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
ANNUAL REPORT
2019
APN Funds Management Limited
ACN 080 674 479 AFSL No 237500
APN Convenience Retail REIT is a listed Australian Real Estate Investment
Trust (“REIT”) (ASX code: AQR) that wholly owns a portfolio of 70 service station
and convenience retail assets located across Australia with a skew towards the
eastern seaboard, independently valued at $358 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
01
02
04
05
06
07
08
11
19
20
21
54
56
PERFORMANCE SNAPSHOT
LETTER FROM THE FUND MANAGER
ABOUT THE MANAGER
SENIOR MANAGEMENT
DIVERSIFIED PORTFOLIO
STRONG LEVEL OF INCOME SECURITY
FINANCIAL REPORT
Directors' report
Corporate governance statement
Auditor's independence declaration
Independent auditor's report
SUMMARY OF SECURITYHOLDERS
CORPORATE DIRECTORY
Performance snapshot
Financial Performance
20.9c
DISTRIBUTION
PER SECURITY
▲ 5.8% on FY2018
21.5c
FFO
PER SECURITY
▲ 6.4% on FY2018
$2.96
NTA
PER SECURITY
▲ 3.1% from June 2018
Portfolio Performance
11.7yrs
WEIGHTED AVERAGE
LEASE EXPIRY
96.9%
OF INCOME FROM
ANCHOR TENANTS
2.9%
CONTRACTED ANNUAL
RENTAL GROWTH
Capital Management
32.3%
GEARING
60.3%
DRAWN DEBT
HEDGED
4.2x
INTEREST COVER
APN CONVENIENCE RETAIL REIT 1
APN CONVENIENCE RETAIL REIT 1
LETTER FROM THE FUND MANAGER
Dear Investor,
Financial results
It is my pleasure to present the Annual Report for APN
Convenience Retail REIT (or ‘the Fund’) for the financial
year ended 30 June 2019.
APN Convenience Retail REIT is in a strong position. The
Fund has secure and transparent cash flows backed by
long-term leases to national and international operators
and benefits from a healthy balance sheet with a prudent
level of debt and hedging.
The Fund is also well positioned to deliver sustainable
long-term income growth that outpaces current inflation
expectations through the portfolio’s contracted annual rent
increases, with 79% of the income subject to fixed annual
increases of 3% or more and the balance linked to CPI
escalations.
The Fund’s investment thesis is defensive due to its
exposure to non-discretionary spending, but it is also
unique and considered difficult to replicate given the
limited availability of strategically located land which is not
impacted by zoning restrictions. A combination of all these
factors will ensure that this asset class continues to be a
sought-after investment and reliable income source.
During the year, APN Convenience Retail REIT recorded a
statutory profit of $24 million.
The Fund delivered distributions for FY19 of $16.5 million,
or 20.9 cents per security, representing an increase of
5.8% on FY18 annualised. This increase combined with
the Fund’s strong security price performance has resulted
in a total return for securityholders for the financial year
of 23.7%, outperforming the S&P/ASX 300 A-REIT
Accumulation Index by 4.3%.
Funds from Operations (FFO) of $17 million, or 21.5 cents
per security, was up 6.4% on FY18 annualised primarily
due to like-for-like property rental growth of 2.7% as well
as a full year’s contribution from three earnings accretive
acquisitions in late 2017 and early 2018.
Net tangible assets per security increased during the
period by 9 cents, or 3.1%, to $2.96.
Property performance
As at 30 June 2019, APN Convenience Retail REIT's
portfolio comprised 70 properties.
We are continuing with our strong focus on actively
managing the portfolio and pursuing acquisition and
divestment opportunities to enhance the Fund and create
long term sustainable value for securityholders.
During the year, 35 properties were the subject of an
independent valuation contributing to a portfolio valuation
uplift of $10.6 million to $358.3 million, representing a
weighted average capitalisation rate of 7.0%.
2 APN CONVENIENCE RETAIL REIT ANNUAL REPORT 2019
LETTER FROM THE FUND MANAGER
Not only does the portfolio have a long weighted average
lease expiry of 11.7 years, but it also has an attractive lease
expiry profile with 77% of lease income expiring in FY30
and beyond, providing securityholders with a strong level of
income security.
The portfolio remains 100% occupied and 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.
Our active portfolio management approach continued
to deliver results for the Fund and securityholders when
Woolworths agreed to continue to guarantee their leases
(for 13 sites) until the end of the current terms and on any
exercise of existing option periods, following the sale of
the Woolworths petrol business to EG Group in April 2019.
This outcome ensures that the assignment of these leases
to EG Group will not impact the underlying value of those
13 properties.
Capital management
APN Convenience Retail REIT’s gearing was 32.3% (within
our target range of 25 to 40%) and drawn debt was 60.3%
hedged for a weighted average of 3 years as at 30 June
2019. The Fund has significant capacity within the targeted
gearing range to pursue acquisition opportunities that meet
our strict investment criteria.
During the period, the Fund expanded its debt finance
syndicate by introducing a third financier to improve the
Fund’s debt maturity profile, funding diversity and flexibility
that will support future initiatives.
The Distribution Reinvestment Plan (DRP) was activated for
the quarter ended 30 June 2019. The DRP was proactively
established to provide the Fund flexibility in respect of its
long-term capital structure and provide securityholders with
a cost-effective way to increase their security holdings.
Strategy and outlook
The Fund is ideally positioned to deliver sustainable long-
term income growth for securityholders.
APN Convenience Retail REIT is targeting a 4.3% increase
in FY20 distributions to 21.8 cents per security.
FY20 FFO guidance is 22.3 to 22.5 cents per security,
subject to any unforeseen events and with no material
change in current market conditions.
We are well positioned to execute on opportunities as and
when they arise and remain focused on delivering long-
term sustainable growth for securityholders and continue
to actively pursue acquisition and divestment opportunities
and develop strategic relationships in-line with the Fund’s
investment strategy.
I would like to take this opportunity to thank you for your
ongoing support of APN Convenience Retail REIT, and we
look forward to another successful year ahead.
Yours sincerely,
Chris Brockett
Fund Manager
APN Convenience Retail REIT
APN CONVENIENCE RETAIL REIT 3
APN CONVENIENCE RETAIL REIT 3
ABOUT THE MANAGER
The Responsible Entity is APN Funds Management Limited (APN FM). APN FM has appointed Convenience Retail
Management Pty Ltd as Manager. APN FM and Convenience Retail Management Pty Ltd are wholly owned subsidiaries of
APN Property Group Limited (APN).
Established in 1996, APN is listed on the ASX and manages $2.8 billion 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 $30
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 19 average
years of experience in
real estate
Governance
overseen by
independent Board
¡ 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
4 APN CONVENIENCE RETAIL REIT ANNUAL REPORT 2019
4 APN CONVENIENCE RETAIL REIT ANNUAL REPORT 2019
SENIOR MANAGEMENT
Chris Brockett
Fund Manager
Jessie Chen
Head of Accounting -
Managed Funds
Gordon Korkie
Senior Analyst
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 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 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 13
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.
APN CONVENIENCE RETAIL REIT 5
APN CONVENIENCE RETAIL REIT 5
DIVERSIFIED PORTFOLIO
Portfolio overview as at 30 June 2019
70
INVESTMENT
PROPERTIES
$358m
PORTFOLIO
VALUE
7.01%
WEIGHTED
AVERAGE
CAP RATE
100%
OCCUPANCY
11.7 yrs
WALE
(by income)
46,099
NLA
(sqm)
66%
10%
21%
3%
of portfolio located
90%
in Australia’s eastern
seaboard states
~78% of Australia’s
population live in the eastern
seaboard states1
Queensland
Investment properties
Value ($m)
Weighted avg cap rate
Occupancy
WALE (years by income)
53
238.2
7.01%
100%
11.8
New South Wales
Investment properties
Value ($m)
Weighted avg cap rate
Occupancy
WALE (years by income)
8
75.0
6.77%
100%
12.8
Western Australia
Investment properties
Value ($m)
Weighted avg cap rate
Occupancy
WALE (years by income)
7
36.4
7.56%
100%
10.7
Victoria
Investment properties
Value ($m)
Weighted avg cap rate
Occupancy (by area)
WALE (years by income)
2
8.7
6.63%
100%
3.1
Portfolio by classification
Top tenants by income
Regional 16%
Highway
21%
Puma
69%
EG Group
18%
7-Eleven
9%
Metropolitan
63%
Viva Energy
1%
Complementary
retail
3%
84% of the portfolio are
metropolitan or highway sites
Major tenants account for
97% of portfolio income
1 ABS 3101.0 - Australian Demographic Statistics, Dec 2018. Eastern Seaboard states defined as NSW, VIC, QLD.
6 APN CONVENIENCE RETAIL REIT ANNUAL REPORT 2019
STRONG LEVEL OF INCOME SECURITY
Lease expiry profile (by income)
No. of service
station tenant
expiries:
15
21.9%
0.3%
of income
expiring
77%
of lease income
expiring FY30 and
beyond
4
1
3
6
17
17
7
30.3%
18.7%
0.3%
0.3%
0.2%
0.3%
0.4%
7.8%
9.6%
5.3%
3.7%
1.2%
FY20
FY21
FY22
FY23
FY24
FY25
FY26
FY27
FY28
FY29
FY30
FY31
FY32
FY33
FY34
FY35
FY36
Rent review type by income
CPI
21%
79%
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
79%
1 Assuming CPI of 2.0%
APN CONVENIENCE RETAIL REIT 7
APN CONVENIENCE RETAIL REIT 7
Financial
report
‘APN Convenience Retail REIT’
being Convenience Retail REIT No. 2 and
its Controlled Entities ARSN 619 527 829
Stapling arrangement
The ‘APN 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;
¡ Convenience Retail REIT No.2; and
¡ Convenience Retail REIT No.3.
These consolidated financial statements represent the
consolidated results of APN Convenience Retail REIT for
the full financial year. Prior period comparative information
represents the 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.
8 APN CONVENIENCE RETAIL REIT ANNUAL REPORT 2019
8 APN CONVENIENCE RETAIL REIT ANNUAL REPORT 2019
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 Distributions
8 Earnings per security
9 Borrowings
10 Capital risk management
11 Financial and risk management
12 Commitment and contingencies
Efficiency of operation
13 Cash and cash equivalents
14 Trade and other receivables
15 Trade and other payables
Other notes
16 Income taxes
17 Related party transactions
18 Controlled entities
19 Remuneration of auditors
20 Parent entity financial information
21 Subsequent events
22 Adoption of new and revised accounting standards
11
19
20
21
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26
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29
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30
30
30
31
31
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31
37
37
38
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52
APN CONVENIENCE RETAIL REIT 9
APN CONVENIENCE RETAIL REIT 9
10 APN CONVENIENCE RETAIL REIT ANNUAL REPORT 2019
10 APN CONVENIENCE RETAIL REIT ANNUAL REPORT 2019
DIRECTORS' REPORT
The directors of APN Funds Management Limited (“APN FM”), the Responsible Entity of Convenience Retail REIT No. 2
(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 2019. The Fund is one of three entities that together comprise the stapled entity APN
Convenience Retail REIT which is listed on the Australian Securities Exchange (“ASX”) (ASX Ticker: “AQR”).
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:
APN CONVENIENCE RETAIL REIT 11
APN CONVENIENCE RETAIL REIT 11
DIRECTORS’ REPORT
Geoff Brunsdon AM
B.Com, CA, 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
and MetLife Insurance 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), Yarra Funds
Management Limited 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
Charter Hall 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.
12 APN CONVENIENCE RETAIL REIT ANNUAL REPORT 2019
DIRECTORS’ REPORT
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, GIA(Cert)
Company Secretary and
Head of Risk and Compliance
¡ Alternate Director since March
¡ Company Secretary since
2018.
2014.
December 2016.
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.
Chantal is the Company Secretary
and Head of Risk and Compliance
for the APN Group. Chantal is
responsible for the company
secretarial, governance, risk
management and compliance
functions.
Chantal has over 15 years’
professional experience in
governance, risk and compliance.
Prior to joining APN in 2015, Chantal
held various risk and compliance roles
predominately in financial services
including seven years at Arena
Investment Management.
Chantal is a member of the
Governance Institute of Australia.
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).
APN CONVENIENCE RETAIL REIT 13
DIRECTORS’ REPORT
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, Risk and
Compliance Committee
Nomination and
Remuneration Committee
Directors
Held
Attended
Held
Attended
Held
Attended
Geoff Brunsdon AM
Jennifer Horrigan
Michael Johnstone
Howard Brenchley
11
11
11
11
11
11
11
11
7
7
7
7
7
7
1
1
1
1
1
1
N/A
N/A
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 secure
income streams and have the potential for capital growth.
The Fund is a registered managed investment fund domiciled in Australia and forms part of APN Convenience Retail REIT
which is listed on the Australian Securities Exchange (“ASX”) (ASX Ticker: “AQR”), with the parent entity being Convenience
Retail REIT No. 2.
No significant change in the nature of these activities occurred during the financial year. The Group did not have any
employees during the year.
Significant changes in the state of affairs
Other than changing the Group’s name from Convenience Retail REIT (ASX Ticker: “CRR”) to APN Convenience Retail REIT
(ASX Ticker: “AQR”) on 15 February 2019, there were no other significant changes in the state of affairs of the Group during
the financial year.
14 APN CONVENIENCE RETAIL REIT ANNUAL REPORT 2019
DIRECTORS’ REPORT
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. Prior period comparative information represents the results of the Fund for the financial period 1 July
2017 to 26 July 2017 and the Group from 27 July 2017 to 30 June 2018.
The Group’s total comprehensive income was $24,001,000 for the financial year ended 30 June 2019 (30 June 2018:
$15,867,000). A summary of APN Convenience Retail REIT’s results for the financial year is as follows:
Year ended
Year ended 30 June 2018
30 June 2019
$'000
1 July 2017 to
26 July 2017
$’000
27 July 2017 to
30 June 2018
$’000
Net property income
Straight line rental income
Interest income
Total revenue
Management fees
Corporate costs
Finance costs
Total expenses
Net profit1
Transaction costs on IPO
and liquidity offer
Fair value loss on derivatives
Fair value gain on investment properties
Statutory net profit
24,732
4,473
22
29,227
(2,295)
(684)
(5,186)
(8,165)
21,062
-
(2,402)
5,341
24,001
626
154
3
783
(60)
8
(148)
(200)
584
-
-
(154)
430
Total
$’000
21,347
4,766
58
26,171
(1,936)
(636)
(4,370)
(6,942)
19,229
20,721
4,612
55
25,388
(1,876)
(644)
(4,222)
(6,743)
18,645
(4,017)
(4,017)
(142)
951
(142)
797
15,437
15,867
1 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.
APN CONVENIENCE RETAIL REIT 15
DIRECTORS’ REPORT
The Responsible Entity uses the Group’s Funds from Operations (“FFO”) as the key performance indicator.
FFO adjusts statutory net profit / (loss) for certain items that are non-cash, unrealised or capital in nature, in line with the
guidelines established by the Property Council of Australia. Statutory net profit / (loss) is determined in accordance with
Australian Accounting Standards and includes a number of non-cash items including fair value movements, straight line
lease accounting adjustments and amortisation of borrowing and leasing costs and incentives.
A reconciliation of statutory net profit / (loss) to FFO since the establishment of the Group is outlined as follows:
Funds from Operations
Statutory net profit / (loss)
Adjusted for:
Reversal of straight line lease revenue recognition
Reversal of fair value (gain) / loss on investment properties
Reversal of fair value (gain) / loss on derivatives
Add back IPO and liquidity offer transaction costs expensed
Add back amortisation borrowing costs
Add back 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)
Year ended
30 June 2019
$’000
27 July 2017 to
30 June 2018
$’000
24,001
(4,473)
(5,341)
2,402
-
385
25
16,999
21.54 c
20.90 c
97.03%
30.41 c
78,918
78,910
$16,494
15,437
(4,612)
(951)
142
4,017
540
35
14,608
18.51 c
18.13 c
97.94%
19.56 c
78,920
78,920
$14,309
Operating Result
The Group’s total Funds from Operations increased by $2,391,000 to $16,999,000. The key drivers of this result included:
¡ The corresponding year comprised a shorter period from 27 July 2017 to 30 June 2018 compared to a full twelve-month
period for the current year;
¡ acquisition of one additional property post corresponding year end;
¡ contractual annual rent increases; and
¡ net property income growth was partially offset by increases in management fees and finance costs as a result of portfolio
revaluation uplift and property acquisitions.
16 APN CONVENIENCE RETAIL REIT ANNUAL REPORT 2019
DIRECTORS’ REPORT
Net tangible assets and asset
valuations
As at balance date, 35 properties were subject to external
independent valuations performed by Jones Lang LaSalle
Advisory Services Pty Ltd and Savills Valuations Pty Ltd.
As a result of this exercise, the value of these properties
increased by $2,450,000 primarily due to the annual rent
increases as well as a small tightening of the portfolio’s
weighted average market capitalisation rate.
The remaining 35 properties were subject to Directors’
valuations as at 30 June 2019. This portfolio increased by
$620,000, predominantly due to the annual rent increases.
Overall, the entire portfolio increased in valuation by
$3,070,000 as at balance date.
Market Overview
Service station investments remain a sought-after asset
class. The business of selling fuel and convenience goods
is currently performing strongly relative to many other
industries. The strength of the industry adds confidence to
purchasers already attracted by long lease terms, strong
lease covenants and contracted annual increases.
The affordability of most service stations is also a
contributing factor to the continued strength of this sector.
Below $5,000,000 there is an active market for such
investment property, and the majority of older assets are
sub-$3,000,000, which is highly accessible for private
investors.
Likely developments
Despite equity markets being at very high levels relative
to the past, economies across the world continue to
struggle to generate sustainable levels of growth. There are
significant geopolitical events that are unfolding, including
(but certainly not limited to) Brexit, the trade war between
the US and China, and military tensions and aggression
across parts of Asia and the Middle East.
A decade after the financial crisis monetary policy remains
highly accommodative and the thirst for yield is unabated.
Central banks, economists and governments across
the globe are grappling with these factors, in addition to
technology and social changes that can unfold rapidly and
unpredictably.
The above factors are all outside the control of the
Directors, and the Board of APN Funds Management
Limited continues to focus on key risks and opportunities
that are within their control. Principally these include:
¡ Investing in strategically located services station and
convenience retail assets with long term leases to
quality tenants;
¡ Providing investors with an attractive, defensive and
growing income stream, with the potential for capital
growth over time;
¡ Maintaining a capital structure that is conservatively
geared and debt expiry profile that is staggered and
reduces material bullet repayment risks;
¡ Operating in an environment where there is alignment
of interest between management and securityholders
through a meaningful co-ownership stake; and
¡ Ensuring the fund has appropriate compliance systems
and processes in place, and fosters a corporate culture
consistent with investor and community expectations
surrounding accountability, ownership, and a strong
degree of honesty and integrity that puts customers first.
The Board believes that APN Convenience Retail
REIT is well placed with regard to the above risks and
opportunities, and accordingly will continue to deliver a
sustainable and growing income yield over the long term.
Distributions
Distributions of $16,494,000 were declared by the Group
during the financial year ended 30 June 2019 (2018:
$14,734,000).
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
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 Audit, Risk and Compliance Committee of the
Responsible Entity has considered the non-audit services
provided during the year by the auditor and 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
APN CONVENIENCE RETAIL REIT 17
Fund information in the
directors’ report
Fees paid to the Responsible Entity during the financial
year and the number of securities in the Group held by
the Responsible Entity, its associates and independent
directors are disclosed in note 18 to the consolidated
financial statements. Other than the directors included
in note 18, no other directors own securities, or rights or
options over securities in the Group.
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.
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 section 298(2) of
the Corporations Act 2001.
On behalf of the directors
Geoff Brunsdon AM
Director
Melbourne, 20 August 2019
DIRECTORS' REPORT
¡ 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
$6,000 (2018: $388,420) for the year ended 30 June 2019.
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 20.
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’s 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. 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.
18 APN CONVENIENCE RETAIL REIT ANNUAL REPORT 2019
CORPORATE GOVERNANCE STATEMENT
APN Convenience Retail REIT (Fund) is a triple stapled entity comprising 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 the code AQR.
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 within.
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 2019
(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: https://apngroup.com.au/fund/apn-
convenience-retail-reit/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://apngroup.com.au/fund/apn-convenience-retail-reit/about-us/
corporate-governance/.
APN CONVENIENCE RETAIL REIT 19
AUDITOR’S INDEPENDENCE DECLARATION
Deloitte Touche Tohmatsu
ABN 74 490 121 060
550 Bourke Street
Melbourne VIC 3000
GPO Box 78
Melbourne VIC 3001 Australia
Tel: +61 (0) 3 9671 7000
Fax: +61 (0) 3 9671 7001
www.deloitte.com.au
20 August 2019
The Board of Directors
APN Funds Management Limited
Level 30, 101 Collins Street
MELBOURNE VIC 3000
Dear Board Members
Independence Declaration – APN 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 APN Convenience Retail REIT.
As lead audit partner for the audit of the financial report of APN Convenience Retail REIT for the
financial year ended 30 June 2019, I declare that to the best of my knowledge and belief, there have
been no contraventions of:
(i) The auditor independence requirements of the Corporations Act 2001 in relation to the
audit; and
(ii) Any applicable code of professional conduct in relation to the audit.
Yours faithfully
DELOITTE TOUCHE TOHMATSU
Peter A. Caldwell
Partner
Chartered Accountants
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Asia Pacific Limited and the Deloitte Network.
20 APN CONVENIENCE RETAIL REIT ANNUAL REPORT 2019
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 (0) 3 9671 7000
Fax: +61 (0) 3 9671 7001
www.deloitte.com.au
Independent Auditor’s Report to the Stapled
Security Holders of APN Convenience Retail REIT
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of APN Convenience Retail REIT, being Convenience Retail REIT
No. 2 and its controlled entities (collectively, the “Group”) which comprises the consolidated statement
of financial position as at 30 June 2019, 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 2019 and of its
financial performance for the year then ended; and
(ii)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
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 for 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.
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Asia Pacific Limited and the Deloitte Network.
APN CONVENIENCE RETAIL REIT 21
INDEPENDENT AUDITOR’S REPORT
Key Audit Matter
Valuation of investment properties held
at fair value
How the scope of our audit responded to the
Key Audit Matter
In conjunction with our valuation specialists, our
procedures included, but were not limited to:
As at 30 June 2019 the Group's investment
properties represent the largest category of
assets with a carrying value of $358m,
including
gain
recognised in the consolidated statement of
profit or loss as disclosed in Note 5.
revaluation
$5.3m
a
the
fair
of
value model.
value
fair
The investment properties are measured
under
The
determination
requires
significant judgement due to the degree of
subjectivity used by management, together
with their internal and external valuation
specialists (the “valuers”), in estimating the
inputs used in the determination of the fair
value of the investment properties including;
net passing rentals, net market rentals, and
capitalisation rates.
the appropriateness of
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
valuation techniques and the inputs used by
the valuers, including; the net passing rentals,
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 tenancy
schedules and signed lease agreements; and
recalculating the mathematical accuracy of a
sample of the valuation models.
We have also assessed the appropriateness of the
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 2019, but does not
include the financial report and our 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.
22 APN CONVENIENCE RETAIL REIT ANNUAL REPORT 2019
INDEPENDENT AUDITOR’S REPORT
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.
APN CONVENIENCE RETAIL REIT 23
INDEPENDENT AUDITOR’S REPORT
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, 20 August 2019
24 APN CONVENIENCE RETAIL REIT ANNUAL REPORT 2019
DIRECTORS’ DECLARATION
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 section 295(5) of the
Corporations Act 2001.
On behalf of the directors of the Responsible Entity, APN Funds Management Limited.
Geoff Brunsdon AM
Director
Melbourne, 20 August 2019
APN CONVENIENCE RETAIL REIT 25
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME
For the year ended 30 June 2019
Notes
5
17
9
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 / (loss) on derivatives
Total other income
Total income
Expenses
Property costs
Management fees
Finance costs
Other expenses
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
2019
$’000
27,196
4,473
31,669
22
5,341
(2,402)
2,961
34,630
(2,464)
(2,295)
(5,186)
(684)
-
2018
$’000
23,012
4,766
27,778
58
797
(142)
713
28,491
(1,665)
(1,936)
(4,370)
(636)
(4,017)
(10,629)
24,001
(12,624)
15,867
12,654
11,347
24,001
-
24,001
12,654
11,347
24,001
9,122
6,745
15,867
-
15,867
9,122
6,745
15,867
Earnings per security
Basic and diluted (cents per security)
8
30.41
20.28
1 Represents the net profit and comprehensive income attributable to the other stapled entities comprising the APN Convenience Retail REIT Group.
Notes to the consolidated financial statements have been included in the accompanying pages.
26 APN CONVENIENCE RETAIL REIT ANNUAL REPORT 2019
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2019
Current assets
Cash and cash equivalents
Trade and other receivables
Other assets
Total current assets
Non-current assets
Investment properties
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Distributions payable
Derivative financial instruments
Total current liabilities
Non-current liabilities
Derivative financial instruments
Borrowings
Total non-current liabilities
Total liabilities
Net assets
Equity
Securityholders of Convenience Retail REIT No. 2:
Contributed equity
Retained earnings
Securityholders of non-controlling interests1:
Contributed equity
Retained earnings
Total equity
Net tangible assets ($ per security)
Notes
13
14
5
15
7
9
9
9
6
6
2019
$’000
289
95
30
414
358,293
358,293
358,707
(2,846)
(4,123)
(898)
(7,867)
(1,646)
(115,400)
(117,046)
(124,913)
233,794
114,004
(317)
95,931
24,176
233,794
2.96
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
1 Represents the net assets attributable to the other stapled entities disclosed in note 18, comprising the APN Convenience Retail REIT Group.
Notes to the consolidated financial statements have been included in the accompanying pages.
APN CONVENIENCE RETAIL REIT 27
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2019
Contributed
equity
$’000
Retained
earnings
$’000
Notes
Non-
controlling
interests1
$’000
Total
$’000
Total equity
$’000
Balance at 30 June 2017
69,248
(7,544)
61,704
-
61,704
Net profit / (loss)
Other comprehensive income
Total comprehensive income for the year
Security consolidation for the formation
of the Group
Issue of contributed equity
Equity issuance costs
Distributions paid or payable
Balance as at 30 June 2018
Net profit / (loss)
Other comprehensive income
Total comprehensive income for the year
Equity issuance costs
Securities buy-back
Distributions paid or payable
6
6
7
6
6
7
-
-
-
-
46,660
(1,889)
9,122
9,122
6,745
15,867
-
-
-
-
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)
114,019
(4,867)
109,152
117,166
226,318
-
-
-
-
(15)
-
12,654
12,654
11,347
24,001
-
-
-
-
12,654
12,654
11,347
24,001
-
-
-
(15)
(1)
(15)
(1)
(30)
(8,104)
(8,104)
(8,390)
(16,494)
Balance as at 30 June 2019
114,004
(317)
113,687
120,107
233,794
1 Represent the equity attributable to the other stapled entities comprising the APN Convenience Retail REIT Group.
Notes to the consolidated financial statements have been included in the accompanying pages.
28 APN CONVENIENCE RETAIL REIT ANNUAL REPORT 2019
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 June 2019
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
Net cash inflow / (outflow) from investing activities
Cash flows from financing activities
Net proceeds from borrowings
Net proceeds from issue of contributed equity
Equity issuance and liquidity offer costs paid
Payments for securities buy-back
Distributions paid
Net cash inflow / (outflow) from financing activities
Net (decrease) / increase 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
Notes
13
5
5
13
6
13
13
2019
$’000
24,036
25
(2,677)
(4,945)
16,439
(7,881)
(106)
(7,987)
5,416
-
(29)
(30)
(16,317)
(10,960)
(2,508)
2,797
289
2018
$’000
21,399
58
(846)
(5,034)
15,577
(227,922)
(853)
(228,775)
65,600
164,268
(6,935)
-
(9,265)
213,668
470
2,327
2,797
Notes to the consolidated financial statements have been included in the accompanying pages.
APN CONVENIENCE RETAIL REIT 29
NOTES TO THE FINANCIAL STATEMENTS
About this Report
1. General information
APN Convenience Retail REIT is a stapled entity listed on
the Australian Securities Exchange (trading under ASX
Ticker: “AQR”), incorporated and operating in Australia.
APN Convenience Retail REIT comprises Convenience
Retail REIT No. 2 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.
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 20 August 2019.
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
(the “Group”) – refer to note 18 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.
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;
¡ it is important to understand the results of the Group;
¡ 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.
30 APN CONVENIENCE RETAIL REIT ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS
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 underpin 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
2019
$’000
340,429
7,313
568
106
4,473
-
88
(25)
5,341
2018
$’000
106,090
221,497
6,425
853
4,766
-
10
(6)
794
Carrying amount at end of the financial year
358,293
340,429
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 $nil (2018: $5,000) representing lease incentive
commitments the Group has provided under the lease contracts.
APN CONVENIENCE RETAIL REIT 31
NOTES TO THE 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 three tenants represent $23,704,000 (2018: three tenants represent $19,785,000) of
the Group’s total revenue.
Minimum lease payments to be received 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
2019
$’000
25,831
72,370
272,443
370,644
2018
$’000
24,795
74,816
287,157
386,768
For the year ended 30 June 2019, the Group has not identified any contracts for which it is a lessee. The Group is a lessor
by virtue of the lease arrangements associated with its investment properties.
5.3 Contractual obligations
Under some of the lease agreements applicable to 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.
During the year, the Group entered into a Tank Works Deed with Woolworths Group Limited to replace underground tanks
at Cnr Vardys Rd & Turbo Rd, Marayong, NSW. The timing of these works is yet to be determined. Additionally, as at the
reporting date two other 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 70 properties located throughout Queensland, New South Wales, Western Australia
and Victoria. 35 properties were independently valued at 30 June 2019. 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. Current year independent valuations were performed by Jones Lang
LaSalle Advisory Services Pty Ltd and Savills Valuations Pty Ltd (2018: Savills Valuations Pty Ltd).
As at 30 June 2019, the remaining 35 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.
32 APN CONVENIENCE RETAIL REIT ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS
397 Pacific Hwy, Belmont North, NSW1
Cnr Vardys Rd & Turbo Rd, Marayong, NSW1
511 Pacific Highway, South Kempsey, NSW
172 New England Highway, Rutherford, NSW
Cnr Northcote St & Main Rd, Heddon Greta, NSW
Cnr Weakleys & Glenwood Drives, Thornton, NSW
M 449 Victoria Street, Wetherill Park, NSW
1 Blueberry Road, Moree NSW
2948 Old Cleveland Rd, Capalaba, QLD1
Cnr Anzac Ave & Josey Rd, Mango Hill, QLD1
550 -560 Samford Rd, Mitchelton, QLD1
420 - 426 Mt Cotton Rd, Capalaba, QLD1
1233 Wynnum Rd, Murrarie, QLD1
17 - 25 Toombul Rd, Northgate, QLD1
124 - 130 Paradise Rd, Slacks Creek, QLD1
108 Compton Rd, Woodridge, QLD1
708 Gympie Rd, Lawnton, QLD1
353 Redbank Plains Rd, Redbank Plains, QLD1
264 Browns Plains Rd, Browns Plains, QLD1
Sovereign Avenue, Bray Park, QLD1
21 Ingham Road, West End, QLD
921 Nambour Connection Rd, Nambour, QLD
1380 Boundary Rd, Wacol, QLD
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, QLD
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, QLD
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
Jun-19
Jun-19
Jun-19
Jun-19
Jun-19
Jun-19
Jun-18
Jun-18
Jun-18
Jun-18
Jun-18
Jun-18
Jun-18
Jun-18
Jun-18
Jun-18
Jun-18
Jun-18
Jun-19
Jun-19
Jun-19
Dec-17
Dec-17
Dec-17
Dec-17
Dec-17
Dec-17
Dec-17
Jun-19
Dec-17
Dec-17
Dec-17
Dec-17
Jun-19
Dec-17
Dec-17
Dec-17
Dec-17
Dec-17
$'000
5,980
7,750
2019
$'000
6,080
7,910
2018
$'000
5,980
7,750
19,340
19,340
18,780
5,360
8,760
8,900
7,920
5,360
8,760
8,900
7,920
5,200
8,500
8,620
7,690
10,700
10,700
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
5,600
1,330
5,400
3,640
2,290
2,630
5,760
2,550
6,140
1,860
3,960
2,020
1,530
1,250
5,500
6,040
3,560
1,810
1,430
3,270
1,720
4,730
3,220
4,060
3,960
5,350
3,920
4,000
5,580
4,370
5,560
5,840
4,190
5,600
1,330
5,400
3,750
2,360
2,710
5,930
2,630
6,320
1,920
3,960
2,080
1,570
1,280
5,670
6,040
3,670
1,860
1,470
3,370
1,780
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
2019
%
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%
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%
APN CONVENIENCE RETAIL REIT 33
NOTES TO THE FINANCIAL STATEMENTS
Latest independent
valuation
Carrying amounts
Capitalisation rate
Valuation
date
$'000
2019
$'000
2018
$'000
60 Hawkins Crescent, Bundamba, QLD
1129 Morandah Access Road, Moranbah, QLD
273-279 Gympie Rd, Kedron, QLD
34-36 Cessna Drive, Caboolture, QLD
164-170 David Low Way, Diddilibah, QLD
282 Wardell Street, Enoggera, QLD
840 Steve Irwin Way, Glasshouse Mountains, QLD
1977 Anzac Avenue, Mango Hill, QLD
216 Preston Road, Manly West, QLD
72 Walker Street, Maryborough, QLD
127 Kingston Road, Woodridge, QLD
1965 D'Aguilar Highway, Villeneuve, QLD
983 Waterworks Road, The Gap, QLD
63 Raceview Street, Raceview, QLD
14 Rosemary Street, Durack, QLD
205 Old Gympie Road, Dakabin, QLD
Cnr Edith St and Bruce Hwy, Cluden, QLD
22 Nicholson Street, Banana, QLD
25 Kiernan Drive, Roseneath, QLD
53793 Bruce Hwy, Mount Larcom, QLD1
591 Dorset Rd, Bayswater North, VIC1
Cnr Thompson Rd & Victoria St, Geelong North, VIC1
753 North Lake Rd, Southlake, WA1
Cnr Amherst & Nicholsons Rd, Canningvale, WA1
1 Wishart Street, Gwelup, WA
224 Clontarf Road, Hamilton Hill, WA
1182 Chapman Road, Glenfield, WA
1 Kakadu Road, Yanchep, WA
Lot 401 Great Northern Highway, South Hedland, WA
Jun-19
Jun-19
Jun-19
Jun-19
Jun-19
Jun-19
Jun-19
Jun-19
Jun-19
Jun-19
Jun-19
Jun-19
Jun-19
Jun-19
Jun-19
Jun-19
Jun-19
Jun-19
Jun-19
Aug-18
Jun-18
Jun-18
Jun-18
Jun-18
Jun-19
Jun-19
Jun-19
Jun-19
Jun-19
17,720
17,720
17,200
6,020
3,400
6,400
3,400
1,910
5,000
4,000
2,200
2,130
4,710
1,900
3,240
9,710
5,700
4,650
6,020
3,400
6,400
3,400
1,910
5,000
4,000
2,200
2,130
4,710
1,900
3,240
9,710
5,700
4,650
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
12,500
12,500
12,140
3,600
7,250
7,313
4,300
4,230
6,200
6,600
3,700
4,620
4,740
5,540
5,340
3,600
7,250
7,313
4,330
4,390
6,280
6,150
3,700
4,620
4,740
5,540
5,340
3,470
6,800
-
4,300
4,230
6,200
6,600
3,570
4,490
4,600
5,380
5,190
2019
%
6.75%
7.00%
6.75%
6.75%
7.25%
7.00%
7.25%
7.00%
7.25%
7.75%
7.00%
8.25%
7.00%
6.75%
6.75%
6.50%
7.25%
7.50%
7.25%
6.75%
6.50%
6.75%
7.75%
7.50%
7.00%
7.00%
8.25%
7.25%
8.00%
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%
Total investment properties
358,293
340,429
1 The carrying amount of investment property that were not independently valued as at period end have been determined based on Directors’ valuations.
The weighted average capitalisation rate for the financial year ended 30 June 2019 was 7.01% (2018: 7.03%).
34 APN CONVENIENCE RETAIL REIT ANNUAL REPORT 2019
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.
NOTES TO THE FINANCIAL STATEMENTS
Recognition and measurement
Rental income
Rental income from investment properties comprise
of lease components (including base rent, recoveries
of property tax and property insurance) and non-lease
components that primarily consists of property outgoing
recoveries. Rental income is recognised at the fair value of
consideration receivable (exclusive of GST).
Rental income relating to lease components are recognised
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
accrual basis in accordance with the terms of the lease.
Rental income from property outgoing recoveries are
recognised as the costs are incurred, which is typically
when the services are provided. For the year ended
30 June 2019, total property outgoings recovered was
$2,027,000 (2018: $1,340,000). Prior period comparatives
have been restated to classify property outgoings
recovered totalling $1,340,000 as an increase in rental
income to align to current year presentation. There has
been no overall impact to net revenue or the net profit for
the year.
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.
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.
APN CONVENIENCE RETAIL REIT 35
NOTES TO THE FINANCIAL STATEMENTS
Key estimates and assumptions – fair value and the valuation process
The Group has investment properties with a net carrying amount of $358,293,000 (2018: $340,429,000), 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 2019
$'000
Level 3
358,293
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
$209 - $2,028
$205 – $1,968
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).
Net market rent is the estimated amount for which a property or space within a property
should lease between a willing lessor and a willing lessee on appropriate lease terms in an
arm’s length transaction, after proper marketing and wherein the parties have each acted
knowledgeably, prudently and without compulsion. In the calculation of net rent, the owner
recovers some or all outgoings from the tenant on a pro-rata basis (where applicable).
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.
36 APN CONVENIENCE RETAIL REIT ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS
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 security holders 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 the Group
Issue of new securities
Security issuance costs
Securities buy-back
Distributions paid
Total comprehensive income for the year
At the end of the financial year
Attributable to:
Equity holders of Convenience Retail REIT No. 2
Equity holders of non-controlling interests
2019
$’000
226,318
-
-
(1)
(30)
(16,494)
24,001
233,794
113,687
120,107
233,794
2018
$’000
61,704
43,399
123,891
(3,809)
-
(14,734)
15,867
226,318
109,152
117,166
226,318
APN CONVENIENCE RETAIL REIT 37
NOTES TO THE FINANCIAL STATEMENTS
6.2 Number of securities on issue
At the beginning of the financial year
Security consolidation for the formation of the Group
Issue of new securities
Securities buy-back
2019
No.
78,920,051
-
-
(10,000)
2018
No.
69,462,753
(22,284,425)
31,741,723
-
At the end of the financial year
78,910,051
78,920,051
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 APN 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.
7. 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 distributions paid/payable
2019
Cents per
security
-
5.225
5.225
5.225
5.225
20.900
$’000
-
4,124
4,123
4,124
4,123
16,494
2018
Cents per
security
0.612
3.250
4.880
5.000
5.000
18.742
$’000
425
2,565
3,852
3,946
3,946
14,734
Recognition and measurement
A liability for any distribution declared on or before the end of the reporting period is recognised in the consolidated
statement of financial position in the reporting period to which the distribution pertains.
38 APN CONVENIENCE RETAIL REIT ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS
8. Earnings per security
Total comprehensive income for the year ($’000)
Weighted average number of securities outstanding (thousands)
Basic and diluted earnings (cents per security)
2019
24,001
78,918
30.41
2018
15,867
78,246
20.28
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 (2018: nil).
9. Borrowings
Non-current
Bank loans – secured1
2019
$'000
115,400
115,400
2018
$'000
109,742
109,742
1
Includes deferred borrowing costs of $617,000 (2018: $858,000) that have been allocated against the total amount drawn at balance date.
Recognition and measurement
Borrowings
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.
APN CONVENIENCE RETAIL REIT 39
NOTES TO THE FINANCIAL STATEMENTS
9.1 Summary of borrowing arrangements
The Group has entered into a revolving credit facility agreement with three 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
2019
$'000
125,000
(116,017)
2018
$'000
125,000
(110,600)
Amount undrawn at balance date
8,983
14,400
As at 30 June 2019, the total revolving credit facility available of $125,000,000 has the following maturity dates:
¡ Tranche 1: $73,750,000 – repayable August 2020;
¡ Tranche 2: $31,250,000 – repayable August 2022; and
¡ Tranche 3: $20,000,000 – repayable November 2023.
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.
9.2 Finance costs
Interest expense paid / payable
Line fees
Amortisation of borrowing costs
Total finance costs
2019
$’000
4,103
698
385
5,186
2019
32.67%
4.20 times
2018
$’000
3,188
635
547
4,370
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 4.27% (2018: 4.29%).
Recognition and measurement
Interest expense
Interest expense is recognised in the consolidated 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. There were no substantial modifications to the terms of existing
financial liabilities.
40 APN CONVENIENCE RETAIL REIT ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS
9.3 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.
As at the reporting date, the fair value of interest rate contracts held by the Group was:
Current liabilities
Interest rate contracts
Non-current liabilities
Interest rate contracts
2019
$'000
(898)
(1,646)
2018
$'000
(89)
(53)
During the year, the Group recognised a fair value loss of $2,402,000 (2018: $142,000) on interest rate swap contracts.
The Group’s interest rate contracts in effect at reporting date covered 57.25% (2018: 54.25%) of the principle drawn under
the debt facility and the contract details are as follows:
Notional Value
$'000
Swap Effective
Date
Swap Expiry
Date
Weighted
average
interest rate
2019: Interest rate swaps
Swap 1
Swap 2
Swap 3
Swap 4
Swap 5
Swap 6
Swap 7
Swap 8
Total / Weighted average
2018: Interest rate swaps
Swap 1
Swap 2
Swap 3
Swap 4
Swap 5
Swap 6
Total / Weighted average
10,000
20,000
5,000
10,000
15,000
10,000
10,000
10,000
90,000
10,000
20,000
5,000
10,000
15,000
10,000
70,000
23 Nov 2017
6 Nov 2017
2 Feb 2022
6 Nov 2020
20 Dec 2017
20 Dec 2019
2 Aug 2019
19 Mar 2018
2 Aug 2019
2 Nov 2018
7 Jan 2020
23 Nov 2017
6 Nov 2017
20 Dec 2017
29 Mar 2018
19 Mar 2018
2 Aug 2019
2 May 2023
2 May 2020
2 Aug 2022
2 Nov 2023
7 Jan 2023
2 Feb 2022
6 Nov 2020
20 Dec 2019
2 May 2021
2 May 2020
2 Aug 2022
2.26%
2.27%
APN CONVENIENCE RETAIL REIT 41
NOTES TO THE FINANCIAL STATEMENTS
Recognition and measurement
Derivatives are categorised as financial instruments at fair value through profit or loss 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.
9.4 Fair value hierarchy
The following table provides an analysis of financial instruments that are measured at fair value at 30 June 2019, grouped
into Levels 1 to 3 based on the degree to which the fair value inputs are 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).
Financial liabilities at FVTPL
Interest rate contracts
Total
Fair value measurement as at 30 June 2019
Level 1
$’000
-
-
Level 2
$’000
(2,544)
(2,544)
Level 3
$’000
-
-
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)
-
-
There were no transfers between Levels during the financial year.
Total
$’000
(2,544)
(2,544)
Total
$’000
(142)
(142)
42 APN CONVENIENCE RETAIL REIT ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS
10. 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 or buying back 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 2019, APN Convenience Retail REIT’s Gearing Ratio was 32.29% (2018: 31.65%).
Total borrowings
Less: cash and cash equivalents
Net debt
Total assets (excluding cash and cash equivalents)
Gearing ratio
2019
$’000
116,017
(289)
115,728
358,418
32.29%
2018
$’000
110,600
(2,797)
107,803
340,613
31.65%
11. 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 Group’s 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.
11.1 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.
APN CONVENIENCE RETAIL REIT 43
NOTES TO THE FINANCIAL STATEMENTS
11.2 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 2019
Variable rate instruments
Derivative financial instruments
30 June 2018
Variable rate instruments
Derivative financial instruments
Net Profit
100bp increase
$’000
100bp decrease
$’000
(1,160)
2,984
1,824
(1,106)
600
(506)
1,160
(3,099)
(1,939)
1,106
(600)
506
11.3 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.
11.4 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.
44 APN CONVENIENCE RETAIL REIT ANNUAL REPORT 2019
NOTES TO THE 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.
Within 1 year
$’000
Between 1
and 2 years
$’000
Over 2
years
$’000
Total
contractual
cash flows
$’000
Carrying
amounts
$’000
2019
Liabilities
Payables – current
Distribution payable
Interest-bearing liabilities
Interest rate contracts
2018
Liabilities
Payables – current
Distribution payable
Interest-bearing liabilities
Interest rate contracts
11.5 Net fair values
2,846
4,123
7,108
818
-
-
65,927
738
-
-
58,878
841
2,846
4,123
131,913
2,397
2,846
4,123
115,400
2,544
14,895
66,665
59,719
141,279
124,913
(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)
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.
12. Commitment and contingencies
Other than the contractual obligations disclosed in note 5, there are no other commitments and contingencies in effect at 30
June 2019 (2018: $nil).
APN CONVENIENCE RETAIL REIT 45
NOTES TO THE 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.
13. Cash and cash equivalents
13.1 Reconciliation of profit for the year 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
Impairment of rental receivables
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:
(Increase) / decrease in trade and other receivables
(Decrease) / Increase in payables
Net cash inflows from operating activities
2019
$’000
2018
$’000
289
2,797
24,001
(4,473)
57
385
(63)
-
2,402
(5,341)
(141)
(388)
16,439
15,867
(4,766)
-
547
(1)
4,017
142
(797)
(1,052)
1,620
15,577
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.
46 APN CONVENIENCE RETAIL REIT ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS
13.2 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
Additional capitalised borrowing costs paid
Non-cash changes:
Amortisation of deferred borrowing costs
Borrowings as at the end of the year
14. Trade and other receivables
Current
Rent and recoveries receivable
Interest receivable
14.1 Ageing analysis of receivables past due but not impaired
31-90 days
91+ days
Notes
9
9
2019
$’000
109,742
44,117
(38,700)
(144)
2018
$’000
44,806
110,600
(45,000)
(1,167)
385
503
115,400
109,742
2019
$’000
94
1
95
2019
$’000
12
(1)
11
2018
$’000
43
3
46
2018
$’000
3
12
15
As at 30 June 2019, rent receivable of $57,000 was impaired (2018: $nil) and expensed in the consolidated statement of
profit or loss and other comprehensive income. The Group holds $nil security or other collateral (2018: $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.
APN CONVENIENCE RETAIL REIT 47
NOTES TO THE FINANCIAL STATEMENTS
Recognition and measurement
Rent Receivables
Rent receivables are recorded initially at fair value (including GST) and subsequently at amortised cost in accordance with
AASB 9 Financial Instruments (“AASB 9”).
Impairment of financial assets and rent receivables
With effect from 1 July 2018, the impairment allowance for rental receivable and other financial assets (other than those measured
at fair value through profit and loss) is measured using the simplified approach based on its lifetime expected credit loss.
15. Trade and other payables
Current
Trade payables
Prepaid rental income
Accrued interest expenses
Accrued other expenses
2019
$’000
928
70
738
1,110
2,846
2018
$’000
732
651
781
1,098
3,262
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.
48 APN CONVENIENCE RETAIL REIT ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS
Other notes
16. Income taxes
Recognition and measurement
All funds that comprise APN 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 2019, there were no unrecognised carried forward capital losses (2018: $nil).
17. Related party transactions
17.1 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.
17.2 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”) (ACN 080 674
479). Convenience Retail Management Pty Limited has been appointed as the Fund Manager (the “Manager”) to provide
investment management services and property management services to APN 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”) (ACN 109 846
068).
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
Custody fees
Property management and leasing fees
Reimbursement of costs paid
2019
2018
Paid
$’000
2,105
76
-
24
2,205
Payable
$’000
190
7
-
6
203
Paid
$’000
1,753
33
3
880
2,669
Payable
$’000
183
35
-
2
220
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.
APN CONVENIENCE RETAIL REIT 49
NOTES TO THE FINANCIAL STATEMENTS
17.3 Security holdings and associated transactions with related parties
The below table shows the number of APN Convenience Retail REIT securities held by related parties (including managed
investment schemes for which a related party is the Responsible Entity or Manager) and the distributions received or
receivable.
APN Property Group Limited
APN Funds Management Limited
APN AREIT Fund
APN Property for Income Fund
APN Property for Income Fund No.2
CFS AREIT Mandate
Howard Brenchley
Geoff Brundson AM
Tony Young
Chris Aylward
Total
2019
2018
Number of
securities
Distributions
$
Number of
securities
Distributions
$
5,275,288
4,355,717
2,029,639
389,027
109,442
304,418
39,075
50,000
322,034
-
1,102,535
910,345
424,195
81,307
22,873
63,623
8,167
10,450
67,305
-
5,268,757
4,355,717
2,029,639
389,027
109,442
-
39,075
-
-
955,226
789,691
367,974
70,531
22,281
-
7,084
-
-
100,000
18,130
12,874,640
2,690,800
12,291,657
2,230,916
16.32% (2018: 15.57%) of APN Convenience Retail REIT stapled securities are held by APN PG and its related parties.
18. Controlled entities
Parent entity
Convenience Retail REIT No. 2
Non-controlling interests
Convenience Retail REIT No. 1
Convenience Retail REIT No. 3
Country of
incorporation
Percentage owned (%)
2019
2018
Australia
Australia
Australia
-
-
-
-
Convenience Retail REIT No. 1 and Convenience Retail REIT No. 3 were acquired through a stapling arrangement, and thus
no ownership has been obtained. The financial results and financial position attributable to these entities are disclosed as
‘non-controlling interests’ in the consolidated financial statements.
50 APN CONVENIENCE RETAIL REIT ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS
19. Remuneration of auditors
Audit and review of financial statements
Other non-audit services:
Compliance plan audit
Professional services on the formation of the Group
The auditor of the Group is Deloitte Touche Tohmatsu.
2019
$’000
64,000
6,000
-
70,000
20. Parent entity financial information
The individual financial statements for the parent entity show the following aggregate amounts:
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
2019
$’000
159
173,920
174,079
(3,689)
(56,703)
(60,392)
113,687
114,004
(317)
113,687
12,654
-
12,654
2018
$’000
68,000
8,000
380,420
456,420
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
At 30 June 2019, the parent entity had not provided guarantees (2018: $nil), has no contingent liabilities (2018: $nil) and no
contractual commitments (2018: $nil).
APN CONVENIENCE RETAIL REIT 51
NOTES TO THE FINANCIAL STATEMENTS
21. Subsequent events
There has not been any matter or circumstance occurring subsequent to the end of the financial year that has significant
affected, or may significant affect, the operations of the Group, the results of those operations, or the state of affairs of the
Group.
22. Adoption of new and revised accounting standards
22.1 New and revised AASBs affecting amounts reported and/or disclosures in consolidated
the financial statements
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 year. These include:
Standard / Interpretation
Impact on financial statements
AASB 9 Financial
Instruments (“AASB 9”)
The Group has applied AASB 9 using the modified retrospective approach and the
related consequential amendments to other Accounting Standards for the first time.
The requirements under AASB 9 that are applicable to the Group and the impact of its
application is disclosed below:
(a) Classification and measurement of existing financial assets as at 1 July 2018
(“existing financial assets”)
The directors have reviewed and assessed the Group’s existing financial assets as
at 1 July 2018 based on the facts and circumstances that existed at that date and
have concluded that the application of AASB 9 has had no material impact on the
classification or measurement of the Group’s financial assets. Financial assets that
were measured at fair value through profit or loss (FVTPL) or amortised cost under
AASB 139 continue to be measured at fair value or amortised cost under AASB 9.
(b) Impairment of existing financial assets and rent receivables
The directors have reviewed and assessed the Group’s existing financial assets
and trade receivables for impairment using the AASB 9 expected credit loss model
as opposed to the AASB 139 incurred credit loss model and have concluded that
the application of AASB 9 has had no material impact on the Group’s impairment
allowance required for existing financial assets and trade receivables.
AASB 15 Revenue from
Contracts with Customers
(“AASB 15”)
The Group has applied AASB 15 Revenue from Contracts with Customers (“AASB 15”)
for the first time in the current year. AASB 15 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.
The directors have reviewed and assessed the Group’s recognition and measurement
of revenue from 1 July 2018 based on the facts and circumstances that existed from
this date and have concluded that the application of AASB 15 has had no impact as
rental income is not within scope of AASB 15.
52 APN CONVENIENCE RETAIL REIT ANNUAL REPORT 2019
NOTES TO THE FINANCIAL STATEMENTS
22.2 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
Impact on financial statements
AASB 16 Leases (“AASB
16”)
(applying to annual periods
beginning on or 1 January
2019)
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. For lessees, AASB 16 replaces the
existing recognition and measurement requirements for operating leases (off balance
sheet commitment and an expense, recognised on a straight-line basis over the
lease term) with both a right-of-use (“ROU”) asset and a corresponding liability in
the statement of financial position for all qualifying leases. Under this new treatment,
the initial measurement of both the asset and liability equates to the net present
value (“NPV”) of the unavoidable lease payments (inclusive of incentives and costs).
Subsequently the asset value recognised is expensed as depreciation over the term
of the lease and an interest expense is recognised as part of extinguishing the lease
liability (reflecting the unwinding of the NPV of the unavoidable lease payments).
For the year ended 30 June 2019, the Group has not identified any contracts for which
it is a lessee. 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.
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.
Standard/Interpretation
Effective for annual reporting periods beginning on or after
None noted.
APN CONVENIENCE RETAIL REIT 53
SUMMARY OF SECURITYHOLDERS
Twenty largest holders of quoted equity securities as at 31 July 2019
Rank
Name
31 July 2018
%IC
1
2
3
4
5
6
7
8
8
9
10
10
11
11
12
13
14
15
16
17
18
19
19
20
PUMA ENERGY AUSTRALIA VENTURES B.V.
APN PROPERTY GROUP LIMITED
NATIONAL NOMINEES LIMITED
APN FUNDS MANAGEMENT LTD
CITICORP NOMINEES PTY LIMITED
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
THE CASS FOUNDATION LIMITED
MR STEPHEN CRAIG JERMYN
NETWEALTH INVESTMENTS LIMITED
KEDNEL PTY LTD
MR MICHAEL KENNETH HANSEN & MRS ALISON BETTY HANSEN
ONE MANAGED INVESTMENT FUNDS LIMITED
JAN HOLDINGS PTY LTD
FZIC PTY LTD
BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD DRP
NEW CITY HOLDINGS PTY LTD
BREEZE PROPERTIES PTY LTD
KARINDA INVESTMENTS PTY LTD
JAMPLAT PTY LTD
STRATEGIC VALUE PTY LTD
KALAM ENTERPRISES PTY LTD
RIOTEK PTY LTD
MOKSA PTY LTD
6,666,667
5,268,757
4,797,058
4,355,717
4,006,459
3,181,541
1,883,417
1,000,000
1,000,000
825,207
666,667
666,667
650,000
650,000
633,000
512,094
459,200
333,334
286,000
280,000
264,284
229,611
229,611
222,000
8.45
6.68
6.08
5.52
5.08
4.03
2.39
1.27
1.27
1.05
0.84
0.84
0.82
0.82
0.80
0.65
0.58
0.42
0.36
0.35
0.33
0.29
0.29
0.28
Total
39,067,291
49.51
54 APN CONVENIENCE RETAIL REIT ANNUAL REPORT 2019
SUMMARY OF SECURITYHOLDERS
Distribution of holders of equity securities as at 31 July 2019
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
42,342,376
27,843,587
6,300,818
2,377,400
45,870
78,910,051
517
No. of
holders
53.66
35.29
7.98
3.01
0.06
100.00
0.00
%
47
1,196
827
692
119
2,881
37
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 2019:
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
AQR completed an on-market buy-back of 10,000 securities during the period.
APN CONVENIENCE RETAIL REIT 55
CORPORATE DIRECTORY
APN 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 AM, 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 www.apngroup.com.au
Registered Office
Level 30, 101 Collins Street
Melbourne VIC 3000
T +61 3 8656 1000
F +61 3 8656 1010
W www.apngroup.com.au
E apnpg@apngroup.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
APN Convenience Retail REIT stapled securities are listed
on the Australian Securities Exchange (ASX: AQR)
56 APN CONVENIENCE RETAIL REIT ANNUAL REPORT 2019
56 APN CONVENIENCE RETAIL REIT ANNUAL REPORT 2019
APN CONVENIENCE RETAIL REIT 57
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 apngroup.com.au
Convenience Retail REIT
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.