ALE Property Group
Annual Report 2019

Plain-text annual report

ANNUAL REPORT 2019 ALE Property Group 16 YEARS OF ADDING VALUE CURRENT INCOME FUTURE INCOME LONG TERM VALUE The value of ALE’s properties increased 2.4% during the year. ALE awaits the outcome of the rent determinations. Statutory property values $1,163.3m Average cap rate 5.09% Gearing 41.5% 9.3 years +40 years of options Average debt maturity 2.7 years All up cash interest rate Distribution 4.26% 20.9cps DEBT MATURITIES AND HEDGING PROFILE Average lease term Passing rental growth 4.5% Hedge maturity 6.4 years Tax deferred 81.32% 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 $153m* 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 FY20 FY21 FY22 FY23 FY24 FY25 FY26 * balance escalates with CPI FRONT COVER: YOUNG & JACKSON, MELBOURNE VIC ALE Property Group Comprising Australian Leisure and Entertainment Property Trust and its controlled entities Report For the Year ended 30 June 2019 ABN 92 648 441 429 ANNUAL REPORT 2019 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 55 DIRECTORS' REPORT For the Year ended 30 June 2019 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 2019. 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 Phillipa Downes, BSc (Bus Ad), MAppFin, GAICD Independent Non Executive Director 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 and is a former member of the Institute of Chartered Accountants in Australia and New Zealand. 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 Pippa Downes is a respected Non-Executive Director with over 25 years of distinguished career achievements in the international business and finance sector. Pippa currently sits on the board of the Australian Technology Innovators (Infotrack, LEAP legal software, Sympli), Windlab Limited, Sydney Olympic Park Authority and was recently appointed a Commissioner of Sport Australia. Pippa is a former Director of the ASX Clearing and Settlement companies and was a member of the ASX Disciplinary Tribunal. Pippa has had a successful international banking and finance career and has led the local derivative and investment arms of several of the world’s premier Investment Banks. Her most recent role was as a Managing Director and Equity Partner of Goldman Sachs in Australia. She is a member of the Australian Institute of Company Directors and Women Corporate Directors and in 2016 was named as one of the Westpac/AFR’s 100 Women of Influence for her work in diversity. Pippa’s long standing passion for diversity, sport and educational disadvantage has been focussed through her governance and fundraising work on not for profit entities such as The Pinnacle Foundation, Swimming Australia and the Swimming Australia Foundation. She has a Master’s in Applied Finance from Macquarie University and Bachelor of Science (Business Administration) from University of California, Berkeley. Pippa was a dual international athlete having been a member of the Australian Swim Team and represented Hong Kong at the International Rugby Sevens. Page 2 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2019 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, a Non-executive Director of FBR Limited and deputy chairman of the State Insurance Regulatory Authority. She is also currently the Chair of the Accounting Professional and Ethical Standards Board. 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 35 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: 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 Chief Executive Officer of Pyrolyx AG, a dual listed German and Australian tyre recycling company. Mr Triguboff has a background in equity funds management with groups including MIR and Lazard Asset Management Pacific, and Lazard Asia Funds. He 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. Appointed: 26 June 2003 Resigned: 8 August 2018 James was 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. Michael Triguboff BA (Syd), LLB (UNSW) Non Executive Director James McNally B.Bus (Land Economy), Dip. Law Non Executive Director Page 3 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2019 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 35 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. 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 N J Milne 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 FBR Limited Pyrolyx AG Resigned as Director January 2017 September 2016 Type Non-executive 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 August 2018 February 2015 Page 4 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2019 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 (Resigned: 8 August 2018) 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 - 431,469 60,000 18,000 6,500 - - - - - - 33,365 15,888 6,355 4,767 50,000 189,110 25,000 20,000 55,164 - 464,834 75,888 24,355 11,267 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 94,467 47,873 16,471 9,779 29,951 14,095 2,623 2,623 (33,365) (15,888) (6,355) (4,767) 91,053 46,080 12,739 7,635 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 2019 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 12 12 12 12 4 12 12 Attended 12 12 12 11 4 9 12 Held1 7 7 7 7 n/a n/a n/a Attended 7 7 7 7 n/a n/a n/a Held1 4 4 4 4 n/a n/a n/a Attended 4 4 4 4 n/a 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 2019 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 9.3 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; Change of control protections – a change in more than 20% of the ownership of ALH requires ALE’s consent based on its reasonable opinion that ALH will continue to have the financial capacity, business skills, other resources and authorisations to enable it to conduct the permitted operating uses profitably and perform all of its the lease obligations (an exception applies if ALH becomes an ASX listed entity) Assignment protections - following ALE approved assignments, ALE continues to enjoy the benefit of an effective guarantee from ALH of any new tenant’s obligations for the remaining lease term of around 9.3 years, as ALH is not released on assignment; All earnings from all improvements on the properties are included for rent review purposes, irrespective of who funded the improvements; A rent review commenced in November 2018 which is capped and collared within 10% of the 2017 rent; and There is a full open 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 2.4% to $1,163.2 million; and Net Assets decreased by 2.5% to $605.6 million and net borrowings (total borrowings less cash) as a percentage of assets (total assets less cash, derivatives and deferred tax assets) decreased from 41.6% to 41.5%. Current year performance ALE produced a profit after tax of $26.6 million for the year ended 30 June 2019 compared to a profit of $75.1 million for the year ended 30 June 2018. The decrease is primarily due to: • • • • • Fair value adjustments to investment properties decreased from $54.3 million to $26.6 million in the current year due to higher adopted yields which were offset by increased rents; Fair value adjustments to derivatives liabilities increased from a decrement of $4.7 million to $25.2 million in the current year as long term interest rates decreased; Interest income was lower due to lower average funds on deposit and lower deposit rates; Finance costs were consistent with the prior year; and Management costs increased during the year due to costs associated with the rent review that commenced in the current year. ALE's normalised management expense ratio continues to be one of the lowest in the A-REIT sector. The above factors were offset by increased rental income of 3.7% due to the full year impact of the November 2017 rent review of 1.9% and the part year impact of the November 2018 rent review of 10% on 36 properties; 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 properties, non- cash expenses and non-cash financing costs. During the financial year ALE produced a distributable profit of $28.3 million compared to $29.0 million in the previous financial year. The table below separates the cash components of ALE's profit that are available for distribution from the non-cash components. The directors believe this will assist stapled securityholders in understanding the results of operations and distributions of ALE. Distributable Profit was primarily impacted by the same cash items that affected Operating Profit, namely changes in rent and management expenses. Page 6 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2019 Profit 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 Over distributed for the year Distribution funded as follows Current year distributable profits Capital and surplus cash reserves 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 2019 $’000 30 June 2018 $’000 26,620 75,090 (1,484) 117 3,014 26 1,673 28,293 40,916 (12,623) 28,293 12,623 40,916 30 June 2019 Cents 13.60 14.45 20.90 14.45 6.45 20.90 (49,535) 235 3,214 21 (46,065) 29,025 40,720 (11,695) 29,025 11,695 40,720 30 June 2018 Cents 38.36 14.83 20.80 14.83 5.97 20.80 Percentage Increase / (Decrease) (64.55%) (2.56%) 0.48% ALE's net assets decreased by 2.5%, compared with the previous year which was largely attributable to an increase in derivative liabilities during the year. Investment property valuations increased in value by 2.4% from $1,136.3 million to $1,163.2 million during the year. The increase in property valuations was attributable to the November 2018 rent review increases of 10% on 36 properties and average capitalisation rates increasing from 4.98% to 5.09% 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 provides 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 yield of around 4.61% for the representative sample of 34 properties valued. This compares to the adopted yield of 5.05% for the 34 properties valued 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 2019 Net assets per stapled security decreased by 2.5% from $3.17 to $3.09 compared to June 2018, primarily as a result of the increase in derivative liabilities. ALE’s market capitalisation this year decreased by around 8.8% to around $988.4 million at 30 June 2019. 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 $225 million is scheduled to occur in August 2020. During the year covenant gearing reduced from 41.6% to 41.5% for the AMTN issuing entity, ALE DPT. ALE continues to maintain appropriate headroom to all debt covenants with the nearest equivalent to an average 32% fall in property values. ALE‘s debt capital structure continues to be characterised by the following positive features:  investment grade credit rating of Baa2 (stable);  debt maturity dates that are diversified over the next 4.4 years;  100% of forecast net debt hedged for the next 6.4 years;  interest cover ratio well above covenant level at 2.5 times;  all up cash interest rate of 4.26% p.a. fixed until the next refinancing in August 2020; and  lower covenent gearing of 41.5% (2018: 41.6%). ALE has consistently sought to mitigate interest rate volatility and continues to have long term hedging in place to achieve this objective. Historical performance To provide context to ALE's historical performance, the following data and graphs outline a five year history of key financial metrics. FY15 FY16 FY17 FY18 FY19 Distributable profit ($m) 29.1 29.6 29.1 29.0 28.3 Distribution per Security (cents) 16.85 20.00 20.40 20.80 20.90 Continuing property values ($m)2 900.5 990.5 1,080.2 1,136.3 1,163.2 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 44.9% 47.9% 42.7% 41.6% 41.5% 2. Includes only the value of properties held as at 30 June 2019 The accumulated value of $1.00 initial public offering (IPO) investment in ALE and reinvested distributions, rights renunciation payments and the $5.10 market value of securities as at 30 June 2019 totalled $17.44. This is equivalent to 20.1% p.a. total return since the ASX listing. For the period ending 30 June 2019, ALE continued to perform strongly compared to other equity return benchmarks including the AREIT 300 index and the All Ordinaries index over the medium and long term. For the three year period ALE's total return of 8.4% matched the AREIT 300 index total return. For the five year period ALE's total return of 17.1% outperformed both the AREIT 300 index of 13.8% and the All Ordinaries Index of 9.0%.1 For the ten year period ALE's total return of 17.1% outperformed both the AREIT 300 index of 14.1% and the All Ordinaries Index of 10.1%.1 1. Source: UBS Distribution per security Covenant Gearing Continuing Property Values ($m) 60.0% 40.0% 20.0% 0.0% $1,200 $800 $400 $0 F Y 1 5 F Y 1 6 F Y 1 7 F Y 1 8 F Y 1 9 F Y 1 5 F Y 1 6 F Y 1 7 F Y 1 8 F Y 1 9 F Y 1 5 F Y 1 6 F Y 1 7 F Y 1 8 F Y 1 9 ALE Property Group 20.0 10.0 0.0 Page 8 DIRECTORS' REPORT For the Year ended 30 June 2019 The following chart shows the total annual return of an ALE security over various periods. 1.Includes ALE’s equity market price of $5.10 as at 30 June 2019 and reinvestment of distributions and 2009 renunciation payment 2.All Ordinaries Accumulation Index 3.UBS S&P REIT 300 Index Business strategies and future prospects ALE holds a positive outlook for the rent review prospects for the portfolio. In November 2018 the first major review was due with the reviewed rent capped and collared within 10% of the November 2017 rent for the majority of properties. There is also a full open rent review (no caps or collars) in November 2028. Following the rent determinations ALE will seek 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 distributable profit profile for the medium term. ALE's Board will review distribution policy following the conclusion of the rent determinations. 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 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 2019 the closest debt covenant would be triggered by a decline of around 32% in property values and a resultant average capitalisation rate of 7.45%. By way of comparison it should be noted that in the last 12 years the highest average capitalisation rate of ALE properties has been 6.60%. ALE considers it currently has sufficient headroom in it's debt covenants. Interest rate risk - ALE currently has $529 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 net debt to November 2025 at weighted average base rates of between 3.11% and 3.46%. Page 9 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2019 Refinancing risk - ALE currently has outstanding borrowings representing a covenant gearing level of 41.5%. 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. ALE notes the 3 July 2019 announcement that Woolworths intends to combine ALH and Endeavour Drinks in late CY19 and then seperate the combined entity from Woolworths in CY20. ALE will monitor these developments closely as the rating of the new tenant may impact ALE's future credit margins. 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%). ALE notes the 3 July 2019 announcement that Woolworths intends to combine ALH and Endeavour Drinks in late CY19 and then seperate the combined entity from Woolworths in CY20. ALE will monitor these developments closely. 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 EBITDAR of our tenant. EBITDAR is a key determining factor for 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 2019 cents per security 30 June 2018 cents per security 30 June 2019 30 June 2018 $’000 $’000 Final Trust income distribution for the year ending 30 June 2019 to be paid on 5 September 2019 10.45 10.45 20,458 20,458 Interim Trust income distribution for the year ending 30 June 2019 paid on 5 March 2019 Total distribution for the year ending 30 June 2019 10.45 20.90 10.35 20.80 20,458 40,916 20,262 40,720 No provisions for or payments of Company dividends have been made during the year (2018: nil). 7. MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR On 3 July 2019 Woolworths announced that it intends to combine ALH and Endeavour Drinks in late CY19 and then seperate the combined entity from Woolworths in CY20. ALE will monitor these developments closely. Subsequent to 30 June 2019, long term interest rates have continued to decline. This has resulted in an increase in the fair value of the net derivative liability position in the period since 30 June 2019. As at 5 August 2019 the value of that liability has increased by approximately $5.5 million to $40.2 million. The liability has not changed materially between 5 August 2019 and the date of this report. In the opinion of the Directors of the Company, apart from the above, 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 until Novemeber 2017 received annual increases in rental income in line with increases in the consumer price index. The first non CPI based market rent review commenced in November 2018 for 79 of ALE's properties. As at balance date 36 properties had received a full increase of 10% and 43 properties are to be determined by expert determining valuers. It is anticipated that the rent determinations will be concluded in late CY19. The announcement by Woolworth on 3 July 2019 is noted above. ALE will continue to monitor this closely for any impacts on ALE. 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 2019 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 2019 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 (KPIs); 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 2019, 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 Annual 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 of the Annual Report. The Committee considers advice from a wide range of external advisors in performing its role. During the current financial year the Committee did not engage any consultant to review remuneration. Page 11 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2019 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 2019 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 $275,400 3 months 3 months Asset Manager Ongoing $213,100 1 month 1 month Contract Length Fixed Annual Remuneration Notice by ALE Notice by Executive Ongoing $485,418 6 months 6 months Ongoing $274,135 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 2019 9.4 Executive Remuneration outcome for year ended 30 June 2019 The amount of remuneration paid to Directors and Key Management Personnel is detailed in the table on page 17 of the Annual Report. 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 in the medium and long term. The Committee reviewed the overall performance of ALE and the individual performance of all executives for the year ending 30 June 2019. It was assessed by the Committee that a number of the key performance indicators (KPIs) were met and others were not. In particular the Committee noted: Property and Strategic Matters ● A very significant workload was taken on by ALE’s small management team to successfully complete a large submission package relating to the 2018 rent review, for a greater than expected number of properties; ● ● ● While the rent review submissions were successfully completed, the finalisation of the rent review and determination process remained outstanding. Accordingly, the rent review and determination process will be included as part of managements KPIs for FY20; A small number of acquisition opportunities that accorded with ALE’s strategic criteria were evaluated; and A number of strategic initiatives were completed during the year while others remain ongoing for completion in FY20. Capital Matters ● Management continued to explore a range of debt funding and hedging solutions in both the domestic and offshore capital markets with a view to enhancing ALE’s readiness to implement a FY20 debt refinancing and additional debt funding of any acquisitions; Management reviewed a range of other strategic initiatives with particular focus on value enhancement and risk mitigation; and ALE continued to deliver both medium and long term total returns for securityholders that outperformed most of the other AREITs in the sector. ● ● The remuneration committee considered these achievements and compared them to key performance indicators for each executive that were set at the beginning of the financial year. Individual executives contributed to the valuable outcomes outlined above and this was recognised in the EIS payments made. All the EIS payments are included in the staff remuneration expenses in the current year. The EIS awarded to each member of the management team was as follows: Executive Andrew Wilkinson Andrew Slade Michael Clarke Don Shipway Target EIS (as % of FAR) 60% 50% n/a n/a EIS Awarded (as % of FAR) 20.6% 18.2% 27.2% 4.7% EIS Awarded as a % of Target 34.3% 36.5% - - EIS Awarded $100,000 $50,000 $75,000 $10,000 Cash Component $50,000 $25,000 $37,500 $5,000 ESSS Component $50,000 $25,000 $37,500 $5,000 Page 14 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2019 Consequences of performance on securityholder wealth In considering the Group's performance and benefits to securityholder wealth, the remuneration committee have regard to a number of performance indicators in relation to the current and previous financial years. A review of ALE's current year performance and history is provided in the Operational and Financial Review on page 6 of the Annual Report. 9.5 Disclosures relating to equity instruments granted as compensation 9.5.1 Outstanding equity instruments granted as compensation Details of rights over stapled securities that have been granted as compensation and remain outstanding at year end and details of rights that were granted during the year are as follows: Executive ESSS Rights A F O Wilkinson A F O Wilkinson A F O Wilkinson A J Slade A J Slade A J Slade M J Clarke M J Clarke M J Clarke D J Shipway D J Shipway D J Shipway Number of Rights Outstanding Grant Date Performance Period Start Date Fair value of Right at Grant Date ($) Approximate Delivery Date % vested in year % forfeited in year 27,020 34,082 29,951 13,510 18,475 14,095 5,246 4,870 2,623 1,968 3,044 2,623 24 Oct 16 24 Oct 17 25 Oct 18 24 Oct 16 24 Oct 17 25 Oct 18 24 Oct 16 24 Oct 17 25 Oct 18 24 Oct 16 24 Oct 17 25 Oct 18 1 Jul 15 1 Jul 16 1 Jul 17 1 Jul 15 1 Jul 16 1 Jul 17 1 Jul 15 1 Jul 16 1 Jul 17 1 Jul 15 1 Jul 16 1 Jul 17 3.81 4.11 4.77 3.81 4.11 4.77 3.81 4.11 4.77 3.81 4.11 4.77 31 Jul 19 31 Jul 20 31 Jul 21 31 Jul 19 31 Jul 20 31 Jul 21 31 Jul 19 31 Jul 20 31 Jul 21 31 Jul 19 31 Jul 20 31 Jul 21 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 347,965 177,372 60,000 35,000 94,467 47,873 16,471 9,779 142,770 67,190 12,500 12,500 29,951 14,095 2,623 2,623 (105,000) (50,000) (20,000) (15,000) (33,365) (15,888) (6,355) (4,767) - - - - - - - - 385,735 194,562 52,500 32,500 91,053 46,080 12,739 7,635 Securities Delivered in the year - value paid $ 180,082 85,753 34,300 25,729 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 Annual Report. Page 15 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2019 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 15 August 2019. 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 last reviewed in the 2017 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. Page 16 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2019 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 2019 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 2018 to 30 June 2019 Details of the remuneration of the Key Management Personnel for the year ended 30 June 2019 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 Non-executive Director Non-executive Director Non-executive Director Non-executive Director Non-executive Director Non-executive Director A F O Wilkinson Executive Director A J Slade M J Clarke D J Shipway Capital Manager Company Secretary and Finance Manager Asset Manager 1. James McNally resigned as a director on 8 August 2018 Salary & Fees $ STI Cash Bonus $ Non monetary benefits $ Total $ Superannuation benefits $ Other long term benefits $ 178,082 105,023 120,000 100,457 - - - - 11,008 - 95,000 - 460,127 145,175 252,160 192,688 50,000 25,000 37,500 5,000 1,659,720 117,500 - - - - - - - - - - 178,082 105,023 120,000 100,457 11,008 95,000 510,127 170,175 289,660 197,688 16,918 9,977 - 9,543 - - 20,531 11,977 20,531 18,322 S300A(1)(e)(i) proportion of remuneration performance based Termination benefits $ - ESSS $ - Total $ 195,000 $ - - - 115,000 - - - 120,000 - - - 110,000 - - - 11,008 - 95,000 - - - - - - - 10,898 - 50,000 591,556 1,002 - 25,000 208,154 5,837 - 37,500 353,528 8,412 - 5,000 229,422 16.9% 24.0% 21.2% 4.4% S300A(1)(e)(vi) Value of equity based payment as proportion of remuneration $ - - - - - - 8.5% 12.0% 10.6% 2.2% 1,777,220 107,799 26,149 - 117,500 2,028,668 Table 2 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 Name Role Salary & Fees STI Cash Bonus Non monetary benefits R W Mactier P J Downes P G Say N J Milne J T McNally 2 M P Triguboff 3 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 2. James McNally resigned as a director on 8 August 2018 3. Michael Triguboff was appointed a director on 15 February 2018 Page 17 $ $ $ 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 - - - - - - - - - - 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 $ $ 16,918 9,977 - 9,543 - - 20,048 20,048 19,341 17,962 $ - $ - $ 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% - - - - - - 18.4% 16.8% 4.3% 5.3% Total $ 178,082 105,023 120,000 100,457 105,000 35,310 593,947 312,902 240,371 201,408 1,992,500 113,837 39,089 - 234,960 2,380,386 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2019 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 $166,050 (2018: $121,846) 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: Other services Total other services Total remuneration 30 June 2019 $ 30 June 2018 $ 194,065 8,000 159,000 - 202,065 159,000 20,000 20,000 - - 222,065 159,000 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 2019 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 7th day of August 2019 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 2019 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 Diluted earnings per stapled security Note 4.1 4.1 2 4.1 4.3 4.2 4.2 4.4 4.7 4.7 2019 $'000 60,219 782 61,001 26,639 - 26,639 87,640 25,155 25,217 2,907 2,335 5,380 60,994 26,646 26 26,620 26,620 Cents 13.60 13.59 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 38.32 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 2019 Current assets Cash and cash equivalents Derivatives 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 2019 $'000 33,111 691 176 350 34,328 1,163,230 - 39 296 1,163,565 1,197,893 8,634 294 20,458 29,386 527,523 35,415 562,938 592,324 605,569 258,118 782 346,669 605,569 $ $3.09 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 Page 23 ALE Property Group STATEMENT OF CHANGES IN EQUITY For the Year Ended 30 June 2019 Share Based Payments Reserve $'000 Share Capital $'000 Retained Earnings $'000 Total $'000 2019 Total equity at the beginning of the year 258,118 855 361,101 620,074 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 - - - 26,620 - 26,620 26,620 - 26,620 117 (190) - 782 - (136) (40,916) 117 (326) (40,916) 346,669 605,569 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 The above statement of changes in equity should be read in conjunction with the accompanying Notes. - - - 235 (273) - 855 75,090 - 75,090 75,090 - 75,090 - (238) (40,720) 361,101 235 (511) (40,720) 620,074 Page 24 ALE Property Group STATEMENT OF CASH FLOWS For the Year Ended 30 June 2019 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 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 2019 $'000 66,254 (17,117) 904 461 (22,155) 28,347 (331) (3) (334) - - - - (40,916) (40,916) (12,903) 46,014 33,111 2019 $'000 26,620 (26,639) 25,155 423 2,591 117 (326) 27 106 (11) (42) 287 39 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 Net cash inflow from operating activities 28,347 28,687 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 2019 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 2018 to 30 June 2019. 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 7th August 2019. 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 2019 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 2019 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 2019 Fair value as at beginning of the year Disposals during the year Additions during the year Carrying amount before revaluations Fair value as at end of the year Fair value gain for the 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. 2019 $'000 2018 $'000 1,163,230 1,136,260 1,136,260 1,080,160 - 331 - 1,827 1,136,591 1,163,230 1,081,987 1,136,260 26,639 54,273 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 2019, the weighted average investment property capitalisation rate used to determine the value of all investment properties was 5.09% (2018: 4.98%). 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 2019 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 9.3 years. In accordance with ALE's policy of independently valuing at least one-third of its property portfolio annually, 34 properties were independently valued as at 30 June 2019. 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 and CBRE. The remaining 52 properties were subject to Directors' valuations as at 30 June 2019, identified as "B". The Directors' valuations of the 52 properties were determined by taking each property's net rent as at 30 June 2019 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 34 independent valuations completed at 30 June 2019 on a like for like basis. The Directors have received advice from Savills and CBRE, 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 yield, 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 adopted yield although the adopted valuations continue to give much greater weighting to the traditional capitalisation rate method. A table showing the range of adopted yields 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 2019 Adopted Yields 4.57% - 5.96% 2.75% - 6.00% 3.22% - 6.31% 4.02% - 5.80% 5.80% - 6.93% 2018 Adopted Yields 4.51% - 5.79% 2.50% - 6.10% 2.86% - 5.80% 3.65% - 5.80% 5.41% - 6.51% 2019 Average 5.11% 5.06% 5.02% 5.07% 6.22% 2018 Average 4.96% 5.04% 4.81% 5.13% 5.93% Page 29 ALE Property Group Notes to the financial statements (continued) For the Year ended 30 June 2019 2. Investment property The fair value measurement for investment property of $1,163.23 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 2019 $000's Level 3 Pubs 1,163,230 Valuation Technique Inputs Used To Measure Fair Value Range of Individual Property Unobservable Inputs Capitalisation method Gross rent p.a. ($'000's) Land tax p.a. ($'000's) Adopted capitalisation rate $84 - $1,782 $7 - $166 2.75% - 6.93% Discounted cash flow method Gross rent p.a. ($'000's) Land tax p.a. ($'000's) Discount rates p.a. Terminal capitalisation rates Consumer price index p.a. $84 - $1,782 $7 - $166 6.25% - 9.36% 5.50% - 7.75% 2.00% - 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. 2019 $'000 2018 $'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 265,941 382,363 711,562 262,582 454,044 778,034 (ii) Amount recognised in the profit and loss Rental income 60,219 58,095 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 2019 with a valuation date of 30 June 2019. Directors' valuations conducted during June 2019 with a valuation date of 30 June 2019. Properties were purchased in November 2003, unless otherwise indicated. 63,258 61,408 Valuation type and date Page 30 ALE Property Group Notes to the financial statements (continued) For the Year ended 30 June 2019 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, Miami1 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 2019 $'000 Fair value at 30 June 2018 $'000 Fair value gains/ (losses) 2019 $'000 A B B A B B B B B A A B B B A A A B A B A B B A A B B B B B B B B A A B A B B A A A 13,900 13,960 20,750 22,800 7,870 16,130 11,540 15,050 29,900 10,400 13,550 13,550 20,150 19,980 7,650 15,400 11,540 14,600 29,900 10,040 350 410 600 2,820 220 730 - 450 - 360 162,300 156,360 5,940 18,700 7,540 11,210 13,540 23,500 15,700 6,500 3,500 14,200 6,230 7,400 8,940 15,990 15,200 4,800 12,920 9,250 14,620 7,110 11,290 11,490 6,900 14,510 7,600 9,400 7,240 10,000 10,110 20,260 10,800 15,300 13,300 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 11,940 230 (190) 210 240 4,140 150 (660) 100 700 (170) (50) (240) 290 460 150 220 (250) (280) (200) 190 (310) (190) (390) (1,380) (540) 140 (530) (190) 360 - 290 1,360 Total Queensland properties 147,110 365,050 361,390 3,660 1. Includes adjacent lot purchased in April 2018 Page 31 ALE Property Group Cost including additions) $'000 Valuation type and date) Fair value at 30 June 2019 $'000 Fair value at 30 June 2018 $'000 Notes to the financial statements (continued) For the Year ended 30 June 2019 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 2,733 12,733 5,377 5,566 547,247 12,546 6,132 Total Victorian properties 789,987 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 6,645 22,386 1,058,297 Fair value gains/ (losses) 2019 $'000 - - 410 660 - - - 7,250 6,300 5,000 4,700 8,200 4,200 6,250 7,250 6,300 4,590 4,040 8,200 4,200 6,250 41,900 40,830 1,070 10,600 22,400 20,800 19,870 5,500 27,130 25,000 12,410 19,360 18,510 26,040 9,160 8,700 24,400 16,000 18,400 17,800 2,620 9,060 16,700 19,250 22,390 6,600 25,500 14,510 13,500 7,660 29,300 13,000 15,600 13,020 28,000 23,400 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 23,400 740 400 (480) 370 90 490 1,370 210 330 2,310 450 160 320 900 990 310 (890) 40 160 (290) 1,810 390 1,330 720 540 560 264 (700) (500) 1,950 173 1,630 - 562,190 545,980 16,147 10,090 4,700 9,550 7,450 31,790 10,090 4,700 9,550 7,360 31,700 - - - (178) (178) 1,163,230 1,136,260 26,639 B A A A B B B A B A B A B A B B B B B B B A B A B B A A B A A B A B A A B B A B B B B B Page 32 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (continued) For the Year ended 30 June 2019 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 2019 $'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 153,331 150,652 374,192 527,523 373,857 524,509 2019 $'000 111,900 41,934 (503) 153,331 2018 $'000 111,900 39,343 (591) 150,652 $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 2019 $'000 375,000 (808) 374,192 2018 $'000 375,000 (1,143) 373,857 On 10 June 2014 ALE issued $225 million AMTN with a maturity date of 20 August 2020. On 8 March 2017 ALE issued a further $150m AMTN, with a maturity date of 20 August 2022. The AMTN are fixed rate securities with interest payable semi annually. 2018 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 2019 $'000 2018 $'000 8,390 8,390 1,163,230 1,136,260 (29,900) (1,480) (29,900) (1,400) 1,131,850 1,140,240 1,104,960 1,113,350 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 2019 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 2019 30 June 2018 Face Value $'000 Carrying Amount $'000 Face Value $'000 Carrying Amount $'000 225,000 225,000 150,000 150,000 111,900 153,834 486,900 528,834 225,000 225,000 150,000 150,000 111,900 151,243 486,900 526,243 (1,311) 527,523 (1,734) 524,509 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 2018 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 2019 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 2019 CIB AMTN 30 June 2018 CIB AMTN Carrying Amount $'000 Fair Value $'000 153,331 374,192 527,523 168,488 385,035 553,523 150,652 373,857 524,509 165,572 382,082 547,654 Both borrowings are classed as Level 3. CIB Borrowings 150,652 AMTN Borrowings 373,857 Total Borrowings 524,509 - - 88 2,591 2,679 153,331 - - 335 - 335 374,192 - - 423 2,591 3,014 527,523 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 2019 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 distributable profit arises 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, distributable profit 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 2019 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 distributable profit 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 2019 $'000 2018 CIB $'000 2019 $'000 2018 $'000 1,163,230 (153,331) 1,009,899 1,136,260 (150,652) 985,608 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 2018. 30 June 2019 Investment properties CIB 100 bps increase $'000 100 bps decrease 30 June 2018 $'000 Investment properties CIB 100 bps increase $'000 100 bps decrease $'000 11,212 - 11,212 12,687 - 12,687 - - - - - - Derivative financial assets Derivative financial liabilities Borrowings CIB AMTN 691 (35,415) 834 (10,403) (153,331) (374,192) (562,247) (150,652) (373,857) (534,078) 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 2018. 30 June 2019 Interest rate hedges CIB AMTN 30 June 2018 Interest rate hedges CIB AMTN 16,973 - - 16,973 14,073 - - 14,073 (18,495) - - (18,495) (15,862) - - (15,862) 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 2019 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 2019 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 (8,634) (194,801) (412,875) Derivative financial instruments Interest rate hedges (38,174) (654,484) 30 June 2018 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) (8,634) (2,584) (8,625) - (2,606) (8,625) - (5,264) (236,625) - (184,347) (159,000) - - - 333 (19,510) 365 (10,866) (3,812) (245,701) (21,456) (364,803) (13,604) (13,604) (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) 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 2019 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) 2019 $'000 691 - 691 - (35,415) (35,415) (34,724) 2018 $'000 - 834 834 - (10,403) (10,403) (9,569) Current year fair value adjustments to derivatives Fair value increments/ (decrements) to interest rate hedge derivatives 2019 $'000 2018 $'000 (25,155) (4,738) 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 2019, 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 2019 $'000 - - - - - 506,000 2018 $'000 - - - - - 506,000 2019 $'000 (30,000) - - - - - 2018 $'000 - (30,000) - - - - 2019 $'000 (30,000) - - - - 506,000 2018 $'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 both the fixed rate August 2022 AMTN and the November 2023 CIB 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 6.4 years at 30 June 2019. Page 38 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (continued) For the Year ended 30 June 2019 3. Capital structure and financing The following chart shows the hedge balances to November 2025. The difference between the net debt and the amount hedged is approximately the amount of current fixed rate debt on issue. 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 2019 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 2019 and 30 June 2018, ALE and its subsidiaries were in compliance with all the above covenants. 3.3 Equity Balance at the beginning of the period No movement 2019 $'000 2018 $'000 258,118 258,118 - 258,118 - 258,118 Movements in the number of fully paid stapled securities during the year 2019 Number 2018 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 2019 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 2019 $'000 14,648 10,073 8,390 33,111 2018 $'000 2,551 35,073 8,390 46,014 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 2019 all cash assets were placed on deposit with various banks. As at 30 June 2019, the weighted average interest rate on all cash assets was 1.64% (2018:2.46%). 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 2019 and 30 June 2018 were 49.4% and 47.7% 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 2019 and 30 June 2018 were 41.5% and 41.6% respectively. Page 41 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (continued) For the Year ended 30 June 2019 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 2019 $'000 2018 $'000 60,219 782 61,001 58,095 1,049 59,144 Interest income As at 30 June 2019 the weighted average interest rate earned on cash was 1.64% (2018: 2.46%) 26,639 54,273 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 - - 26,639 - - 54,273 87,640 113,417 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 2019 $'000 2018 $'000 214 63 27 241 230 129 3,683 420 52 100 18 25 178 5,380 5,380 2,335 196 98 16 176 174 121 1,624 394 2 111 24 61 177 3,174 3,174 2,759 (117) 7,598 (235) 5,698 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 2019 4. Business performance 4.3 Finance costs 4.4 Taxation 2019 $'000 2018 $'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 5,206 5,116 17,250 17,250 (475) 222 22,203 (518) 217 22,065 2,591 88 259 76 3,014 2,819 80 242 73 3,214 Finance costs (cash and non-cash) 25,217 25,279 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: 2019 $'000 2018 $'000 Profit before income tax Profit attributable to entities not subject to tax 26,646 75,111 26,388 74,790 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) 258 77 (63) - 12 26 15 11 26 321 96 (80) - 5 21 24 (3) 21 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 2019 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 2019 $ 2018 $ 194,065 8,000 159,000 - 202,065 159,000 20,000 - 222,065 159,000 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 2019 $'000 26,620 2018 $'000 75,090 (26,639) (54,273) 25,155 117 3,014 26 1,673 28,293 4,738 235 3,214 21 (46,065) 29,025 40,916 40,720 Over distributed (12,623) (11,695) Distribution funded as follows Current year distributable profits Capital and surplus cash 28,293 29,025 12,623 40,916 11,695 40,720 Page 44 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (continued) For the Year ended 30 June 2019 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. 2019 2018 2019 2018 Profit attributable to members of the Group ($000's) 26,620 75,090 Distributable profit attributable to members of the Group ($000's) 28,293 29,025 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) 13.60 38.36 Distributable profit per security (cents) 14.45 14.83 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 2019 2018 14.45 14.83 Distribution paid per stapled security 20.90 20.80 2019 2018 Profit attributable to members of the Group ($000's) 26,620 75,090 Under/(over) distributed for the year (6.45) (5.97) Weighted average number of stapled securities Diluted earnings per security (cents) 195,929,320 195,946,060 13.59 38.32 Distribution funded as follows Current year distributable profits Capital and surplus cash 14.45 6.45 20.90 14.83 5.97 20.80 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 2019 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 2019 $'000 2018 Long service leave $'000 Employee benefits provision: Current 294 255 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 2019 $ 2018 $ 1,777,220 107,799 26,149 117,500 - 2,028,668 1,992,500 113,837 39,089 234,960 - 2,380,386 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 2019 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 Changes to accounting policies 6.5 Contingent liabilities and contingent assets 6.2 New accounting standards 6.6 Investments in controlled entities 6.3 Segment reporting 6.7 Related party transactions 6.4 Events occurring after balance date 6.8 Parent Entity Disclosures 6.1 Changes to accounting policies 6.2 New accounting standards The Group has initially applied IFRS 15 and IFRS 9 from 1 July 2018. A number of other new standards are also effective from 1 January 2019 but they do not have a material effect on the Group’s financial statements. AABS 15 Revenue from Contracts with Customers AABS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations. Under AABS 15, revenue is recognised when a customer obtains control of the goods or services. Determining the timing of the transfer of control – at a point in time or over time – requires judgement. The Group has adopted AABS 15 using the cumulative effect method (without practical expedients), with the effect of initially applying this standard recognised at the date of initial application (i.e. 1 July 2018). AABS 15 did not have a significant impact on the Group's accounting policies with respect to any revenue streams. AABS 9 Financial Instruments AABS 9 sets out requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement. The adoption of AABS 9 has not had a significant effect on the Company’s accounting policies related to financial liabilities and derivative financial instruments (for derivatives that are used as hedging instruments. A number of new standards are effective for annual periods beginning after 1 January 2019 and earlier application is permitted; however, the Company has not early adopted the new or amended standards in preparing these consolidated financial statements. AABS 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 Group has assessed the potential impact on its financial statements resulting from the application of AASB 16 to be immaterial. Other standards Other amended standards and interpretations are not expected to have a significant impact on the Group’s consolidated financial statements. 6.3 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. 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 (2018: 100%). Non pub rental income comprises less than 1% of total revenue. Page 47 ALE Property Group Notes to the financial statements (continued) For the Year ended 30 June 2019 6. Other 6.4 Events occurring after balance date On 3 July 2019 Woolworths announced that it intends to combine ALH and Endeavour Drinks in late CY19 and then seperate the combined entity from Woolworths in CY20. ALE will continue to monitor these developments closely. Transactions with related parties For the year ended 30 June 2019, the Company received $4,009,810 of expense reimbursement from the Trust (2018: $4,359,742), and the Finance Company charged the Sub Trust $7,904,515 interest (2018: $8,033,147). Subsequent to 30 June 2019, long term interest rates have continued to decline. This has resulted in an increase in the fair value of the net derivative liability position in the period since 30 June 2019. As at 5 August 2019 the value of that liability has increased by approximately $5.5 million to $40.2 million. The liability has not changed materially between 5 August 2019 and the date of this report. 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. 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. 6.5 Contingent liabilities and contingent assets 6.8 Parent Entity Disclosures 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. 6.6 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. 6.7 Related party transactions Parent entity and subsidiaries Details are set out in Note 6.6 and 6.8. As at, and throughout, the financial year ending 30 June 2019 the parent entity of ALE was Australian Leisure and Entertainment Property Trust. 2019 $'000 2018 $'000 Profit for the year 28,293 29,026 Financial position of the parent entity Current assets Cash 21 21 Non current assets Investments in controlled entities Total assets Current liabilities Payables Provisions Total liabilities Net assets 275,656 275,677 275,656 275,677 39,312 20,458 59,770 215,907 26,690 20,458 47,148 228,529 252,431 (36,524) 215,907 252,431 (23,902) 228,529 Key management personnel Key management personnel and their compensation are set out in the Remuneration Report on Page 17. Issued units Retained earnings Total equity Page 48 ALE Property Group DIRECTORS' DECLARATION For the Year ended 30 June 2019 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 2019 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 2019. 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 7th day of August 2019 Page 49 ALE Property Group INVESTOR INFORMATION For the Year ended 30 June 2019 Securityholders The securityholder information as set out below was applicable as at 24 July 2019. A. DISTRIBUTION OF EQUITY SECURITIES Range 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001+ Total Number of Holders 770 1,378 959 1,491 105 4,703 Number of Securities 255,725 4,187,705 7,319,365 38,746,471 145,259,814 195,769,080 % of Issued Capital 0.13 2.14 3.74 19.79 74.20 100.01 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 325. 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 UBS Nominees Pty Ltd Woolworths Group Limited HSBC Custody Nominees (Australia) Limited Brispot Nominees Pty Ltd [House Head Nominee A/C] Manderrah Pty Ltd [GJJ Family A/C] National Nominees Limited HSBC Custody Nominees (Australia) Limited - A/C 2 HSBC Custody Nominees (Australia) Limited-GSI EDA J P Morgan Nominees Australia Pty Limited HSBC Custody Nominees (Australia) Limited-GSCO ECA CS Third Nominees Pty Limited [Hsbc Cust Nom Au Ltd 13 A/C] Buttonwood Nominees Pty Ltd Netwealth Investments Limited [Wrap Services A/C] Mr Alastair Charles Griffin Mr Edward Furnival Griffin Mr David Calogero Loggia Mr David Stewart Field Bnp Paribas Noms Pty Ltd [DRP] BT Portfolio Services Limited [Caergwrle Invest P/L A/C] 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 24 July 2019) are set out below: Stapled Securityholder Caledonia (Private) Investments Pty Ltd Woolworths Limited UBS Group AG Page 55 Number of Securities 25,609,598 21,682,072 17,076,936 14,630,161 8,968,676 6,600,000 5,157,450 4,953,648 4,252,288 3,983,018 3,315,192 2,331,806 1,500,000 1,398,240 1,397,876 1,397,875 976,323 812,000 756,576 745,787 127,545,522 68,223,558 % of Issued Capital 13.08 11.08 8.72 7.47 4.58 3.37 2.63 2.53 2.17 2.03 1.69 1.19 0.77 0.71 0.71 0.71 0.50 0.41 0.39 0.38 65.15 34.85 Number of Securities 67,584,734 17,076,936 10,241,320 % of Issued Capital 34.52 8.72 5.23 ALE Property Group INVESTOR INFORMATION For the Year ended 30 June 2019 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. 2019 07 Aug Full Year Results, Annual Review / Report and Property Compendium released Property valuations increased by 2.4% 12 Jul 03 Jul Announcement by Wollworths Relating to ALH 18 Jun Half Year distribution of 10.45 cents declared 18 Jun 05 Mar 21 Feb 13 Feb Half Year results released 13 Feb Full Year distribution of 20.90 cents announced 1st half distribution payment Taxation Components of Distribution Property valuations as at 31 December 2018 The following events will occur after the date of this Annual Report: 29 Oct 05 Sep Annual General Meeting 2nd half distribution payment 2018 18 Dec Half Year distribution of 10.45 cents declared 13 Dec Caledonia increases substantial holding to 34.52% 13 Nov Annual General Meeting 02 Nov Allen Gray ceases to be a substantial shareholder 05 Sep 2nd half distribution payment 03 Sep Caledonia increases substantial holding to 34.41% 03 Sep 2018 Market Rent Review Update 03 Sep Taxation Components of Distribution 08 Aug James McNally retires as a Director 08 Aug Full Year Results, Annual Review / Report and Property Compendium released James McNally announces retirement as a Director Caledonia increases substantial holding to 33.69% 08 Aug Corporate Governance Statement 2018 05 Jul 05 Jul 07 Jun Property valuations increased by 5.1% 06 Jun Half Year distribution of 10.45 cents declared 06 Jun Full Year distribution of 20.80 cents announced 05 Mar 1st half distribution payment 16 Feb Michael Triguboff appointed a Director 16 Feb Taxation Components of Distribution 14 Feb Half Year results released 12 Feb Caledonia increases substantial holding to 32.41% 12 Feb Allen Gray reduces substantial holding to 5.59% Page 56 ALE Property Group INVESTOR INFORMATION For the Year ended 30 June 2019 Stock Exchange Listing The ALE Property Group (ALE) is listed on the Australian Securities Exchange (ASX). Its stapled securities are listed under ASX code: LEP. Securityholder Enquiries Please contact the registry if you have any questions about your holding or payments. Distribution Reinvestment Plan ALE has established a distribution reinvestment plan. Details of the plan are available on the ALE website. Distributions Stapled security distributions are paid twice yearly, normally in March and September. Electronic Payment of Distributions Securityholders may nominate a bank, building society or credit union account for payment of distributions by direct credit. Payments are electronically credited on the payment dates and confirmed by mailed advice. Securityholders wishing to take advantage of payment by direct credit should contact the registry for more details and to obtain an application form. Registered Office Level 10, 6 O'Connell Street Sydney NSW 2000 Telephone (02) 8231 8588 Company Secretary Mr Michael Clarke Level 10, 6 O'Connell Street Sydney NSW 2000 Telephone (02) 8231 8588 Auditors KPMG Level 38, Tower Three International Towers Sydney 300 Barangaroo Avenue Sydney NSW 2000 Annual Tax Statement Accompanying the final stapled security distribution payment, normally in September each year, will be an annual tax statement which details the tax components of the year's distribution. Lawyers Allens Linklaters Level 28, Deutsche Bank Place Sydney NSW 2000 Publications The Annual Review and Annual Report are the main sources of information for stapled securityholders. In August each year the Annual Review, Annual Report and Full Year Financial Report, and in February each year, the Half-Year Financial Report are released to the ASX and posted on the ALE website. The Annual Review is mailed to stapled securityholders unless we are requested not to do so. The Full Year and Half Year Financial Reports are only mailed on request. Periodically ALE may also send releases to the ASX covering matters of relevance to investors. These releases are also posted on the ALE website and may be distributed by email to stapled securityholders by registering on ALE’s website. The election by stapled securityholders to receive communications electronically is encouraged by ALE. Website The ALE website, www.alegroup.com.au, is a useful source of information for stapled securityholders. It includes details of ALE's property portfolio, current activities and future prospects. ASX announcements are also included on the site on a regular basis. The ALE Property website, www.aleproperties.com.au, provides further detailed information on ALE's property portfolio. Custodian (of Australian Leisure and Entertainment Property Trust) The Trust Company Limited Level 13, 123 Pitt Street Sydney NSW 2000 Trustee (of ALE Direct Property Trust) The Trust Company (Australia) Limited Level 13, 123 Pitt Street Sydney NSW 2000 Registry Computershare Investor Services Pty Ltd Reply Paid GPO Box 7115, Sydney NSW 2000 Level 3, 60 Carrington Street, Sydney NSW 2000 Telephone 1300 302 429 Facsimile (02) 8235 8150 www.computershare.com.au Page 57 ALE Property Group CROWS NEST HOTEL, SYDNEY NSW Australian Leisure and Entertainment Property Management Limited ABN 45 105 275 278 ANNUAL REPORT 2019 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 2019 The Directors of Australian Leisure and Entertainment Property Management Limited (the "Company") present their report for the year ended 30 June 2019. 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 Phillipa Downes, BSc (Bus Ad), MAppFin, GAICD Independent Non Executive Director 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, has been a Member of the Australian Institute of Company Directors since 2007 and is a former member of the Institute of Chartered Accountants in Australia and New Zealand. 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 Pippa Downes is a respected Non-Executive Director with over 25 years of distinguished career achievements in the international business and finance sector. Pippa currently sits on the board of the Australian Technology Innovators (Infotrack, LEAP legal software, Sympli), Windlab Limited, Sydney Olympic Park Authority and was recently appointed a Commissioner of Sport Australia. Pippa is a former Director of the ASX Clearing and Settlement companies and was a member of the ASX Disciplinary Tribunal. Pippa has had a successful international banking and finance career and has led the local derivative and investment arms of several of the world’s premier Investment Banks. Her most recent role was as a Managing Director and Equity Partner of Goldman Sachs in Australia. She is a member of the Australian Institute of Company Directors and Women Corporate Directors and in 2016 was named as one of the Westpac/AFR’s 100 Women of Influence for her work in diversity. Pippa’s long standing passion for diversity, sport and educational disadvantage has been focussed through her governance and fundraising work on not for profit entities such as The Pinnacle Foundation, Swimming Australia and the Swimming Australia Foundation. She has a Master’s in Applied Finance from Macquarie University and Bachelor of Science (Business Administration) from University of California, Berkeley. Pippa was a dual international athlete having been a member of the Australian Swim Team and represented Hong Kong at the International Rugby Sevens. Page 2 Australian Leisure and Entertainment Property Management Limited DIRECTORS' REPORT For the Year ended 30 June 2019 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, a Non-executive Director of FBR Limited and deputy chairman of the State Insurance Regulatory Authority. She is also currently the Chair of the Accounting Professional and Ethical Standards Board. 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 35 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). 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 Chief Executive Officer of Pyrolyx AG, a dual listed German and Australian tyre recycling company. Mr Triguboff has a background in equity funds management with groups including MIR and Lazard Asset Management Pacific, and Lazard Asia Funds. He 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. Appointed: 26 June 2003 Resigned: 8 August 2018 James was 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 McNally B.Bus (Land Economy), Dip. Law Non Executive Director Page 3 Australian Leisure and Entertainment Property Management Limited DIRECTORS' REPORT For the Year ended 30 June 2019 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 t+E55 Michael has over 35 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. 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 N J Milne 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 FBR Limited Pyrolyx AG Resigned as Director January 2017 September 2016 Appointed as Director December 2006 December 2006 Type Non-executive Non-executive Non-executive August 2014 Non-executive Non-executive Non-executive August 2018 Non-executive June 2016 July 2017 February 2015 Page 4 Australian Leisure and Entertainment Property Management Limited DIRECTORS' REPORT For the Year ended 30 June 2019 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 (Resigned:8 August 2018) 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 - 431,469 60,000 18,000 6,500 - - - - - - 33,365 15,888 6,355 4,767 50,000 189,110 25,000 20,000 55,164 - 464,834 75,888 24,355 11,267 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 94,467 47,873 16,471 9,779 29,951 14,095 2,623 2,623 (33,365) (15,888) (6,355) (4,767) 91,053 46,080 12,739 7,635 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 2019 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 12 12 12 12 4 12 12 Attended 12 12 12 11 4 9 12 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 4 4 4 4 n/a n/a n/a Held 1 4 4 4 4 n/a 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 2019 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 9.3 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 2019 $ 30 June 2018 $ 4,009,810 9,525 4,019,335 4,359,742 9,048 4,368,790 2,302,923 1,498,520 3,801,443 2,728,780 1,354,737 4,083,517 217,892 285,273 14,397 10,288 203,495 274,985 Cents Cents 0.10 - 7.28 0.14 - 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 (2018: nil). 8. MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR On 3 July 2019 Woolworths announced that it intends to combine ALH and Endeavour Drinks in late CY19 and then seperate the combined entity from Woolworths in CY20. The Company will monitor these developments closely. Apart from the above, 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 2019 9 REMUNERATION REPORT (Audited) This report provides details on ALE's remuneration structure, decisions and outcomes for the year ended 30 June 2019 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 (KPIs); 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 2019, 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 the Annual Report 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 of the Annual Report. The Committee considers advice from a wide range of external advisors in performing its role. During the current financial year the Committee did not engage any consultants in respect to remuneration. Page 7 Australian Leisure and Entertainment Property Management Limited DIRECTORS' REPORT For the Year ended 30 June 2019 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 2019 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 $275,400 3 months 3 months Asset Manager Ongoing $213,100 1 month 1 month Contract Length Fixed Annual Remuneration Notice by ALE Notice by Executive Ongoing $485,418 6 months 6 months Ongoing $274,135 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 2019 9.4 Executive Remuneration outcome for year ended 30 June 2019 The amount of remuneration paid to Directors and Key Management Personnel is detailed in the table on page 13 of the Annual Report. 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 in the medium and long term. The Committee reviewed the overall performance of ALE and the individual performance of all executives for the year ending 30 June 2019. It was assessed by the Committee that a number of the key performance indicators (KPIs) were met and others were not. In particular the Committee noted: Property and Strategic Matters ● A very significant workload was taken on by ALE’s small management team to successfully complete a large submission package relating to the 2018 rent review, for a greater than expected number of properties; While the rent review submissions were successfully completed, the finalisation of the rent review and determination process remained outstanding. Accordingly, the rent review and determination process will be included as part of managements KPIs for FY20; A number of acquisition opportunities that accorded with ALE’s strategic criteria were evaluated; and A number of strategic initiatives were completed during the year while others remain ongoing for completion in FY20. ● ● ● Capital Matters ● Management continued to explore a range of debt funding and hedging solutions in both the domestic and offshore capital markets with a view to enhancing ALE’s readiness to implement a FY20 debt refinancing and additional debt funding of any acquisitions; ● ● Management reviewed a range of other strategic initiatives with particular focus on value enhancement and risk mitigation; and ALE continued to deliver both medium and long term total returns for securityholders that outperformed most of the other AREITs in the sector. 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) 20.6% 18.2% 27.2% 4.7% EIS Awarded as a % of Target 34.3% 36.5% - - EIS Awarded $100,000 $50,000 $75,000 $10,000 Cash Component $50,000 $25,000 $37,500 $5,000 ESSS Component $50,000 $25,000 $37,500 $5,000 Page 10 Australian Leisure and Entertainment Property Management Limited DIRECTORS' REPORT For the Year ended 30 June 2019 Consequences of performance on shareholder wealth In considering the Group's performance and benefits to shareholder wealth, the remuneration committee have regard to a number of performance indicators in relation to the current and previous financial years. A review of ALE's current year performance and history is provided in the Operational and Financial Review on page 6 of the ALE Property Group's Annual Report. 9.5 Disclosures relating to equity instruments granted as compensation 9.5.1 Outstanding equity instruments granted as compensation Details of rights over stapled securities that have been granted as compensation and remain outstanding at year end and details of rights that were granted during the year are as follows: Executive ESSS Rights A F O Wilkinson A F O Wilkinson A F O Wilkinson A J Slade A J Slade A J Slade M J Clarke M J Clarke M J Clarke D J Shipway D J Shipway D J Shipway Number of Rights Outstanding Grant Date Performance Period Start Date Fair value of Right at Grant Date ($) Approximate Delivery Date % vested in year % forfeited in year 27,020 34,082 29,951 13,510 18,475 14,095 5,246 4,870 2,623 1,968 3,044 2,623 24 Oct 16 24 Oct 17 25 Oct 18 24 Oct 16 24 Oct 17 25 Oct 18 24 Oct 16 24 Oct 17 25 Oct 18 24 Oct 16 24 Oct 17 25 Oct 18 1 Jul 15 1 Jul 16 1 Jul 17 1 Jul 15 1 Jul 16 1 Jul 17 1 Jul 15 1 Jul 16 1 Jul 17 1 Jul 15 1 Jul 16 1 Jul 17 3.81 4.11 4.77 3.81 4.11 4.77 3.81 4.11 4.77 3.81 4.11 4.77 31 Jul 19 31 Jul 20 31 Jul 21 31 Jul 19 31 Jul 20 31 Jul 21 31 Jul 19 31 Jul 20 31 Jul 21 31 Jul 19 31 Jul 20 31 Jul 21 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 347,965 177,372 60,000 35,000 94,467 47,873 16,471 9,779 142,770 67,190 12,500 12,500 29,951 14,095 2,623 2,623 (105,000) (50,000) (20,000) (15,000) (33,365) (15,888) (6,355) (4,767) - - - - - - - - 385,735 194,562 52,500 32,500 91,053 46,080 12,739 7,635 Securities Delivered in the year - value paid $ 180,082 85,753 34,300 25,729 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 Annual Report. Page 11 Australian Leisure and Entertainment Property Management Limited DIRECTORS' REPORT For the Year ended 30 June 2019 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 15 August 2019. 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 last reviewed in the 2017 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. Page 12 Australian Leisure and Entertainment Property Management Limited DIRECTORS' REPORT For the Year ended 30 June 2019 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 2019 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 2018 to 30 June 2019 Details of the remuneration of the Key Management Personnel for the year ended 30 June 2019 are set out in the following table: Key management personnel Short term Post employment benefits Equity based payment Salary & Fees $ STI Cash Bonus $ Non monetary benefits $ Total $ Superannuation benefits $ Other long term benefits $ 178,082 105,023 120,000 100,457 - - - - 11,008 - 95,000 - 460,127 145,175 252,160 192,688 1,659,720 50,000 25,000 37,500 5,000 117,500 - - - - - - - - - - 178,082 105,023 120,000 100,457 11,008 95,000 510,127 170,175 289,660 197,688 1,777,220 16,918 9,977 - 9,543 - - 20,531 11,977 20,531 18,322 107,799 S300A(1)(e)(i) proportion of remuneration performance based Termination benefits $ - ESSS $ - Total $ 195,000 $ - - - 115,000 - - - 120,000 - - - 110,000 - - - 11,008 - 95,000 - - - - - - - 10,898 - 50,000 591,556 1,002 5,837 - - 25,000 208,154 37,500 353,528 8,412 - 5,000 229,422 26,149 - 117,500 2,028,668 16.9% 24.0% 21.2% 4.4% Table 2 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 S300A(1)(e)(i) proportion of remuneration performance based Salary & Fees $ STI Cash Bonus $ Non monetary benefits $ Total $ Superannuation benefits $ Other long term benefits $ Termination benefits $ ESSS $ Total $ $ 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 - - - - - - - - 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% Name Role R W Mactier P J Downes P G Say N J Milne J T McNally1 M P Triguboff Non-executive Director Non-executive Director Non-executive Director Non-executive Director Non-executive Director Non-executive Director A F O Wilkinson Executive Director A J Slade M J Clarke Capital Manager Company Secretary and Finance Manager D J Shipway Asset Manager 1. James McNally resigned as a director on 8 August 2018 Name Role R W Mactier P J Downes P G Say N J Milne J T McNally 2 M P Triguboff 3 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 2. James McNally resigned as a director on 8 August 2018 3. Michael Triguboff was appointed a director on 15 February 2018 Page 13 S300A(1)(e)(vi) Value of equity based payment as proportion of remuneration $ - - - - - - 8.5% 12.0% 10.6% 2.2% S300A(1)(e)(vi) Value of equity based payment as proportion of remuneration $ - - - - - - 18.4% 16.8% 4.3% 5.3% Australian Leisure and Entertainment Property Management Limited DIRECTORS REPORT For the Year ended 30 June 2019 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 $166,050 (2017: $121,846) 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: Other services Total other services Total remuneration 30 June 2019 $ 30 June 2018 $ 194,065 8,000 159,000 - 202,065 159,000 20,000 20,000 - - 222,065 159,000 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 2019 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 7th day of August 2019 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 2019 Revenue Expense reimbursement Net Interest income Total revenue Expenses Salaries and related costs Other expenses Total expenses Profit before income tax Income tax expense Profit after income tax Profit attributable to shareholders ALE Basic earnings per share Diluted earnings per share Note 2019 $ 2.1 2.1 2.2 2.2 2.3 2.4 2.4 4,009,810 9,525 4,019,335 2,302,923 1,498,520 3,801,443 217,892 14,397 203,495 203,495 Cents 0.10 0.10 2018 $ 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 0.14 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 2019 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 2019 $ 2018 $ 2,458,540 3,115,434 349,761 5,923,735 39,456 9,080,010 94,154 9,213,620 15,137,355 600,609 294,258 894,867 894,867 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 14,242,488 14,247,357 14,767,075 782,797 (1,307,384) 14,242,488 $ 0.07 14,767,075 855,297 (1,375,015) 14,247,357 $ 0.07 Page 19 Australian Leisure and Entertainment Property Management Limited STATEMENT OF CHANGES IN EQUITY For the Year Ended 30 June 2019 Share based payments reserve $ Share Capital $ Accumulated losses $ Total $ 2019 Total equity at the beginning of the year 14,767,075 855,297 (1,375,015) 14,247,357 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 - - - - - - - - 203,495 - 203,495 203,495 - 203,495 (190,000) 117,500 (135,864) - (325,864) 117,500 Total equity at the end of the year 14,767,075 782,797 (1,307,384) 14,242,488 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 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 2019 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. 2019 $ 2018 $ 8,445,791 (8,480,536) 99,584 64,839 (3,605) (3,605) - - 61,234 2,397,306 6,594,882 (6,607,866) 21,332 8,348 (50,861) (50,861) - - (42,513) 2,439,819 2,458,540 2,397,306 2019 $ 203,495 27,044 117,500 (325,864) 34,243 (42,202) (23,230) (217,265) 39,049 252,069 64,839 2018 $ 274,985 15,539 234,960 (511,184) (11,402) (54,450) (13,797) 99,847 65,665 (91,815) 8,348 Page 21 Australian Leisure and Entertainment Property Management Limited NOTES TO THE FINANCIAL STATEMENTS For the Year ended 30 June 2019 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 7th August 2019. 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 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. Page 22 Australian Leisure and Entertainment Property Management Limited NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2019 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 2019 $ 2018 $ 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 2019 $ 2018 $ 63,473 98,404 214,065 27,044 241,284 125,365 128,669 555,128 99,812 18,359 25,321 1,498,520 2,302,923 3,801,443 196,258 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 Recognition and measurement Expenses including operating expenses, are brought to account on an accruals basis. Revenue Expense reimbursement Interest from cash deposits Total revenue 4,009,810 9,525 4,019,335 4,359,742 9,048 4,368,790 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 $8,445,791 (2018: $6,594,882) 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 2019 the weighted average interest rate earned on cash was 2.07% (2018: 2.34%) Page 23 Australian Leisure and Entertainment Property Management Limited Notes to the financial statements (continued) For the Year ended 30 June 2019 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 2019 $ 2018 $ 217,892 65,368 285,273 85,582 (62,509) - (80,003) - 11,538 4,709 14,397 37,627 (23,230) 10,288 24,085 (13,797) 14,397 10,288 2019 $ 2018 $ Deferred tax assets 94,154 70,924 The balance is attributable to: Employee benefits Other Tax losses Net deferred tax assets 88,277 5,877 - 94,154 76,843 (5,919) - 70,924 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 70,924 57,127 23,230 - 94,154 13,797 - 70,924 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. 88,464 65,234 Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in Equity. 5,690 94,154 5,690 70,924 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 2019 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. 2019 2018 Profit/(Loss) attributable to members of the company 203,495 274,985 Weighted average number of share 195,769,080 195,769,080 Basic earnings per share (cents) 0.10 0.14 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 2019 $ 2018 $ 194,065 8,000 159,000 - 202,065 159,000 20,000 - 222,065 159,000 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) 2019 2018 203,495 274,985 195,929,320 195,946,060 0.10 0.14 Page 25 Australian Leisure and Entertainment Property Management Limited NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2019 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 2019 $ 385,267 2,073,273 2,458,540 2018 $ 324,033 2,073,273 2,397,306 Trust Non-Income Voting Units (NIVUS) 2019 $ 2018 $ 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 2019 $ 45,386 3,064,030 608 5,410 3,115,434 2018 $ 3.4 Payables 22,073 2,846,765 19,679 43,895 2,932,412 Trade creditors Creditor accruals 2019 $ 548,675 51,934 600,609 2018 $ 160,487 188,053 348,540 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 2019 3. Assets, liabilities and equity 3.5 Equity 2019 $ 2018 $ 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 2019 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 2019 $ 2018 Long service leave $ Employee benefits provision: Current 294,258 255,209 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 2019 $ 2018 $ Short term employee benefits Post employment benefits Other long term benefits Share based payments Termination benefits 1,777,220 107,799 26,149 117,500 - 2,028,668 1,992,500 113,837 39,089 234,960 - 2,380,386 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 2019 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 Changes to accounting policies 5.5 Contingent liabilities and contingent assets 5.2 New accounting standards 5.6 Commitments 5.3 Segment reporting 5.7 Related party transactions 5.4 Events occurring after balance date 5.8 Financial risk management 5.1 Changes to Accounting Policies 5.2 New accounting standards A number of new standards are effective for annual periods beginning after 1 January 2019 and earlier application is permitted; however, the Company has not early adopted the new or amended standards in preparing these consolidated financial statements. AABS 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. Other standards Other amended standards and interpretations are not expected to have a significant impact on the Company’s financial statements. The Company has initially applied AABS 15 and AABS 9 from 1 July 2018. A number of other new standards are also effective from 1 January 2018 but they do not have a material effect on the Group’s financial statements. AABS 15 Revenue from Contracts with Customers AABS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations. Under AABS 15, revenue is recognised when a customer obtains control of the goods or services. Determining the timing of the transfer of control – at a point in time or over time – requires judgement. The Company has adopted AABS 15 using the cumulative effect method (without practical expedients), with the effect of initially applying this standard recognised at the date of initial application (i.e. 1 January 2018). AABS 15 did not have a significant impact on the Company's accounting policies with respect to any revenue streams. AASB 9 Financial Instruments AABS 9 sets out requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement. The adoption of AABS 9 has not had a significant effect on the Company’s accounting policies related to financial liabilities and derivative financial instruments (for derivatives that are used as hedging instruments. Page 29 Australian Leisure and Entertainment Property Management Limited Notes to the financial statements (continued) For the Year ended 30 June 2019 5. Other 5.3 Segment reporting 5.7 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. 5.4 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. 5.5 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. 5.6 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 2019 $ 2018 $ 127,180 121,261 43,719 - 170,899 170,899 - 292,160 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 2019 the Company had charged the Trust $4,009,810 in expense reimbursement (2018: $4,359,742). 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. 5.8 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 2019 5. Other 5.8 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 2019 $ 2019 $ Gross Impairment - - - - - - 12,645 - 2,190 27,582 8,987 51,404 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 2019 $ 51,404 2,458,540 2,509,944 2018 $ 85,647 2,397,306 2,482,953 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 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 2019 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 2019 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 2019. (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 7th Day of August 2019 Page 32 Australian Leisure and Entertainment Property Management Limited INVESTOR INFORMATION For the Year ended 30 June 2019 Securityholders The securityholder information as set out below was applicable as at 24 July 2019. A. DISTRIBUTION OF EQUITY SECURITIES Range 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001+ Total Number of Holders 770 1,378 959 1,491 105 4,703 Number of Securities 255,725 4,187,705 7,319,365 38,746,471 145,259,814 195,769,080 % of Issued Capital 0.13 2.14 3.74 19.79 74.20 100.01 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 325. 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 UBS Nominees Pty Ltd Woolworths Group Limited HSBC Custody Nominees (Australia) Limited Brispot Nominees Pty Ltd [House Head Nominee A/C] Manderrah Pty Ltd [GJJ Family A/C] National Nominees Limited HSBC Custody Nominees (Australia) Limited - A/C 2 HSBC Custody Nominees (Australia) Limited-GSI EDA J P Morgan Nominees Australia Pty Limited HSBC Custody Nominees (Australia) Limited-GSCO ECA CS Third Nominees Pty Limited [Hsbc Cust Nom Au Ltd 13 A/C] Buttonwood Nominees Pty Ltd Netwealth Investments Limited [Wrap Services A/C] Mr Alastair Charles Griffin Mr Edward Furnival Griffin Mr David Calogero Loggia Mr David Stewart Field Bnp Paribas Noms Pty Ltd [DRP] BT Portfolio Services Limited [Caergwrle Invest P/L A/C] 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 24 July 2019) are set out below: Stapled SecurityName Caledonia (Private) Investments Pty Ltd Woolworths Limited UBS Group AG Number of Securities 25,609,598 21,682,072 17,076,936 14,630,161 8,968,676 6,600,000 5,157,450 4,953,648 4,252,288 3,983,018 3,315,192 2,331,806 1,500,000 1,398,240 1,397,876 1,397,875 976,323 812,000 756,576 745,787 127,545,522 68,223,558 % of Issued Capital 13.08 11.08 8.72 7.47 4.58 3.37 2.63 2.53 2.17 2.03 1.69 1.19 0.77 0.71 0.71 0.71 0.50 0.41 0.39 0.38 65.15 34.85 Number of Securities 67,584,734 17,076,936 10,241,320 % of Issued Capital 34.52 8.72 5.23 Page 36 Australian Leisure and Entertainment Property Management Limited INVESTOR INFORMATION For the Year ended 30 June 2019 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. 2019 07 Aug 12 Jul 03 Jul 18 Jun 18 Jun 05 Mar 21 Feb 13 Feb 13 Feb Full Year Results, Annual Review / Report and Property Compendium released Property valuations increased by 2.4% Announcement by Wollworths Relating to ALH Half Year distribution of 10.45 cents declared Full Year distribution of 20.90 cents announced 1st half distribution payment Taxation Components of Distribution Half Year results released Property valuations as at 31 December 2018 The following events will occur after the date of this Annual Report: 29 Oct 05 Sep Annual General Meeting 2nd half distribution payment 2018 18 Dec 13 Dec 13 Nov 02 Nov 05 Sep 03 Sep 03 Sep 03 Sep 08 Aug 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 Half Year distribution of 10.45 cents declared Caledonia increases substantial holding to 34.52% Annual General Meeting Allen Gray ceases to be a substantial shareholder 2nd half distribution payment Caledonia increases substantial holding to 34.41% 2018 Market Rent Review Update Taxation Components of Distribution James McNally retires as a Director Full Year Results, Annual Review / Report and Property Compendium released Corporate Governance Statement 2018 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% Page 37 Australian Leisure and Entertainment Property Management Limited INVESTOR INFORMATION For the Year ended 30 June 2019 Stock Exchange Listing The ALE Property Group (ALE) is listed on the Australian Securities Exchange (ASX). Its stapled securities are listed under ASX code: LEP. Distribution Reinvestment Plan ALE has established a distribution reinvestment plan. Details of the plan are available on the ALE website. Distributions Stapled security distributions are paid twice yearly, normally in March and September. Electronic Payment of Distributions Securityholders may nominate a bank, building society or credit union account for payment of distributions by direct credit. Payments are electronically credited on the payment dates and confirmed by mailed advice. Securityholders wishing to take advantage of payment by direct credit should contact the registry for more details and to obtain an application form. SecurityHolder Enquiries Please contact the registry if you have any questions about your holding or payments. Registered Office Level 10, 6 O'Connell Street Sydney NSW 2000 Telephone (02) 8231 8588 Company Secretary Mr Michael Clarke Level 10, 6 O'Connell Street Sydney NSW 2000 Telephone (02) 8231 8588 Auditors KPMG Level 38, Tower Three International Towers Sydney 300 Barangaroo Avenue Sydney NSW 2000 Annual Tax Statement Accompanying the final stapled security distribution payment, normally in September each year, will be an annual tax statement which details the tax components of the year's distribution. Lawyers Allens Linklaters Level 28, Deutsche Bank Place Sydney NSW 2000 Publications The Annual Review and Annual Report are the main sources of information for stapled securityholders. In August each year the Annual Review, Annual Report and Full Year Financial Report, and in February each year, the Half-Year Financial Report are released to the ASX and posted on the ALE website. The Annual Review is mailed to stapled securityholders unless we are requested not to do so. The Full Year and Half-Year Financial Reports are only mailed on request. Periodically ALE may also send releases to the ASX covering matters of relevance to investors. These releases are also posted on the ALE website and may be distributed by email to stapled securityholders by registering on ALE’s website. The election by stapled securityholders to receive communications electronically is encouraged by ALE. Website The ALE website, www.alegroup.com.au, is a useful source of information for stapled securityholders. It includes details of ALE's property portfolio, current activities and future prospects. ASX announcements are also included on the site on a regular basis. The ALE Property website, www.aleproperties.com.au, provides further detailed information on ALE's property portfolio. Custodian (of Australian Leisure and Entertainment Property Trust) The Trust Company Limited Level 13, 123 Pitt Street Sydney NSW 2000 Trustee (of ALE Direct Property Trust) The Trust Company (Australia) Limited Level 13, 123 Pitt Street Sydney NSW 2000 Registry Computershare Investor Services Pty Ltd Reply Paid GPO Box 7115, Sydney NSW 2000 Level 3, 60 Carrington Street, Sydney NSW 2000 Telephone 1300 302 429 Facsimile (02) 8235 8150 www.computershare.com.au Page 38 Australian Leisure and Entertainment Property Management Limited REGISTERED OFFICE Level 10, Norwich House 6 O’Connell Street Sydney NSW 2000 Telephone (02) 8231 8588 COMPANY SECRETARY Mr Michael Clarke Level 10, Norwich House 6 O’Connell Street Sydney NSW 2000 Telephone (02) 8231 8588 REGISTRY Computershare Investor Services Pty Ltd Reply Paid GPO Box 7115 Sydney NSW 2000 Level 3, 60 Carrington Street Sydney NSW 2000 Telephone 1300 302 429 Facsimile (02) 8235 8150 www.computershare.com.au AUDITORS KPMG Level 38 Tower 3 International Towers, Sydney 300 Barangaroo Avenue Sydney NSW 2000 For more information visit our 2019 Annual Review website aleproperty2019.reportonline.com.au Review our properties online aleproperties.com.au Visit us online today alegroup.com.au 

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