have been met. How is the ESSS award calculated? The number of ESSS Rights awarded annually under the ESSS will be determined by dividing the value of the grant by the volume weighted average price for the five trading days commencing the day following the signing of ALE's full year statutory financial statements, and grossing this number up for the future value of the estimated distributions over the three year deferred delivery period. What conditions are required to be met for the delivery of an ESSS award? During the three year deferred delivery period, the delivery of the Stapled Securities issued under the ESSS remains subject to the following clawback tests. ESSS rights will be forfeited in whole or in part at the discretion of the Remuneration Committee if before the end of the deferred delivery period: • the Committee becomes aware of any executive performance matter which, had it been aware of the the matter at the time of the original award, would have in their reasonable opinion resulted in a lower original award; or • the executive engages in any conduct or commits any act which, in the Committee's reasonable opinion, adversely affects ALE Property Group including, and without limitation, any act which: 9.3.3 Summary of Key Contract Terms Contract Details Executive Position Andrew Wilkinson Andrew Slade Michael Clarke Don Shipway James McNally Managing Director Capital Manager Finance Manager and Company Secretary Ongoing $225,420 3 months 3 months Asset Manager Executive Director Ongoing $204,820 1 month 1 month Ongoing $105,000 1 month 1 month Contract Length Fixed Annual Remuneration Notice by ALE Notice by Executive Ongoing $466,550 6 months 6 months Ongoing $263,488 3 months 3 months Managing Director Mr Wilkinson has signed a service agreement that commenced on 1 September 2014. The agreement stipulates the starting minimum base salary, inclusive of superannuation, as being $425,000, to be reviewed annually each 31 December by the Board. An EIS, if earned, would be paid 50% as a cash bonus in August each year and 50% in stapled securities issued under the ESSS and delivered three years following each of the annual grant dates. In the event of the termination of Andrew Wilkinson’s service agreement and depending on the reason for the termination, amounts may be payable for unpaid accrued entitlements and a proportion of EIS entitlements as at the date of termination. If employment is terminated in circumstances of redundancy or without cause then he is entitled to an amount of fixed remuneration for six months. In addition he may receive a pro-rata EIS award for the period of employment in the year of redundancy. Page 13 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2017 9.4 Executive Remuneration outcome for year ended 30 June 2017 The amount of remuneration paid to Directors and Key Management Personnel is detailed in the table on page 17. Executive Incentive Scheme Outcomes ALE continues to perform well when compared to other Australian real estate investment trusts (AREITs). The Committee reviewed the overall performance of ALE and the individual performance of all executives for the year ending 30 June 2017. It was the view of the Committee that all of the standard key performance indicators (KPIs) and all of the major items in the Board approved corporate strategy had been met. In particular the Committee noted: Capital Matters ● In March 2017 ALE completed a $150 million Australian Medium Term Note (AMTN) issue with a term of 5.5 years. At a 1.50% credit margin and an all up rate of 4.00% this was a competitively priced outcome and reduced ALE’s weighted average cost of debt from 4.35% to 4.26%. ALE received a strong response from a wide range of domestic and international institutional investors, a number of whom have participated in ALE’s various debt issues since 2003; ● ● ● ● ● As the new AMTN issue was a fixed rate instrument, ALE efficiently removed a corresponding amount of the existing forward start hedging over the term to August 2022 at a cost of $7.2 million. This cost is similar to the benefit arising from the reduction in ALE’s base interest expense over the same term; The refinancing strengthened ALE’s debt capital position further. ALE now has debt maturities spread over the next six years and base interest rates 100% locked away for the next eight years; ALE’s investment grade credit rating of Baa2 (with stable outlook) was fully maintained; Management continued to explore a range of debt funding solutions in both the domestic and offshore capital markets with a view to enhancing ALE’s readiness to implement future debt refinancings and additional debt funding of any acquisitions; and Management reviewed a range of other strategic initiatives with particular focus on value enhancement and risk mitigation. Other matters ● Worked constructively with ALH to explore and agree a range of developments that are value enhancing for ALE for a number of properties; Undertook a more comprehensive statutory valuation exercise to ensure that the independent valuers were fully appraised of the key value drivers of each of the properties; Explored a number of acquisition opportunities that accorded with ALE’s strategic criteria; Worked on a number of strategic initiatives during the year; Completed a comprehensive review of ALE’s service providers with a view to ensuring cost savings were maximised and service levels enhanced; and Continued to deliver both short and long term total returns for securityholders that outperformed most if not all other AREITs in the sector. ● ● ● ● ● The remuneration committee considered these achievements and compared them to key performance indicators for each executive that were set at the beginning of the financial year. Individual executives contributed to the valuable outcomes outlined above and this was recognised in the EIS payments made. All the EIS payments are included in the staff remuneration expenses in the current year. The EIS awarded to each member of the management team was as follows: Executive Andrew Wilkinson Andrew Slade Michael Clarke Don Shipway Target EIS (as % of FAR) 60% 50% n/a n/a EIS Awarded (as % of FAR) 60.0% 57.6% 17.7% 12.2% EIS Awarded as a % of Target 100.0% 115.2% - - EIS Awarded $279,930 $151,744 $40,000 $25,000 Cash Component $139,965 $75,872 $20,000 $12,500 ESSS Component $139,965 $75,872 $20,000 $12,500 Page 14 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2017 Consequences of performance on securityholder wealth In considering the Group's performance and benefits to securityholder weath, the remuneration committee have regard to a number of performance indicators in relation to the current and previous financial years. A review of ALE's current year performance and history is provided in the Operational and Financial Review on page 6 of the Directors Report. 9.5 Disclosures relating to equity instruments granted as compensation 9.5.1 Outstanding equity instruments granted as compensation Details of rights over stapled securities that have been granted as compensation and remain outstanding at year end and details of rights that were granted during the year are as follows: Executive ESSS Rights A F O Wilkinson A F O Wilkinson A F O Wilkinson A J Slade A J Slade A J Slade M J Clarke M J Clarke M J Clarke D J Shipway D J Shipway D J Shipway Number of Rights Outstanding Grant Date Performance Period Start Date Fair value of Right at Grant Date ($) Approximate Delivery Date % vested in year % forfeited in year 63,732 33,365 27,020 31,375 15,888 13,510 7,844 6,355 5,246 3,922 4,767 1,968 1 Oct 14 20 Aug 15 24 Oct 16 1 Oct 14 20 Aug 15 24 Oct 16 1 Oct 14 20 Aug 15 24 Oct 16 1 Oct 14 20 Aug 15 24 Oct 16 1 Jul 13 1 Jul 14 1 Jul 15 1 Jul 13 1 Jul 14 1 Jul 15 1 Jul 13 1 Jul 14 1 Jul 15 1 Jul 13 1 Jul 14 1 Jul 15 2.55 3.15 3.81 2.55 3.15 3.81 2.55 3.15 3.81 2.55 3.15 3.81 31 Jul 17 31 Jul 18 31 Jul 19 31 Jul 17 31 Jul 18 31 Jul 19 31 Jul 17 31 Jul 18 31 Jul 19 31 Jul 17 31 Jul 18 31 Jul 19 Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil 9.5.2 Modification of terms of equity settled share based payment transactions No terms of equity settled share based payment transactions (including options and rights granted as compensation to key management personnel) have been altered or modified by the issuing entity during the reporting period or the prior period. 9.5.3 Analysis of movements in ESSS rights The movement during the reporting period, by value and number of ESSS rights over stapled securities in ALE is detailed below. Executive By Value ($) A F O Wilkinson A J Slade M J Clarke D J Shipway By Number A F O Wilkinson A J Slade M J Clarke D J Shipway Opening Balance Granted in Year Stapled Securities Delivered in the Year Lapsed in the Year Closing Balance 346,540 173,264 60,000 45,000 131,975 66,355 23,024 17,514 103,000 51,500 20,000 7,500 27,020 13,510 5,246 1,968 (79,040) (43,264) (20,000) (20,000) (34,878) (19,092) (8,825) (8,825) - - - - - - - - 370,500 181,500 60,000 32,500 124,117 60,773 19,445 10,657 Securities Delivered in the year - value paid $ 154,575 84,613 39,111 39,111 9.5.4 Directors’ and key management personnel interests in stapled securities and ESSS rights A summary of directors, key management personnel and their associates holdings in stapled securities and ESSS interests in ALE is shown on page 5 of the Directors' Report. Page 15 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2017 9.6 Equity based compensation The value of ESSS disclosed in section 9.5.3 and 9.8 is based on the value of the grant at the award date. The number of Stapled Securities issued annually under the ESSS award will be determined by dividing the value of the grant by the volume weighted average price for the five trading days commencing the day following the signing of ALE Property Group’s full year statutory financial statements, and grossing this number up for estimated distributions over the deferred delivery period. The number of securities granted in the current year will be determined on 16 August 2017. 9.7 Non-executive Directors' Remuneration 9.7.1 Remuneration Policy and Strategy Non-executive directors' individual fees are determined by the Company Board within the aggregate amount approved by shareholders. The current aggregate amount which has been approved by shareholders at the AGM on 6 November 2014 was $650,000. The Board reviews its fees to ensure that ALE non-executive directors are remunerated fairly for their services, recognising the level of skill, expertise and experience required to conduct the role. The Board reviews its fees from time to time to ensure it is remunerating directors at a level that enables ALE to attract and retain the right 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 reviewed in the current financial year. The results of this review are shown in the fees listed below. The Chairman’s fees are determined independently from the fees of the other 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 any equity based payments, retirement benefits or other incentive payments. 9.7.2 Remuneration Structure ALE's non-executive directors receive a cash fee for service and they have no entitlement to any performance based remuneration, nor can they participate in any security based incentive scheme. The current remuneration was reviewed in January 2017. This resulted in changes to the fee levels indicated below. The Directors' fees are inclusive of superannuation, where applicable. Board ACRMC Chairman* Member Chairman Member Remuneration Committee Member Chairman Board and Committee Fees $195,000 $95,000 $15,000 $10,000 $15,000 $5,000 * The Chairman of the Board's fees are inclusive of all committee fees. James McNally's remuneration is determined in accordance with the above fees. He received an additional $5,000 for being a Responsible Manager of the Company under the Company’s AFSL (retired in April 2017) and $10,000 for being a director of ALE Finance Company Pty Limited. Page 16 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2017 9.8 Details of remuneration 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 9.4 headed “Executive Incentive Scheme Outcomes”. Equity based payments for 2017 are non-market based performance related as set out in section 9.4. All other elements of remuneration were not directly related to performance. Table 1 Remuneration details 1 July 2016 to 30 June 2017 Details of the remuneration of the Key Management Personnel for the year ended 30 June 2017 are set out in the following table: Key management personnel Short term Post employment benefits Equity based payment Name Role R W Mactier 1 P H Warne 2 P J Downes P G Say N J Milne Non-executive Director Non-executive Director Non-executive Director Non-executive Director Non-executive Director A F O Wilkinson Executive Director J T McNally A J Slade M J Clarke D J Shipway Non-executive Director Capital Manager Company Secretary and Finance Manager Asset Manager Salary & Fees $ STI Cash Bonus $ Non monetary benefits $ Total $ Superannuation benefits $ Other long term benefits $ 67,013 150,280 100,457 115,000 95,890 442,359 - - - - - 139,965 103,750 - 241,652 204,781 185,200 75,872 20,000 12,500 1,706,382 248,337 - - - - - - - - - - - 67,013 150,280 100,457 115,000 95,890 582,324 103,750 317,524 224,781 197,700 6,366 14,277 9,543 - 9,110 19,615 - 19,615 18,509 17,610 S300A(1)(e)(i) proportion of remuneration performance based Termination benefits $ - ESSS $ - Total $ 73,379 $ - - - 164,557 - - - 110,000 - - - 115,000 - - 105,000 - - - - - 2,283 - 139,965 744,187 37.6% - - - 103,750 - 8,686 - 75,872 421,697 8,062 - 20,000 271,352 5,582 - 12,500 233,392 36.0% 14.7% 10.7% S300A(1)(e)(vi) Value of equity based payment as proportion of remuneration $ - - - 18.8% - 18.0% 7.4% 5.4% 1,954,719 114,645 24,613 - 248,337 2,342,314 1. Robert Mactier was appointed a director on 23 November 2016 2. Peter Warne resigned as a director on 23 May 2017 Table 2 Remuneration details 1 July 2015 to 30 June 2016 Details of the remuneration of the Key Management Personnel for the year ended 30 June 2016 are set out in the following table: Key management personnel Short term Name Role Salary & Fees STI Cash Bonus Non monetary benefits P H Warne H I Wright 3 P J Downes P G Say N J Milne B R Howell 4 A F O Wilkinson J T McNally A J Slade M J Clarke 4 D J Shipway Non-executive Director Non-executive Director Non-executive Director Non-executive Director Non-executive Director Company Secretary Executive Director Executive Director Capital Manager Company Secretary and Finance Manager Asset Manager $ $ $ 159,817 31,963 96,184 108,750 91,324 90,000 411,512 - - - - - - 103,000 100,000 - 222,160 188,465 178,967 51,500 20,000 7,500 1,679,142 182,000 - - - - - - - - - - - - 3. Helen Wright resigned as a director on 27 October 2015 4. Brendan Howell resigned as Company Secretary on 30 June 2016 and Michael Clarke was appointed Company Secretary on 30 June 2016 Page 17 Post employment benefits Equity based payment Superannuation benefits Other long term benefits Termination benefits ESSS Total S300A(1)(e)(i) proportion of remuneration performance based S300A(1)(e)(vi) Value of equity based payment as proportion of remuneration $ $ 15,183 3,037 9,137 - 8,676 - 35,000 - 30,000 17,485 17,040 $ - - $ - - $ 175,000 35,000 $ - - $ - - 105,321 - - - 108,750 - - 100,000 - - 90,000 - - - - - - - 7,310 - 103,000 659,822 31.2% - - - 100,000 - 3,980 - 51,500 359,140 3,088 - 20,000 249,038 3,060 - 7,500 214,067 28.7% 16.1% 7.0% - - - - 15.6% - 14.3% 8.0% 3.5% Total $ 159,817 31,963 96,184 108,750 91,324 90,000 514,512 100,000 273,660 208,465 186,467 1,861,142 135,558 17,438 - 182,000 2,196,138 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2017 10 STAPLED SECURITIES UNDER OPTION No options over unissued stapled securities of ALE were granted during or since the end of the year. 11 STAPLED SECURITIES ISSUED ON THE EXERCISE OF OPTIONS No stapled securities were issued on the exercise of options during the financial year. 12 INSURANCE OF OFFICERS During the financial year, the Company paid a premium of $53,560 (2016: $51,535) 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 and 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. 13 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. During the current financial year non-audit services were performed by the auditors. Details of amounts paid or payable to the auditor (KPMG) for audit services provided during the year are set out below: Audit services KPMG 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 services KPMG Australian firm: Risk assurance and property development advisory services Total other services Total remuneration 30 June 2017 $ 30 June 2016 $ 180,000 15,000 171,500 12,500 195,000 184,000 152,352 18,259 152,352 347,352 18,259 202,259 14 ENVIRONMENTAL REGULATION While 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 responsibilities and compliance with various licence requirements and regulations. Further, the directors are not aware of any material breaches of these requirements. At four properties, ongoing testing and monitoring is being undertaken and minor remediation work is required, however, in most cases ALE is indemnified by third parties against any remediation amounts likely to be required. ALE does not expect to incur any material environmental liabilities. Page 18 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2017 15 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 20. 16 ROUNDING OF AMOUNTS ALE is an entity of the kind referred to in ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191, 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 Instrument to the nearest thousand dollars, unless otherwise indicated. This report is made in accordance with a resolution of the directors. Robert Mactier Chairman Dated this 8th day of August 2017 Andrew Wilkinson Managing Director Page 19 ALE Property Group FINANCIAL STATEMENTS Page 22 Page 23 Page 24 Page 25 Statement of Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Page 26 Page 28 Page 33 Note 1 2 3 About this report Investment Property Capital structure and financing Page 42 4 Business performance 3.1 3.2 3.3 3.4 3.5 Borrowings Financial risk management Equity Capital management Cash and cash equivalents Revenue and income 4.1 4.2 Other expenses 4.3 4.4 4.5 4.6 Distributable income Earnings per security 4.7 Finance costs Taxation Remuneration of auditors Page 46 5 Employee benefits Page 47 6 Other 5.1 5.2 5.3 Employee benefits Key management personnel compensation Employee share plans 6.1 New accounting standards Segment reporting 6.2 Events occurring after balance date 6.3 Contingent liabilities and assets 6.4 Investments in controlled entities 6.5 Related party transactions 6.6 Parent entity disclosures 6.7 Page 50 Page 51 Directors' Declaration Independent Auditor's Report to Stapled Securityholders Page 21 ALE Property Group STATEMENT OF COMPREHENSIVE INCOME For the Year ended 30 June 2017 Revenue Rent from investment properties Interest from cash deposits Total revenue Other income Fair value increments to investment properties Fair value increments to derivatives - net Other income Total other income Total revenue and other income Expenses Fair value decrements to derivatives - net Finance costs (cash and non-cash) Queensland land tax expense Salaries and related costs Other expenses Total expenses Profit before income tax Income tax expense/(benefit) Profit after income tax Profit/(Loss) attributable to stapled securityholders of ALE Basic earnings per stapled security Note 4.1 4.1 2 4.1 4.1 4.3 4.2 4.2 4.4 4.7 2017 $'000 57,007 1,324 58,331 89,605 14,294 - 103,899 162,230 - 24,551 2,228 2,758 2,636 32,173 130,057 14 130,043 130,043 Cents 66.43 2016 $'000 56,172 1,054 57,226 89,644 - 43 89,687 146,913 25,210 23,280 2,141 2,509 2,560 55,700 91,213 35 91,178 91,178 Cents 46.58 The above statement of comprehensive income should be read in conjunction with the accompanying Notes. Page 22 ALE Property Group STATEMENT OF FINANCIAL POSITION For the Year ended 30 June 2017 Current assets Cash and cash equivalents Receivables Other Total current assets Non-current assets Investment properties Derivatives Plant and equipment Deferred tax asset Total non-current assets Total assets Current liabilities Payables Employee benefits Distribution payable Total current liabilities Non-current liabilities Borrowings Derivatives Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserve Retained profits Total equity Net assets per stapled security The above statement of financial position should be read in conjunction with the accompanying Notes. Note 3.5 2 3.2 5.1 3.1 3.2 3.3 2017 $'000 59,585 258 253 60,096 1,080,160 1,471 28 282 1,081,941 1,142,037 8,151 190 20,066 28,407 521,348 6,302 527,650 556,057 585,980 258,118 893 326,969 585,980 $ $2.99 2016 $'000 37,919 278 218 38,415 990,480 - 36 288 990,804 1,029,219 7,457 169 19,773 27,399 479,528 26,349 505,877 533,276 495,943 258,118 807 237,018 495,943 $ $2.53 Page 23 ALE Property Group STATEMENT OF CHANGES IN EQUITY For the Year Ended 30 June 2017 Share Based Payments Reserve $'000 Share Capital $'000 Retained Earnings $'000 Total $'000 2017 Total equity at the beginning of the year 258,118 807 237,018 495,943 Total comprehensive income for the period Profit/(Loss) for the year Other comprehensive income Total comprehensive income for the year Transactions with Members of ALE recognised directly in Equity: Employee share based payments Securities purchased - Employee share based payments Distribution paid or payable - - - - - - Total equity at the end of the year 258,118 - - - 130,043 - 130,043 130,043 - 130,043 248 (162) - 893 - (155) (39,937) 248 (317) (39,937) 326,969 585,980 2016 Total equity at the beginning of the year 257,870 735 185,132 443,737 Total comprehensive income for the period Profit/(Loss) for the year Other comprehensive income Total comprehensive income for the year Transactions with Members of ALE recognised directly in Equity: Employee share based payments Securities issued - Employee share based payments Distribution paid or payable Total equity at the end of the year - - - - 248 - 258,118 - - - 182 (110) - 807 91,178 - 91,178 91,178 - 91,178 - (138) (39,154) 237,018 182 - (39,154) 495,943 The above statement of changes in equity should be read in conjunction with the accompanying Notes. Page 24 ALE Property Group STATEMENT OF CASH FLOWS For the Year Ended 30 June 2017 Cash flows from operating activities Receipts from tenant and others Payments to suppliers and employees Interest received - bank deposits Net interest received - interest rate hedges Borrowing costs paid Net cash inflow from operating activities Cash flows from investing activities Payments for investment property Payments for plant and equipment Net cash outflow from investing activities Cash flows from financing activities Capitalised borrowing costs paid Borrowings repaid - AMTN Borrowings issued - AMTN Interest rate hedge termination payment Distributions paid (net of DRP securities issued) Net cash inflow/(outflow) from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year Reconciliation of profit after income tax to net cash inflows from operating activities Profit for the year Plus/(less): Fair value (increments) to investment property Fair value (increments)/decrements to derivatives Finance costs amortisation CIB accumulated indexation Share based payments expense Share based payments securities purchased Depreciation Decrease/(increase) in - Receivables Deferred tax assets Other assets Increase/(decrease) in - Payables Provisions 2017 $'000 62,862 (13,281) 1,312 501 (21,882) 29,512 (75) (11) (86) (892) (110,000) 150,000 (7,224) (39,644) (7,760) 21,666 37,919 59,585 2017 $'000 130,043 (89,605) (14,294) 433 2,279 248 (317) 19 20 6 (35) 694 21 2016 $'000 61,905 (12,847) 1,031 385 (21,049) 29,425 (366) (34) (400) - - - - (35,918) (35,918) (6,893) 44,812 37,919 2016 $'000 91,178 (89,644) 25,210 382 2,231 182 - 15 37 27 32 (249) 24 Net cash inflow from operating activities 29,512 29,425 The above statement of cash flows should be read in conjunction with the accompanying Notes. Page 25 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS For the Year ended 30 June 2017 1. About this report Reporting Entity ALE is domiciled in Australia. 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 results reflect the performance of the Trust and its subsidiaries including the Company from 1 July 2016 to 30 June 2017. Accounting estimates and judgements The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. The stapled securities of ALE are quoted on the Australian Securities 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 cannot 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 ALE Property Group is a for-profit entity. The Company is the Responsible Entity of the Trust. Statement of compliance The consolidated financial statements are general purpose financial statements which have been prepared in accordance with Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The financial statements also comply with the International Financial Reporting Standards (IFRS) and interpretations adopted by the International Accounting Standards Board. The consolidated financial statements were authorised for issue by the Board of Directors on 8th August 2017. Basis of preparation The Financial Report has been prepared on an historical cost basis, except for the revaluation of investment properties and certain financial instruments. Cost is based on the fair values of the consideration given in exchange for assets. All amounts are represented in Australian dollars, unless otherwise noted. Rounding of amounts ALE is an entity of a kind referred to in ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191 and in accordance with that Instrument, all financial information presented in Australian dollars has been rounded to the nearest thousand unless otherwise stated. Accounting estimates and judgements Investment property Financial instruments Income taxes Measurement of share based payments Note 2 3 4 5 Significant accounting policies Accounting policies are selected and applied in a manner that ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported. Other significant accounting policies are contained in the notes to the financial statements to which they relate to. (a) Principles of consolidation The 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 collectively in this financial report as ALE. Entities are fully consolidated from the date on which control is transferred to the Trust; where applicable, entities 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. Page 26 ALE Property Group Notes to the financial statements (continued) For the Year ended 30 June 2017 1. About this report Measurement of fair values A number of the Group's accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. The Group has an established control framework with respect to the measurement of fair values. Senior management regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as bank valuations or independent valuations, is used to measure fair values then management assess the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classified. Significant valuation issues are reported the to the Audit, Compliance, and Risk Management Committee. Page 27 ALE Property Group Notes to the financial statements (continued) For the Year ended 30 June 2017 2. Investment property This section provides information relating to the investment properties of the Group. Investment properties Reconciliation of fair value gains/losses for year ending 30 June 2017 Fair value as at beginning of the year Disposals during the year Resumptions during the year Additions during year Carrying amount before revaluations Fair value as at end of the year Fair value gain/(loss) for year 2017 $'000 2016 $'000 1,080,160 990,480 990,480 900,470 - - 75 990,555 1,080,160 89,605 - - 366 900,836 990,480 89,644 Recognition and measurement Properties (including land and buildings) held for long term rental yields and capital appreciation 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 cash flow 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 expenditure will flow to ALE and the cost of the item can be reliably measured. Maintenance and capital works expenditure is the responsibility of the tenant under the triple net leases in place over 83 of the 86 properties. For the remaining three hotels capital works expenditure and structural maintenance is the responsibility of ALE. ALE undertakes periodic condition and compliance reviews by a qualified independent consultant to ensure properties are properly maintained. Land and buildings classified as investment property are not depreciated. The carrying value of the investment property is reviewed at each reporting date and each property is independently revalued at least every three years. Changes in the fair values of investment properties are recorded in the Statement of Comprehensive Income. Gains and losses on disposal of a property are determined by comparing the net proceeds on disposal with the carrying amount of the property at the date of disposal. Net proceeds on disposal are determined by subtracting disposal costs from the gross sale proceeds. Measurement of fair value 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. As at 30 June 2017, the weighted average investment property capitalisation rate used to determine the value of all investment properties was 5.14% (2016: 5.53%). Investment property is property which is held either to earn rental income or for capital appreciation or for both. Investment property is measured at fair value with any change therein recognised in the Statement of Comprehensive Income. ALE has a valuation process for determining the fair value at each reporting date. An independent valuer, having an appropriate professional qualification and recent experience in the location and category of property being valued, values individual properties every three years on a rotation basis or on a Page 28 ALE Property Group Notes to the financial statements (continued) For the Year ended 30 June 2017 2. Investment property Measurement of fair value (continued) more regular basis if considered appropriate and as determined by management in accordance with the Board's approved valuation policy. These external independent valuations are taken into consideration when determining the fair value of the investment properties. The weighted average lease term of the properties is around 11.3 years. In accordance with ALE's policy of independently valuing at least one-third of its property portfolio annually, 33 properties were independently valued as at 30 June 2017. The independent valuations are identified as "A" in the investment property table under the column labelled "Valuation type and date". These valuations were completed by CBRE and Herron Todd White. The remaining 53 properties were subject to Directors' valuations as at 30 June 2017, identified as "B". The Directors' valuations of the 53 properties were determined by taking each property's net rent as at 30 June 2017 and capitalising it at a rate equal to the prior year capitalisation rate for that property, adjusted by the average change in capitalisation rate evident in the 33 independent valuations completed at 30 June 2017 on a like for like basis. The Directors have received advice from CBRE and Herron Todd White, that it is reasonable to apply the same percentage movement in the weighted average capitalisation rates, on a like for like basis. Valuations reflect, where appropriate, the tenant in occupation, the credit worthiness of the tenant, the triple-net nature and remaining term of the leases (83 of 86 properties), land tax liabilities (Queensland only), insurance responsibilities between lessor and lessee and the remaining economic life of the property. It has been assumed that whenever rent reviews or lease renewals are pending with anticipated reversionary increases, all notices and, where appropriate, counter notices, have been served validly and within the appropriate time. The valuations of each independent property are prepared by considering the aggregate of the net annual passing rental receivable from the individual properties and, where relevant, associated costs. A capitalisation rate, which reflects the specific risks inherent in the net cash flows, is then applied to the net annual passing rentals to arrive at the property valuation. The independent valuer also had regard to discounted cash flows modelling in deriving a final capitalisation rate although the capitalisation of income method remains the predominate method used in valuing the properties. A table showing the range of capitalisation rates applied to individual properties for each state in which the property is held is included below. New South Wales Victoria Queensland South Australia Western Australia 2017 Yields 4.65% - 5.76% 3.54% - 6.17% 3.01% - 6.06% 4.76% - 5.98% 5.41% - 6.51% 2016 Yields 4.97% - 6.10% 3.80% - 6.38% 3.20% - 6.49% 5.01% - 6.38% 5.98% - 7.29% 2017 Average 5.08% 5.16% 5.02% 5.52% 5.96% 2016 Average 5.37% 5.54% 5.46% 5.81% 6.47% Page 29 ALE Property Group Notes to the financial statements (continued) For the Year ended 30 June 2017 2. Investment property The fair value measurement for investment property of $1,080.16 million has been categorised as a level 3 fair value based on inputs to the valuation technique used. Valuation techniques and unobservable inputs Fair Value Hierarchy Class of Property Fair Value 30 June 2017 $000's Level 3 Pubs 1,080,160 Valuation Technique Inputs Used To Measure Fair Value Range of Individual Property Unobservable Inputs Capitalisation method Gross rent p.a. ($'000's) Land tax p.a. ($'000's) Adopted capitalisation rate $154 - $1,680 $14 - $156 3.01% - 6.51% Discounted cash flow method Gross rent p.a. ($'000's) Land tax p.a. ($'000's) Discount rates p.a. Terminal capitalisation rates Consumer price index p.a. $154 - $1,680 $14 - $156 6.25% - 8.75% 4.75% - 8.50% 2.28% - 2.29% As noted above the independent valuer had regard to discounted cash flow modelling in deriving a final capitalisation rate although the capitalisation of income method remains the predominant method used in valuing the individual properties. Ownership arrangements All investment properties are freehold and 100% owned by ALE and comprise land, buildings and fixed improvements. The plant and equipment, liquor and gaming licences, leasehold improvements and certain development rights are held by the tenant. Leasing arrangements 83 of the 86 properties in the portfolio are leased to ALH on a triple net basis for 25 years, mostly starting in November 2003, with four 10 year options for ALH to renew. The remaining three properties are leased on long term leases to ALH on a double net basis. 2017 $'000 2016 $'000 (i) Future minimum lease payments The future minimum lease payments in relation to non- cancellable leases are receivable as follows: Within one year Later than one year but not later than five years Later than five years 255,796 626,653 940,593 249,246 589,312 895,697 (ii) Amount recognised in the profit and loss Rental income 57,007 56,172 Put and call options For most 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 of four subsequent ten year terms if the lease in not renewed, there is a call option for ALE (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, licences, permits, certificates, authorities or other approvals, together with any liquor licence, held by the tenant in relation to the premises. The gaming licence is to be included or excluded at the tenant’s option. These assets are to be purchased at market value, at that time, as determined by the valuation methodology set out in the leases. ALE must pay the purchase price on expiry of the lease. Any leasehold improvements funded and completed by the tenant will be purchased by ALE from the tenant at each property for an amount of $1. The following tables detail the cost and fair value of each of the Group's investment properties. The valuation type and date is as follows: A B Independent valuations conducted during June 2017 with a valuation date of 30 June 2017. Directors' valuations conducted during June 2017 with a valuation date of 30 June 2017. Properties were purchased in November 2003, unless otherwise indicated. 58,144 57,139 Valuation type and date Page 30 ALE Property Group Notes to the financial statements (continued) For the Year ended 30 June 2017 2. Investment property Property New South Wales Blacktown Inn, Blacktown Brown Jug Hotel, Fairfield Heights Colyton Hotel, Colyton Crows Nest Hotel, Crows Nest Melton Hotel, Auburn Narrabeen Sands Hotel, Narrabeen (Mar 09) New Brighton Hotel, Manly Pioneer Tavern, Penrith Pritchard's Hotel, Mount Pritchard (Oct 07) Smithfield Tavern, Smithfield 5,472 5,660 8,208 8,772 3,114 8,945 8,867 5,849 21,130 4,151 Total New South Wales properties 80,168 Queensland Albany Creek Tavern, Albany Creek Alderley Arms Hotel, Alderley Anglers Arms Hotel, Southport Balaclava Hotel, Cairns Breakfast Creek Hotel, Breakfast Creek Burleigh Heads Hotel, Burleigh Heads (Nov 08) Camp Hill Hotel, Camp Hill Chardons Corner Hotel, Annerly Dalrymple Hotel, Townsville Edge Hill Tavern, Manoora Edinburgh Castle Hotel, Kedron Four Mile Creek, Strathpine (Jun 04) Hamilton Hotel, Hamilton Holland Park Hotel, Holland Park 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 (Jun 04) Nudgee Beach Hotel, Nudgee Palm Beach Hotel, Palm Beach Pelican Waters, Caloundra (Jun 04) 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 Vale Hotel, Townsville Wilsonton Hotel, Toowoomba 8,396 3,303 4,434 3,304 11,024 6,685 2,265 1,416 3,208 2,359 3,114 3,672 6,604 3,774 2,265 4,434 4,434 4,057 3,208 1,794 6,874 3,020 6,886 4,237 3,397 1,794 5,189 5,755 9,150 5,377 5,661 4,529 Cost including additions) $'000 Valuation type and date) Fair value at 30 June 2017 $'000 Fair value at 30 June 2016 $'000 Fair value gains/ (losses) 2017 $'000 B A B B B B A A B B B A B B B B A B B B B A A B B A B B A A B A B B A A A A B B B B 12,900 12,900 18,520 19,030 7,050 15,500 11,000 13,900 29,140 9,560 12,000 12,230 17,220 17,700 6,550 14,400 10,260 12,690 26,750 8,900 900 670 1,300 1,330 500 1,100 740 1,210 2,390 660 149,500 138,700 10,800 17,240 7,350 10,500 12,710 18,410 14,880 6,800 3,290 12,600 6,410 7,080 8,725 14,500 13,800 4,420 11,600 8,680 13,190 6,975 9,800 11,240 6,750 14,580 8,530 9,700 6,500 10,000 9,850 18,710 10,590 14,020 11,190 15,800 6,320 8,840 11,650 16,950 13,700 4,240 3,070 11,550 5,900 6,500 7,280 12,550 12,750 4,000 10,540 7,950 12,750 6,170 9,700 10,310 5,880 13,620 7,900 6,630 6,000 10,320 10,000 17,130 10,000 12,850 10,300 1,440 1,030 1,660 1,060 1,460 1,180 2,560 220 1,050 510 580 1,445 1,950 1,050 420 1,060 730 440 805 100 930 870 960 630 3,070 500 (320) (150) 1,580 590 1,170 890 Total Queensland properties 145,619 340,620 309,150 31,470 Page 31 ALE Property Group Cost including additions) $'000 Valuation type and date) Fair value at 30 June 2017 $'000 Fair value at 30 June 2016 $'000 Fair value gains/ (losses) 2017 $'000 Notes to the financial statements (continued) For the Year ended 30 June 2017 2. Investment property Property South Australia Aberfoyle Hub Tavern, Aberfoyle Park Eureka Tavern, Salisbury Exeter Hotel, Exeter Finsbury Hotel, Woodville North Gepps Cross Hotel, Blair Athol Hendon Hotel, Royal Park Stockade Tavern, Salisbury 3,303 3,303 1,888 1,605 2,171 1,605 4,435 Total South Australian properties 18,310 Victoria Ashley Hotel, Braybrook Bayswater Hotel, Bayswater Berwick Inn, Berwick (Feb 06) Blackburn Hotel, Blackburn Blue Bell Hotel, Wendouree Boundary Hotel, East Bentleigh (Jun 08) Burvale Hotel, Nunawading Club Hotel, Ferntree Gully Cramers Hotel, Preston Deer Park Hotel, Deer Park Doncaster Inn, Doncaster Ferntree Gully Hotel/Motel, Ferntree Gully Gateway Hotel, Corio Keysborough Hotel, Keysborough Mac's Melton Hotel, Melton Meadow Inn Hotel/Motel, Fawkner Mitcham Hotel, Mitcham Morwell Hotel, Morwell Olinda Creek Hotel, Lilydale Pier Hotel, Frankston Plough Hotel, Mill Park Prince Mark Hotel, Doveton Royal Exchange, Traralgon Sandbelt Club Hotel, Moorabbin Sandown Park Hotel/Motel, Noble Park Sandringham Hotel, Sandringham Somerville Hotel, Somerville Stamford Inn, Rowville Sylvania Hotel, Campbellfield The Vale Hotel, Mulgrave Tudor Inn, Cheltenham Village Green Hotel, Mulgrave Young & Jackson, Melbourne 3,963 9,905 15,888 9,433 1,982 17,943 9,717 5,095 8,301 6,981 12,169 4,718 3,114 9,622 6,886 7,689 8,584 1,511 3,963 8,019 8,490 9,810 2,171 10,849 6,321 4,529 2,717 12,733 5,377 5,566 5,472 12,546 6,132 Total Victorian properties 248,196 Western Australia Queens Tavern, Highgate Sail & Anchor Hotel, Fremantle The Brass Monkey Hotel, Northbridge (Nov 07) Balmoral Hotel, East Victoria Park (Jul 07) Total Western Australian properties Total investment properties 4,812 3,114 7,815 6,377 22,118 514,411 A A B A B B B B A B B B A B B A A A B A A A A B A B B B B A B A B B B B B B A B A B B A 6,900 6,000 4,370 3,850 6,180 4,030 5,920 6,570 5,560 4,100 3,590 5,800 3,790 5,550 330 440 270 260 380 240 370 37,250 34,960 2,290 9,530 21,500 20,580 19,000 5,230 25,750 22,840 11,910 18,400 15,500 24,750 8,840 8,100 23,000 14,500 17,500 18,070 2,500 8,730 16,430 16,860 21,410 5,100 23,960 13,500 12,520 7,080 28,290 12,690 13,330 12,460 25,500 16,160 8,750 19,790 18,700 17,450 4,800 22,900 21,000 10,940 17,260 14,520 22,920 8,120 7,710 19,530 13,850 15,770 16,600 2,710 8,020 15,100 15,500 19,660 5,000 22,000 12,380 11,500 6,510 26,000 11,660 12,240 11,440 23,790 14,840 780 1,710 1,880 1,550 430 2,850 1,840 970 1,140 980 1,830 720 390 3,470 650 1,730 1,470 (210) 710 1,330 1,360 1,750 100 1,960 1,120 1,020 495 2,290 1,030 1,090 1,020 1,710 1,320 521,520 478,960 42,485 10,000 4,520 9,450 7,300 31,270 1,080,160 8,300 4,500 9,410 6,500 28,710 990,480 1,700 20 40 800 2,560 89,605 Page 32 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (continued) For the Year ended 30 June 2017 3. Capital structure and financing This section provides information on the Group's capital structure and its exposure to financial risk, how they effect the Group's financial position and how the risks are managed. 3.1 Borrowings 3.4 Capital management 3.2 Financial risk management 3.5 Cash and cash equivalents 3.3 Equity 3.1 Borrowings 2017 $'000 Non-current borrowings Capital Indexed Bond (CIB) Australian Medium Term Notes (AMTN) CIB Gross value of debt Accumulated indexation Unamortised borrowing costs Net balance 147,753 145,402 373,595 521,348 334,126 479,528 2017 $'000 111,900 36,524 (671) 147,753 2016 $'000 111,900 34,245 (743) 145,402 $125 million of CIB were issued in May 2006 of which $111.9 million face value remains outstanding. 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 accumulating quarterly in line with the national consumer price index. The total amount of the accumulating indexation is not payable until maturity of the CIB in November 2023. AMTN Gross value of debt Unamortised borrowing costs Net balance 2017 $'000 375,000 (1,405) 373,595 2016 $'000 335,000 (874) 334,126 On 10 June 2014 ALE issued $335 million AMTN in two tranches, $110 million with a maturity date of 20 August 2017 and $225 million with a maturity date of 20 August 2020. The AMTN are fixed rate securities with interest payable semi annually. The $110m tranche was repaid early in May 2017. On 8 March 2017 ALE issued a further $150m AMTN, with a maturity date of 20 August 2022. 2016 Recognition and measurement $'000 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. Assets pledged as security The carrying amounts of assets pledged as security as at the balance date for CIB borrowings and certain interest rate derivatives are: Current assets Cash - CIB borrowings reserves Non-current assets Total investment properties Less: Properties not subject to mortgages Pritchard's Hotel, NSW Properties subject to mortgages Total assets pledged as security 2017 $'000 2016 $'000 8,390 8,390 1,080,160 990,480 (29,140) (26,750) 1,051,020 963,730 1,059,410 972,120 In the unlikely event of a default by the properties' tenant, Australian Leisure and Hospitality Group Pty Limited (ALH), and if the assets pledged as security are insufficient to fully repay CIB borrowings, the CIB holders are also entitled in certain circumstances to recover certain unpaid amounts from the business assets of ALH. Page 33 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (continued) For the Year ended 30 June 2017 3. Capital structure and financing Terms and Repayment Schedule Nominal Interest Rate 4.25% 5.00% 4.00% 3.40%2 Maturity Date1 Aug-2017 Aug-2020 Aug-2022 Nov-2023 30 June 2017 30 June 2016 Face Value $'000 Carrying Amount $'000 Face Value $'000 Carrying Amount $'000 - - 225,000 225,000 150,000 150,000 111,900 148,424 486,900 523,424 110,000 110,000 225,000 225,000 - - 111,900 146,145 446,900 481,145 (2,076) 521,348 (1,617) 479,528 AMTN AMTN AMTN CIB Unamortised borrowing costs Total borrowings 1. Maturity date refers to the first scheduled maturity date for each tranche of borrowing. 2. Interest is payable on the indexed balance of the CIB at a fixed rate. Fair value The basis for determining fair values is disclosed in Note 1. The fair value of derivative financial instruments (level 2) is disclosed in the Statement of Financial Position. The carrying amount of all financial assets and liabilities approximates their fair value with the exception of borrowings which are shown below: Debit value adjustments are applied to mark-to-market liabilities based on ALE's credit risk using the credit rating of ALE issued by a rating agency for the AMTN issue. 3.2 Financial Risk Management The Trust and Group have exposure to the following risks from their use of financial instruments: 30 June 2017 CIB AMTN 30 June 2016 CIB AMTN Carrying Amount $'000 Fair Value $'000 147,753 373,595 521,348 153,386 385,474 538,860 145,402 334,126 479,528 151,370 347,019 498,389 Both borrowings are classed as Level 3. Valuation techniques used to derive level 2 fair values The fair value of derivatives is determined by using counterparty mark-to-market valuation notices, cross checked internally by using a generally accepted pricing model based on discounted cash flow analysis using quoted market inputs (interest rates) adjusted for specific features of the instruments and applying a debit or credit value adjustment based on ALE's or the derivative counterparty's credit worthiness. Credit value adjustments are applied to mark-to-market assets based on the counterparty's credit risk using the credit default swap curves as a benchmark for credit risk. ● ● ● credit risk market risk liquidity risk This note presents information about ALE's exposure to each of the above risks, its objectives, policies and processes for measuring and managing risk and the management of capital. Further quantitative disclosures are included throughout this financial report. The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. The Board has established an Audit, Compliance and Risk Management Committee, which is responsible for developing and monitoring risk management policies. The committee reports regularly to the Board of Directors on its activities. Risk management policies are established to identify and analyse the risks faced by ALE, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and ALE’s activities. ALE, through its training and management standards and procedures, has developed a disciplined and constructive control environment in which all employees understand their roles and obligations. Page 34 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (continued) For the Year ended 30 June 2017 3. Capital structure and financing The Audit, Compliance and Risk Management Committee oversees how management monitors compliance with ALE’s risk management policies and procedures and reviews the adequacy of the risk management framework. Credit risk Credit risk is the risk of financial loss to ALE if its tenant or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from ALE’s receivables from the tenant, investment securities and derivatives contracts. Cash Credit risk on cash is managed through ensuring all cash deposits are held with authorised deposit taking institutions. Trade and other receivables ALE’s exposure to credit risk is influenced mainly by the individual characteristics of its tenant. ALE has one tenant (Australian Leisure and Hospitality Group Pty Limited) and therefore there is significant concentration of credit risk with that company. Credit risk of the tenant is constantly monitored to ensure the tenant has appropriate financial standing. There are also cross default provisions in the leases and the properties are essential to the tenant's business operations and those of the tenant's shareholders. The Group has considered the collectability and recoverability of trade receivables. Where warranted, an allowance for doubtful debts has been made for the estimated irrecoverable trade receivable amounts arising from the past rendering of services, determined by reference to past default experience. Market risk Market risk is the risk that changes in market prices, such as the consumer price index and interest rates, will affect ALE’s income or the value of its holdings of leases and financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. ALE enters into derivatives and financial liabilities in order to manage market risks. All such transactions are carried out within the guidelines set by the Audit, Compliance and Risk Management Committee. Interest rate risk ALE adopts a policy of ensuring that short and medium term exposure to changes in interest rates on borrowings are hedged. This is achieved by entering into interest rate hedges to fix the interest rates or by issuing fixed rate borrowings. 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 (hedges) 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 liabilities 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 or hedged interest rate liabilities may fall (all other market variables remaining unchanged). These movements in property assets and fixed interest rate liabilities impact upon the net equity value of ALE. Profile At the reporting date, ALE's interest rate sensitive financial instruments were as follows: Derivative financial assets Derivative financial liabilities Borrowings CIB AMTN 2017 $'000 1,471 (6,302) (147,753) (373,595) (526,179) 2016 $'000 - (26,349) (145,402) (334,126) (505,877) Sensitivity analysis A change of 100 basis points in the prevailing nominal market interest rates at the reporting date would have increased/(decreased) Statement of Comprehensive Income and Equity by the amounts shown below. This analysis assumes that all other variables, in particular the CPI, remain constant. The analysis was performed on the same basis for 2016. 30 June 2017 Interest rate hedges CIB AMTN 30 June 2016 Interest rate hedges CIB AMTN 100 bps increase $'000 12,814 - - 12,814 19,801 - - 19,801 100 bps decrease $'000 (14,891) - - (14,891) (22,474) - - (22,474) Page 35 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (continued) For the Year ended 30 June 2017 3. Capital structure and financing Consumer price index risk Potential variability in future distributions arise predominantly from financial assets and liabilities through movements in the consumer price index (CPI). For example, ALE's investment properties are subject to annual rental increases based on movements in the CPI. This will in turn flow through to investment property valuations. Property valuation risk ALE owns a number of investment properties. Those property valuations may increase or decrease from time to time. ALE's financing facilities contain gearing covenants. ALE reviews the risk of gearing covenant breaches by constantly monitoring gearing levels and has contingency capital management plans to ensure that sufficient headroom is maintained. Liquidity risk Liquidity risk is the risk that ALE will not be able to meet its financial obligations as they fall due. ALE’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to ALE’s reputation. ALE manages its liquidity risk by using detailed forward cash flow planning and by maintaining strong relationships with banks and investors in the capital markets. ALE has liquidity risk management policies which assist it in monitoring cash flow requirements and optimising its cash return on investments. Typically ALE ensures that it has sufficient cash on demand to meet expected operational expenses and commitments for the purchase/sale of assets for a period of 90 days (or longer if deemed necessary), including the servicing of financial obligations. Profile At the reporting date, ALE's CPI sensitive financial instruments were as follows: Financial instruments Investment properties CIB 2017 $'000 2016 $'000 1,080,160 (147,753) 932,407 990,480 (145,402) 845,078 Sensitivity analysis for variable rate instruments A change of 100 bps in CPI at the reporting date would increase rent and hence property value would have increased Statement of Comprehensive Income and Equity by the amounts shown below. This analysis assumes that all other variables, in particular the interest rates and capitalisation rates applicable to investment properties, remain constant. The analysis was performed on the same basis for 2016. 30 June 2017 Investment properties CIB 30 June 2016 Investment properties CIB 100 bps increase $'000 100 bps decrease $'000 11,612 - 11,612 9,937 - 9,937 - - - - - - Investment properties have been included in the sensitivity analysis as, although they are not financial instruments, the long term CPI linked leases attaching to the investment properties are similar in nature to financial instruments. Under the terms of the leases on the ALE properties there is no change to rental income should CPI decrease. There is no impact on the Statement of Comprehensive Income or Equity arising from a 100 bps movement in CPI at the reporting date on the CIB, as the terms of this instrument use CPI rates for the quarters ending the preceding March and December to determine their values at 30 June. Page 36 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (continued) For the Year ended 30 June 2017 3. Capital structure and financing The following are the contracted maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements. 30 June 2017 Contractual cash flows $'000 6 months or less $'000 6-12 months 1-2 years 2-5 years $'000 $'000 $'000 More than five years $'000 Non-derivative financial liabilities Trade and other payables CIB AMTN (8,151) (200,484) (447,375) Derivative financial instruments Interest rate hedges (6,096) (662,106) 30 June 2016 Non-derivative financial liabilities Trade and other payables CIB AMTN (7,457) (209,970) (392,637) Derivative financial instruments Interest rate hedges (32,293) (642,357) (8,151) (2,536) (8,625) - (2,559) (8,625) - (5,187) (17,250) - (16,112) (259,875) - (174,090) (153,000) 257 (19,055) 235 (10,949) 450 (21,987) (2,767) (278,754) (4,271) (331,361) (7,457) (2,454) (7,962) - (2,478) (7,962) - (4,994) (123,588) - (15,522) (253,125) - (184,522) - 225 (17,648) 149 (10,291) (1,497) (130,079) (8,464) (277,111) (22,706) (207,228) Interest rates used to determine contractual cash flows The interest rates used to determine the contractual cash flows, where applicable, are based on interest rates, including the relevant credit margin, applicable to the financial liabilities at balance date. The contractual cash flows have not been discounted. The inflation rates used to determine the contractual cash flows, where applicable, are based on inflation rates applicable at balance date. Interest rate hedges ALE uses derivative financial instruments, being interest rate hedges, to manage its exposure to interest rate risk on borrowings. As at balance date, ALE has hedged all non CIB net borrowings past the maturity date of the AMTN through nominal interest rate hedges. Current assets Non current assets Total assets Current liabilities Non current liabilities Total liabilities Net assets/(liabilities) 2017 $'000 - 1,471 1,471 - (6,302) (6,302) (4,831) 2016 $'000 - - - - (26,349) (26,349) (26,349) Current year fair value adjustments to derivatives Fair value increments/ (decrements) to interest rate hedge derivatives 2017 $'000 2016 $'000 14,294 (25,210) Recognition and measurement Interest rate hedges are initially recognised at fair value and are subsequently remeasured to their fair value at each reporting date. Any gains or losses arising from the change in fair value of the interest rate hedges are recognised in the Statement of Comprehensive Income. ALE documents, at the inception of any 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. 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 Statement of Comprehensive Income. The gain or loss from marking to market the interest rate hedges (derivatives) at fair value is taken directly to the Statement of Comprehensive Income. Page 37 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (continued) For the Year ended 30 June 2017 3. Capital structure and financing At 30 June 2017, the notional principal amounts and periods of expiry of the interest rate hedge contracts are as follows: Nominal Interest Rate Hedges Counter Hedges on Nominal Interest Rate Hedges 2017 $'000 - - - - - 506,000 2016 $'000 - - - - - 506,000 2017 $'000 - - (30,000) - - - 2016 $'000 - - - (30,000) - Net Derivative Position 2017 $'000 - - (30,000) - - 506,000 2016 $'000 - - - (30,000) - 506,000 Less than 1 year 1 - 2 years 2 - 3 years 3 - 4 years 4 - 5 years Greater than 5 years ALE has a series of forward start hedges in place and a counter hedge that is currently active. During the current year following the early repayment of the August 2017 AMTN and new fixed rate AMTN borrowing that will mature in August 2022, hedging relating to the August 2017 to August 2022 period was no longer required and was terminated. The continuing forward start hedge commences on the date of the maturity of the fixed rate August 2020 AMTN borrowing and increases on maturity of the fixed rate August 2022 AMTN borrowings, extending out to November 2025. The hedge contracts require settlement of net interest receivable or payable on a quarterly basis. The settlement dates coincide with the dates on which interest is payable on the underlying borrowings. The contracts are settled on a net basis. The average term of the interest rate hedges and fixed rate securities in relation to the total borrowings of ALE is 8.4 years at 30 June 2017. The following chart shows the hedge balances over the life of the hedges. Page 38 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (continued) For the Year ended 30 June 2017 3. Capital structure and financing Financial covenants ALE is required to comply with certain financial covenants in respect of its borrowing and hedging facilities. The major financial covenants are summarised as follows: Interest Cover Ratio covenants (ICR) Borrowing CIB AMTN Hedging ICR covenant ALH EBITDAR to be greater than 7.5 times CIB interest expense Consequence Stapled security distributions lockup ALE DPT EBITDA to be greater than or equal to 1.5 times ALE DPT interest expense Note holders may call for notes to be redeemed As per AMTN above As per AMTN above Definitions Interest amounts include all derivative rate swap payments and receipts EBITDAR - Earnings before Interest, Tax, Depreciation, Amortisation and Rent Rating covenant Borrowing AMTN Covenant AMTN issue rating to be maintained at investment grade (i.e. at least Baa3/BBB-) Consequence Published rating of Ba1/BB+ or lower results in a step up margin of 1.25% to be added to the interest rate payable Loan to Value Ratio covenants (LVR) Borrowing CIB CIB AMTN AMTN AMTN Hedging LVR Covenant The issuance of new CIB is not permitted if the indexed value of the resultant total CIB exceeds 25% of the value of properties held as security Outstanding value of CIB not to exceed 66.6% of the value of properties held as security The new issuance of Net Priority Debt is not permitted to exceed 20% of Net Total Assets Net Finance Debt not to exceed 60% of Net Total Assets Net Finance Debt not to exceed 65% of Net Total Assets As per AMTN above Consequence Note holders may call for notes to be redeemed Note holders may call for notes to be redeemed Note holders may call for notes to be redeemed Stapled Security distribution lockup Note holders may call for notes to be redeemed As per AMTN above Definitions All covenants exclude the mark to market value of derivatives Net Total Assets Total Assets less Cash less Derivative Assets less Deferred Tax Assets. Net Priority Debt Net Finance Debt ALE Finance Company Pty Limited (ALEFC) borrowings less Cash held against the ALEFC borrowings, divided by Total Assets less Cash less Derivative Assets less Deferred Tax Assets Total Borrowings less Cash, divided by Total Assets less Cash less Derivative Assets less Deferred Tax Assets. ALE currently considers that significant headroom exists with respect of all the above covenants. At all times during the years ended 30 June 2017 and 30 June 2016, ALE and its subsidiaries were in compliance with all the above covenants. Page 39 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (continued) For the Year ended 30 June 2017 3. Capital structure and financing 3.3 Equity 2017 $'000 2016 $'000 Capital management 3.4 Capital management 258,118 257,870 ALE monitors securityholder equity and manages it to address risks and add value where appropriate. Balance at the beginning of the period Securities issued - ESSS - 248 258,118 258,118 Movements in the number of fully paid stapled securities during the year 2017 Number 2016 Number Opening balance 195,769,080 195,702,333 Securities issued - ESSS Closing balance - 195,769,080 66,747 195,769,080 Measurement and recognition 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. Stapled securities 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 unit holder 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 4.43% 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. The NIVUS were issued to ensure the Responsible Entity maintained sufficient Net Tangible Assets to satisfy the requirements of the company's AFSL Licence. The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain the future development of the business. The Board of Directors monitors the return on capital, which ALE defines as distributable income divided by total contributed equity, excluding minority interests. The Board of Directors also monitors the level of gearing. The Board seeks to maintain a balance between the higher returns that may be achieved with higher levels of borrowings and the advantages and security afforded by a sound capital position. While ALE does not have a specific return on capital target, it seeks to ensure that capital is being most efficiently used at all times. In seeking to manage its capital efficiently, ALE from time to time may undertake on-market buybacks of ALE stapled securities. ALE has also from time to time made distributions from surplus cash or capital to stapled securityholders on a fully transparent basis. Additionally, the available total returns on all new acquisitions are tested against the anticipated weighted cost of capital at the time of the acquisition. ALE assesses the adequacy of its capital requirements, cost of capital and gearing as part of its broader strategic plan. Gearing ratios are monitored in the context of any increase or decrease from time to time based on existing property value movements, acquisitions completed, the levels of debt financing used and a range of prudent financial metrics, both at the time and on a projected basis going forward. The outcomes of the ALE strategic planning process plays an important role in determining acquisition and financing priorities over time. The total gearing ratios (total liabilities as a percentage of total assets) at 30 June 2017 and 30 June 2016 were 48.7% and 51.8% respectively. The net gearing ratios (total borrowings less cash as a percentage of total assets less cash, derivatives and deferred tax assets) at 30 June 2017 and 30 June 2016 were 42.7% and 44.9% respectively. Page 40 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (continued) For the Year ended 30 June 2017 3. Capital structure and financing 3.5 Cash and cash equivalents Cash at bank and in hand Deposits at call Cash reserve 2017 $'000 4,122 47,073 8,390 59,585 2016 $'000 3,456 26,073 8,390 37,919 Recognition and measurement 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. Cash obligations An amount of $8.39 million is required to be held as a cash reserve as part of the terms of the CIB issue in order to provide liquidity for CIB obligations to scheduled maturity of 20 November 2023. An amount of $2.00 million is required to be held in a term deposit by the Company to meet minimum net tangible asset requirements of the AFSL licence. During the year ended 30 June 2017 all cash assets were placed on deposit with various banks. As at 30 June 2017, the weighted average interest rate on all cash assets was 2.30% (2016:2.66%). Page 41 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (continued) For the Year ended 30 June 2017 4. Business performance This section provides the information that is most relevant to understanding the financial performance of the Group during the financial year and, where relevant, the accounting policies applied and the critical judgements and estimates made. 4.1 Revenue and income 4.5 Remuneration of auditors 4.6 Distributable income 4.7 Earnings per security 2017 $'000 2016 $'000 57,007 1,324 58,331 56,172 1,054 57,226 Interest income As at 30 June 2017 the weighted average interest rate earned on cash was 2.30% (2016: 2.66%) 89,605 89,644 4.2 Other expenses 4.2 Other expenses 4.3 Finance costs 4.4 Taxation 4.1 Revenue and income Revenue Rent from investment properties Interest from cash deposits Total revenue Other income Fair value increments to investment properties Fair value increments to derivatives Other income Total other income Total revenue and other income 14,294 - 103,899 - 43 89,687 162,230 146,913 Recognition and measurement Revenue Rental income from operating leases is recognised on a straight line basis over the lease term. Rentals that are based on a future amount that changes with other than the passage of time, including CPI linked rental increases, are only recognised when contractually due. 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 Statement of Financial Position as a receivable. Rental income During the current and previous financial years, ALE's investment property lease rentals were reviewed to state based CPI annually and are not subject to fixed increases, apart from the lease for the Pritchard's Hotel, NSW which has fixed increases of 3%. Audit, accounting, tax and professional fees Annual reports Depreciation expense Insurance Legal fees Occupancy costs Corporate and property expenses Property revaluations, and condition and compliance Registry fees Staff training Travel and accommodation Trustee and custodian fees Total other expenses Total other expenses Salaries and related costs Less: Share based payments expense Total cash other expenses 2017 $'000 2016 $'000 234 75 19 160 308 113 985 393 110 23 55 161 2,636 2,636 2,758 (248) 5,146 206 105 16 167 187 115 908 466 100 32 102 156 2,560 2,560 2,509 (182) 4,887 Recognition and measurement Expenses including operating expenses, Queensland land tax expense and other outgoings (if any) are brought to account on an accruals basis. Page 42 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (continued) For the Year ended 30 June 2017 4. Business performance 4.3 Finance costs 4.4 Taxation 2017 $'000 2016 $'000 Reconciliation of income tax expense Finance costs - cash Capital Indexed Bonds (CIB) Australian Medium Term Notes (AMTN) Interest rate derivative payments/(receipts) Other finance expenses Finance costs - non-cash Accumulating indexation - CIB Amortisation - CIB Amortisation - AMTN Amortisation - AMTN discount Other finance expenses 4,997 4,929 17,149 15,937 (507) 200 21,839 (390) 191 20,667 2,279 72 313 48 - 2,712 2,231 64 284 34 - 2,613 Finance costs (cash and non-cash) 24,551 23,280 Recognition and measurement Interest expense is recognised on an accruals basis. Borrowing costs are recognised using the effective interest rate method. The prima facie income tax expense on profit before income tax reconciles to the income tax expense in the financial statements as follows: 2017 $'000 2016 $'000 Profit before income tax Profit attributable to entities not subject to tax 130,057 91,213 129,923 91,291 Profit/(Loss) before income tax expense subject to tax Tax at the Australian tax rate Share based payments Other Under/(over) provision in prior years Income tax expense/(benefit) Current tax expense/(benefit) Deferred tax expense/ (benefit) Income tax expense/(benefit) 134 40 (27) 1 - 14 6 8 14 (78) (23) 58 1 (1) 35 62 (27) 35 Amounts represent net cash finance costs after derivative payments and receipts. Recognition and measurement Finance costs details Other borrowing costs such as rating agency fees and liquidity fees. Establishment costs of the various borrowings are amortised over the period of the borrowing on an effective rate basis. Trusts Under current legislation, Trusts are not liable for income tax, provided that their taxable income and taxable realised gains are fully distributed to securityholders each financial year. Current tax The income tax expense or benefit 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. Page 43 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (continued) For the Year ended 30 June 2017 4. Business performance 4.4 Taxation (continued) 4.5 Remuneration of auditors Deferred tax 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 affect 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 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. Offsetting deferred tax balances Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Company/Group intends to settle its current tax assets and liabilities on a net basis. Audit services KPMG Australian firm: Audit and review of the financial reports - in relation to current year - in relation to prior year Total remuneration for audit services KPMG Australian firm: Other services Total remuneration for all services 2017 $ 2016 $ 180,000 15,000 171,500 12,500 195,000 184,000 152,352 18,259 347,352 202,259 4.6 Distributable income Reconciliation of profit after tax to amounts available for distribution: Profit after income tax Plus /(less) Fair value adjustments to investment properties Fair value adjustments to derivatives Employee share based payments Finance costs - non cash Income tax expense Adjustments for non-cash items Total available for distribution Distribution paid or provided for Available and under/(over) distributed Distribution funded as follows Current year distributable profits Prior year undistributed profits Capital and surplus cash 2017 $'000 130,043 2016 $'000 91,178 (89,605) (89,644) (14,294) 25,210 248 2,712 14 182 2,613 35 (100,925) (61,604) 29,118 29,574 39,937 39,154 (10,819) (9,580) 29,118 29,574 - 10,819 39,937 6,523 3,057 39,154 Page 44 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (continued) For the Year ended 30 June 2017 4. Business performance 4.7 Earnings per security Basic earnings per stapled security The calculation of basic earnings per stapled security is based on the profit attributable to ordinary securityholders and the weighted average number of ordinary stapled securities outstanding. The calculation of distributable profit per stapled security is based on the distributable profit attributable to ordinary securityholders and the weighted average number of ordinary stapled securities outstanding. 2017 2016 2017 2016 Profit attributable to members of the Group ($000's) 130,043 91,178 Distributable profit attributable to members of the Group ($000's) 29,118 29,574 Weighted average number of stapled securities 195,769,080 195,759,597 Number of stapled securities at the end of the year 195,769,080 195,769,080 Basic earnings per security (cents) 66.43 46.58 Distributable profit per security (cents) 14.87 15.11 Diluted earnings per stapled security The calculation of diluted earnings per stapled security is based on the profit attributable to ordinary securityholders and the weighted average number of ordinary stapled securities outstanding after adjustments for the effects of all dilutive potential ordinary stapled securities. Distributed profit per security Distributable income per stapled security 2017 2016 14.87 15.11 Distribution paid per stapled security 20.40 20.00 2017 2016 Profit attributable to members of the Group ($000's) 130,043 91,178 Under/(over) distributed for the year (5.53) (4.89) Weighted average number of stapled securities Diluted earnings per security (cents) 195,988,389 195,999,370 66.35 46.52 Distribution funded as follows Current year distributable profits Prior year undistributed profits Capital and surplus cash 14.87 15.11 - 5.53 20.40 3.33 1.56 20.00 Distributable profit per security ALE has a policy of paying distributions which are subject to the minimum requirement to distribute taxable income of the trust under the Trust Deed. Distributable Profit is a non-IFRS measure that shows how free cash flow is calculated by ALE. Distributable Profit excludes items such as unrealised fair value (increments)/decrements arising from the effect of revaluing derivatives and investment property, non-cash expenses and non-cash financing costs. Page 45 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (continued) For the Year ended 30 June 2017 5. Employee benefits This section provides a breakdown of the various programs ALE uses to reward and recognise employees and key executives, including Key Management Personnel (KMP). ALE believes that these programs reinforce the value of ownership and incentives and drive performance both individually and collectively to deliver better returns to securityholders. 5.1 Employee benefits 5.3 Employee share plans 5.2 Key management personnel compensation 5.1 Employee benefits 2017 $'000 2016 Long service leave $'000 Employee benefits provision: Current 190 169 Recognition and measurement The employee benefits liability represents accrued wages and salaries, leave entitlements and other incentives recognised in respect of employees’ services up to the end of the reporting period. These liabilities are measured at the amounts expected to be paid when they are settled and include related on-costs, such as workers compensation insurance, superannuation and payroll tax. 5.2 Key management personnel compensation Short term employee benefits Post employment benefits Other long term benefits Share based payments Termination benefits 2017 $ 2016 $ 1,954,719 114,645 24,613 248,337 - 2,342,314 1,861,142 135,558 17,438 182,000 - 2,196,138 Recognition and measurement Wages and salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits and annual leave due 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 accumulated sick leave are recognised as an expense when the leave is taken and measured at the rates paid or payable. Bonus and incentive plans Liabilities and expenses for bonuses and incentives are recognised where contractually obliged or where there is a past practice that may create a constructive obligation. ALE recognises liabilities for long service leave when employees reach a qualifying period of continuous service (five years). 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. 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. Retirement benefit obligations ALE pays fixed contributions to employee nominated superannuation 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. 5.3 Employee share plans Executive Stapled Security Scheme (ESSS) The ESSS was established in 2012. The grant date fair value of ESSS Rights granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the ESSS rights. The amount recognised as an expense is adjusted to reflect the actual number of ESSS Rights that vest. The fair value at grant date is determined as the value of the ESSS Rights in the year in which they are awarded. The number of ESSS Rights issued annually under the ESSS will be determined by dividing the value of the grant by the volume weighted average price for the five trading days commencing the day following the signing of ALE Property Group’s full year statutory financial statements and grossing this number up for the future value of the estimated distributions over the three year deferred delivery period. Upon the exercise of ESSS rights, the balance of the share based payments reserve relating to those rights is transferred to Contributed Equity. Page 46 ALE Property Group Notes to the financial statements (continued) For the Year ended 30 June 2017 6. Other This section provides details on other required disclosures relating to the Group to comply with the accounting standards and other pronouncements. 6.1 New accounting standards 6.5 Investments in controlled entities 6.2 Segment reporting 6.6 Related party transactions 6.3 Events occurring after balance date 6.7 Parent Entity Disclosures 6.4 Contingent liabilities and contingent assets 6.1 New accounting standards A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 January 2016 and have not been applied in preparing these financial statements. Those which may be relevant to the Group are set out below. The Group does not plan to adopt these standards early. IFRS 15 Revenue from Contracts with Customers IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. Disclosure Initiative (Amendments to IAS 7) The amendments require disclosures that enable users of the financial statements to evaluate changes in liabilities arising from financing activities, including both changes from cash flow and non-cash changes. IFRS 15 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted. The Group has completed an assessment of the potential impact of the adoption of IFRS 15 on its financial statements and there will be no significant changes. The amendments are effective for annual reporting periods beginning on or after 1 January 2017, with early adoption permitted. To satisfy the new disclosure requirements the Group intends to present a reconciliation between opening and closing balances for liabilities with changes arising from financing activities. Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12) The amendments clarify the accounting for deferred tax assets for unrealised losses on debt instruments measured at fair value. The amendments are effective for annual reporting periods beginning on or after 1 January 2017, with early adoption permitted. The Group has assessed the potential impact on its consolidated financial statements resulting from the amendments and there will be no significant impacts. IFRS 9 Financial Instruments (2010), IFRS 9 Financial Instruments (2009) IFRS 9, published in July 2014, replaces the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidance on the classification and measurement of financial instruments, including a new expected credit loss model for calculating impairment on financial assets, and the new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39. IFRS 9 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted. The actual impact of adopting IFRS 9 on the Group's consolidated financial statements in 2018 is not known and cannot be reliably estimated because it will be dependant on the financial instruments that the Group holds and the economic conditions at that time as well as accounting elections and judgements that it will make in the future. The Group has assessed the potential impact on its consolidated financial statement resulting from the application of IFRS 9 based on its positions as at Page 47 ALE Property Group Notes to the financial statements (continued) For the Year ended 30 June 2017 6. Other 30 June 2017 and hedging arrangements during 2017 under IAS 39. 6.5 Investments in controlled entities Based on its preliminary assessment the Group does not believe the new classification and measurement approach for financial assets, financial liabilities or the impairment requirements for financial assets will have a material impact on the group's consolidated financial statements. IFRS 16 Leasing IFRS 16 establishes a comprehensive framework the accounting policies and disclosures applicable to leases, both for lessees and lessors. IFRS 16 is effective for annual reporting periods beginning on or after 1 January 2019, with early adoption permitted. The Group has assessed the potential impact on its financial statements resulting from the application of IFRS 16 and believes that there will be no material changes required. 6.2 Segment reporting The Trust owns 100% of the issued units of the Sub Trust. The Sub Trust owns 100% of the issued shares of the Finance Company. The Trust owns none of the issued shares of the Company, but is deemed to be its "acquirer" under AASB. In addition, the Trust owns 100% of the issued units of ALE Direct Property Trust No.3, which in turns owns 100% of the issued shares of ALE Finance Company No.3 Pty Limited. Both of these Trust subsidiaries are non operating. 6.6 Related party transactions Parent entity and subsidiaries Details are set out in Note 6.5 and 6.7. Key management personnel Key management personnel and their compensation are set out in the Remuneration Report on Page 17. Business segment The results and financial position of ALE's single operating segment, ALE Strategic Business Unit, are prepared for the Managing Director on a quarterly basis. The strategic business unit covers the operations of the responsible entity for the ALE Property Group. Transactions with related parties For the year ended 30 June 2017, the Company received $4,460,628 of expense reimbursement from the Trust (2016: $4,108,938), and the Finance Company charged the Sub Trust $7,366,400 interest (2016: $7,243,821). Comparative information has been presented in conformity with the requirements of AASB 8 Operating Segments. All ALE Property Group's properties are leased to members of the ALH Group, and accordingly 100% of the rental income is received from ALH (2016: 100%). 6.3 Events occurring after balance date There has not arisen in the interval between the end of the financial year and the date of this report, any transaction or event of a material and unusual nature likely, in the opinion of the Directors of the Company, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years. Peter Warne is Chairman of Macquarie Group Limited (Macquarie). Macquarie has provided investment banking services to ALE in the past and may continue to do so in the future. Mr Warne did not take part in any decisions to appoint Macquarie in relation to any of the above matters. Mr Warne resigned on 23 May 2017. Robert Mactier is a consultant to UBS AG. UBS AG has provided investment banking services to ALE in the past and may continue to do so in the future. Mr Mactier does not take part in any decisions to appoint UBS AG in relation to corporate advice provided by UBS AG to ALE. Terms and conditions All related party transactions are conducted on normal commercial terms and conditions. 6.4 Contingent liabilities and contingent assets Outstanding balances are unsecured and are repayable in cash and callable on demand. Bank guarantee ALE has entered into a bank guarantee of $73,273 in respect of the office tenancy at Level 10, 6 O'Connell Street, Sydney. Page 48 ALE Property Group Notes to the financial statements (continued) For the Year ended 30 June 2017 6. Other 6.7 Parent Entity Disclosures As at, and throughout, the financial year ending 30 June 2017 the parent entity of ALE was Australian Leisure and Entertainment Property Trust. 2017 $'000 2016 $'000 Profit for the year 29,155 70,356 Financial position of the parent entity Current assets Cash 196 21 Non current assets Investments in controlled entities Total assets Current liabilities Payables Provisions Total liabilities Net assets Issued units Retained earnings Total equity 275,656 275,852 275,656 275,677 15,563 20,066 4,900 19,773 35,629 240,223 24,673 251,004 252,431 (12,208) 240,223 252,431 (1,427) 251,004 Page 49 ALE Property Group DIRECTORS' DECLARATION For the Year ended 30 June 2017 In the opinion of the directors of the Company: (a) the financial statements and notes that are set out on pages 22 to 49 and the Remuneration report contained in Section 9 of the Directors’ report, are in accordance with the Corporations Act 2001, including (i) giving a true and fair view of ALE’s financial position as at 30 June 2017 and of its performance for the financial year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; (b) (c ) (d) there are reasonable grounds to believe that ALE will be able to pay its debts as and when they become due and payable. The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Managing Director, Finance Manager, and Company Secretary as required for the financial year ended 30 June 2017. The directors draw attention to Note 1 to the financial statements, which includes a statement of compliance with International Financial Reporting Standards. This declaration is made in accordance with a resolution of the Directors. Robert Mactier Chairman Andrew Wilkinson Managing Director Dated this 8th day of August 2017 Page 50 ALE Property Group INVESTOR INFORMATION For the Year ended 30 June 2017 Securityholders The securityholder information as set out below was applicable as at 12 July 2017. A. DISTRIBUTION OF EQUITY SECURITIES Range 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 - 200,000,000 Total Total Holders 707 1,324 958 1,646 112 4,747 Number of Securities 226,083 4,094,136 7,331,166 42,941,109 141,176,586 195,769,080 % of Issued Capital 0.12 2.09 3.74 21.93 72.12 100.00 The stapled securities are listed on the ASX and each stapled security comprises one share in Australian Leisure and Entertainment Property Management Limited (Company) and one unit in Australian Leisure and Entertainment Property Trust (Trust). The number of securityholders holding less than a marketable parcel of stapled securities is 315. B. TOP 20 EQUITY SECURITYHOLDERS The names of the 20 largest security holders of stapled securities are listed below Rank Name UBS Nominees Pty Ltd HSBC Custody Nominees (Australia) Limited Woolworths Limited Citicorp Nominees Pty Limited National Nominees Limited [Db Account] National Nominees Limited Manderrah Pty Ltd [GJJ Family Account] HSBC Custody Nominees (Australia) Limited - Account 2 J P Morgan Nominees Australia Limited Mr Edward Furnival Griffin + Mr Alastair Charles Griffin [Est Jean Falconer Griffin Ac] HSBC Custody Nominees (Australia) Limited-Gsco Eca CS Third Nominees Pty Limited [HSBC Customer Nominees AU Ltd 13 Account] C J H Holdings Pty Ltd [CJH Family Aaccount] Mr David Calogero Loggia Merlor Holdings Pty Ltd [Basserabie Family Settlement Account] BNP Paribas Nominees Pty Limited [IB AU Nominees Retail Client DRP] BT Portfolio Services Limited [Caergwrle Invest P/L Account] Bond Street Custodians Limited [Caergwrle Investments Pty Limited Account] Mr Nicholas Anthony Dyer C J H Holdings Pty Ltd [Superannuation Fund Account] 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Totals: Top 20 Holders of Stapled Securities Totals: Remaining Holders Balance C. SUBSTANTIAL HOLDERS Substantial holders of ALE (as per notices received as at 12 July 2017) are set out below: Stapled Securityholder Name Caledonia (Private) Investments Pty Ltd Woolworths Limited Allan Gray Australia Page 55 Number of Securities 32,198,197 20,439,513 17,076,936 11,796,447 7,170,700 6,153,869 5,192,733 4,291,467 3,254,235 2,795,751 2,771,863 2,500,001 1,419,465 1,058,398 845,741 754,982 745,787 700,000 675,000 660,953 122,502,038 73,267,042 % of Issued Capital 16.45 10.44 8.72 6.03 3.66 3.14 2.65 2.19 1.66 1.43 1.42 1.28 0.73 0.54 0.43 0.39 0.38 0.36 0.34 0.34 62.57 37.43 Number of Securities 60,101,799 17,076,936 13,868,884 % of Issued Capital 30.70 8.72 7.08 ALE Property Group INVESTOR INFORMATION For the Year ended 30 June 2017 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 securityholder present at a meeting in person or by proxy shall be entitled to have one vote and upon a poll each stapled security will have one vote. (b) NIVUS Each NIVUS entitles the Company to one vote at a meeting of the Trust. 9,080,010 NIVUS have been issued by the Trust to the Company and 195,769,080 units have been issued by the Trust to stapled securityholders. The NIVUS therefore represent 4.43% of the voting rights of the Trust. E. EQUITY RESEARCH COVERAGE OF ALE The following equity research analysts currently cover ALE’s stapled securities: Rob Freeman and Stuart McLean – Macquarie Securities Richard Jones – JP Morgan Securities Andrew Legget – Intelligent Investor Johannes Faul – Morningstar F. ASX ANNOUNCEMENTS The information is provided as a short summary of investor information. Please view our website at www.alegroup.com.au for all investor information. 2017 31 Oct 05 Sep 08 Aug Annual General Meeting 2nd half distribution payment Full Year Results, Annual Review / Report and Property Compendium released Property valuations increased by 9.1% Full Year distribution of 20.40 cents announced 09 Jun 09 Jun Half Year distribution of 10.25 cents declared 09 Jun 23 May Succession of Chairman 23 May ALE Redeems maturing AMTN 14 Mar Caledonia increases substantial holding to 30.70% 08 Mar ALE completes AMTN refinancing 06 Mar 02 Mar 23 Feb Half Year results released 1st half distribution payment Taxation Components of Distribution 2016 06 Dec Property valuation increased by 10% 06 Dec Half Year distribution of 10.15 cents declared 28 Nov Appointment of Robert Mactier as Director 16 Nov Caledonia increases substantial holding to 29.66% 25 Oct Annual General Meeting 08 Sep Caledonia increases substantial holding to 28.50% 05 Sep 2nd half distribution payment 31 Aug Taxation Components of Distribution 04 Aug Full Year Results, Annual Review / Report and Property Compendium released 14 Jun Property valuation increased by 10% for the full year 10 Jun Half year distribution of 10.00 cents declared 10 Jun Full year distribution of 20.00 cents announced 08 Mar Change in substantial holding from WOW 07 Mar 1st half distribution payment 29 Feb Taxation Components of Distribution 16 Feb Half Year results released 11 Feb Caledonia increases substantial holding to 27.05% 04 Feb Hedging Extended At Low Interest Rates Page 56 ALE Property Group INVESTOR INFORMATION For the Year ended 30 June 2017 Stock Exchange Listing The ALE Property Group (ALE) is listed on the Australian Securities Exchange (ASX). Its stapled securities are listed under ASX code: LEP. Securityholder Enquiries Please contact the registry if you have any questions about your holding or payments. Distribution Reinvestment Plan ALE has established a distribution reinvestment plan. Details of the plan are available on the ALE website. Distributions Stapled security distributions are paid twice yearly, normally in March and September. Electronic Payment of Distributions Securityholders 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 advice. Securityholders wishing to take advantage of payment by direct credit should contact the registry for more details and to obtain an application form. Registered Office Level 10, 6 O'Connell Street Sydney NSW 2000 Telephone (02) 8231 8588 Company Secretary Mr Michael Clarke Level 10, 6 O'Connell Street Sydney NSW 2000 Telephone (02) 8231 8588 Auditors KPMG Level 38, Tower Three International Towers Sydney 300 Barangaroo Avenue Sydney NSW 2000 Annual Tax Statement Accompanying the final stapled security distribution payment, normally in September each year, will be an annual tax statement which details the tax components of the year's distribution. Lawyers Allens Linklaters Level 28, Deutsche Bank Place Sydney NSW 2000 Publications The Annual Review and Annual Report are the main sources of information for stapled securityholders. In August each year the Annual Review, Annual Report and Full Year Financial Report, and in February each year, the Half-Year Financial Report are released to the ASX and posted on the ALE website. The Annual Review is mailed to stapled securityholders unless we are requested not to do so. The Full Year and Half Year Financial Reports are only mailed on request. Periodically ALE may also send releases to the ASX covering matters of relevance to investors. These releases are also posted on the ALE website and may be distributed by email to stapled securityholders by registering on ALE’s website. The election by stapled securityholders to receive communications electronically is encouraged by ALE. Website The ALE website, www.alegroup.com.au, is a useful source of information for stapled securityholders. 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. The ALE Property website, www.aleproperties.com.au, provides further detailed information on ALE's property portfolio. Custodian (of Australian Leisure and Entertainment Property Trust) The Trust Company Limited Level 13, 123 Pitt Street Sydney NSW 2000 Trustee (of ALE Direct Property Trust) The Trust Company (Australia) Limited Level 13, 123 Pitt Street Sydney NSW 2000 Registry Computershare Investor Services Pty Ltd Reply Paid GPO Box 7115, Sydney NSW 2000 Level 3, 60 Carrington Street, Sydney NSW 2000 Telephone 1300 302 429 Facsimile (02) 8235 8150 www.computershare.com.au Page 57 ALE Property Group ANGLERS ARMS HOTEL SOUTHPORT, QLD Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278 ANNUAL REPORT 2017 Australian Leisure and Entertainment Property Management Limited Australian Leisure and Entertainment Property Management Limited is the responsible entity and the management company of ALE Property Group WWW.ALEGROUP.COM.AU Contents Directors' Report Auditor's Independence Declaration Financial Statements Statement of Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Directors' Declaration Independent Auditors Report Investor Information 02 16 17 18 19 20 21 22 32 33 36 DIRECTORS' REPORT For the Year ended 30 June 2017 The Directors of Australian Leisure and Entertainment Property Management Limited (the "Company") present their report for the year ended 30 June 2017. The registered office and principal place of business of the Company is: Level 10 6 O'Connell Street Sydney NSW 2000 1. DIRECTORS The following persons were directors of the Company during the year and up to the date of this report unless otherwise stated: Name Experience, responsibilities and other directorships Robert Mactier, B.Ec, MAICD Independent Non Executive Director Chairman of the Board Appointed: 28 November 2016 Appointed Chairman: 23 May 2017 Member of the Audit, Compliance and Risk Management Committee (ACRMC) Member of the Nominations Committee Member of the Remuneration Committee Robert’s other current roles include Chairman of ASX-listed WPP AUNZ Limited (since 2006) and Consultant to UBS AG in Australia (since June 2007). Between 2006 and January 2017 he served as a non-executive Director of NASDAQ listed Melco Resorts and Entertainment Limited. Robert began his career at KPMG and from January 1986 to April 1990 worked across their audit, management consulting and corporate finance practices. He has extensive investment banking experience in Australia, having previously worked for Citigroup, E.L. & C. Baillieu and Ord Minnett Securities between 1990 and 2006. Robert holds a Bachelor’s degree in economics from the University of Sydney and has been a Member of the Australian Institute of Company Directors since 2007. Phillipa Downes, BSc (Bus Ad), MAppFin, GAICD Independent Non Executive Director Appointed: 26 November 2013 Chair of the ACRMC Member of the Nominations Committee Member of the Remuneration Committee Phillipa (Pippa) is a Director of the Infotrack Group, the ASX Clearing and Settlement companies, the Sydney Olympic Park Authority and is also on the panel of the ASX Appeals Tribunal. Pippa is also a director of the Pinnacle Foundation and was a Managing Director and Equity Partner of Goldman Sachs in Australia until October 2011, working in the Proprietary Investment division. Pippa has had a successful international banking and finance career spanning over 20 years where she has led the local investment, derivative and trading arms of several of the world’s leading Investment Banks. She has extensive experience in Capital Markets, derivatives and asset management. Prior to joining Goldman Sachs in 2004, Ms Downes was a director and the Head of Equity Derivatives Trading at Deutsche Bank in Sydney. When Morgan Stanley was starting its equity franchise in Australia in 1998 she was hired to set up the Derivative and Proprietary Trading business based in Hong Kong and Australia. Ms Downes started her career working for Swiss Bank O’Connor on the Floor of the Pacific Coast Stock Exchange in San Francisco, followed by the Philadelphia Stock Exchange before returning to work in Sydney as a director for UBS. Pippa was previously an appointed Director on the Board of Swimming Australia and the Swimming Australia Foundation. Pippa graduated from the University of California at Berkeley with a Bachelor of Science in Business Administration majoring and Finance and Accounting. Pippa also completed a Masters of Applied Finance from Macquarie University in 1998. Page 2 Australian Leisure and Entertainment Property Management Limited DIRECTORS' REPORT For the Year ended 30 June 2017 Name Experience, responsibilities and other directorships Nancy Milne, OAM, LLB, FAICD Independent Non Executive Director Appointed: 6 February 2015 Member of the ACRMC Member of the Nominations Committee Member of the Remuneration Committee Nancy has been a professional non-executive director for over a decade. She is a former lawyer with over 30 years’ experience with primary areas of legal expertise in insurance, risk management, and corporate governance She was a partner with Clayton Utz until 2003 and a consultant until 2012. She is currently Chairman of the Securities Exchange Guarantee Corporation and deputy chairman of the State Insurance Regulatory Authority. She was previously a director of Australand Property Group, Crowe Horwarth Australasia, State Plus and Novion Property Group (now Vicinity Centres). Nancy has a Bachelor of Laws from the University of Sydney. She is a member of the NSW Council of the Australian Institute of Company Directors and the Institute’s Law Committee. Paul Say, FRICS, FAPI Independent Non Executive Director Appointed: 24 September 2014 Member of the ACRMC Chair of the Nominations Committee Chair of the Remuneration Committee Paul has over 30 years’ experience in commercial and residential property management, development and real estate transactions with major multinational institutions. Paul was Chief Investment Officer at Dexus Property Group from 2007 to 2012. Prior to that he was with Lend Lease Corporation for 11 years in various positions culminating with being the Head of Corporate Finance. Paul is a director of GPT Metro Office Fund and Frasers Logistic & Industrial Trust (SGX listed). Paul has a Graduate Diploma in Finance and Investment and a Graduate Diploma in Financial Planning. He is a Fellow of the Royal Institute of Chartered Surveyors, Fellow of the Australian Property Institute and a Licensed Real Estate Agent (NSW, VIC and QLD). James McNally B.Bus (Land Economy), Dip. Law Non Executive Director Appointed: 26 June 2003 James is an executive and founding director of the company. James has over 20 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’ qualifications include a Bachelor of Business in land economy and a Diploma of Law. James is also a registered valuer and licensed real estate agent. James is not considered an Independent Director as he has held an Executive Director position with ALE for the last three years to 15 April 2017. Peter Warne, B.A, FAICD Independent Non Executive Director Appointed: 8 September 2003 Resigned:23 May 2017 Member of the Audit, Compliance and Risk Management Committee (ACRMC) Member of the Nominations Committee Member of the Remuneration Committee 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 Chairman of Macquarie Group Limited and a board member of ASX Limited. He is also a Director of the Securities Exchanges Guarantee Corporation and NSW Treasury Corporation. 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. Page 3 Australian Leisure and Entertainment Property Management Limited DIRECTORS' REPORT For the Year ended 30 June 2017 Name Experience, responsibilities and other directorships Andrew Wilkinson B.Bus, CFTP, MAICD Managing Director Appointed: 16 November 2004 Chief Executive Officer and Managing Director of the Company Responsible Manager of the Company under the Company’s Australian Financial Services Licence (AFSL) 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 around 35 years’ experience in banking, corporate finance and funds management. He was previously a corporate finance partner with PricewaterhouseCoopers and spent 15 years in finance and investment banking with organisations including ANZ Capel Court and Schroders. 2. OTHER OFFICERS Name Experience Michael Clarke BCom, MMan, CA, ACIS Company Secretary and Finance Manager Appointed: 30 June 2016 Michael joined ALE in October 2006 and was appointed Company Secretary on 30 June 2016. Michael has a Bachelor of Commerce from the University of New South Wales and a Masters of Management from the Macquarie Graduate School of Management. He is an associate member of both the Governance Institute of Australia and the Institute of Chartered Accountants in Australia and New Zealand. Michael has over 30 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. He has also owned and managed his own accounting practice. David Lawler B.Bus, CPA Independent member of ACRMC Appointed: 9 December 2005 David was appointed to ALE’s ACRMC on 9 December 2005 and has over 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. David was Group Auditor for the Commonwealth Bank of Australia. David is the Chairman of the Australian Trade and Investment Commission Audit and Risk Committee, and the National Mental Health Commission Audit Committee, and is an audit committee member of the Australian Office of Financial Management, Cancer Australia, the Department of Foreign Affairs and Trade, the Australian Sports Anti-Doping Authority, and the Australian Maritime Safety Authority. David is Chairman of Australian Settlements Limited. David has a Bachelor of Business Studies from Manchester Metropolitan University in the UK. He is a Fellow of CPA Australia and a past President of the Institute of Internal Auditors – Australia. 3. INFORMATION ON DIRECTORS AND KEY MANAGEMENT PERSONNEL 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 R W Mactier R W Mactier P G Say P G Say Directorships of listed entities WPP AUNZ Limited Melco Resorts and Entertainment Limited (Nasdaq listed) GPT Metro Office Fund Frasers Logistic & Industrial Trust (SGX listed) Appointed as Director December 2006 December 2006 Type Non-executive Non-executive Non-executive August 2014 Non-executive June 2016 Resigned as Director January 2017 September 2016 Page 4 Australian Leisure and Entertainment Property Management Limited DIRECTORS' REPORT For the Year ended 30 June 2017 Directors’ and key management personnel interests in stapled securities and ESSS rights The following directors, key management personnel and their associates held or currently hold the following stapled security interests in ALE: Name R W Mactier P H Warne P J Downes P G Say N J Milne A F O Wilkinson J T McNally A J Slade M J Clarke D J Shipway Role Non-executive Director Non-executive Director Non-executive Director Non-executive Director Non-executive Director Executive Director Executive Director Capital Manager Company Secretary and Finance Manager Asset Manager Number held at the start of the year - 1,185,000 213,904 25,000 20,000 317,859 55,164 73,611 17,500 4,000 Net movement Number held at the end of the year 50,000 - (24,794) - - 49,878 - (13,611) 500 8,825 50,000 1,185,000 189,110 25,000 20,000 367,737 55,164 60,000 18,000 12,825 The following key management personnel currently hold rights over stapled securities in ALE: Name ESSS Rights A F O Wilkinson A J Slade M J Clarke D J Shipway Role Executive Director Capital Manager Finance Manager Asset Manager Number held at the start of the year Granted during the year Lapsed / Delivered during the year Number held at the end of the year 131,975 66,355 23,024 17,514 27,020 13,510 5,246 1,968 (34,878) (19,092) (8,825) (8,825) 124,117 60,773 19,445 10,657 Meetings of directors The number of meetings of the Company’s Board of Directors held and of each Board committee during the year ended 30 June 2017 and the number of meetings attended by each director at the time the director held office during the year were: Director R W Mactier P H Warne P J Downes P G Say N J Milne A F O Wilkinson J T McNally Board ACRMC Held 1 6 9 10 10 10 10 10 Attended 6 9 10 10 10 10 9 Held 1 2 6 7 7 7 n/a n/a Attended 2 6 7 7 7 n/a n/a Nominations Committee and Remuneration Committee Attended 2 3 4 4 4 n/a n/a Held 1 2 3 4 4 4 n/a n/a Member of Audit, Compliance and Risk Management Committee D J Lawler n/a n/a 7 7 n/a n/a 1 “Held” reflects the number of meetings which the director or member was eligible to attend. 4. 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. Page 5 Australian Leisure and Entertainment Property Management Limited DIRECTORS REPORT For the Year ended 30 June 2017 5. OPERATIONAL AND FINANCIAL REVIEW ALE Property Group is the owner of Australia's largest portfolio of freehold pub properties. Established in November 2003, ALE owns a portfolio of 86 pub properties across the five mainland states of Australia. All the properties in the portfolio are leased to Australian Leisure and Hospitality Group (ALH) for an average remaining initial lease term of 11.3 years plus options for ALH to extend. The Company is responsible for the management activities of the ALE Group and also acts as the responsible entity for the Australian Leisure and Entertainment Property Trust (the "Trust"). Revenue Expense reimbursement Interest income Total revenue Expenses Salaries, fees and related costs Other expenses Total expenses Profit/(loss) before income tax Income tax expense / (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 2017 $ 30 June 2016 $ 4,460,628 7,077 4,467,705 4,108,938 23,795 4,132,733 2,727,951 1,663,604 4,391,555 2,479,253 1,811,685 4,290,938 76,150 (158,205) (526) 7,763 76,676 (165,968) Cents Cents 0.04 - 7.28 (0.08) - 7.27 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. 6. 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. Apart from the above matters, the directors are not aware of any other future development likely to significantly affect the operations and/or results of ALE. 7. DIVIDENDS No provisions for or payments of Company dividends have been made during the year (2016: nil). 8. MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR In the opinion of the Directors of the Company, no transaction or event of a material and unusual nature has occurred between the end of the financial year and the date of this report that may significantly affect the operations of the Company, the results of those operations or the state of the affairs of the Company in future financial years. Page 6 Australian Leisure and Entertainment Property Management Limited DIRECTORS' REPORT For the Year ended 30 June 2017 9 REMUNERATION REPORT (Audited) This report provides details on ALE's remuneration structure, decisions and outcomes for the year ended 30 June 2017 for employees of ALE including the directors, the Managing Director and key management personnel. This information has been audited as required by section 308(3C) of the Act. 9.1 Remuneration Objectives and Approach In determining a remuneration framework, the Board aims to ensure the following: ● ● ● attract, reward and retain high calibre executives; motivate executives to achieve performance that creates value for stapled securityholders; and link remuneration to performance and outcomes achieved. The framework aligns executive reward with achievement of strategic objectives and creation of value for stapled securityholders. To do this the Board endeavours to ensure that executive reward satisfies the following objectives: ● ● ● ● ● ● alignment with ALE's financial, operational, compliance and risk management objectives so as to achieve alignment with positive outcomes for stapled securityholders; alignment with ALE's overall performance; transparent, reasonable and acceptable to employees and securityholders; rewards the responsibility, capability, experience and contribution made by executives; recognises individual executive's contributions towards value accretive outcomes when measured against Key Performance Indicators (KPI's); and market competitive and complementary to the reward strategy of the organisation. The framework provides a mix of fixed and variable remuneration. Since the year ending 30 June 2012 the variable remuneration has been provided through the Executive Incentive Scheme (EIS). Any award under the EIS is paid 50% in cash following the year end and 50% in stapled securities with delivery deferred three years. 9.2 Remuneration Committee The Remuneration Committee ("the Committee") is a committee comprising non-executive directors of the Company. The Committee strives to ensure that ALE's remuneration structure strikes an appropriate balance between the interests of ALE securityholders and rewarding, motivating and retaining employees. The Committee's charter sets out its role and responsibilities. The charter is reviewed on an annual basis. In fulfilling its role the Committee endeavours to ensure the remuneration framework established will: ● ● ● reward executive performance against agreed strategic objectives; encourage alignment of the interests of executives and stapled securityholders; and ensure there is an appropriate mix between fixed and "at risk" remuneration. The Committee operates independently of management in its recommendations to the Board and engages remuneration consultants independently of management. During the year ended 30 June 2017, the Committee consisted of the following: P G Say P H Warne R W Mactier P J Downes N J Milne Non-executive Director Non-executive Director Non-executive Director Non-executive Director Non-executive Director Chairman of Remuneration Committee (Resigned 23 May 2017) (Appointed 22 February 2017) Page 2 of this report provides information on the skills, experience and expertise of the Committee members. The number of meetings held by the Committee and the members' attendance at them is set out on page 5. The Committee considers advice from a wide range of external advisors in performing its role. During the current financial year the Committee did not retain an external consultant to advise on remuneration. Page 7 Australian Leisure and Entertainment Property Management Limited DIRECTORS' REPORT For the Year ended 30 June 2017 9.3 Executive Remuneration Executive remuneration comprises both a fixed component and an 'at risk' component. It specifically comprises: ● ● Fixed Annual Remuneration (FAR) Executive Incentive Scheme (EIS) 9.3.1 Fixed Annual Remuneration (FAR) What is FAR? FAR is the guaranteed salary package of the executive and includes superannuation guarantee levy and salary sacrificed components such as motor vehicles, computers and superannuation. How is FAR set? FAR is set by reference to external market data for comparable roles and responsibilities within similar listed and unlisted entities within Australia. When is FAR Reviewed? FAR is reviewed in December each year with any changes being effective from 1 January of the following year. 9.3.2 Executive Incentive Scheme (EIS) What is EIS? EIS is an "at risk" component of executive remuneration. EIS is used to reward executives for achieving and exceeding annual individual KPIs. The target EIS opportunity for executives varies according to the role and responsibility of the executive. EIS awards comprise 50% cash and 50% deferred delivery stapled securities issued under the Executive Stapled Securities Scheme (ESSS). For executives not invited to participate in the ESSS, the EIS is paid fully in cash. Executive Andrew Wilkinson Andrew Slade Michael Clarke Don Shipway Position Managing Director Capital Manager Company Secretary and Finance Manager Asset Manager 1. EIS awards are at the discretion of the Committee and the Board Standard EIS Target (as a % of FAR) 60% 50% n/a1 n/a1 % of EIS paid as cash 50% 50% 50% 50% % of EIS paid as ESSS 50% 50% 50% 50% How are EIS targets and objectives chosen? At the beginning of each year, in addition to the standard range of operational requirements, the Board sets a number of strategic objectives for ALE for that year. These objectives are dependent on the strategic opportunities and issues facing ALE for that year and may include objectives that relate to the short and longer term performance of ALE. Additionally, specific KPIs are established for all executives with reference to their individual responsibilities which link to the addition to and protection of securityholder value, improving business processes, ensuring compliance with legislative requirements, reducing risks within the business and ensuring compliance with risk management policies, as well as other key strategic non-financial measures linked to drivers of performance in future economic periods. How is EIS performance assessed? The Committee is responsible for assessing whether the KPIs have been met. To facilitate this assessment, the Board receives detailed reports on performance from management. The quantum of EIS payments and awards are directly linked to over or under achievement against the specific KPIs. The Board has due regard to the achievements outlined in section 9.4. Page 8 Australian Leisure and Entertainment Property Management Limited DIRECTORS' REPORT For the Year ended 30 June 2017 How are EIS awards delivered? EIS cash payments are made in August each year following the signing of ALE's full year statutory financial statements. The deferred component comprises an award of stapled securities under the ESSS. Any securities awarded under the ESSS are delivered three years after the award date provided certain conditions have been met. How is the ESSS award calculated? The number of ESSS Rights awarded annually under the ESSS will be determined by dividing the value of the grant by the volume weighted average price for the five trading days commencing the day following the signing of ALE's full year statutory financial statements, and grossing this number up for the future value of the estimated distributions over the three year deferred delivery period. What conditions are required to be met for the delivery of an ESSS award? During the three year deferred delivery period, the delivery of the Stapled Securities issued under the ESSS remains subject to the following clawback tests. ESSS rights will be forfeited in whole or in part at the discretion of the Remuneration Committee if before the end of the deferred delivery period: • the Committee becomes aware of any executive performance matter which, had it been aware of the the matter at the time of the original award, would have in their reasonable opinion resulted in a lower original award; or • the executive engages in any conduct or commits any act which, in the Committee's reasonable opinion, adversely affects ALE Property Group including, and without limitation, any act which: 9.3.3 Summary of Key Contract Terms Contract Details Executive Position Andrew Wilkinson Andrew Slade Michael Clarke Don Shipway James McNally Managing Director Capital Manager Finance Manager and Company Secretary Ongoing $225,420 3 months 3 months Asset Manager Executive Director Ongoing $204,820 1 month 1 month Ongoing $105,000 1 month 1 month Contract Length Fixed Annual Remuneration Notice by ALE Notice by Executive Ongoing $466,550 6 months 6 months Ongoing $263,488 3 months 3 months Managing Director Mr Wilkinson has signed a service agreement that commenced on 1 September 2014. The agreement stipulates the starting minimum base salary, inclusive of superannuation, as being $425,000, to be reviewed annually each 31 December by the Board. An EIS, if earned, would be paid 50% as a cash bonus in August each year and 50% in stapled securities issued under the ESSS and delivered three years following each of the annual grant dates. In the event of the termination of Andrew Wilkinson’s service agreement and depending on the reason for the termination, amounts may be payable for unpaid accrued entitlements and a proportion of EIS entitlements as at the date of termination. If employment is terminated in circumstances of redundancy or without cause then he is entitled to an amount of fixed remuneration for six months. In addition he may receive a pro-rata EIS award for the period of employment in the year of redundancy. Page 9 Australian Leisure and Entertainment Property Management Limited DIRECTORS' REPORT For the Year ended 30 June 2017 9.4 Executive Remuneration outcome for year ended 30 June 2017 The amount of remuneration paid to Directors and Key Management Personnel is detailed in the table on page 13. Executive Incentive Scheme Outcomes ALE continues to perform well when compared to other Australian real estate investment trusts (AREITs). The Committee reviewed the overall performance of ALE and the individual performance of all executives for the year ending 30 June 2017. It was the view of the Committee that all of the standard key performance indicators (KPIs) and all of the major items in the Board approved corporate strategy had been met. In particular the Committee noted: Capital Matters ● In March 2017 ALE completed a $150 million Australian Medium Term Note (AMTN) issue with a term of 5.5 years. At a 1.50% credit margin and an all up rate of 4.00% this was a competitively priced outcome and reduced ALE’s weighted average cost of debt from 4.35% to 4.26%. ALE received a strong response from a wide range of domestic and international institutional investors, a number of whom have participated in ALE’s various debt issues since 2003; ● ● ● ● ● As the new AMTN issue was a fixed rate instrument, ALE efficiently removed a corresponding amount of the existing forward start hedging over the term to August 2022 at a cost of $7.2 million. This cost is similar to the benefit arising from the reduction in ALE’s base interest expense over the same term; The refinancing strengthened ALE’s debt capital position further. ALE now has debt maturities spread over the next six years and base interest rates 100% locked away for the next eight years; ALE’s investment grade credit rating of Baa2 (with stable outlook) was fully maintained; Management continued to explore a range of debt funding solutions in both the domestic and offshore capital markets with a view to enhancing ALE’s readiness to implement future debt refinancings and additional debt funding of any acquisitions; and Management reviewed a range of other strategic initiatives with particular focus on value enhancement and risk mitigation. Other matters ● Worked constructively with ALH to explore and agree a range of developments that are value enhancing for ALE for a number of properties; Undertook a more comprehensive statutory valuation exercise to ensure that the independent valuers were fully appraised of the key value drivers of each of the properties; Explored a number of acquisition opportunities that accorded with ALE’s strategic criteria; Worked on a number of strategic initiatives during the year; Completed a comprehensive review of ALE’s service providers with a view to ensuring cost savings were maximised and service levels enhanced; and Continued to deliver both short and long term total returns for securityholders that outperformed most if not all other AREITs in the sector. ● ● ● ● ● The remuneration committee considered these achievements and compared them to key performance indicators for each executive that were set at the beginning of the financial year. Individual executives contributed to the valuable outcomes outlined above and this was recognised in the EIS payments made. All the EIS payments are included in the staff remuneration expenses in the current year. The EIS awarded to each member of the management team was as follows: Executive Andrew Wilkinson Andrew Slade Michael Clarke Don Shipway Target EIS (as % of FAR) 60% 50% n/a n/a EIS Awarded (as % of FAR) 60.0% 57.6% 17.7% 12.2% EIS Awarded as a % of Target 100.0% 115.2% - - EIS Awarded $279,930 $151,744 $40,000 $25,000 Cash Component $139,965 $75,872 $20,000 $12,500 ESSS Component $139,965 $75,872 $20,000 $12,500 Page 10 Australian Leisure and Entertainment Property Management Limited DIRECTORS' REPORT For the Year ended 30 June 2017 Consequences of performance on shareholder wealth In considering the Group's performance and benefits to shareholder weath, the remuneration committee have regard to a number of performance indicators in relation to the current and previous financial years. A review of ALE's current year performance and history is provided in the Operational and Financial Review on page 6 of the Directors Report located in the ALE Property Group's Annual Report. 9.5 Disclosures relating to equity instruments granted as compensation 9.5.1 Outstanding equity instruments granted as compensation Details of rights over stapled securities that have been granted as compensation and remain outstanding at year end and details of rights that were granted during the year are as follows: Executive ESSS Rights A F O Wilkinson A F O Wilkinson A F O Wilkinson A J Slade A J Slade A J Slade M J Clarke M J Clarke M J Clarke D J Shipway D J Shipway D J Shipway Number of Rights Outstanding Grant Date Performance Period Start Date Fair value of Right at Grant Date ($) Approximate Delivery Date % vested in year % forfeited in year 63,732 33,365 27,020 31,375 15,888 13,510 7,844 6,355 5,246 3,922 4,767 1,968 1 Oct 14 20 Aug 15 24 Oct 16 1 Oct 14 20 Aug 15 24 Oct 16 1 Oct 14 20 Aug 15 24 Oct 16 1 Oct 14 20 Aug 15 24 Oct 16 1 Jul 13 1 Jul 14 1 Jul 15 1 Jul 13 1 Jul 14 1 Jul 15 1 Jul 13 1 Jul 14 1 Jul 15 1 Jul 13 1 Jul 14 1 Jul 15 2.55 3.15 3.81 2.55 3.15 3.81 2.55 3.15 3.81 2.55 3.15 3.81 31 Jul 17 31 Jul 18 31 Jul 19 31 Jul 17 31 Jul 18 31 Jul 19 31 Jul 17 31 Jul 18 31 Jul 19 31 Jul 17 31 Jul 18 31 Jul 19 Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil 9.5.2 Modification of terms of equity settled share based payment transactions No terms of equity settled share based payment transactions (including options and rights granted as compensation to key management personnel) have been altered or modified by the issuing entity during the reporting period or the prior period. 9.5.3 Analysis of movements in ESSS rights The movement during the reporting period, by value and number of ESSS rights over stapled securities in ALE is detailed below. Executive By Value ($) A F O Wilkinson A J Slade M J Clarke D J Shipway By Number A F O Wilkinson A J Slade M J Clarke D J Shipway Opening Balance Granted in Year Stapled Securities Delivered in the Year Lapsed in the Year Closing Balance 346,540 173,264 60,000 45,000 131,975 66,355 23,024 17,514 103,000 51,500 20,000 7,500 27,020 13,510 5,246 1,968 (79,040) (43,264) (20,000) (20,000) (34,878) (19,092) (8,825) (8,825) - - - - - - - - 370,500 181,500 60,000 32,500 124,117 60,773 19,445 10,657 Securities Delivered in the year - value paid $ 154,575 84,613 39,111 39,111 9.5.4 Directors’ and key management personnel interests in stapled securities and ESSS rights A summary of directors, key management personnel and their associates holdings in stapled securities and ESSS interests in ALE is shown on pages 5 of the Directors Report. Page 11 Australian Leisure and Entertainment Property Management Limited DIRECTORS' REPORT For the Year ended 30 June 2017 9.6 Equity based compensation The value of ESSS disclosed in section 9.5.3 and 9.8 is based on the value of the grant at the award date. The number of Stapled Securities issued annually under the ESSS award will be determined by dividing the value of the grant by the volume weighted average price for the five trading days commencing the day following the signing of ALE Property Group’s full year statutory financial statements, and grossing this number up for estimated distributions over the deferred delivery period. The number of securities granted in the current year will be determined on 16 August 2017. 9.7 Non-executive Directors' Remuneration 9.7.1 Remuneration Policy and Strategy Non-executive directors' individual fees are determined by the Company Board within the aggregate amount approved by shareholders. The current aggregate amount which has been approved by shareholders at the AGM on 6 November 2014 was $650,000. The Board reviews its fees to ensure that ALE non-executive directors are remunerated fairly for their services, recognising the level of skill, expertise and experience required to conduct the role. The Board reviews its fees from time to time to ensure it is remunerating directors at a level that enables ALE to attract and retain the right 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 reviewed in the current financial year. The results of this review are shown in the fees listed below. The Chairman’s fees are determined independently from the fees of the other 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 any equity based payments, retirement benefits or other incentive payments. 9.7.2 Remuneration Structure ALE's non-executive directors receive a cash fee for service and they have no entitlement to any performance based remuneration, nor can they participate in any security based incentive scheme. The current remuneration was reviewed in January 2017. This resulted in changes to the fee levels indicated below. The Directors' fees are inclusive of superannuation, where applicable. Board ACRMC Remuneration Committee Chairman* Member Chairman Member Chairman Member Board and Committee Fees $195,000 $95,000 $15,000 $10,000 $15,000 $5,000 * The Chairman of the Board's fees are inclusive of all committee fees. James McNally's remuneration is determined in accordance with the above fees. He received an additional $5,000 for being a Responsible Manager of the Company under the Company’s AFSL (retired in April 2017) and $10,000 for being a director of ALE Finance Company Pty Limited. Page 12 Australian Leisure and Entertainment Property Management Limited DIRECTORS' REPORT For the Year ended 30 June 2017 9.8 Details of remuneration 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 9.4 headed “Executive Incentive Scheme Outcomes”. Equity based payments for 2017 are non-market based performance related as set out in section 9.4. All other elements of remuneration were not directly related to performance. Table 1 Remuneration details 1 July 2016 to 30 June 2017 Details of the remuneration of the Key Management Personnel for the year ended 30 June 2017 are set out in the following table: Key management personnel Short term Post employment benefits Equity based payment Name Role R W Mactier 1 P H Warne 2 P J Downes P G Say N J Milne Non-executive Director Non-executive Director Non-executive Director Non-executive Director Non-executive Director A F O Wilkinson Executive Director J T McNally A J Slade M J Clarke Executive Director Capital Manager Company Secretary and Finance Manager D J Shipway Asset Manager Salary & Fees $ STI Cash Bonus $ Non monetary benefits $ Total $ Superannuation benefits $ Other long term benefits $ Termination benefits $ ESSS $ Total $ $ 67,013 150,280 100,457 115,000 95,890 442,359 - - - - - 139,965 103,750 - 241,652 204,781 185,200 1,706,382 75,872 20,000 12,500 248,337 - - - - - - - - - - - 67,013 150,280 100,457 115,000 95,890 582,324 103,750 317,524 224,781 197,700 1,954,719 6,366 14,277 9,543 - 9,110 19,615 - 19,615 18,509 17,610 114,645 - - - - - - - 73,379 - - - 164,557 - - - 110,000 - - - 115,000 - - 105,000 2,283 - 139,965 744,187 37.6% - - - 103,750 - 8,686 - 75,872 421,697 8,062 - 20,000 271,352 5,582 - 12,500 233,392 24,613 - 248,337 2,342,314 36.0% 14.7% 10.7% S300A(1)(e)(i) proportion of remuneration performance based 1. Robert Mactier was appointed a director on 23 November 2016 2. Peter Warne resigned as a director on 23 May 2017 Table 2 Remuneration details 1 July 2015 to 30 June 2016 Details of the remuneration of the Key Management Personnel for the year ended 30 June 2016 are set out in the following table: Key management personnel Short term Post employment benefits Equity based payment Name Role P H Warne H I Wright 3 P J Downes P G Say N J Milne B R Howell 4 A F O Wilkinson J T McNally A J Slade M J Clarke 4 D J Shipway Non-executive Director Non-executive Director Non-executive Director Non-executive Director Non-executive Director Company Secretary Executive Director Executive Director Capital Manager Company Secretary and Finance Manager Asset Manager Salary & Fees $ STI Cash Bonus $ Non monetary benefits $ Total $ Superannuation benefits $ Other long term benefits $ Termination benefits $ ESSS $ Total $ $ 159,817 31,963 96,184 108,750 91,324 90,000 411,512 - - - - - - 103,000 100,000 - 222,160 188,465 178,967 1,679,142 51,500 20,000 7,500 182,000 - - - - - - - - - - - - 159,817 31,963 96,184 108,750 91,324 90,000 514,512 100,000 273,660 208,465 186,467 1,861,142 15,183 3,037 9,137 - 8,676 - 35,000 - 30,000 17,485 17,040 135,558 - - - - - - - - 175,000 - - - 35,000 - - - 105,321 - - - 108,750 - - 100,000 - - 90,000 - 7,310 - 103,000 659,822 31.2% - - - 100,000 - 3,980 - 51,500 359,140 3,088 - 20,000 249,038 3,060 - 7,500 214,067 17,438 - 182,000 2,196,138 28.7% 16.1% 7.0% S300A(1)(e)(i) proportion of remuneration performance based S300A(1)(e)(vi) Value of equity based payment as proportion of remuneration $ - - - 18.8% - 18.0% 7.4% 5.4% S300A(1)(e)(vi) Value of equity based payment as proportion of remuneration $ - - - - 15.6% - 14.3% 8.0% 3.5% 3 Helen Wright resigned as a director on 27 October 2015 4. Brendan Howell resigned as Company Secretary on 30 June 2016 and Michael Clarke was appointed Company Secretary on 30 June 2016 Page 13 Australian Leisure and Entertainment Property Management Limited DIRECTORS REPORT For the Year ended 30 June 2017 10 Stapled securities under option No Performance Rights over unissued stapled securities of ALE were granted during or since the end of the year. 11 Stapled securities issued on the exercise of options No stapled securities were issued on the exercise of performance rights during the financial year. 12 Insurance of officers During the financial year, the Company paid a premium of $53,560 (2016: $51,535) 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. 13 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. During the current financial years non-audit services were performed by the auditors. Details of amounts paid or payable to the auditor (KPMG) for audit services provided during the year are set out below: Audit services KPMG 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 services KPMG Australian firm: Risk assurance and property development advisory services Total other services Total remuneration 30 June 2017 $ 30 June 2016 $ 180,000 15,000 171,500 12,500 195,000 184,000 152,352 152,352 347,352 18,259 18,259 202,259 14 Environmental regulation While 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 responsibilities and compliance with various licence requirements and regulations. Further, the directors are not aware of any material breaches of these requirements. At four properties, ongoing testing and monitoring is being undertaken and minor remediation work is required, however, in most cases ALE is indemnified by third parties against any remediation amounts likely to be required. ALE does not expect to incur any material environmental liabilities. Page 14 Australian Leisure and Entertainment Property Management Limited DIRECTORS REPORT For the Year ended 30 June 2017 15 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 16. This report is made in accordance with a resolution of the directors. Robert Mactier Chairman Dated this 8th day of August 2017 Andrew Wilkinson Managing Director Page 15 Australian Leisure and Entertainment Property Management Limited FINANCIAL STATEMENTS Page 18 Page 19 Page 20 Page 21 Statement of Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Page 22 Page 23 1 2 About this report Business performance Page 26 3 Assets, liabilities and equity Page 28 4 Employee benefits Page 29 5 Other Page 32 Page 33 Directors' Declaration Independent Auditor's Report to Members Revenue and income 2.1 2.2 Other expenses Taxation 2.3 Earnings per share 2.4 Remuneration of auditors 2.5 3.1 3.2 3.3 3.4 3.5 4.1 4.2 4.3 Cash and cash equivalents Receivables Investment in related party Payables Equity Employee benefits Key management personnel compensation Employee share plans 5.1 New accounting standards Segment reporting 5.2 Events occurring after balance date 5.3 Contingent liabilities and contingent assets 5.4 Commitments 5.5 Related party transactions 5.6 Financial risk management 5.7 Page 17 Australian Leisure and Entertainment Property Management Limited STATEMENT OF COMPREHENSIVE INCOME For the Year ended 30 June 2017 Revenue Expense reimbursement Interest income Total revenue Expenses Salaries and related costs Other expenses Total expenses Profit/(Loss) before income tax Income tax expense/(benefit) Profit/(Loss) after income tax Profit/(Loss) attributable to shareholders ALE Basic earnings per share Note 2017 $ 2016 $ 2.1 2.1 2.2 2.2 2.3 2.4 4,460,628 7,077 4,467,705 2,727,951 1,663,604 4,391,555 76,150 (526) 76,676 76,676 Cents 0.04 4,108,938 23,795 4,132,733 2,479,253 1,811,685 4,290,938 (158,205) 7,763 (165,968) (165,968) Cents (0.08) The above statement of comprehensive income should be read in conjunction with the accompanying Notes. Page 18 Australian Leisure and Entertainment Property Management Limited STATEMENT OF FINANCIAL POSITION For the Year ended 30 June 2017 Current assets Cash and cash equivalents Receivables Other 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 Employee benefits Total current liabilities Total liabilities Net assets Equity Contributed equity Reserve Accumulated losses Total equity Net assets per share The above statement of financial position should be read in conjunction with the accompanying Notes. Note 3.1 3.2 3.3 2.3(b) 3.4 4.1 3.5 2017 $ 2016 $ 2,439,819 3,020,857 253,109 5,713,785 27,573 9,080,010 57,127 9,164,710 14,878,495 440,355 189,544 629,899 629,899 2,278,988 2,957,796 214,629 5,451,413 35,994 9,080,010 48,901 9,164,905 14,616,318 206,121 169,203 375,324 375,324 14,248,596 14,240,994 14,767,075 892,837 (1,411,316) 14,248,596 $ 0.07 14,767,075 806,804 (1,332,885) 14,240,994 $ 0.07 Page 19 Australian Leisure and Entertainment Property Management Limited STATEMENT OF CHANGES IN EQUITY For the Year Ended 30 June 2017 Share based payments reserve $ Share Capital $ Retained Earnings $ Total $ 2017 Total equity at the beginning of the year 14,767,075 806,804 (1,332,885) 14,240,994 Total comprehensive income for the period Profit/(Loss) for the year Other comprehensive income Total comprehensive income for the year Transactions with Members of ALE recognised directly in Equity: Purchase of securities to satisfy units required for Executive Performance Rights Plan Employee share based payments expense - - - - - - - - 76,676 - 76,676 76,676 - 76,676 (162,304) 248,337 (155,107) - (317,411) 248,337 Total equity at the end of the year 14,767,075 892,837 (1,411,316) 14,248,596 2016 Total equity at the beginning of the year 14,759,025 735,054 (1,030,203) 14,463,876 Total comprehensive income for the period Profit/(Loss) for the year Other comprehensive income Total comprehensive income for the year Transactions with Members of ALE recognised directly in Equity: Purchase of securities to satisfy units required for Executive Performance Rights Plan Shares issued - Executive Stapled Security Scheme Employee share based payments expense - - - - - - (165,968) - (165,968) (165,968) - (165,968) - 8,050 - (110,250) 182,000 - (136,714) - (238,914) 182,000 Total equity at the end of the year 14,767,075 806,804 (1,332,885) 14,240,994 The above statement of changes in equity should be read in conjunction with the accompanying Notes. Page 20 Australian Leisure and Entertainment Property Management Limited STATEMENT OF CASH FLOWS For the Year Ended 30 June 2017 Cash flows from operating activities Management fee received and expense reimbursements 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 Shares issued Net cash inflow/(outflow) from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year Reconciliation of profit after income tax to net cash inflows from operating activities Profit for the year Plus/(less): Depreciation Non-cash employee benefits expense - share based payments Share based payment securities purchased (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 Net cash inflow from operating activities The above statement of cash flows should be read in conjunction with the accompanying Notes. 2017 $ 2016 $ 6,047,573 (5,935,895) 60,582 172,260 (11,429) (11,429) - - 160,831 2,278,988 2,439,819 2017 $ 76,676 19,850 248,337 (317,411) 38,343 (38,480) (8,226) (101,404) 20,341 234,234 172,260 5,986,596 (6,273,551) 80,506 (206,449) (34,444) (34,444) - - (240,893) 2,519,881 2,278,988 - 2016 $ (165,968) 16,032 182,000 - 38,221 3,832 (1,028) 81,303 24,000 (384,841) (206,449) Page 21 Australian Leisure and Entertainment Property Management Limited NOTES TO THE FINANCIAL STATEMENTS For the Year ended 30 June 2017 1. About this report Reporting Entity Australian Leisure and Entertainment Property Management Limited (the Company) is domiciled in Australia. The stapled securities of ALE are quoted on the Australian Securities Exchange under the code LEP and comprise one unit in Australian Leisure and Entertainment Property 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 ALE Property Group is a for-profit entity. The Company is the Responsible Entity of the Trust. Statement of compliance The financial statements are general purpose financial statements which have been prepared in accordance with Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The financial statements also comply with the International Financial Reporting Standards (IFRS) and interpretations adopted by the International Accounting Standards Board. The financial statements were authorised for issue by the Board of Directors on 8th August 2017. Basis of preparation The Financial Report has been prepared on a historical costs basis, except for the revaluation of investment properties and certain financial instruments. Cost is based on the fair values of the consideration given in exchange for assets. All amounts are represented in Australian dollars, unless otherwise noted. Accounting estimates and judgements The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. Accounting estimates and judgements Income taxes Employee benefits Note 2.3 4 Significant accounting policies Accounting policies are selected and applied in a manner that ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the under lying transactions or other events is reported. Other significant accounting policies are contained in the notes to the financial statements to which they relate to. Page 22 Australian Leisure and Entertainment Property Management Limited NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2017 2. Business performance This section provides the information that is most relevant to understanding the financial performance of the Company during the financial year and, where relevant, the accounting policies applied and the critical judgements and estimates made. 2.1 Revenue and income 2.4 Earnings per share 2.2 Other expenses 2.3 Taxation 2.5 Remuneration of auditors 2.1 Revenue and income 2.2 Other expenses 2017 $ 2016 $ Annual Report and Review Audit, accounting, tax and professional fees Depreciation expense Insurance Legal fees Occupancy costs Corporate and property expenses Registry fees Staff training Travel and accommodation Total other expenses Salaries and related costs Total expenses 2017 $ 2016 $ 75,458 104,500 233,800 19,850 160,093 69,701 112,533 803,171 110,364 23,227 55,407 1,663,604 2,727,951 4,391,555 205,750 16,032 167,277 122,216 115,091 846,650 100,207 31,554 102,408 1,811,685 2,479,253 4,290,938 Recognition and measurement Expenses including operating expenses, are brought to account on an accruals basis. Revenue Expense reimbursement Interest from cash deposits Total revenue 4,460,628 7,077 4,467,705 4,108,938 23,795 4,132,733 Recognition and measurement Revenue Expense reimbursement 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. Expense reimbursement receipts of $6,047,573 (2016: $5,986,596) disclosed in the statement of cash flows is comprised predominantly of expenses paid for by the Company on behalf of the Trust and other ALE group entities and subsequently reimbursed from the entities. The legal obligations for these expenses are the responsibility of the individual ALE group entities and are not expenses of the Company. Interest income 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 Statement of Financial Position as a receivable. As at 30 June 2017 the weighted average interest rate earned on cash was 2.24% (2016: 2.84%) Page 23 Australian Leisure and Entertainment Property Management Limited Notes to the financial statements (continued) For the Year ended 30 June 2017 2. Business performance 2.3 Taxation Recognition and measurement (a) Reconciliation of income tax expense The prima facie income tax expense on profit before income tax reconciles to the income tax expense in the financial statements as follows: Loss before income tax expense subject to tax Tax at the Australian tax rate Share based payments Other Under/(over) provision in prior years Income tax expense/(benefit) Current tax expense/(benefit) Deferred tax expense/(benefit) Income tax expense/(benefit) (b) Deferred tax assets 2017 $ 2016 $ 76,150 22,845 (158,205) (47,462) (23,722) - 54,600 1,306 351 (681) (526) 7,700 (8,226) 7,763 8,791 (1,028) (526) 7,763 2017 $ 2016 $ Deferred tax assets 57,127 48,901 The balance is attributable to: Employee benefits Accruals Other Tax losses Net deferred tax assets Movements: Opening balance Credited/(charged) to the income statement Credited/(charged) to equity Closing balance Deferred tax assets to be recovered within 12 months Deferred tax assets to be recovered after more than 12 months 57,961 - (834) - 57,127 51,008 - (2,107) - 48,901 48,901 47,873 8,226 - 57,127 1,028 - 48,901 57,127 48,901 - 57,127 - 48,901 Current tax The income tax expense or benefit 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 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 affect 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 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. Offsetting deferred tax balances Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Company/Group intends to settle its current tax assets and liabilities on a net basis. Page 24 Australian Leisure and Entertainment Property Management Limited Notes to the financial statements (continued) For the Year ended 30 June 2017 2. Business performance 2.4 Earnings per security 2.5 Remuneration of auditors Basic earnings per stapled security The calculation of basic earnings per stapled security is based on the profit attributable to ordinary securityholders and the weighted-average number of ordinary stapled securities outstanding. 2017 2016 Profit/(Loss) attributable to members of the company 76,676 (165,968) Weighted average number of share 195,769,080 195,759,597 Basic earnings per share (cents) 0.04 (0.08) Audit services KPMG Australian firm: Audit and review of the financial reports - in relation to current year - in relation to prior year Total remuneration for audit services KPMG Australian firm: Other services Total remuneration for all services 2017 $ 2016 $ 180,000 15,000 171,500 12,500 195,000 184,000 152,352 18,259 347,352 202,259 Diluted earnings per stapled security The calculation of diluted earnings per share is based on the profit attributable to ordinary shareholders and the weighted- average number of ordinary shares outstanding after adjustments for the effects of all dilutive potential ordinary shares Profit/(Loss) attributable to members of the Company Weighted average number of shares Diluted earnings per share (cents) 2017 2016 76,676 (165,968) 195,988,389 195,999,370 0.04 (0.08) Page 25 Australian Leisure and Entertainment Property Management Limited NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2017 3. Assets, liabilities and equity This section provides information relating to the operating assets and liabilities of the Group. 3.1 Cash and cash equivalents 3.2 Receivables 3.3 Investment in related party 3.4 Payables 3.5 Equity 3.1 Cash and cash equivalents 3.3 Investment in related party Cash at bank Deposits at call 2017 $ 366,546 2,073,273 2,439,819 2016 $ 205,715 2,073,273 2,278,988 Trust Non-Income Voting Units (NIVUS) 2017 $ 2016 $ 9,080,010 9,080,010 Recognition and measurement 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. Cash obligations An amount of $2 million is required to be held in a term deposit by the Company to meet minimum net tangible asset requirements of the AFSL licence. The Company was issued 9,080,010 of non-income voting units (NIVUS) in the Trust 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 4.43% in the Trust as a result of the issue of NIVUS. The NIVUS are disclosed in the Company but are not disclosed in the ALE Property Group financial statements as they are eliminated on consolidation. The NIVUS were issued to ensure the Responsible Entity maintained sufficient Net Tangible Assets to satisfy the requirements of the company's AFSL Licence. 3.2 Receivables Accounts receivable Loan to related party Other receivable Interest receivable 2017 $ 27,321 2,946,612 41,415 5,509 3,020,857 2016 $ 3.4 Payables 59,814 2,845,208 46,695 6,079 2,957,796 Trade creditors Creditor accruals 2017 $ 223,324 217,031 440,355 2016 $ 83,474 122,647 206,121 Recognition and measurement 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. Recognition and measurement 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. Collectability 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 Statement of Comprehensive Income. Page 26 Australian Leisure and Entertainment Property Management Limited Notes to the financial statements (continued) For the Year ended 30 June 2017 3. Assets, liabilities and equity 3.5 Equity 2017 $ 2016 $ Balance at the beginning of the period Securities issued - ESSS 14,767,075 14,759,025 - 14,767,075 8,050 14,767,075 Movements in the number of fully paid stapled securities during the year Stapled securities on issue: Opening balance Securities issued - ESSS Closing balance Number of Stapled Securities Number of Stapled Securities 195,769,080 - 195,769,080 195,702,333 66,747 195,769,080 Measurement and recognition 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. 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. Page 27 Australian Leisure and Entertainment Property Management Limited NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2017 4. Employee benefits This section provides a breakdown of the various programs ALE uses to reward and recognise employees and key executives, including Key Management Personnel (KMP). ALE believes that these programs reinforce the value of ownership and incentives and drive performance both individually and collectively to deliver better returns to securityholders. 4.1 Employee benefits 4.3 Employee share plans 4.2 Key management personnel compensation 4.1 Employee benefits 2017 $ 2016 Long service leave $ Employee benefits provision: Current 189,544 169,203 The employee benefits liability represents accrued wages and salaries, leave entitlements and other incentives recognised in respect of employees’ services up to the end of the reporting period. These liabilities are measured at the amounts expected to be paid when they are settled and include related on-costs, such as workers compensation insurance, superannuation and payroll tax. 4.2 Key management personnel compensation 2017 $ 2016 $ Short term employee benefits Post employment benefits Other long term benefits Share based payments Termination benefits 1,954,719 114,645 24,613 248,337 - 2,342,314 1,861,142 135,558 17,438 182,000 - 2,196,138 Recognition and measurement Wages and salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits and annual leave due 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 accumulated sick leave are recognised as an expense when the leave is taken and measured at the rates paid or payable. Bonus and incentive plans Liabilities and expenses for bonuses and incentives are recognised where contractually obliged or where there is a past practice that may create a constructive obligation. ALE recognises liabilities for long service leave when employees reach a qualifying period of continuous service (five years). 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. 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. Retirement benefit obligations ALE pays fixed contributions to employee nominated superannuation 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. 4.3 Employee share plans During 2012, ALE established an Executive Stapled Securities Scheme. Executive Stapled Security Scheme (ESSS) The grant date fair value of ESSS Rights granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the ESSS rights. The amount recognised as an expense is adjusted to reflect the actual number of ESSS Rights that vest. The fair value at grant date is determined as the value of the ESSS Rights in the year in which they are awarded. The number of ESSS Rights issued annually under the ESSS will be determined by dividing the value of the grant by the volume weighted average price for the five trading days commencing the day following the signing of ALE Property Group’s full year statutory financial statements and grossing this number up for the future value of the estimated distributions over the three year deferred delivery period. Upon the exercise of ESSS rights, the balance of the share based payments reserve relating to those rights is transferred to Contributed Equity. Page 28 Australian Leisure and Entertainment Property Management Limited NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2017 5. Other This section provides details on other required disclosures relating to the Company to comply with the accounting standards and other pronouncements including the Company’s capital and financial risk management disclosure. 5.1 New accounting standards 5.5 Commitments 5.2 Segment reporting 5.6 Related party transactions 5.3 Events occurring after balance date 5.7 Financial risk management 5.4 Contingent liabilities and contingent assets 5.1 New accounting standards A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 January 2016, and have not been applied in preparing these financial statements. Those which may be relevant to the Company are set out below. The Company does not plan to adopt these standards early. IFRS 9 Financial Instruments (2010), IFRS 9 Financial Instruments (2009) IFRS 9, published in July 2014, replaces the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidance on the classification and measurement of financial instruments, including a new expected credit loss model for calculating impairment on financial assets, and the new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39. IFRS 9 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted. The Company has assessed the potential impact on its financial statement resulting from the application of IFRS 9 and as the Company has no financial instruments the impact will be immaterial. IFRS 15 Revenue from Contracts with Customers IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. IFRS 15 is effective for annual reporting periods beginning on or after 1 January 2017, with early adoption permitted. The Company has assessed the potential impact on its financial statements resulting from the application of IFRS 15 to be immaterial. IFRS 16 Leasing IFRS 16 establishes a comprehensive framework the accounting policies and disclosures applicable to leases, both for lessees and lessors. IFRS 16 is effective for annual reporting periods beginning on or after 1 January 2019, with early adoption permitted. The Company has assessed the potential impact on its financial statements resulting from the application of IFRS 17 to be immaterial. 5.2 Segment reporting Business segment ALE has one reportable segment, as described below, which is ALE's strategic business unit. The strategic business unit is based upon internal management reports that are reviewed by the Managing Director on at least a quarterly basis. The strategic business unit covers the operations of the responsible entity for the ALE Property Group. Comparative information has been presented in conformity with the requirements of AASB 8 Operating Segments. 5.3 Events occurring after balance date There has not arisen in the interval between the end of the financial year and the date of this report, any transaction or event of a material and unusual nature likely, in the opinion of the Directors of the Company, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years. 5.4 Contingent liabilities and contingent assets Bank guarantee ALE has entered into a bank guarantee of $73,273 in respect of the office tenancy at Level 10, 6 O'Connell Street, Sydney. Page 29 Australian Leisure and Entertainment Property Management Limited Notes to the financial statements (continued) For the Year ended 30 June 2017 5. Other 5.5 Commitments 5.7 Financial risk management Capital commitments The Directors are not aware of any capital commitments as at the date of this report. Overview The Company has exposure to the following risks from its use of financial instruments: ● credit risk ● liquidity risk ● market risk This note presents information about the Company’s exposure to each of the above risks, their objectives, policies and processes for measuring and managing risk, and the management of capital. Further quantitative disclosures are included throughout this financial report. The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. The Board has established the Audit, Compliance and Risk Management Committee, which is responsible for developing and monitoring risk management policies. The committee reports regularly to the Board of Directors on its activities. Risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities. The Company, through its training and management standards and procedures, has developed a disciplined and constructive control environment in which all employees understand their roles and obligations. The Audit, Compliance and Risk Management Committee oversees how management monitors compliance with the Company's risk management policies and procedures and reviews the adequacy of the risk management framework. Credit risk Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from customers and investment securities. Lease commitments The Company has entered into a non-cancellable operating lease for new office premises at Level 10, 6 O'Connell Street, Sydney starting November 2015. The Company has also entered into a non-cancellable operating lease for office equipment. The minimum net lease commitments under these leases are: Less than one year Later than one year but not later than five years Later than five years 2017 $ 2016 $ 110,610 106,137 283,266 - 393,876 393,877 - 500,014 5.6 Related party transactions Parent entity, subsidiaries, joint ventures and The Company has no parent entity, subsidiaries, joint ventures or associates. Key management personnel Key management personnel and their compensation is set out in the Remuneration Report. Transaction with related parties For the year ended 30 June 2017 the Company had charged the Trust $4,460,628 in expense reimbursement (2016: $4,108,938). Peter Warne is Chairman of Macquarie Group Limited (Macquarie). Macquarie has provided investment banking services to ALE in the past and may continue to do so in the future. Mr Warne did not take part in any decisions to appoint Macquarie in relation to any of the above matters. Mr Warne resigned on 23 May 2017. Robert Mactier is a consultant to UBS AG. UBS AG has provided investment banking services to ALE in the past and may continue to do so in the future. Mr Mactier does not take part in any decisions to appoint UBS AG in relation to corporate advice provided by UBS AG to ALE. 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. Page 30 Australian Leisure and Entertainment Property Management Limited The Company has liquidity risk management policies, which assist it in monitoring cash flow requirements and optimising its cash return on investments. Typically the Company ensures that it has sufficient cash on demand to meet expected operational expenses and commitments for the purchase/sale of assets for a period of 90 days (or longer if deemed necessary), including the servicing of financial obligations. Exposure to liquidity risk The Company has no contracted financial liabilities and therefore the Company's liquidity risk to external parties is minimal. Market risk Market risk is the risk that changes in market prices, such as the consumer price index and interest rates, will affect the Company’s income. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. Interest rate risk The Company has no financial interest bearing obligations and accordingly the Company's interest rate risk is minimal. Notes to the financial statements (continued) For the Year ended 30 June 2017 5. Other 5.7 Financial risk management (continued) Trade and other receivables The Company’s exposure to credit risk is influenced mainly by the individual characteristic of each customer. The Company has few customers and therefore there is significant concentration of credit risk. Credit risk has been minimised primarily by ensuring, on a continuous basis, that the customers have appropriate financial standing. Credit risk on cash is managed through ensuring all cash deposits are held with major domestic banks. Exposure to credit risk 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. Receivables Cash and cash equivalents Impairment losses Not past due Past due 0-30 days Past due 31-120 days Past due 120-365 days More than one year Not past due Past due 0-30 days Past due 31-120 days Past due 120-365 days More than one year 2017 $ 74,245 2,439,819 2,514,064 2016 $ 112,588 2,278,988 2,391,576 2017 $ 2017 $ Gross Impairment - - - - - - 71,245 - - - - 71,245 2016 $ 2016 $ Gross Impairment - - - - - - 97,785 - 5,196 9,607 - 112,588 Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company's reputation. Page 31 Australian Leisure and Entertainment Property Management Limited DIRECTORS' DECLARATION For the Year ended 30 June 2017 In the Directors' opinion: (a) the financial statements and notes that are set out on pages 18 to 31 and the remuneration report contained in Section 9 of the Directors’ report, are in accordance with the Corporations Act 2001, including (i) giving a true and fair view of the company’s financial position as at 30 June 2017 and of its performance for the financial year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. (b) There are reasonable grounds to believe that ALE will be able to pay its debts as and when they become due and payable. (c ) The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Managing Director, Finance Manager, and Company Secretary as required for the financial year ended 30 June 2017. (d) The directors draw attention to Note 1 to the financial statements, which includes a statement of compliance with International Financial Reporting Standards. This declaration is made in accordance with a resolution of the Directors. Robert Mactier Chairman Andrew Wilkinson Managing Director Dated this 8th Day of August 2017 Page 32 Australian Leisure and Entertainment Property Management Limited INVESTOR INFORMATION For the Year ended 30 June 2017 Securityholders The securityholder information as set out below was applicable as at 12 July 2017. A. DISTRIBUTION OF EQUITY SECURITIES Range 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 - 200,000,000 Total Total Holders 707 1,324 958 1,646 112 4,747 Number of Securities 226,083 4,094,136 7,331,166 42,941,109 141,176,586 195,769,080 % of Issued Capital 0.12 2.09 3.74 21.93 72.12 100.00 The stapled securities are listed on the ASX and each stapled security comprises one share in Australian Leisure and Entertainment Property Management Limited (Company) and one unit in Australian Leisure and Entertainment Property Trust (Trust). The number of securityholders holding less than a marketable parcel of stapled securities is 315. B. TOP 20 EQUITY SECURITYHOLDERS The names of the 20 largest security holders of stapled securities are listed below Rank Name UBS Nominees Pty Ltd HSBC Custody Nominees (Australia) Limited Woolworths Limited Citicorp Nominees Pty Limited National Nominees Limited [Db Account] National Nominees Limited Manderrah Pty Ltd [GJJ Family Account] HSBC Custody Nominees (Australia) Limited - Account 2 J P Morgan Nominees Australia Limited Mr Edward Furnival Griffin + Mr Alastair Charles Griffin [Est Jean Falconer Griffin Ac] HSBC Custody Nominees (Australia) Limited-Gsco Eca CS Third Nominees Pty Limited [HSBC Customer Nominees AU Ltd 13 Account] C J H Holdings Pty Ltd [CJH Family Aaccount] Mr David Calogero Loggia Merlor Holdings Pty Ltd [Basserabie Family Settlement Account] BNP Paribas Nominees Pty Limited [IB AU Nominees Retail Client DRP] BT Portfolio Services Limited [Caergwrle Invest P/L Account] Bond Street Custodians Limited [Caergwrle Investments Pty Limited Account] Mr Nicholas Anthony Dyer C J H Holdings Pty Ltd [Superannuation Fund Account] 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Totals: Top 20 Holders of Stapled Securities Totals: Remaining Holders Balance C. SUBSTANTIAL HOLDERS Substantial holders of ALE (as per notices received as at 12 July 2017) are set out below: Name Stapled Securityholder Caledonia (Private) Investments Pty Ltd Woolworths Limited Allan Gray Australia Number of Securities 32,198,197 20,439,513 17,076,936 11,796,447 7,170,700 6,153,869 5,192,733 4,291,467 3,254,235 2,795,751 2,771,863 2,500,001 1,419,465 1,058,398 845,741 754,982 745,787 700,000 675,000 660,953 122,502,038 73,267,042 % of Issued Capital 16.45 10.44 8.72 6.03 3.66 3.14 2.65 2.19 1.66 1.43 1.42 1.28 0.73 0.54 0.43 0.39 0.38 0.36 0.34 0.34 62.57 37.43 Number of Securities 60,101,799 17,076,936 13,868,884 % of Issued Capital 30.70 8.72 7.08 Page 36 Australian Leisure and Entertainment Property Management Limited INVESTOR INFORMATION For the Year ended 30 June 2017 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 securityholder present at a meeting in person or by proxy shall be entitled to have one vote and upon a poll each stapled security will have one vote. (b) NIVUS Each NIVUS entitles the Company to one vote at a meeting of the Trust. 9,080,010 NIVUS have been issued by the Trust to the Company and 195,769,080 units have been issued by the Trust to stapled securityholders. The NIVUS therefore represent 4.43% of the voting rights of the Trust. E. EQUITY RESEARCH COVERAGE OF ALE The following equity research analysts currently cover ALE’s stapled securities: Rob Freeman and Stuart McLean – Macquarie Securities Richard Jones – JP Morgan Securities Andrew Legget – Intelligent Investor Johannes Faul – Morningstar F. ASX ANNOUNCEMENTS The information is provided as a short summary of investor information. Please view our website at www.alegroup.com.au for all investor information. 2017 31 Oct 05 Sep 08 Aug 09 Jun 09 Jun 09 Jun 23 May 23 May 14 Mar 08 Mar 06 Mar 02 Mar 23 Feb Annual General Meeting 2nd half distribution payment Full Year Results, Annual Review / Report and Property Compendium released Property valuations increased by 9.1% Half Year distribution of 10.25 cents declared Full Year distribution of 20.40 cents announced Succession of Chairman ALE Redeems maturing AMTN Caledonia increases substantial holding to 30.70% ALE completes AMTN refinancing 1st half distribution payment Taxation Components of Distribution Half Year results released 2016 06 Dec 06 Dec 28 Nov 16 Nov 25 Oct 08 Sep 05 Sep 31 Aug 04 Aug 14 Jun 10 Jun 10 Jun 08 Mar 07 Mar 29 Feb 16 Feb 11 Feb 04 Feb Property valuation increased by 10% Half year distribution of 10.15 cents declared Appointment of Robert Mactier as Director Caledonia increases substantial holding to 29.66% Annual General Meeting Caledonia increases substantial holding to 28.50% 2nd half distribution payment Taxation Components of Distribution Full Year Results, Annual Review / Report and Property Compendium released Property valuation increased by 10% for the full year Half Year distribution of 10.00 cents declared Full Year distribution of 20.00 cents announced Change in substantial holding from WOW 1st half distribution payment Taxation Components of Distribution Half Year results released Caledonia increases substantial holding to 27.05% Hedging Extended At Low Interest Rates Page 37 Australian Leisure and Entertainment Property Management Limited INVESTOR INFORMATION For the Year ended 30 June 2017 Stock Exchange Listing The ALE Property Group (ALE) is listed on the Australian Securities Exchange (ASX). Its stapled securities are listed under ASX code: LEP. Distribution Reinvestment Plan ALE has established a distribution reinvestment plan. Details of the plan are available on the ALE website. Distributions Stapled security distributions are paid twice yearly, normally in March and September. Electronic Payment of Distributions Securityholders 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 advice. Securityholders wishing to take advantage of payment by direct credit should contact the registry for more details and to obtain an application form. SecurityHolder Enquiries Please contact the registry if you have any questions about your holding or payments. Registered Office Level 10, 6 O'Connell Street Sydney NSW 2000 Telephone (02) 8231 8588 Company Secretary Mr Michael Clarke Level 10, 6 O'Connell Street Sydney NSW 2000 Telephone (02) 8231 8588 Auditors KPMG Level 38, Tower Three International Towers Sydney 300 Barangaroo Avenue Sydney NSW 2000 Annual Tax Statement Accompanying the final stapled security distribution payment, normally in September each year, will be an annual tax statement which details the tax components of the year's distribution. Lawyers Allens Linklaters Level 28, Deutsche Bank Place Sydney NSW 2000 Publications The Annual Review and Annual Report are the main sources of information for stapled securityholders. In August each year the Annual Review, Annual Report and Full Year Financial Report, and in February each year, the Half-Year Financial Report are released to the ASX and posted on the ALE website. The Annual Review is mailed to stapled securityholders unless we are requested not to do so. The Full Year and Half-Year Financial Reports are only mailed on request. Periodically ALE may also send releases to the ASX covering matters of relevance to investors. These releases are also posted on the ALE website and may be distributed by email to stapled securityholders by registering on ALE’s website. The election by stapled securityholders to receive communications electronically is encouraged by ALE. Website The ALE website, www.alegroup.com.au, is a useful source of information for stapled securityholders. 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. The ALE Property website, www.aleproperties.com.au, provides further detailed information on ALE's property portfolio. Custodian (of Australian Leisure and Entertainment Property Trust) The Trust Company Limited Level 13, 123 Pitt Street Sydney NSW 2000 Trustee (of ALE Direct Property Trust) The Trust Company (Australia) Limited Level 13, 123 Pitt Street Sydney NSW 2000 Registry Computershare Investor Services Pty Ltd Reply Paid GPO Box 7115, Sydney NSW 2000 Level 3, 60 Carrington Street, Sydney NSW 2000 Telephone 1300 302 429 Facsimile (02) 8235 8150 www.computershare.com.au Page 38 Australian Leisure and Entertainment Property Management Limited REGISTERED OFFICE Level 10, Norwich House 6 O’Connell Street Sydney NSW 2000 Telephone (02) 8231 8588 COMPANY SECRETARY Mr Michael Clarke Level 10, Norwich House 6 O’Connell Street Sydney NSW 2000 Telephone (02) 8231 8588 REGISTRY Computershare Investor Services Pty Ltd Reply Paid GPO Box 7115 Sydney NSW 2000 Level 3, 60 Carrington Street Sydney NSW 2000 Telephone 1300 302 429 Facsimile (02) 8235 8150 www.computershare.com.au AUDITORS KPMG Level 38 Tower 3 International Towers, Sydney 300 Barangaroo Avenue Sydney NSW 2000 VISIT OUR 2017 ANNUAL REVIEW WEBSITE FOR MORE INFORMATION aleproperty2017.reportonline.com.au REVIEW OUR PROPERTIES ONLINE aleproperties.com.au VISIT US ONLINE TODAY alegroup.com.au 

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