ALE Property Group
Annual Report 2018

Plain-text annual report

ANNUAL REPORT 2018 15 YEARS OF ADDING VALUE CURRENT INCOME FUTURE INCOME LONG TERM VALUE “We maintained our core strategy of ensuring that we preserve, enhance and extract maximum value for our securityholders from our existing portfolio.” ROBERT MACTIER Statutory property values $1,136.3m 4.98% Average cap rate 10.3 years Average lease term Gearing 41.6% Average debt maturity 3.7 years All up cash interest rate 4.26% Distribution 20.8cps DEBT MATURITIES AND HEDGING PROFILE Rental income growth 1.9% Hedge maturity 7.4 years Tax deferred 100% 100% 80% 60% 40% 20% 0% 100% of forecast net debt is hedged to November 2025 % Net Debt Hedged (LHS) Expires Nov 25 Avg Fixed and Hedged Base Rates (RHS) $225m $150m $151m* 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 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 * balance escalates with CPI FRONT COVER: GEPPS CROSS HOTEL, ADELAIDE SA ALE Property Group Comprising Australian Leisure and Entertainment Property Trust and its controlled entities Report For the Year ended 30 June 2018 ABN 92 648 441 429 ANNUAL REPORT 2018 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 49 50 54 DIRECTORS' REPORT For the Year ended 30 June 2018 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 2018. 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 Chair: 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 Ord Minnett Securities, E.L. & C. Baillieu and Citigroup 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 Appointed Chair of ACRMC: 26 October 2015 Chair of the ACRMC Member of the Nominations Committee Member of the Remuneration Committee Phillipa (Pippa) is a Director of the Australian Technology Innovators (Infotrack, LEAP Legal software), Windlab Limited, the ASX Clearing and Settlement companies and the Sydney Olympic Park Authority. Pippa is also on the panel of the ASX Appeals Tribunal and is a director of the Pinnacle Foundation. Ms Downes 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 and Derivatives and strong analytical skills investing across the capital structures of companies and across multiple asset classes. 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 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. Ms Downes is a member of The AICD and Women Corporate Directors and in 2016 was named as a Women of Influence in the AFR/Westpac awards. Page 2 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2018 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 Michael Triguboff BA (Syd), LLB (UNSW) 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 Frasers Logistic & Industrial Trust (SGX listed) and was previously a director of GPT Metro Office Fund. 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. Appointed: 15 February 2018 Michael is a founding Director of Adexum Capital Limited, a private equity company investing in both public and private mid-market companies. Michael is also Vice Chairman of Pyrolyx AG, a dual listed German and Australian company involved in recycling. Mr Triguboff has a background in equity funds management with groups including MIR and Lazard Asset Management Pacific, Lazard Asia Funds and was a global partner of Lazard Freres & Co. He was previously based in the USA and held positions with Quantum Funds and Equity Investments with a focus on principal investments in both public and private companies. Michael’s academic qualifications include; Bachelor of Arts from the University of Sydney, Bachelor of Laws from University of New South Wales, Master of Business Administration from New York University, Master of Business Systems from Monash University, Master of Computer Science from University of Illinois at Urbana - Champaign / Columbia University, and Master of Criminology and Master of Laws from University of Sydney. Page 3 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2018 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 Resigned: 6 December 2017 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 P J Downes M P Triguboff Page 4 Directorships of listed entities WPP AUNZ Limited Melco Resorts and Entertainment Limited (Nasdaq listed) GPT Metro Office Fund Frasers Logistic & Industrial Trust (SGX listed) Windlab Limited Pyrolyx AG Type Non-executive Non-executive Non-executive Non-executive Non-executive Non-executive Appointed as Director December 2006 December 2006 August 2014 June 2016 July 2017 February 2015 Resigned as Director January 2017 September 2016 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2018 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 J Downes P G Say N J Milne J T McNally M P Triguboff A F O Wilkinson 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 Non-executive Director Executive Director Capital Manager Company Secretary and Finance Manager Asset Manager Number held at the start of the year Net movement Number held at the end of the year 50,000 189,110 25,000 20,000 55,164 - 367,737 60,000 18,000 12,825 - - - - - - 63,732 - - (6,325) 50,000 189,110 25,000 20,000 55,164 - 431,469 60,000 18,000 6,500 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 124,117 60,773 19,445 10,657 34,082 18,475 4,870 3,044 (63,732) (31,375) (7,844) (3,922) 94,467 47,873 16,471 9,779 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 2018 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 J Downes P G Say N J Milne J T McNally M P Triguboff A F O Wilkinson Board ACRMC Nominations Committee and Remuneration Committee Held1 11 11 11 11 11 5 11 Attended 11 11 10 11 10 4 11 Held1 7 7 7 7 n/a n/a n/a Attended 7 7 7 7 n/a n/a n/a Held1 5 5 5 5 n/a n/a n/a Attended 5 5 5 5 n/a n/a n/a Member of Audit, Compliance and Risk Management Committee D J Lawler n/a n/a 4 3 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 2018 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 Pty Limited (ALH) for an average remaining initial lease term of 10.3 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 5.0% to $1,136.3 million; and Net Assets increased by 5.8% to $620.1 million and net borrowings (total borrowings less cash) as a percentage of assets (total assets less cash, derivatives and deferred tax assets) decreased from 42.7% to 41.6%. Current year performance ALE produced a profit after tax of $75.1 million for the year ended 30 June 2018 compared to a profit of $130.0 million for the year ended 30 June 2017. The decrease is primarily due to: • • • • • • Fair value adjustments to investment properties decreased from $89.6 million to $54.3 million in the current year due to lower reductions in capitalisation rates; Fair value adjustments to derivatives liabilities decreased from a $14.3 million increment in the prior year to a $4.7 million decrement in the current year as long term interest rates decreased; Rental income increased by 1.9% due to the full year impact of the November 2016 rent review of 1.4% and the part year impact of the November 2017 rent review of 1.9%; Interest income was lower due to lower average funds on deposit; Finance costs were higher due to the higher net borrowings; and Management costs increased during the year due to costs associated with various rent review and 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 $29.0 million compared to $29.1 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, finance costs and management expenses. Page 6 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2018 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 Capital and surplus cash Earnings and distribution per stapled security: Basic earnings Earnings available for distribution Total distribution Current year distributable profits Capital and surplus cash Financial position 30 June 2018 $’000 30 June 2017 $’000 75,090 130,043 (49,535) 235 3,214 21 (103,899) 248 2,712 14 (46,065) (100,925) 29,025 40,720 (11,695) 29,118 39,937 (10,819) 29,025 11,695 40,720 30 June 2018 Cents 29,118 10,819 39,937 30 June 2017 Cents 38.36 14.83 20.80 14.83 5.97 20.80 66.43 14.87 20.40 14.87 5.53 20.40 Percentage Increase / (Decrease) (42.26%) (0.27%) 1.96% ALE's net assets increased by 5.8%, 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 5.0% from $1,080.2 million to $1,136.3 million during the year. The increase in property valuations was attributable to the November 2017 CPI rent increase and average capitalisation rates decreasing from 5.14% to 4.98% across the portfolio. When assessing statutory valuations the independent 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 4.29% for the 35 properties valued. This compares to the rate of 4.98% 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 2018 Net assets per stapled security increased by 5.8% from $2.99 to $3.17 compared to June 2017, primarily as a result of the increase in property values. ALE’s market capitalisation this year increased by around 19.7% to around $1,094.3 million at 30 June 2018. 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 $225 million is scheduled to occur in August 2020. During the year covenant gearing reduced from 42.7% to 41.6% for the bond issuing entity, ALE DPT. ALE continues to maintain appropriate headroom to all debt covenants with the nearest equivalent to an average 31% fall in property values. ALE‘s debt capital structure continues to be characterised by the following positive features:  investment grade credit rating of Baa2 (stable);  debt maturity dates that are diversified over the next 5.4 years;  100% of forecast net debt hedged for the next 7.4 years;  interest cover ratio well above covenant level at 2.6 times;  all up cash interest rate of 4.26% p.a. fixed until the next refinancing in August 2020; and  lower covenent gearing of 41.6% (2017: 42.7%). ALE has consistently sought to mitigate interest rate volatility and continues to have long term hedging in place to achieve this objective. Historical performance To provide context to ALE's historical performance, the following data and graphs outline a five year history of key financial metrics. FY14 FY15 FY16 FY17 FY18 Distributable profit ($m) 31.2 29.1 29.6 29.1 29.0 Distribution per Security (cents) 16.45 16.85 20.00 20.40 20.80 Continuing property values ($m)2 821.6 900.5 990.5 1,080.2 1,136.3 Covenant gearing 1 1. Total borrowings less cash as a percentage of total assets less cash, deferred tax assets and derivatives for bond issuing entity, ALE DPT 51.7% 47.9% 44.9% 42.7% 41.6% 2. Includes only the value of properties held as at 30 June 2018 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 2018 totalled $18.33. For the period ending 30 June 2018, ALE continued to outperform other equity return benchmarks including the AREIT 300 index and the All Ordinaries index for periods including one, three, five, ten and fifteen years. For the one year period ALE's total return of 24.5% outperformed the AREIT 300 index total return of 13.2%.1 1. Source: UBS Distribution per security Covenant Gearing Continuing Property Values ($m) 60.0% 40.0% 20.0% 0.0% $1,200 $800 $400 $0 F Y 1 4 F Y 1 5 F Y 1 6 F Y 1 7 F Y 1 8 F Y 1 4 F Y 1 5 F Y 1 6 F Y 1 7 F Y 1 8 F Y 1 4 F Y 1 5 F Y 1 6 F Y 1 7 F Y 1 8 ALE Property Group 20.0 10.0 0.0 Page 8 DIRECTORS' REPORT For the Year ended 30 June 2018 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 $5.59 as at 30 June 2018 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 November 2018 the first major review is due with the market rent capped and collared within 10% of the November 2017 rent for the majority of properties. There is also a full open 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. ALE will also 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, changes in market rent and 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 2018 the closest debt covenant would be triggered by a decline of around 31% 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 it has sufficient headroom in it's debt covenants. Page 9 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2018 Interest rate risk - ALE currently has $526 million of outstanding gross 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 forecasted debt to November 2025 at weighted average base rates of between 3.11% and 3.46%. Refinancing risk - ALE currently has outstanding borrowings representing a covenant gearing level of 41.6%. 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 pub 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 ALH 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 2018 cents per security 30 June 2017 cents per security 30 June 2018 30 June 2017 $’000 $’000 Final Trust income distribution for the year ending 30 June 2018 to be paid on 5 September 2018 10.45 10.25 20,458 20,066 Interim Trust income distribution for the year ending 30 June 2018 paid on 5 March 2018 Total distribution for the year ending 30 June 2018 10.35 20.80 10.15 20.40 20,262 40,720 19,871 39,937 No provisions for or payments of Company dividends have been made during the year (2017: 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 a strategy of identifying opportunities to increase its profitability and value to its stapled securityholders. In accordance with the leases of its investment properties, ALE has to date received annual increases in rental income in line with increases in the consumer price index. The first non CPI based market rent review will occur 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 2018 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 2018 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 2018, the Committee consisted of the following: P G Say P J Downes N J Milne R W Mactier Non-executive Director Non-executive Director Non-executive Director Non-executive Director Chairman of Remuneration Committee 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 engaged Conari Partners to review remuneration. Conari Partners was paid $16,000 for its services. Page 11 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2018 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 financial 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 2018 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: ・ ・ ・ results in ALE having to make any material negative financial restatements; causes ALE to incur a material financial loss; or causes any significant financial or reputational harm to ALE and/or its businesses. 9.3.3 Summary of Key Contract Terms Contract Details Executive Position Andrew Wilkinson Andrew Slade Michael Clarke Don Shipway Managing Director Capital Manager Finance Manager and Company Secretary Ongoing $270,000 3 months 3 months Asset Manager Ongoing $208,920 1 month 1 month Contract Length Fixed Annual Remuneration Notice by ALE Notice by Executive Ongoing $475,900 6 months 6 months Ongoing $268,760 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 2018 9.4 Executive Remuneration outcome for year ended 30 June 2018 The amount of remuneration paid to Directors and Key Management Personnel is detailed in the table on page 17. Executive Incentive Scheme Outcomes In terms of total equity returns and other key financial metrics, ALE continues to perform well when compared to other Australian real estate investment trusts (AREITs) and the wider ASX listed indexes. The Committee reviewed the overall performance of ALE and the individual performance of all executives for the year ending 30 June 2018. 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: Property and Strategic Matters ● Continued to prepare for the November 2018 market rent review in conjunction with ALE’s Board and a range of valuation and legal advisers; Worked constructively with ALH to explore and agree a range of developments that are potentially value enhancing for ALE for a number of properties; Explored a number of acquisition opportunities that accorded with ALE’s strategic criteria; Developed 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. Capital Matters ● ● 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 capital initiatives with particular focus on value enhancement and risk mitigation. ● ● ● ● ● ● 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% 50.0% 9.3% 12.0% EIS Awarded as a % of Target 100.0% 100.0% - - EIS Awarded $285,540 $134,380 $25,000 $25,000 Cash Component $142,770 $67,190 $12,500 $12,500 ESSS Component $142,770 $67,190 $12,500 $12,500 Page 14 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2018 Consequences of performance on securityholder wealth In considering the Group's performance and benefits to securityholder weath, the remuneration committee have regard to a number of performance indicators in relation to the current and previous financial years. A review of ALE's current year performance and history is provided in the Operational and Financial Review on page 6 of the Directors Report. 9.5 Disclosures relating to equity instruments granted as compensation 9.5.1 Outstanding equity instruments granted as compensation Details of rights over stapled securities that have been granted as compensation and remain outstanding at year end and details of rights that were granted during the year are as follows: Executive ESSS Rights A F O Wilkinson A F O Wilkinson A F O Wilkinson A J Slade A J Slade A J Slade M J Clarke M J Clarke M J Clarke D J Shipway D J Shipway D J Shipway Number of Rights Outstanding Grant Date Performance Period Start Date Fair value of Right at Grant Date ($) Approximate Delivery Date % vested in year % forfeited in year 33,365 27,020 34,082 15,888 13,510 18,475 6,355 5,246 4,870 4,767 1,968 3,044 20 Aug 15 24 Oct 16 24 Oct 17 20 Aug 15 24 Oct 16 24 Oct 17 20 Aug 15 24 Oct 16 24 Oct 17 20 Aug 15 24 Oct 16 24 Oct 17 1 Jul 14 1 Jul 15 1 Jul 16 1 Jul 14 1 Jul 15 1 Jul 16 1 Jul 14 1 Jul 15 1 Jul 16 1 Jul 14 1 Jul 15 1 Jul 16 3.15 3.81 4.11 3.15 3.81 4.11 3.15 3.81 4.11 3.15 3.81 4.11 31 Jul 18 31 Jul 19 31 Jul 20 31 Jul 18 31 Jul 19 31 Jul 20 31 Jul 18 31 Jul 19 31 Jul 20 31 Jul 18 31 Jul 19 31 Jul 20 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 370,500 181,500 60,000 32,500 124,117 60,773 19,445 10,657 139,965 75,872 20,000 12,500 34,082 18,475 4,870 3,044 (162,500) (80,000) (20,000) (10,000) (63,732) (31,375) (7,844) (3,922) - - - - - - - - 347,965 177,372 60,000 35,000 94,467 47,873 16,471 9,779 Securities Delivered in the year - value paid $ 304,882 150,092 37,524 18,762 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 2018 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 during the five trading days finishing on 16 August 2018. 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 31 October 2017 was $750,000. 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 $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 2018 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 2018 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 2017 to 30 June 2018 Details of the remuneration of the Key Management Personnel for the year ended 30 June 2018 are set out in the following table: Key management personnel Short term Post employment benefits Equity based payment Name Role R W Mactier P J Downes P G Say N J Milne J T McNally1 M P Triguboff 2 A F O Wilkinson A J Slade M J Clarke D J Shipway Non-executive Director Non-executive Director Non-executive Director Non-executive Director Non-executive Director Non-executive Director Executive Director Capital Manager Company Secretary and Finance Manager Asset Manager 1. James McNally resigned on 8 August 2018 2. Michael Triguboff was appointed a director on 15 February 2018 Salary & Fees $ STI Cash Bonus $ Non monetary benefits $ Total $ Superannuation benefits $ Other long term benefits $ 178,082 105,023 120,000 100,457 - - - - 105,000 - 35,310 - 451,177 245,712 227,871 188,908 1,757,540 142,770 67,190 12,500 12,500 234,960 - - - - - - - - - - 178,082 105,023 120,000 100,457 105,000 35,310 593,947 312,902 240,371 201,408 16,918 9,977 - 9,543 - - 20,048 20,048 19,341 17,962 S300A(1)(e)(i) proportion of remuneration performance based Termination benefits $ - ESSS $ - Total $ 195,000 $ - - - 115,000 - - - 120,000 - - - 110,000 - - - 105,000 - 35,310 - - - - - - - 17,277 - 142,770 774,042 (675) - 67,190 399,465 16,372 - 12,500 288,584 6,115 - 12,500 237,985 36.9% 33.6% 8.7% 10.5% S300A(1)(e)(vi) Value of equity based payment as proportion of remuneration $ - - - - - - 18.4% 16.8% 4.3% 5.3% 1,992,500 113,837 39,089 - 234,960 2,380,386 Table 2 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 Name Role Salary & Fees STI Cash Bonus Non monetary benefits R W Mactier 3 P H Warne 4 P J Downes P G Say N J Milne Non-executive Director Non-executive Director Non-executive Director Non-executive Director Non-executive Director $ $ $ 67,013 150,280 100,457 115,000 95,890 - - - - - J T McNally Non-executive Director 103,750 - A F O Wilkinson Executive Director A J Slade M J Clarke D J Shipway Capital Manager Company Secretary and Finance Manager Asset Manager 442,359 241,652 204,781 185,200 1,706,382 139,965 75,872 20,000 12,500 248,337 - - - - - - - - - - - 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 $ $ 6,366 14,277 9,543 - 9,110 - 19,615 19,615 18,509 17,610 $ - $ - $ 73,379 $ - $ - - 164,557 - - - 110,000 - - - 115,000 - - 105,000 - - 103,750 - - - - - - - 2,283 8,686 - - 139,965 744,187 75,872 421,697 8,062 - 20,000 271,352 5,582 - 12,500 233,392 37.6% 36.0% 14.7% 10.7% - - - - 18.8% 18.0% 7.4% 5.4% Total $ 67,013 150,280 100,457 115,000 95,890 103,750 582,324 317,524 224,781 197,700 1,954,719 114,645 24,613 - 248,337 2,342,314 3. Robert Mactier was appointed a director on 23 November 2016 4. Peter Warne resigned as a director on 23 May 2017 Page 17 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2018 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 $121,846 (2017: $53,560) 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 no 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 2018 $ 30 June 2017 $ 159,000 - 180,000 15,000 159,000 195,000 - - 159,000 152,352 152,352 347,352 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 three 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 2018 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 2018 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 49 Page 50 Directors' Declaration Independent Auditor's Report to Stapled Securityholders Page 21 ALE Property Group STATEMENT OF COMPREHENSIVE INCOME For the Year ended 30 June 2018 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 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 4.3 4.2 4.2 4.4 4.7 2018 $'000 58,095 1,049 59,144 54,273 - 54,273 113,417 4,738 25,279 2,356 2,759 3,174 38,306 75,111 21 75,090 75,090 Cents 38.36 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 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 2018 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 2018 $'000 46,014 282 308 46,604 1,136,260 834 63 285 1,137,442 1,184,046 8,347 255 20,458 29,060 524,509 10,403 534,912 563,972 620,074 258,118 855 361,101 620,074 $ $3.17 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 Page 23 ALE Property Group STATEMENT OF CHANGES IN EQUITY For the Year Ended 30 June 2018 Share Based Payments Reserve $'000 Share Capital $'000 Retained Earnings $'000 Total $'000 2018 Total equity at the beginning of the year 258,118 893 326,969 585,980 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 - - - 75,090 - 75,090 75,090 - 75,090 235 (273) - 855 - (238) (40,720) 235 (511) (40,720) 361,101 620,074 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 The above statement of changes in equity should be read in conjunction with the accompanying Notes. - - - 130,043 - 130,043 130,043 - 130,043 248 (162) - 893 - (155) (39,937) 326,969 248 (317) (39,937) 585,980 Page 24 ALE Property Group STATEMENT OF CASH FLOWS For the Year Ended 30 June 2018 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 2018 $'000 63,958 (14,240) 1,004 523 (22,558) 28,687 (1,827) (50) (1,877) (53) - - - (40,328) (40,381) (13,571) 59,585 46,014 2018 $'000 75,090 (54,273) 4,738 395 2,819 235 (511) 15 (24) (3) (55) 196 65 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 Net cash inflow from operating activities 28,687 29,512 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 2018 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 2017 to 30 June 2018. 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 2018. 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 2018 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 to the Audit, Compliance and Risk Management Committee. When measuring the fair value of an asset or a liability, ALE uses market observable data as far as possible. Fair values are: Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e as prices) or indirectly (i.e derived from prices); Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). Page 27 ALE Property Group Notes to the financial statements (continued) For the Year ended 30 June 2018 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 2018 Fair value as at beginning of the year Disposals during the year Additions during year Carrying amount before revaluations Fair value as at end of the year Fair value gain/(loss) for year 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. 2018 $'000 2017 $'000 1,136,260 1,080,160 1,080,160 990,480 - 1,827 - 75 1,081,987 1,136,260 990,555 1,080,160 54,273 89,605 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 2018, the weighted average investment property capitalisation rate used to determine the value of all investment properties was 4.98% (2017: 5.14%). 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 2018 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 10.3 years. In accordance with ALE's policy of independently valuing at least one-third of its property portfolio annually, 35 properties were independently valued as at 30 June 2018. 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 Savills, Opteon, CBRE and Herron Todd White. The remaining 51 properties were subject to Directors' valuations as at 30 June 2018, identified as "B". The Directors' valuations of the 51 properties were determined by taking each property's net rent as at 30 June 2018 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 35 independent valuations completed at 30 June 2018 on a like for like basis. The Directors have received advice from Savills, 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 2018 Yields 4.51% - 5.79% 2.50% - 6.10% 2.86% - 5.80% 3.65% - 5.80% 5.41% - 6.51% 2017 Yields 4.65% - 5.76% 3.54% - 6.17% 3.01% - 6.06% 4.76% - 5.98% 5.41% - 6.51% 2018 Average 4.96% 5.04% 4.81% 5.13% 5.93% 2017 Average 5.08% 5.16% 5.02% 5.52% 5.96% Page 29 ALE Property Group Notes to the financial statements (continued) For the Year ended 30 June 2018 2. Investment property The fair value measurement for investment property of $1,136.26 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 2018 $000's Level 3 Pubs 1,136,260 Valuation Technique Inputs Used To Measure Fair Value Range of Individual Property Unobservable Inputs Capitalisation method Gross rent p.a. ($'000's) Land tax p.a. ($'000's) Adopted capitalisation rate $157 - $1,730 $15 - $171 2.50% - 6.51% Discounted cash flow method Gross rent p.a. ($'000's) Land tax p.a. ($'000's) Discount rates p.a. Terminal capitalisation rates Consumer price index p.a. $157 - $1,730 $15 - $171 5.75% - 9.86% 4.75% - 8.00% 2.14% - 2.60% 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. 2018 $'000 2017 $'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 262,582 454,044 778,034 255,796 520,330 834,270 (ii) Amount recognised in the profit and loss Rental income 58,095 57,007 The majority of ALE's leases expire in November 2028 and have 4 x 10 year options to extend. As the exercise of the options are unknown at this point the future minimum lease payments exclude the options. The comparative numbers have been calculated on the same basis. 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 2018 with a valuation date of 30 June 2018. Directors' valuations conducted during June 2018 with a valuation date of 30 June 2018. Properties were purchased in November 2003, unless otherwise indicated. 61,408 58,144 Valuation type and date Page 30 ALE Property Group Notes to the financial statements (continued) For the Year ended 30 June 2018 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 5,548 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 2018 $'000 Fair value at 30 June 2017 $'000 Fair value gains/ (losses) 2018 $'000 B B A B A A B B A B B B A A B B B A B A B B A B B A A A B A A B A B B B B B A B B B 13,550 13,550 20,150 19,980 7,650 15,400 11,540 14,600 29,900 10,040 12,900 12,900 18,520 19,030 7,050 15,500 11,000 13,900 29,140 9,560 650 650 1,630 950 600 (100) 540 700 760 480 156,360 149,500 6,860 18,470 7,730 11,000 13,300 19,360 15,550 7,160 3,400 13,500 6,400 7,450 9,180 15,700 14,740 4,650 12,700 9,500 14,900 7,310 11,100 11,800 7,090 14,900 8,980 9,940 7,100 10,530 10,300 19,900 10,800 15,010 11,940 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 1,230 380 500 590 950 670 360 110 900 (10) 370 455 1,200 940 230 1,100 820 219 335 1,300 560 340 320 450 240 600 530 450 1,190 210 990 750 Total Queensland properties 147,110 361,390 340,620 19,279 Page 31 ALE Property Group Cost including additions) $'000 Valuation type and date) Fair value at 30 June 2018 $'000 Fair value at 30 June 2017 $'000 Notes to the financial statements (continued) For the Year ended 30 June 2018 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 2,507 1,605 4,435 Total South Australian properties 18,646 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 22,118 516,238 Fair value gains/ (losses) 2018 $'000 350 300 220 190 1,684 170 330 B B B B A A A B A B A B B B A B A B A B A B B B B A B B A B B B B A A A A A B A B A A B 7,250 6,300 4,590 4,040 8,200 4,200 6,250 6,900 6,000 4,370 3,850 6,180 4,030 5,920 40,830 37,250 3,244 9,860 22,000 21,280 19,500 5,410 26,640 23,630 12,200 19,030 16,200 25,590 9,000 8,380 23,500 15,010 18,090 18,690 2,580 8,900 16,990 17,440 22,000 5,270 24,780 13,970 12,940 7,380 30,000 13,500 13,650 12,800 26,370 23,400 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 16,160 330 500 700 500 180 890 790 290 630 700 840 160 280 500 510 590 620 80 170 560 580 590 170 820 470 420 300 1,710 810 320 340 870 7,240 545,980 521,520 24,460 10,090 4,700 9,550 7,360 31,700 10,000 4,520 9,450 7,300 31,270 90 180 100 60 430 1,136,260 1,080,160 54,273 Page 32 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (continued) For the Year ended 30 June 2018 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 2018 $'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 150,652 147,753 373,857 524,509 373,595 521,348 2018 $'000 111,900 39,343 (591) 150,652 2017 $'000 111,900 36,524 (671) 147,753 $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 2018 $'000 375,000 (1,143) 373,857 2017 $'000 375,000 (1,405) 373,595 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. 2017 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 Miami Hotel, QLD1 Properties subject to mortgages Total assets pledged as security 1. Adjoining property purchased in April 2018 2018 $'000 2017 $'000 8,390 8,390 1,136,260 1,080,160 (29,900) (1,400) (29,140) - 1,104,960 1,113,350 1,051,020 1,059,410 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 2018 3. Capital structure and financing Terms and Repayment Schedule Nominal Interest Rate 5.00% 4.00% 3.40%2 Maturity Date1 Aug-2020 Aug-2022 Nov-2023 30 June 2018 30 June 2017 Face Value $'000 Carrying Amount $'000 Face Value $'000 Carrying Amount $'000 225,000 225,000 150,000 150,000 111,900 151,243 486,900 526,243 225,000 225,000 150,000 150,000 111,900 148,424 486,900 523,424 (1,734) 524,509 (2,076) 521,348 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. Reconciliation of movements in liabilities to cash flows arising from financing activities Balance as at 1 July 2017 Changes from financing cash flows Capitalised borrowing costs Total changes from financing cash flows Other changes Amortisation of capitalised borrowing costs Accumulated indexation Total other changes Balance as at 30 June 2018 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: 30 June 2018 CIB AMTN 30 June 2017 CIB AMTN Carrying Amount $'000 Fair Value $'000 150,652 373,857 524,509 165,572 382,082 547,654 147,753 373,595 521,348 153,386 385,474 538,860 Both borrowings are classed as Level 3. CIB Borrowings 147,753 AMTN Borrowings 373,595 Total Borrowings 521,348 - - (53) (53) (53) (53) 80 2,819 2,899 150,652 315 - 315 373,857 395 2,819 3,214 524,509 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. 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. Page 34 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (continued) For the Year ended 30 June 2018 3. Capital structure and financing 3.2 Financial Risk Management The Trust and Group have exposure to the following risks from their use of financial instruments: ● ● ● 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. 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. Page 35 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (continued) For the Year ended 30 June 2018 3. Capital structure and financing 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: 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. Profile At the reporting date, ALE's CPI sensitive financial instruments were as follows: Financial instruments Investment properties 2018 $'000 2017 CIB $'000 2018 $'000 2017 $'000 1,136,260 (150,652) 985,608 1,080,160 (147,753) 932,407 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 2017. 30 June 2018 Investment properties CIB 100 bps increase $'000 100 bps decrease 30 June 2017 $'000 Investment properties CIB 100 bps increase $'000 100 bps decrease $'000 12,687 - 12,687 11,612 - 11,612 - - - - - - Derivative financial assets Derivative financial liabilities Borrowings CIB AMTN 834 (10,403) 1,471 (6,302) (150,652) (373,857) (534,078) (147,753) (373,595) (526,179) 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 2017. 30 June 2018 Interest rate hedges CIB AMTN 30 June 2017 Interest rate hedges CIB AMTN 14,073 - - 14,073 12,814 - - 12,814 (15,862) - - (15,862) (14,891) - - (14,891) 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 2018 3. Capital structure and financing 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 may be restored if required. 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. The following are the contracted maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements. 30 June 2018 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 (8,347) (198,144) (430,125) Derivative financial instruments Interest rate hedges (11,421) (648,037) 30 June 2017 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) (8,347) (2,557) (8,625) - (2,585) (8,625) - (5,238) (17,250) - (16,266) (395,625) - (171,498) - 202 (19,327) 233 (10,977) 425 (22,063) (6,721) (418,612) (5,560) (177,058) (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) 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. Page 37 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (continued) For the Year ended 30 June 2018 3. Capital structure and financing 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 fixed rate debt past the maturity date to November 2025 through interest rate hedges. Current assets Non current assets Total assets Current liabilities Non current liabilities Total liabilities Net assets/(liabilities) 2018 $'000 - 834 834 - (10,403) (10,403) (9,569) 2017 $'000 - 1,471 1,471 - (6,302) (6,302) (4,831) Current year fair value adjustments to derivatives Fair value increments/ (decrements) to interest rate hedge derivatives 2018 $'000 2017 $'000 (4,738) 14,294 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. At 30 June 2018, the notional principal amounts and periods of expiry of the interest rate hedge contracts are as follows: Borrowing Interest Rate Hedges Deposit Interest Rate Hedges Net Hedge Position 2018 $'000 - - - - - 506,000 2017 $'000 - - - - - 506,000 2018 $'000 - (30,000) - - - - 2017 $'000 - - (30,000) - - - 2018 $'000 - (30,000) - - - 506,000 2017 $'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 borrowing hedges in place and a deposit hedge that is currently active. The current forward start borrowing 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 7.4 years at 30 June 2018. Page 38 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (continued) For the Year ended 30 June 2018 3. Capital structure and financing The following chart shows the hedge balances to November 2025. 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 Page 39 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (continued) For the Year ended 30 June 2018 3. Capital structure and financing Loan to Value Ratio covenants (LVR) Borrowing CIB CIB AMTN AMTN AMTN Hedging Definitions Net Total Assets Net Priority Debt Net Finance Debt 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 Total Assets less Cash less Derivative Assets less Deferred Tax Assets. (ALE DPT) 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 DPT) All covenants exclude the mark to market value of derivatives. CIB covenants relate to ALE FC. AMTN and hedging covenants relate to ALE DPT. ALE currently considers that significant headroom exists with respect of all the above covenants. At all times during the years ended 30 June 2018 and 30 June 2017, ALE and its subsidiaries were in compliance with all the above covenants. 3.3 Equity Balance at the beginning of the period No movement 2018 $'000 2017 $'000 258,118 258,118 - 258,118 - 258,118 Movements in the number of fully paid stapled securities during the year 2018 Number 2017 Number Opening balance 195,769,080 195,769,080 No movement Closing balance - - 195,769,080 195,769,080 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. Page 40 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (continued) For the Year ended 30 June 2018 3. Capital structure and financing The NIVUS were issued to ensure the Responsible Entity maintained sufficient Net Tangible Assets to satisfy the requirements of the company's AFSL Licence. 3.5 Cash and cash equivalents Cash at bank and in hand Deposits at call Cash reserve 2018 $'000 2,551 35,073 8,390 46,014 2017 $'000 4,122 47,073 8,390 59,585 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 2018 all cash assets were placed on deposit with various banks. As at 30 June 2018, the weighted average interest rate on all cash assets was 2.46% (2017:2.30%). 3.4 Capital management Capital management ALE monitors securityholder equity and manages it to address risks and add value where appropriate. 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 2018 and 30 June 2017 were 47.7% and 48.7% respectively. The covenent gearing ratios (gross borrowings less cash as a percentage of total assets less cash, derivatives and deferred tax assets of ALE DPT) at 30 June 2018 and 30 June 2017 were 41.6% and 42.7% respectively. Page 41 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (continued) For the Year ended 30 June 2018 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 2018 $'000 2017 $'000 58,095 1,049 59,144 57,007 1,324 58,331 Interest income As at 30 June 2018 the weighted average interest rate earned on cash was 2.46% (2017: 2.30%) 54,273 89,605 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 - - 54,273 14,294 - 103,899 113,417 162,230 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 Direct property expenses 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 2018 $'000 2017 $'000 196 98 16 176 174 121 1,624 394 2 111 24 61 177 3,174 3,174 2,759 234 75 19 160 308 113 985 393 - 110 23 55 161 2,636 2,636 2,758 (235) 5,698 (248) 5,146 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 2018 4. Business performance 4.3 Finance costs 4.4 Taxation 2018 $'000 2017 $'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 5,116 4,997 17,250 17,149 (518) 217 22,065 (507) 200 21,839 2,819 80 242 73 3,214 2,279 72 313 48 2,712 Finance costs (cash and non-cash) 25,279 24,551 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: 2018 $'000 2017 $'000 Profit before income tax Profit attributable to entities not subject to tax 75,111 130,057 74,790 129,923 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) 321 96 (80) - 5 21 24 (3) 21 134 40 (27) 1 - 14 6 8 14 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 2018 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 2018 $ 2017 $ 159,000 - 180,000 15,000 159,000 195,000 - 152,352 159,000 347,352 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 - net 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 Capital and surplus cash 2018 $'000 75,090 2017 $'000 130,043 (54,273) (89,605) 4,738 (14,294) 235 3,214 21 248 2,712 14 (46,065) (100,925) 29,025 29,118 40,720 39,937 (11,695) (10,819) 29,025 29,118 11,695 40,720 10,819 39,937 Page 44 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (continued) For the Year ended 30 June 2018 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. 2018 2017 2018 2017 Profit attributable to members of the Group ($000's) 75,090 130,043 Distributable profit attributable to members of the Group ($000's) 29,025 29,118 Weighted average number of stapled securities 195,769,080 195,769,080 Number of stapled securities at the end of the year 195,769,080 195,769,080 Basic earnings per security (cents) 38.36 66.43 Distributable profit per security (cents) 14.83 14.87 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 2018 2017 14.83 14.87 Distribution paid per stapled security 20.80 20.40 2018 2017 Profit attributable to members of the Group ($000's) 75,090 130,043 Under/(over) distributed for the year (5.97) (5.53) Weighted average number of stapled securities Diluted earnings per security (cents) 195,946,060 195,988,389 38.32 66.35 Distribution funded as follows Current year distributable profits Capital and surplus cash 14.83 5.97 20.80 14.87 5.53 20.40 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 2018 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 2018 $'000 2017 Long service leave $'000 Employee benefits provision: Current 255 190 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 2018 $ 2017 $ 1,992,500 113,837 39,089 234,960 - 2,380,386 1,954,719 114,645 24,613 248,337 - 2,342,314 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 2018 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 2018 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. AASB 9 Financial Instruments (2010), AASB 9 Financial Instruments (2009) AASB 9, published in July 2014, replaces the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement. AASB 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. AASB 9 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted. The Group has assessed the potential impact on its consolidated financial statement resulting from the application of AASB 9 based on its positions as at 30 June 2018 and hedging arrangements during 2018 under IAS 39. Based on its assessment the new classification and measurement approach for financial assets, financial liabilities or the impairment requirements for financial assets will not have a material impact on the financial statements. AASB16 Leasing AABS 16 establishes a comprehensive framework the accounting policies and disclosures applicable to leases, both for lessees and lessors. AABS 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 AASB 16 to be immaterial. AASB 15 Revenue from Contracts with Customers AASB 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. AASB 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 AASB 15 on its financial statements and there will be no significant changes. Other standards The following amended standards and interpretations are not expected to have a significant impact on the Company’s financial statements: Other standards The following amended standards and interpretations are not expected to have a significant impact on the Company’s financial statements: Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2). IFRIC 22 Foreign Currency Transactions and Advance Consideration IFRIC 23 Uncertainty over Income Tax Treatments Annual Improvements to IFRSs 2014-2016 Cycle – Amendments to IFRS 1 and IAS 28 Page 47 ALE Property Group Notes to the financial statements (continued) For the Year ended 30 June 2018 6. Other 6.2 Segment reporting 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 2018, the Company received $4,359,742 of expense reimbursement from the Trust (2017: $4,460,628), and the Finance Company charged the Sub Trust $8,033,147 interest (2017: $7,366,400). Comparative information has been presented in conformity with the requirements of AASB 8 Operating Segments. All of ALE Property Group's pub properties are leased to members of the ALH Group, and accordingly 100% of the rental income is received from ALH (2017: 100%). Non pub rental income comprises less than 1% of total revenue. 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. 6.4 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. 6.5 Investments in controlled entities 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. Robert Mactier is a consultant to UBS AG. UBS AG has provided debt lead management 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 debt lead management services 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. 6.7 Parent Entity Disclosures As at, and throughout, the financial year ending 30 June 2018 the parent entity of ALE was Australian Leisure and Entertainment Property Trust. 2018 $'000 2017 $'000 Profit for the year 29,026 29,155 Financial position of the parent entity Current assets Cash 21 196 Non current assets Investments in controlled entities Total assets Current liabilities Payables Provisions Total liabilities Net assets Issued units Retained earnings Total equity 275,656 275,677 275,656 275,852 26,690 20,458 47,148 228,529 15,563 20,066 35,629 240,223 252,431 (23,902) 228,529 252,431 (12,208) 240,223 Page 48 ALE Property Group DIRECTORS' DECLARATION For the Year ended 30 June 2018 In the opinion of the directors of the Company: (a) the financial statements and notes that are set out on pages 22 to 48 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 2018 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 2018. 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 2018 Page 49 ALE Property Group Page 50 Page 51 Page 52 Page 53 INVESTOR INFORMATION For the Year ended 30 June 2018 Securityholders The securityholder information as set out below was applicable as at 6 July 2018. 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 Number of Holders 742 1,375 963 1,618 110 4,808 Number of Securities 243,619 4,216,688 7,336,384 41,956,166 142,016,223 195,769,080 % of Issued Capital 0.12 2.15 3.75 21.43 72.54 100.00 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 Citicorp Nominees Pty Limited HSBC Custody Nominees (Australia) Limited UBS Nominees Pty Ltd Woolworths Group Limited HSBC Custody Nominees (Australia) Limited-GSCO ECA Manderrah Pty Ltd [GJJ Family Account] National Nominees Limited CS Third Nominees Pty Limited [HSBC Customer Nominees AU Ltd 13 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] National Nominees Limited [Db Account] Netwealth Investments Limited [Wrap Services Account] UBS Nominees Pty Ltd [Prime Broking Account] Mr David Calogero Loggia BT Portfolio Services Limited [Caergwrle Invest P/L Account] Bond Street Custodians Limited [Caergwrle Investments Pty Limited Account] Merlor Holdings Pty Ltd [Basserabie Family Settlement 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 6 July 2018) are set out below: Stapled Securityholder Caledonia (Private) Investments Pty Ltd Woolworths Limited Allan Gray Australia Page 54 Number of Securities 27,950,008 17,789,505 17,652,094 17,076,936 6,708,540 6,600,000 6,545,984 5,312,954 4,990,508 3,296,126 2,795,751 1,547,534 1,293,679 1,200,000 993,226 745,787 700,000 686,243 675,000 660,953 125,220,828 70,548,252 % of Issued Capital 14.28 9.09 9.02 8.72 3.43 3.37 3.34 2.71 2.55 1.68 1.43 0.79 0.66 0.61 0.51 0.38 0.36 0.35 0.34 0.34 63.96 36.04 Number of Securities 65,960,122 17,076,936 10,935,829 % of Issued Capital 33.69 8.72 5.59 ALE Property Group INVESTOR INFORMATION For the Year ended 30 June 2018 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. 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. 2018 08 Aug 08 Aug James McNally retires as a Director Full Year Results, Annual Review / Report and Property Compendium released James McNally announces retirement as a Director Caledonia increases substantial holding to 33.69% Property valuations increased by 5.1% 05 Jul 05 Jul 07 Jun 06 Jun Half Year distribution of 10.45 cents declared Full Year distribution of 20.80 cents announced 06 Jun 05 Mar 1st half distribution payment 16 Feb Michael Triguboff appointed a Director 16 Feb 14 Feb Half Year results released 12 Feb 12 Feb Caledonia increases substantial holding to 32.41% Allen Gray reduces substantial holding to 5.59% Taxation Components of Distribution 2017 31 Oct Annual General Meeting 05 Sep 2nd half distribution payment 08 Aug Full Year Results, Annual Review / Report and Property Compendium released 09 Jun Property valuations increased by 9.1% 09 Jun Half Year distribution of 10.25 cents declared 09 Jun Full Year distribution of 20.40 cents announced 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 1st half distribution payment 02 Mar Taxation Components of Distribution 23 Feb Half Year results released The following events will occur after the date of this Annual Report: 13 Nov Annual General Meeting 05 Sep 2nd half distribution payment Page 55 ALE Property Group INVESTOR INFORMATION For the Year ended 30 June 2018 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 56 ALE Property Group MIAMI TAVERN, GOLD COAST QLD Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278 ANNUAL REPORT 2018 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 2018 The Directors of Australian Leisure and Entertainment Property Management Limited (the "Company") present their report for the year ended 30 June 2018. 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 Chair: 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 Ord Minnett Securities, E.L. & C. Baillieu and Citigroup 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 Appointed Chair of ACRMC: 26 October 2015 Chair of the ACRMC Member of the Nominations Committee Member of the Remuneration Committee Phillipa (Pippa) is a Director of the Australian Technology Innovators (Infotrack, LEAP Legal software), Windlab Limited, the ASX Clearing and Settlement companies and the Sydney Olympic Park Authority. Pippa is also on the panel of the ASX Appeals Tribunal and is a director of the Pinnacle Foundation. Ms Downes 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 and Derivatives and strong analytical skills investing across the capital structures of companies and across multiple asset classes. 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 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. Ms Downes is a member of The AICD and Women Corporate Directors and in 2016 was named as a Women of Influence in the AFR/Westpac awards. Page 2 Australian Leisure and Entertainment Property Management Limited DIRECTORS' REPORT For the Year ended 30 June 2018 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 Frasers Logistic & Industrial Trust (SGX listed) and was previously a director of GPT Metro Office Fund. 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. Michael Triguboff Independent Non Executive Director Appointed: 15 February 2018 Michael is a founding Director of Adexum Capital Limited, a private equity company investing in both public and private mid-market companies. Michael is also Vice Chairman of Pyrolyx AG, a dual listed German and Australian company involved in recycling. Mr Triguboff has a background in equity funds management with groups including MIR and Lazard Asset Management Pacific, Lazard Asia Funds and was a global partner of Lazard Freres & Co. He was previously based in the USA and held positions with Quantum Funds and Equity Investments with a focus on principal investments in both public and private companies. Michael’s academic qualifications include; Bachelor of Arts from the University of Sydney, Bachelor of Laws from University of New South Wales, Master of Business Administration from New York University, Master of Business Systems from Monash University, Master of Computer Science from University of Illinois at Urbana - Champaign / Columbia University, and Master of Criminology and Master of Laws from University of Sydney. Page 3 Australian Leisure and Entertainment Property Management Limited DIRECTORS' REPORT For the Year ended 30 June 2018 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 Resigned: 6 December 2017 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 P J Downes M P Triguboff Directorships of listed entities WPP AUNZ Limited Melco Resorts and Entertainment Limited (Nasdaq listed) GPT Metro Office Fund Frasers Logistic & Industrial Trust (SGX listed) Windlab Limited Pyrolyx AG Appointed as Director December 2006 December 2006 Type Non-executive Non-executive Non-executive August 2014 Non-executive Non-executive Non-executive June 2016 July 2017 February 2015 Resigned as Director January 2017 September 2016 Page 4 Australian Leisure and Entertainment Property Management Limited DIRECTORS' REPORT For the Year ended 30 June 2018 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 J Downes P G Say N J Milne J T McNally M P Triguboff A F O Wilkinson 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 Non-executive Director Executive Director Capital Manager Company Secretary and Finance Manager Asset Manager Number held at the start of the year Net movement Number held at the end of the year 50,000 189,110 25,000 20,000 55,164 - 367,737 60,000 18,000 12,825 - - - - - - 63,732 - - (6,325) 50,000 189,110 25,000 20,000 55,164 - 431,469 60,000 18,000 6,500 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 124,117 60,773 19,445 10,657 34,082 18,475 4,870 3,044 (63,732) (31,375) (7,844) (3,922) 94,467 47,873 16,471 9,779 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 2018 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 J Downes P G Say N J Milne J T McNally M P Triguboff A F O Wilkinson Board ACRMC Held 1 11 11 11 11 11 5 11 Attended 11 11 10 11 10 4 11 Held 1 7 7 7 7 n/a n/a n/a Attended 7 7 7 7 n/a n/a n/a Nominations Committee and Remuneration Committee Attended 5 5 5 5 n/a n/a n/a Held 1 5 5 5 5 n/a n/a n/a Member of Audit, Compliance and Risk Management Committee D J Lawler n/a n/a 4 3 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 2018 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 10.3 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 earnings per share Dividend per share for the year Net assets per share 30 June 2018 $ 30 June 2017 $ 4,359,742 9,048 4,368,790 4,460,628 7,077 4,467,705 2,728,780 1,354,737 4,083,517 2,727,951 1,663,604 4,391,555 285,273 10,288 274,985 76,150 (526) 76,676 Cents Cents 0.14 - 7.28 0.04 - 7.28 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 (2017: 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 2018 9 REMUNERATION REPORT (Audited) This report provides details on ALE's remuneration structure, decisions and outcomes for the year ended 30 June 2018 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 2018, the Committee consisted of the following: P G Say P J Downes N J Milne R W Mactier Non-executive Director Non-executive Director Non-executive Director Non-executive Director Chairman of Remuneration Committee 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 engaged Conari Partners to review remuneration. Conari Partners was paid $16,000 for its services. Page 7 Australian Leisure and Entertainment Property Management Limited DIRECTORS' REPORT For the Year ended 30 June 2018 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 2018 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: ・ ・ ・ results in ALE having to make any material negative financial restatements; causes ALE to incur a material financial loss; or causes any significant financial or reputational harm to ALE and/or its businesses. 9.3.3 Summary of Key Contract Terms Contract Details Executive Position Andrew Wilkinson Andrew Slade Michael Clarke Don Shipway Managing Director Capital Manager Finance Manager and Company Secretary Ongoing $270,000 3 months 3 months Asset Manager Ongoing $208,920 1 month 1 month Contract Length Fixed Annual Remuneration Notice by ALE Notice by Executive Ongoing $475,900 6 months 6 months Ongoing $268,760 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 2018 9.4 Executive Remuneration outcome for year ended 30 June 2018 The amount of remuneration paid to Directors and Key Management Personnel is detailed in the table on page 13. Executive Incentive Scheme Outcomes In terms of total equity returns and other key financial metrics, ALE continues to perform well when compared to other Australian real estate investment trusts (AREITs) and the wider ASX listed indexes. The Committee reviewed the overall performance of ALE and the individual performance of all executives for the year ending 30 June 2018. 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: Property and Strategic Matters ● Continued to prepare for the November 2018 market rent review in conjunction with ALE’s Board and a range of valuation and legal advisers; Worked constructively with ALH to explore and agree a range of developments that are value enhancing for ALE for a number of 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. Capital Matters ● ● 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. ● ● ● ● ● ● 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% 50.0% 9.3% 12.0% EIS Awarded as a % of Target 100.0% 100.0% - - EIS Awarded $285,540 $134,380 $25,000 $25,000 Cash Component $142,770 $67,190 $12,500 $12,500 ESSS Component $142,770 $67,190 $12,500 $12,500 Page 10 Australian Leisure and Entertainment Property Management Limited DIRECTORS' REPORT For the Year ended 30 June 2018 Consequences of performance on shareholder wealth In considering the Group's performance and benefits to shareholder weath, the remuneration committee have regard to a number of performance indicators in relation to the current and previous financial years. A review of ALE's current year performance and history is provided in the Operational and Financial Review on page 6 of the Directors Report located in the ALE Property Group's Annual Report. 9.5 Disclosures relating to equity instruments granted as compensation 9.5.1 Outstanding equity instruments granted as compensation Details of rights over stapled securities that have been granted as compensation and remain outstanding at year end and details of rights that were granted during the year are as follows: Executive ESSS Rights A F O Wilkinson A F O Wilkinson A F O Wilkinson A J Slade A J Slade A J Slade M J Clarke M J Clarke M J Clarke D J Shipway D J Shipway D J Shipway Number of Rights Outstanding Grant Date Performance Period Start Date Fair value of Right at Grant Date ($) Approximate Delivery Date % vested in year % forfeited in year 33,365 27,020 34,082 15,888 13,510 18,475 6,355 5,246 4,870 4,767 1,968 3,044 20 Aug 15 24 Oct 16 24 Oct 17 20 Aug 15 24 Oct 16 24 Oct 17 20 Aug 15 24 Oct 16 24 Oct 17 20 Aug 15 24 Oct 16 24 Oct 17 1 Jul 14 1 Jul 15 1 Jul 16 1 Jul 14 1 Jul 15 1 Jul 16 1 Jul 14 1 Jul 15 1 Jul 16 1 Jul 14 1 Jul 15 1 Jul 16 3.15 3.81 4.11 3.15 3.81 4.11 3.15 3.81 4.11 3.15 3.81 4.11 31 Jul 18 31 Jul 19 31 Jul 20 31 Jul 18 31 Jul 19 31 Jul 20 31 Jul 18 31 Jul 19 31 Jul 20 31 Jul 18 31 Jul 19 31 Jul 20 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 370,500 181,500 60,000 32,500 124,117 60,773 19,445 10,657 139,965 75,872 20,000 12,500 34,082 18,475 4,870 3,044 (162,500) (80,000) (20,000) (10,000) (63,732) (31,375) (7,844) (3,922) - - - - - - - - 347,965 177,372 60,000 35,000 94,467 47,873 16,471 9,779 Securities Delivered in the year - value paid $ 304,882 150,092 37,524 18,762 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 2018 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 2018. 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 31 October 2017 was $750,000. 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 $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 2018 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 2018 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 2017 to 30 June 2018 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 P J Downes P G Say N J Milne J T McNally1 M P Triguboff 2 A F O Wilkinson A J Slade M J Clarke Non-executive Director Non-executive Director Non-executive Director Non-executive Director Non-executive Director Non-executive Director 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 $ 178,082 105,023 120,000 100,457 - - - - 105,000 - 35,310 - 451,177 245,712 227,871 188,908 1,757,540 142,770 67,190 12,500 12,500 234,960 - - - - - - - - - - 178,082 105,023 120,000 100,457 105,000 35,310 593,947 312,902 240,371 201,408 1,992,500 16,918 9,977 - 9,543 - - 20,048 20,048 19,341 17,962 113,837 S300A(1)(e)(i) proportion of remuneration performance based Termination benefits $ - ESSS $ - Total $ 195,000 $ - - - 115,000 - - - 120,000 - - - 110,000 - - - 105,000 - 35,310 - - - - - - - 17,277 - 142,770 774,042 (675) - 67,190 399,465 16,372 - 12,500 288,584 6,115 - 12,500 237,985 39,089 - 234,960 2,380,386 36.9% 33.6% 8.7% 10.5% 1. James McNally resigned as a director on 8 August 2018 2. Michael Triguboff was appointed a director on 15 February 2018 Table 2 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 S300A(1)(e)(i) proportion of remuneration performance based Name Role R W Mactier 3 P H Warne 4 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 Executive Director Capital Manager Company Secretary and Finance Manager Asset Manager 3. Robert Mactier was appointed a director on 23 November 2016 4. Peter Warne resigned as a director on 23 May 2017 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 8,062 - - 75,872 421,697 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)(vi) Value of equity based payment as proportion of remuneration $ - - - - - - 18.4% 16.8% 4.3% 5.3% S300A(1)(e)(vi) Value of equity based payment as proportion of remuneration $ - - - 18.8% - 18.0% 7.4% 5.4% Page 13 Australian Leisure and Entertainment Property Management Limited DIRECTORS REPORT For the Year ended 30 June 2018 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 $121,846 (2017: $53,560) 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 no 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 2018 $ 30 June 2017 $ 159,000 - 180,000 15,000 159,000 195,000 - - 159,000 152,352 152,352 347,352 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 three 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 2018 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 2018 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 2018 Revenue Expense reimbursement Net 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 2018 $ 2.1 2.1 2.2 2.2 2.3 2.4 4,359,742 9,048 4,368,790 2,728,780 1,354,737 4,083,517 285,273 10,288 274,985 274,985 Cents 0.14 2017 $ 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 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 2018 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 2018 $ 2017 $ 2,397,306 2,932,412 307,559 5,637,277 62,895 9,080,010 70,924 9,213,829 14,851,106 348,540 255,209 603,749 603,749 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 14,247,357 14,248,596 14,767,075 855,297 (1,375,015) 14,247,357 $ 0.07 14,767,075 892,837 (1,411,316) 14,248,596 $ 0.07 Page 19 Australian Leisure and Entertainment Property Management Limited STATEMENT OF CHANGES IN EQUITY For the Year Ended 30 June 2018 Share based payments reserve $ Share Capital $ Retained Earnings $ Total $ 2018 Total equity at the beginning of the year 14,767,075 892,837 (1,411,316) 14,248,596 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 - - - - - - - - 274,985 - 274,985 274,985 - 274,985 (272,500) 234,960 (238,684) - (511,184) 234,960 Total equity at the end of the year 14,767,075 855,297 (1,375,015) 14,247,357 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 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 2018 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. 2018 $ 2017 $ 6,594,882 (6,607,866) 21,332 8,348 (50,861) (50,861) - - (42,513) 2,439,819 6,047,573 (5,935,895) 60,582 172,260 (11,429) (11,429) - - 160,831 2,278,988 2,397,306 2,439,819 2018 $ 274,985 15,539 234,960 (511,184) (11,402) (54,450) (13,797) 99,847 65,665 (91,815) 8,348 2017 $ 76,676 19,850 248,337 (317,411) 38,343 (38,480) (8,226) (101,404) 20,341 234,234 172,260 Page 21 Australian Leisure and Entertainment Property Management Limited NOTES TO THE FINANCIAL STATEMENTS For the Year ended 30 June 2018 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 2018. 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 2018 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 2018 $ 2017 $ 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 2018 $ 2017 $ 98,404 75,458 196,258 15,539 170,999 85,654 121,012 470,816 110,628 24,193 61,234 1,354,737 2,728,780 4,083,517 233,800 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 Recognition and measurement Expenses including operating expenses, are brought to account on an accruals basis. Revenue Expense reimbursement Interest from cash deposits Total revenue 4,359,742 9,048 4,368,790 4,460,628 7,077 4,467,705 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 $6,594,882 (2017: $6,047,573) 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 2018 the weighted average interest rate earned on cash was 2.34% (2017: 2.24%) Page 23 Australian Leisure and Entertainment Property Management Limited Notes to the financial statements (continued) For the Year ended 30 June 2018 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: Profit 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 2018 $ 2017 $ 285,273 85,582 76,150 22,845 (80,003) - (23,722) - 4,709 351 10,288 24,085 (13,797) (526) 7,700 (8,226) 10,288 (526) 2018 $ 2017 $ Deferred tax assets 70,924 57,127 The balance is attributable to: Employee benefits Other Tax losses Net deferred tax assets 76,843 (5,919) - 70,924 57,961 (834) - 57,127 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. 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 57,127 48,901 13,797 - 70,924 8,226 - 57,127 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. 65,234 57,127 Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in Equity. 5,690 70,924 - 57,127 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 2018 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. 2018 2017 Profit/(Loss) attributable to members of the company 274,985 76,676 Weighted average number of share 195,769,080 195,769,080 Basic earnings per share (cents) 0.14 0.04 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 2018 $ 2017 $ 159,000 - 180,000 15,000 159,000 195,000 - 152,352 159,000 347,352 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) 2018 2017 274,985 76,676 195,946,060 195,988,389 0.14 0.04 Page 25 Australian Leisure and Entertainment Property Management Limited NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2018 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 2018 $ 324,033 2,073,273 2,397,306 2017 $ 366,546 2,073,273 2,439,819 Trust Non-Income Voting Units (NIVUS) 2018 $ 2017 $ 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 2018 $ 22,073 2,846,765 19,679 43,895 2,932,412 2017 $ 3.4 Payables 27,321 2,946,612 41,415 5,509 3,020,857 Trade creditors Creditor accruals 2018 $ 160,487 188,053 348,540 2017 $ 223,324 217,031 440,355 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 2018 3. Assets, liabilities and equity 3.5 Equity 2018 $ 2017 $ Balance at the beginning of the period No movements Closing balance 14,767,075 14,767,075 - 14,767,075 - 14,767,075 Movements in the number of fully paid stapled securities during the year Stapled securities on issue: Opening balance No movement Closing balance Number of Stapled Securities Number of Stapled Securities 195,769,080 195,769,080 - - 195,769,080 195,769,080 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 2018 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 2018 $ 2017 Long service leave $ Employee benefits provision: Current 255,209 189,544 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 2018 $ 2017 $ Short term employee benefits Post employment benefits Other long term benefits Share based payments Termination benefits 1,992,500 113,837 39,089 234,960 - 2,380,386 1,954,719 114,645 24,613 248,337 - 2,342,314 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 2018 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. AABS 15 Revenue from Contracts with Customers AABS 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. AASB 9 Financial Instruments (2010), IFRS 9 Financial Instruments (2009) AASB 9, published in July 2014, replaces the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement. AASB 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. AASB 9 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted. AASB 15 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted. The Company has completed an assessment of the potential impact of the adoption of AASB 15 on its financial statements and there will be no significant changes. Other standards The following amended standards and interpretations are not expected to have a significant impact on the Company’s financial statements. Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2). IFRIC 22 Foreign Currency Transactions and Advance Consideration IFRIC 23 Uncertainty over Income Tax Treatments Annual Improvements to IFRSs 2014-2016 Cycle – Amendments to IFRS 1 and IAS 28 The Company has assessed the potential impact on its financial statement resulting from the application of AASB 9 based on its positions as at 30 June 2018 and hedging arrangements during 2018 under IAS 39. Based on its assessment the new classification and measurement approach for financial assets, financial liabilities or the impairment requirements for financial assets will not have a material impact on the financial statements. AASB 16 Leasing AASB 16 establishes a comprehensive framework the accounting policies and disclosures applicable to leases, both for lessees and lessors. AASB 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 AASB 16 to be immaterial. Page 29 Australian Leisure and Entertainment Property Management Limited Notes to the financial statements (continued) For the Year ended 30 June 2018 5. Other 5.2 Segment reporting 5.6 Related party transactions 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. 5.5 Commitments Capital commitments The Directors are not aware of any capital commitments as at the date of this report. 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 2018 $ 2017 $ 121,261 110,610 170,899 - 292,160 282,266 - 392,876 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 2018 the Company had charged the Trust $4,359,742 in expense reimbursement (2017: $4,460,628). 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. 5.7 Financial risk management 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. Page 30 Australian Leisure and Entertainment Property Management Limited Notes to the financial statements (continued) For the Year ended 30 June 2018 5. Other 5.7 Financial risk management (continued) 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. Impairment losses Not past due Past due 0-30 days Past due 31-120 days Past due 120-365 days More than one year 2018 $ 2018 $ Gross Impairment - - - - - - 72,895 - - 12,752 - 85,647 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. 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 2018 $ 85,647 2,397,306 2,482,953 2017 $ 74,245 2,439,819 2,514,064 Not past due Past due 0-30 days Past due 31-120 days Past due 120-365 days More than one year 2017 $ 2017 $ Gross Impairment - - - - - - 74,245 - - - - 74,245 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. 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. Page 31 Australian Leisure and Entertainment Property Management Limited DIRECTORS' DECLARATION For the Year ended 30 June 2018 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 2018 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 and the Finance Manager/Company Secretary as required for the financial year ended 30 June 2018. (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 2018 Page 32 Australian Leisure and Entertainment Property Management Limited INVESTOR INFORMATION For the Year ended 30 June 2018 Securityholders The securityholder information as set out below was applicable as at 6 July 2018. 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 Number of Holders 742 1,375 963 1,618 110 4,808 Number of Securities 243,619 4,216,688 7,336,384 41,956,166 142,016,223 195,769,080 % of Issued Capital 0.12 2.15 3.75 21.43 72.54 100.00 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 Citicorp Nominees Pty Limited HSBC Custody Nominees (Australia) Limited UBS Nominees Pty Ltd Woolworths Group Limited HSBC Custody Nominees (Australia) Limited-GSCO ECA Manderrah Pty Ltd [GJJ Family Account] National Nominees Limited CS Third Nominees Pty Limited [HSBC Customer Nominees AU Ltd 13 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] National Nominees Limited [Db Account] Netwealth Investments Limited [Wrap Services Account] UBS Nominees Pty Ltd [Prime Broking Account] Mr David Calogero Loggia BT Portfolio Services Limited [Caergwrle Invest P/L Account] Bond Street Custodians Limited [Caergwrle Investments Pty Limited Account] Merlor Holdings Pty Ltd [Basserabie Family Settlement 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 6 July 2018) are set out below: Stapled SecurityName Caledonia (Private) Investments Pty Ltd Woolworths Limited Allan Gray Australia Number of Securities 27,950,008 17,789,505 17,652,094 17,076,936 6,708,540 6,600,000 6,545,984 5,312,954 4,990,508 3,296,126 2,795,751 1,547,534 1,293,679 1,200,000 993,226 745,787 700,000 686,243 675,000 660,953 125,220,828 70,548,252 % of Issued Capital 14.28 9.09 9.02 8.72 3.43 3.37 3.34 2.71 2.55 1.68 1.43 0.79 0.66 0.61 0.51 0.38 0.36 0.35 0.34 0.34 63.96 36.04 Number of Securities 65,960,122 17,076,936 10,935,829 % of Issued Capital 33.69 8.72 5.59 Page 36 Australian Leisure and Entertainment Property Management Limited INVESTOR INFORMATION For the Year ended 30 June 2018 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. 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. 2018 08 Aug 08 Aug 05 Jul 05 Jul 07 Jun 06 Jun 06 Jun 05 Mar 16 Feb 16 Feb 14 Feb 12 Feb 12 Feb James McNally retires as a Director Full Year Results, Annual Review / Report and Property Compendium released James McNally announces retirement as a Director Caledonia increases substantial holding to 33.69% Property valuations increased by 5.1% Half Year distribution of 10.45 cents declared Full Year distribution of 20.80 cents announced 1st half distribution payment Michael Triguboff appointed a Director Taxation Components of Distribution Half Year results released Caledonia increases substantial holding to 32.41% Allen Gray reduces substantial holding to 5.59% 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 The following events will occur after the date of this annual report: 13 Nov 05 Sep Annual General Meeting 2nd half distribution payment 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 Page 37 Australian Leisure and Entertainment Property Management Limited INVESTOR INFORMATION For the Year ended 30 June 2018 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 GEPPS CROSS HOTEL, ADELAIDE SA 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 For more information visit our 2018 Annual Review website aleproperty2018.reportonline.com.au Review our properties online aleproperties.com.au Visit us online today alegroup.com.au 

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