Arena REIT
Annual Report 2013
For the year ended 30 June 2013
Arena REIT ARSN 106 891 641
Responsible entity: Arena Investment Management Limited ACN 077 235 879 AFSL 233190
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Arena REIT Annual Report 2013
For personal use only Contents
FY13 financial highlights
FY13 key achievements
Letter from the Chairman
About Arena REIT
Portfolio snapshot
Financial report
Directors’ report
Auditor’s independence declaration
Corporate governance statement
Financial statements
Notes to the consolidated financial statements
Directors’ declaration
Independent auditor’s report
ASX additional information
About Arena
Corporate directory
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Arena REIT Annual Report 2013For personal use only FY13 financial highlights
Solid improvement
in earnings -
distributable income
of $11.2 million
(31.8% increase on
FY12)
Strengthened
financial position -
balance sheet
gearing at 10.4%
(decreased from
41.7% (FY12))
FY13 results slightly
ahead of forecasts
in PDS released
May 2013 -
distributions of 8.0
cents per unit (23.1%
increase on FY12)
Increased property
values underpinned
higher net tangible
asset value -
increased by 2% to
$1.02 on FY12
FY13 key achievements
Property portfolio
Continued to provide
steady income return
(>9%) and capital
growth (2.7%) over the
period.
Debt facility
Completed refinancings
of debt facility on
improved terms
(extended term and
reduced margin).
Successfully repositioned
Broadened investment mandate
to better diversify the portfolio
and investment opportunities
whilst seeking to maintain the
predictability of the income
streams; reduced responsible
entity (RE) fees; and renamed to
Arena REIT (ARF).
Liquidity
provided
The Trust’s units have
traded above net
tangible asset value
since ASX listing.
Completed
equity raising to
enhance value
Raised $75 million at a price
of $1.01 per unit to fund
potential buy-back facility,
reduce debt and create
acquisition growth capacity.
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Arena REIT Annual Report 2013For personal use only Letter from the Chairman
27 September 2013
Dear Investor
Arena REIT (ARF) daily ASX price
On behalf of the Arena Board, I am very pleased to
provide Arena REIT (ARF or the Trust) investors with
the Annual Report for the year ended 30 June 2013.
The past 12 months have been very successful for the
Trust. Arena has been focussed on not only delivering
value to investors, but also a much needed liquidity
solution via the Trust’s listing on the Australian Securities
Exchange (ASX) on 13 June 2013.
Importantly, since the Trust’s ASX listing, it has traded
above its underlying net tangible asset value per unit
and has received strong interest from a broad range
of institutional and smaller private investors. As a
consequence, the buy-back facility that we put in place
for the Trust in June has not been required.
Investor liquidity strategy implemented
The successful ASX listing was a result of a very carefully
planned strategy to reposition the Trust to ensure it
would appeal to a wide range of investors and to deliver
improved earnings growth potential going forward. In
summary, the activities undertaken to reposition the
Trust were as follows:
§ Broadened the Trust’s investment strategy to allow the
addition of education, healthcare, and government or
high credit quality tenants on relatively long leases.
We believe this broadening of the investment strategy
will benefit the Trust in the longer term for several
reasons including allowing better diversification of
the underlying tenancy base and a larger investment
opportunity set.
§ Renamed the Trust (previously the Arena Childcare
Property Fund) to be consistent with the broadened
investment mandate.
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Consistently trading at or above net tangible asset
value ($1.02 per unit as at 30 June 2013).
Strong financial results
The actual underlying financial results for the Trust in
financial year 2013 (FY13) were slightly ahead of the
pro-forma forecasts contained in the Trust’s Product
Disclosure Statement (PDS) issued in May 2013.
The statutory net profit for the financial year ended
30 June 2013 was $17.2 million, up 9.8% compared to
the previous year. Importantly the Trust’s distributable
income (underlying profit) was $11.2 million, which is an
increase of 31.8% on the prior period. On a return on
equity basis, the Trust reported a very healthy 12.6% over
the 12 month period.
From a distribution per unit perspective, the Trust
distributed cash to investors during the year of 8 cents
per unit, reflecting a 98% pay-out ratio. The 8 cents per
unit represented a 23% increase in distributions per unit
from the prior year.
§ Reduced the management fees charged to the
Trust, with a commitment to further reduce fees as a
percentage of gross assets as the Trust grows over
time.
Following the recent equity raising, the net assets of the
Trust are now $210.1 million and the net tangible asset
value per unit increased 2 cents to $1.02 per unit as at 30
June 2013.
§ Renegotiated improved debt facility terms
incorporating a lower margin.
§ Reduced the Trust’s target gearing range to 35% to
45%, down from the previous 55%.
§ Significantly reduced the Trust’s gearing (10.4% as at
30 June 2013) by raising new equity of $75 million at
close to the current net tangible asset value per unit.
§ Instigated a buy-back facility that may be utilised if the
ASX trading price is less than $1.00 per unit to provide
liquidity in the event that existing investors wanted to
exit.
Stable property portfolio
As at 30 June 2013, the Trust owned 177 properties,
comprising 173 Childcare Centres and 4 vacant land
sites, in aggregate valued at $234.9 million. Over the
past year, the properties have continued to perform well,
delivering on a like for like basis, steady rental growth of
2.5% and capital growth of 2.7%. The average passing
income yield on the leased centres is 9.3% with a
relatively long average remaining lease term of 8.3 years.
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Arena REIT Annual Report 2013For personal use only Positive outlook for FY14
Over the next 12 months, Arena will remain very
focused on adding value to and improving the quality
of the existing portfolio through remixing and taking
advantage of development opportunities identified in
conjunction with The Trust’s existing tenant relationships
where the demand for childcare services exceeds supply.
In addition, the Trust with its low gearing has significant
undrawn debt capacity (up to $80 million), and has the
opportunity to take advantage of the current low interest
rate environment and further strengthen its relationships
by partnering with tenants to identify quality investment
opportunities. A disciplined and strategic approach will
be taken as the Trust seeks to invest into other sectors
such as healthcare which should enhance the value of
the Trust over time.
Arena re-affirms its FY14 distribution forecast of 8.2 cents
per unit (an increase of 2.5% on FY13) on the same basis
and assumptions detailed in the May 2013 PDS.
On behalf of the directors and management I would like
to thank investors for their support. We look forward to
providing you with further updates during the course
of FY14 as we deliver on our ongoing management
of the portfolio. Our aim is to provide attractive and
predictable distributions to investors with earnings
growth prospects over the medium to long term.
Yours sincerely
David Ross
Chairman
Arena Investment Management Limited
Letter from the Chairman
Under the standard lease which currently applies across
95% of the portfolio, the tenants are required to report
to us their operating performance including centre
occupany levels, daily fees charged, gross revenue and
profitability. On a portfolio basis, reported operator
gross revenue grew 4.3% over the past 12 months to 30
June 2013 and the individual centres were operating at
an average of 72.9% of full capacity. This information
indicates the financial performance of each centre and
is useful in indentifying how to remix and improve the
quality of the childcare portfolio over time.
During the period, the completion of a new 120 place
purpose-built childcare centre at Mernda, Victoria has
demonstrated the benefits of developing new high
quality centres. These benefits include using the Trust’s
preferred standard lease agreement. Further work is now
progressing on at least 3 new developments which are
expected to be completed during the course of the next
financial year.
The importance of the childcare early learning
industry
The childcare industry has become a very important
sector in Australia’s economy and is central to promoting
workforce participation. Most importantly, it promotes
the educational development of young children to
give them the best start in life. The importance of the
sector is recogonised by government through significant
subsidised cost schemes. The government is also
playing a critical role in ensuring the delivery of high
standards of childcare services through the National
Quality Framework and other policies such as requiring
higher qualifications for childcare workers over time.
For young children, long day care centres, such as
those owned by Arena REIT, are the main channel for
the delivery of these important services. According to
government sources, as at 30 September 2012, there
were approximately 6,192 approved long day care
centres in Australia.
With changes in government regulation, there has been
a trend towards larger, more operationally efficient
centres and a move away from the older smaller
residential converted centres of the 1990s. The majority
of Arena REIT’s centres are modern (average age 9
years), and purpose-built centres (91.3%), well located
throughout the community.
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Arena REIT Annual Report 2013For personal use only At top and above: 17 David John Drive, Tarneit, VIC.
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Arena REIT Annual Report 2013For personal use only About Arena REIT
Listed on the ASX on 13 June 2013,
Arena REIT, formerly the Arena
Childcare Property Fund, is managed
by Arena and owns 173 childcare
centres and 4 childcare centre
development land sites located in
Australia and with total assets of
$241.3 million (as at 30 June 2013).
Arena REIT intends, over time, to establish a
diversified real estate portfolio with relatively
long term leases to tenants in sectors such as
childcare, education, healthcare and government
or high credit quality tenanted facilities.
The Trust aims to provide an attractive and
predictable distribution to investors, with
earnings growth prospects over the medium to
long term.
Arena REIT’s
portfolio snapshot
Number of
property assets
Trust overview
(as at 30 June 2013)
177
Tenancy
occupancy rate
(by number of centres)
97%
Weighted
Average Lease
Expiry
8.3 years
Total assets
$241.3m
Property sector
exposure
childcare
Balance sheet
gearing
10.4%
To download the webinar recording discussing
these results please visit the Arena website
multimedia page at www.arenainvest.com.au/
education/multimedia
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Arena REIT Annual Report 2013For personal use only Geographically diverse portfolio
of property assets across Australia
(by value)
0.5%
NT
1 Centre
35.1%
QLD
58 Centres
14.1%
NSW
30 Centres
2.6%
SA
4 Centres
29.9%
VIC
51 Centres
3.2%
TAS
6 Centres
14.6%
WA
22 Centres
Purpose built
centres
91.3%
% of centres in a
metropolitan area
58%
Median
age of centres
9 years
High quality tenants
The Trust has 4 major tenants who are all long day
care childcare operators across 3 sectors including
not-for profit, profit and government.
Tenants (by number of centres)
6%
Preschool
Services Australia
5%
NurtureOne
6%
Other tenants
3%
Vacant
Relatively long leases across the
portfolio
Lease expiry (by income)
%
1
8
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100%
80%
60%
40%
15%
Kids in Care
Group
20%
FY19 FY20+65+15+5+6+6+3A
65%
Goodstart ELC
%
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FY18
FY17
FY14
FY15
FY16
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Arena REIT Annual Report 2013For personal use only 10
Arena REIT Annual Report 2013For personal use only Directors’ report
Contents
Directors’ report
Auditor’s independence declaration
Corporate governance statement
Consolidated statement of
comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
Directors’ declaration
Independent audit report to the
unitholders of Arena REIT
ASX additional information
About Arena
Corporate directory
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These financial statements cover Arena REIT and its
controlled entities (the “Trust” or the “Consolidated
Entity”). The financial statements are presented in
Australian currency.
The Responsible Entity of Arena REIT is Arena
Investment Management Limited (ACN 077235879). The
Responsible Entity’s registered office is: Level 20, 600
Bourke Street, Melbourne VIC 3000.
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Arena REIT Annual Report 2013For personal use only Directors’ report
The directors of Arena Investment Management Limited, the Responsible Entity of Arena
REIT, present their report together with the financial statements of Arena REIT and its
controlled entities (the “Trust” or the “Consolidated Entity”) for the year ended 30 June
2013.
On 14 May 2013, Arena Childcare Property Fund changed its name to Arena REIT.
Directors
The following persons held office as directors of Arena Investment Management Limited during the year or since the
end of the year and up to the date of this report:
§ David Ross (Chairman) (appointed 4 October 2012)
§ Simon Parsons
§ Dennis Wildenburg
§ James Goodwin
§ Bryce Mitchelson
Principal activities
The Trust is a real estate investment trust with investments in a portfolio of childcare centre properties. The Trust is a
registered managed investment scheme.
The Trust issued a Product Disclosure Statement (“PDS”) in May 2013 seeking new investment of $75 million with the
intention of listing on the Australian Securities Exchange (“ASX”). The Trust successfully raised $75 million and listed
on ASX on 13 June 2013.
Distributions to unitholders
The following table details the distributions declared to unitholders during the financial year:
September quarter
December quarter
March quarter
June quarter*
2013
$’000
2,311
2,642
2,642
3,269
Total distributions to unitholders
10,864
2012
$’000
1,652
1,981
2,311
2,642
8,586
2013
cpu
1.75
2.00
2.00
2.25
8.00
2012
cpu
1.25
1.50
1.75
2.00
6.50
* The Trust raised $75 million of new capital and listed on ASX on 13 June 2013. As a result, the distribution for the June 2013 quarter was payable in
two components. Unitholders in the period prior to the capital raising and the ASX listing are entitled to a distribution of 1.85 cents per unit for the
period 1 April 2013 to 12 June 2013. All unitholders on the register on the record date of 28 June 2013 are entitled to a distribution of 0.4 cents per
unit for the period 13 June 2013 to 30 June 2013.
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Arena REIT Annual Report 2013For personal use only Directors’ report
Operating and financial review
Arena REIT was established in 2003 as an unlisted property fund to invest in a portfolio of childcare centres. The Trust
operates with the aims of generating attractive and predictable distributions for unitholders with earnings growth
prospects over the medium to long term.
The Trust raised $75 million in new equity and listed on the ASX on 13 June 2013. The Trust will use the capacity
generated from the equity raising to acquire new investments in accordance with its investment mandate, which
includes a strategy to diversify the investment property portfolio to alternative sectors to childcare.
The Trust’s strategy is to invest in property underpinned by relatively long leases and in sectors with supportive
macro-economic trends including population growth and emerging demographics such as an ageing population. The
following sectors have been identified as likely to provide investment opportunities consistent with this strategy:
§ Childcare / Early learning services
§ Education - including schools, colleges and universities and associated facilities
§ Healthcare - including medical centres, diagnostic facilities, hospitals, aged care and associated facilities
FY13 highlights
§ FY13 Distributable Income was $11.2 million, up 32% on the prior year.
§ FY13 Full Year Distribution per Unit was 8.0 cents, up 23% on the prior year. The FY13 Distribution is in accordance
with the Trust’s PDS Forecast.
§ Debt at 30 June 2013 was $25 million following the repayment of debt from equity raising proceeds in June 2013.
The Trust reduced borrowings by $75.2 million in FY13.
§ Gearing was 10.4% at 30 June 2013. The Trust’s target gearing range is 35-45%.
§ NTA per unit at 30 June 2013 was $1.02, an increase of 2% on the prior year.
§ The Trust refinanced its debt facility in June 2013 with improved margins and extended maturity to 30 June 2016.
Key financial metrics
Net profit (statutory)
Distributable income
Distributable income per unit
Distributions per unit
Total assets
Investment properties *
Borrowings
Net assets
NTA per unit
Gearing **
* Includes Investment property classified as held for sale
** Gearing calculated as Borrowings / Total assets
30 June 2013
30 June 2012
Change
$17.2 million
$15.7 million
$11.2 million
$8.5 million
8.2 cents
8.0 cents
6.4 cents
6.5 cents
$241.3 million
$240.2 million
$234.9 million
$226.3 million
$25.0 million
$100.2 million
$210.1 million
$132.8 million
$1.02
10.4%
$1.00
41.7%
+ 10%
+ 32%
+ 28%
+ 23%
+ 0.5%
+ 3.8%
- 75%
+ 58%
+ 2%
- 75%
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Arena REIT Annual Report 2013For personal use only Directors’ report
Financial results and distributable income
30 June 2013
30 June 2012
Lease rental income
Other income
Total operating income
Direct property expenses
Trust administration and operating expenses
Management fees
Finance costs
Distributable income *
Non-distributable items:
Straight-Line rental income
Revaluation gain on investment properties
Change in fair value of derivatives
Revaluation gain on securities investment
Gain on sale of investment properties
Write-off capitalised debt establishment costs
Other
Statutory net profit
* Distributable income is not a statutory measure of profit
Financial results summary
$’000
21,296
722
22,018
(879)
(985)
(2,372)
(6,622)
11,160
497
5,162
(141)
1,413
10
(847)
(30)
17,224
$’000
21,749
821
22,570
(1,115)
(932)
(2,399)
(9,658)
8,466
748
8,687
(4,245)
1,382
808
-
(165)
15,681
§ Distributable Income is the measure used to determine unitholder distributions and represents the underlying
operating profit of the Trust for the relevant period. Distributable Income excludes fair value changes from asset
and derivative revaluations and items of income or expense not representative of the Trust’s underlying operating
earnings.
§ The increase in Distributable Income in FY13 is primarily due to the annual rent increases on the Trust’s property
portfolio and substantial finance cost savings achieved from refinancing the Trust’s debt facility in July 2012 and
June 2013 and the reduction in debt and termination of interest rate swaps following the sale of the New Zealand
portfolio in April 2012.
§ The reduction in Lease Rental Income is due to the sale of the Trust’s NZ Portfolio in April 2012. Total rental income
on the Australian portfolio increased in FY13 by 2.8%.
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Arena REIT Annual Report 2013For personal use only Investment property portfolio
Key property metrics
Total value of investment properties *
Number of properties under lease
Development sites
Properties available for lease or sale
Properties classified as held for sale
Total properties in portfolio
Portfolio occupancy
Weighted average lease expiry (WALE)
* Includes Investment property classified as held for sale
Directors’ report
30 June 2013
30 June 2012
$234.9 million
$226.3 million
167
4
5
1
177
97%
170
4
3
-
177
98%
8.3 years
9.1 years
§ During FY13, 1 childcare centre development was completed and opened, 1 childcare centre was sold and 1
additional development site was acquired.
§ The Trust expects to complete 2 new childcare centre developments and an extension to an existing facility in FY14.
§ 47 properties were subject to independent valuation during FY13 which averaged a 3.3% increase in value. 119
properties were subject to director valuation. The total revaluation of the portfolio in FY13 was $5.75 million
representing an increase of 2.5%. The valuation increases primarily arose from growth in underlying rental income.
Refer to Note 9 of the financial statements for further information.
Capital management
Equity raising
§ The Trust raised $75 million of new equity in June 2013 at an offer price of $1.01.
§ The net proceeds of the raising were used to repay debt and can be re-drawn to fund the acquisition of new
investments.
Bank facilities & gearing
§ The Trust refinanced its debt facility with NAB and ANZ in July 2012, which resulted in reduced margins and facility
fees. The Trust undertook a further refinancing with ANZ and NAB with effect from June 2013 which further reduced
facility fees and margins and extended the facility’s maturity date to 30 June 2016.
§ The Trust’s facility has a limit of $110 million and was drawn to $25 million at 30 June 2013, resulting in gearing of
10.4%. It is intended for the Trust to acquire additional assets, in accordance with its investment strategy, such that
over time the Trust will operate within its targeted intended gearing range of 35% to 45%.
§ The Trust was in compliance with all bank facility covenants throughout FY13 and as at 30 June 2013.
Interest rate management
§ Borrowings at 30 June 2013 are 100% hedged with interest rate swaps to June 2016. The average swap fixed rate is
2.95%.
§ The Trust paid $2.1 million to terminate $86 million in swaps in June 2014 to reduce the over-hedged position after
repaying debt with the proceeds of the equity raising completed in June 2013. The Trust will enter into additional
interest rate swaps as assets are acquired in accordance with its interest rate risk management policy.
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Arena REIT Annual Report 2013For personal use only Directors’ report
Capital management (continued)
On market buy-back
In June 2013, the Responsible Entity announced on-market buy-back of Arena REIT units to commence from 20 June
2013, with a potential buy-back of up to 13.2 million units.
The buy-back may continue until 12 June 2014, unless the maximum number of units are bought back prior to this
date. Units will only be bought back if the ASX price is $1.00 per unit or less. The price of units bought back will also
not be greater than the lesser of the withdrawal price calculated under the Trust’s constitution and the maximum price
permitted under the ASX Listing Rules.
At the date of issue of this report, no buy-back of units has occurred.
FY14 outlook
The Trust presently expects to pay a distribution of 8.2 cents per unit for FY14. This distribution is in-line with the
distribution forecast contained in the Trust’s recent PDS.
Notwithstanding the Trust’s strategy to acquire new investments, the distribution outlook assumes that the Trust does
not acquire any new investments in FY14. The distribution outlook also assumes that the Trust’s existing leases are
enforceable and tenants meet all their obligations in respect of those leases.
Significant changes in state of affairs
In the opinion of the directors, other than the matters identified in this report, there were no significant changes in the
state of affairs of the Trust that occurred during the financial year.
Matters subsequent to the end of the financial year
No matter or circumstance has arisen since 30 June 2013 that has significantly affected, or may significantly affect:
(i)
the operations of the Trust in future years, or
(ii) the results of those operations in future financial years, or
(iii) the state of affairs of the Trust in future financial years.
Likely developments and expected results of operations
The Trust will continue to be managed in accordance with the investment objectives and guidelines set out in the
Trust’s Constitution and as described in the Trust’s recent PDS.
The results of the Trust’s operations will be affected by a number of factors, including the performance of investment
markets in which the Trust invests. Investment performance is not guaranteed and future returns may differ from past
returns. As investment conditions change over time, past returns should not be used to predict future returns.
Further information on likely developments in the operations of the Trust and the expected results of those
operations have not been included in this report because the Responsible Entity believes it would be likely to result in
unreasonable prejudice to the Trust.
Material business risks
The material business risks that could adversely affect the achievement of the Trust’s financial prospects are as follows.
The Responsible Entity has in place a Risk Management Policy and Framework under which it identifies, assesses,
monitors and manages these risks.
Concentration risk
The Trust’s property portfolio is presently 100% invested in childcare centres and childcare centre development
sites. Adverse events to the childcare property sector may result in a general deterioration of tenants’ ability to meet
their lease obligations across the portfolio or to future growth prospects of the current portfolio. 66.1% of the initial
portfolio (as at 30 June 2013) is leased to Goodstart Early Learning Limited (“Goodstart”), by value. Any material
deterioration in its operating performance may result in Goodstart not meeting its lease obligations which could
reduce the Trust’s income.
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Arena REIT Annual Report 2013For personal use only Directors’ report
Capital management (continued)
Material business risks (continued)
Tenant risk
The Trust relies on tenants to generate the majority of its revenue. These tenants are primarily not for profit
companies limited by guarantee or private companies. If a tenant is affected by financial difficulties it may default
on its rental or other contractual obligations which may result in loss of rental income and loss in value of the Trust’s
properties. Under the Trust’s standard childcare property lease, tenants are required to provide an unconditional and
irrevocable bank guarantee, which must not expire until at least six months after the ultimate expiry date of the lease,
for an amount equivalent to six months’ rent (plus GST) as security for their performance under the lease.
Information on directors of the Responsible Entity
The directors of the Responsible Entity at the time of this report are:
Name and position
Experience and qualifications
David Ross,
Independent Non-Executive
Chairman
David has 30 years’ experience in the real estate and investment management sectors.
He held senior positions with Lend Lease Corporation over a period of 10 years,
including Global and US Chief Executive Officer Real Estate Investments (based in the
US), Chief Executive Officer Asia Pacific and Chief Executive Officer of General Property
Trust. He was also Chief Operating Officer of Babcock and Brown, responsible for the
Group’s corporate and administrative support functions globally.
David holds a Bachelor of Commerce, a Property Valuation qualification and is a
Graduate of the Australian Institute of Company Directors (GAICD).
Other current directorships: None.
Former directorships in last 3 years: Sydney Football Foundation Ltd.
Interest in the Trust: 200,000 units.
Simon Parsons,
Independent Non-Executive
Director
Simon has over 34 years’ experience in the commercial property industry. He is
presently Managing Director of Parsons Hill Stenhouse Pty Ltd, a commercial property
practice.
Simon is a Fellow of the Royal Institution of Chartered Surveyors (RICS) and is a
member of the RICS Oceania Property Board.
Simon holds a Master of Science (Real Estate). Other current directorships: None.
Former directorships in last 3 years: None.
Interest in the Trust: 200,000 units.
Dennis Wildenburg,
Independent
Non-Executive Director,
Chairman of Board Audit
Committee
Dennis has over 30 years’ experience in the financial services and funds management
industry including senior management, Board and compliance committee roles.
Dennis is a member of the Institute of Chartered Accountants in Australia.
Other current directorships: Investa Wholesale Funds Management Ltd.
Former directorships in last 3 years: Investa Funds Management Ltd.
Interest in the Trust: 150,000 units.
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Arena REIT Annual Report 2013For personal use only Directors’ report
Name and position
Experience and qualifications
James Goodwin,
Executive Director
James is Joint Managing Director of Arena and was appointed to the role on 30
December 2011, following the acquisition of Arena by MSREF VII Global.
James has extensive experience in property funds management having previously
spent five years at Becton Investment Management Ltd and prior to that, four years at
Centro Properties Group and 3 years at Freehills.
James holds a Bachelor of Laws (Hons), a Bachelor of Arts and a Master of Applied
Finance.
Other current directorships: None.
Former directorships in last 3 years: Becton Investment Management Ltd (subsequently
acquired by 360 Capital Group Investment Pty Ltd).
Interest in the Trust: 500,000 units.
Bryce Mitchelson,
Executive Director
Bryce is Joint Managing Director of Arena and joined Arena in May 2009. Bryce was
appointed as a director of Arena in April 2010.
Bryce has more than 20 years’ experience in listed and unlisted property funds
management as well as property investment, development, valuation and real estate
agency.
Bryce holds a Bachelor of Economics (Accounting), Bachelor of Business (Property) and
Graduate Diploma of Applied Finance and Investment.
Other current directorships: None.
Former directorships in last 3 years: OFLCO Ltd.
Interest in the Trust: 749,000 units.
The Trust’s constitution does not require directors to retire and seek re-election.
Company secretary
The company secretary is Mr Peter Hulbert, Head of Legal and Compliance.
Peter has over 10 years’ experience in corporate and commercial law and 8 years’ experience in the financial services
industry.
Peter holds a Bachelor of Business (Management) and a Bachelor of Laws.
Meetings of directors
The numbers of meetings of the Responsible Entity’s board of directors and of each board committee held during the
year ended 30 June 2013, and the numbers of meetings attended by each director were:
Board Meetings
Audit Committee Meetings*
David Ross
Simon Parsons
Dennis Wildenburg
James Goodwin
Bryce Mitchelson
A
17
20
20
20
20
B
17
20
20
20
20
* The Audit Committee was established in May 2013.
A - Number of meetings held during the time the director held office during the year.
B - Number of meetings attended.
** = Not a member of the relevant committee.
18
A
1
1
1
**
**
B
1
1
1
**
**
Arena REIT Annual Report 2013For personal use only Directors’ report
Remuneration report
(a) Remuneration of directors of the responsible entity
The Trust does not have any employees. The directors and key management personal of the Responsible Entity do
not receive any payments from the Trust. All remuneration is paid directly from an entity related to the Responsible
Entity. The directors and key management personal are not entitled to any equity interests or rights to equity interests
in the Trust as a result of their remuneration from the Responsible Entity.
(b) Loans to directors of the responsible entity
The Trust has not made, guaranteed or secured, directly or indirectly, any loans to the directors or their personally-
related entities at any time during the reporting period.
Indemnification and insurance of officers and auditors
During the year, the Responsible Entity has paid insurance premiums to insure each of the directors, and officers of
the Responsible Entity of the Trust against liabilities for costs and expenses incurred by them in defending any legal
proceedings arising out of their conduct while acting in the capacity of the Responsible Entity other than conduct
involving a wilful breach of duty in relation to the Responsible Entity.
The Responsible Entity has also indemnified each external member of the Compliance Committee against any liability
incurred in carrying out the member’s duties (other than a liability to the members of the schemes or the Responsible
Entity) unless the liability arises out of conduct involving lack of good faith on the part of the committee member.
The contract of insurance prohibits disclosure of the nature of the liability covered and the amount of the premium.
The Responsible Entity has not otherwise, during or since the end of the financial year indemnified or agreed to
indemnify an officer or auditor of the Responsible Entity or of any related body corporate against a liability incurred as
such an officer or auditor.
Non-audit services
Details of the non-audit services provided to the Trust by the Independent Auditor during the year ended 30 June
2013 are contained in Note 5 to the financial statements.
Audit partner rotation
Listed entities are required to rotate their audit partner every 5 years. The Trust listed on the ASX in June 2013. The
financial year ended 30 June 2013 is the fifth year in which the existing audit partner has been the lead auditor for the
Trust. The Corporations Act 2001 (the ‘Act’) allows for an extension of the appointment of the lead audit partner for
up to two years in certain circumstances.
The Trust’s auditor, PricewaterhouseCoopers, has provided confirmation that the extension of the term of audit
partner would not give rise to a conflict of interest situation as defined in section 324 CD of the Act and appropriate
safeguards are in place to ensure that appropriate objectivity and independence of the lead auditor is able to be
maintained. Given that the requirements of the Act have been met, the existing audit partner has been reappointed
for a further period of up to 2 years.
Fees paid to and interests held in the Trust by the Responsible Entity or its associates
Fees paid to the Responsible Entity and its associates out of Trust property during the year are disclosed in Note 18 to
the financial statements.
No fees were paid out of Trust property to the directors of the Responsible Entity during the year.
The number of interests in the Trust held by the Responsible Entity or its associates as at the end of the financial year
are disclosed in Note 18 to the financial statements.
19
Arena REIT Annual Report 2013For personal use only Directors’ report
Interests in the Trust
The movement in units on issue in the Trust during the year is disclosed in Note 14 to the financial statements.
Environmental regulation
The operations of the Trust are not subject to any particular or significant environmental regulations under a
Commonwealth, State or Territory law.
Rounding of amounts to the nearest thousand dollars
The Trust is an entity of a kind referred to in Class Order 98/100, issued by the Australian Securities and Investments
Commission, relating to the ‘rounding off’ of amounts in the Directors’ report. Amounts in the Directors’ report have
been rounded to the nearest thousand dollars in accordance with that Class Order, unless otherwise indicated.
Auditor’s independence declaration
A copy of the Auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set
out on page 21.
This report is made in accordance with a resolution of directors.
David Ross
Chairman
Melbourne, 30 August 2013
20
Arena REIT Annual Report 2013For personal use only Auditor’s independence declaration
Auditor’s Independence Declaration
As lead auditor for the audit of Arena REIT for the year ended 30 June 2013, I declare that to the best
of my knowledge and belief, there have been:
a)
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
b)
no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Arena REIT and the entities it controlled during the period.
Charles Christie
Partner
PricewaterhouseCoopers
30 August 2013
Liability limited by a scheme approved under Professional Standards Legislation.
21
Arena REIT Annual Report 2013For personal use only
Corporate governance statement
The board of directors of Arena Investment Management Limited (Arena), the
Responsible Entity of Arena REIT (the ‘Trust’), is responsible for the corporate governance
of the Trust.
In accordance with the ASX Listing Rule 4.10.3, set out below is a statement disclosing the extent to which the Trust
has followed the recommendations for good corporate governance set by the ASX Corporate Governance Council
(‘Recommendations’) during the reporting period. The statement applies to the period from the Trust’s admission to
the official list of the ASX (13 June 2013) to 30 June 2013 (‘Statement Period’).
Principle 1: Lay solid foundations for management and oversight
Recommendation 1.1 - companies should establish the functions reserved to the board and those delegated to
senior executives and disclose those functions
§ The Arena Board (‘Board’) has adopted a formal Board Charter which provides the framework for the operation of
the Board and sets out the functions and responsibilities of the Board. The Charter also reserves specific matters for
the Board.
§ The Board has delegated certain audit responsibilities to the Audit Committee and the scope of those
responsibilities is specified in the Audit Committee Charter. The Board receives copies of the minutes of Audit
Committee meetings.
§ The Board acknowledges that Arena (but not the Trust) is a wholly owned subsidiary of Citrus Investment Services
Pty Ltd (Citrus). The senior executives and other staff that operate Arena’s business are employed by Citrus and
made available to Arena under a resourcing deed that requires Citrus to provide all of the resources and services
required or reasonably requested by Arena.
§ The Arena Board has delegated day-to-day management of the Trust to management through the Joint Managing
Directors, subject to the agreed authority limits applicable to these roles. These responsibilities and authority limits
will be reviewed from time to time to ensure they remain appropriate to the needs of the Trust.
§ New directors are issued a formal letter of appointment setting out the key terms and conditions of their
appointment. New directors are also taken through a formal induction process. Directors are given a comprehensive
board pack which includes details on the Trust, governance requirements and policies. No new directors have been
appointed since the Trust’s admission to the official list of the ASX.
§ Directors are expected to be adequately informed in respect of relevant industry and regulatory issues and
changes. To assist the directors in this regard, each director will be invited to participate in internal and external
training sessions and conferences organised from time to time with respect to such matters. Directors may raise
other training requirements with the company secretary as they consider necessary or desirable.
§ Appointment letters for senior management also include formal job descriptions and contracts of employment
which set out the detail of their duties, rights, responsibilities and entitlements on termination.
§ The Arena Board Charter is available at www.arenainvest.com.au/about/governance-policies.
Recommendation 1.2 - companies should disclose the process for evaluating the performance of senior
executives
§ The performance of Citrus generally and senior management is reviewed annually, against appropriate key
performance indicators for each financial year.
§ Because of the short period of 17 days in the Statement Period, no performance evaluation of Citrus was performed
in the Statement Period. That evaluation has been completed following the end of the Statement Period. The
performance of senior management has also been formally evaluated against key performance indicators in the
period between the end of the Statement Period and the date of this report. The evaluation was in accordance with
the process disclosed in the Trust’s statement of compliance with the ASX Corporate Governance Council Principles
and Recommendations given to the ASX on 13 June 2013.
§ Senior managers participate in continuous improvement activities and ongoing subject specific training to update
their skills and knowledge on a regular basis. These include development sessions on key topics of relevance such
as changes in corporate governance standards and compliance and visits to properties in the Trust’s portfolio.
22
Arena REIT Annual Report 2013For personal use only Corporate governance statement
Principle 1: Lay solid foundations for management and oversight (continued)
Recommendation 1.2 - companies should disclose the process for evaluating the performance of senior
executives (continued)
§ The Arena Board will be consulted by Citrus in relation to the setting of Joint Managing Directors’ performance
objectives and key performance indicators.
§ The Board also provided feedback to Citrus and the Joint Managing Directors in relation to performance overall
and key performance indicators.
Recommendation 1.3 - companies should provide the information indicated in the Guide to reporting on
Principle 1
§ There have been no departures from Recommendations 1.1 or 1.2, and the other information indicated in the Guide
to reporting on Principle 1 is included above.
Principle 2: Structure the board to add value
Recommendation 2.1 - a majority of the board should be independent directors
§ During the Statement Period, a majority of the Board were independent directors, comprising five directors, three
of whom are independent non-executive directors. As such, the Trust complies with this Recommendation.
§ The Board is constituted as follows: Mr James Goodwin and Mr Bryce Mitchelson, both of whom are Joint
Managing Directors. Mr David Ross, Mr Simon Parsons and Mr Dennis Wildenburg are independent non-executive
directors.
§ Arena will not hold an annual election of directors as the Board is appointed and can be removed by Citrus. Despite
this, the directors believe that a director will be independent if the director is a non-executive director who is not a
member of Citrus or Arena management and who is free of any business or other relationship that could materially
interfere with (or could reasonably be perceived to materially interfere with) the independent exercise of their
judgment. The independence of Directors is assessed in a manner consistent with the principles enunciated in the
Recommendations.
§ All directors are required to act in the best interests of the unitholders of the Trust. This applies notwithstanding that
the directors are appointed by Citrus.
§ All directors must declare actual or potential conflicts of interest and excuse themselves from discussions on issues
where an actual or potential conflict of interest arises.
§ The Board Charter makes specific provision for a director to access independent professional advice where that
director considers it necessary to carry out their duties and responsibilities. The cost of such independent advice will
be borne by Arena. To avail themselves of such independent advice, the directors must follow the procedure in the
Board Charter which includes contacting the company secretary and consulting with the chair.
§ The Board Charter also explicitly states that independent directors may meet without executive directors as they
consider necessary.
Recommendation 2.2 - the chair should be an independent director
§ The Trust complies with this Recommendation.
§ Mr David Ross is the chair of the Board. The Board is satisfied that Mr David Ross is an independent director. None
of the relationships affecting the independent status of a director of the Board described in Section 2.1 of the
Recommendations apply to Mr Ross.
§ The Board Charter provides further detail regarding the role of chair of the Arena Board.
23
Arena REIT Annual Report 2013For personal use only Corporate governance statement
Principle 2: Structure the board to add value (continued)
Recommendation 2.3 - the roles of chair and chief executive officer should not be exercised by the same
individual
§ The Trust complies with this Recommendation.
§ The roles of chair and chief executive officer are held by separate directors. During the Statement Period and as at
the date of this report, Mr James Goodwin and Mr Bryce Mitchelson are the Joint Managing Directors and Mr David
Ross is the chair of the Board.
Recommendation 2.4 - the board should establish a nomination committee
§ Arena and the Trust do not have a nomination committee because directors of Arena are appointed by Citrus.
As such, the Trust does not comply with this Recommendation. However, as stated in the Board Charter, Citrus is
committed to ensuring the Board:
– is comprised of directors with an appropriate range of qualifications and expertise; and
– is of a size and composition conducive to efficient decision making.
§ Citrus is also committed to the following matters in director selection and nomination:
– integrity;
– particular expertise and the degree to which they complement the skill set and knowledge of existing Board
members;
– reputation and standing in the market; and
– in respect of prospective independent directors, independence from Citrus and Arena.
§ The Arena Board is looking to achieve a mix of skills in membership of the Board including a mix of leadership
experience, relevant experience in the real estate and investment management sectors, financial and accounting
experience, and knowledge of and experience in relevant legal and compliance related functions. The Board
considers that it has achieved this mix as at the date of this report.
§ The skills, experience and expertise relevant to the position of director held by each director in office at the date of
this report have been detailed in the Director’s Report.
Recommendation 2.5 - companies should disclose the process for evaluating the performance of the board, its
committees and individual directors
§ The performance of the Board will be assessed annually against appropriate measures. No performance assessment
was conducted in the Statement Period.
§ The Audit Committee will evaluate its own performance on the basis of a self-assessment together with feedback
sought from other stakeholders. This is reflected in the Arena Audit Committee Charter. No evaluation was
conducted in the Statement Period.
§ The performance of individual directors will be assessed on an annual basis. In the case of the Joint Managing
Directors this assessment was carried out in accordance with the processes described under recommendation 1.2
above, in the period between the end of the Statement Period and the date of this report. The performance of
independent directors will be assessed by the Board annually following the end of each financial year, as part of the
process of evaluating the performance of the Board as a whole.
Recommendation 2.6 - companies should provide the information indicated in the Guide to reporting on
Principle 2
§ The information disclosed above includes all information indicated in the Guide to reporting on Principle 2.
24
Arena REIT Annual Report 2013For personal use only Corporate governance statement
Principle 3: Promote ethical and responsible decision making
Recommendation 3.1 - companies should establish a code of conduct
§ The Trust complies with this Recommendation.
§ Arena has a code of conduct which all people employed, contracted by, associated with, or acting on behalf of
Citrus or entities in the Arena group are expected to adhere to. The Arena Code of Conduct is made available to
all those expected to adhere to it at the time they join the Arena group. In broad terms, the code deals with the
following matters:
– compliance with laws and regulations;
– required standards of personal conduct and ethical behaviour;
– compliance with Arena’s policies and procedures including those dealing with discrimination and harassment;
– actual or potential conflicts of interest;
– financial interests in other businesses; and
– acceptance of gifts or other benefits.
§ The Arena Code of Conduct is reviewed from time to time to ensure that it remains relevant.
§ The Arena Code of Conduct is available at www.arenainvest.com.au/about/governance-policies.
Recommendation 3.2 - companies should establish a diversity policy
§ The Arena Board acknowledges the importance of diversity in contribution to growth, innovative thinking and
overall success and is committed to fostering and maintaining an inclusive workplace that respects individuals.
Arena has adopted a diversity policy which describes Arena’s approach to diversity.
§ The Arena Diversity Policy is available at www.arenainvest.com.au/about/governance-policies.
Recommendation 3.3 - companies should disclose in each annual report the measurable objectives for achieving
gender diversity
§ Because of Arena’s small scale and infrequent changes to its workforce, Arena considers that it is not possible to
establish meaningful measurable objectives for achieving gender diversity, and for this reason has not adopted
them in its Diversity Policy.
Recommendation 3.4 - companies should disclose in each annual report the proportion of women employees,
women in senior executive positions and women on the Board
§ There are no women on the Board of Arena or in senior executive positions of Arena. 34% of Arena’s permanent
staff are women, comprising 10 out of a total of 29 including the Board.
Recommendation 3.5 - companies should provide the information indicated in the Guide to reporting on
Principle 3
§ The only departure from Recommendations 3.1 to 3.4 is that the Arena Diversity Policy does not include measurable
objectives for achieving gender diversity for the reasons described in Recommendation 3.3 above.
25
Arena REIT Annual Report 2013For personal use only Corporate governance statement
Principle 4: Safeguard integrity in financial reporting
Recommendation 4.1 - the board should establish an audit committee
§ The Board has established an Audit Committee. The purpose of the Audit Committee is to assist the Board in
overseeing the integrity of financial reporting, financial controls and procedures in respect of the Trust as well as the
independence of the Trust’s external auditors.
Recommendation 4.2 - structure of the audit committee
§ The Audit Committee comprises three non-executive, independent directors and is chaired by Mr Dennis
Wildenburg who is not the chair of the Board.
§ The other members of the Audit Committee are Mr David Ross and Mr Simon Parsons. Their qualifications are
described in the Director’s Report. During the Statement Period one meeting of the Audit Committee was held and
each member attended that meeting.
Recommendation 4.3 - the audit committee should have a formal charter
§ The Audit Committee has a formal charter that details the roles and responsibilities of the Audit Committee and its
obligations to report to the Board. The Arena Audit Committee Charter will be reviewed and updated on an annual
basis.
§ The Charter provides the meeting procedure framework, ensures that meetings can be held as necessary and
makes it clear that the Audit Committee may invite persons it deems necessary to those meetings to assist it in
performing its functions. The Audit Committee Charter includes information on procedures for the selection and
appointment of the external auditor, and for the rotation of external audit engagement partners.
§ The external audit function is currently performed by PricewaterhouseCoopers.
§ The Arena Audit Committee Charter is available at www.arenainvest.com.au/about/governance-policies.
Recommendation 4.4 - companies should provide the information indicated in the Guide to reporting on
Recommendation 4
§ There are no departures from Recommendations 4.1, 4.2 or 4.3, and the other information included in the Guide to
reporting on Recommendation 4 is included above.
Principle 5: Make timely and balanced disclosures
Recommendation 5.1 - companies should establish continuous disclosure policies and ensure compliance with
these policies
§ The Board has adopted a formal Continuous Disclosure Policy. That policy underlines the Trust’s commitment to
ensuring that its stakeholders and the market generally are provided high quality, relevant, clear and accurate
information about the Trust’s activities in a timely fashion so that all investors have the opportunity to consider and
assess information released by, and relevant to, the Trust.
§ The Trust is also committed to ensuring compliance with the continuous disclosure obligations in the ASX Listing
Rules and Corporations Act.
§ The Arena REIT Continuous Disclosure Policy is available at www.arenainvest.com.au/about/governance-policies.
Recommendation 5.2 - companies should provide the information indicated in the Guide to reporting on
Recommendation 5
§ There are no departures from Recommendation 5.1, and the other information included in the Guide to reporting
on Recommendation 5 is included above.
26
Arena REIT Annual Report 2013For personal use only Corporate governance statement
Principle 6: respect the rights of shareholders
Recommendation 6.1 - companies should establish a communications policy
§ The Board has adopted a formal communications policy. The Trust is committed to providing all stakeholders
with accessible, accurate, clear and timely information on all matters that are relevant or material to the financial
performance and activities of the Trust.
§ The Arena Communications Policy clearly sets out the range of methods the Trust will employ to communicate
information to stakeholders and the market generally. The Arena website (www.arenainvest.com.au) is an integral
part in fulfilling the Trust’s commitment to communication with stakeholders and the market generally as financial
and operational information is available there and regularly updated to ensure that it remains current and accurate.
§ The Arena Communications Policy is available at www.arenainvest.com.au/about/governance-policies.
Recommendation 6.2 - companies should provide the information indicated in the Guide to reporting on
Recommendation 6
§ There are no departures from Recommendation 6.1, and the other information included in the Guide to reporting
on Recommendation 6 is included above.
§ The Trust is not required to comply with section 250RA of the Corporations Act, which provides that an auditor must
attend a listed company’s AGM or arrange to be properly represented at the AGM. As the Trust is a listed managed
investment scheme it is not required to hold an AGM, so section 250RA does not apply to the Trust.
§ There was no opportunity during the Statement Period for the Trust to make arrangements to hold an AGM or to
otherwise achieve the same ends to enable members to ask questions of the Trust’s auditor in relation to the audit
as contemplated in section 250T of the Corporations Act.
Principle 7: Recognise and manage risk
Recommendation 7.1 - companies should establish practices for the oversight and management of material
business risks
§ The Trust complies with this Recommendation.
§ Arena recognises the importance of a comprehensive yet commercially workable risk management framework.
The Arena Board has adopted a Risk Management Policy and Framework which documents Arena’s policy for
the oversight and management of material business risks for the Trust. A summary of the policy and framework is
included in Recommendation 7.2 below.
Recommendation 7.2 - implementation of a risk management and internal control system
§ The Trust complies with this Recommendation.
§ The Risk Management Policy and Framework assists Arena achieve the Trust’s objectives through thorough
and competent strategic decision making and the conduct of efficient, effective and robust business processes
that allow the Trust to take opportunities when they arise while meeting required standards on accountability,
compliance and transparency.
§ Through the Risk Management Policy and Framework, Arena’s risk management internal control system
incorporates the guidelines described in the Australian/New Zealand Standard on Risk Management (AS/NZS ISO
31000:2009).
§ Arena has established a dedicated internal compliance audit function which conducts a risk-based program of
planned and ad-hoc compliance audits on aspects of Arena’s business and the operations of the Trust. The internal
compliance audit function will report to the Board through the Head of Legal and Compliance on a quarterly basis
and make recommendations to the Board for changes to Arena’s processes and systems to ensure compliance with
legal and regulatory requirements.
27
Arena REIT Annual Report 2013For personal use only Corporate governance statement
Principle 7: Recognise and manage risk (continued)
Recommendation 7.2 - implementation of a risk management and internal control system (continued)
§ Arena does not have a dedicated risk management committee. The Board has ultimate responsibility for overseeing
the risk management framework and for approving and monitoring compliance with the framework. The Board
receives a quarterly risk report on all critical and high assessed risks and the Joint Managing Directors have overall
responsibility for the risks facing the Trust and are supported by management. Management reports to the Board
on the effectiveness of Arena’s management of material business risks to the Trust in each quarterly risk report given
to the Board.
§ A summary of the Risk Management Policy and Framework is also available on Arena’s website.
Recommendation 7.3 - managing director and chief financial officer assurance on financial reporting risks
§ The Board has received assurance from the Joint Managing Directors and the Chief Financial Officer that the
declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk
management and internal control and that the system is operating effectively in all material respects in relation to
financial reporting risks.
Recommendation 7.4 - companies should provide the information indicated in the Guide to reporting on
Recommendation 7
§ There are no departures from Recommendations 7.1, 7.2 or 7.3, and the other information included in the Guide to
reporting on Recommendation 7 is included above.
Principle 8: Remunerate fairly and responsibly
Recommendation 8.1 - the board should establish a remuneration committee
§ The Trust does not have a remuneration committee because the remuneration of Arena as responsible entity of
the Trust is dealt with comprehensively in the Trust’s constitution. As such, the Trust does not comply with this
Recommendation.
§ Although Arena is not required by the ASX Listing Rules to have a remuneration committee and does not directly
remunerate its executives and staff (because they are employed by Citrus), the Arena Board is consulted by Citrus
in relation to the setting of Joint Managing Directors’ performance objectives, key performance indicators and
remuneration, and performance against those subsequent to year end.
§ The Board also provides feedback to Citrus and the Joint Managing Directors in relation to performance overall and
key performance indicators.
Recommendation 8.2 - structure of the remuneration committee
§ The Trust does not have a remuneration committee so it does not comply with this Recommendation. See response
to recommendation 8.1 above.
Recommendation 8.3 - companies should clearly distinguish the structure of non-executive directors’
remuneration from that of executive directors and senior executives
§ The Trust complies with this Recommendation.
§ The remuneration of non-executive directors is paid by Arena, whereas the remuneration of all executive directors
and senior executives is paid by Citrus. The Arena Board therefore considers that this recommendation is not
relevant to the Trust.
§ However, in compliance with recommendation 8.3, the remuneration of Arena’s non-executive directors’ is
structured as fixed pay only, whereas the remuneration of executive directors and senior management is
structured as a combination of fixed and incentive pay reflecting short and long term performance
objectives.
28
Arena REIT Annual Report 2013For personal use only Corporate governance statement
Principle 8: Remunerate fairly and responsibly (continued)
Recommendation 8.4 - companies should provide the information indicated in the Guide to reporting on
Recommendation 8
§ The departures from Recommendations 8.1 and 8.2 are summarised above. There is no departure from
Recommendation 8.3.
§ There are no schemes in place for retirement benefits, other than superannuation, for non-executive Directors which
is paid by Arena and not the Trust.
§ The Trust has no equity-based remuneration schemes in place, and as such Arena does not have a policy prohibiting
entering into transactions in associated products which limit the economic risk of participating in unvested
entitlements. The Trust does have in place a Securities Trading Policy prohibiting such transactions in relation to
securities of the Trust held by directors, senior management and staff of Arena.
§ Information in relation to management fees is included in Note 18.
§ The other information included in the Guide to reporting on Recommendation 8 is included above.
29
Arena REIT Annual Report 2013For personal use only Consolidated statement of comprehensive income
for the year ended 30 June 2013
Consolidated
30 June 2013
30 June 2012
Notes
$’000
$’000
Income
Property rental
Interest
Fair value gains on financial assets held at fair value through profit or loss
Distribution income
Revaluation of investment properties
Profit on sale of direct properties
Other operating income
Total income
Expenses
Direct property expenses
Responsible entity’s fees
Deferred management fees and exit fees
Custodian fees
Consulting and legal fees
Other administration expenses
Net loss on change in fair value of derivative financial instruments
Net foreign exchange gain/(loss)
Finance costs
Total expenses
Net profit/(loss) for the year
Other comprehensive income
Items that may be reclassified to profit and loss
Foreign currency translation
Total comprehensive income for the year
Total comprehensive income for the year is attributable to:
Unitholders of Arena REIT
Earnings per unit:
Basic earnings per unit
Diluted earnings per unit
3
9
18
21,793
22,497
108
1,413
314
5,162
10
300
179
1,382
628
8,687
808
14
29,100
34,195
(879)
(2,372)
-
(118)
(489)
(420)
(141)
12
(1,115)
(2,399)
48
(119)
(451)
(362)
(4,245)
(213)
(9,658)
(18,514)
4
(7,469)
(11,876)
17,224
15,681
15(a)
-
17,224
551
16,232
17,224
16,232
Cents
12.71
12.71
Cents
11.87
11.87
6
6
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying
notes.
30
Arena REIT Annual Report 2013For personal use only Consolidated balance sheet
As at 30 June 2013
Current assets
Cash and cash equivalents
Trade and other receivables
Assets held for sale
Total current assets
Non-current assets
Investment properties
Financial assets held at fair value through profit or loss
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Total current liabilities
Non-current liabilities
Derivative financial instruments
Interest bearing liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed Equity
Accumulated profit/(losses)
Total equity
Consolidated
30 June 2013
30 June 2012
Notes
$’000
$’000
7
8
9
10
11
13
12
4,995
1,346
1,150
7,491
233,784
-
233,784
5,561
1,938
-
7,499
226,292
6,406
232,698
241,275
240,197
6,640
6,640
70
24,500
24,570
6,281
6,281
2,016
99,122
101,138
31,210
107,419
210,065
132,778
14
15(b)
205,252
4,813
210,065
134,325
(1,547)
132,778
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
31
Arena REIT Annual Report 2013For personal use only Consolidated statement of changes in equity
for the year ended 30 June 2013
Consolidated
Contributed
equity
Reserves Accumulated
profit/(losses)
Total equity
$’000
$’000
$’000
$’000
Balance at 1 July 2011
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Distributions to unitholders
Balance at 30 June 2012
Balance at 1 July 2012
Profit for the year
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Distributions to unitholders
Contributions of equity, net of transaction costs
Balance at 30 June 2013
134,325
-
-
-
-
134,325
134,325
-
-
-
70,927
205,252
(551)
-
551
551
(8,642)
15,681
-
125,132
15,681
551
15,681
16,232
-
-
-
-
-
-
-
-
(8,586)
(1,547)
(1,547)
17,224
17,224
(8,586)
132,778
132,778
17,224
17,224
(10,864)
-
(10,864)
70,927
4,813
210,065
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
32
Arena REIT Annual Report 2013For personal use only Consolidated statement of cash flows
for the year ended 30 June 2013
Consolidated
30 June 2013
30 June 2012
Notes
$’000
$’000
Cash flows from operating activities
Property rental receipts
Payments to suppliers
Finance costs paid
Interest received
Other income received
Net cash inflow from operating activities
Cash flows from investing activities
Acquisition of development properties
Acquisition of investment property
Proceeds from sale of financial assets held at fair value through profit or
loss
Proceeds from sale of investment properties
Payments for capital expenditure
Net cash inflow from investing activities
Cash flows from financing activities
Net proceeds from issue of units
Distributions paid to unitholders
Loan establishment costs
Proceeds from borrowings
Repayment of borrowings
Termination of derivatives
Net cash (outflow) from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of the year
7
21,018
(4,825)
(6,369)
107
1,067
10,998
(1,834)
(1,117)
7,819
300
(134)
5,034
71,476
(10,237)
(569)
1,500
(76,681)
(2,087)
(16,598)
(566)
5,561
-
4,995
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
21,257
(5,048)
(8,616)
178
607
8,378
-
-
-
13,641
(23)
13,618
-
(8,255)
(977)
880
(10,016)
(3,300)
(21,668)
328
4,895
338
5,561
33
Arena REIT Annual Report 2013For personal use only 34
Arena REIT Annual Report 2013For personal use only Notes to the
consolidated financial
statements
Contents
1 General information
2
3
4
5
6
Summary of significant accounting policies
Property rental income
Finance costs
Remuneration of auditors
Earnings per unit (‘EPU’)
7 Cash and cash equivalents
8
9
Trade and other receivables
Investment properties
10 Financial assets held at fair value through profit
or loss
11 Trade and other payables
12 Interest bearing liabilities
13 Derivative financial instruments
14 Contributed equity
15 Reserves and accumulated profit/(losses)
16 Segment information
17 Key management personnel
18 Related party disclosures
19 Investments in subsidiaries
20 Financial risk management
21 Parent entity financial information
22 Reconciliation of profit to net cash inflow from
operating activities
23 Contingent assets and liabilities and
commitments
24 Events occurring after the reporting period
36
36
45
45
46
47
47
48
49
51
52
52
53
54
55
56
57
58
59
59
65
66
67
67
35
Arena REIT Annual Report 2013For personal use only Notes to the consolidated financial statements
1. General information
These financial statements cover Arena REIT and its controlled entity (the “Trust” or the “Consolidated Entity”). Arena
REIT is an ASX listed managed investment scheme registered and domiciled in Australia.
The Responsible Entity of the Trust is Arena Investment Management Limited (the “Responsible Entity”).
The financial statements were authorised for issue by the directors of the Responsible Entity on 30 August 2013. The
directors of the Responsible Entity have the power to amend and reissue the financial statements.
2. Summary of significant accounting policies
The principal accounting policies applied in the preparation of these financial statements are set out below. These
policies have been consistently applied to all years presented, unless otherwise stated in the following text.
(a) Basis of preparation
These general purpose financial statements have been prepared in accordance with Australian Accounting Standards
and interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001. Arena REIT
is a for-profit unit trust for the purpose of preparing the financial statements.
The financial report has been prepared on an accruals and historical cost basis except for investment properties,
financial assets at fair value through profit or loss and derivative financial instruments which are measured at fair value.
Cost is based on the fair value of consideration given in exchange for assets.
Compliance with International Financial Reporting Standards
The financial statements of the Trust comply with International Financial Reporting Standards as issued by the
International Accounting Standards Board.
(b) Principles of consolidation
(i) Controlled entities
The consolidated financial statements incorporate the assets and liabilities of all controlled entities of Arena REIT
(“Parent Entity”) as at 30 June 2013 and the results of all controlled entities for the year then ended. Arena REIT and
its controlled entities together are referred to in this financial report as the Consolidated Entity or the Trust.
Controlled entities are entities over which the Trust has the power to govern the financial and operating policies,
generally accompanying a shareholding of more than one-half of the voting rights. The existence and effect of
potential voting rights that are currently exercisable or convertible are considered when assessing whether the Trust
controls another entity.
Controlled entities are fully consolidated from the date on which control is transferred to the Trust. They are de-
consolidated from the date that control ceases.
The acquisition method of accounting is used to account for business combinations by the Trust.
Intercompany transactions, balances and unrealised gains on transactions between entities in the consolidated group
are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of
the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency
with the policies adopted by the Trust.
Non-controlling interests in the results and equity of controlled entities are shown separately in the consolidated
statement of comprehensive income, statement of changes in equity and balance sheet respectively.
(ii) Changes in ownership interests
The consolidated entity treats transactions with non-controlling interests that do not result in a loss of control as
transactions with equity owners of the Trust. A change in ownership interest results in an adjustment between the
carrying amounts of the controlling and non-controlling interests to reflect their relative interests in the controlled
entity. Any difference between the amount of the adjustment to non-controlling interests and any consideration paid
or received is recognised in net assets attributable to unitholders of Arena REIT.
36
Arena REIT Annual Report 2013For personal use only Notes to the consolidated financial statements
2. Summary of significant accounting policies (continued)
(b) Principles of consolidation (continued)
(ii) Changes in ownership interests (continued)
When the Trust ceases to have control, joint control or significant influence, any retained interest in the entity is
remeasured to its fair value with the change in carrying amount recognised in profit or loss. The fair value is the
initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, jointly
controlled entity or financial asset. In addition, any amounts previously recognised in other comprehensive income in
respect of that entity are accounted for as if the Trust had directly disposed of the related assets or liabilities. This may
mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.
If the ownership interest in a jointly-controlled entity or an associate is reduced but joint control or significant
influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive
income are reclassified to profit or loss where appropriate.
(c) Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the managing
directors and the board of directors (the ‘chief operating decision makers’). The chief operating decision makers are
responsible for allocating resources and assessing performance of the operating segments.
(d) Parent entity financial information
The financial information for the parent entity, Arena REIT, disclosed in Note 21 has been prepared on the same basis
as the consolidated financial statements.
(e) Investment properties
Investment property is real estate investments held to earn long-term rental income and for capital appreciation.
Investment properties are carried at fair value determined either by the Directors or independent valuers with
changes in fair value recorded in the statement of comprehensive income. Investment properties are not depreciated.
Land and buildings (including integral plant and equipment) that comprise investment property are not depreciated.
The carrying amount of investment properties may include the cost of acquisition, additions, refurbishments,
redevelopments, improvements, lease incentives, assets relating to fixed increases in operating lease rental in future
periods and borrowing costs incurred during the construction period of qualifying assets.
(i) Valuation basis
The basis of the valuation of investment properties is fair value, being the amounts for which the properties could
be exchanged between willing parties in an arm’s length transaction, based on current prices in an active market for
similar properties in the same location and condition and subject to similar leases.
The Responsible Entity may determine the requirement for a valuation at any time but has adopted a valuation
program that provides for each property to be independently valued by suitably qualified valuers at least once every
three years. Changes in market conditions may necessitate more frequent independent revaluations of properties.
Valuations are derived from a number of factors that may include a direct comparison between the subject property
and a range of comparable sales evidence, the present value of net future cash flow projections based on reliable
estimates of future cash flows, existing lease contracts, external evidence such as current market rents for similar
properties in the same location and condition, and using discount rates and capitalisation rates that reflect current
market assessments of the uncertainty in the amount and timing of cash flows.
37
Arena REIT Annual Report 2013For personal use only Notes to the consolidated financial statements
2. Summary of significant accounting policies (continued)
(f) Assets held for sale
Assets are classified as held-for-sale when a sale is considered highly probable and their carrying amount will be
recovered principally through a sale transaction rather than through continued use. Assets classified as held-for-sale
are presented separately from the other assets in the consolidated balance sheet.
Assets classified as held-for-sale are measured at the lower of their carrying amount and fair value less costs to sell.
Changes to fair value are recorded in the consolidated statement of comprehensive income.
An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal group) to fair
value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset
(or disposal group), but not in excess of any cumulative impairment loss previously recognised. A gain or loss
not previously recognised by the date of the sale of the asset (or disposal group) is recognised at the date of
derecognition.
Assets (including those that are part of a disposal group) are not depreciated or amortised while they are classified as
held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale
continue to be recognised.
(g) Impairment of assets
Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested
annually for impairment, or more frequently if events or changes in circumstances indicate that they might be
impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s
carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less
costs to sell and value-in-use. For the purposes of assessing impairment, assets are grouped at the lowest levels
for which there are separately identifiable cash inflows which are largely independent of the cash inflows from
other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an
impairment are reviewed for possible reversal of the impairment at the end of each reporting period.
(h) Revenue
Rental income from operating leases is recognised as income on a straight-line basis over the lease term. Where
a lease has fixed annual increases, the total rent receivable over the operating lease is recognised as revenue on a
straight-line basis over the lease term. This results in more income being recognised early in the lease term and less
late in the lease term compared to the lease conditions. The difference between the lease income recognised and the
actual lease payments received is shown within the fair value of the investment property on the consolidated balance
sheet.
When the Trust provides lease incentives to tenants, the cost of the incentives are recognised over the lease term, on
a straight-line basis, as a reduction in rental income.
Contingent rents based on the future amount of a factor that changes other than with the passage of time, are only
recognised when contractually due.
Interest income is recognised in the consolidated statement of comprehensive income using the effective interest rate
method.
Distribution income is recognised when the right to receive a distribution has been established.
Other income is recognised when the right to receive the revenue has been established.
All income is stated net of goods and services tax (GST).
38
Arena REIT Annual Report 2013For personal use only Notes to the consolidated financial statements
2. Summary of significant accounting policies (continued)
(i) Financial instruments
(i) Classification
The consolidated entity’s and the Trust’s investments are classified as at fair value through profit or loss. They
comprise:
§ Financial instruments held for trading
Derivative financial instruments such as futures, forward contracts, options and interest rate swaps are included
under this classification. The Trust does not designate any derivatives as hedges in a hedging relationship.
§ Financial instruments designated at fair value through profit or loss upon initial recognition
These include financial assets that are not held for trading purposes and which may be sold. These are
investments in exchange traded debt and equity instruments, unlisted trusts and commercial paper.
Financial assets designated at fair value through profit or loss at inception are those that are managed and their
performance evaluated on a fair value basis in accordance with the Trust’s documented investment strategy. The
Trust’s policy is for the Responsible Entity to evaluate the information about these financial instruments on a fair
value basis together with other related financial information.
(ii) Recognition/derecognition
Financial assets and financial liabilities are recognised on the date it becomes party to the contractual agreement
(trade date) and recognises changes in fair value of the financial assets or financial liabilities from this date.
Investments are derecognised when the right to receive cash flows from the investments have expired or the Trust has
transferred substantially all risks and rewards of ownership.
(iii) Measurement
Financial assets and liabilities held at fair value through profit or loss
At initial recognition, financial assets are initially recognised at fair value. Transaction costs of financial assets carried at
fair value through profit or loss are expensed in the profit or loss.
The fair value of financial assets and liabilities traded in active markets is subsequently based on their quoted market
prices at the end of the reporting period without any deduction for estimated future selling costs. The quoted market
price used for financial assets held by the consolidated entity and the Trust is the current bid price and the quoted
market price for financial liabilities is the current asking price.
The fair value of financial assets and liabilities that are not traded in an active market are determined using valuation
techniques. Accordingly, there may be a difference between the fair value at initial recognition and amounts
determined using a valuation technique. If such a difference exists, the Trust recognises the difference in profit or loss
to reflect a change in factors, including time, that market participants would consider in setting a
price.
Further detail on how the fair values of financial instruments are determined is disclosed in Note 20(d).
Loans and receivables
Loan assets are measured initially at fair value plus transaction costs and subsequently amortised using the effective
interest rate method, less impairment losses if any. Such assets are reviewed at the end of each reporting period to
determine whether there is objective evidence of impairment.
If evidence of impairment exists, an impairment loss is recognised in profit or loss as the difference between the
asset’s carrying amount and the present value of estimated future cash flows discounted at the original effective
interest rate.
If in a subsequent period the amount of an impairment loss recognised on a financial asset carried at amortised cost
decreases and the decrease can be linked objectively to an event occurring after the write-down, the
write-down is reversed through profit or loss.
39
Arena REIT Annual Report 2013For personal use only Notes to the consolidated financial statements
2. Summary of significant accounting policies (continued)
(i) Financial instruments (continued)
(iv) Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the consolidated balance sheet when there
is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or
realise the asset and settle the liability simultaneously.
(j) Cash and cash equivalents
For the purpose of presentation in the consolidated statement of cash flows, cash and cash equivalents includes
cash on hand, deposits held at call with financial institutions, other short term, highly liquid investments with original
maturities of three months or less from the date of acquisition that are readily convertible to known amounts of cash
and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown
within borrowings in the consolidated balance sheet.
(k) Expenses
All expenses, including Responsible Entity’s fees and custodian fees, are recognised in profit or loss on an accruals
basis.
(l) Income tax
(i) Australian income tax
Under current legislation, the Trust is not subject to Australian income tax provided its taxable income is fully
distributed to unitholders.
(ii) Foreign income tax
The Trust may be subject to corporate tax income and withholding tax in the countries in which they operate.
Under current Australian income tax legislation, unitholders may be entitled to receive a foreign tax credit for this
withholding tax.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the
end of the reporting period in the countries where the company’s subsidiaries and associates operate and generate
taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which
applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of
amounts expected to be paid to the tax authorities.
(m) Distributions
In accordance with the Trust constitution, the Trust distributes income adjusted for amounts determined by the
Responsible Entity. The distributions are recognised within the balance sheet and statement of changes in equity as a
reduction in accumulated profit/(losses).
(n) Earnings per unit (EPU)
(i) Basic earnings per unit
Basic earnings per unit is calculated by dividing:
§ the profit attributable to the Unitholders, excluding any costs of servicing equity other than ordinary units.
§ by the weighted average number of ordinary units outstanding during the financial year.
40
Arena REIT Annual Report 2013For personal use only Notes to the consolidated financial statements
2. Summary of significant accounting policies (continued)
(n) Earnings per unit (EPU) (continued)
(ii) Diluted earnings per unit
Diluted earnings per unit adjust the figures used in the determination of basic earnings per unit to take into account:
§ the after income tax effect of interest and other financial costs associated with dilutive potential ordinary units; and
§ the weighted average number of additional ordinary units that would have been outstanding assuming the
conversion of all dilutive potential ordinary units.
(o) Foreign currency translation
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the
dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and
from the translations at year end exchange rates of monetary assets and liabilities denominated in foreign currencies
are recognised in profit or loss.
Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates
at the date when fair value was determined. Translation differences on assets and liabilities carried at fair value are
reported in the consolidated statement of comprehensive income on a net basis within net gains/(losses) on financial
instruments held at fair value through profit or loss.
The results of controlled entities which are denominated in a different functional currency are translated into
presentation currency as follows:
§ assets and liabilities for the end of each reporting period are translated at the closing rate of the consolidated
balance sheet;
§ income and expenses for the consolidated statement of comprehensive income items are translated at average
rates; and
§ all resulting exchange differences are recognised in other comprehensive income.
On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and
of borrowings and other financial instruments designated as hedges of such investments, are recognised in other
comprehensive income. When a foreign operation is sold or any borrowings forming part of the net investment are
repaid, a proportionate share of such exchange differences is reclassified to profit or loss, as part of the gain or loss
on sale where applicable.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and
liabilities of the foreign operation and translated at the closing rate.
(p) Receivables
Receivables may include amounts for dividends, interest and trust distributions. Dividends and trust distributions are
accrued when the right to receive payment is established. Interest is accrued at the end of each reporting period from
the time of last payment. Amounts are generally received within 30 days of being recorded as receivables.
Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible
are written off by reducing the carrying amount directly. An allowance account (provision for impairment of trade
receivables) is used when there is objective evidence that the Trust will not be able to collect all amounts due
according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the
debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days
overdue) are considered indicators that the trade receivable is impaired. The amount of the impairment allowance is
the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted
at the original effective interest rate. Cash flows relating to short term receivables are not discounted if the effect of
discounting is immaterial.
The amount of the impairment loss is recognised in the statement of comprehensive income within other expenses.
When a trade receivable for which an impairment allowance had been recognised becomes uncollectible in a
subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously
written off are credited against other expenses in the statement of comprehensive income.
41
Arena REIT Annual Report 2013For personal use only Notes to the consolidated financial statements
2. Summary of significant accounting policies (continued)
(q) Provisions
A provision is recognised when the Trust has a legal or constructive obligation as a result of past events, it is probable
that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated.
Provisions are measured at the present value of the Responsible Entity’s best estimate of the expenditure required
to settle the present obligation at the end of the reporting period. The discount rate used to determine the present
value reflects current market assessments of the time value of money and the risks specific to the liability.
Provisions may include deferred management fees and disposal fees payable to the Responsible Entity upon the sale
of investment property, which are only recognised on the disposal of an investment property.
(r) Borrowings
Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently
measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption
amount is recognised in the consolidated statement of comprehensive income over the period of the borrowings
using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction
costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the
fee is deferred until the drawdown occurs. To the extent there is no evidence that it is probable that some or all of the
facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period
of the facility to which it relates.
Borrowings are removed from the consolidated balance sheet when the obligation specified in the contract is
discharged, cancelled or expired. The difference between the carrying amount of the financial liability that has been
extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or
liabilities assumed, is recognised in profit or loss as finance costs.
Borrowings are classified as current liabilities unless the entity has an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period.
(s) Borrowing costs
Borrowing costs include interest and amortisation of costs incurred in connection with arrangement of borrowings.
Borrowing costs are expensed as incurred unless they relate to qualifying assets. Qualifying assets are assets which
take more than twelve months to get ready for their intended use or sale. Where funds are borrowed specifically for
the acquisition, construction or production of a qualifying asset, the amount of borrowing costs capitalised are those
incurred in relation to that borrowing. Where funds are borrowed generally, borrowing costs are capitalised using a
weighted average capitalisation rate.
(t) Applications and redemptions
Applications received for units in the Trust are recorded net of any entry fees payable prior to the issue of units in
the Trust. Redemptions from the Trust are recorded gross of any exit fees payable after the cancellation of units
redeemed.
(u) Goods and Services Tax (GST)
Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of the GST
incurred is not recoverable from the relevant taxation authority. In these circumstances the GST is recognised as part
of the cost of acquisition of the asset or as part of an item of the expense.
Receivables and payables in the consolidated balance sheet are shown inclusive of GST.
The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables and
payables in the consolidated balance sheet.
Cashflows are presented on a net basis. The GST components of cash flows arising from investing or financing
activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows.
42
Arena REIT Annual Report 2013For personal use only Notes to the consolidated financial statements
2. Summary of significant accounting policies (continued)
(v) Use of estimates
The consolidated entity and the Trust makes estimates and assumptions that affect the reported amounts of assets
and liabilities within the next financial year. Estimates are continually evaluated and based on historical experience
and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
For certain Trust’s financial instruments, quoted market prices are readily available. However, certain financial
instruments, for example over-the-counter derivatives or unquoted securities, are fair valued using valuation
techniques. Where valuation techniques (for example, pricing models) are used to determine fair values, they are
validated and periodically reviewed by experienced personnel of the Responsible Entity, independent of the area that
created them.
Models use observable data, to the extent practicable. However, areas such as credit risk (both own and
counterparty), volatilities and correlations require management to make estimates. Changes in assumptions about
these factors could affect the reported fair value of financial instruments.
For certain other financial instruments, the carrying amounts approximate fair value due to the short-term nature of
these financial instruments.
Investment properties are subject to the use of estimates. Refer to Note 2e for further details.
(w) Rounding of amounts
The Trust is an entity of the kind referred to in Class Order 98/100, issued by the Australian Securities and Investments
Commission, relating to the ‘rounding off’ of amounts in the financial statements. Amounts in the financial statements
have been rounded off to the nearest thousand dollars in accordance with that Class Order, unless otherwise
indicated.
(x) New accounting standards and interpretations
Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2013
reporting periods. The Trust has not early adopted these standards/interpretations. The Trust’s assessment of the
impact of relevant new standards and interpretations is set out below:
Standard / Interpretation
Impact
Effective annual
reporting periods
beginning on or
after
Expected to be
initially applied in
the financial year
ending
30 June 2016
AASB 9 Financial Instruments,
AASB 2009-11 Amendments
to Australian Accounting
Standards arising from AASB
9, AASB2010-7 Amendments
to Australian Accounting
Standards arising from AASB
9 (December 2010) and
AASB 2012-6 Amendments
to Australian Accounting
Standards - Mandatory
Effective Date of AASB 9 and
Transition Disclosures
1 January 2015
The standard addresses the classification,
measurement and derecognition of
financial instruments. AASB 9 only permits
the recognition of fair value gains and
losses in other comprehensive income if
they relate to equity investments that are
not held for trading. As the Trust carries
its non-controlled equity investments as
financial assets at fair through profit and
loss the revised standard is not expected
to have any impact on the results of the
Trust.
43
Arena REIT Annual Report 2013For personal use only Notes to the consolidated financial statements
2. Summary of significant accounting policies (continued)
(x) New accounting standards and interpretations (continued)
Standard / Interpretation
Impact
AASB 10 Consolidated Financial
Statements
AASB 12 Disclosure of Interests
in Other Entities
The standard replaces all of the existing
guidance on control and consolidation.
The standard introduces a single
definition of control focusing on the
need to have both power and rights or
exposure to variable returns. The revised
standard is not expected to have any
significant impact on the Consolidated
Entity’s composition.
The standard sets out the required
disclosure for entities reporting under
the above revised AASB 10 and AASB 11
and replaces the disclosure requirements
of AASB 127 and AASB 128. The
amendments will not affect the amounts
recognised in the financial statements
but may impact the type of information
disclosed.
Effective annual
reporting periods
beginning on or
after
Expected to be
initially applied in
the financial year
ending
1 January 2013
30 June 2014
1 January 2013
30 June 2014
AASB 13 Fair Value
Measurement and AASB 2011-8
Amendments to Australian
Accounting Standards arising
from AASB 13
1 January 2013
AASB 13 explains how to measure fair
value and aims to enhance fair value
disclosures. The Consolidated Entity does
not expect any significant changes to the
way it fair values its assets, however it may
impact the type of information disclosed
in the notes to the financial statements.
AASB 2011-7 Amendments
to Australian Accounting
Standards arising from the
Consolidation and Joint
Arrangements Standards and
AASB 2012-10 Amendments
to Australian Accounting
Standards - transitional
guidance and other
amendments
1 January 2013
These standards provide transitional
guidance and clarification of the
amendments to AASB 10, AASB 11, AASB
12, AASB 127 and AASB 128 outlined
above. These amendments are not
expected to impact the Consolidated
Entity.
30 June 2014
30 June 2014
There are no other standards that are not yet effective and that are expected to have a material impact on the entity
in the current or future reporting periods and on foreseeable future transactions.
44
Arena REIT Annual Report 2013For personal use only Notes to the consolidated financial statements
3. Property rental income
The following table details the property rental earned by the Consolidated Entity during the year:
Lease rental income
Other rental income (recognised on a straight line basis)
Total rental income
4. Finance costs
Finance costs:
Interest paid or payable
Other finance costs
Write-off of loan establishment costs due to refinancing
Total finance costs expensed
Finance costs capitalised (a)
Total finance costs
Consolidated
30 June 2013
30 June 2012
$’000
$’000
21,296
497
21,793
21,749
748
22,497
Consolidated
30 June 2013
30 June 2012
$’000
$’000
6,356
266
847
7,469
200
7,669
9,371
287
-
9,658
-
9,658
(a) During the year, $199,509 of finance costs were capitalised in relation to current property developments. The capitalisation rate used to determine
the amount of finance costs to be capitalised was the weighted average interest rate applicable to the Trust’s outstanding borrowings at the end
of each month. The average rate used for the year ended 30 June 2013 was 6.56% (2012: 6.76%).
45
Arena REIT Annual Report 2013For personal use only Notes to the consolidated financial statements
5. Remuneration of auditors
During the year the following fees were paid or payable for services provided by the auditor of the Consolidated
Entity:
PricewaterhouseCoopers Australian firm
Audit and other assurance services
Audit and review of financial statements
Audit of compliance plan
Total remuneration for audit and other assurance services
Taxation services
Tax compliance services, including review of income tax returns
Tax consulting
Total remuneration for taxation services
Other services
IPO reports and due diligence
Total remuneration of PricewaterhouseCoopers
Consolidated
30 June 2013
30 June 2012
$
$
39,000
4,000
43,000
10,597
38,461
49,058
241,485
333,543
48,000
4,000
52,000
21,983
-
21,983
-
73,983
46
Arena REIT Annual Report 2013For personal use only Notes to the consolidated financial statements
6. Earnings per unit (‘EPU’)
Basic EPU
Diluted EPU
2013
Cents
12.71
12.71
2012
Cents
11.87
11.87
The following information reflects the income and security numbers used in the calculations of basic and diluted EPU.
Number
of units
Number
of units
‘000
‘000
Weighted average number of ordinary units used in calculating basic EPU
135,544
132,086
Bonus element of unit options which are dilutive
-
-
Adjusted weighted average number of ordinary units used in calculating diluted EPU
135,544
132,086
Earnings used in calculating basic EPU
Earnings used in calculating diluted EPU
$‘000
$‘000
17,224
17,224
15,681
15,681
There have been no conversions to, calls of, or subscriptions for ordinary units or issues of potential ordinary units
since the reporting date and before the completion of this report.
7. Cash and cash equivalents
Cash at bank
Term deposits
Total cash and cash equivalents
Consolidated
30 June 2013
30 June 2012
$’000
4,995
-
4,995
$’000
3,837
1,724
5,561
Term deposits mature in less than 90 days and as such have been classified as Cash and Cash Equivalents.
47
Arena REIT Annual Report 2013For personal use only Notes to the consolidated financial statements
8. Trade and other receivables
The following table details the trade and other receivables by the Consolidated Entity during the year:
Consolidated
30 June 2013
30 June 2012
$’000
$’000
860
-
381
105
755
(71)
709
545
1,346
1,938
Trade receivables
Impairment of receivables
Other receivables
Prepayments
Trade and other receivables are non-interest bearing.
Impairment and ageing
The ageing of trade receivables at the end of the reporting period was:
Not past due
Past due 0 - 30 days
Past due 31 - 60 days
Past due 61 - 90 days
Past due over 90 days
Gross
2013
$’000
Impairment
2013
$’000
Gross
2012
$’000
Impairment
2012
$’000
177
383
151
2
147
860
-
-
-
-
-
-
112
224
-
11
408
755
-
-
-
-
(71)
(71)
No other class of financial asset is past due.
Any receivables which are doubtful have been provided for.
From time to time, tenant payments are delayed for administrative reasons such as lease assignment. Management
have reviewed all receivables for impairment and are comfortable that the balances are due and payable, and that
recovery can be obtained. Past history also supports the recoverability of these receivables. As such no impairment
charge has been raised.
48
Arena REIT Annual Report 2013For personal use only
Notes to the consolidated financial statements
8. Trade and other receivables (continued)
The movement in the allowance for impairment of trade receivables during the year is as follows:
Consolidated
30 June 2013
30 June 2012
$’000
$’000
71
-
(71)
-
459
46
(434)
71
Opening balance at 1 July
Increase/(decrease) in the provision
Amounts written-off against provision
Closing balance at 30 June
9. Investment properties
(a) Valuations and carrying amounts
Property Portfolio
No. of Properties
Carrying amount
Latest external valuation
2013
$’000
2012
$’000
2013
$’000
2012
$’000
Childcare properties
Childcare development properties
Total investment properties
172
4
176
231,235
224,220
227,155
223,255
2,549
2,072
2,020
2,040
233,784
226,292
229,175
225,295
Investment properties are carried at fair value. Members of the Australian Property Institute were engaged to
independently value 47 investment properties during the year. The Board of Directors reviewed these valuations (with
a total value of $60.7 million) and has determined that they are appropriate to adopt at 30 June 2013.
Directors’ valuations were performed over 119 investment properties with a total value of $155.6 million.
Directors’ valuations are based on the passing yield for the property from its most recent independent valuation,
adjusted for current passing rent.
(i) Valuation basis
The principal assumptions underlying the estimation of fair value include those related to the amount of contractual
rentals and capitalisation rates as well as direct comparisons with similar properties in the same location and condition
and subject to similar leases. The key assumptions include the following:
Market rent per licenced place
Capitalisation rates
30 June 2013
30 June 2012
$1,074 to $3,230
$1,048 to $3,141
7.75% to 11.0%
7.75% to 11.0%
Sales evidence - Amount per licenced place
$8,000 to $28,500
$9,000 to $30,000
49
Arena REIT Annual Report 2013For personal use only Notes to the consolidated financial statements
9. Investment properties (continued)
(b) Movements during the financial year
At fair value
Opening balance
Disposals
Transfers (to) classified as held for sale
Revaluations*
Changes in fair value for straight-lining of rent adjustment
Foreign currency translation
Capital expenditure
Land acquisition and development capital expenditure
Leasing costs
Amortisation of leasing costs
Closing balance
* The revaluation adjustment comprises the following:
Gross revaluation of investment property
Change in fair value for straight-lining of rent adjustment
Leasing costs
Amortisation of leasing costs
Net revaluation adjustment
(c) Tenancy risk
Consolidated
30 June 2013
30 June 2012
$’000
$’000
226,292
(290)
(1,150)
5,162
497
-
134
3,048
116
(25)
229,046
(12,642)
-
8,687
748
421
-
32
-
-
233,784
226,292
30 June 2013
30 June 2012
$’000
5,750
(497)
(116)
25
5,162
$’000
9,435
(748)
-
-
8,687
Set out below are details of the major tenants who lease properties from the Trust:
Goodstart Early Learning Limited (“Goodstart”) - represents 66.1% of operating childcare centres by value. Effective
May 2010, Goodstart took an assignment of leases to 118 childcare centres previously leased to ABC Learning
Centres Limited. Goodstart is now the largest operator of childcare centres in Australia.
Like most not-for-profit entities, Goodstart is a company limited by guarantee as opposed to a company limited
by share capital. It therefore does not have “shareholders,” rather, each of the member charities (Mission Australia,
Benevolent Society, Brotherhood of St Laurence and Social Ventures Australia) is a member of the company having
a maximum liability of $100 due upon the winding up of the company. Goodstart’s “capital” is loan capital of varying
degrees of risk and subordination.
50
Arena REIT Annual Report 2013For personal use only Notes to the consolidated financial statements
9. Investment properties (continued)
Other Australian Centre Operators
Operator
Kids in Care Group
Preschool Services Australia P/L
NurtureOne
% of Operating Childcare Centres by Value
15.6%
5.6%
3.8%
Each of these operators is privately owned with experience operating childcare centres. Their lease obligations are
typically secured by bank guarantees and in some cases personal guarantees from the major shareholders.
(d) Assets pledged as security
Refer to Note 12 for information on investment properties and other assets pledged as security by the Trust.
(e) Contractual obligations
The Trust has no commitments to purchase or redevelop investment property contracted at year end which have not
already been recognised as a liability.
10. Financial assets held at fair value through profit or loss
Designated at fair value through profit or loss
Equity securities
Total financial assets held at fair value through profit or loss
Comprising:
Equity securities
Australian equity securities
Total financial assets held at fair value through profit or loss
Consolidated
30 June 2013
30 June 2012
Fair value
$’000
Fair value
$’000
-
-
-
-
6,406
6,406
6,406
6,406
In the prior year, the Trust held 6.28 million ordinary units in the ASX listed Australian Education Trust valued at bid
price. These units were sold in December 2012 for $7.8 million.
An overview of the risk exposures and fair value measurements relating to financial assets at fair value through profit
or loss is included in Note 20.
51
Arena REIT Annual Report 2013For personal use only Notes to the consolidated financial statements
11. Trade and other payables
The following table details the other liabilities by the Consolidated Entity during the year:
Prepaid rental income
Sundry creditors and accruals
Distributions payable
Trade and other payables are non-interest bearing.
Consolidated
30 June 2013
30 June 2012
$’000
1,342
2,029
3,269
6,640
$’000
1,390
2,249
2,642
6,281
12. Interest bearing liabilities
The following table details the other liabilities by the Consolidated Entity during the year:
Non-current:
Cash advance facility
Unamortised transaction costs
Total secured non-current borrowings
(a) Financing arrangements
Committed Facilities Available
Interest bearing liabilities
Facilities used at the end of the reporting period
Consolidated
30 June 2013
30 June 2012
$’000
$’000
25,000
(500)
24,500
100,181
(1,059)
99,122
Consolidated
30 June 2013
30 June 2012
$’000
$’000
110,000
110,000
Interest bearing liabilities
25,000
100,181
The bank facility may be drawn at any time.
The interest rate applying to the drawn amount of the facility is set on a monthly basis at the prevailing market
floating rate.
The Trust’s new financing facility with National Australia Bank Limited (“NAB”) and Australia and New Zealand
Banking Corporation Limited (“ANZ”) became effective on 14 June 2013. The new facility has a limit of $110 million
and a maturity date of 30 June 2016.
52
Arena REIT Annual Report 2013For personal use only Notes to the consolidated financial statements
12. Interest bearing liabilities (continued)
(b) Assets pledged as security
The bank facilities are secured by a registered first mortgage over investment property and a fixed and floating charge
over the assets of the Trust.
The carrying amounts of assets pledged as security are:
Financial assets pledged
Cash and cash equivalents
Trade and other receivables
Other assets pledged
Investment properties
Assets held for sale
Financial assets held at fair value through profit or loss
Consolidated
30 June 2013
30 June 2012
$’000
$’000
4,995
1,346
6,341
233,784
1,150
-
5,561
1,938
7,499
226,292
-
6,406
234,934
232,698
(c) Covenants
The covenants over the Trust’s bank facility requires an interest cover ratio of greater than 2.0 times and a loan
to market value of investment properties ratio of less than 50%. The Trust was in compliance with its covenants
throughout the year and as at 30 June 2013.
13. Derivative financial instruments
Non-current liabilities
Interest rate swaps
Consolidated
30 June 2013
30 June 2012
$’000
$’000
70
70
2,016
2,016
It is policy to protect interest bearing liabilities from exposure to changes in interest rates. Accordingly, the Trust has
entered into interest rate swap contracts under which it receives interest at variable rates and pays interest at fixed
rates.
Swaps currently in place cover 100% (2012: 86%) of the facility principal outstanding. The weighted average fixed
interest swap rate at 30 June 2013 was 2.95% (2012: 4.01%).
The settlement dates coincide with the dates on which interest is payable on the underlying debt, and are settled on
a net basis.
53
Arena REIT Annual Report 2013For personal use only Notes to the consolidated financial statements
13. Derivative financial instruments (continued)
The notional principal amounts and periods of expiry of the interest rate swap contracts are as follows:
Less than 1 year
1 - 2 years
2 - 3 years
3 - 4 years
14. Contributed equity
(a) Units
Ordinary Units
Fully paid
(b) Movements in ordinary units
Date
Details
1 July 2011
Opening balance
30 June 2012
Closing balance
1 July 2012
Opening balance
Capital raising
Consolidated
30 June 2013
30 June 2012
$’000
$’000
-
-
25,000
-
25,000
-
15,000
31,000
40,000
86,000
Consolidated
30 June 2013
30 June 2012
30 June 2013
30 June 2012
Units ‘000
Units ‘000
$’000
$’000
206,343
132,086
205,252
134,325
Number of
units ‘000
Issue price
$’000
132,086
132,086
132,086
74,257
206,343
134,325
134,325
134,325
75,000
(4,073)
205,252
$1.01
Less: Transaction costs arising from capital raising
30 June 2013
Closing balance
As stipulated in the Trust’s constitution, each unit represents a right to an individual unit in the Trust and does not
extend to a right to the underlying assets of the Trust. There are no separate classes of units and each unit has the
same rights attaching to it as all other units of the Trust.
54
Arena REIT Annual Report 2013For personal use only Notes to the consolidated financial statements
14. Contributed equity (continued)
(c) Capital management
The aims of the Trust are to generate attractive and predictable income distributions with earnings growth prospects
over the medium to long term.
The Trust aims to invest to meet the Trust’s investment objectives while maintaining sufficient liquidity to meet its
commitments. The Responsible Entity regularly reviews the performance of the Trust, including asset allocation
strategies, investment and operational management strategies, investment opportunities, performance review, and
risk management.
In order to maintain its capital structure, the Trust may adjust the amount of distributions paid to unitholders, return
capital to unitholders, issue new units or sell assets to reduce debt.
Consistent with others in the industry, the Trust monitors capital through the analysis of a number of financial ratios,
including the Gearing ratio. The Trust targets a Gearing ratio of between 35% to 45%. The Gearing ratio was below
this range following the capital raising in June 2013.
Gearing Ratio
Interest bearing liabilities
Total assets
Gearing ratio
15. Reserves and accumulated profit/(losses)
(a) Reserves
Foreign currency translation reserve
Movements:
Foreign currency translation reserve
Opening balance
Increase/(Decrease)
Closing balance
2013
$’000
25,000
241,275
10.4%
2012
$’000
100,181
240,197
41.7%
Consolidated
30 June 2013
30 June 2012
$’000
$’000
-
-
-
-
-
-
-
(551)
551
-
55
Arena REIT Annual Report 2013For personal use only Notes to the consolidated financial statements
15. Reserves and accumulated profit/(losses) (continued)
(b) Accumulated profit/(losses)
Movements in accumulated profit/(losses) were as follows:
Opening accumulated profit/(losses)
Net profit for the year
Distribution paid or payable
Closing accumulated profit/(losses)
Distributions to unitholders
The following table details the distributions to unitholders during the financial year:
Consolidated
30 June 2013
30 June 2012
$’000
$’000
(1,547)
17,224
(10,864)
4,813
(8,642)
15,681
(8,586)
(1,547)
September quarter
December quarter
March quarter
June quarter*
Total distributions to unitholders
2013
2012
2013
2012
$’000
$’000
Distributions declared
cpu
cpu
Distribution declared
2,311
2,642
2,642
3,269
10,864
1,652
1,981
2,311
2,642
8,586
1.75
2.00
2.00
2.25
8.00
1.25
1.50
1.75
2.00
6.50
* The Trust raised $75 million of new capital and listed on ASX on 13 June 2013. As a result, the distribution for the June 2013 quarter was broken
into two components. Unitholders in the period prior to the capital raising and ASX listing are entitled to a distribution of 1.85 cents per unit for the
period 1 April 2013 to 12 June 2013. All unitholders on the register on the record date of 28 June 2013 are entitled to a distribution of 0.4 cents per
unit for the period 13 June 2013 to 30 June 2013.
(c) Nature and purpose of reserves
Exchange differences arising on the translation of foreign operations are recognised in other comprehensive income
and accumulated in a separate reserve within equity.
The balance of the Foreign Currency Translation Reserve was reduced to nil as at 30 June 2012 due to the sale of the
New Zealand property portfolio on 13 April 2012.
16. Segment information
The Trust operates as one business segment being investment in real estate, and in one geographic segment being
Australia. The Trust’s segments are based on reports used by the Responsible Entity in making key strategic decisions.
56
Arena REIT Annual Report 2013For personal use only Notes to the consolidated financial statements
17. Key management personnel
Key management personnel
(a) Directors
Key Management Personnel (KMP) includes persons who were directors of the Responsible Entity, Arena Investment
Management Limited, at any time during the financial year as follows:
§ David Ross (Chairman) (appointed 4 October 2012)
§ Simon Parsons
§ Dennis Wildenburg
§ James Goodwin
§ Bryce Mitchelson
(b) Other key management personnel
Other key management personnel of Arena Investment Management Limited at any time during the financial year
were as follows:
§ Gareth Winter (Chief Financial Officer)
Key management personnel compensation
No KMP are remunerated directly by the Trust. The KMP of the Responsible Entity receive remuneration in their
capacity as directors and senior management of the Responsible Entity and these amounts are paid by the
Responsible Entity or an entity related to the Responsible Entity.
Key management personnel unitholdings
The KMP of Arena Investment Management Limited or their personal related parties held units in the Trust as follows:
30 June 2013
Unitholder
David Ross
Simon Parsons
Dennis Wildenburg
James Goodwin
Bryce Mitchelson
Gareth Winter
No. of units held
opening (Units)
No. of units
acquired (Units)
No. of units
disposed (Units)
No. of units held
closing (Units)
Distributions
paid/payable by
the Trust ($)
-
-
-
-
-
-
200,000
200,000
150,000
500,000
749,000
75,000
-
-
-
-
-
-
200,000
200,000
150,000
500,000
749,000
75,000
800
800
600
2,000
2,996
300
(c) Key management personnel loan disclosures
The Trust has not made, guaranteed or secured, directly or indirectly, any loans to the key management personnel or
their personally related entities at any time during the reporting period.
(d) Other transactions within the trust
Apart from those details disclosed in this note, no key management personnel have entered into a material contract
with the Trust during the financial year and there were no material contracts involving key management personnel’s
interests existing at year end.
57
Arena REIT Annual Report 2013For personal use only Notes to the consolidated financial statements
18. Related party disclosures
Subsidiaries
Interests in subsidiaries are set out in Note 19.
Key management personnel
Disclosures relating to key management personnel are set out in Note 17.
Responsible entity
The Responsible Entity of Arena REIT is Arena Investment Management Limited.
The Responsible Entity or its related parties are entitled to receive fees in accordance with the Trust’s constitution,
from the Trust and its controlled entities.
Consolidated
30 June 2013
30 June 2012
$
$
2,372,452
2,398,861
-
47,693
22,250
346,882
-
-
Fees for the year paid/payable by the Trust:
Management fees
Disposal fees
Property acquisition fee
Amounts payable:
Aggregate amounts payable to the Responsible Entity at the end of the
reporting period in relation to management fees and cost recoveries
Related party unitholdings
The following related parties held units in the Trust during the financial year:
Distributions paid/payable
by the Trust
Unit holding
2013
2012
30 June 2013
30 June 2012
$
-
57,833
$
Units
Units
741,204
46,989
-
-
722,909
722,909
2,156,230
1,010,733
26,952,874
26,952,874
Arena Property Fund
Arena Hybrid Property Fund
Citrus Subsidiary Trust
58
Arena REIT Annual Report 2013For personal use only Notes to the consolidated financial statements
19. Investments in subsidiaries
The Trust held investments in the following which are also managed by Arena Investment Management Limited or its
related parties:
Arena CCPF Sub-Trust No. 1
Beneficial Interest
(a) Transactions with subsidiaries
Consolidated
2013
%
2012
%
100
100
The following transactions with subsidiaries were recognised by the Trust during the financial year:
Distributions received/receivable
2013
$’000
2012
$’000
-
13,925
Following the sale of the Trust’s New Zealand property portfolio in April 2012, the net sales proceeds (after payment
of asset disposal fees and other costs relating to the sale) were distributed from Arena CCPF Sub-Trust No. 1 to Arena
REIT.
20. Financial risk management
The Trust’s investing activities expose it to various types of risk that are associated with the financial instruments and
markets in which it invests. The most important types of financial risk to which the Trust is exposed to are market
risk, credit risk and liquidity risk. The exposure to each of these risks, as well as the Trust’s policies and processes for
managing these risks are described below.
(a) Market risk
Market risk embodies the potential for both loss and gains and includes currency risk, interest rate risk and other
price risk. The Trust’s strategy on the management of investment risk is driven by the Trust’s investment objective. The
Trust’s market risk is managed as required by the Responsible Entity in accordance with the investment guidelines as
outlined in the Trust’s Product Disclosure Statement.
(i) Price risk
The Trust is exposed to price risk on equity investments and asset disposal fees.
Price risk arises primarily from investments in property held by the Trust and classified on the consolidated balance
sheet as fair value through profit and loss. As these investments are carried at fair value with changes in fair value
recognised in the consolidated statement of comprehensive income, all changes in market conditions will directly
affect net income. These market conditions include those specific to the individual assets, as well as factors affecting
all instruments in the market.
The Trust is exposed to price risk on its asset disposal fees. Disposal fees are calculated based on the underlying
changes in the price of the investment properties. Changes in the value of the investment property will directly affect
the amounts payable. Investment property and the associated price risk is actively managed and monitored by the
Responsible Entity, using strategic asset planning and trust budgeting processes.
59
Arena REIT Annual Report 2013For personal use only Notes to the consolidated financial statements
20. Financial risk management (continued)
(i) Price risk (continued)
Refer below for the exposure to price risk and sensitivities in the prior year.
Investments in:
Listed property funds
Financial liabilities:
Deferred management and disposal fees
Total exposure to price risk
Reasonably possible changes in prices or fair values:
Listed property funds
Changes in property values (deferred management and disposal fees)
Sensitivity to profit or loss to changes in fair values:
Listed property funds
Disposal fees (+5%)
Disposal fees (-5%)
Consolidated
2013
$’000
-
-
-
2012
$’000
6,406
-
6,406
+/- 20%
+/- 5%
+/- 20%
+/- 5%
-
-
-
+/- 1,281
-
-
The sensitivities above have been estimated based on an analysis of changes in property prices over the twelve
months to 30 June 2012, and using the average to predict future movements. The directors have determined that a 12
month analysis period will provide a sensitivity range indicative of current trends.
(ii) Cash flow and fair value interest rate risk
The Consolidated Entity’s cash and cash equivalents, floating rate borrowings and interest rate swaps expose it
to a risk of change in the fair value or future cash flows due to changes in interest rates. The specific interest rate
exposures are disclosed in the relevant notes to the financial statements.
The Consolidated Entity hedges a portion of its exposure to changes in interest rates on variable rate borrowings by
using floating-to-fixed interest rate swaps. By hedging against changes in interest rates, the Consolidated Entity has
limited its exposure to changes in interest rates on its cash flows. The portion that is hedged is set by the Responsible
Entity and is influenced by the hedging requirements set out in the Consolidated Entity’s debt facility documents, and
the market outlook. The Responsible Entity ensures the maturity of individual swaps does not exceed the expected
life of assets.
60
Arena REIT Annual Report 2013For personal use only Notes to the consolidated financial statements
20. Financial risk management (continued)
(ii) Cash flow and fair value interest rate risk (continued)
The Consolidated Entity’s exposure to interest rate risk at reporting date, including its sensitivity to changes in market
interest rates that were reasonably possible, is as follows:
30 June 2013
30 June 2012
$’000
$’000
Financial assets
Cash and cash equivalents (floating interest rate)
4,995
5,561
Financial liabilities
Interest bearing liabilities - floating interest rate
Derivative financial instruments (notional principal amount) - fixed rate interest
rate swaps
Net Exposure
(25,000)
25,000
(100,181)
86,000
4,995
(8,620)
Sensitivity of profit or loss to movements in market interest rates for derivative instruments with cash flow risk:
Market interest rate increased by 100 basis points (2012: 100 bp)
Market interest rate decreased by 100 basis points (2012: 100 bp)
Instruments with fair value risk:
Derivative financial instruments
Consolidated
2013
$’000
50
(50)
2012
$’000
(86)
86
25,000
86,000
Sensitivity of profit or loss to movements in market interest rates for financial
instruments with fair value risk:
Market interest rate increased by 100 basis points (2012: 100 bp)
Market interest rate decreased by 100 basis points (2012: 100 bp)
694
(694)
2,292
(2,292)
61
Arena REIT Annual Report 2013For personal use only Notes to the consolidated financial statements
20. Financial risk management (continued)
(b) Credit risk
Credit risk is the risk that one party to a financial instrument will fail to discharge its obligation and cause the other
party to incur a financial loss.
The Trust’s maximum credit risk exposure at balance date in relation to each class of recognised financial asset, other
than equity and derivative financial instruments, is the carrying amount of those assets as indicated in the balance
sheet. This does not represent the maximum risk exposure that could arise in the future as a result of changes in
values, but best represents the current maximum exposure at reporting date.
Cash at bank
Other receivables
Less: Allowance for impairment of trade receivables
Maximum exposure to credit risk
Consolidated
30 June 2013
30 June 2012
$’000
4,995
1,241
-
6,236
$’000
5,561
1,464
(71)
6,954
The Consolidated Entity manages credit risk and the losses which could arise from default by ensuring that parties to
contractual arrangements are of an appropriate credit rating, or do not show a history of defaults.
Financial assets such as cash at bank and interest rate swaps are held with high credit quality financial institutions
(rated equivalent A or higher by the major rating agencies). Before accepting a new tenant, the Trust endeavours
to obtain financial information from the prospective tenant, and rental guarantees are sought before tenancy is
approved. Loans and receivables from third parties are secured against land and corporate and personal guarantees.
The Responsible Entity also performs a detailed review of both related and other parties before approving
advancement of funds. This is performed to ensure that they will be able to meet interest and principal repayments.
There have been no changes from previous periods.
All receivables are monitored by the Responsible Entity. If any amounts owing are overdue these are followed up and
if necessary, allowances are made for debts that are doubtful.
At the end of the reporting period there are no issues with the credit quality of financial assets that are either past due
or impaired, and all amounts are expected to be received in full.
(c) Liquidity risk
Liquidity risk is the risk that the Trust may not be able to generate sufficient cash resources to settle its obligations in
full as they fall due or can only do so on terms that are materially disadvantageous.
The Consolidated Entity monitors its exposure to liquidity risk by ensuring that as required there is sufficient cash on
hand to meet the contractual obligations of financial liabilities as they fall due. The Trust Manager sets budgets to
monitor cash flows.
62
Arena REIT Annual Report 2013For personal use only Notes to the consolidated financial statements
20. Financial risk management (continued)
(c) Liquidity risk (continued)
The table below analyses the Trust’s financial liabilities into relevant maturity groupings based on the remaining
period at the end of the reporting period. The amounts in the table are the contractual undiscounted cash flows.
Consolidated – 30 June 2013
Trade and other payables
Interest rate swaps
Interest bearing liabilities
Contractual cash flows (excluding gross settled derivatives)
Consolidated – 30 June 2012
Trade and other payables
Interest rate swaps
Interest bearing liabilities
Contractual cash flows (excluding gross settled derivatives)
(d) Fair value estimation
Less than
12 month
1-2 years
Greater than
2 years
$’000
$’000
$’000
6,640
33
1,168
7,841
6,281
305
6,722
13,308
-
33
1,168
1,201
-
294
6,722
7,016
-
31
26,168
26,199
-
265
110,273
110,538
The carrying amounts of the consolidated entity’s and the Trust’s assets and liabilities at the end of each reporting
period approximate their fair values.
Financial assets and liabilities held at fair value through profit or loss are measured initially at fair value excluding
any transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial
liability. Transaction costs on financial assets and financial liabilities at fair value through profit or loss are expensed
immediately. Subsequent to initial recognition, all instruments held at fair value through profit or loss are measured at
fair value with changes in their fair value recognised in profit or loss.
(e) Fair value hierarchy
(i) Classification of financial assets and financial liabilities
The Consolidated Entity classifies fair value measurements using a fair value hierarchy that reflects the subjectivity of
the inputs used in making the measurements. The fair value hierarchy has the following levels:
§ Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1)
§ 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 2)
§ Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).
The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined
on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose,
the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement
uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a level
3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires
judgement, considering factors specific to the asset or liability.
63
Arena REIT Annual Report 2013For personal use only Notes to the consolidated financial statements
20. Financial risk management (continued)
(e) Fair value hierarchy (continued)
(i) Classification of financial assets and financial liabilities (continued)
The determination of what constitutes ‘observable’ requires significant judgement by the Responsible Entity. The
Responsible Entity considers observable data to be that market data that is readily available, regularly distributed or
updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in
the relevant market.
The tables below set out the consolidated entity’s and the Trust’s financial assets and liabilities (by class) measured at
fair value according to the fair value hierarchy at 30 June 2013 and 30 June 2012.
Consolidated – 30 June 2013
Level 1
Level 2
Level 3
$’000
$’000
$’000
Financial assets
Financial assets designated at fair value
through profit or loss:
Total
Financial liabilities
Interest rate swaps
Total
-
-
-
-
70
70
-
-
-
Consolidated – 30 June 2012
Level 1
Level 2
Level 3
$’000
$’000
$’000
Financial assets
Financial assets designated at fair value
through profit or loss:
Equity securities
Total
Financial liabilities
Interest rate swaps
Total
6,406
6,406
-
-
-
-
2,016
2,016
-
-
-
-
Total
$’000
-
70
70
Total
$’000
6,406
6,406
2,016
2,016
64
Arena REIT Annual Report 2013For personal use only Notes to the consolidated financial statements
21. Parent entity financial information
The individual financial statements for the parent entity show the following aggregate amounts:
Parent
Income statement information
Net profit attributable to Arena REIT
Comprehensive income information
30 June 2013
30 June 2012
$’000
$’000
16,919
16,537
Total comprehensive income attributable to Arena REIT
16,919
16,537
Balance Sheet
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Equity attributable to unitholders of Arena REIT
Contributed equity
Accumulated profit/(losses)
7,368
233,811
241,179
6,544
24,570
31,114
205,491
4,574
210,065
7,234
232,924
240,158
5,937
101,138
107,075
134,564
(1,481)
133,083
65
Arena REIT Annual Report 2013For personal use only Notes to the consolidated financial statements
22. Reconciliation of profit to net cash inflow from operating activities
Profit for the year
Amortisation of borrowing costs
Net increase in fair value of investment properties
Net change in fair value of investment properties due to straight lining of rent
Amortisation of leasing costs
Interest capitalised to development properties
Net (gain)/loss on sale of direct property
Net (gain)/loss on derivative financial instruments
Net (gain)/loss on financial assets held at fair value through profit or loss
Net (gain)/loss on foreign exchange
Non-cash movement in provision for deferred management fees/disposal fees
Changes in operating assets and liabilities
Decrease/(increase) in trade and other receivables
(Decrease)/increase in trade and other payables
(Decrease) in provision for deferred management fees/disposal fees
Net cash inflow from operating activities
Consolidated
30 June 2013
30 June 2012
$’000
$’000
17,224
1,113
(5,162)
(497)
25
(200)
(10)
141
(1,413)
(12)
-
592
(803)
-
10,998
15,681
275
(8,687)
(748)
-
-
(808)
4,245
(1,382)
213
(48)
66
1,030
(1,459)
8,378
66
Arena REIT Annual Report 2013For personal use only Notes to the consolidated financial statements
23. Contingent assets and liabilities and commitments
There are no outstanding contingent assets, liabilities or commitments as at 30 June 2013 and 30 June 2012.
Leasing arrangements
The investment properties are leased to tenants under long-term operating leases with rentals payable monthly.
Minimum lease payments receivable on leases of investment properties are as follows:
Minimum lease payments under non-cancellable operating leases of investment
properties not recognised in the financial statements are receivable as follows:
Within 1 year
Later than 1 year but not later than 5 years
Later than 5 years
Consolidated
30 June 2013
30 June 2012
$’000
$’000
21,163
88,240
79,824
20,727
87,404
99,913
189,227
208,044
24. Events occurring after the reporting period
No significant events have occurred since the end of the reporting period which would impact on the financial
position of the Trust disclosed in the consolidated balance sheet as at 30 June 2013 or on the results and cash flows of
the Trust for the year ended on that date.
67
Arena REIT Annual Report 2013For personal use only Directors’ declaration
In the opinion of the directors of the Responsible Entity:
(a) the financial statements and notes set out on pages 30 to 67 are in accordance with the Corporations Act 2001,
including:
(i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional
reporting requirements, and
(ii) giving a true and fair view of the consolidated Trust’s financial position as at 30 June 2013 and of its
performance for the financial year ended on that date, and
(b) there are reasonable grounds to believe that the Trust will be able to pay its debts as and when they become due
and payable, and
(c) Note 2(a) confirms that the financial statements comply with International Financial Reporting Standards as issued
by the International Accounting Standards Board.
The directors have been given the declarations by the managing directors and chief financial officer required by
Section 295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the directors.
David Ross
Chairman
Melbourne
30 August 2013
68
Arena REIT Annual Report 2013For personal use only Independent auditor’s report to the
unitholders of Arena REIT
Independent auditor’s report to the unitholders of
Arena REIT
Report on the financial report
We have audited the accompanying financial report of Arena REIT (the Trust), which comprises the
balance sheet as at 30 June 2013, the statement of comprehensive income, statement of changes in
equity and statement of cash flows for the year ended on that date, a summary of significant
accounting policies, other explanatory notes and the directors’ declaration for Arena REIT (the
consolidated entity). The consolidated entity comprises Arena REIT and the entities it controlled at
year's end or from time to time during the financial year.
Directors’ responsibility for the financial report
The directors of Arena Investment Management Limited (the Responsible Entity of the Trust) 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 is free from
material misstatement, whether due to fraud or error. In Note 2, the directors also state, in accordance
with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial
statements comply with International Financial Reporting Standards.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted
our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we
comply with relevant ethical requirements relating to audit engagements and plan and perform the
audit to obtain reasonable assurance whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial report. The procedures selected depend on the auditor’s judgement, including the
assessment of the risks of material misstatement of the financial report, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the financial report 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 entity’s internal control. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by the directors, as well as
evaluating the overall presentation of the financial report.
Our procedures include reading the other information in the Annual Report to determine whether it
contains any material inconsistencies with the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
PricewaterhouseCoopers, ABN 52 780 433 757
Freshwater Place, 2 Southbank Boulevard, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001
T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
69
Arena REIT Annual Report 2013For personal use only
Independent auditor’s report to the unitholders of Arena REIT
Independent auditor’s report to the unitholders of
Arena REIT (continued)
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations
Act 2001.
Auditor’s opinion
In our opinion:
(a)
the financial report of Arena REIT is in accordance with the Corporations Act 2001, including:
(i)
(ii)
giving a true and fair view of the consolidated entity’s financial position as at 30 June
2013 and of its performance for the year ended on that date; and
complying with Australian Accounting Standards (including the Australian
Accounting Interpretations) and the Corporations Regulations 2001; and
(b)
the Trust’s financial report and notes also comply with International Financial Reporting
Standards as disclosed in Note 2.
PricewaterhouseCoopers
Charles Christie
Partner
Melbourne
30 August 2013
70
Arena REIT Annual Report 2013For personal use only
ASX additional information
Additional Securities Exchange Information as at 22 August 2013
There were 206,342,963 fully paid ordinary units on issue, held by 2,859 unitholders. There were 12 holders holding
less than a marketable parcel.
The voting rights attaching to the ordinary units, set out in section 253C of the Corporations Act 2001, are:
(i) on a show of hands every person present who is a unitholder has one vote; and
(ii) on a poll each unitholder present in person or by proxy or attorney has one vote for each dollar of the value of the
total interests they have in the Trust.
Distribution of Unitholders
Numbers of Units Held
Number of Unitholders
Total Units Held % of Total Units on Issue
1-1,000
1,001-5,000
5,001-10,000
10,001-100,000
>100,000
Total
Substantial Unitholders
18
57
395
2,237
153
4,860
231,871
3,379,761
76,859,104
125,867,367
0.00
0.11
1.64
37.25
61.00
2,860
206,342,963
100.00
Name of Substantial Unitholder
Number of Units % of Total Units on Issue
Arena Investment Management Limited
Morgan Stanley Australia Limited
Mitsubishi UFJ Financial Group, Inc.
Commonwealth Bank of Australia
BT Investment Management Limited
Westpac Banking Corporation
34,698,159
26,952,874
26,952,874
10,559,590
10,506,463
10,506,463
16.82
13.06
13.06
5.12
5.09
5.09
There were 26,952,874 units in the Trust subject to voluntary escrow. The escrow period ends on 13 December 2013.
There is currently an on-market buy-back in place. Refer to the ASX announcement and Appendix 3C form released
on 13 June 2013.
71
Arena REIT Annual Report 2013For personal use only ASX additional information
Twenty largest Unitholders as at 22 August 2013
Holder Name
Number of Units
Fully Paid
Percentage
13.062
8.105
6.201
4.553
3.428
3.28
2.327
1.887
1.105
1.053
0.8
0.445
0.426
0.416
0.373
0.35
0.291
0.288
0.265
0.242
26,952,874
16,724,601
12,794,995
9,395,749
7,072,806
6,768,319
4,801,259
3,894,706
2,279,868
2,173,609
1,650,000
918,938
879,300
858,915
769,468
722,195
600,000
594,059
547,030
500,000
100,898,691
48.899
105,444,272
51.101
206,342,963
100
Trust Company (Australia) Limited
National Nominees Limited
HSBC Custody Nominees (Australia) Limited
UBS Nominees Pty Ltd
J P Morgan Nominees Australia Limited
Sandhurst Trustees Ltd
Citicorp Nominees Pty Limited
BNP Paribas Noms Pty Ltd
Citicorp Nominees Pty Limited
Navigator Australia Ltd
RBC Investor Services Australia Nominees Pty Limited
Netwealth Investments Limited
Goldman Sachs Australia Pty Ltd
HSBC Custody Nominees (Australia) Limited - A/C 2
Netwealth Investments Limited
Keith David Kirk
Escor Equities Consolidated Pty Ltd
Arkwright Developments Pty Limited
Mr Jiebo Huang
James Edward John Goodwin
Subtotal
Other investors
Total Units
72
Arena REIT Annual Report 2013For personal use only Arena Investment
Management Limited (Arena
or the Company) is one of
Australia’s leading property
funds management companies
managing approximately $1.0
billion in funds on behalf of over
15,000 investors.
About Arena
Specialist property fund manager
Arena’s managed funds include an ASX listed property
trust (Arena REIT), 4 unlisted managed investment
schemes and 2 joint venture vehicles.
Arena actively manages 211 commercial property
investments in Australia and New Zealand, and invests
in traditional property sectors such as office, industrial
and retail, as well as growing specialised sectors like
social infrastructure (eg childcare, healthcare).
Arena’s Board is majority independent and chaired
by David Ross, who is joined by Dennis Wildenburg
and Simon Parsons. The Company’s investment
management team is highly skilled with vast industry
experience gained over many years.
The Company has been backed by Morgan Stanley
Global Real Estate Investing (MSREI) since December
2011. MSREI has been active in Australia since 2004,
with operations including several high-quality asset
management platforms in the real estate space.
Current platforms include Investa Property Group with
expertise in office, residential, industrial and funds
management, Grand Hotel Group, a hotel ownership
and management platform, Arena Investment
Management and Retire Australia.
73
Arena REIT Annual Report 2013For personal use only Corporate Directory
Responsible Entity and registered office
Arena Investment Management Limited
ABN 23 077 235 879; AFSL 233190
Level 20
600 Bourke Street
Melbourne Vic 3000
Telephone: +61 3 9093 9000
Facsimile: +61 3 9093 9093
Email: info@arenainvest.com.au
Website: arenainvest.com.au
Directors of the Responsible Entity
David Ross (Non-executive Chairman)
Dennis Wildenburg (Non-executive Director)
Simon Parsons (Non-executive Director)
James Goodwin (Joint Managing Director)
Bryce Mitchelson (Joint Managing Director)
Company Secretary
Peter Hulbert
Registry
Boardroom Pty Limited
ABN 14 003 209 836
Level 7
297 Kent Street
Sydney NSW 2000
Investor and Adviser enquiries:
Freecall:1800 008 494
Auditor
PricewaterhouseCoopers
Freshwater Place
2 Southbank Boulevard
Southbank Vic 3006
74
Arena REIT Annual Report 2013For personal use only For personal use only Arena Investment Management Limited ABN 23 077 235 879 AFSL No. 233190
Level 20, 600 Bourke Street
Melbourne VIC 3000
Locked bag 32002, Collins Street East
Melbourne VIC 8003
T +61 3 9093 9000
F +61 3 9093 9093
Freecall
1800 008 494
info@arenainvest.com.au
www.arenainvest.com.au
For personal use only