Annual Report 2018
Convenience Retail REIT No. 1 ARSN 101 227 614
Convenience Retail REIT No. 2 ARSN 619 527 829
Convenience Retail REIT No. 3 ARSN 619 527 856
Convenience Retail REIT is a listed Australian Real Estate Investment
Trust (“REIT”) (ASX code: CRR) that wholly owns a portfolio of 69 service
station and convenience retail assets located across Australia with a skew
towards the eastern seaboard, independently valued at $340 million. The
portfolio is leased to high-quality tenants on attractive, long-term leases.
The objective of the REIT is to provide investors with sustainable and stable
income and the potential for both income and capital growth through
annual rental increases.
CONTENTS
02
04
05
06
07
08
13
16
23
24
25
59
61
LETTER FROM THE FUND MANAGER
ABOUT THE MANAGER
SENIOR MANAGEMENT
DIVERSIFIED PORTFOLIO
STRONG LEVEL OF INCOME SECURITY
ACCRETIVE ACQUISITIONS
FINANCIAL REPORT
Directors' Report
Corporate Governance Statement
Auditor's Independence Declaration
Independent Auditor's Report
SUMMARY OF SECURITYHOLDERS
CORPORATE DIRECTORY
Performance snapshot
Financial Performance
$2.87
NTA
PER SECURITY
▲ 5.1% from IPO
18.5c
18.1c
FFO
PER SECURITY
▲ 1.6% on PDS forecast
DISTRIBUTION
PER SECURITY
▲ 1.1% on PDS forecast
Portfolio Performance
12.6yrs
WEIGHTED AVERAGE
LEASE EXPIRY
$12.8m
VALUATION
UPLIFT
100%
OCCUPANCY
▲ 0.4% since IPO
Capital Management
31.7%
GEARING
2.6yrs
WEIGHTED AVERAGE
DEBT MATURITY
4.5x
INTEREST COVER
CONVENIENCE RETAIL REIT 1
CONVENIENCE RETAIL REIT 1
LETTER FROM THE FUND MANAGER
Dear Investor,
It is my pleasure to present the first Annual Report for
Convenience Retail REIT (CRR or ‘the Fund’) for the
financial year ended 30 June 2018.
Since listing on 27 July 2017, I am pleased to report
that CRR has performed strongly, delivering Funds from
Operations (FFO) of $14.6 million, or 18.5 cents per
security in the period to 30 June 2018 which is 1.6%
above the PDS forecast.
Investors received distributions over the same period of
$14.3 million or 18.1 cents per security, which represents
an increase of 1.1% on the 17.9 cents per security
guidance provided in the PDS and is in line with the
updated guidance provided in February 2018.
The positive performance was primarily driven by asset
acquisitions. These acquisitions were accretive to the
Fund's earnings having been acquired on a weighted
average capitalisation rate of 6.9%.
Net tangible assets per security rose from $2.73 at listing
to $2.87 at 30 June 2018.
Diversified and defensive, long lease portfolio
CRR’s portfolio is well diversified by geography, tenant and
site type. The portfolio is underpinned by long term leases
to high quality and experienced global operators, with
97% of the portfolio income being derived directly from the
major service station tenants.
The portfolio is unique and considered difficult to replicate
given the limited availability of strategically located land
which is not impacted by zoning restrictions.
Service station and convenience retail properties remain in
high demand, with the asset class regarded as defensive
given the non-discretionary nature of fuel sales being one
of the attractive features for investors.
As at 30 June 2018, the portfolio comprised 69 properties,
valued at $340.4 million, with a weighted average
capitalisation rate of 7%. The portfolio is 100% occupied.
CRR is well positioned to deliver sustainable long-term
income growth through the portfolio’s contracted weighted
average annual rent increases of 2.9%. The portfolio’s long
weighted average lease expiry of 12.6 years and 76%
of lease income expiring in FY30 and beyond provides
investors with a strong level of income security.
During the period, 44 properties, or 64% of the portfolio,
were independently revalued, resulting in a property
portfolio valuation uplift of $12.8 million and contributing to
the net tangible assets per security increasing by 14 cents
to $2.87 at 30 June 2018.
Accretive acquisitions
During the period, CRR successfully completed the
acquisitions of Durack, Dakabin and Moree and on
20 August 2018 committed to acquiring a highway service
station in Mount Larcom. Collectively, these four properties
were acquired for $27.4 million, reflecting a weighted
average capitalisation rate of 6.9% and an average WALE
of 14.1 years. All four properties were acquired off-market.
Durack, QLD
Durack was acquired in October 2017 for $5.25 million,
reflecting a capitalisation rate of 6.8%. The property is
an established metropolitan service station anchored
by 7-Eleven and supported by an established and long-
standing mechanic. The property is underpinned by a
weighted average lease expiry of 11.2 years and the lease
to 7-Eleven, which accounts for 86% of the rental income,
is subject to annual rent reviews of 4%. The property
underwent a significant refurbishment in 2015 which
included the installation of entirely new underground tank
and line infrastructure.
Dakabin, QLD
7-Eleven Dakabin was acquired in December 2017 for
$4.38 million on a capitalisation rate of 6.8% and is a new
to industry service station which opened in August 2016.
The property is ideally situated on a prominent intersection
in one of Australia’s fastest growing regions, providing
outstanding exposure to high volumes of traffic. The
property benefits from 13.7 years remaining on the lease to
7-Eleven.
Moree, NSW
Puma Moree is a new to industry service station which
opened in January 2018. It was acquired in April 2018 for
$10.4 million at a capitalisation rate of 7%. The property,
which occupies a significant parcel of land and is perfectly
situated on the Newell Highway before the recently
constructed Moree bypass, is underpinned by a brand new
15 year lease with fixed 3% annual rent escalations.
Mount Larcom, QLD
The site formerly contained a service station and small
caravan park which was redeveloped into a brand new,
modern highway service centre. Construction completed,
and the service station opened in May 2018. CRR entered
into an unconditional contract to purchase the property
on 20 August 2018 for $7.3 million, representing a
capitalisation rate of 6.8%. The property is well located on
the Bruce Highway and provides direct highway linkage
within the fuel network chain and so will remain a key asset
for all major fuel and energy companies. The property is
secured by a new 15 year lease to Puma Energy with fixed
3% annual rent escalations.
We have worked hard to establish strong relationships with
property owners and developers and these transactions
demonstrate our ability to identify opportunities and our
disciplined approach to property acquisitions to ensure that
they enhance the portfolio and investor returns.
Capital management
Total drawn debt at 30 June 2018 was $110.6 million
resulting in a gearing ratio of 31.7%, within our target range
of 25 to 40% and the weighted average debt maturity was
2.6 years, with 54% of debt hedged. The Fund's gearing
ratio will increase to 33.2% following settlement of Mount
Larcom in September 2018.
We continue to take an active approach to managing the
Fund’s capital to create value for securityholders. In this
regard, the Board has reviewed opportunities to source
and apply capital including selective property acquisitions
and divestments, opportunities to invest across the
portfolio to enhance value at the property level, as well as
the opportunity to acquire the Fund’s own securities. As
part of these considerations the Board has considered
the current valuation of the Fund’s property portfolio, its
gearing position and debt capacity as well as the liquidity
and trading price of the Fund’s securities on the ASX. As
a result, the Board has approved the establishment of an
on-market securities buy-back program for up to 5.0%
of CRR’s securities on issue. The establishment of this
program permits the opportunistic acquisition of securities
if considered to be in the best interests of securityholders.
Outlook
CRR will continue to actively manage its portfolio and
capital to deliver attractive and sustainable returns to
securityholders.
The Fund is well positioned, it has sustainable income
growth which is underpinned by long term leases with
contracted annual rent increases and a prudent level of
gearing.
FY19 FFO guidance is 21.3 – 21.7 cents per security,
representing an increase of 5.4 – 7.4% on FY18
(annualised) and an increase of 3.4 – 5.3% on the PDS
forecast.
Distributions guidance is 20.9 cents per security, which is
3% above the PDS forecast.
This guidance includes the acquisition of Mount Larcom
and is subject to current market conditions continuing and
no unforeseen events and assumes no further acquisitions.
If you would like to discuss your investment in Convenience
Retail REIT please feel free to contact me. I would like to
thank you for your ongoing support and look forward to a
successful FY19.
Yours sincerely,
Chris Brockett
Fund Manager
Convenience Retail REIT
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CONVENIENCE RETAIL REIT 3
CONVENIENCE RETAIL REIT 3
ABOUT THE MANAGER
SENIOR MANAGEMENT
The Responsible Entity and Manager of Convenience Retail REIT is APN Funds Management Limited (APN FM). APN FM is a
wholly owned subsidiary of APN Property Group Limited (APN).
Established in 1996, APN is listed on the ASX and manages $2.8 billion (as at 30 June 2018) of real estate and real estate
securities. APN trades on the ASX under the code “APD”.
APN Property Group - aligned and experienced manager
Strong investor
alignment
• APN is strongly aligned
to delivering investor
returns – owning a $26
million co-investment
stake
• Simple and transparent
sliding fee structure
– no additional
transactional or
performance fees
Focused and
dedicated
management
team
• Dedicated Fund
Manager and
management team
• Leveraging 18 average
years of experience in
real estate
Governance
overseen
by majority
independent
Board
• Majority independent
Board, ensuring robust
governance framework
• 30 years average
experience and
Director roles on
Boards including Sims
Metal, MetLife, QV
Equities, Folkestone,
and the Chairman
was a member of the
Takeovers Panel for
nine years
Manager with
long track
record and deep
relationships
across capital
and investment
markets
• Relationships generate
leasing, investment
opportunities and
access to multiple
capital sources
• Founded in 1996 and
grown to $2.8 billion
under management
– including direct
and listed real estate
mandates
Jessie Chen
Head of Accounting -
Managed Funds
Jessie has extensive experience
across financial reporting, internal
controls and external audit, and
leads a team that is responsible for
accounting, taxation and treasury
across all managed funds at APN
Property Group.
Prior to joining APN, Jessie’s
professional career includes over
eight years at Deloitte where she
provided assurance and advisory
services to a range of ASX listed,
multinational and boutique wealth
management companies reporting
under international accounting
standards.
She holds a Bachelor of Commerce/
Media & Communications from the
University of Melbourne, and is a
member of Chartered Accountants
Australia and New Zealand.
Gordon Korkie
Senior Analyst
Gordon has over nine years’
experience in the property industry
across retail, office and industrial
sectors, working across funds
management, corporate advisory,
investment management and investor
relations. Gordon joined APN funds
management in August 2016 with
previous roles at Federation Centres
(now Vicinity Centres) and within
equity research at Credit Suisse.
Gordon holds a Bachelor of
Management Studies (1st Class
Honours) from the University of
Waikato and a Master of Commerce
from the University of New South
Wales.
Chris Brockett
Fund Manager
Chris joined APN in March 2016
and was previously responsible for
managing the Direct Property Funds
business before the listing of the
Convenience Retail REIT.
Chris has over 10 years of experience
in direct real estate, funds and asset
management, predominately in the
retail property space.
Prior to joining APN, Chris was
with Vicinity Centres for over 10
years, where he held a number
of senior roles including Head of
their Unlisted Funds Management
business (formerly known as Centro
MCS Direct Property) where he
was responsible for funds under
management of $1.7 billion,
comprising 75 properties, across a
number of Australian, New Zealand
and US unlisted property funds. More
recently, he has been responsible for
managing Vicinity Centres’ key joint
venture partnerships.
Chris holds a Bachelor of Business
at Swinburne University and is also a
member of the Institute of Chartered
Accountants Australia and New
Zealand.
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DIVERSIFIED PORTFOLIO
STRONG LEVEL OF INCOME SECURITY
Portfolio overview as at 30 June 2018
89%
of portfolio located in
Australia’s eastern seaboard states
~78% of Australia’s population live in the
eastern seaboard states1
69
INVESTMENT
PROPERTIES
$340m
PORTFOLIO
VALUE
7.03%
WEIGHTED
AVERAGE
CAP RATE
100%
OCCUPANCY
(by area)
12.6 yrs
WALE
(by area)
43,598
NLA
(sqm)
65%
11%
21%
3%
Queensland
Investment properties
Value ($m)
Weighted avg cap rate
Occupancy (by area)
WALE (years by area)
52
222.9
7.05%
100%
12.7
New South Wales
Investment properties
Value ($m)
Weighted avg cap rate
Occupancy (by area)
WALE (years by area)
8
72.9
6.77%
100%
13.6
Western Australia
Investment properties
Value ($m)
Weighted avg cap rate
Occupancy (by area)
WALE (years by area)
7
36.0
7.56%
100%
11.4
Victoria
Investment properties
Value ($m)
Weighted avg cap rate
Occupancy (by area)
WALE (years by area)
2
8.5
6.62%
100%
4.1
Lease expiry profile (by income)
No. of service station
tenant expiries:
15
4
1
3
6
16
17
7
22.6%
0.6%
of income expiring
76%
of lease income
expiring FY30 and
beyond
30.7%
17.0%
7.9%
9.8%
0.4%
0.2%
0.3%
0.2%
0.5%
0.1%
5.3%
3.8%
1.2%
FY18
FY9 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY30 FY31 FY32 FY33 FY34 FY35 FY36
Rent review type by income
CPI
20%
80%
of income subject
to fixed annual
increases of
3% or more
2.9%
Average annual
rental growth
across the
portfolio1
Fixed at 3.0%
or greater
80%
Portfolio by classification
Top tenants by income
Regional 15%
Highway
20%
85% of the portfolio are
metropolitan or highway sites
Puma
68%
Woolworths
19%
7-Eleven
9%
Metropolitan
65%
Viva Energy
1%
Complementary
retail
3%
Major tenants account for
97% of portfolio income
1 Assuming CPI of 2.0%
1 ABS 3101.0 - Australian Demographic Statistics, Dec 2017. Eastern Seaboard states defined as NSW, VIC, QLD.
6 CONVENIENCE RETAIL REIT ANNUAL REPORT 2018
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CONVENIENCE RETAIL REIT 7
ACCRETIVE ACQUISITIONS
PUMA
MOUNT LARCOM
The site formerly contained a service
station and small caravan park which was
redeveloped into a brand new, modern
highway service centre. Construction
completed, and the service station opened
in May 2018.
The property is well located on the
Bruce Highway between Gladstone and
Rockhampton and provides direct highway
linkage within the fuel network chain and
so will remain a key asset for all major fuel
and energy companies.
The property is secured by a new 15 year
lease to Puma Energy with fixed 3% annual
rent escalations.
6.8%
CAPITALISATION RATE
15.0yrs
WEIGHTED AVERAGE
LEASE EXPIRY
3.0%
WEIGHTED AVERAGE
ANNUAL RENT
INCREASES
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ACCRETIVE ACQUISITIONS
ACCRETIVE ACQUISITIONS
7- ELEVEN
DURACK
7- ELEVEN
DAKABIN
6.8%
CAPITALISATION RATE
11.2yrs
WEIGHTED AVERAGE
LEASE EXPIRY
3.7%
WEIGHTED AVERAGE
ANNUAL RENT
INCREASES
6.8%
CAPITALISATION RATE
13.7yrs
WEIGHTED AVERAGE
LEASE EXPIRY
CPI
ANNUAL RENT REVIEW
STRUCTURE
An established metropolitan service station anchored by 7-Eleven,
which accounts for 86% of the rental income, and supported by an
established and long-standing mechanic.
The property underwent a significant refurbishment in 2015 which
included the installation of entirely new underground tank and line
infrastructure.
A new to industry service station which opened in August 2016,
Dakabin is ideally situated on a prominent intersection in one of
Australia’s fastest growing regions, providing outstanding exposure
to high volumes of traffic.
The property benefits from 13.7 years remaining on a lease to
7-Eleven.
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ACCRETIVE ACQUISITIONS
PUMA
MOREE
7.0%
CAPITALISATION
RATE
15.0yrs
WEIGHTED AVERAGE
LEASE EXPIRY
3.0%
ANNUAL RENT
INCREASES
A new to industry service station which
opened in January 2018, the property
occupies a significant parcel of land and is
perfectly situated on the Newell Highway
before the recently constructed Moree
bypass.
Puma entered into a brand new 15 year
lease prior to settlement with fixed 3%
annual rent escalations.
FINANCIAL REPORT
12 CONVENIENCE RETAIL REIT ANNUAL REPORT 2018
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‘Convenience Retail REIT’
being Convenience Retail REIT No. 2 and its Controlled Entities
ARSN 619 527 829
Stapling arrangement
The ‘Convenience Retail REIT’ stapled group (“Group”) was established on 27 July 2017 by
stapling the securities of the following entities:
• Convenience Retail REIT No.1 (previously APN Property Plus Portfolio);
• Convenience Retail REIT No.2 (previously APN Retail Property Fund); and
• Convenience Retail REIT No.3.
These consolidated financial statements represent the consolidated results of Convenience
Retail REIT No.2 for the period 1 July 2017 to 26 July 2017 and the Group from 27
July 2017 to 30 June 2018. Prior period comparative information represents the results
of Convenience Retail REIT No.2 only, from its establishment date of 16 December
2016 to 30 June 2017.
FINANCIAL REPORT
CONTENTS
Directors’ Report
Corporate Governance Statement
Auditor’s Independence Declaration
Independent Auditor’s Report
Directors’ Declaration
Consolidated statement of profit or loss and other comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
About this report
1 General information
2 Statement of compliance
3 Critical accounting judgements and key sources of estimation uncertainty
Performance
4 Segment information
5
Investment properties
Capital structure, financing and risk management
6 Contributed equity
7 Non-controlling interests
8 Distributions
9 Earnings per security
10 Borrowings
11 Capital risk management
12 Financial and risk management
13 Commitment and contingencies
Efficiency of operation
14 Cash and cash equivalents
15 Trade and other receivables
16 Trade and other payables
Other notes
17 Income taxes
18 Related party transactions
19 Controlled entities
20 Remuneration of auditors
21 Parent entity financial information
22 Subsequent events
23 Adoption of new and revised accounting standards
16
23
24
25
29
30
31
32
33
34
34
34
34
35
35
35
35
41
41
42
42
43
43
47
47
49
50
50
51
52
53
53
53
54
56
57
57
58
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CONVENIENCE RETAIL REIT 15
CONVENIENCE RETAIL REIT 15
DIRECTORS' REPORT
DIRECTORS' REPORT
The Directors of APN Funds Management Limited during or since the end of the financial year are:
Geoff Brunsdon
B.Com, FCA, F Fin, FAICD
Independent Chairman
• Director since 2009.
• Chairman since 2012.
Member of the Audit, Risk &
Compliance Committee and member
of the Nomination & Remuneration
Committee.
Geoff has had a career in investment
banking spanning more than 30
years. He is currently Chairman of
Sims Metal Management Ltd, MetLife
Insurance Ltd and IPE Ltd. He is a
Director of The Wentworth Group of
Concerned Scientists and Purves
Environmental Custodians.
Geoff was previously Managing
Director and Head of Investment
Banking of Merrill Lynch International
(Australia) Limited until 2009.
Geoff was a member of the Listing
Committee of the Australian Stock
Exchange between 1993 and
1997, a member of the Takeovers
Panel between 2007 and 2016 and
Chairman of Redkite (supporting
families who have children with
cancer) until 2015 and is now a
Patron. He is a Fellow of FINSIA, a
Fellow of the Institute of Company
Directors and a Fellow of Chartered
Accountants Australia & New
Zealand.
Jennifer Horrigan
BBus, GradDipMgt, GradDipAppFin, MAICD
Independent Director
Michael Johnstone
BTRP, LS, AMP (Harvard)
Independent Director
• Director since 2012.
• Director since 2009.
Chairman of the Audit, Risk &
Compliance Committee and member
of the Nomination & Remuneration
Committee.
Chairman of the Nomination &
Remuneration Committee and
member of the Audit, Risk &
Compliance Committee.
Jennifer brings 25 years’ experience
across investment banking, financial
communications and investor
relations. She was formerly the
Chief Operating Officer in Australia
of the independent investment bank
Greenhill & Co. She has extensive
experience in enterprise management,
including the supervision and
management of compliance, HR and
financial management.
Jennifer is also a director of QV
Equities (ASX: QVE) and is Chairman
of Redkite (national cancer charity
supporting children and young people
with cancer and their families) and
a Director of Breast Cancer Trials
(leading independent clinical trials
body in Australia & NZ).
Michael has 40 years of global
business experience in chief
executive and general management
roles and more recently in non-
executive directorships. He has lived
and worked in overseas locations
including the USA, has been
involved in a range of industries and
has specialised in corporate and
property finance and investment,
property development and funds
management. His career has included
lengthy periods in corporate roles
including 10 years as one of the
Global General Managers of the
National Australia Bank Group. He
has extensive experience in mergers
and acquisitions, capital raising and
corporate structuring.
Michael is a non-executive director
of the responsible entity of the listed
Folkestone Education Trust. He is also
a non-executive director of a number
of unlisted companies and has had
considerable involvement in the not
for profit sector.
Howard Brenchley
BEc
Independent Director
• Director since 1998.
• Independent Director since March
Michael Groth
BCom, BSc, DipIFR, CA
Alternate Director for
Howard Brenchley
Chantal Churchill
BSc(Psych), DipHRM
Company Secretary
• Company Secretary since
• Alternate Director since March
December 2016.
Chantal is the Company Secretary for
the APN Group and is responsible for
the company secretarial, corporate
governance, risk management and
compliance functions.
Chantal has over 15 years’
experience in corporate governance,
risk management and compliance
across the financial services industry.
Prior to joining APN in 2015, Chantal
held compliance and risk roles at
Arena Investment Management,
Tabcorp and Invesco Australia.
Chantal is a member of the
Governance Institute of Australia.
2018.
2014.
Michael’s professional career
includes over seven years with
KPMG Melbourne, where he worked
closely with a number of major listed
companies and stockbrokers before
moving to the United Kingdom to
work in the financial services industry
and for a government regulatory
body.
Since joining APN in 2006, Michael
has had broad exposure across
all areas of the group, and was
appointed Chief Financial Officer in
June 2014. Michael is responsible
for accounting, taxation and treasury
across the business and is a key
contributor to setting APN’s direction
and strategy.
Howard has a long history in the
Australian property investment
industry with over 30 years’
experience analysing and investing
in the sector. Howard joined APN
FM in 1998 and was responsible for
establishing the APN FM business.
In this capacity he developed a
suite of new property securities and
direct property funds, including the
flagship APN AREIT Fund and the
APN Property for Income Fund, both
market leading property securities
funds in Australia.
Prior to joining APN FM, Howard was
co-founder and research director of
Property Investment Research Pty
Limited, one of Australia’s leading
independent research companies,
specialising in the property fund
sector.
Howard is also a director of APN PG
(since 1998) and National Storage
Holdings Limited (since 2014) and
National Storage Financial Services
Limited (since 2015), both listed as
National Storage REIT (ASX Code:
NSR).
16 CONVENIENCE RETAIL REIT ANNUAL REPORT 2018
CONVENIENCE RETAIL REIT 17
DIRECTORS' REPORT
DIRECTORS' REPORT
The directors of APN Funds Management Limited (“APN FM”), the Responsible Entity of Convenience Retail REIT No. 2
(previously APN Retail Property Fund) (the “Fund”) present the financial report on the consolidated entity (the “Group”), being
the Fund and its controlled entities, for the financial year ended 30 June 2018. The Fund is one of three entities that together
comprise the stapled ASX listed entity, Convenience Retail REIT (“Convenience Retail REIT”).
To comply with the provisions of the Corporations Act 2001, the directors report as follows:
Information about the Directors
The following persons were directors of the Responsible Entity during the financial year and up to the date of this report:
(Independent Chairman)
• Geoff Brunsdon
(Independent Director)
• Howard Brenchley
• Jennifer Horrigan
(Independent Director)
• Michael Johnstone (Independent Director)
• Michael Groth
(Alternate Director for Howard Brenchley)
Meetings of Directors
The following table sets out the number of directors’ meetings (including meetings of committees of directors for APN FM),
held during the financial year and the number of meetings attended by each director (while they were a director or committee
member).
APN FM Board
Audit, Compliance
and Risk Management
Committee
Nomination and
Remuneration Committee
Directors
Held
Attended
Held
Attended
Held
Attended
Geoff Brunsdon
Jennifer Horrigan
Michael Johnstone
Howard Brenchley
Michael Groth(i)
(i) Alternate for Howard Brenchley.
13
13
13
13
13
12
13
12
11
13
10
10
10
N/A
N/A
10
10
9
N/A
N/A
2
2
2
N/A
N/A
2
2
2
N/A
N/A
Principal activities
The principal activity of the Group is to own and manage a quality portfolio of convenience retail properties that offer relatively
secure income streams and have the potential for capital growth. The parent entity of the Group is Convenience Retail REIT
No. 2 (the “Fund”).
The Fund was registered with the Australian Securities and Investments Commission (“ASIC”) on 6 June 2017. It began
operations on 16 December 2016 and was an unregistered wholesale fund from 16 December 2016 to 5 June 2017.
On 28 June 2017, the Fund, in conjunction with APN Property Plus Portfolio (subsequently renamed to Convenience Retail
REIT No. 1) and Convenience Retail REIT No. 3 issued a Product Disclosure Statement (“PDS”) seeking to raise up to
$162.2 million in equity through an Initial Public Offer (“IPO”) and listing on the Australian Securities Exchange (“ASX”).
The IPO proposal involved the combination of the assets of the Fund with a larger portfolio of properties (via the stapling of
its securities to securities of two other property funds and the acquisition of additional convenience retail properties) that was
successfully completed and commenced trading on the ASX on 27 July 2017 (ASX ticker “CRR”).
The Group did not have any employees during the period.
Significant changes in the state of affairs
Other than the Fund commencing trading on the ASX on 27 July 2017, there were no significant changes in the state of
affairs of the Group during the financial year.
Review of operations
The principal investment objective of the Group is to invest in convenience retail properties that provide investors with a high
and consistent income distribution that maintains its real value for the life of the Group.
The results of the operations of the Group are disclosed in the consolidated statement of profit or loss and other
comprehensive income which comprise the results of the Fund for the period 1 July 2017 to 26 July 2017 and the Group
from 27 July 2017 to 30 June 2018. Prior period comparative information represents the results of the Fund for the financial
period 16 December 2016 to 30 June 2017.
The Group’s total comprehensive income was $15,867,000 for the financial year ended 30 June 2018 (30 June 2017: loss of
$4,737,000). A summary of Convenience Retail REIT’s results for the financial year is as follows:
Net property income
Straight line rental income
Interest income
Total revenue
Management fees
Corporate costs
Finance costs
Total expenses
Pro-forma net profit1
Transaction costs on IPO and liquidity offer
Fair value loss on derivatives
Fair value gain / (loss) on investment properties
Statutory net profit / (loss)
1 July 2017 to
26 July 2017
$’000
27 July 2017 to
30 June 2018
$’000
627
154
3
784
(60)
8
(148)
(200)
584
-
-
(154)
430
20,721
4,612
55
25,388
(1,876)
(645)
(4,222)
(6,743)
18,645
(4,017)
(142)
951
15,437
2018
$’000
21,348
4,766
58
26,172
(1,936)
(637)
(4,370)
(6,943)
19,229
(4,017)
(142)
797
15,867
1 Pro-forma net profit is presented before IPO and liquidity offer transaction costs and fair value adjustments associated with investment properties and other
financial assets in accordance with the presentation format outlined in Convenience Retail REITs PDS dated 28 June 2017.
18 CONVENIENCE RETAIL REIT ANNUAL REPORT 2018
CONVENIENCE RETAIL REIT 19
DIRECTORS' REPORT
DIRECTORS' REPORT
The Responsible Entity uses the Group’s Funds from Operations (‘FFO’) as an additional performance indicator. FFO
is calculated in accordance with the Property Council of Australia’s best practice guidelines and adjusts the total
comprehensive income for certain non-cash and other items as outlined below.
Funds from Operations:
Total comprehensive income for the period
Adjusted for:
Straight line lease revenue recognition
Fair value (gain) / loss on investment properties
Fair value (gain) / loss on derivatives
IPO and liquidity offer transaction costs expensed
Amortisation borrowing costs
Amortisation leasing costs and rent-free adjustments
FFO
Key financial performance metrics:
FFO per security (cents)
Distributions per security (cents)
Payout Ratio (Distribution per security / FFO per security)
Statutory earnings / (loss) per security (cents per security)
Weighted average securities on issue (thousands)
Securities on issue (thousands)
Distribution declared (thousands)
27 July 2017 to
30 June 2018
$’000
15,437
(4,612)
(951)
142
4,017
540
35
14,608
18.51 c
18.13 c
98%
19.56 c
78,920
78,920
$14,309
Net tangible assets and asset valuations
As at balance date, 18 properties were subject to external independent valuations performed by Savills Valuations Pty Ltd.
As a result of this exercise, the value of these properties increased by $4.76 million primarily due to the annual rent increases
as well as a tightening of the portfolio’s weighted average market capitalisation rate from 7.17% at IPO to 6.91%.
The remaining 51 properties were the subject of Directors’ valuations as at 30 June 2018. This portfolio increased by $0.88
million, predominantly due to the tightening of the capitalisation rate at Kempsey Service Centre by 25 basis points and the
annual rent increase at Durack.
Overall, the entire portfolio increased in valuation by $5.64 million as at balance date.
Market Overview
Investment demand for service station and convenience retail properties continues to be strong, with the sector experiencing
significant yield compression and increased transaction volumes over the past five years, with the average yield recorded on
sales transactions across Australia’s eastern seaboard compressing by approximately 97 basis points during the period from
2011 to 2018.
Long leases, strong lease covenants, contracted annual increases and a transition into a broader retail offering by service
stations continues to ensure investors are attracted to the sector. The demand for this asset class has been largely driven by
the private investor and self-managed super-fund markets, with the asset class offering the ability to secure investments with
blue-chip lease covenants at an attainable price point.
Auditor’s Independence
Declaration
A copy of the external auditor’s independence declaration,
as required under section 307C of the Corporations Act
2001 is set out on page 24.
Options granted
As the Group is an externally managed vehicle, no options
were:
• granted over unissued securities in the Group during or
since the end of the financial year; or
• granted to the Responsible Entity.
No unissued securities in the Group were under option as
at the date on which this report is made.
No securities were issued in the Group during or since the
end of the financial year as a result of the exercise of an
option over unissued securities in the Group.
Indemnification of officers of the
Responsible Entity and auditors
APN Funds Management Limited (“APN FM”) in its capacity
as the Responsible Entity of the Group has agreed to
indemnify the directors and officers of APN FM and its
related body corporate, both past and present, against all
liabilities to another person (other than APN FM or a related
body corporate) that may arise from their position as
directors and officers of APN FM and its controlled entities,
except where the liability arises out of conduct involving a
lack of good faith. APN FM will meet the full amount of any
such liabilities, including costs and expenses. In addition,
APN FM has paid a premium in respect of a contract
insuring against a liability incurred by an officer of the
Group. Under the contract of insurance, disclosure of the
nature of the insured liabilities and the amount of premium
paid is prohibited. The APN FM has not indemnified or
made a relevant agreement to indemnify the auditor of the
Group or of any related body (corporate) against a liability
incurred by the auditor.
Distributions
Distributions of $14,734,000 were declared by the Group
during the financial year ended 30 June 2018 (2017:
$2,807,000).
For full details of distributions paid and/or payable during
the financial year, refer to note 8 of the consolidated
financial statements.
Matters subsequent to the end of
the financial year
On 20 August 2018 the Group executed a contract
to acquire Puma Mount Larcom, a newly constructed
highway service station located at 53793 Bruce Highway,
Mount Larcom, QLD. The purchase price is $7.3 million
and settlement is expected to occur in late August 2018.
There has not been any matter or circumstance occurring
subsequent to the end of the financial year that has
significantly affected, or may significantly affect, the
operations of the Group, the results of the Group, or the
state of affairs of the Group in future financial years.
Non-audit services
During the year, the auditor of the Group performed certain
other services in addition to their statutory duties.
The directors of the Responsible Entity have considered
the non-audit services provided during the year by the
auditor and in accordance with written advice provided
by resolution of the audit committee, is satisfied that the
provision of those non-audit services during the year by the
auditor is compatible with, and did not compromise, the
auditor independence requirements of the Corporations
Act 2001 for the following reasons:
• all non-audit services were subject to the corporate
governance procedures adopted by the Responsible
Entity and have been reviewed by the Board to ensure
they do not impact the integrity and objectivity of the
auditor; and
• none of the services undermine the general principles
relating to auditor independence as set out in Code
of Conduct APES 110 Code of Ethics for Professional
Accountants issued by the Accounting Professional &
Ethical Standards Board, including reviewing or auditing
the auditor’s own work, acting in a management or
decision-making capacity for the Group, acting as
advocate for the Group or jointly sharing economic risks
and rewards.
Non-audit services relate to audit of compliance plan and
other approved advisory services, which amounted to
$388,420 (2017: $1,000) for the year ended 30 June 2018.
20 CONVENIENCE RETAIL REIT ANNUAL REPORT 2018
CONVENIENCE RETAIL REIT 21
DIRECTORS' REPORT
CORPORATE GOVERNANCE STATEMENT
Fund information in the Directors’ report
Fees paid to the Responsible Entity during the financial year are disclosed in note 18 to the consolidated financial
statements. The Responsible Entity and its associates’ security holdings in the Group are also disclosed in note 18.
The number of securities in the Group issued, bought back and cancelled during the financial year, and the number of
securities on issue at the end of the financial year is disclosed in note 6 to the consolidated financial statements.
The value of the Group’s assets as at the end of the financial year is disclosed in the consolidated statement of financial
position as “total assets” and the basis of valuation is included in note 5 to the consolidated financial statements.
Howard Brenchley, an independent Director of the Responsible Entity holds 39,075 securities in the Group as at 30 June
2018 (2017: 100,000). No other directors own securities, or rights or options over securities in the Group.
Rounding of amounts
The Group is an entity of the kind referred to in ASIC Corporations (Rounding in Financials/Directors’ Reports) Instrument
2016/191, dated 24 March 2016, and in accordance with that Corporations Instrument, amounts in the directors’ report and
the financial report have been rounded to the nearest thousand dollars, unless otherwise stated.
Signed in accordance with a resolution of the directors of the Responsible Entity made pursuant to s.306(3) of the
Corporations Act 2001.
On behalf of the directors
Geoff Brunsdon
Director
Melbourne, 21 August 2018
Convenience Retail REIT (Fund) is a triple stapled entity comprising of the following three managed investment schemes
(MIS):
• Convenience Retail REIT No. 1;
• Convenience Retail REIT No. 2; and
• Convenience Retail REIT No. 3
Securityholders in the Fund hold a unit of each of the above entities that are stapled together, such that an individual unit
in one of the above entities may not be transferred or dealt with without the others. The Fund is listed on the Australian
Securities Exchange (ASX) under code CRR.
APN Funds Management Limited is the Responsible Entity (APN FM or Responsible Entity) of each of the three MIS’s.
APN FM is a wholly owned subsidiary of APN Property Group Limited (APN PG), a company listed on the ASX. APN PG
and its subsidiaries together are referred to as the “APN Group” in this Statement. APN FM oversees the management
and strategic direction of APN’s listed and unlisted managed investment schemes and mandates (APN Funds) in its role as
responsible entity, trustee and/or manager.
The board of APN FM (Board) comprises four Independent Directors (including the Chairman), one of whom is also an
APN PG Director. Each Director has a legal obligation to put the interests of investors in the funds for which APN FM is
responsible entity and/or trustee of ahead of their own and those of APN FM’s sole shareholder, APN PG.
The Responsible Entity is committed to achieving and demonstrating the highest standards of governance. The Fund’s
Corporate Governance Statement (Statement) has been prepared in accordance with the principles and recommendations
set by the ASX Corporate Governance Council (Corporate Governance Principles and Recommendations 3rd Edition)
(Recommendations), and any departure from these Recommendations are stated below.
The Responsible Entity’s governance framework, as summarised in the Statement has been designed to ensure that the
Fund meets its ongoing statutory obligations, discharges its responsibilities to all stakeholders and acts with compliance and
integrity.
The Statement outlines the main corporate governance practices in place throughout the financial year ended 30 June 2018
(Reporting Period) and incorporates the requirements of market regulators, adopted codes and charters, documented
policies and procedures and guidance from industry best practice. These policies and practices remain under regular review
as the corporate governance environment and good practices evolve.
The full corporate governance statement is available on the Fund website at: http://www.crreit.com.au/about-us/corporate-
governance/.
As APN FM does not employ staff directly the necessary management and resources for the operation of the Fund are
provided by APN PG. For this reason, staff are governed by APN Group policies. The policies, charters and codes referred to
in this Statement are available on the Fund’s website at https://crreit.com.au/about-us/corporate-governance/.
22 CONVENIENCE RETAIL REIT ANNUAL REPORT 2018
CONVENIENCE RETAIL REIT 23
AUDITOR’S INDEPENDENCE DECLARATION
INDEPENDENT AUDITOR’S REPORT
Deloitte Touche Tohmatsu
ABN 74 490 121 060
550 Bourke Street
Melbourne VIC 3000
GPO Box 78
Melbourne VIC 3001 Australia
Tel: +61 3 9671 7000
Fax: +61 3 9671 7001
www.deloitte.com.au
21 August 2018
The Board of Directors
APN Funds Management Limited
101 Collins Street
MELBOURNE VIC 3000
Dear Board Members
Independence Declaration – Convenience Retail REIT
In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following
declaration of independence to the directors of APN Funds Management Limited, the Responsible Entity,
regarding the annual financial report for Convenience Retail REIT.
As lead audit partner for the audit of the financial statements of Convenience Retail REIT for the
financial year ended 30 June 2018, I declare that to the best of my knowledge and belief, there have
been no contraventions of:
Deloitte Touche Tohmatsu
ABN 74 490 121 060
550 Bourke Street
Melbourne VIC 3000
GPO Box 78
Melbourne VIC 3001 Australia
Tel: +61 3 9671 7000
Fax: +61 3 9671 7001
www.deloitte.com.au
Independent Auditor’s Report to the Stapled
Security Holders of Convenience Retail REIT
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of Convenience Retail REIT (the “Trust”) and its controlled
entities (collectively, the “Group”) which comprises the consolidated statement of financial position as
at 30 June 2018, the consolidated statement of profit or loss and other comprehensive income,
the consolidated statement of changes in equity, the consolidated statement of cash flows for the year
then ended, and notes to the financial statements, including a summary of significant accounting policies,
and the directors’ declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the
Corporations Act 2001, including:
(i)
giving a true and fair view of the Group's financial position as at 30 June 2018 and of its
financial performance for the year then ended; and
(ii)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
i.
The auditor independence requirements of the Corporations Act 2001 in relation to the audit;
and
Basis for Opinion
ii. Any applicable code of professional conduct in relation to the audit.
Yours faithfully
DELOITTE TOUCHE TOHMATSU
Peter A. Caldwell
Partner
Chartered Accountants
We conducted our audit in accordance with Australian Auditing Standards. 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 Group in accordance with the auditor
independence requirements of 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 (the Code) that are relevant to our audit of the financial report in Australia. We have also
fulfilled our other ethical responsibilities in accordance with the Code.
We confirm that the independence declaration required by the Corporations Act 2001, which has been
given to the directors of APN Funds Management Limited (the “Responsible Entity”), would be in the
same terms if given to the directors as at the time of this auditor’s report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
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 period. These matters were 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 these matters.
Member of Deloitte Touche Tohmatsu Limited
Liability limited by a scheme approved under Professional Standards Legislation
Member of Deloitte Touche Tohmatsu Limited
Liability limited by a scheme approved under Professional Standards Legislation
24 CONVENIENCE RETAIL REIT ANNUAL REPORT 2018
CONVENIENCE RETAIL REIT 25
INDEPENDENT AUDITOR’S REPORT (continued)
INDEPENDENT AUDITOR’S REPORT (continued)
Key Audit Matter
How the scope of our audit responded to
the Key Audit Matter
Valuation of investment properties held at
fair value
In conjunction with our valuation specialists, our
procedures included, but were not limited to:
As at 30 June 2018 the Group's investment
largest category of
properties represent the
assets with a carrying value of $340m,
including a $0.8m revaluation gain recog
nised
the consolidated statement of
profit or loss as disclosed in Note 5.
in
The investment properties are measured under
the fair value model. The determination of fair
value requires significant judgement due to the
degree of subjectivity used by management,
internal and external
together with
in
valuation
estimating the inputs used in the determination
of the fair value of the investment properties
including; net market rentals, capitalisation
rates, terminal yields and discount rates.
their
specialists
“valuers”),
(the
-
-
-
-
-
evaluating the independence, competence
and objectivity of the valuers;
assessing the scope of the valuers’ work;
assessing the currency of the valuation date;
challenging the appropriateness of the
valuation techniques and the inputs used by
the valuers, including; the net market
rentals, capitalisation rates, actual tenancy
schedules and assessing overall values
selected with reference to industry practice
and external industry economic data;
testing on a sample basis, the passing rental
balances by agreeing them back to signed
lease agreements; and
- Recalculating the mathematical accuracy of
a sample of the valuation models.
We have also assessed the appropriateness of
the related disclosures in Note 5 to the financial
statements.
Other Information
The directors are responsible for the other information. The other information comprises the
information included in the Group's annual report for the year ended 30 June 2018, but does not
include the financial report and auditor's report thereon.
Our opinion on the financial report does not cover the other information and we do not express any form
of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
and, in doing so, 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. If, based
on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the Directors for the Financial Report
The directors are responsible for the preparation of the financial report that gives a true and fair view in
accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal
control as the directors determine is necessary to enable the preparation of the financial report that
gives a true and fair view and is free from material misstatement, whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the directors either intend to liquidate the Group
or to cease operations, or has no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are 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 the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and 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 this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
judgement and maintain professional scepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financial report, whether due to
fraud or error, design and perform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not
detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Group's internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the Directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to
events or conditions that may cast significant doubt on the Group’s ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are required to draw attention
in our auditor’s report to the related disclosures in the financial report or, if such
disclosures are inadequate, to modify our opinion. Our conclusions are based on the
audit evidence obtained up to the date of our auditor’s report. However, future events or
conditions may cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the financial report represents the underlying transactions and events
in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the financial report. We are
responsible for the direction, supervision and performance of the Group's audit. We
remain solely responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing of
the audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
26 CONVENIENCE RETAIL REIT ANNUAL REPORT 2018
CONVENIENCE RETAIL REIT 27
INDEPENDENT AUDITOR’S REPORT (continued)
DIRECTORS’ DECLARATION
From the matters communicated with the directors, we determine those matters that were of most
significance in the audit of the financial report of the current period and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should
not be communicated in our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
DELOITTE TOUCHE TOHMATSU
Peter A. Caldwell
Partner
Chartered Accountants
Melbourne, 21 August 2018
The directors of APN Funds Management Limited, the Responsible Entity of Convenience Retail REIT No. 2, declare that:
(a) in the directors’ opinion, there are reasonable grounds to believe that the Fund will be able to pay its debts as and
when they become due and payable;
(b) in the directors’ opinion, the attached consolidated financial statements are in compliance with International Financial
Reporting Standards, as stated in note 2 to the consolidated financial statements;
(c) in the directors’ opinion, the attached consolidated financial statements and notes thereto are in accordance with
the Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the
financial position and performance of the Fund and the Group; and
(d) the directors have been given the declarations required by s.295A of the Corporations Act 2001.
Signed in accordance with a resolution of the directors of the Responsible Entity made pursuant to s.295(5) of the
Corporations Act 2001.
On behalf of the directors of the Responsible Entity, APN Funds Management Limited.
Geoff Brunsdon
Director
Melbourne, 21 August 2018
28 CONVENIENCE RETAIL REIT ANNUAL REPORT 2018
CONVENIENCE RETAIL REIT 29
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME
For the year ended 30 June 2018
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2018
Notes
5
18
10
20
Revenue
Rental income
Straight line rental income recognition
Total revenue from continuing operations
Other income
Interest income
Net fair value gain / (loss) on investment properties
Fair value gain on derivatives
Total other income
Total income
Expenses
Property costs
Management fees
Finance costs
Other expenses
Auditors’ remuneration
Transaction costs on initial public offering and liquidity offer
Total expenses
Net profit / (loss)
Attributable to:
Securityholders of Convenience Retail REIT No. 2
Securityholders of non-controlling interests1
Other comprehensive income
Total comprehensive income for the year
Total comprehensive income is attributable to:
Securityholders of Convenience Retail REIT No. 2
Securityholders of non-controlling interests1
16 December
2016 to
30 June 2017
$’000
4,964
154
5,118
27
(6,256)
-
(6,229)
(1,111)
-
(388)
(942)
(30)
(13)
(2,253)
(3,626)
(4,737)
(4,737)
-
(4,737)
-
(4,737)
(4,737)
-
(4,737)
2018
$’000
21,672
4,766
26,438
58
797
(142)
713
27,151
(325)
(1,936)
(4,370)
(560)
(76)
(4,017)
(11,284)
15,867
9,122
6,745
15,867
-
15,867
9,122
6,745
15,867
Earnings per security
Basic and diluted (cents per security)
9
20.28
(6.82)
1 Represents the net profit and comprehensive income attributable to the other stapled entities comprising the Convenience Retail REIT Group.
Notes to the consolidated financial statements have been included in the accompanying pages.
Current assets
Cash and cash equivalents
Trade and other receivables
Other assets
Total current assets
Non-current assets
Investment properties
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Distributions payable
Derivative financial instruments
Total current liabilities
Non-current liabilities
Derivative financial instruments
Borrowings
Total non-current liabilities
Total liabilities
Net assets
Equity
Securityholders of Convenience Retail REIT No. 2:
Contributed equity
Retained earnings
Securityholders of non-controlling interests1:
Contributed equity
Retained earnings
Total equity
Net tangible assets (dollars per security)
Notes
14
15
5
16
8
10
10
10
6
6
2018
$’000
2,797
46
138
2,981
340,429
340,429
343,410
(3,262)
(3,946)
(89)
(7,297)
(53)
(109,742)
(109,795)
(117,092)
226,318
114,019
(4,867)
95,947
21,219
226,318
2.87
2017
$’000
2,327
156
186
2,669
106,090
106,090
108,759
(964)
(1,285)
-
(2,249)
-
(44,806)
(44,806)
(47,055)
61,704
69,248
(7,544)
-
-
61,704
0.89
1 Represents the net assets attributable to the other stapled entities comprising the Convenience Retail REIT Group.
Notes to the consolidated financial statements have been included in the accompanying pages.
30 CONVENIENCE RETAIL REIT ANNUAL REPORT 2018
CONVENIENCE RETAIL REIT 31
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 June 2018
For the year ended 30 June 2018
Balance at 16 December 2016
69,248
-
69,248
Contributed
equity
$’000
Retained
earnings
$’000
Notes
Non-
controlling
interests1
$’000
Total
$’000
Total equity
$’000
(4,737)
(4,737)
-
-
(4,737)
(4,737)
69,248
(7,544)
(2,807)
(2,807)
61,704
-
-
-
-
-
-
69,248
(4,737)
-
(4,737)
(2,807)
61,704
9,122
9,122
6,745
15,867
-
-
-
-
-
-
-
-
43,399
43,399
46,660
(1,889)
(6,445)
77,231
(1,920)
(8,289)
123,891
(3,809)
(14,734)
-
(6,445)
Net profit / (loss)
Other comprehensive income
Total comprehensive income for the year
Distributions paid or payable
Balance as at 30 June 2017
Net profit / (loss)
Other comprehensive income
Total comprehensive income for the year
Security consolidation for the formation of
Convenience Retail REIT
Issue of contributed equity
Equity issuance costs
Distributions paid or payable
8
6
6
8
-
-
-
-
-
-
-
-
46,660
(1,889)
Balance as at 30 June 2018
114,019
(4,867)
109,152
117,166
226,318
1 Represent the equity attributable to the other stapled entities comprising the Convenience Retail REIT Group.
Notes to the consolidated financial statements have been included in the accompanying pages.
Cash flows from operating activities
Net rental income received
Interest received
Other expenses paid
Finance costs paid
Net cash inflow / (outflow) from operating activities
Cash flows from investing activities
Payments for acquisition of investment properties
Payments for capital expenditure on investment properties
Cash flows from financing activities
Net proceeds from borrowings
Net proceeds from issue of contributed equity
Equity issuance and liquidity offer costs paid
Distributions paid
Net cash inflow / (outflow) from financing activities
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Cash and cash equivalents at the end of the financial year
16 December
2016 to
30 June 2017
$’000
4,844
23
(2,767)
(1,136)
964
2018
$’000
23,088
58
(2,535)
(5,034)
15,577
(227,922)
(853)
(111,363)
-
(228,775)
(111,363)
65,600
164,268
(6,935)
(9,265)
213,668
470
2,327
2,797
45,000
69,248
-
(1,522)
112,726
2,327
-
2,327
Notes
14
5
5
14
6
14
14
9,122
9,122
6,745
15,867
Net cash inflow / (outflow) from investing activities
Notes to the consolidated financial statements have been included in the accompanying pages.
32 CONVENIENCE RETAIL REIT ANNUAL REPORT 2018
CONVENIENCE RETAIL REIT 33
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
ABOUT THIS REPORT
1. General information
Convenience Retail REIT is a stapled entity listed on the
Australian Securities Exchange (trading under the ASX ticker
“CRR”), incorporated and operating in Australia. Convenience
REIT comprises Convenience Retail REIT No. 2 (previously
APN Retail Property Fund) and its controlled entities.
APN Funds Management Limited, a public company
incorporated and operating in Australia, is the Responsible
Entity of Convenience Retail REIT No. 2. The registered
office and its principal place of business is Level 30, 101
Collins Street, Melbourne, VIC 3000.
The principal activity of the Convenience Retail REIT is to
own and manage a quality portfolio of convenience retail
properties that offer relatively secure income streams and
have the potential for capital growth.
2. Statement of compliance
The financial report is a general purpose financial report
which has been prepared in accordance with the
Corporations Act 2001, Australian Accounting Standards
and Interpretations, and complies with other requirements
of the law. Compliance with Australian Accounting
Standards ensures that the consolidated financial
statements and notes of the Fund and the Group comply
with International Financial Reporting Standards (“IFRS”).
The financial statements comprise the consolidated
financial statements of the Group. For the purposes of
preparing these consolidated financial statements, the
Group is a for-profit entity.
The financial statements were authorised for issue by the
directors on 21 August 2018.
2.1. Basis of preparation
The consolidated financial statements have been prepared
on the basis of historical cost, except for the revaluation
of investment properties and financial instruments. Cost
is based on the fair values of the consideration given in
exchange for assets. Fair value is the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the
measurement date, regardless of whether that price is
directly observable or estimated using another valuation
technique. All amounts are presented in Australia dollars,
unless otherwise noted.
The Group is an entity of the kind referred to in ASIC
Corporations (Rounding in Financials / Directors’ Reports)
Instrument 2016/191, dated 24 March 2016, and in
accordance with that Corporations Instrument amounts
in the directors’ report and the financial report have
been rounded off to the nearest thousand dollars, unless
otherwise stated.
2.2. Basis of consolidation
The consolidated financial statements incorporate the
financial statements of the Fund and its controlled entities
(referred to as the ‘Group’ in these consolidated financial
statements) – refer to note 19 for a list of controlled entities
as at year end. Control is achieved where the Fund:
• has power over the investee
• is exposed, or has rights, to variable returns from its
involvement with the investee; and
• has the ability to use its power to affect its returns.
The Responsible Entity of the Fund reassesses whether
or not the Fund controls an investee if the facts and
circumstances indicate that there are changes to one or
more of the three elements of control listed above.
Consolidation of a subsidiary begins when the Fund
obtains control over the subsidiary and ceases when
the Fund loses that control. Income and expenses of
a subsidiary are included in the consolidated financial
statements from the date the Fund obtains control until
the date the Fund loses control. All intragroup assets
and liabilities, equity, income, expenses and cash flows
relating to transactions between members of the Group are
eliminated in full on consolidation.
When necessary, adjustments are made to the financial
statements of subsidiaries to bring their accounting policies
into line with the Group’s accounting policies.
2.3. Other accounting policies
Significant accounting policies that summarise the
measurement basis used and are relevant to an
understanding of the consolidated financial statements are
provided throughout the notes to the consolidated financial
statements.
2.4. The notes to the consolidated financial
statements
The notes to these consolidated financial statements
include information required to understand the
consolidated financial statements that is relevant
and material to the operations, financial position and
performance of the Group. The notes have been collated
into sections to help users find and understand inter-related
information. Information is considered material and relevant
if, for example:
• the amount in question is significant by virtue of its size
or nature;
3. Critical accounting judgements and key sources of estimation
uncertainty
In the application of the Group’s accounting policies, the directors have made judgements, estimates and assumptions
about carrying values of assets and liabilities that are not readily apparent from other sources. The judgements, estimates
and assumptions are based on historical experience and various other factors that are believed to be reasonable under the
circumstances, however actual results may differ from these estimates. The critical judgements, estimates and assumptions
made in the current period are contained in the following notes:
Note
Description
Note 5 – Investment properties
Fair value measurement and valuation processes
PERFORMANCE
This section shows the results and performance of the Group and includes detailed information in respect to the revenues,
expenses and the profitability of the Group and its reporting segments. It also provides information on the investment
properties that underpins the Group’s performance.
4. Segment information
The Group derives all income from investment in properties located in Australia. The Group is deemed to have only one
operating segment and that is consistent with the reporting reviewed by the chief operating decision makers.
5. Investment properties
Investment properties represent convenience retail properties held for deriving rental income. For all investment properties,
the current use equates to the highest and best use.
5.1. Reconciliation of carrying amounts
Carrying amount at beginning of the financial year
Purchase of investment properties
Acquisition costs associated with purchase of investment properties
Capital additions to existing investment properties
Straight line rental revenue recognition
Disposals of investment properties
Capitalised leasing incentives and fees
Amortisation of lease incentives and fees
Net gain / (loss) on fair value adjustments1
2018
$’000
106,090
221,497
6,425
853
4,766
-
10
(6)
794
340,429
2017
$’000
-
105,900
5,409
-
983
-
54
-
(6,256)
106,090
• it is important to understand the results of the Group;
Carrying amount at end of the financial year
• it helps explain the impact of significant changes in the
Group’s business; or
• it relates to an aspect of the Group’s operations that is
important to its future performance.
1 The net gain in fair value adjustments is wholly unrealised and has been recognised as “net gain in fair value adjustments on investment properties” in the
consolidated statement of profit or loss and other comprehensive income.
Included within the investment property fair value is a deduction of $5,000 (2017: $nil) representing lease incentive
commitments the Group has provided under the lease contracts.
34 CONVENIENCE RETAIL REIT ANNUAL REPORT 2018
CONVENIENCE RETAIL REIT 35
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5.2. Leasing arrangements
The majority of the investment properties are leased to tenants under long term operating leases. Rentals are receivable
from the tenants monthly. Revenue from top 3 tenants represent $19,785,000 (2017: 1 tenant represents $4,964,000) of the
Group’s total revenue.
Minimum lease payments under non-cancellable operating leases of investment properties not recognised in the financial
statements as receivable are as follows:
Within one year
More than one year but not more than five years
More than five years
2018
$’000
24,795
74,816
287,157
386,768
2017
$’000
7,860
33,870
97,963
139,693
AASB 16 Leases, applying to annual periods beginning on or after 1 January 2019, introduces a comprehensive model
for the identification, recognition and measurement of lease arrangements for lessors and lessees. The recognition and
measurement of lease arrangements for lessors remain substantially unchanged.
Based on a preliminary analysis, the Group has not identified any contracts for which it is a lessee. However, the Group is a
lessor by virtue of the lease arrangements associated with its investment properties. As AASB 16 does not significantly alter
lessor accounting, the Group does not expect a significant impact resulting from the adoption of AASB 16.
5.3. Contractual obligations
Under some of the lease agreements applicable to the existing investment properties, the Group is responsible for capital
and structural repairs to the premises (except to the extent required due to the tenant’s act, omissions or particular use).
This contractual obligation can include the requirement to replace underground tanks and/or LPG tanks if they become
worn out, obsolete, inoperable or incapable of economic repair. As at the reporting date, three investment properties have
been identified which require underground tank replacements.The current forecast capital expenditure required to replace
these underground tanks is $1,850,000 which has been reflected as a reduction in the valuation of the applicable investment
property as at the reporting date.
5.4. Individual valuation and carrying amounts
The investment portfolio consists of 69 properties located throughout Queensland, New South Wales, Western Australia
and Victoria. 18 properties were independently valued at 30 June 2018. The Group’s external valuations are performed by
independent professionally qualified valuers who hold a recognised relevant professional qualification and have specialised
expertise in the investment properties being valued. Independent valuations were performed by Savills Valuations Pty Ltd
(2017: Jones Lang LaSalle Advisory Services Pty Ltd).
As at 30 June 2018, the remaining 51 properties were subject to internal valuations performed by the Group’s internal
property team and have been reviewed and approved by the Board. The carrying amounts of these investment properties
have been determined based on Directors’ valuations.
397 Pacific Hwy, Belmont North, NSW2
Cnr Vardys Rd & Turbo Rd, Marayong, NSW2
511 Pacific Highway, South Kempsey, NSW1
172 New England Highway, Rutherford, NSW1
Cnr Northcote St & Main Rd, Heddon Greta, NSW1
Cnr Weakleys & Glenwood Drives, Thornton, NSW1
449 Victoria Street, Wetherill Park, NSW1
1 Blueberry Road, Moree NSW1
2948 Old Cleveland Rd, Capalaba, QLD2
Cnr Anzac Ave & Josey Rd, Mango Hill, QLD2
550 -560 Samford Rd, Mitchelton, QLD2
420 - 426 Mt Cotton Rd, Capalaba, QLD2
1233 Wynnum Rd, Murrarie, QLD2
17 - 25 Toombul Rd, Northgate, QLD2
124 - 130 Paradise Rd, Slacks Creek, QLD2
108 Compton Rd, Woodridge, QLD2
708 Gympie Rd, Lawnton, QLD2
353 Redbank Plains Rd, Redbank Plains, QLD2
264 Browns Plains Rd, Browns Plains, QLD2
Sovereign Avenue, Bray Park, QLD2
21 Ingham Road, West End, QLD1
921 Nambour Connection Rd, Nambour, QLD1
1380 Boundary Rd, Wacol, QLD1
19038 Bruce Highway, Bowen, QLD1
25 Bolam Street, Garbutt, QLD1
4545 Flinders Highway,Reid River, QLD1
71 Thompson Street, Charters Towers, QLD1
77-79 Bowen Road, Rosslea, QLD1
900 Ingham Road, Bohle, QLD1
45 Range Road, Sarina, QLD1
2 Mulgrave Street, Gin Gin, QLD1
161 Thozet Road, Koongal, QLD1
74 Connor Street, Zilzie, QLD1
1 Flinders Street, Monto, QLD1
102-104 Cook Street, Portsmith, QLD1
28 Supply Road, Edmonton, QLD1
45 Arnold Street, Aeroglen, QLD1
49 Tolga Road, Atherton, QLD1
656 Bruce Highway, Woree, QLD1
2215 David Low Way, Peregian Beach, QLD1
10 Takalvan Street, Bundaberg, QLD1
Latest independent
valuation
Carrying amounts
Capitalisation rate
Valuation
date
Jun-18
Jun-18
Dec-17
Dec-17
Dec-17
May-17
May-17
Feb-18
Jun-18
Jun-18
Jun-18
Jun-18
Jun-18
Jun-18
Jun-18
Jun-18
Jun-18
Jun-18
Jun-18
Jun-18
May-17
May-17
May-17
Dec-17
Dec-17
Dec-17
Dec-17
Dec-17
Dec-17
Dec-17
Dec-17
Dec-17
Dec-17
Dec-17
Dec-17
Dec-17
Dec-17
Dec-17
Dec-17
Dec-17
Dec-17
$'000
5,980
7,750
2018
$'000
5,980
7,750
2017
$'000
5,445
7,305
18,130
18,780
17,600
5,200
8,500
8,620
7,690
5,200
8,500
8,620
7,690
10,400
10,400
4,640
3,160
3,980
3,890
5,240
3,840
3,920
5,340
4,170
5,320
5,640
4,000
5,380
1,290
5,240
3,640
2,290
2,630
5,760
2,550
6,140
1,860
3,710
2,020
1,530
1,250
5,500
5,860
3,560
1,810
1,430
3,270
1,720
4,640
3,160
3,980
3,890
5,240
3,840
3,920
5,340
4,170
5,320
5,640
4,000
5,380
1,290
5,240
3,640
2,290
2,630
5,760
2,550
6,140
1,860
3,710
2,020
1,530
1,250
5,500
5,860
3,560
1,810
1,430
3,270
1,720
5,250
7,960
-
-
-
4,350
2,870
3,740
3,705
5,145
3,350
3,800
4,880
3,775
4,900
5,335
3,660
-
-
-
3,410
2,230
2,550
5,420
2,470
5,750
1,810
3,710
1,960
1,480
1,210
5,340
5,480
3,460
1,750
1,390
3,170
1,670
2018
%
6.50%
6.75%
7.00%
6.75%
6.75%
6.50%
6.50%
7.00%
7.25%
7.00%
7.25%
7.25%
7.25%
7.25%
7.25%
6.25%
7.25%
6.25%
6.25%
6.25%
6.50%
7.75%
7.25%
7.00%
7.50%
8.50%
8.00%
6.75%
7.00%
7.50%
7.50%
7.00%
7.00%
7.25%
7.25%
6.50%
7.00%
7.25%
7.00%
7.00%
7.00%
2017
%
7.00%
7.00%
7.25%
6.50%
7.00%
-
-
-
7.50%
7.50%
7.50%
7.38%
7.38%
7.50%
7.25%
6.25%
7.63%
6.25%
6.25%
6.25%
-
-
-
7.25%
7.50%
8.50%
8.25%
6.75%
7.25%
7.50%
7.50%
7.00%
7.00%
7.25%
7.25%
6.75%
7.00%
7.25%
7.00%
7.00%
7.00%
36 CONVENIENCE RETAIL REIT ANNUAL REPORT 2018
CONVENIENCE RETAIL REIT 37
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Latest independent
valuation
Carrying amounts
Capitalisation rate
60 Hawkins Crescent, Bundamba, QLD1
1129 Morandah Access Road, Moranbah, QLD1
273-279 Gympie Rd, Kedron, QLD1
34-36 Cessna Drive, Caboolture, QLD1
164-170 David Low Way, Diddilibah, QLD1
282 Wardell Street, Enoggera, QLD1
840 Steve Irwin Way Glasshouse, Mountains, QLD1
1977 Anzac Avenue, Mango Hill, QLD
216 Preston Road, Manly West, QLD1
72 Walker Street, Maryborough, QLD1
127 Kingston Road, Woodridge, QLD1
1965 D'Aguilar Highway, Villeneuve, QLD1
983 Waterworks Road, The Gap, QLD1
63 Raceview Street, Raceview, QLD1
14 Rosemary Street, Durack, QLD 1
205 Old Gympie Road, Dakabin, QLD1
Cnr Edith St and Bruce Hwy, Cluden, QLD1
22 Nicholson Street, Banana, QLD1
25 Kiernan Drive, Roseneath, QLD1
591 Dorset Rd, Bayswater North, VIC2
Cnr Thompson Rd & Victoria St, Geelong North, VIC2
753 North Lake Rd, Southlake, WA2
Cnr Amherst & Nicholsons Rd, Canningvale, WA2
1 Wishart Street, Gwelup, WA1
224 Clontarf Road, Hamilton Hill, WA1
1182 Chapman Road, Glenfield, WA1
1 Kakadu Road, Yanchep, WA1
Lot 401 Great Northern Highway, South Hedland, WA1
Total
Less properties owned by Convenience Retail REIT
No. 1 prior to joining the stapled Group
Total investment properties
Valuation
date
$'000
2018
$'000
Dec-17
Dec-17
May-17
Apr-17
May-17
May-17
May-17
May-17
May-17
May-17
May-17
May-17
May-17
May-17
Aug-17
Nov-17
May-17
May-17
May-17
Jun-18
Jun-18
Jun-18
Jun-18
May-17
May-17
May-17
May-17
May-17
17,200
17,200
5,840
3,140
6,163
3,200
1,860
4,830
3,600
2,140
2,060
4,570
1,820
3,140
9,100
5,250
4,379
5,840
3,140
6,360
3,200
1,860
4,830
3,600
2,140
2,060
4,570
1,820
3,140
9,340
5,480
4,379
12,140
12,140
3,470
6,800
4,300
4,230
6,200
6,600
3,570
4,490
4,600
5,380
5,190
3,470
6,800
4,300
4,230
6,200
6,600
3,570
4,490
4,600
5,380
5,190
2017
$'000
15,540
5,480
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,795
3,810
5,710
6,410
-
-
-
-
-
2018
%
6.75%
7.00%
7.00%
6.75%
7.50%
7.00%
7.25%
7.50%
7.25%
7.75%
7.00%
8.25%
7.00%
6.75%
6.75%
6.75%
7.25%
7.50%
7.50%
6.50%
6.75%
7.75%
7.50%
7.00%
7.00%
8.25%
7.25%
8.00%
340,429
188,075
(81,985)
340,429
106,090
2017
%
7.25%
7.25%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
7.25%
7.25%
8.25%
8.25%
-
-
-
-
-
1 The carrying amount of investment property that were not independently valued as at period end have been determined based on Directors’ valuations.
2 For comparative purposes, the investment properties that were owned by Convenience Retail REIT No. 1 (formerly APN Property Plus Portfolio) as at
30 June 2017 have also been included in the table above.
The weighted average capitalisation rate for the financial year ended 30 June 2018 was 7.03% (2017: 7.23%).
Valuation process
The purpose of the valuation process is to ensure that
assets are held at fair value and all applicable regulations
(Corporations Act 2001 and ASIC regulations) and the
relevant Accounting Standards are complied with.
External valuations are performed by independent
professionally qualified valuers who hold a recognised
relevant professional qualification and have specialised
expertise in the class of investment properties being valued
and are performed for each investment property on at
least a three-year rotational basis. Internal valuations are
performed by the Group’s internal property team in the
intervening periods and are reviewed and approved by the
Board.
The adopted fair value is determined using the income
capitalisation method where the key valuation inputs are
net passing rent, net market rent and capitalisation rates
based on comparable market evidence.
Derecognition
An investment property is derecognised upon disposal or
when no future economic benefits are expected from use.
The gain or loss arising on derecognition of the property is
measured as the difference between the net proceeds from
disposal and its carrying amount at disposal date and is
recognised in the consolidated statement of profit or loss
and other comprehensive income in the period in which the
property is derecognised.
Recognition and measurement
Rental income
Rental income is recognised at the fair value of
consideration receivable (exclusive of GST) on a straight-
line basis over the term of the lease for the period where
the rental income is fixed and determinable. For leases
where the rental income is determined based on unknown
future variables such as inflation, market reviews or other
variables, rental income is recognised on an accruals basis
in accordance with the terms of the lease.
Rental income not received at reporting date, is reflected
in the consolidated statement of financial position as a
receivable or if paid in advance, as rent in advance.
AASB 15 Revenue from Contracts with Customers,
applying to annual periods beginning on or after 1 January
2018, requires an entity to recognise revenue in a manner
that represents the transfer of promised goods or services
to customers in an amount that reflects the consideration
to which the entity expects to be entitled. Rental income
is not within scope of AASB 15 and the impact on the
Group’s other revenue balances is immaterial because
services are billed as they are provided on a cost recovery
basis.
Lease incentives, commissions and other costs
Lease incentives provided to tenants, such as fit-outs
or rent-free periods and leasing commissions and other
costs incurred in entering into a lease, are recognised as a
reduction of rental income on a straight-line basis over the
non-cancellable term of the lease.
Investment properties
Investment properties are properties held to earn rentals
and/or for capital appreciation (including property under
construction for such purposes) and are measured initially
at cost, including transaction costs.
Subsequent to initial recognition, investment properties
are measured at fair value (inclusive of adjustments for
straight line rental revenue recognition, unamortised lease
incentives and costs and capital expenditure obligations),
with gains and losses arising from changes in the fair value
of investment properties included in the consolidated
statement of profit or loss and other comprehensive
income in the period in which they arise.
38 CONVENIENCE RETAIL REIT ANNUAL REPORT 2018
CONVENIENCE RETAIL REIT 39
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Key estimates and assumptions – fair value and the valuation process
The Group has investment properties with a net carrying amount of $340,429,000 (2017: $106,090,000), representing
the estimated fair value.
The determination of the fair value of investment property is subject to a number of key estimates and assumptions.
Management has considered the nature, characteristics and risks of its investment properties as well as the level of fair
value hierarchy within which the fair value measurements are categorised.
The fair value of investment property is the price at which it could be exchanged between knowledgeable and
willing parties in an arms’ length transaction. The best evidence of fair value is current prices in an active market for
comparable properties (i.e. properties with similar investment characteristics including, but not limited to, location,
lettable area and land area, building characteristics, property conditions, the tenant in occupation, lease terms and
income potential).
The fair value of investment property has been assessed to reflect market conditions as at the reporting date. While
this represents the best estimate of fair value at the reporting date, the property market dynamics and fundamentals at
the point in time the property is sold may mean that the actual price achieved is higher or lower than the most recent
best estimate of that properties fair value.
The adopted valuation for investment properties, including property under development which is substantially complete
and has pre-committed leases is determined using the income capitalisation method. The income capitalisation
method uses unobservable inputs (i.e. key estimates and assumptions) in determining fair value, as per the table
below:
Fair Value
Hierarchy
Fair value
30 June 2018
$'000
Level 3
340,429
Valuation
Technique
Inputs used to
measure fair value
Range of
unobservable inputs
Income
capitalisation
method
Net passing rent (per sqm p.a.)
Net market rent (per sqm p.a.)
Adopted capitalisation rate
$203 - $1,968
$199 – $1,911
6.25% – 8.50%
A definition is provided below for each of the inputs used to measure fair value:
Income capitalisation
method
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
Net market rent
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 outgoings from the tenant on a
pro-rata basis (where applicable).
A 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 outgoings from the tenant on a pro-rata basis (where applicable).
Adopted capitalisation
rate
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.
5.5. Sensitivity information
Significant input
Net passing rent
Net market rent
Adopted capitalisation rate
Fair value
measurement
sensitivity to
significant
increase in input
Fair value
measurement
sensitivity to
significant
decrease in input
Increase
Increase
Decrease
Decrease
Decrease
Increase
When calculating fair value using the income capitalisation approach, the net market rent has a strong interrelationship
with the adopted capitalisation rate given the methodology involves assessing the total net market income receivable from
the property and capitalising this in perpetuity to derive a capital value. In theory, an increase in the net market rent and
an increase (softening) in the adopted capitalisation rate could potentially offset the impact to the fair value. The same can
be said for a decrease in the net market rent and a decrease (tightening) in the adopted capitalisation rate. A directionally
opposite change in the net market rent and the adopted capitalisation rate could potentially magnify the impact to the fair
value.
CAPITAL STRUCTURE, FINANCING AND RISK MANAGEMENT
This section outlines how the Group manages its capital structure and related financing activities and presents the resultant
returns delivered to securityholders via distributions and earnings per security.
6. Contributed equity
6.1. Carrying amount
At the beginning of the financial year
Security consolidation for the formation of Convenience Retail REIT
Issue of new securities
Security issuance costs
Distributions paid
Total comprehensive income for the year
At the end of the financial year
Attributable to:
Securityholders of Convenience Retail REIT No. 2
Securityholders of non-controlling interests
2018
$’000
61,704
43,399
123,891
(3,809)
(14,734)
15,867
226,318
109,152
117,166
226,318
2017
$’000
-
-
69,248
-
(2,807)
(4,737)
61,704
61,704
-
61,704
40 CONVENIENCE RETAIL REIT ANNUAL REPORT 2018
CONVENIENCE RETAIL REIT 41
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
6.2. Number of securities on issue
9. Earnings per security
At the beginning of the financial year
Security consolidation for the formation of Convenience Retail REIT
Issue of new securities
2018
No.
69,462,753
(22,284,425)
31,741,723
2017
No.
-
-
69,462,753
Total comprehensive income for the year ($’000)
Weighted average number of securities outstanding (thousands)
Basic and diluted earnings (cents per security)
2018
15,867
78,246
20.28
2017
(4,737)
69,463
(6.82)
At the end of the financial year
78,920,051
69,462,753
Recognition and measurement
Issued and paid up securities are recognised at the fair value of the consideration received by the Group, net of directly
incurred transaction costs.
The securities of Convenience Retail REIT (the “Stapled Security”) comprise the stapled securities of Convenience Retail
REIT No. 1, Convenience Retail REIT No. 3 and this Fund. Whilst these Funds remain stapled, their securities must only be
issued, dealt with or disposed of as a Stapled Security.
Recognition and measurement
Basic earnings per security
Basic earnings per security is calculated as total comprehensive income of the Group divided by the weighted average
number of ordinary securities outstanding during the year.
Diluted earnings per security
Diluted earnings per security adjusts the figures used in the determination of basic earnings per security to take into account
amounts unpaid on securities and the effect of all dilutive potential ordinary securities.
No dilutive securities were issued/on issue during the current year (2017: nil).
7. Non-controlling interests
Interest in contributed equity
Interest in retained earnings
2018
$’000
95,947
21,219
117,166
Non-controlling interests represents Convenience Retail REIT No. 1 and Convenience Retail REIT No. 3.
8. Distributions
Distributions paid during the year:
Pre-stapling distributions
Quarter ended 30 Sep
Quarter ended 31 Dec
Quarter ended 31 Mar
Distributions payable:
Quarter ended 30 Jun
Total
2018
Cents per
security
0.612
3.250
4.880
5.000
5.000
18.742
$’000
425
2,565
3,852
3,946
3,946
14,734
2017
Cents per
security
-
-
0.342
1.850
1.850
4.042
Recognition and measurement
A liability for any distribution declared on or before the end of the reporting period is recognised in the consolidated
statement of financial position in the reporting period to which the distribution pertains.
2017
$’000
-
-
-
$’000
-
-
237
1,285
1,285
2,807
10. Borrowings
Non-current
Bank loans – secured1
2018
$'000
109,742
109,742
2017
$'000
44,8062
44,806
1
Includes deferred borrowing costs of $858,000 (2017: $194,000) that have been allocated against the total amount drawn at balance date.
2 2017 interest bearing debt represent a secured term loan provided to Convenience Retail REIT No. 2 as a stand-alone entity which was repaid on 1 August
2017, shortly after the formation of the Group.
Recognition and measurement
Borrowings are recorded initially at fair value, net of transaction costs. Subsequent to initial recognition, borrowings are
measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the consolidated
statement of profit or loss and other comprehensive income in the period in which they arise.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement or repayment of
the facility for at least 12 months after the reporting date.
42 CONVENIENCE RETAIL REIT ANNUAL REPORT 2018
CONVENIENCE RETAIL REIT 43
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
10.1. Summary of borrowing arrangements
The Group has entered into a revolving credit facility agreement with two major Australian Banks that is secured and cross
collateralised over the Group’s investment properties (via first registered real property mortgages) and other assets (via a first
ranking general “all assets” security agreement).
Loan facility limit
Amount drawn at balance date
Amount undrawn at balance date
2018
$'000
125,000
(110,600)
14,400
2017
$'000
45,000
(45,000)
-
As at 30 June 2018, the total revolving credit facility available of $125,000,000 has the following maturity dates:
• Tranche 1: $93,750,000 – repayable August 2020, and
• Tranche 2: $31,250,000 – repayable August 2022.
Under the terms of this facility, each member of the Group is permitted to draw down or repay amounts subject to the overall
requirement that the Group remains compliant with the facility’s terms and conditions.
This facility agreement contains both financial and non-financial covenants and undertakings that are customary for secured
debt facilities of this nature. The key financial covenants (with capitalised terms being defined terms in the agreement) that
apply to the Group are as follows:
Loan to Value Ratio (“LVR”)
At all times, LVR does not exceed 50%.
Interest Cover Ratio (“ICR”)
On 31 December and 30 June each year, ICR is not less than
2.0 times.
2018
32.61%
4.47 times
10.2. Finance costs
Borrowings are recorded initially at fair value, net of transaction costs. Subsequent to initial recognition, borrowings are
measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the consolidated
statement of profit or loss and other comprehensive income in the period in which they arise.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement or repayment of
the facility for at least 12 months after the reporting date.
Interest expense paid / payable
Line fees
Amortisation of borrowing costs
Total finance costs
2018
$’000
3,188
635
547
4,370
2017
$’000
426
474
42
942
The weighted average ‘all-in’ interest rate for the Group (including bank margin, amortisation of borrowing costs and
undrawn line fees) at reporting date was 4.29% (2017: 3.72%).
Recognition and measurement
Interest expense is recognised in the statement of profit or loss and other comprehensive income using the effective interest
rate method except where it is incurred for the construction of any qualifying asset, where it is capitalised during the period
of time that is required to complete and prepare the asset for its intended use.
The effective interest rate method calculates the amount to be recognised over the relevant period at the rate that exactly
discounts estimated future cash receipts (including all fees that form an integral part of the financial instrument, transaction
costs and other premiums or discounts) through the expected life of the financial instrument, or (where appropriate) a shorter
period, to the net carrying amount on initial recognition.
10.3. Derivatives – interest rate contracts
The Group has a debt facility subject to floating interest rates. The Group uses derivative financial instruments to manage
its exposure to interest rates such as interest rate swaps (to lock in fixed interest rates) and/or interest rate caps (to limit
exposure to rising floating interest rates).
All derivative financial instruments are entered into on terms that provide pari-passu security and cross collateralisation rights
over the Fund’s and the Group’s investment properties (via first registered real property mortgages) and other assets (via a
first ranking general “all assets” security agreement) in conjunction with the Group’s revolving credit facility.
Generally, the interest rate swap contracts settle on a quarterly basis, generally coinciding with the dates on which interest
is payable on the underlying debt. The floating rate incurred on the debt is Australian BBSY. The difference between the
fixed and floating interest rate is settled on a net basis by the relevant counterparty. The interest rate contracts have not
been identified as hedging instruments and any movements in the fair value are recognised immediately in the consolidated
statement of profit or loss and other comprehensive income.
Current liabilities
Interest rate contracts
Non-current liabilities
Interest rate contracts
2018
$'000
(89)
(53)
2017
$'000
-
-
During the year, the Group recognised a fair value loss of $142,000 (2017: $nil) on interest rate swap contracts.
Interest rate contracts in effect at reporting date covered 54.25% (2017: nil) of the principle drawn under the debt facility and
the contract details are as follows:
Counterparty
2018: Interest rate swaps
Swap 1
Swap 2
Swap 3
Swap 4
Swap 5
Swap 6
Total
2017: Interest rate swaps
None
Notional Value
$
Swap Effective
Date
Swap Expiry
Date
Term to
Maturity
23 Nov 2017
6 Nov 2017
20 Dec 2017
29 Mar 2018
19 Mar 2018
2 Feb 2022
6 Nov 2020
20 Dec 2019
2 May 2021
2 May 2020
2 Aug 2019
2 August 2022
1,313 days
860 days
538 days
1,037 days
672 days
1,494 days
10,000
20,000
5,000
10,000
15,000
10,000
70,000
The weighted average interest rate on the interest rate contracts for the year ended 30 June 2018 was 2.27% (2017: nil).
44 CONVENIENCE RETAIL REIT ANNUAL REPORT 2018
CONVENIENCE RETAIL REIT 45
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Recognition and measurement
Derivatives are categorised as held for trading and are initially recognised at fair value on the date a derivative contract
is entered into and are subsequently remeasured to their fair value at each reporting date based on counterparty bank
valuations. Counterparty bank valuations are tested for reasonableness by discounting the estimated future contractual
cashflows and using market interest rates for a substitute instrument at the measurement date.
The resulting gain or loss is recognised immediately in the consolidated statement of profit or loss and other comprehensive
income as hedge accounting has not been applied.
10.4. Fair value hierarchy
The following table provides an analysis of financial instruments that are measured at fair value at 30 June 2018, grouped
into Levels 1 to 3 based on the degree to which the fair value inputs is observable:
• Level 1 fair value measurements are those derived from quoted prices in active markets for identical assets or liabilities.
• Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).
• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability
that are not based on observable market data (unobservable inputs).
Fair value measurement as at 30 June 2018
Level 1
$’000
Level 2
$’000
Level 3
$’000
Financial liabilities at FVTPL
Interest rate contracts
Total
-
-
142
142
-
-
Fair value measurement as at 30 June 2017
Level 1
$’000
Level 2
$’000
Level 3
$’000
Financial liabilities at FVTPL
Interest rate contracts
Total
-
-
-
-
-
-
There were no transfers between Levels during the financial year.
Total
$’000
142
142
Total
$’000
-
-
11. Capital risk management
The Responsible Entity's objectives when managing the capital of the Group is to safeguard its ability to continue as a going
concern, so that the Group can continue to provide returns for securityholders in accordance with the Group’s investment
strategy, and to optimise the capital structure and therefore the Group’s cost of capital on a risk adjusted basis.
The capital of the Group is maintained or adjusted through various methods including by adjusting the quantum of
distributions paid, raising or repaying debt, issuing new securities or selling assets.
The Group’s capital position is primarily monitored through its ratio of net debt to total assets (excluding cash) (“Gearing
Ratio”), where a target range of between 25% - 40% has been established.
As at 30 June 2018, Convenience Retail REIT’s Gearing Ratio was 31.65%. There are no prior year comparatives for the
Group’s Gearing Ratio as the Convenience Retail REIT stapled group was only established during the current year.
Total borrowings
Less: cash and cash equivalents
Net debt
Total assets (excluding cash and cash equivalents)
Gearing ratio
2018
$’000
110,600
(2,797)
107,803
340,613
31.65%
12. Financial and risk management
The Responsible Entity is responsible for ensuring a prudent risk management culture is established for the Group. This is
reflected in the adoption of a Risk Management Framework that clearly defines risk appetite and risk tolerance limits which
are consistent the Group’s investment mandate.
The Group’s dedicated Fund Manager is responsible for overseeing the establishment and implementation of appropriate
systems, controls and policies to manage the Groups risk. The focus is on ensuring compliance with the approved Risk
Management Framework whilst seeking to maximise security holder returns.
The effective design and operation of the risk management systems, controls and policies is overseen by the Responsible
Entity and its Audit, Risk and Compliance Committee.
Risk management in respect to financial instruments is achieved via written policies that establish risk appetite and tolerance
limits in respect to exposure to interest rate risk, credit risk, the use of derivative financial instruments and non-derivative
financial instruments and the investment of excess liquidity. Compliance with these policies and exposure limits is reviewed
by the Responsible Entity on a continuous basis.
12.1 Financial instruments
The Group undertakes transactions in a range of financial instruments including:
• cash and cash equivalents;
• receivables;
• payables;
• borrowings; and
• derivatives.
Transactions in these instruments expose the Group to a variety of financial risks including market risk (which includes
interest rate risk and other price risks), credit risk and liquidity risk. The Group does not enter into or trade financial
instruments, including derivatives, for speculative purposes.
46 CONVENIENCE RETAIL REIT ANNUAL REPORT 2018
CONVENIENCE RETAIL REIT 47
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The Group’s liquidity risk profile, based on the contractual maturities of key obligations but before consideration of operating
cashflows available, is outlined in the following table.
Consolidated
2018
Liabilities
Payables – current
Distribution payable
Interest-bearing liabilities
Interest rate contracts
2017
Liabilities
Payables – current
Distribution payable
Interest-bearing liabilities
Within 1 year
$’000
Between 1
and 2 years
$’000
Over 2
years
$’000
Total
contractual
cash flows
$’000
Carrying
amounts
$’000
(3,262)
(3,946)
(10,309)
(186)
-
-
-
-
(3,262)
(3,946)
(3,262)
(3,946)
(11,320)
(113,687)
(135,316)
(110,600)
(125)
6
(305)
(142)
(17,703)
(11,445)
(113,681)
(142,829)
(117,950)
(964)
(1,285)
(1,946)
-
-
-
-
(2,112)
(45,558)
(964)
(1,285)
(49,616)
(964)
(1,285)
(45,000)
(4,195)
(2,112)
(45,558)
(51,865)
(47,249)
12.5 Net fair values
The carrying values of the Group’s financial instruments as disclosed in the consolidated statement of financial position
approximate their fair values. Refer to the applicable notes to the financial statements for the recognition and measurement
principles applied to each type of financial instrument.
13. Commitment and contingencies
Other than the contractual obligations disclosed in note 5, there are no other commitments and contingencies in effect at
30 June 2018.
12.2 Market risk (including interest rate risk)
The Group is subject to market risk (the risk that borrowings or derivatives are repriced to different interest rate margins on
refinance or renewal arising from changes in the debt markets) and Interest rate risk (the risk that a change in interest rates
may have on the Group’s profitability, cashflows and/or financial position) predominately through its borrowings, derivatives
and cash exposures.
The interest rates applicable to each category of financial instrument are disclosed in the applicable note to the financial
statements.
Market risk sensitivity
The Group’s sensitivity to an assumed 100 basis point change in interest rates or interest rate margins as at the reporting
date, on the basis that the change occurred at the beginning of the reporting period, is outlined in the table below and
includes both increases / decreases in interest payable / receivable and fair value gains or losses on revaluation of
derivatives.
30 June 2018
Variable rate instruments
Derivative financial instruments
30 June 2017
Variable rate instruments
Derivative financial instruments
Net Profit
100bp increase
$’000
100bp decrease
$’000
(1,078)
(1)
(1,079)
(427)
-
(427)
1,078
1
1,079
427
-
427
12.3 Credit risk
The Group is subject to credit risk (the risk that counterparty will default on its contractual obligations resulting in financial
loss to the Group) predominately through its Trade and Other Receivables, Derivatives and Cash exposures. The maximum
exposure to credit risk at a reporting date is the carrying value of each financial asset as disclosed in the applicable note to
the financial statements.
Credit risk is managed by ensuring that at the time of entering into a contractual arrangement or acquiring a property,
counterparties or tenants are of appropriate credit worthiness, provide appropriate security or other collateral and/or do
not show a history of default. The Group’s treasury policy also requires that derivatives and cash transactions are limited to
financial institutions that meet minimum credit rating criteria.
12.4 Liquidity risk
The Group is subject to liquidity risk (the risk that the Group will not be able to meet its contractual or other operating
obligations).
Liquidity risk is managed by continuously monitoring forecast and actual cash flows, maintaining appropriate head room
under debt facilities and matching the maturity profiles of financial assets and liabilities. To help reduce liquidity risks the
Group:
• has a policy which targets a minimum level of cash and cash equivalents to be maintained;
• has readily accessible standby facilities and other funding arrangements in place;
• has a debt maturity policy which targets a maximum percentage of total debt maturing in any one 12-month period; and
• has a loan covenant target to ensure that the Group can withstand a downward movement in valuations, a reduction in
income and increase in interest rates without breaching loan facility covenants.
48 CONVENIENCE RETAIL REIT ANNUAL REPORT 2018
CONVENIENCE RETAIL REIT 49
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
EFFICIENCY OF OPERATION
This section presents the Group’s working capital position and the efficiency in which it converts operating profits into cash
available for securityholders / the reinvestment back into the operations of the Group.
14. Cash and cash equivalents
14.1 Reconciliation of profit for the period to net cash provided by operating activities
For the purpose of the consolidated statement of cash flows, cash and cash equivalents includes cash on hand and bank
and short-term deposits at call.
Reconciliation of cash and cash equivalent
Cash and cash equivalents
Reconciliation of net profit / (loss) to net
cash flows from operating activities
Net profit / (loss)
Add / (loss) non-cash items:
Straight line lease revenue recognition
Amortisation of borrowing costs
Movement in deferred lease incentives
Equity issuance and liquidity offer costs paid
Fair value (gain) / loss on derivatives
Fair value (gain) / loss on investment properties
Changes in assets / liabilities:
Decrease / (increase) in trade and other receivables
Increase / (decrease) in payables
Net cash inflows from operating activities
2018
$’000
2017
$’000
2,797
2,327
15,867
(4,766)
547
(1)
4,017
142
(797)
15,009
(1,052)
1,620
15,577
(4,737)
(983)
42
-
-
-
6,256
578
(578)
964
964
Recognition and measurement
Cash and cash equivalents comprise cash on hand and cash in banks or other short term highly liquid investments, net of
outstanding bank overdrafts.
Cash flows are included in the consolidated statement of cash flows on a gross basis. The GST component of cash flows
arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified as
operating cash flows.
14.2 Reconciliation of liabilities arising from financing activities
The table below details changes in the Group’s liabilities arising from financing activities, including both cash and non-cash
changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified
in the Group’s consolidated statement of cash flows as cash flows from financing activities.
Borrowings as at beginning of the year
Net cash inflow / (outflow) from financing activities:
Proceeds from borrowings
Repayments of borrowings
Non-cash changes:
Deferred borrowing costs
Other changes
Notes
10
2018
$’000
44,806
110,600
(45,000)
(664)
-
Borrowings as at the end of the year
10
109,742
15. Trade and other receivables
Current
Rent and recoveries receivable
Interest receivable
15.1. Ageing analysis of receivables past due but not impaired
31-90 days
91+ days
2018
$’000
43
3
46
2018
$’000
3
12
15
2017
$’000
153
3
156
2017
$’000
-
-
-
As at 30 June 2018, no rent receivables were impaired (2017: $nil). The Group holds $nil security or other collateral (2017:
$nil) nor does the Group have any significant credit risk exposure to any single counterparty or counterparties having similar
characteristics in respect of rent receivables past due but not impaired.
There are no significant financial assets that have had renegotiated terms that would otherwise have been past due or
impaired.
50 CONVENIENCE RETAIL REIT ANNUAL REPORT 2018
CONVENIENCE RETAIL REIT 51
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Recognition and measurement
Rent Receivables
Rent receivables are recorded initially at fair value (including GST) and subsequently at amortised cost using the effective
interest method, less an allowance for impairment. Rent receivables are non-interest bearing and are generally on 0-30-day
terms.
An impairment allowance is made when there is objective evidence that the Group will not be able to collect the amounts
due according to the original terms of the receivables. Objective evidence includes the Group’s past experience of collecting
payments, an increase in the number of delayed payments and observable changes in national or local economic conditions
that correlate with default on balances outstanding.
The impairment allowance recognised is measured as the difference between the carrying amount and the present value of
estimated future cash flows discounted at the original effective interest rate. Balances known to be uncollectible are written
off when identified.
The Group has determined the impact of the expected loss model under AASB 9 Financial Instruments, effective 1 July
2018, to be immaterial based on the Group’s past experience of collecting rental payments and that the counterparties are
experienced and sustainable retailers and service station operators.
16. Trade and other payables
Current
Trade payables
Prepaid rental income
Accrued interest expenses
Accrued other expenses
2018
$’000
732
651
781
1,098
3,262
2017
$’000
210
709
30
15
964
Recognition and measurement
Trade and other amounts payable are recorded initially at fair value (including GST) and subsequently at amortised cost.
The average credit term on purchases is 30 days and they are non-interest bearing. The Group has management policies in
place to ensure that all amounts are paid within the applicable credit terms.
OTHER NOTES
17. Income taxes
Recognition and measurement
All Funds that comprise Convenience Retail REIT are “flow-through” entities for Australian income tax purposes that have
elected into the Attribution Managed Investment Trusts rules (“AMIT Funds”) from the 2017 income year, such that the
determined trust components of each AMIT Fund will be taxable in the hands of the beneficiaries (the securityholders) on an
attribution basis.
Accordingly, deferred taxes associated with these AMIT Funds have not been recognised in the financial statements in
relation to differences between the carrying amounts of assets and liabilities and their respective tax bases, including taxes
on capital gains / losses which could arise in the event of a sale of properties for the amount at which they are stated in the
consolidated financial statements.
Realised capital losses are not attributed to securityholders but instead are retained within the AMIT Funds to be offset
against realised capital gains. The benefit of any carried forward capital losses is also not recognised in the financial
statements. If in any period realised capital gains exceed realised capital losses, including those carried forward from earlier
periods and eligible for offset, the excess is included in taxable income attributed to securityholders as noted above. For the
year-ended 30 June 2018, there were no unrecognised carried forward capital losses (2017: $nil).
18. Related party transactions
18.1 Transactions with key management personnel
The Group does not employ personnel in its own right. However, it is required to have a Responsible Entity to manage
the activities of the Fund and its controlled entities. As such there are no staff costs (including fees paid to directors of the
Responsible Entity) included in the consolidated statement of profit or loss and other comprehensive income.
18.2 Transactions with the Responsible Entity and related bodies corporate
The Responsible Entity of Convenience Retail REIT No. 2 is APN Funds Management Limited (“APN FM”). Convenience
Retail Management Pty Limited has been appointed as the Fund Manager (the “Manager”) to provide investment
management services and property management services to Convenience Retail REIT. The Manager is a related body
corporate of APN FM and a wholly owned subsidiary of APN Property Group Limited (“APN PG”).
Transactions with the Responsible Entity / Manager have taken place at arm’s length and in the ordinary course of business.
The transactions are as follows:
Management fees1
Registry fees
Custody fees
Property management and leasing fees
Distributions
Reimbursement of costs paid on behalf of the Group2
16 December
2016 to 30 June
2017
$’000
388
6
-
-
403
887
1,684
2018
$’000
1,936
-
65
3
2,213
879
5,096
1 APN FM is entitled to a base management fee of 0.65% per annum of the Gross Asset Value of the Group (reducing to 0.60% p.a. of Gross Asset Value between
$500m and $1,000m, 0.55% p.a. of Gross Asset Value between $1,000m and $1,500m and 0.50% of Gross Asset Value in excess of $1,500m). In addition, the
Manager has been appointed, on a non-exclusive basis, to provide property management, financial management, leasing and rent review and project supervision
services. The Manager/Responsible Entity is entitled to be reimbursed all reasonable expenses properly incurred in the performance of services.
2
Incorporates costs incurred by the Fund of $774,000 (2017: $652,000) in connection with the Convenience Retail REIT initial public offering process.
52 CONVENIENCE RETAIL REIT ANNUAL REPORT 2018
CONVENIENCE RETAIL REIT 53
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
18.3 Security holdings and associated transactions with related parties
The below table shows the number of Convenience Retail REIT securities held by related parties (including managed investment
schemes for which a related party is the Responsible Entity or Investment Manager) and the distributions received or receivable.
2018
2017
Number of
securities
Distributions
$
Number of
securities
Distributions
$
APN Property Group Limited
APN Funds Management Limited
APN AREIT Fund
APN Property for Income Fund
APN Property for Income Fund No.2
Howard Brenchley
Chris Aylward
5,268,757
4,355,717
2,029,639
389,027
109,442
39,075
100,000
955,226
789,691
367,974
70,531
22,281
7,084
18,130
9,942,753
402,550
-
-
-
-
100,000
-
-
-
-
-
4,042
-
19.1 Business combination
(a) Acquisition of Convenience Retail REIT No. 1 and Convenience Retail REIT No. 3
On 27 July 2017, Convenience Retail REIT No.1 and Convenience Retail REIT No. 3 were deemed to be ‘acquired’ through
a stapling arrangement, and thus no ownership has been obtained. In accordance with accounting standards, Convenience
Retail REIT No. 2 has been identified as the acquirer in the stapling transaction and therefore the financial results and
financial position attributable to these entities are disclosed as ‘non-controlling interests’ in these consolidated financial
statements.
Convenience Retail REIT No. 1
Convenience Retail REIT No. 3
Proportion of
units/shares
acquired
Considerations
transferred
$’000
-
-
-
-
The principal activities of each of the above entities are the same as that of Convenience Retail REIT No. 2. These entities
were acquired to expand the property portfolio of the Group and to form Convenience Retail REIT which is listed on the ASX.
Total
12,291,657
2,230,916
10,042,753
406,592
15.57% (2017: 14.46%) of Convenience Retail REIT stapled securities are held by APN PG and its related parties.
(b) Assets acquired and liabilities assumed
The assets acquired and liabilities assumed at the date of acquisition are detailed below:
19. Controlled entities
Parent entity
Convenience Retail REIT No. 2
Non-controlling interests
Convenience Retail REIT No. 1
Convenience Retail REIT No. 3
Percentage owned (%)
Country of
incorporation
2018
2017
Australia
Australia
Australia
-
-
-
-
Convenience Retail REIT No. 1 and Convenience Retail REIT No. 3, being the other stapled entities comprising the
Convenience Retail REIT Group, are presented as non-controlling interests in the consolidated financial statements.
Assets
Cash and cash equivalents
Trade and other receivables
Investment properties
Liabilities
Payables
Distribution payable
Interest bearing liabilities
Net assets acquired
Convenience
Retail REIT
No. 1
$’000
Convenience
Retail REIT
No. 3
$’000
2,591
59
81,985
(478)
(9,069)
(31,683)
43,405
2,867
7,990
21,280
(3,478)
-
-
28,659
The fair value of the receivables acquired (which principally comprise trade receivables) in these transactions equates to
their carrying value. At the acquisition date, it has been estimated that all contractual cash flows from trade receivables are
collectable.
Due to the nature of the stapling transaction, the Group has attributed the net assets of the acquired entities to the owners
of the acquired entities as non-controlling interests.
54 CONVENIENCE RETAIL REIT ANNUAL REPORT 2018
CONVENIENCE RETAIL REIT 55
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Impact of the acquisitions on the Group’s results
(c)
The table below summarises the revenue and profit and loss included in the consolidated statement of profit or loss and
other comprehensive income attributable to the acquired entities.
21. Parent entity financial information
The individual financial statements for the parent entity show the following aggregate amounts:
Revenue from continuing operations
Net profit / (loss)
(d) Net cashflow arising from acquisitions
Considerations paid in cash
Cash and cash equivalents acquired
Net cash inflow
20. Remuneration of auditors
Audit and review of financial statements
Other non-audit services:
Compliance plan audit
Professional services on the formation of Convenience Retail REIT
The auditor of the Group is Deloitte Touche Tohmatsu.
Convenience
Retail REIT
No. 1
$’000
Convenience
Retail REIT
No. 3
$’000
7,065
8,203
5,347
(1,457)
Convenience
Retail REIT
No. 1
$’000
Convenience
Retail REIT
No. 3
$’000
-
2,591
2,591
2018
$’000
68,000
8,000
380,420
456,420
-
2,867
2,867
2017
$’000
12,897
1,000
-
13,897
Financial position
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Retained earnings
Total equity
Financial performance
Profit for the financial year
Other comprehensive income
Total comprehensive income
2018
$’000
1,132
167,969
169,101
(3,947)
(56,002)
(59,949)
109,152
114,019
(4,867)
109,152
9,122
-
9,122
2017
$’000
2,669
106,090
108,759
(2,249)
(44,806)
(47,055)
61,704
69,248
(7,544)
61,704
(4,737)
-
(4,737)
At 30 June 2018, the parent entity had not provided guarantees (2017: $nil), has no contingent liabilities (2017: $nil) and no
contractual commitments (2017: $nil).
22. Subsequent events
On 20 August 2018 the Group executed a contract to acquire Puma Mount Larcom, a newly constructed highway service
station located at 53793 Bruce Highway, Mount Larcom, QLD. The purchase price is $7.3 million and settlement is expected
to occur in late August 2018.
There has not been any matter or circumstance occurring subsequent to the end of the financial year that has significantly
affected, or may significantly affect, the operations of the Group, the results of the Group, or the state of affairs of the Group
in future financial years.
56 CONVENIENCE RETAIL REIT ANNUAL REPORT 2018
CONVENIENCE RETAIL REIT 57
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SECURITYHOLDERS
23. Adoption of new and revised accounting standards
Twenty largest holders of quoted equity securities as at 31 July 2018
23.1 New and revised AASBs affecting amounts reported and/or disclosures in consolidated
the financial statements
In the current year, the Group has adopted all of the new and revised Standards and Interpretations issued by the Australian
Accounting Standards Board (the AASB) that are relevant to its operations and effective for the current annual reporting
period. Except where noted, the adoption of these Standards and Interpretations has not had a material impact on the
financial statements. These include:
• AASB 1048 Interpretation of Standards
• AASB 2016-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 107
23.2 Standards and Interpretations in issue not yet adopted
At the date of authorisation of the financial report, the Standards and Interpretations listed below were in issue but not yet
effective. These are not expected to have any material impact on the Group’s financial report in future reporting periods.
Standard / Interpretation
AASB 9 Financial Instruments, AASB 2010-7 Amendments to
Australian Accounting Standards arising from AASB 9 (December
2010), AASB 2014-1 Amendments to Australian Accounting
Standards (Part E – Financial Instruments], AASB 2014-7
Amendments to Australian Accounting Standards arising from AASB
9 (December 2014)
AASB 15 Revenue from Contracts with Customers, AASB 2014-5
Amendments to Australian Accounting Standards arising from AASB
15, AASB 2015-8 Amendments to Australian Accounting Standards
– Effective Date of AASB 15, and AASB 2016-3 Amendments to
Australian Accounting Standards – Clarifications to AASB 15
AASB 16 Leases
Interpretation 23 Uncertainty over Income Tax Treatments, AASB
2017-4 Amendments to Australian Accounting Standards –
Uncertainty over Income Tax Treatments
Effective for
annual reporting
periods beginning
on or after
Expected to be
initially applied in
the financial year
ending
1 January 2018
30 June 2019
1 January 2018
30 June 2019
1 January 2019
30 June 2020
1 January 2019
30 June 2020
Rank
Name
31 July 2018
%IC
PUMA ENERGY AUSTRALIA VENTURES B.V.
APN PROPERTY GROUP LIMITED
NATIONAL NOMINEES LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
APN FUNDS MANAGEMENT LTD
CITICORP NOMINEES PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
THE CASS FOUNDATION LIMITED
NETWEALTH INVESTMENTS LIMITED
ONE MANAGED INVESTMENT FUNDS LIMITED
FOLKESTONE MAXIM A-REIT SECURITIES A/C
MUTUAL TRUST PTY LTD
MR MICHAEL KENNETH HANSEN & MRS ALISON BETTY HANSEN
JAN HOLDINGS PTY LTD
FZIC PTY LTD
FRAMINGTON NOMINEES PTY LTD
BREEZE PROPERTIES PTY LTD
NAVIGATOR AUSTRALIA LTD
JAMPLAT PTY LTD
KALAM ENTERPRISES PTY LTD
RIOTEK PTY LTD
MOKSA PTY LTD
BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD DRP
1
2
3
4
5
6
7
8
9
10
11
11
12
13
14
15
16
17
18
18
19
20
Total
6,666,667
5,268,757
4,876,948
4,744,957
4,355,717
3,385,733
2,674,347
1,000,000
925,580
850,060
666,667
666,667
650,000
633,000
459,200
333,334
279,139
275,000
229,611
229,611
200,000
195,866
39,566,861
8.45
6.68
6.18
6.01
5.52
4.29
3.39
1.27
1.17
1.08
0.84
0.84
0.82
0.80
0.58
0.42
0.35
0.35
0.29
0.29
0.25
0.25
50
At the date of authorisation of the financial statements, the following IASB Standards and IFRIC Interpretations were also in
issue but not yet effective, although Australian equivalent Standards and Interpretations have not yet been issued.
Distribution of holders of equity securities as at 31 July 2018
Standard/Interpretation
None noted
Effective for annual reporting
periods beginning on or after
Range
100,001 and Over
10,001 to 100,000
5,001 to 10,000
1,001 to 5,000
1 to 1,000
Total
Unmarketable Parcels
Securities
43,885,552
27,598,782
5,438,786
1,973,643
23,288
78,920,051
256
No. of
holders
53
1,123
705
564
48
2,493
15
%
55.61
34.97
6.89
2.50
0.03
100.00
0.00
58 CONVENIENCE RETAIL REIT ANNUAL REPORT 2018
CONVENIENCE RETAIL REIT 59
SUMMARY OF SECURITYHOLDERS
CORPORATE DIRECTORY
Substantial Holder Notices
The table below gives details of the last notice for each substantial unitholder lodged with the Australian Securities Exchange
to 31 July 2018:
Effective date
Name
1 August 2017
1 August 2017
APN Property Group and Holus Nominees Pty Limited
and Lauren Investments Pty Limited and related entities
Puma Energy Australia Ventures B.V, PUMA Energy
(Australia) Assets Holdings Pty Ltd and their related
bodies coporate
Number of
securities
12,131,883
6,666,701
%
15.37
8.45
On-market buy back
There were no on-market buy-backs during the year.
Registered Office
Level 30, 101 Collins Street
Melbourne VIC 3000
T +61 3 8656 1000
F +61 3 8656 1010
W www.crreit.com.au
E contact@crreit.com.au
Share Registry
Link Market Services Limited
Locked Bag A14
Sydney South NSW 1235
T 1300 554 474 (local call cost)
F +61 2 9287 0303
E registrars@linkmarketservices.com.au
Stock Exchange Listing
Convenience Retail REIT stapled securities are listed
on the Australian Securities Exchange (ASX:CRR)
Convenience Retail REIT
Convenience Retail REIT No. 1 ARSN 101 227 614
Convenience Retail REIT No. 2 ARSN 619 527 829
Convenience Retail REIT No. 3 ARSN 619 527 856
Responsible Entity
APN Funds Management Limited
ACN 080 674 479
AFS Licence No: 237500
Directors
Geoff Brunsdon, Independent Chairman
Jennifer Horrigan, Independent Director
Michael Johnstone, Independent Director
Howard Brenchley, Independent Director
Michael Groth, Alternate Director for Howard Brenchley
Company Secretary
Chantal Churchill
Manager
Convenience Retail Management Pty Ltd
PO Box 18011
Collins Street East
Melbourne VIC 8003
T +61 3 8656 1000
F +61 3 8656 1010
W crreit.com.au
60 CONVENIENCE RETAIL REIT ANNUAL REPORT 2018
CONVENIENCE RETAIL REIT 61
CONVENIENCE RETAIL REIT 61
Responsible Entity
APN Funds Management Limited
ACN 080 674 479 AFSL No 237500
Level 30, 101 Collins Street
Melbourne Victoria 3000 Australia
T +61 (3) 8656 1000
F +61 (3) 8656 1010
W www.crreit.com.au
Information contained in this report is current as at the date of preparation. This report is provided for information purposes only and has been prepared without taking account of
any particular reader’s financial situation, objectives or needs. Nothing contained in this report constitutes investment, legal, tax or other advice. Accordingly, readers should, before
acting on any information in this report, consider its appropriateness, having regard to their objectives, financial situation and needs, and seek the assistance of their financial or
other licensed professional adviser before making any investment decision. This report does not constitute an offer, invitation, solicitation or recommendation with respect to the
subscription for, purchase or sale of any security, nor does it form the basis of any contract or commitment.