ALE Property Group
Annual Report 2021

Plain-text annual report

Annual Report 2021 ABN 92 648 441 429 WWW.ALEGROUP.COM.AU 02 Directors' Report 23 Auditor's Independence Declaration 24 Statement of Comprehensive Income 25 Statement of Financial Position 26 Statement of Changes in Equity 27 Statement of Cash Flows 28 Notes to the Financial Statements 62 Directors' Declaration 63 Independent Auditors Report 68 Investor Information ALE Property Group is the owner of Australia's largest portfolio of freehold pub properties. Established in November 2003, ALE owns a portfolio of 82 pub properties across the five mainland states of Australia. All the properties are leased to Australian Leisure and Hospitality Group Pty Limited (ALH) a wholly owned subsidary of Endeavour Group Limited Contents ALE Property Group Comprising Australian Leisure and Entertainment Report For the Year ended 30 June 2021 Property Trust and its controlled entities ANNUAL REPORT 2021 ALE Property Group (ASX: LEP) DIRECTORS' REPORT For the Year ended 30 June 2021 Robert Mactier Pippa Downes Paul Say B Ec. MAICD BSc (Bus Ad), MAppFin, GAICD FRICS, FAPI Appointed: 28 November 2016 Appointed: 26 November 2013 Appointed: 24 September 2014 Appointed Chair: 23 May 2017 The Directors of Australian Leisure and Entertainment Property Management Limited (the 'Company') present their report for the year ended 30 June 2021. Directors The following persons were directors of the Company during the year and up to the date of this report unless otherwise stated: Independent Non-Executive Chair, Member of the Remuneration and Nominations Committee, Member of the Audit, Compliance and Risk Management Committee. Independent Non-Executive Director, Member of the Remuneration and Nominations Committee, Chair of the Audit, Compliance and Risk Management Committee. Independent Non-Executive Director, Chair of the Remuneration and Nominations Committee, Member of the Audit, Compliance and Risk Management Committee. The registered office and principal place of business of the Company is Suite 28.02, 245-300 George Street, Sydney NSW. Appointed Chair of Remunerations and Nominations Committee on 4 August 2015 Appointed Chair of ACRMC: 26 October 2015 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), Cedar Wood Limited and was previously a director of GPT Metro Office Fund. Robert is a Consultant to UBS AG in Australia (since June 2007). Between 2006 and May 2021 he was Chairman of ASX-listed WPP AUNZ Limited. Between 2006 and January 2017 he served as a non-executive Director of NASDAQ listed Melco Resorts and Entertainment Limited. 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). 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. 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 (now J P Morgan), E.L. & C. Baillieu and Citigroup between 1990 and 2006. 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 Zip Co Limited, Australian Technology Innovators Pty Ltd, Ingenia Communities Group and is a Commissioner of Sport Australia. Pippa is a former Director of the Sydney Olympic Park Authority, Windlab Limited, and of the ASX Clearing and Settlement companies and was a member of the ASX Disciplinary Tribunal. Page 2 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2021 Nancy Milne Michael Triguboff Bernard Stanton OAM, LLB, FAICD BA (Syd), LLB (UNSW) B Ec., MBA (UoM) Appointed: 6 February 2015 Appointed: 15 February 2018 Appointed: 13 September 2019 Bernard holds a Bachelor’s degree in Economics from La Trobe University and an MBA from Melbourne University. Michael has a background in equity funds management with groups including MIR, 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. Nancy has a Bachelor of Laws from the University of Sydney. Bernard was most recently an Executive Director with the Caledonia funds management group from 2005 to June 2019. Independent Non-Executive Director, Member of the Remunerations and Nominations Committee, Member of the Audit, Compliance and Risk Management Committee. Non-Executive Director, Nominee of Caledonia (Private) Investments Pty Ltd Michael is a founding Director of Adexum Capital Limited, a private equity company investing in both public and private mid-market companies. Michael is a Director of Pyrolyx AG, a dual listed German and Australian tyre recycling company. Bernard has more than 40 years senior executive experience in Australia, USA, Europe and Asia. Nancy has been a professional non- executive director for over a decade. She is a former lawyer with over 30 years’ experience with primary areas of legal expertise in insurance, risk management and corporate governance. She was a partner with Clayton Utz until 2003 and a consultant until 2012. She is currently Chairman of the Securities Exchange Guarantee Corporation, and deputy chairman of the State Insurance Regulatory Authority. She 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, FBR Limited, State Plus and Novion Property Group (now Vicinity Centres). Non-Executive Director, Nominee of Caledonia (Private) Investments Pty Ltd, Member of the Audit, Compliance and Risk Management Committee. Page 3 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2021 Other officers Guy Farrands Andrew Wilkinson Michael Clarke Grad Dip Man, FAPI, MAICD B.Bus, CFTP, MAICD B.Com, MMan, CA, ACIS Appointed: 1 October 2020 Appointed: 16 November 2004 Appointed: 30 June 2016 Resigned: 30 September 2020 He is also a Non-Executive Director of affordable accommodation provider Aspen Group. Michael joined ALE in October 2006 and was appointed Company Secretary on 30 June 2016. 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. 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, Australia & New Zealand. 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. Company Secretary and Chief Financial Officer. Responsible Manager of the Company under the Company’s Australian Financial Services Licence (AFSL) Guy has over 30 years’ experience in direct and listed property markets both in Australia and internationally. His career highlights include: Managing Director and CEO of GEO Property Group (subsequently Villa World Limited), CEO of Valad Property Group, (departing prior to Valad’s acquisition of Crownstone / Scarborough) and Chief Financial Officer of Viva Energy REIT. Prior to this his roles included Division Director of the real estate division of Macquarie Bank’s Investment Banking Group. Directors Chief Executive Officer and Managing Director of the Company. Responsible Manager of the Company under the Company’s Australian Financial Services Licence (AFSL) Former Chief Executive Officer and Managing Director of the Company. Page 4 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2021 Information on Directors and Key Management Personnel Director Directorships of listed entities Type Appointed as Director Resigned as Director R W Mactier WPP AUNZ Limited Non-executive director December 2006 May 2021 P G Say Frasers Logistic & Industrial Trust (SGX listed) Non-executive director June 2016 P G Say Cedar Woods Limited Non-executive director May 2021 P J Downes Windlab Limited Non-executive director July 2017 June 2020 P J Downes Ingenia Communities Group Non-executive director December 2019 P J Downes Zip Co Limited Non-executive director October 2020 N J Milne FBR Limited Non-executive director August 2018 January 2020 M P Triguboff Pyrolyx AG Non-executive director February 2015 G Farrands Aspen Group Limited Non-executive director November 2012 Role Number held at the start of the year Net movement Number held at the end of the year R W Mactier Non-executive Director 50,000 - 50,000 P J Downes Non-executive Director 189,110 (111,797) 77,313 P G Say Non-executive Director 25,000 - 25,000 N J Milne Non-executive Director 20,000 - 20,000 M P Triguboff Non-executive Director - - - B D Stanton Non-executive Director - - - G Farrands Managing Director - - - A J Slade Capital Manager 89,398 16,558 105,956 M J Clarke Chief Financial Officer and Company Secretary 29,601 4,870 34,471 Role Number held at the start of the year Granted during the year Delivered during the year Number held at the end of the year A J Slade Capital Manager 38,053 5,899 (18,475) 25,477 M J Clarke Finance Manager 15,718 7,079 (4,870) 17,927 Director Held 1 Attended Held 1 Attended Held 1 Attended R W Mactier 11 11 6 6 4 4 P J Downes 11 11 6 6 4 4 P G Say 11 11 6 6 4 4 N J Milne 11 11 6 6 4 4 B D Stanton 11 11 4 4 n/a n/a M P Triguboff 11 11 n/a n/a n/a n/a G Farrands 10 10 n/a n/a n/a n/a A F O Wilkinson 1 1 n/a n/a n/a n/a 1 “Held” reflects the number of meetings which the director or member was eligible to attend. Meetings of directors Board ACRMC Nominations and The number of meetings of the Company’s Board of Directors held and of each Board committee during the year ended 30 June 2021 and the number of meetings attended by each director at the time the director held office during the year were: Name ESSS Rights The following directors, key management personnel and their associates currently hold the following stapled security interests in ALE: 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: Directors’ and key management personnel interests in stapled securities and ESSS rights Name The following key management personnel currently hold rights over stapled securities in ALE: Page 5 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2021 Operational and Financial Review Background • • • • • • • On 30 September 2020 Andrew Wilkinson retired as managing director and was succeeded by Guy Farrands. Net tangible assets per security at 30 June 2021 increased by 24.1% to $3.71 (30 June 2020: $2.98) largely due to net valuation gains on investment property. 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) ALE Property Group is the owner of Australia's largest portfolio of freehold pub properties. Established in November 2003, ALE owns a portfolio of 82 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 7.3 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 79 of the 82 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 82 properties are double net); Annual CPI rent increases are not subject to any cap and rents do not decline with negative CPI; 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 7.3 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; and There is a full open rent review (no cap and collar) in November 2028. Highlights Distributable Income increased by $4.0 million from $30.4 million in 2020 to $34.4 million in 2021 due to higher rental income from CPI increases on properties during the year, backdated rental increases from 2018 on 36 properties that were subject to independent rental determinations received in September 2020 ($1.1 million), lower finance costs ($4.8 million), offset by higher management expenses ($1.7 million). Statutory net profit increased by $159.2 million from $20.0 million in 2020 to $179.2 million in 2021 largely due to higher Distributable Earnings ($4.0 million) and net valuation gains ($141.3 million), profits on sale of properties ($4.2 million) and lower derivative movements (increment of $6.1 million compared to a decrement of $17.3 million) due to increasing long term interest rates and derivative restructures during the year, offset by higher borrowing cost amortisation ($4.0 million). Covenant gearing reduced from 41.3% to 36.4% due to lower net borrowings and increased investment property valuations. Boundary Hotel, Pelican Waters Tavern, Kedron Park Hotel, Edinburgh Castle Hotel, Noosa Reef Hotel and Morwell Hotel were designated non-core assets and sold for an aggregate price of $72.86m. This represented a 24.2% premium to the aggregate book value of these properties. The proceeds of the sales were used to reduce net debt and restructure hedging arrangements. On 23 June 2021 the parent entity of ALH, Endeavour Group Limited, was seperately listed on the ASX following the demerger from Woolworths Limited. Page 6 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2021 30 June 30 June 2021 2020 Profit after income tax for the year $179.2 million $20.0 million Distributable income 1 $34.4 million $30.4 million Distributable earning per stapled security 17.15 cents 15.53 cents Distributions per stapled security 21.5 cents 20.9 cents Total Assets $1,340.0 million $1,214.9 million Investment properties $1,294.3 million $1,174.2 million Borrowings $540.9 million $551.4 million Net assets $743.0 million $584.6 million Net tangible assets per security $3.71 $2.98 Covenant gearing 36.4% 41.3% Financial Results 30 June 30 June 2021 2020 $’000 $’000 Revenue Rent from investment properties 62,473 61,408 Interest from cash deposits 99 301 Total revenue 62,572 61,709 Management expenses - excluding share based payments (7,665) (5,944) Land tax (3,329) (3,313) Finance costs - cash (17,205) (22,041) Distributable income 34,373 30,411 Fair value adjustments to investment properties 141,301 10,930 Fair value adjustments to derivatives 6,091 (17,306) Profit on disposal of investment properties 4,230 - Employee share based payments (223) (204) Finance costs - non-cash (6,335) (3,815) Income tax expense (266) 7 Operating profit after tax 179,171 20,023 Distribution paid or provided for 42,808 40,916 Distributions made in excess of Distributable Income 8,435 10,505 Distribution funded as follows Current year distributable profits 34,373 30,411 Distribution reinvestment plan securities issued 12,210 9,857 Capital and surplus cash reserves (3,775) 648 42,808 40,916 1. Distributable income is a non-statutory measure of profit and is calculated as net profit adjusted for specific non-recurring items and non-cash items, and any fair value adjustment to investment properties and derivatives. Page 7 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2021 Percentage 30 June 30 June Increase / 2021 2020 (Decrease) Cents Cents Earnings and distribution per stapled security: 783.4% 90.37 10.23 10.4% 17.15 15.53 2.9% 21.50 20.90 Current year distributable income 17.15 15.53 Securities issued: Distribution reinvestment plan 6.09 4.83 Capital and surplus cash (1.74) 0.54 21.50 20.90 Investment property portfolio 30 June 30 June 2021 2020 Investment properties, including assets held for sale $1,294.3 million $1,174.2 million Weighted average adopted yield 4.59% 5.08% Total number of properties 82 86 Weighted average lease expiry 7.3 years 8.3 Years Properties sold (includes two properties that sold but did not settle until after 30 June) 6 - Profit on sale of properties (four properties that settled prior to 30 June 2021) $4.2 million - Premium to aggregate book value 24.2% - 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. Earnings available for distribution Total distribution 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 Income is a non-IFRS measure that shows how free cash flow is calculated by ALE. Distributable Income 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. Investment property valuations, including properties held for sale, increased in value during the year by 10.24% from $1,174.1 million to $1,294.3 million. The increase in property valuations was attributable to rent reviews in the current year and a drop in weighted average adopted yield from 5.08% to 4.59%. During the year six properties were sold and the aggregate price was 24.2% above book carrying values. Basic earnings During the year six properties were sold, four settled prior to 30 June and two will settle after 30 June. The weighted average price received above book value for the six properties was 24.2% and the weighted average initial yield was 4.44%. These properties were identified as non-core following the receipt of the rental determinations late last year. It has been some time since ALE sold properties that are subject to the lease between ALE/ALH and the strong results have highlighted the quality of our portfolio. Following the receipt of the rental determinations in September 2020 the whole portfolio was independently valued as at 31 December 2020. In June 2021 a sample of 36 properties (44%) were independently valued. Page 8 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2021 Capital Management Historical performance FY17 FY18 FY19 FY20 FY21 Distributable income $m 29.1 29.0 28.3 30.4 34.4 Distribution per security cents 20.40 20.80 20.90 20.90 21.50 Property values $m 1,080.2 1,136.3 1,163.2 1,174.2 1,294.3 Covenant gearing 1 42.7% 41.6% 41.5% 41.3% 36.4% 1. Total borrowings less cash as a percentage of total assets less cash, deferred tax assets and derivatives for bond issuing entity, ALE DPT In August 2020 and June 2021 a series of hedge restructures and terminations were transacted involving an aggregate cash payment to the hedge counterparty banks of $16.9 million. The result of these transactions was to lower the average hedge rates from 3.53% to 2.22%. Apart from the interest rate, the terms of the hedges were not altered and the hedging, covering approximately 100% of drawn debt, has a weighted average term of 4.4 years (5.4 years at June 2020). The weighted average cost of debt (including the impact of interest rate swaps and the new borrowings, which are at rates lower than the borrowings they replaced) reduced from 4.11% at June 2020 to 3.48% at June 2021. ALE’s Distribution Reinvestment Plan (DRP) raised $22.1 million from issuing 4.6 million securities during the year. The DRP is currently suspended. ALE believes that the DCF method provides a comprehensive view of the quality of the lease and tenant as well as the 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 4.24% for 36 properties valued. This compares to the adopted yield of 4.59% for the portfolio which was derived using a combination of the DCF and capitalisation rate methods. To provide context to ALE's historical performance, the following data and graphs outline a five year history of key financial metrics. During the year covenant gearing reduced from 41.3% to 36.4% for the AMTN issuing entity, ALE Direct Property Trust. ALE continues to maintain appropriate headroom to all debt covenants with the nearest covenant trigger equivalent to an average 42% fall in property values. $700 $900 $1,100 $1,300 FY17 FY18 FY19 FY20 FY21 Property Values ($m) 30% 35% 40% 45% FY17 FY18 FY19 FY20 FY21 Covenant Gearing 18.0 19.0 20.0 21.0 22.0 FY17 FY18 FY19 FY20 FY21 Distribution per security Page 9 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2021 Business strategies and future prospects • • predominantly triple net leases to a strong tenant; • long term leases (7.3 year WALE with predominantly 4x10 year options) over strategically important properties; • predominantly CPI rental increases with a floor; • • The Directors also considered, among other things: • the historically low covenant gearing of ALE, currently 36.4% as at 30 June 2021; and • the prevailing economic and interest rate environment and outlook for asset values. COVID-19 Significant changes in the state of affairs Following the release of the rent determinations ALE commenced proceedings in the Supreme Court of Victoria seeking declarations that the 19 Victorian Determinations are not binding on the parties. ALE expects that a decision of the court providing guidance in relation to the rent review provisions in the leases will be relevant to any rent determinations which are undertaken as at November 2028, when an uncapped and uncollared rent review is due for all properties where the tenant has exercised its option to renew the lease for a further ten years. There are two properties that are currently being marketed for sale (in addition to the six properties already sold) and the portfolio will continue to be reviewed. ALE holds a positive outlook for the rent review prospects for the portfolio. For the sample of properties that were independently valued for June 2021 the extent of under renting has been assessed at 43.5% - this compares to 43.4% on the same properties at December 2020. To determine the extent of under renting of the whole of the portfolio (continuing properties) management used the December 2020 uncapped rents assessed for properties not valued in June 21. This showed that the under renting was 35.6%, slightly increased from December 2020. Following the receipt of the rent determinations, ALE’s Board reviewed the distribution and capital management policy of the Group. In December 2020 ALE announced a distribution guidance of 21.50 cents per security for 2021, representing a 3% increase relative to 2020 distributions. In addition, it is presently expected that distributions following 2021 will be increased by at least CPI. The COVID-19 pandemic continues to create economic uncertainty and impacted market activity in many sectors including the pub sector where trading restrictions have been put in place over the preceding twelve months. During the current year there have been varying levels of restrictions placed on corporate Australia’s ability to operate, significant volatility and instability in financial markets and the release of a number of government stimulus packages to support individuals and businesses as the Australian and global economies face significant slowdowns and uncertainties. To date there has been minimal impact on ALE's operating performance or financial position. The Directors continue to monitor the situation. During the financial period ALH has been paying rent in accordance with the requirements of the leases. In determining the appropriate distribution and capital management policies, the Directors considered the specific features of ALE’s investment portfolio including: a high quality and diversified national pub portfolio with a 87% weighting by value to metropolitan Sydney, Melbourne and Brisbane; the opinion of the statutory valuers regarding the under-renting of the; and the expected rent increases at the finalisation of the 2028 uncapped/uncollared rent reviews (where options to renew are exercised). In the opinion of the directors, other than matters mentioned above in the Operation and Financial review, no significant changes in the state of affairs of ALE occurred during the year. 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 2021 Material business risks COVID-19 Risk Tenant and sector concentration risk Property Valuation Risk Refinancing and interest rate risk Risk Management Mitigation: ALE manages this risk by monitoring the operating performance of each of the hotels and ALH on a regular basis. ALE will continue to monitor developments concerning ALH closely as the credit profile of ALH may impact ALE's future ability to secure debt finance at competitive credit margins. ALE also has the option of selling properties and/or issuing equity to meet its debt obligations. ALE has commenced proceedings in the Supreme Court of Victoria seeking declarations that the 19 Victorian Determinations are not binding on the parties. ALE expects that a decision of the court providing guidance in relation to the rent review provisions in the leases will be relevant to any rent determinations which are undertaken as at November 2028, when an uncapped and uncollared rent review is due for all properties where the tenant has exercised its option to renew the lease for a further ten years. 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 are discussed below. Impact: Properties ALE own are operated as pubs and retail liquor outlets. As part of Government measures the operations are subject to various trading restrictions. In the event that the impacts of COVID-19 become material or more prolonged than anticipated, or if ALH does not continue to meet its rental obligations (being a key assumption underlying the property valuations), this may have an adverse impact to the fair value of ALE’s property portfolio and ALE's operating results. Risk Management Mitigation: The Directors will continue to monitor the business environment to determine if there are any material impacts on ALH's operations that may impact ALE. Impact: All 82 of ALE's pub properties are leased to a single tenant, ALH which is owned by Endeavour Group Limited. Endeavour Group Limited listed on the ASX on 24 June 2021, following a demerger from Woolworths Limited and is a top 50 ASX listed company. In addition all properties are utilised as operating pubs and retail liquor outlets. 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. If court decides that ALE’s view of the proper interpretation of the leases is incorrect the prospects for ALE may change. Impact: 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. Risk Management Mitigation: ALE is unable to control the market forces that impact ALE's property values however ALE 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 at least one third of the property portfolio on an annual basis. Declines in ALE's property values are recorded on the Statement of Comprehensive Income, any decreases in value will have a negative impact on the statutory net profit and net tangible assets per security and in turn the market price of the Group’s securities may fall. Increases in gearing could also reduce headroom to debt covenants. At 30 June 2021 the closest debt covenant would be triggered by a decline of around 42% in property values and a resultant average capitalisation rate of 7.89%. 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. Impact: ALE currently has outstanding gross borrowings of $543 million, representing a covenant gearing level of 36.4%. 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 faces the risk of reduced profitability and distributions should interest rates on borrowings increase materially. Risk Management Mitigation: 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 3.48% and 3.53%. ALE proactively staggers debt maturities, continually monitors debt markets, actively seeks to maintain ALE's investment grade credit rating and maintains relationships with diverse funding markets to maximise the opportunity for multiple funding options. Page 11 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2021 Liquidity risk Regulatory Risk Personnel risk Environmental (including climate risk), social and economic risk Matters Subsequent to the End Of The Financial Year Likely Developments and Expected Results of Operations The Noosa Reef Hotel that sold prior to 30 June 2021 for $11.3 million settled on 26 July 2021. The Boundary Hotel is due to settle on 10 September 2021. Impact: ALE may be unable to recruit, retain and motivate key personnel. Risk Management Mitigation: ALE has a small management team and employee base. Key person risk is therefore significant. To mitigate this risk ALE seeks to document all business and operating processes and ensure the management team have cross functional capabilities where possible. Where functions require specialised skills, external consultants can be engaged to cover functions if required. Risk Management Mitigation: ALE strives to minimise the impacts of its business and operating decisions on the environment, society and the economy. Outside the rights included in the leases and other agreements, ALE is unable to control the operations of ALH that may have a negative impact from the operations at our properties but monitors these potential impacts and liaises with ALH to seek to understand the actions they are taking to mitigate any consequences. Impact: The risk that ALE may not be able to generate sufficient cash resources to settle its obligations in full as they fall due or can only do so on terms that are materially disadvantageous. Risk Management Mitigation: ALE monitors its exposure to liquidity risk by ensuring that there is sufficient cash on hand as required or debt facility funding available to meet financial liabilities as they fall due. ALE has a long track record of consistently approaching debt markets for refinancing well in advance of the scheduled debt maturity dates. Prior to issuing this report, management consulted with the independent valuers who undertook the valuations as at 30 June 2021 as to whether any events subsequent to balance date have changed their view of the 30 June 2021 valuations. The independent valuers and management are of the opinion that appropriate considerations have been made at 30 June and there has been no changes to the valuations subsequent to balance date. In the opinion of the Directors of the Company, other than 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. ALE will continue to maintain a strategy of preserving and enhancing the profitability and value of its portfolio of properties for the benefit of its stapled securityholders. Apart from the mentioned above in the Financial and Operational Review, the directors are not aware of any other future development likely to significantly affect the operations and/or results of ALE. The COVID-19 pandemic and lockdowns subsequent to year end continues to create unprecedented economic uncertainty and impacted market activity in many sectors including the pub sector where trading restrictions have been put in place. ALE continues to receive rental income in accordance with the agreed lease arrangements with ALH. Impact: 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 ALH. EBITDAR is a key determining factor for rent reviews and therefore could impact on ALE’s long term profitability. Risk Management Mitigation: ALE is unable to control regulatory changes that may impact on the gaming and liquor licences operating in our properties. It monitors the regulatory settings and public debate in each state to determine potential changes and their potential implications for ALE. Impact: The risk that our operating and investment activities, or those of our tenant, give rise to unintended environmental (including climate change), social (including problem gambling and alcohol) and economic consequences. Page 12 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2021 REMUNERATION REPORT (Audited) Remuneration Objectives and Approach ● ● ● ● ● ● ● ● ● Remuneration and Nominations Committee ● ● ● P G Say P J Downes N J Milne R W Mactier The Committee considers advice from a wide range of external advisors in performing its role. During the current financial year the Committee engaged Ferguson Partners to review remuneration. 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 2021 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. 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 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; link remuneration to performance and outcomes achieved. Non-executive Director recognises individual executive's contributions towards value accretive outcomes when measured against Key Performance Indicators (KPIs); and Non-executive Director market competitive and complementary to the reward strategy of the organisation. reward executive performance against agreed strategic objectives; encourage alignment of the interests of executives and stapled securityholders; and 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: ensure there is an appropriate mix between fixed and "at risk" remuneration. Page 2 to 4 provides information on the skills, experience and expertise of the Committee members. Non-executive Director Chair of Committee 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 2021, the Committee consisted of the following: Non-executive Director The Remuneration and Nominations 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 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 for three years. The number of meetings held by the Committee and the members' attendance at them is set out on page 6. Page 13 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2021 Executive Remuneration ● ● Fixed Annual Remuneration (FAR) What is FAR? How is FAR set? 2021 2020 Guy Farrands $485,000 - Andrew Wilkinson 1 - $495,126 Andrew Slade 2 $279,618 $279,618 Michael Clarke $300,000 $300,000 Executive Incentive Scheme (EIS) What is EIS? EIS is an "at risk" component of executive remuneration. Executive Position Standard EIS Target (as a % of FAR) % of EIS paid as cash % of EIS paid as ESSS 60% 50% 50% Andrew Wilkinson 60% 50% 50% 50% 50% 50% n/a3 50% 50% FAR outcomes for the year? 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. Andrew Slade Capital Manager Michael Clarke Chief Financial Officer and Company Secretary 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. FAR is set by reference to external market data for comparable roles and responsibilities within similar listed and unlisted entities within Australia. FAR is usually reviewed in December each year with any changes being effective from 1 January of the following year. The target EIS opportunity for executives varies according to the role and responsibility of the executive. Fixed Annual Remuneration (FAR) Managing Director When is FAR Reviewed? EIS is used to reward executives for achieving and exceeding annual individual KPIs. Executive Incentive Scheme (EIS) Executive remuneration comprises both a fixed component and an 'at risk' component. It specifically comprises: Guy Farrands Managing Director 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. Page 14 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2021 Contract Details Executive Position Contract Length Ongoing Ongoing Notice by ALE 6 months 3 months Notice by Executive 6 months 3 months Guy Farrands Michael Clarke Chief Financial Officer and Company Secretary Managing Director causes any significant financial or reputational harm to ALE and/or its businesses. ・ 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: matter at the time of the original award, would have in their reasonable opinion resulted in a lower original award; or 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 below. causes ALE to incur a material financial loss; or ・ • the executive engages in any conduct or commits any act which, in the Committee's reasonable 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. opinion, adversely affects ALE Property Group including, and without limitation, any act which: • there is no service period condition over the deferred delivery period except if the employee leaves within six months of grant date then the remaining unvested ESSS would lapse Summary of Key Contract Terms results in ALE having to make any material negative financial restatements; ・ • the Committee becomes aware of any executive performance matter which, had it been aware of the 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. How are EIS awards delivered? 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? Page 15 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2021 Managing Director Executive Remuneration outcome for year ended 30 June 2021 Fixed Remuneration Outcomes Executive Incentive Scheme Outcomes ● ● ● ● ● ● The EIS awarded to each member of the management team was as follows: Executive Target EIS (as % of FAR) EIS Awarded (as % of FAR) EIS Awarded as a % of Target EIS Awarded Cash Component Guy Farrands 60% 60.0% 100.0% $291,000 $145,500 $145,500 Andrew Wilkinson 4 60% 51.0% 85.0% $63,129 $63,129 - Andrew Slade 50% 42.5% 85.0% $118,837 $118,837 - Michael Clarke n/a 26.7% n/a $80,000 $40,000 $40,000 Consequences of performance on securityholder wealth Mr Farrands has signed a service agreement that commenced on 1 October 2020. The current base salary, inclusive of superannuation, is $485,000 and is 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 Mr Farrands 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. Management implemented a $250 million refinancing by putting in place a $150 million floating rate AMTN and $100 million of bilateral bank loans with two local and one international bank at lower margins than the existing debt facility; Property and Strategic Matters Successfully marketed six properties that were sold during the period that achieved sales prices that were 24.2% in excess of book values; Following the receipt of rent determinations during the year, management performed a detailed review and analysis of the determinations and subsequently launched legal action in the Supreme Court of Victoria to have the Victorian rental determinations set aside. Capital Matters The new bank loans expanded the sources of debt available to ALE to provide a more flexible debt structure; ESSS Component In considering the Group's performance and benefits to securityholder wealth, the committee had regard to a number of performance indicators in relation to the current and previous financial years. Fixed Remuneration for all executives was reviewed effective 1 January 2021. No increases were awarded to executives. On 1 July 2021 Michael Clarke was awarded an increase to $330,000 in recognition of becoming Chief Financial Officer during the year. Performed an analysis of the investment property portfolio to highlight the longer term total returns of the portfolio and identify non-core properties; The Committee reviewed the overall performance of ALE and the individual performance of all executives for the year ending 30 June 2021. 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: Successfully implemented a series of derivative hedge restructures and terminations to reduce interest expense over the medium term. 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. Page 16 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2021 Remuneration for the year Short term Post employment benefits Equity based payment Salary & Fees STI Cash Bonus Super- annuation Annual and Long Service Leave ESSS Total 2021 $ $ $ $ $ $ $ Andrew Wilkinson 1 355,074 63,129 16,270 145,355 - - 579,828 Guy Farrands 5 346,575 145,500 17,175 122 - 145,500 654,872 Andrew Slade 7 257,923 118,837 21,694 2,345 193,961 - 594,760 Michael Clarke 278,306 40,000 21,694 1,806 - 40,000 381,806 1,237,878 367,466 76,833 149,628 193,961 185,500 2,211,266 2020 $ $ $ $ $ $ $ Andrew Wilkinson 469,674 148,538 21,003 11,300 - 148,538 799,053 Andrew Slade 237,446 25,000 19,699 6,902 - 25,000 314,047 Michael Clarke 267,713 30,000 21,003 10,227 - 30,000 358,943 Don Shipway 53,144 - 5,049 - - - 58,193 1,027,977 203,538 66,754 28,429 - 203,538 1,530,236 % % % % Andrew Wilkinson 1 10.9% - 37.2% 18.6% Guy Farrands 5 44.4% 22.2% - - Andrew Slade 7 20.0% - 15.9% 8.0% Michael Clarke 21.0% 10.5% 16.7% 8.4% Disclosures relating to equity instruments granted as compensation Outstanding equity instruments granted as compensation Executive Grant Date Performance Period Start Date Fair value of Right at Grant Date ($) % vested in year % forfeited in year ESSS Rights A F O Wilkinson6 29,951 25 Oct 18 1 Jul 17 4.77 31 Jul 21 Nil Nil A F O Wilkinson6 10,967 2 Mar 20 1 Jul 18 4.56 31 Jul 22 Nil Nil A F O Wilkinson6 35,049 9 Feb 21 1 Jul 19 4.24 31 Jul 23 Nil Nil A J Slade 6 14,095 25 Oct 18 1 Jul 17 4.77 31 Jul 21 Nil Nil A J Slade 6 5,483 2 Mar 20 1 Jul 18 4.56 31 Jul 22 Nil Nil A J Slade 6 5,899 9 Feb 21 1 Jul 19 4.24 31 Jul 23 Nil Nil M J Clarke 2,623 25 Oct 18 1 Jul 17 4.77 31 Jul 21 Nil Nil M J Clarke 8,225 2 Mar 20 1 Jul 18 4.56 31 Jul 22 Nil Nil M J Clarke 7,079 9 Feb 21 1 Jul 19 4.24 31 Jul 23 Nil Nil D J Shipway 6 2,623 25 Oct 18 1 Jul 17 4.77 31 Jul 21 Nil Nil D J Shipway 6 1,097 2 Mar 20 1 Jul 18 4.56 31 Jul 22 Nil Nil Termination Benefits 2021 2020 At risk element Value of equity based payment as proportion At risk element Value of equity based payment as proportion 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: Number of Rights Outstanding Approximate Delivery Date Page 17 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2021 Modification of terms of equity settled share based payment transactions 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 Opening Balance Granted in Year Stapled Securities Delivered in the Year Lapsed in the Year Closing Balance Securities Delivered in the year - value paid $ By Value ($) A F O Wilkinson 6 332,735 148,538 (139,965) - 341,308 152,342 A J Slade 6 168,062 25,000 (75,872) - 117,190 82,581 M J Clarke 70,000 30,000 (20,000) - 80,000 21,768 D J Shipway 6 30,000 - (12,500) - 17,500 13,606 By Number A F O Wilkinson 6 75,000 35,049 (34,082) - 75,967 A J Slade 6 38,053 5,899 (18,475) - 25,477 M J Clarke 15,718 7,079 (4,870) - 17,927 D J Shipway 6 6,764 - (3,044) - 3,720 Equity based compensation The value of ESSS above 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 11 August 2021. 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. 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 6. Page 18 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2021 Non-executive Directors' Remuneration 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. Base Fee Super- annuation Total Base Fee Super- annuation Total $ $ $ $ $ $ R W Mactier 178,082 16,918 195,000 178,082 16,918 195,000 P J Downes 105,023 9,977 115,000 105,023 9,977 115,000 P G Say 120,000 - 120,000 120,000 - 120,000 N J Milne 100,457 9,543 110,000 100,457 9,543 110,000 M P Triguboff 95,000 - 95,000 95,000 - 95,000 B D Stanton 8 95,093 9,034 104,127 69,200 6,574 75,774 Total 693,655 45,472 739,127 667,762 43,012 710,774 2. Package is based on a four day week. 4. Based on period as Managing Director to 30 September 2020. 5. Guy Farrands was appointed Managing Director on 1 October 2020. 7. Andrew Slades position was made redundant effective 1 July 2021. The termination benefit amounting to $193,961 disclosed was paid on 1 July 2021. 8. Bernard Stanton was appointed a Director on 13 September 2019 and appointed to the ACRMC in August 2020. 1. Andrew Wilkinson resigned as Managing Director on 30 September 2020. His employment ended on 31 March 2021 after the six months notice period concluded under the terms of his service contract. Footnotes for Remuneration Report 3. EIS awards are at the discretion of the Committee and the Board 6. No longer employed with ALE but at the discretion of the Board outstanding ESSS rights remain active and may be issued when they vest. 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. 2021 2020 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 29 October 2019 was $850,000. 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 2020 financial year. The results of this review are shown in the fees listed below. 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. Remuneration Structure The current remuneration was reviewed in January 2020. This resulted in no changes to the fee levels indicated below. The Directors' fees are inclusive of superannuation, where applicable. Board ACRMC Remuneration amd Nominations Committee Remuneration for the year ended 30 June 2021 Page 19 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2021 Non-Audit Services ● ● 30 June 30 June 2021 2020 $ $ 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 194,458 175,575 - in relation to prior year - - Total remuneration for audit services 194,458 175,575 Other services KPMG Australian firm: Other services 7,244 - Total other services 7,244 - Total remuneration 201,702 175,575 none of the services undermine the general principles relating to auditor independence as set out in Professional Statement F1, including reviewing or auditing the auditor's own work, acting in a management or decision making capacity for the Company, acting as an advocate for the Company or jointly sharing economic risk and rewards. Details of amounts paid or payable to the auditor (KPMG) for audit services provided during the year are set out below: 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 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 some non-audit services were performed by the auditors. The directors are satisfied that the provision of non-audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: all non-audit services have been reviewed by the ACRMC to ensure that they do not impact the impartiality and objectivity of the auditor; and Page 20 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2021 Distributions and Dividends 30 June 30 June 30 June 30 June 2021 2020 2021 2020 security security $’000 $’000 10.75 10.45 21,544 20,458 10.75 10.45 21,264 20,458 21.50 20.90 42,808 40,916 Stapled Securities Under Option Stapled Securities Issued on the Exercise of Options Insurance of Officers Environmental Regulation Auditor's Independence Declaration 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. 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: No provisions for or payments of Company dividends have been made during the year (2020: nil). Final Trust income distribution for the year ended 30 June 2021 to be paid on 6 September 2021 Interim Trust income distribution for the year ended 30 June 2021 paid on 5 March 2021 Total distribution for the year ended 30 June 2021 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 (Hendon, Gateway and Burvale Hotels) low levels of hydrocarbons are present and ongoing testing and monitoring is being undertaken and minor remediation work is required, however, in most cases ALE is indemnified by third parties. ALE does not expect to incur any material environmental liabilities. A copy of the Auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 23. No options over unissued stapled securities of ALE were granted during or since the end of the year. During the financial year, the Company paid a premium of $1,040,000 (2020: $393,600) to insure the directors and officers of the Company. The auditors of the Company are not indemnified out of the assets of the Company. No stapled securities were issued on the exercise of options during the financial year. Page 21 ALE Property Group DIRECTORS' REPORT For the Year ended 30 June 2021 Rounding Of Amounts This report is made in accordance with a resolution of the directors. Guy Farrands Managing Director Dated this 4th day of August 2021 Robert Mactier Chairman 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. Page 22 ALE Property Group 23 KPMG, an Australian partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved, The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization, Liability limited by a scheme approved under Professional Standards Legislation. Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To the Directors of Australian Leisure and Entertainment Property Management Limited, the Responsible Entity for Australian Leisure and Entertainment Property Trust I declare that, to the best of my knowledge and belief, in relation to the audit of ALE Property Group (comprising Australian Leisure and Entertainment Property Trust and its controlled entities including ALE Direct Property Trust, ALE Finance Company Pty Limited and Australian Leisure and Entertainment Property Management Limited) for the financial year ended 30 June 2021 there have been: i. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and ii. no contraventions of any applicable code of professional conduct in relation to the audit. PAR_SIG_01  PAR_NAM_01  PAR_POS_01  PAR_DAT_01  PAR_CIT_01            KPMG Eileen Hoggett Partner Sydney 4 August 2021 STATEMENT OF COMPREHENSIVE INCOME For the Year ended 30 June 2021 2021 2020 Note $'000 $'000 Revenue Rent from investment properties 4.1 62,473 61,408 Interest from cash deposits 4.1 99 301 Total revenue 62,572 61,709 Other income Fair value increments to investment properties 2 141,301 10,930 Fair value increments to derivatives - net 4.1 6,091 - Profit on sale of investment properties 4.1 4,230 - Total other income 151,622 10,930 Total revenue and other income 214,194 72,639 Expenses Fair value decrements to derivatives - net 3.2 - 17,306 Finance costs (cash and non-cash) 4.2 23,540 25,856 Queensland land tax expense 3,329 3,313 Management and administration expenses 7,888 6,148 Total expenses 34,757 52,623 Profit before income tax 179,437 20,016 Income tax expense/(benefit) 4.3 266 (7) Profit after income tax 179,171 20,023 179,171 20,023 Other comprehensive income - - - - Total comprehensive income for the year 179,171 20,023 Profit/(Loss) attributable to: Members of ALE 179,171 20,023 Non-controlling interest - - Profit/(Loss) for the year 179,171 20,023 Total comprehensive income attributable to: Members of ALE 179,171 20,023 Non-controlling interest - - Total comprehensive income for the year 179,171 20,023 Cents Cents Basic earnings per stapled security 4.6 90.37 10.23 Diluted earnings per stapled security 4.6 90.14 10.22 The above statement of comprehensive income should be read in conjunction with the accompanying Notes. Other comprehensive income for the year after income tax Profit attributable to stapled securityholders of ALE Page 24 ALE Property Group STATEMENT OF FINANCIAL POSITION As At 30 June 2021 2021 2020 Note $'000 $'000 Current assets Cash and cash equivalents 3.5 43,621 39,568 Investment properties held for sale 2 68,886 - Receivables 278 80 Other 1,681 709 Total current assets 114,466 40,357 Non-current assets Investment properties 2 1,225,375 1,174,160 Plant and equipment 12 25 Right of use asset - 34 Deferred tax asset 122 306 Total non-current assets 1,225,509 1,174,525 Total assets 1,339,975 1,214,882 Current liabilities Payables 5,336 6,047 Employee benefits 5.1 202 292 Lease liability - 42 Distribution payable 21,544 20,458 Total current liabilities 27,082 26,839 Non-current liabilities Borrowings 3.1 540,894 551,412 Derivatives 3.2 29,015 52,030 Total non-current liabilities 569,909 603,442 Total liabilities 596,991 630,281 Net assets 742,984 584,601 Equity Contributed equity 3.3 280,185 258,118 Reserve 779 804 Retained profits 462,020 325,679 Total equity 742,984 584,601 $ $ Net assets per stapled security $3.71 $2.99 Net tangible assets per stapled security $3.71 $2.98 The above statement of financial position should be read in conjunction with the accompanying Notes. Page 25 ALE Property Group STATEMENT OF CHANGES IN EQUITY For the Year Ended 30 June 2021 Share Capital Share Based Payments Reserve Retained Earnings Total $'000 $'000 $'000 $'000 2021 Total equity at the beginning of the year 258,118 804 325,679 584,601 Total comprehensive income for the period Profit/(Loss) for the year - - 179,171 179,171 Other comprehensive income - - - - Total comprehensive income for the year - - 179,171 179,171 Equity: Securities issued under the ALE Distribution Reinvestment Plan 22,067 - - 22,067 Employee share based payments - 223 - 223 Securities purchased - Employee share based payments - (248) (22) (270) Distribution paid or payable - - (42,808) (42,808) Total equity at the end of the year 280,185 779 462,020 742,984 2020 Total equity at the beginning of the year 258,118 782 346,669 605,569 Total comprehensive income for the period Profit/(Loss) for the year - - 20,023 20,023 Other comprehensive income - - - - Total comprehensive income for the year - - 20,023 20,023 Equity: Adjustment on initial application of AABS 16 - - (27) (27) Employee share based payments - 204 - 204 Securities purchased - Employee share based payments - (182) (70) (252) Distribution paid or payable - - (40,916) (40,916) Total equity at the end of the year 258,118 804 325,679 584,601 The above statement of changes in equity should be read in conjunction with the accompanying Notes. Page 26 ALE Property Group STATEMENT OF CASH FLOWS 2021 2020 $'000 $'000 Cash flows from operating activities Receipts from tenant and others 68,723 67,600 Payments to suppliers and employees (19,982) (15,051) Interest received - bank deposits 114 339 Net interest received - interest rate hedges - 721 Borrowing costs paid (16,688) (26,189) Net cash inflow from operating activities 32,167 27,420 Cash flows from investing activities Net proceeds from disposal of properties 25,430 - Net cash inflow from investing activities 25,430 - Cash flows from financing activities Capitalised borrowing costs paid (1,853) (4,926) Repayment of borrowings (265,000) (225,000) Proceeds from borrowings 250,000 250,000 Hedge restructure/termination payments (16,924) - Lease payments (112) (121) Distributions paid 1 (19,655) (40,916) Net cash inflow/(outflow) from financing activities (53,544) (20,963) Net increase/(decrease) in cash and cash equivalents 4,053 6,457 Cash and cash equivalents at the beginning of the year 39,568 33,111 Cash and cash equivalents at the end of the year 43,621 39,568 2021 2020 $'000 $'000 Profit for the year 179,171 20,023 Plus/(less): Fair value (increments) to investment property (141,301) (10,930) Fair value decrements to derivatives (6,091) 17,306 Profit on sale of properties (4,230) - Finance costs amortisation 4,940 907 CIB accumulated indexation 1,395 2,908 Share based payments expense 223 204 Share based payments securities purchased (270) (252) Depreciation 117 116 Decrease/(increase) in - Receivables (198) 96 Deferred tax assets 184 (10) Other assets (972) (359) Increase/(decrease) in - Payables (711) (2,587) Provisions (90) (2) Net cash inflow from operating activities 32,167 27,420 The above statement of cash flows should be read in conjunction with the accompanying Notes. For the Year Ended 30 June 2021 Reconciliation of profit after income tax to net cash inflows from operating activities 1. In the current year an amount of $22.067 million in distributions were satisfied through the issue of securities under the ALE Distribution Reinvestment Plan Page 27 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS For the Year ended 30 June 2021 1. About this report Reporting Entity Statement of compliance Basis of preparation COVID-19 Disclosures 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. The COVID-19 pandemic continues to create economic uncertainty and impacted market activity in many sectors including the pub sector where trading restrictions have been put in place. During the current year there have been varying levels of restrictions placed on corporate Australia’s ability to operate, significant volatility and instability in financial markets and the release of a number of government stimulus packages to support individuals and businesses as the Australian and global economies face significant slowdowns and uncertainties. To date there has been minimal impact on ALE's operating performance or financial position. The Directors continue to monitor the situation. During the financial period ALH has been paying rent in accordance with the requirements of the leases. Our investment properties are used by ALH as operating pubs and retail liquor outlets. In accordance with Government emergency measures the operating pubs have been subject to various levels of restrictions since the start of the pandemic. The Directors will continue to monitor the business environment to determine if there are any material impacts on ALH's operations that may impact ALE. In the event that the impacts of COVID-19 become material or more prolonged than anticipated, or if ALH does not continue to meet its rental obligations (being a key assumption underlying the property valuations), this may have an adverse impact to the fair value of ALE’s property portfolio. 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. 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 2020 to 30 June 2021. 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 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 4th August 2021. Page 28 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2021 1. About this report Rounding of amounts Accounting estimates and judgements Accounting estimates and judgements Note Investment property 2 Financial instruments 3 Significant accounting policies Principles of consolidation All balances and effects of transactions between the subsidiaries of ALE have been eliminated in full. 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. 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 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. 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. Based on these forecasts, the directors believe that it remains appropriate to prepare the financial statements on a going concern basis and have a reasonable expectation that the Group is expected to continue to operate, with headroom, within available cash levels and the terms of its debt facilities. As at 30 June 2021, the Group had net working capital of $87.4 million, no debt maturities until August 2022 and minimal capital commitments. The directors have prepared projected cash flow information from balance date to 12 months from the date of these financial statements taking into consideration the continued minimal business impacts of COVID-19 on ALE. The Directors have also considered the potential impacts if conditions change and if ALE's business is impacted. Page 29 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2021 1. About this report 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). 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 reviews significant unobservable inputs and valuation adjustments. If third party information is used to measure fair values, such as bank valuations or independent valuations 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; Page 30 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2021 2. Investment property 2021 2020 $'000 $'000 Investment properties held for sale 68,886 - Investment Properties 1,225,375 1,174,160 Total Investment properties 1,294,261 1,174,160 Reconciliation of fair value gains/losses for year ending 30 June 2021 Fair value as at beginning of the year 1,174,160 1,163,230 Additions during the year - - Disposals during the year (21,200) - Carrying amount before revaluations 1,152,960 1,163,230 Fair value as at end of the year 1,294,261 1,174,160 Fair value gain for the year 141,301 10,930 Individual valuation and carrying amounts Investment property disposals During the year the Group sold six investment properties for the total of $58.65 million. The aggregate price achieved for the properties was 24.2% in excess of the carrying value. Four of the sales were settled prior to 30 June and two will settle by the end of September 2021. Each investment property is subject to independent valuation at least once every three years. For December 2020 all properties were independently valued. At June 2021, 36 investment properties were independently valued by Savills (3) , Charter Keck Cramer (16) and CBRE (17) , representing 44% of the portfolio by number. The remaining 46 properties were subject to Directors' valuations as at 30 June 2021. The Directors' valuations of the 46 properties were determined by taking each property's net rent as at 30 June 2021 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 36 independent valuations completed at 30 June 2021 on a like for like basis. The Directors have received advice from Charter Keck Cramer, 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. The Directors have reviewed the independent valuation outcomes and determined they are appropriate to adopt as at 30 June 2021. The key inputs into the valuation are based on market information for comparable properties. The independent valuers have experience in valuing similar assets and have access to market evidence to support their conclusions. Rent determinations started in the previous years were received during September 2020. ALE is has commenced proceedings in the Supreme Court of Victoria seeking declarations that the 19 Victorian Determinations are not binding on the parties. This section provides information relating to the investment properties of the Group. Page 31 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2021 2. Investment property Accounting policy - investment properties Measurement of fair value 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. Valuations reflect, where appropriate, the tenant in occupation, the credit worthiness of the tenant, the triple-net nature and remaining term of the leases (79 of 82 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 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. 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 2021, the weighted average investment property capitalisation rate used to determine the value of all investment properties was 4.59% (2020: 5.08%). Investment property is a 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 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 more regular basis if considered appropriate 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 7.3 years. As at 30 June 2021 ALE had 36 properties independently valued. These valuations were completed by Charter Keck Cramer, Savills and CBRE. The Western Australian properties were independently valued at 31 December 2020 and these values were also adopted for the 30 June 2021 valuations. Land and buildings classified as investment property are not depreciated. 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. 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 79 of the 82 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. Page 32 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2021 2. Investment property COVID-19 Key estimates and assumptions - measurement of fair value Fair Value Hierarchy Class of Property Fair Value 30 June 2021 $000's Valuation Technique Level 3 Pubs 1,294,261 Gross rent p.a. ($'000's) $84 - $1,890 Land tax p.a. ($'000's) $8 - $193 Adopted capitalisation rate Gross rent p.a. ($'000's) $84 - $1,890 Land tax p.a. ($'000's) $8 - $193 Discount rates p.a. Terminal capitalisation rates Consumer price index p.a. 2021 2020 Average Average 4.31% 5.02% 4.67% 5.07% 4.38% 5.01% 4.95% 5.12% 6.28% 6.29% Valuations are derived from a number of factors that may include a direct comparison between the subject property and a range of comparable sales, the present value of net future cash flow projections based on reliable estimates of future cash flows, existing lease contracts, external evidence such as current market rents for similar properties, and using capitalisation rates and discount rates that reflect current market assessments of the uncertainty in the amount and timing of cash flows. The Group had investment properties with a net carrying amount of $1,294,261,000 (2020: $1,174,160,000), representing the estimated fair values. The adopted valuation for investment properties are based on valuations determined using a combination of the discounted cash flow (DCF) method and the income capitalisation method. The DCF and income capitalisation use unobservable inputs (i.e. key estimates and assumptions) in determining fair value, as per the table below: The COVID-19 pandemic has impacted market activity in many sectors in the economy and this has been particularly evident in the pub sector where trading restrictions have been put in place. Notwithstanding the uncertainty that the COVID-19 pandemic is currently having on property values, the valuation assessment undertaken by the Group and the yields achieved by the Group on the disposal of six properties during the year, indicates that good demand exists for prime assets secured by strong tenant covenants with long lease terms and yields have firmed from pre COVID-19 levels. In the event that the impacts of COVID-19 become material or more prolonged than anticipated, and ALH does not continue to meet its rental obligations (being a key assumption underlying the valuations), this may have an adverse impact to the fair value of ALE’s property portfolio. Inputs Used To Measure Fair Value 2020 2.50% - 5.29% Range of Individual Property Unobservable Inputs 3.99% - 5.48% 2021 2.47% - 7.14% 4.50% - 7.75% 3.75% - 7.00% 1.00% - 2.50% Discounted cash flow method Capitalisation method Western Australia New South Wales Victoria Queensland 5.77% - 7.14% 4.20% - 5.77% 5.80% - 6.93% 3.42% - 6.29% Adopted Yields 4.46% - 5.86% 2.80% - 5.77% Adopted Yields 2.47% - 5.26% 3.59% - 4.99% South Australia As noted above the independent valuer had regard to discounted cash flow modelling in deriving a final adopted yield although the capitalisation of income method remains the predominant method used in valuing the individual properties. Page 33 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2021 2. Investment property A definition is provided below for each of the inputs used to measure fair value: Income capitalisation method Net passing rent Net market rent An average of a 10-year period of forecast annual percentage growth rates. Adopted capitalisation rate Adopted terminal yield Adopted discount rate This method involves assessing the total net market income receivable from the property and capitalising this in perpetuity to derive a capital value, with allowances for capital expenditure reversions. Net passing rent is the contracted amount for which a property or space within a property is leased. In the calculation of net rent, the owner recovers some or all outgoings from the tenant on a pro- rata basis (where applicable). Net market rent is the estimated amount for which a property or space within a property should lease between a willing lessor and a willing lessee on appropriate lease terms in an arm’s length transaction, after proper marketing and wherein the parties have each acted knowledgeably, prudently and without compulsion. In the calculation of net rent, the owner recovers some or all outgoings from the tenant on a pro-rata basis (where applicable). The rate at which net market income is capitalised to determine the value of a property. The rate is determined with regards to market evidence and the prior external valuation. The capitalisation rate used to convert income into an indication of the anticipated value of the property at the end of the holding period when carrying out a discounted cash flow calculation. The rate is determined with regards to market evidence and the prior external valuation. The rate of return used to convert a monetary sum, payable or receivable in the future, into present value. Theoretically it should reflect the opportunity cost of capital, that is, the rate of return the capital can earn if put to other uses having similar risk. The rate is determined with regards to market evidence and the prior external valuation. Under the DCF method, a property’s fair value is estimated using explicit assumptions regarding the benefits and liabilities of ownership over the asset’s life including an exit or terminal value. The DCF method involves the projection of a series of cash flows on a real property interest. To this projected cash flow series, an appropriate, market-derived discount rate is applied to establish the present value of the income stream associated with the real property. Discounted cash flow method (DCF) 10-year average market rental growth Page 34 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2021 2. Investment property Sensitivity analysis Put and call options Ownership arrangements Due to the uncertainty the COVID-19 pandemic could have on property values, sensitivity analysis has been undertaken to further stress test the assessment of fair value undertaken for year-end reporting requirements. The following sensitivity analysis is based on a range of potential capitalisation rate and discount rate movements on a portfolio basis compared to the capitalisation rates and discount rates adopted by ALE at 30 June 2021, and are considered to be the key unobservable inputs that would be expected to have the most material impact on the fair values adopted if they moved. As noted above the independent external Valuers use a combination of DCF and Capitalisation rate approaches to determine the adopted value. The stress testing performed was based on the same metrics used by the valuers for each property to determine an adopted value. The stress testing was based on moving discount rates and pure capitalisation rates by between +0.50% to -0.50% in 0.25% increments. The resultant adopted value is shown in the table below. The results of the sensitivity analysis above demonstrates that stress testing the material key inputs by the ranges disclosed would result in a movements between of $129.3 million and ($104.9 million). This equates to between 9.96% and (8.11%) movement in values. Even at this unlikely worst case scenario, this would not result in property values approaching the 42% decrease where debt covenants would be breached. While the above sensitivity analysis provides an indication of the extent to which investment property values may move if the different rates are applicable in the future, ALE offers no forecast of future rates or values or the sufficiency of the rate movements included in the above analysis. The analysis also makes the assumption that an independent valuer will use the same proportion of Capitalisation Rate and DCF based values as they applied to the 30 June 2021 independent valuations included in these accounts. 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. 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 (or its equivalent) is to be included or excluded at the tenant’s option, subject to each relevant State's Gaming Act. 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. - (0.50%) (0.25%) 0.00% 0.25% 0.50% (0.50%) 1,423,211 1,414,478 1,405,972 1,397,239 1,389,074 (0.25%) 1,363,442 1,354,710 1,346,317 1,337,584 1,329,419 0.00% 1,311,500 1,302,654 1,294,261 1,285,528 1,277,476 0.25% 1,265,227 1,256,495 1,248,102 1,239,256 1,231,204 0.50% 1,223,378 1,214,646 1,206,253 1,197,520 1,189,355 Discount Rate Movement Capitalisation Rate Movement Page 35 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2021 2. Investment property 2021 2020 $'000 $'000 (i) Future minimum lease payments The future minimum lease payments in relation to non-cancellable leases are receivable as follows: Within one year 60,058 63,301 Later than one year but not later than five years 252,488 266,119 Later than five years 226,080 275,489 538,626 604,909 Rental income 62,473 61,408 Valuation type and date A B C Sold during the current financial year D Sold but not settled during the current financial year Properties were purchased in November 2003, unless otherwise indicated. Fair value at 30 June Fair value at 30 June Fair value gains/ 2021 2020 2021 Property $'000 $'000 $'000 $'000 New South Wales Blacktown Inn, Blacktown 5,472 B 17,130 14,300 2,830 Brown Jug Hotel, Fairfield Heights 5,660 A 17,200 15,000 2,200 Colyton Hotel, Colyton 8,208 A 24,700 21,700 3,000 Crows Nest Hotel, Crows Nest 8,772 B 29,630 23,800 5,830 Melton Hotel, Auburn 3,114 A 9,900 8,400 1,500 Narrabeen Sands Hotel, Narrabeen (Mar 09) 8,945 A 17,900 16,000 1,900 New Brighton Hotel, Manly 8,867 B 13,470 11,600 1,870 Pioneer Tavern, Penrith 5,849 A 17,900 15,400 2,500 Pritchard's Hotel, Mount Pritchard (Oct 07) 21,130 A 37,900 31,300 6,600 Smithfield Tavern, Smithfield 4,151 A 12,700 10,400 2,300 Total New South Wales properties 80,168 198,430 167,900 30,530 79 of the 82 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 to ALH on a double net basis. 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 following tables detail the cost and fair value of each of the Group's investment properties. The valuation type and date is as follows: Independent valuations conducted during June 2021 with a valuation date of 30 June 2021. Directors' valuations conducted during June 2021 with a valuation date of 30 June 2021. (ii) Amount recognised in the profit and loss Cost including additions) Valuation type and date) Leasing arrangements Page 36 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2021 2. Investment property Fair value at 30 June Fair value at 30 June gains/ (losses) 2021 2020 2021 Property $'000 $'000 $'000 $'000 Queensland Albany Creek Tavern, Albany Creek 8,396 B 22,300 18,800 3,500 Alderley Arms Hotel, Alderley 3,303 B 7,850 7,500 350 Anglers Arms Hotel, Southport 4,434 A 13,000 11,700 1,300 Balaclava Hotel, Cairns 3,304 A 15,300 13,000 2,300 Breakfast Creek Hotel, Breakfast Creek 11,024 A 27,100 23,800 3,300 Burleigh Heads Hotel, Burleigh Heads (Nov 08) 6,685 B 18,200 15,200 3,000 Camp Hill Hotel, Camp Hill 2,265 B 7,050 6,400 650 Chardons Corner Hotel, Annerly 1,416 A 4,300 3,800 500 Dalrymple Hotel, Townsville 3,208 B 15,550 13,100 2,450 Edge Hill Tavern, Manoora 2,359 A 7,500 6,300 1,200 Edinburgh Castle Hotel, Kedron (Sold June 2021) 3,114 C - 7,700 (200) Four Mile Creek, Strathpine (Jun 04) 3,672 B 10,900 9,600 1,300 Hamilton Hotel, Hamilton 6,604 B 18,750 17,000 1,750 Holland Park Hotel, Holland Park 3,774 A 17,000 15,400 1,600 Kedron Park Hotel, Kedron Park (Sold April 2021) 2,265 C - 4,800 (1,400) Kirwan Tavern, Townsville 4,434 A 14,200 12,300 1,900 Lawnton Tavern, Lawnton 4,434 A 9,300 9,800 (500) Miami Tavern, Miami1 5,548 A 19,720 15,770 3,950 Mount Gravatt Hotel, Mount Gravatt 3,208 B 8,800 7,500 1,300 Mount Pleasant Tavern, Mackay 1,794 A 13,000 10,900 2,100 Nudgee Beach Hotel, Nudgee 3,020 B 8,050 7,000 1,050 Palm Beach Hotel, Palm Beach 6,886 A 16,500 14,900 1,600 Pelican Waters, Caloundra (Sold April 2021) 4,237 C - 7,600 - Prince of Wales Hotel, Nundah 3,397 B 10,800 9,600 1,200 Racehorse Hotel, Booval 1,794 A 9,700 6,900 2,800 Redland Bay Hotel, Redland Bay 5,189 B 11,100 10,500 600 Springwood Hotel, Springwood 9,150 B 26,100 21,500 4,600 Stones Corner Hotel, Stones Corner 5,377 B 11,650 11,000 650 Vale Hotel, Townsville 5,661 B 16,650 13,600 3,050 Wilsonton Hotel, Toowoomba 4,529 B 15,225 13,400 1,825 Total Queensland properties 134,481 375,595 346,370 47,725 1. Includes adjacent lot purchased in April 2018 South Australia Aberfoyle Hub Tavern, Aberfoyle Park 3,303 B 7,900 7,200 700 Eureka Tavern, Salisbury 3,303 B 6,200 6,350 (150) Exeter Hotel, Exeter 1,888 B 5,550 5,000 550 Finsbury Hotel, Woodville North 1,605 B 4,900 4,700 200 Gepps Cross Hotel, Blair Athol 2,507 A 8,500 8,000 500 Hendon Hotel, Royal Park 1,605 A 4,950 4,200 750 Stockade Tavern, Salisbury 4,435 A 6,200 6,150 50 Total South Australian properties 18,646 44,200 41,600 2,600 Western Australia Queens Tavern, Highgate 4,812 B 10,450 10,090 360 Sail & Anchor Hotel, Fremantle 3,114 B 5,180 4,700 480 The Brass Monkey Hotel, Northbridge (Nov 07) 7,815 B 9,500 9,550 (50) Balmoral Hotel, East Victoria Park (Jul 07) 6,645 B 7,350 7,450 (100) Total Western Australian properties 22,386 32,480 31,790 690 Cost including additions) Valuation type and date) Page 37 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2021 2. Investment property Fair value at 30 June Fair value at 30 June gains/ (losses) 2021 2020 2021 Property $'000 $'000 $'000 $'000 Victoria Ashley Hotel, Braybrook 3,963 B 11,740 11,300 440 Bayswater Hotel, Bayswater 9,905 A 24,650 21,800 2,850 Berwick Inn, Berwick (Feb 06) 15,888 B 21,310 20,800 510 Blackburn Hotel, Blackburn 9,433 A 19,450 19,200 250 Blue Bell Hotel, Wendouree 1,982 B 6,030 5,500 530 Burvale Hotel, Nunawading 9,717 B 29,610 25,000 4,610 Club Hotel, Ferntree Gully 5,095 A 11,450 11,500 (50) Cramers Hotel, Preston 8,301 B 21,170 18,300 2,870 Deer Park Hotel, Deer Park 6,981 A 19,150 17,500 1,650 Doncaster Inn, Doncaster 12,169 B 33,010 26,600 6,410 Ferntree Gully Hotel/Motel, Ferntree Gully 4,718 A 9,300 9,400 (100) Gateway Hotel, Corio 3,114 B 10,250 9,800 450 Keysborough Hotel, Keysborough 9,622 A 26,650 26,500 150 Mac's Melton Hotel, Melton 6,886 A 18,300 17,000 1,300 Meadow Inn Hotel/Motel, Fawkner 7,689 B 22,950 20,000 2,950 Mitcham Hotel, Mitcham 8,584 B 19,640 17,800 1,840 Morwell Hotel, Morwell (Sold April 2021) 1,511 C - 3,100 (400) Olinda Creek Hotel, Lilydale 3,963 A 8,800 8,900 (100) Pier Hotel, Frankston 8,019 B 16,720 16,700 20 Plough Hotel, Mill Park 8,490 B 21,420 19,550 1,870 Prince Mark Hotel, Doveton 9,810 B 26,210 22,000 4,210 Royal Exchange, Traralgon 2,171 B 7,280 7,000 280 Sandbelt Club Hotel, Moorabbin 10,849 B 29,960 24,350 5,610 Sandown Park Hotel/Motel, Noble Park 6,321 B 16,640 16,000 640 Sandringham Hotel, Sandringham 4,529 B 16,720 13,000 3,720 Somerville Hotel, Somerville 2,733 A 8,900 8,500 400 Stamford Inn, Rowville 12,733 A 31,800 30,100 1,700 Sylvania Hotel, Campbellfield 5,377 A 14,100 13,350 750 The Vale Hotel, Mulgrave 5,566 A 16,850 16,000 850 Village Green Hotel, Mulgrave 12,546 B 28,260 25,550 2,710 Young & Jackson, Melbourne 6,132 A 26,350 23,400 2,950 Total Victorian properties 224,797 574,670 525,500 51,870 Total investment properties 480,478 1,225,375 1,113,160 133,415 Valuation type and date) Cost including additions) Page 38 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2021 2. Investment property Investment properties held for resale Fair value at 30 June Fair value at 30 June Fair value gains/ 2021 2020 2021 Property $'000 $'000 $'000 $'000 Boundary Hotel, East Bentleigh (Jun 08) 17,943 D 32,689 27,500 5,189 Tudor Inn, Cheltenham 5,519 A 11,850 11,900 (50) Royal Exchange Hotel, Toowong 5,755 B 10,700 10,100 600 Noosa Reef Hotel, Noosa Heads (June 2004) 6,874 D 13,647 11,500 2,147 36,091 68,886 61,000 7,886 Total Investment Properties 516,569 1,294,261 1,174,160 141,301 The Group has four investment properties held for sale at 30 June 2021. Contracts for the sale of two of these properties were exchanged prior to 30 June 2021, with settlements completed on 26 July 2021 (Noosa Reef Hotel) and to be completed on 10 September 2021 (Boundaty Hotel). Two properties (Tudor In Moorabbin Victoria and Royal Exchange Hotel Toowong Queensland) have been approved for divestment and are currently in the process of being marketed for sale. Investment properties are classified as held for sale and measured at fair value if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. This condition is met only when the sale is highly probable and the asset is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Accounting policy – Assets held for sale Cost including additions) Valuation type and date) Total Investment Properties held for resale Page 39 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2021 3. Capital structure and financing 3.1 Borrowings 2021 2020 $'000 $'000 Non-current borrowings Capital Indexed Bond (CIB) 157,838 156,336 Australian Medium Term Notes (AMTN) 298,901 149,576 Bank facilities 84,155 - Debt facility - 245,500 540,894 551,412 2021 2020 CIB $'000 $'000 Gross value of debt 111,900 111,900 Accumulated indexation 46,237 44,842 Unamortised borrowing costs (299) (406) Net balance 157,838 156,336 2021 2020 AMTN $'000 $'000 Gross value of debt 300,000 150,000 Unamortised borrowing costs (1,099) (424) Net balance 298,901 149,576 2021 2020 Bank facilities $'000 $'000 Gross value of debt 85,000 - Unamortised borrowing costs (845) - Net balance 84,155 - In March 2017 ALE issued AMTNs with a value of $150 million, maturing in August 2022. These are fixed rate securities with interest payable semi annually In March 2021 ALE issued AMTNs with a value of $150 million, maturing in August 2024. These are floating rate securities with interest payable quarterly. In March 2021 ALE entered into bank loans with a face value of $100 million, with maturities between March 2023 to March 2025. These are floating rate loans with interest payable quarterly. In June 2021 $15m of the loans were repaid. 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. The capital structure of the Group consists of debt and equity. The Directors determine the appropriate capital structure of ALE, specifically how much is raised from shareholders (equity) and how much is borrowed from others (debt) in order to finance the current and future activities of the Group. The Directors review the Group’s capital structure and distribution policy regularly and do so in the context of the Group’s ability to continue as a going concern, to invest in opportunities that grow the business and enhance securityholder value. $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. Page 40 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2021 3. Capital structure and financing 2021 2020 Debt facility $'000 $'000 Gross value of debt - 250,000 Unamortised borrowing costs - (4,500) Net balance - 245,500 Recognition and measurement Assets pledged as security 2021 2020 $'000 $'000 Current assets Cash - CIB borrowings reserves 9,920 9,920 Non-current assets Total investment properties 1,294,261 1,174,160 Less: Properties not subject to mortgages Pritchard's Hotel, NSW (37,900) (31,300) (1,470) (1,470) Properties subject to mortgages 1,254,891 1,141,390 Total assets pledged as security 1,264,811 1,151,310 Miami Hotel, QLD1 1. Adjoining property purchased in April 2018 On 24 April 2020 a $250 million debt facility was established. The facility was repaid in March 2021. 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. The carrying amounts of assets pledged as security as at the balance date for CIB borrowings and certain interest rate derivatives are: 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 41 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2021 3. Capital structure and financing Terms and Repayment Schedule All up Face Carrying Face Carrying Interest Issue Maturity Value Amount Value Amount Rate3 Rate Date1 $'000 $'000 $'000 $'000 Debt facility - repaid in March 2021 - - 250,000 250,000 AMTN 4.00% 08-Mar-2017 20-Aug-2022 150,000 150,000 150,000 150,000 CIB 3.40%2 20-May-2006 20-Nov-2023 111,900 158,137 111,900 156,742 AMTN 2.39% 24-Mar-2021 20-Aug-2024 150,000 150,000 - - Bank Loan 2.04% 29-Mar-2021 29-Mar-2023 25,000 25,000 - - Bank Loan 2.74% 29-Mar-2021 29-Mar-2024 10,000 10,000 - - Bank Loan 3.19% 29-Mar-2021 29-Mar-2025 50,000 50,000 - - 496,900 543,137 511,900 556,742 Unamortised borrowing costs (2,243) (5,330) Total borrowings 540,894 551,412 3. Interest rate payable at 30 June 2021 at the nominal rate + margin (including hedged interest rates) Reconciliation of movements in liabilities to cash flows arising from financing activities CIB Borrowings AMTN Borrowings Bank facility borrowings Debt Facility Borrowings Total Borrowings Balance as at 1 July 2020 156,336 149,576 - 245,500 551,412 Changes from financing cash flows New borrowings 150,000 100,000 - 250,000 Repayment of borrowings - - (15,000) (250,000) (265,000) Payment of borrowing costs (939) (914) (1,853) Total changes from financing cash flows - 149,061 84,086 (250,000) (16,853) Other changes Amortisation of capitalised borrowing costs 107 264 69 4,500 4,940 Accumulated indexation 1,395 - - - 1,395 Total other changes 1,502 264 69 4,500 6,335 Balance as at 30 June 2021 157,838 298,901 84,155 - 540,894 Fair value Carrying Fair Carrying Fair Amount Value Amount Value Classification $'000 $'000 $'000 $'000 30 June 2020 CIB Level 2 157,838 172,253 156,336 167,384 AMTN - August 2022 maturity Level 2 149,840 153,171 149,576 153,793 AMTN - August 2024 maturity Level 2 149,061 150,915 - Bank facilities Level 2 84,155 85,000 - - Debt facility Level 2 - - 245,500 250,000 540,894 561,339 551,412 571,177 30 June 2020 30 June 2021 30 June 2020 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: 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. 30 June 2021 Page 42 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2021 3. Capital structure and financing 3.2 Financial Risk Management ● credit risk ● market risk ● liquidity risk 3.2.1 Credit risk Cash Trade and other receivables 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. The Trust and Group have exposure to the following risks from their use of financial instruments: 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 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. Credit risk on cash is managed through ensuring all cash deposits are held with authorised deposit taking institutions. 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 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. The Group has considered the collectability and recoverability of trade receivables. When 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. Page 43 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2021 3. Capital structure and financing 3.2.2 Market risk Interest rate risk Profile 2021 2020 $'000 $'000 Derivative financial assets - - Derivative financial liabilities (29,015) (52,030) Borrowings CIB (157,838) (156,336) AMTN (298,901) (149,576) Bank facilities1 (84,155) - Debt facility1 - (245,500) (569,909) (603,442) 1. The Bank and Debt facilities debt are floating rate. Its market value is therefore not affected by changes in interest rates. Sensitivity analysis 100 bps 100 bps 100 bps 100 bps increase decrease increase decrease $'000 $'000 $'000 $'000 30 June 2021 Interest rate hedges 14,844 (15,621) 18,442 (19,698) CIB - - - - AMTN - - - - Debt facility - - 14,844 (15,621) 18,442 (19,698) At the reporting date, ALE's interest rate sensitive financial instruments were as follows: 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 CPI, remain constant. This analysis was performed on the same basis for 2020. 30 June 2021 30 June 2020 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 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. 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 interest rates rise, to the extent that interest rate derivatives (hedges) are not in place to fully hedge the exposure, distributable profit levels would be expected to decline from the levels that they would otherwise have been, and vice- versa. ALE also has property assets that are leased on a long term basis 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. Page 44 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2021 3. Capital structure and financing Consumer price index risk Profile 2021 2020 $'000 $'000 Financial instruments Investment properties 1,294,261 1,174,160 CIB (157,838) (156,336) 1,136,423 1,017,824 Sensitivity analysis for variable rate instruments 100 bps 100 bps 100 bps 100 bps increase decrease increase decrease $'000 $'000 $'000 $'000 30 June 2021 Investment properties 13,375 - 11,560 - CIB - - - - 13,375 - 11,560 - Property valuation risk 3.2.3 Liquidity 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 may in turn flow through to investment property valuations. 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. This analysis was performed on the same basis for 2020. 30 June 2021 30 June 2020 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. At the reporting date, ALE's CPI sensitive financial instruments were as follows: 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 monitoring gearing levels and has contingency capital management plans to ensure that sufficient headroom may be restored if required. 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 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 return on cash 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. Page 45 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2021 3. Capital structure and financing Contractual cash flows 6 months or less 6-12 months 1-2 years 2-5 years More than five years 30 June 2021 $'000 $'000 $'000 $'000 $'000 $'000 Non-derivative financial liabilities Trade and other payables (5,336) (5,336) - - - - CIB (179,355) (2,706) (2,730) (5,533) (168,386) - AMTN - August 2022 (159,000) (3,000) (3,000) (153,000) - - AMTN - August 2024 (161,702) (1,468) (1,485) (3,434) (155,315) - Bank facilities (93,306) (1,062) (1,068) (27,327) (63,849) - Derivative financial instruments Interest rate hedges (31,281) (524) (460) (4,822) (25,475) - (629,980) (14,096) (8,743) (194,116) (413,025) - 30 June 2020 Non-derivative financial liabilities Trade and other payables (6,047) (6,047) - - - - CIB (193,040) (2,606) (2,623) (5,328) (182,483) - AMTN (165,000) (3,000) (3,000) (6,000) (153,000) - Debt facility (264,240) (1,974) (3,391) (258,875) - Derivative financial instruments Interest rate hedges (56,562) (1,705) (3,376) (7,089) (38,113) (6,279) (684,889) (15,332) (12,390) (277,292) (373,596) (6,279) Interest rates used to determine contractual cash flows The following are the contracted maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements. 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 46 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2021 3. Capital structure and financing Interest rate hedges 2021 2020 $'000 $'000 Current assets - Non-current assets - - Total assets - - Current liabilities - - Non-current liabilities (29,015) (52,030) Total liabilities (29,015) (52,030) Net assets/(liabilities) (29,015) (52,030) Current year fair value adjustments to derivatives 2021 2020 $'000 $'000 Fair value increments/ (decrements) to interest rate hedge derivatives 6,091 (17,306) Recognition and measurement At 30 June 2021, the notional principal amounts and periods of expiry of the interest rate hedge contracts are as follows: 2021 2020 2021 2020 2021 2020 $'000 $'000 $'000 $'000 $'000 $'000 Less than 1 year - - - - - - 1 - 2 years - - - - - - 2 - 3 years - - - - - - 3 - 4 years - - - - - - 4 - 5 years 476,000 - - - 476,000 - Greater than 5 years - 506,000 - - - 506,000 Borrowing Interest Rate Deposit Interest Rate Net Hedge Position ALE has fixed rate and variable rate debt. Where debt is at variable rate, interested rate swaps have been put in place to fix this. Also, forward start interest rate swaps have been put in place that start when the existing fixed rate debt expires. As a result of this fixed rate debt and swaps, 100% of ALE’s debt is a fixed at a weighted average cost of between 2.00% and 3.53% for a duration of 4.4 years. 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 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 profit and loss. The gain or loss from marking to market the interest rate hedges (derivatives) at fair value is taken directly to the profit and loss. ALE has a series of forward start borrowing hedges in place. The current forward start borrowing hedge commences in August 2020 and increases on maturity of both the fixed rate August 2022 AMTN and the November 2023 CIB borrowings, extending out to November 2025. Page 47 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2021 3. Capital structure and financing Financial covenants Interest Cover Ratio covenants (ICR) Borrowing Current Ratio Consequence CIB >42.5x AMTN 3.38x Bank Facilities 3.38x Hedging 3.38x Definitions Interest amounts include all interest rate derivative rate swap payments and receipts EBITDAR - Earnings before Interest, Tax, Depreciation, Amortisation and Rent The difference between the net debt and the amount hedged is approximately the amount of current fixed rate debt on issue. The following chart shows the hedge balances to November 2025. Stapled security distributions lockup Hedge counterparty may call for hedging to be closed out As per AMTN ICR covenant 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: Note holders may call for notes to be redeemed Lender may call for loan to be repaid ALH EBITDAR to be greater than 7.5 times CIB interest expense ALE DPT EBITDA to be greater than or equal to 1.5 times ALE DPT interest expense As per AMTN 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 4.4 years at 30 June 2021. Page 48 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2021 3. Capital structure and financing Rating covenant Borrowing Current Rating Consequence AMTN Baa2 Bank facilities Baa2 Loan to Value Ratio covenants (LVR) Borrowing Current Ratio Consequence CIB 12.6% CIB 12.6% AMTN 10.8% AMTN 36.4% AMTN 36.4% Bank facilities - Hedging - Definitions Net Total Assets Total Assets less Cash less Derivative Assets less Deferred Tax Assets. (ALE DPT) Net Priority Debt Net Finance Debt As per AMTN above Published rating of Ba1/BB+ or lower results in a step up margin of 1.25% to be added to the interest rate payable As per AMTN above Covenant Stapled Security distribution lockup Note holders may call for notes to be redeemed Note holders may call for notes to be redeemed Net Finance Debt is not permitted to exceed 60% of Net Total Assets Net Finance Debt is not permitted to exceed 60% of Net Total Assets 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 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 Note holders may call for notes to be redeemed Hedge counterparty may call for hedging to be closed out Net Priority Debt is not permitted to exceed 20% of Net Total Assets Note holders may call for notes to be redeemed Lender may call for loan to be repaid Published rating of Baa3/BBB- or lower results in a step up margin of 0.25% to be added to the interest rate payable. Rating of Ba1/BB+ or lower results in a further 1% added to the interest rate payable AMTN issue rating to be maintained at investment grade (i.e. at least Baa3/BBB-) ALE DPT rating to be maintained at investment grade (i.e. at least Baa3/BBB-) 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, Debt facility 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 2021 and 30 June 2020, ALE and its subsidiaries were in compliance with all the above covenants. Page 49 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2021 3. Capital structure and financing 3.3 Equity 2021 2020 $'000 $'000 Balance at the beginning of the period 258,118 258,118 Issue of securities under the ALE Distribution Reinvestment Plan 22,067 - 280,185 258,118 Movements in the number of fully paid stapled securities during the year 2021 2020 Opening balance 195,769,080 195,769,080 Issue of securities under the ALE Distribution Reinvestment Plan 4,638,443 - Closing balance 200,407,523 195,769,080 Measurement and recognition Stapled securities 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 4.31% in the Trust as a result of the issue of NIVUS. The NIVUS are disclosed in the Company and the Trust financial reports but are not disclosed in the ALE Property Group financial report as they are eliminated on consolidation. The NIVUS were issued to ensure the Responsible Entity maintained sufficient Net Tangible Assets to satisfy the requirements of the company's AFSL Licence. 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. 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. Page 50 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2021 3. Capital structure and financing 3.4 Capital management Capital management 3.5 Cash and cash equivalents 2021 2020 $'000 $'000 Cash at bank and in hand 31,508 4,575 Deposits at call 2,193 25,073 Cash reserve 9,920 9,920 43,621 39,568 Recognition and measurement Cash obligations 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 its Australian Financial Services License. During the year ended 30 June 2021 all cash assets were placed on deposit with various banks. As at 30 June 2021, the weighted average interest rate on all cash assets was 0.30% (2020:0.66%). 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. 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 total gearing ratios (total liabilities as a percentage of total assets) at 30 June 2021 and 30 June 2020 were 44.5% and 51.9% respectively. The covenant 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 2021 and 30 June 2020 were 36.4% and 41.3% respectively. 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. An amount of $9.92 million (2020: $9.92 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. Page 51 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2021 4. Business performance 4.1 Revenue and income 2021 2020 $'000 $'000 Revenue Rent from investment properties 62,473 61,408 Interest from cash deposits 99 301 Total revenue 62,572 61,709 Other income Fair value increments to investment properties 141,301 10,930 Fair value increments to derivatives 6,091 - Profits on sale of investment properties 4,230 - Other income - - Total other income 151,622 10,930 Total revenue and other income 214,194 72,639 Recognition and measurement Revenue Rental income Interest income 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. 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. 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%. In September 2020 Rent Determinations on 43 properties were received. As at 30 June 2021 the weighted average interest rate earned on cash was 0.30% (2020: 0.66%) Page 52 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2021 4. Business performance 4.2 Finance costs 2021 2020 $'000 $'000 Finance costs - cash Capital Indexed Bonds (CIB) 5,331 5,285 Australian Medium Term Notes (AMTN) 6,771 16,174 Interest rate derivative payments/(receipts) 119 (656) Bank facilities 582 - Debt Facility 4,206 943 Other finance expenses 196 295 17,205 22,041 Finance costs - non-cash Accumulating indexation - CIB 1,395 2,908 Amortisation - CIB 107 97 Amortisation - AMTN 181 304 Amortisation - AMTN discount 83 80 Amortisation - Bank loans 69 - Amortisation - Debt facility 4,500 426 6,335 3,815 Finance costs (cash and non-cash) 23,540 25,856 Recognition and measurement Finance costs details 4.3 Taxation Reconciliation of income tax expense 2021 2020 $'000 $'000 Profit before income tax 179,437 20,016 Profit attributable to entities not subject to tax 179,483 20,005 Profit/(Loss) before income tax expense subject to tax (46) 11 Tax at the Australian tax rate (14) 3 Share based payments (14) (14) Tax losses not recoverable 300 - Other (6) 4 Income tax expense/(benefit) 266 (7) Current tax expense/(benefit) 82 - Deferred tax expense/ (benefit) 184 (7) Income tax expense/(benefit) 266 (7) Interest expense is recognised on an accruals basis. Borrowing costs are recognised using the effective interest rate method. Amounts represent net cash finance costs after derivative payments and receipts. 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. The prima facie income tax expense on profit before income tax reconciles to the income tax expense in the financial statements as follows: Page 53 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2021 4. Business performance 4.3 Taxation (continued) Recognition and measurement Trusts Current tax Deferred tax Offsetting deferred tax balances 4.4 Remuneration of auditors 2021 2020 $ $ Audit services KPMG Australian firm: Audit and review of the financial reports - in relation to current year 194,458 175,785 - in relation to prior year - - Total remuneration for audit services 194,458 175,785 KPMG Australian firm: Other services 7,244 - Total remuneration for all services 201,702 175,785 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. 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 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. 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 54 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2021 4. Business performance 4.5 Distributable income 2021 2020 $'000 $'000 Profit after income tax 179,171 20,023 Plus /(less) Fair value adjustments to investment properties (141,301) (10,930) Fair value adjustments to derivatives - net (6,091) 17,306 Profits on sale of investment properties (4,230) - Employee share based payments 223 204 Finance costs - non cash 6,335 3,815 Income tax expense 266 (7) Adjustments for non-cash items (144,798) 10,388 Total available for distribution 34,373 30,411 Distribution paid or provided for 42,808 40,916 Distributions made in excess of Distributable Income (8,435) (10,505) Distribution funded as follows Current year distributable income 34,373 30,411 Securities issued: Distribution reinvestment plan * 12,210 9,857 Capital and surplus cash (3,775) 648 42,808 40,916 4.6 Earnings per security Basic earnings per stapled security 2021 2020 Profit attributable to members of the Group ($000's) 179,171 20,023 Weighted average number of stapled securities 198,266,757 195,769,080 Basic earnings per security (cents) 90.37 10.23 Diluted earnings per stapled security 2021 2020 Profit attributable to members of the Group ($000's) 179,171 20,023 Weighted average number of stapled securities 198,773,934 195,911,039 Diluted earnings per security (cents) 90.14 10.22 Reconciliation of profit after tax to amounts available for distribution: 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. 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 securities for FY20 issued under the Distribution Reinvestment Plan were issued on September 2020 but related to June 2020 distribution, and therefore the comparative has been updated accordingly. Page 55 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2021 4. Business performance 2021 2020 Distributable income attributable to members of the Group ($000's) 34,373 30,411 Number of stapled securities at the end of the year 200,407,523 195,769,080 Distributable income per security (cents) 17.15 15.53 Distributed income per security 2021 2020 (Cents) (Cents) Distributable income per stapled security 17.15 15.53 Distribution paid per stapled security 21.50 20.90 Distributions made in excess of Distributable Income (4.35) (5.37) Distribution funded as follows Current year distributable income 17.15 15.53 Securities issued: Distribution reinvestment plan 6.09 5.04 Capital and surplus cash (1.74) 0.33 Capital and surplus cash 21.50 20.90 Distributable profit per security 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. 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. 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. Page 56 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2021 5. Employee benefits 5.1 Employee benefits 2021 2020 $'000 $'000 Employee benefits provision: Current 202 292 Recognition and measurement 5.2 Key management personnel compensation 2021 2020 $ $ Short term employee benefits 2,298,999 1,899,277 Post employment benefits 122,305 109,766 Other long term benefits 149,628 28,429 Share based payments 185,500 203,538 Termination benefits 193,961 - 2,950,393 2,241,010 Recognition and measurement Wages and salaries, annual leave and sick leave Bonus and incentive plans Long service leave 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. 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. 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. 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. 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. Page 57 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2021 5. Employee benefits 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 58 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2021 6. Other 6.1 Changes to accounting policies 6.2 New accounting standards • • • • • 6.3 Segment reporting Business segment This section provides details on other required disclosures relating to the Group to comply with the accounting standards and other pronouncements. The Group has not made any significant changes to Accounting Policies in the current year. 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 ALE Property Group. Comparative information has been presented in conformity with the requirements of AASB 8 Operating Segments. The Group has applied the following standards and amendments for the first time for its annual reporting period commencing 1 July 2020: AASB 2018-7 Amendments to Australian Accounting Standards – Definition of Material [AASB 101 and AASB 108] AASB 2018-6 Amendments to Australian Accounting Standards – Definition of a Business [AASB 3] AASB 2019-3 Amendments to Australian Accounting Standards – Interest Rate Benchmark Reform [AASB 9, AASB 139 and AASB 7] AASB 2019-5 Amendments to Australian Accounting Standards – Disclosure of the Effect of New IFRS Standards Not Yet issued in Australia [AASB 1054] Conceptual Framework for Financial Reporting and AASB 2019-1 Amendments to Australian Accounting Standards – References to the Conceptual Framework The amendments listed above did not have any material impact on the amounts recognised in the current year. 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 (2020: 100%). Non pub rental income comprises less than 1% of total revenue. Page 59 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2021 6. Other 6.4 Events occurring after balance date 6.5 Contingent liabilities and contingent assets Bank guarantee 6.6 Investments in controlled entities 6.7 Related party transactions Parent entity and subsidiaries Details are set out in Note 6.6 and 6.8. Key management personnel Transactions with related parties Robert Mactier is a consultant to UBS AG. UBS AG has provided debt lead management services to ALE in the past and may 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. No transactions that involved UBS AG were performed during the year. ALE has a bank guarantee of $112,388 in respect of the a new office tenancy at Level 28, Suite 28.01, 264 George Street, Sydney. 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. Key management personnel and their compensation are set out in the Remuneration Report on Page 19. For the year ended 30 June 2021, the Company received $6,304,287 of expense reimbursement from the Trust (2020: $4,477,922), and the Finance Company charged the Sub Trust $6,833,310 interest (2020: $8,307,406). The COVID-19 pandemic and lockdowns subsequent to year end continues to create economic uncertainty and impacted market activity in many sectors including the pub sector where trading restrictions have been put in place. To date, ALE continues to receive rental income in accordance with the agreed lease arrangements with ALH. Prior to issuing this report, management consulted with the independent valuers who undertook the valuations as at 30 June 2021 as to whether any events subsequent to balance date have changed their view of the 30 June 2021 valuations. The independent valuers and management are of the opinion that appropriate considerations have been made at 30 June and there has been no changes to the valuations subsequent to balance date. Apart from the above, 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. ALE has a bank guarantee of $73,273 in respect of the office tenancy at Level 10, 6 O'Connell Street, Sydney. This tenancy has ceased and the bank guarantee will be returned to the Company. The Noosa Reef Hotel that sold prior to 30 June 2021 for $11.3 million settled on 26 July 2021. The Boundary Hotel is due to settle on 10 September 2021. Page 60 ALE Property Group NOTES TO THE FINANCIAL STATEMENTS (Continued) For the Year ended 30 June 2021 6. Other Terms and conditions 6.8 Parent Entity Disclosures 2021 2020 $'000 $'000 Profit for the year 25,270 20,695 Financial position of the parent entity Current assets Cash 21 21 Non-current assets Investments in controlled entities 275,656 275,656 Total assets 275,677 275,677 Current Payables 54,433 59,533 Provisions 21,544 20,458 Total liabilities 75,977 79,991 Net assets 199,700 195,686 Issued units 273,984 252,431 Retained earnings (74,284) (56,745) Total equity 199,700 195,686 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. As at, and throughout, the financial year ending 30 June 2021 the parent entity of ALE was Australian Leisure and Entertainment Property Trust. Page 61 ALE Property Group DIRECTORS' DECLARATION For the Year ended 30 June 2021 (a) (i) (ii) (b) (c ) (d) This declaration is made in accordance with a resolution of the Directors. Robert Mactier Guy Farrands Chairman Managing Director In the opinion of the directors of the Australian Leisure and Entertainment Property Management Limited (the Company) as responsible entity of the Australian Leisure and Entertainment Property Trust: 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 2021. The directors draw attention to Note 1 to the financial statements, which includes a statement of compliance with International Financial Reporting Standards. Dated this 4th day of August 2021 the financial statements and notes that are set out on pages 24 to 61 and the Remuneration report contained in Section 9 of the Directors’ report, are in accordance with the Corporations Act 2001 , including there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable. giving a true and fair view of the Group's financial position as at 30 June 2021 and of its performance for the financial year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001; Page 62 ALE Property Group 63 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. Independent Auditor’s Report To the stapled security holders of ALE Property Group Report on the audit of the Financial Report Opinion We have audited the Financial Report of ALE Property Group (the Stapled Group). In our opinion, the accompanying Financial Report of the Stapled Group is in accordance with the Corporations Act 2001, including:  giving a true and fair view of the Stapled Group’s financial position as at 30 June 2021 and of its financial performance for the year ended on that date; and  complying with Australian Accounting Standards and the Corporations Regulations 2001. The Financial Report of the Stapled Group comprises:    Consolidated Statement of financial position as at 30 June 2021;  Consolidated Statement of comprehensive income, Consolidated Statement of changes in equity, and Consolidated Statement of cash flows for the year then ended;  Notes including a summary of significant accounting policies; and  Directors’ Declaration. The Stapled Group consists of the Australian Leisure and Entertainment Property Management Limited and Australian Leisure and Entertainment Property Trust and the entities it controlled at the year-end or from time to time during the financial year. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Stapled Group, Australian and Leisure Entertainment Property Trust and Australian Leisure and Entertainment Property Management Limited (the Responsible Entity) in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code. 64 Key Audit Matters Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Report of the current year. This matter was addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on this matter. Valuation of Investment Properties ($1,225.4m) and Assets held for sale ($68.9m) Refer to Note 2 to the Financial Report The key audit matter How the matter was addressed in our audit The valuation of investment properties and assets held for sale is a key audit matter due to the significance of the balance and judgment required by us in assessing the key valuation assumptions, methodologies and the final adopted values. The Stapled Group's investment properties comprise direct ownership of 82 freehold hotels of which 78 are classified as investment properties (non-current) and 4 are classified as assets held for sale (current). All 82 properties have long-term lease agreements in place with Australian Leisure and Hospitality Group (ALH). The Stapled Group’s policy is investment properties are subject to external valuation at least once every three years. At 30 June 2021, 36 properties were valued by external valuers and 44 properties were internally valued by the Directors’ and 2 properties are valued based on the executed sales contract. We focused on the important features of the Stapled Group’s investment property valuation process. In order of application, these included:  Key assumptions and methodology adopted in the external valuations: being capitalisation rates, discount rates, terminal yield and future rental income inputs (net passing rent, net market rent and 10 year average market rental growth) to the capitalisation rates (cap rate) and discounted cash flow (DCF) methodology. A key feature of the long- term leases that Our procedures included:  Understanding the Stapled Group’s process regarding the valuation of investment properties, including how potential COVID-19 impacts have been considered;  Assessing the methodologies used in the valuations of investment properties for consistency with accounting standards and the Stapled Group policies;  Assessing the scope, competence and objectivity of external valuers engaged by the Stapled Group and internal valuers; For all externally valued investment properties:  Enquire with the external valuers (Savills, CKC and CBRE) to challenge the investment property valuation methodology and the assumptions applied in the external valuations;  Challenging key assumptions including: capitalisation rates, discounts rates, terminal yield and future rental income inputs focusing on the outliers when compared to properties within the same region by considering publicly available sales evidence (including the investment properties sold by the Stapled Group during 2021), historical data and the property specific attributes including location, asset condition, land area and actual passing income;  Challenging the Stapled Group’s final investment property value by comparing the cap rate and DCF valuations, taking into consideration differences to property specific 65 impact DCF values are the rental assessments in 2018 and 2028 upon reversion to market based levels of rent.  Judgements in assessing the results: the Stapled Group adopts a final property value based on their evaluation of the results of the external valuers’ work, taking into consideration property specific attributes. We spent significant effort in assessing the Stapled Group’s judgements, their consistent application and available market comparators  COVID-19 considerations: we also paid particular attention to knowledge and sources of information available regarding market conditions specific to year end, versus those uncertainties or market knowledge at different dates.         attributes. These include location, asset condition, trading performance, land area and proximity to the next market rent reassessments;    Inspecting the outcome of the Stapled Group’s 2018 rental determinations and how it was considered in the internal/external investment properties valuations;  Consulted with KPMG real estate valuation specialists to gain an understanding of prevailing market conditions, including existence of market transactions, and application of the Stapled Group’s valuation methodologies;    We assessed sources of information for what reasonable expectations existed at year end date versus those issues or observations emerging since year end, and their impact to the Stapled Group’s investment properties values;   For all internally valued investment properties:  Inspecting the advice obtained from the external valuers on the weighted average change in capitalisation rates, including any outliers, and its application by the Directors’ for internal valuations of investment properties; For the properties classified as assets held for sale:  Obtaining the executed sales contracts (where relevant) and inspecting the board meeting minutes evidencing the investment properties divestment plan and approval;  Assessing the classification and measurement of assets held for sale against accounting standard requirements; and For financial statement disclosure:    Assessing the disclosures in the financial report including checking the sensitivity analysis calculations, using our understanding obtaining from our testing, against accounting standard requirements. 66 Other Information Other Information is financial and non-financial information in ALE Property Group’s annual reporting which is provided in addition to the Financial Report and the Auditor’s Report. The Directors of the Responsible Entity are responsible for the Other Information. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit opinion or any form of assurance conclusion thereon. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of the Directors for the Financial Report The Directors are responsible for:  preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001;  implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error; and  assessing the Stapled Group’s ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Stapled Group to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objective is:  to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and  to issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Report. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our Auditor’s Report. 67 Report on the Remuneration Report of Australian and Entertainment Property Management Limited The information below is a reproduction of our opinion on the Remuneration Report of Australian Leisure and Entertainment Property Management Limited, (the Company) as the Responsible Entity of Australian and Leisure Entertainment Property Trust. Opinion In our opinion, the Remuneration Report of Australian Leisure and Entertainment Property Management Limited for the year ended 30 June 2021, complies with Section 300A of the Corporations Act 2001. Directors’ responsibilities The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001. Our responsibilities We have audited the Remuneration Report included on pages 13 to 19 of the Directors’ report for the year ended 30 June 2021. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG Eileen Hoggett Partner Sydney 4 August 2021 INVESTOR INFORMATION For the Year ended 30 June 2021 Securityholders The securityholder information as set out below was applicable as at 6 July 2021. A. DISTRIBUTION OF EQUITY SECURITIES Range Number of Holders Number of Securities % of Issued Capital 1 - 1,000 1,047 353,172 0.18 1,001 - 5,000 1,703 4,803,391 2.40 5,001 - 10,000 923 6,965,179 3.48 10,001 - 100,000 1,427 37,156,528 18.53 100,001+ 106 151,129,253 75.41 Total 5,206 200,407,523 100.00 B. TOP 20 EQUITY SECURITYHOLDERS The names of the 20 largest security holders of stapled securities are listed below Rank Name Number of Securities % of Issued Capital 1 UBS Nominees Pty Ltd 26,562,878 13.25 2 Citicorp Nominees Pty Limited 19,198,328 9.58 3 Endeavour Group Limited 17,845,446 8.90 4 Brispot Nominees Pty Ltd 15,069,064 7.52 5 HSBC Custody Nominees (Australia) Limited 12,566,866 6.27 6 HSBC Custody Nominees (Australia) Limited - A/C 2 10,451,749 5.22 7 HSBC Custody Nominees (Australia) Limited-GSCO ECA 5,593,606 2.79 8 J P Morgan Nominees Australia Pty Limited 5,353,695 2.67 9 HSBC Custody Nominees (Australia) Limited-GSI ESA 4,790,719 2.39 10 Manderrah Pty Ltd 2,045,745 1.02 11 National Nominees Limited 1,967,121 0.98 12 CS Third Nominees Pty Limited 1,808,575 0.90 13 Buttonwood Nominees Pty Ltd 1,547,503 0.77 14 Mr Alastair Charles Griffin 1,397,876 0.70 15 Mr Edward Furnival Griffin 1,397,875 0.70 16 Netwealth Investments Limited 1,188,676 0.59 17 Manderrah Pty Ltd 1,117,789 0.56 18 Mr David Stewart Field 812,000 0.41 19 Bt Portfolio Services Limited 742,494 0.37 20 Bond Street Custodians Limited 700,000 0.35 Totals: Top 20 Holders of Stapled Securities 132,158,005 65.94 Totals: Remaining Holders Balance 68,249,518 34.06 C. SUBSTANTIAL HOLDERS Substantial holders of ALE (as per notices received as at 6 July 2021) are set out below: Stapled SName Number of Securities % of Issued Capital Caledonia (Private) Investments Pty Ltd 81,551,851 40.69 Endeavour Group Limited 17,845,446 8.90 UBS Group AG 16,146,007 8.06 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 395. Page 68 ALE Property Group INVESTOR INFORMATION For the Year ended 30 June 2021 D. VOTING RIGHTS The voting rights attaching to each class of equity securities are set out below: (a) Stapled securities (b) NIVUS 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. 2021 2020 04 Aug Full Year Results, Annual Review / Report 16 Dec Credit Rating and Property Compendium released 11 Dec Half Year distribution of 10.75 cents declared 09 Jul Property valuations increased by 7.6% 11 Dec Capital Management Update 05 Jul Substantial Holder notice from Endeavour Group 11 Dec Capital Management Update 01 Jul Ceasing to be a substantial holder from WOW 17 Nov Annual General Meeting 29 June Amended Company Constitution 16 Nov Property Valuation - 31 October 2020 29 June Amended Trust Constitution 19 Oct Rent Determinations 28 Jun UBS Group AG substantial holding to 8.06% 01 Oct CEO Transition 22 Jun UBS Group AG substantial holding to 10.7% 16 Sep Caledonia increases substantial holding to 41.23% 18 June Half Year distribution of 10.75 cents declared 14 Aug Taxation Components of Distribution 18 June Full Year distribution of 21.50 cents announced 05 Aug Full Year Results, Annual Review / Report 15 Jun UBS Group AG substantial holding to 8.71% and Property Compendium released 08 Jun UBS Group AG substantial holding to 10.67% 05 Aug Property valuations increased by 0.94% 07 Jun Change of Securityholder Registry 23 Jun Half Year distribution of 10.45 cents declared 03 Jun Sale of Non-Core Properties 23 Jun Full Year distribution of 20.90 cents announced 22 Apr Distribution Policy DRP Update 14 May CEO Succession 18 Mar Capital Management Update 27 Apr Debt Capital Management Update 25 Feb Taxation components of Distribution 27 Apr New Debt Facility 10 Feb Half Year results released 03 Apr Caledonia increases substantial holding to 39.63% 05 Mar 1st half distribution payment 24 Feb 17 Feb Taxation Components of Distribution 26 Oct Annual General Meeting 05 Feb Half Year results released 06 Sep 2nd half distribution payment 04 Feb Property valuations as at 31 December 2019 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. 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 200,407,523 units have been issued by the Trust to stapled securityholders. The NIVUS therefore represent 4.33% of the voting rights of the Trust. The following events will occur after the date of this Annual Report: UBS Group AG increases substantial holding to 7.02% Page 69 ALE Property Group INVESTOR INFORMATION For the Year ended 30 June 2021 Stock Exchange Listing Securityholder Enquiries Registered Office Distribution Reinvestment Plan Level 28:02 Australia Square Tower 264 George Street, Sydney NSW 2000 Telephone (02) 8231 8588 Distributions Company Secretary Michael Clarke Level 28:02 Australia Square Tower 264 George Street, Sydney NSW 2000 Electronic Payment of Distributions Telephone (02) 8231 8588 Auditors KPMG Level 38, Tower Three International Towers Sydney 300 Barangaroo Avenue Sydney NSW 2000 Annual Tax Statement The Trust Company Limited Level 13, 123 Pitt Street Sydney NSW 2000 Trustee (of ALE Direct Property Trust) Publications The Trust Company (Australia) Limited Level 13, 123 Pitt Street Sydney NSW 2000 Registry Link Market Services Locked Bag A14, Sydney South, NSW 1235 Level 12, 680 George Street, Sydney NSW 2000 Telephone 1300 554 474 Email: registrars@linkmarketservices.com.au www.linkmarketservices.com.au Website Securityholders must 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. The ALE Property Group (ALE) is listed on the Australian Securities Exchange (ASX). Its stapled securities are listed under ASX code: LEP. Please contact the registry if you have any questions about your holding or payments. ALE has established a distribution reinvestment plan. Details of the plan are available on the ALE website. From 1 July 2021 Stapled security distributions are paid quarterly, normally in November, February, May and August. Custodian (of Australian Leisure and Entertainment Property Trust) 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. The ALE website, www.alegroup.com.au, is a useful source of information for stapled securityholders. ASX announcements are also included. The ALE property website, www.aleproperties.com.au, provides further detailed information on ALE's property portfolio. Securityholders wishing to take advantage of payment by direct credit should contact the registry for more details and to obtain an application form. 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. Page 70 ALE Property Group

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