Arena REIT
Annual Report 2017
Important Notice
This report has been prepared by Arena REIT (Arena)
comprising Arena REIT Limited (ACN 602 365 186),
Arena REIT Management Limited (ACN 600 069 761
AFSL No. 465754) as responsible entity of Arena
REIT No.1 (ARSN 106 891 641) and Arena REIT No.2
(ARSN 101 067 878). The information contained in
this report is current only as at the date of this report
or as otherwise stated herein. This report may not
be reproduced or distributed without Arena’s prior
written consent. The information contained in this
report is not investment or financial product advice
and is not intended to be used as the basis for making
an investment decision. Arena has not considered
the investment objectives, financial circumstances or
particular needs of any particular recipient. You should
consider your own financial situation, objectives and
needs, conduct an independent investigation of, and
if necessary obtain professional advice in relation to,
this report. Past performance is not an indicator or
guarantee of future performance.
Except as required by law, no representation or
warranty, express or implied, is made as to the
fairness, accuracy, completeness or correctness of
the information, opinions and conclusions, or as to
the reasonableness of any assumption, contained in
this report. By receiving this report and to the extent
permitted by law, you release Arena and its directors,
officers, employees, agents, advisers and associates
from any liability (including, without limitation, in
respect of direct, indirect or consequential loss or
damage or any loss or damage arising from negligence)
arising as a result of the reliance by you or any other
person on anything contained in or omitted from this
report.
This report is for information purposes only and should
not be considered as a solicitation, offer or invitation
for subscription, purchase or sale of securities in any
jurisdiction, or to any person to whom it would not be
lawful to make such an offer or invitation.
This report contains forward-looking statements
including certain forecast financial information. The
words “anticipate”, “believe”, “expect”, “project”,
“forecast”, “estimate”, “outlook”, “upside”, “likely”,
“intend”, “should”, “could”, “may”, “target”,
“plan”, and other similar expressions are intended
to identify forward-looking statements. The forward-
looking statements are made only as at the date of
this announcement and involve known and unknown
risks, uncertainties, assumptions and other factors,
many of which are beyond the control of Arena and its
directors. Such statements are not guarantees of future
performance and actual results may differ materially
from anticipated result, performance or achievements
expressed or implied by the forward-looking
statements. Other than as required by law, although
they believe there is a reasonable basis for the forward-
looking statements, neither Arena nor any other person
(including any director, officer, or employee of Arena or
any related body corporate) gives any representation,
assurance or guarantee (express or implied) as to the
accuracy or completeness of each forward-looking
statement or that the occurrence of any event, result,
performance or achievement will actually occur. You
should not place undue reliance on any of the forward-
looking statements.
2
Arena REIT / Annual Report 2017
Contents
Highlights
Letter from the Chair
Managing Director’s Report
Portfolio Summary
Corporate Governance
Financial Report
Contents
Directors’ Report
Auditor’s independence declaration
Consolidated financial statements
Notes to the consolidated financial statements
Directors’ declaration
Independent auditor’s report
ASX additional information
Investor Information
About this report
The financial statements in this report cover
Arena REIT (the ‘Group’) comprising Arena
REIT Limited, Arena REIT No. 1, Arena
REIT No. 2, and their controlled entities.
The financial statements are presented in
Australian currency.
The Responsible Entity of Arena REIT No.1
and Arena REIT No.2 (the ‘Trusts’) is Arena
REIT Management Limited (ACN 600 069 761,
AFSL 465754).
4
6
8
12
14
15
16
17
36
37
41
75
76
80
82
3
Highlights
$96.8m
Statutory Net Profit
up 33%
$28.7m
Net operating profit
up 12%
12.3¢
Distributable income
(earnings) per security
(EPS)
up 11%
12.0¢
Distributions
per security (DPS)
up 10%
4
$621.3m
Total Assets
up 21%
$528.3m
Market
capitalisation
$1.84
Net Asset Value
(NAV) per security
up 19%
19.8%
Annual ASX total
securityholder
return
27.5%
Gearing
24.7%
Annual return on
equity (ROE)
Arena REIT is an ASX300 listed group
that owns, manages and develops
specialised real estate assets across
Australia.
Our objective is to deliver an
attractive and predictable distribution
to investors with earnings growth
prospects over the medium to long
term.
Arena REIT 4.3%
Average like-for-like
rental growth
$66.1m
Revaluation uplift
up 12.6%
12.8 yrs
Weighted average lease
expiry (WALE)
19%
Annual total direct
property return
Petit Early Learning Journey, Clifton Hill, VIC
5
Arena REIT / Annual Report 2017 Letter from the Chair
ASX total securityholder return
%
0
1
3
.
%
8
9
1
.
%
8
3
1
.
%
6
5
-
.
%
2
2
1
.
%
6
6
.
David Ross
Chairman
One year
Three year compound average
ARF
ASX 300 A-REIT Index
ASX 300 Index
Source: UBS Australian REIT Month in Review, June 2017.
Dear securityholder,
I am proud to report another year of positive
financial performance and operational
achievements for Arena.
We finished the 2017 financial year with an annual
ASX total securityholder return of 19.8%, a significant
achievement when compared to the ASX 300 A-REIT
index annual total return of -5.6%. On a three year basis,
Arena’s compound average annual return was 31.0% per
annum, which significantly outperformed the ASX 300
A-REIT sector return of 12.2% per annum.
We see this outcome as a strong endorsement of
both our strategy and our ability to deliver against
our investment objective – to generate attractive and
predictable distributions to investors with earnings
growth prospects over the medium to long term.
Our financial performance has again been strong, with
statutory net profit of $96.8 million recorded for the year,
up 33% on our 2016 result.
A key contributor to this outcome was the increase in
net operating profit, which was up 12% to $28.7 million,
primarily as a result of growing rental income from
annual rent reviews and the completion of a record
eight development projects. This growth in underlying
earnings resulted in an increase of 10% in the annual
distribution per security to 12.0 cents. Since listing, we
have consistently delivered attractive earnings growth,
with four year compound average growth in distributions
per security of 10% per annum.
6
The other major contributor to the strong statutory net
profit result was the revaluation uplift of $66.1 million
recorded across the portfolio, which was underpinned
by a firming in capitalisation rates for early learning
and healthcare assets in the direct property market.
Following the development project completions and
the revaluation of the portfolio, Arena’s total assets
increased to $621.3 million, and pleasingly we finished
the year with a Net Asset Value per security of $1.84, up
19% on 30 June 2016.
Operationally we continue to differentiate Arena’s
brand in the marketplace through our partnership
approach, priding ourselves on our ability to work
collaboratively with our tenants and business partners
to deliver outstanding results. During the year we
extended the portfolio’s weighted average lease expiry
to 12.8 years by partnering with tenants to extend,
renew or renegotiate over 50% of our leases – enabling
us to enhance both the long term value of our tenant’s
businesses and the growth and predictability of Arena’s
rental income stream. In our development portfolio, we
partnered with existing tenants to secure new sites, and
design, develop and construct purpose built properties
to add to the portfolio.
Strategically, we continue to focus on providing long-
term accommodation solutions to operators of social
infrastructure, with our investments in early learning
centres and healthcare properties to date delivering an
attractive average total direct property portfolio return
since listing of 19% per annum.
Arena REIT During the year, operating conditions in these sectors
continued to intensify, with some sections of the early
learning sector impacted by families reaching the
non-indexed government subsidy cap earlier than
prior years (impacting demand), and a net increase in
the number of centres (new supply). The new ‘Jobs
for Families’ package, which will commence on 1 July
2018, is expected to improve childcare affordability for
Australian families.
Given the purpose built nature of our assets, the ability
to understand demand and supply drivers in local
markets and the operating performance of our tenants
is critical to making informed investment decisions.
To this end, we continue to build on our knowledge in
each sector, and have invested further in both tools and
resources to more accurately identify demographic and
operating trends that affect our investment portfolio.
As a long-term investor, our focus is on maximising the
quality of our portfolio, through the sale of assets that
no longer fit our investment criteria, the enhancement
of existing properties, and the development of new
high quality assets. Pleasingly, we sold two assets at
a premium to the prior valuation, completed eight
developments and added a further five development
projects to the portfolio over the course of 2017. When
combined with the nine-property development portfolio
acquisition announced after year end, we head into 2018
with a $113 million development pipeline of 18 projects,
17 of which are expected to be completed in the 2018
financial year.
As investor interest in social infrastructure real
estate continues to grow, we believe our specialised
management and development expertise, execution
track record and successful partnering reputation are key
differentiators for operators looking for a long term real
estate partner.
The efficient management of our capital base has
enabled us to optimise our funding mix, and our gearing
of 27.5% sees us well positioned to secure new projects
in an increasingly competitive marketplace. The post
year end $55 million equity raising has further improved
our capacity to access new opportunities to grow
income and enhance portfolio value and quality.
As we head into 2018 we are well placed to continue to
deliver against our investment objective – to generate
attractive and predictable distributions to investors
with earnings growth prospects over the medium to
As investor interest in social
infrastructure real estate continues
to grow, we believe our specialised
management and development
expertise, execution track record
and successful partnering
reputation are key differentiators for
operators looking for a long term
real estate partner
long term – with our structured annual rental reviews
continuing to generate income growth and our accretive
development pipeline providing a further uplift.
As in previous years, I am pleased to advise that we are
forecasting distribution growth, announcing distribution
guidance of 12.8 cents per security for the 2018 financial
year (reflecting growth of 6.7% over the 2017 financial
year)1.
Finally, on behalf of the Board and management
team I would like to thank all of our securityholders,
tenants and business partners for their continued
support. I would also like to acknowledge and express
appreciation to our management team for their ongoing
commitment and contribution to Arena’s performance.
I encourage you to join us for our Annual General
Meeting on 15 November 2017 to meet the Board and
management team.
Yours sincerely,
David Ross,
Chair
1. Estimated on a status quo basis assuming no new acquisitions or disposals, all developments in progress are completed in line with forecast
assumptions, and tenants comply with their lease obligations.
7
Arena REIT / Annual Report 2017 Managing Director’s Report
Bryce Mitchelson
Managing Director
Throughout the 2017 financial year we have
continued to build on our core strengths,
actively working to enhance the key metrics
of the existing portfolio, successfully
executing on our development pipeline and
identifying new opportunities for growth.
Financial results
I am pleased to report another strong year for Arena,
with net operating profit of $28.7 million, up 12% on the
prior year.
Key drivers of this result were income growth from
annual rent reviews, which averaged a 4.3% increase for
the year, and new income from the twelve development
projects completed in the 2016 and 2017 financial
years. We also benefited from a lower relative cost of
borrowing, as the full year benefit of the December 2015
debt refinance took effect.
This result equated to distributable income (earnings)
per security (EPS) of 12.3 cents, an increase of 11%
over 2016. In line with the guidance upgrade issued in
February 2017, Arena paid an annual distribution of 12.0
cents per security, reflecting a payout ratio of 98%.
Statutory net profit for the year was up 33% to $96.8
million, as a result of both the increase in net operating
profit and a $66.1 million increase in property valuations.
The revaluation uplift also contributed to a $0.30
increase in Net Asset Value (NAV) per security, up 19% to
$1.84 at 30 June 2017.
Portfolio update
Portfolio composition
At 30 June 2017, Arena’s property portfolio comprised
198 Early Learning Centre (ELC) properties and
development sites (86% of portfolio value) and seven
healthcare properties (14% of portfolio value). The
portfolio is 100% occupied by 19 tenants, the largest
three being Goodstart Early Learning (40% portfolio
income), Primary Health Care (15% of portfolio income)
and Affinity Education (15% portfolio income). The
majority of Arena’s portfolio is located in Australia’s
eastern states of Queensland (33% of portfolio value);
Victoria (32% of portfolio value); and NSW (22% of
portfolio value).
Distributions per security
¢
0
0
2
1
.
¢
0
9
0
1
.
¢
0
0
0
1
.
¢
5
7
8
.
¢
0
0
8
.
2013
2014
2015
2016
2017
Net Asset Value (NAV)
per security
(as at 30 June)
4
5
1
$
.
3
3
1
$
.
2
0
1
$
.
.
3
1
1
$
4
8
1
$
.
2013
2014
2015
2016
2017
8
Arena REIT Average annual rental growth of 4.3%
Portfolio revaluation uplift of $66.1 million
Annual rent reviews across the portfolio have recorded
an average like-for-like rental increase of 4.3%. Key
contributors to this result were the completion of 31
market rent reviews (average increase of 6.8%)1; the
renegotiation of 12 leases in the first half of the financial
year for new 20 year terms on market rents; and the
completion of all 2017 annual fixed, CPI and CPI ratchet
reviews.2
The four ELC market rent reviews due in the 2018
financial year have also now been completed, with an
average increase of 6.3% achieved.
Lease extensions increase WALE to 12.8 years
Throughout the year, occupancy was maintained at
100% and the portfolio’s weighted average lease expiry
(WALE) was extended from 9.7 years at 30 June 2016 to
12.8 years. This significant increase was due to:
• the negotiation of extensions on 102 leases by an
A revaluation uplift of $66.1 million was recorded across
Arena’s portfolio, equivalent to an increase of 12.6%. The
portfolio’s passing yield firmed 54 basis points to 6.76%,
as a result of further tightening in transaction yields in
the direct property market and portfolio management
initiatives that increased lease terms.
Valuation
30 June 2017
Change
$m
507.6
84.1
591.7
$m
60.3
5.8
66.1
%
13.5
7.4
12.6
Early Learning
Healthcare
Total Portfolio
Development projects
average of 6.2 years;
Eight developments completed during the year
• the renewal of 14 five-year lease options (100%
renewal rate);
• new leases commencing at eight completed
developments for an average 23 year term; and
• renegotiation of 12 existing leases on new 20 year
terms.
Arena’s 100% lease renewal rate over the past three
years has resulted in an attractive lease expiry profile,
with only 3.2% of portfolio income subject to expiry over
the next six years.
A record eight ELC development projects were completed
during the year, for a total cost of $20.4 million. The
projects, which are predominantly located in high
population growth areas of Victoria, were completed on
an attractive initial yield on cost of 8.6%.
The average size of the completed centres is 101 childcare
places, and the weighted average lease term is 23 years.
Five of the projects were completed as part of the
relationship with the State of Victoria to deliver early
learning centres alongside new primary schools. These
centres are operated by YMCA, a new not-for-profit tenant
to the Arena portfolio.
Lease expiry profile
(by income)
%
4
5
7
.
Project
Cost
Lease
term
Childcare
places
%
9
0
2
.
%
6
0
.
%
6
2
.
%
5
0
.
FY18 FY19
FY20
FY21 FY22 FY23
FY24
FY25
FY26
FY27+
Early Learning
Healthcare
$m
years
Heather Grove, VIC
Pakenham, VIC
Casey Central, VIC
Mernda South, VIC
Epping North, VIC
Horsham, VIC
Epsom, VIC
Griffin – Stage 2, QLD
2.5
2.5
2.5
2.6
2.5
3.1
2.7
2.0
Total / Weighted Average
20.4
26
26
26
26
26
20
15
20
23
1. Includes 18 FY16 market rent reviews completed in FY17.
2. CPI ratchet reviews are defined as reviews that are the greater of either 2.5% or CPI.
no.
104
104
104
104
104
100
130
54
804
9
Arena REIT / Annual Report 2017 Managing Director’s Report
ELC development portfolio acquisition in July 2017
Post year end, Arena acquired a portfolio of nine
ELCs in development for a total cost of $65 million3.
The properties are expected to be completed on a
progressive basis over the next 12 months and were
acquired on a fund through basis4, with Arena earning a
yield on total cost of 6.25%.
The new portfolio was independently valued (on
completion) at $66.8 million, reflecting a portfolio
passing yield of 6.0%.The property purchase price3
represents a 5.2% discount to the independent valuation
(on completion), and once completed, the portfolio will
improve Arena’s WALE, further diversify the tenant mix
and enhance the rent review profile.
The proportion of hedged debt has increased to 79% of
drawn debt to accommodate upcoming hedge expiries
and increased borrowings to fund development capex
for the 2018 financial year.
New Equity
The distribution reinvestment plan remains in operation,
having contributed $5.7 million in new equity during the
2017 financial year.
On 28 July 2017 Arena completed a $55 million
institutional placement to partially fund the July
2017 ELC portfolio acquisition. The accompanying
security purchase plan raised a further $10 million in
September 2017.
Development pipeline increased to $113 million
Market outlook
Following the above acquisition, the ELC development
pipeline now comprises 18 projects with a forecast total
cost of $113 million and an initial yield on cost of 6.6%.
Seventeen projects are expected to be completed in
the 2018 financial year, with one further project due for
completion in 2019.
The development pipeline now comprises a mix of
Arena originated projects and fund through projects,
whereby Arena receives a lower relative initial yield on
cost but reduces its risks associated with the project.
By undertaking projects with a range of development
structures and risk and return profiles we are able to
deliver earnings growth, manage our exposure to
development risk and deliver assets that enhance the
overall quality of the portfolio.
Capital management
Borrowings
In January 2017 Arena secured additional borrowing
capacity of $30 million, bringing the total facility to
$205 million. At 30 June 2017, total borrowings were
$171 million, up from $138 million at 30 June 2016. The
additional borrowings were used to fund acquisitions
and development capital expenditure. At 30 June 2017,
gearing was 27.5%.
Arena’s cost of debt was 3.75% at 30 June 2017. This is
lower than the previous year, and reflects the positive
impact of the December 2015 refinance, together with
lower market interest rates.
Demand for high quality and well located early learning
and healthcare property continues to be underpinned
by growing community demand and supportive
demographic trends. Capitalisation rates have continued
to firm in both property sectors during 2017.
In the early learning sector, some operators have
experienced pressure on centre occupancies as the non-
indexation of current childcare subsidy arrangements
has negatively impacted on childcare affordability,
particularly in the latter half of the financial year. The new
‘Jobs for Families’ package was approved by the Federal
parliament in May 2017, and once introduced on 1 July
2018 will provide funding of approximately $37 billion to
the sector over the next four years.
Growth in net new supply of ELCs has accelerated, with
federal government data indicating a 4% increase in
the total number of centres in the year to 30 September
2016 (up from 2.3% in the prior corresponding period).
Planning approval data indicates an increase in the
number of ELC projects with planning approval,
however more competitive operating conditions in some
markets may reduce the number of projects that reach
completion. As the number of centres increases and
competition intensifies, it is expected that well located,
newer, more efficient centres will be less vulnerable to
occupancy pressures.
In this environment, ongoing detailed analysis of
demand and supply in individual micro-markets remains
critical to assessing long-term sustainable investment.
3. Total cost includes property purchase price and project costs of $63.3 million plus stamp duty and associated transaction costs.
4. A fund through acquisition involves the acquisition of land and progressive payment of development costs on which a return is derived.
10
Arena REIT Arena continually reviews its portfolio, recycling assets
where appropriate and reinvesting in its development
pipeline.
Distribution guidance for 2018
Arena has provided distribution guidance of 12.8 cents
per security for the 2018 financial year5. This reflects
growth of 6.7% over the 2017 financial year, and forecast
FY14-FY18 compound average growth in distributions of
9.3% per annum.
I look forward to reporting to you on our progress and
performance in 2018.
Yours sincerely
Bryce Mitchelson,
Managing Director
5. Estimated on a status quo basis assuming no new acquisitions or
disposals, all developments in progress are completed in line with
forecast assumptions, and tenants comply with their lease obligations.
Petit Early Learning Journey, Richmond, VIC
11
Arena REIT / Annual Report 2017 Portfolio summary
(as at 30 June 2017)
Arena’s portfolio of social infrastructure
properties is leased to a diversified tenant base in
the early learning and healthcare sectors.
NT Metro
1
1
205
Total properties
188 Early Learning Centres
7 Healthcare
10 development sites
$591.7m
Total portfolio value
$507.6m Early Learning Centres
$84.1m Healthcare
12.8 yr
WALE
14.2 years Early Learning Centres
5.5 years Healthcare
12
WA Metro
17
WA Regional
5
Early Learning Centres (188 properties)
Healthcare (7 properties)
Development sites (10 properties)
Arena REIT Sector Diversification
(by value)
Early Learning
86%
Healthcare
14%
Geographic Diversification
(by value)
22%
8%
2%
2%
1%
33%
32%
Queensland
Victoria
New South Wales
Western Austrlia
South Australia
Tasmania
Northern Territory
QLD Regional
37
1
QLD Metro
33
1
NSW Metro
2
5
2
Tenant Diversification
(by income)
15%
15%
SA Metro
5
VIC Regional
25
2
NSW Regional
24
1
1
VIC Metro
33
3
TAS Regional
1
TAS Metro
5
40%
5%
5%
5%
4%
3%
8%
Goodstart Early Learning
Primary Health Care
Affinity Education
Oxanda Childcare
Petit Early Learning Journey
G8 Education
Green Leaves Early Learning Centres
YMCA
Other
13
Arena REIT / Annual Report 2017 Corporate Governance
The board of directors (left to right): Dennis Wildenburg, Bryce Mitchelson, David Ross, Simon Parsons and Gareth Winter
The board of directors for Arena
REIT Limited and Arena REIT
Management Limited work together
and take a coordinated approach to
corporate governance.
Each Board has a Board Charter which
details the composition, responsibilities, and
protocols of the Board. In addition, the Boards
have a Code of Conduct which sets out the
standard of business practices required of
directors and staff.
Arena conducts its business in accordance with these
charters and codes, as well as other key policies which
are published on its website. These include:
• Continuous Disclosure Policy
• Diversity Policy
• Privacy Policy
• Communications Policy
• Summary of Risk Management Framework
• Securities Trading Policy.
In compliance with ASX Listing Rule 4.10.3, Arena
has also published on its website a statement
disclosing the extent to which Arena has followed the
recommendations for good corporate governance set
by the ASX Corporate Governance Council (Corporate
Governance Principals and Recommendations 3rd
Edition) during the reporting period.
View Arena’s key policies and the full
Corporate Governance Statement for
the 2017 financial year at
www.arena.com.au/about/governance
14
Arena REIT Arena REIT
Financial Report 2017
For the year ended 30 June 2017
15
Contents
Directors’ Report
Auditor’s independence declaration
Financial Statements
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 auditor’s report
ASX additional information
17
36
37
37
38
39
40
41
75
76
80
About this report
These financial statements cover Arena REIT
(the ‘Group’) comprising Arena REIT No. 1,
Arena REIT No. 2, Arena REIT Limited, and their
controlled entities. The financial statements are
presented in Australian currency.
The Responsible Entity of Arena REIT No. 1 and
Arena REIT No. 2 (the ‘Trusts’) is Arena REIT
Management Limited (ACN 600069761). The
Responsible Entity’s registered office is:
Level 5, 41 Exhibition Street
Melbourne VIC 3000
16
Directors’ Report
The directors of Arena REIT Limited (‘ARL’) and Arena REIT Management Limited (‘ARML’),
the Responsible Entity of Arena REIT No. 1 and Arena REIT No. 2 (the ‘Trusts’), present their
report together with the financial statements of Arena REIT for the year ended 30 June 2017.
The financial report covers ARL, Arena REIT No. 1 (‘ARF1’), Arena REIT No. 2 (‘ARF2’), and their
controlled entities.
ARF1, ARF2 and ARL are separate entities, the units and shares of which have been stapled together to enable
trading as one security. The units of ARF1, ARF2 and shares of ARL cannot be traded separately. None of the stapled
entities controls any of the other stapled entities, however for the purposes of statutory financial reporting the entities
form a consolidated group.
Directors
The following persons held office as directors of ARL during the whole of the financial year and up to the date of this
report:
• David Ross (Chairman) (Independent, non-executive)
• Simon Parsons (Independent, non-executive)
• Dennis Wildenburg (Independent, non-executive)
• Bryce Mitchelson (Executive)
The following persons held office as directors of ARML during the whole of the financial year and up to the date of
this report:
• David Ross (Chairman) (Independent, non-executive)
• Simon Parsons (Independent, non-executive)
• Dennis Wildenburg (Independent, non-executive)
• Bryce Mitchelson (Executive)
• Gareth Winter (Executive)
Principal activities
The Group invests in a portfolio of investment properties and is listed on the Australian Securities Exchange under the
code ARF.
There were no changes in the principal activities of the Group during the year.
Distributions to securityholders
The following table details the distributions to securityholders declared during the financial year:
September quarter
December quarter
March quarter
June quarter
2017
$’000
6,807
6,834
7,205
7,222
2016
$’000
6,128
6,158
6,413
6,437
2017
cps
2.9250
2.9250
3.0750
3.0750
2016
cps
2.6750
2.6750
2.7750
2.7750
Total distributions to securityholders
28,068
25,136
12.0000
10.9000
17
Arena REIT / Financial Report 2017 Operating and financial review
The Group operates with the aim of generating attractive and predictable distributions for securityholders with
earnings growth prospects over the medium to long term.
The Group’s strategy is to invest in property underpinned by relatively long leases and in sectors with supportive
macro-economic trends. The Group will consider investment in sectors with the required characteristics, which may
include:
• Early learning / childcare services;
• Healthcare - including medical centres, diagnostic facilities, hospitals, aged care and associated facilities;
• Education - including schools, colleges and universities and associated facilities.
Key financial metrics
Net profit (statutory)
Net operating profit (distributable income)
Distributable income per security
Distributions per security
Total assets
Investment properties
Borrowings
Net assets
NAV per security
Gearing *
* Gearing calculated as Borrowings / Total assets.
FY17 highlights
30 June 2017
30 June 2016
Change
$96.8 million
$72.6 million
$28.7 million
$25.6 million
12.3 cents
12.0 cents
11.1 cents
10.9 cents
$621.3 million
$514.0 million
$591.7 million
$491.4 million
$171.0 million
$138.0 million
$432.5 million
$357.5 million
$1.84
27.5%
$1.54
26.8%
+ 33%
+ 12%
+ 11%
+ 10%
+ 21%
+ 20%
+ 24%
+ 21%
+ 19%
+ 70 bps
• Net operating profit was $28.7 million, up 12% on the previous year;
• 11% growth in distributable income per security and 10% growth in distributions paid to investors;
• The property portfolio increased with the addition of 5 Early Learning Centre (‘ELC’) development sites. During the
year, 8 ELC development projects were completed and leases commenced;
• Gearing was 27.5% at 30 June 2017;
• NAV per security at 30 June 2017 was $1.84, an increase of 19% on 30 June 2016. This was primarily due to the
increase in investment property values during the year;
• Weighted average lease expiry (WALE) extended to 12.8 years at 30 June 2017 (30 June 2016: 9.7 years) following
the renegotiation of leases within the portfolio.
18
Directors’ ReportArena REIT Financial results
Rental income
Other income
Total operating income
Property expenses
Operating expenses
Finance costs
Net operating profit (distributable income) *
Non-distributable items:
Straight-line rental income
Revaluation gain on investment properties
Change in fair value of derivatives
Profit/(loss) on sale of investment properties
Transaction costs
Amortisation of security-based payments (non-cash)
Other
Statutory net profit
* Net operating profit (distributable income) is not a statutory measure of profit.
Financial results summary
Net operating profit (distributable income) ($’000)
Weighted average number of ordinary securities (‘000)
Distributable income per security (cents)
30 June 2017
30 June 2016
$’000
37,437
689
38,126
(1,152)
(3,535)
(4,714)
28,725
732
66,124
1,805
12
(77)
(576)
46
$’000
33,316
638
33,954
(1,003)
(3,249)
(4,131)
25,571
(327)
51,062
(2,915)
(121)
(242)
(365)
(42)
96,791
72,621
30 June 2017
30 June 2016
28,725
233,557
12.30
25,571
230,165
11.11
• Net operating profit is the measure used to determine securityholder distributions and represents the underlying
cash-based profit of the Group for the relevant period. Net operating profit excludes fair value changes from asset
and derivative revaluations and items of income or expense not representative of the Group’s underlying operating
earnings or cashflow.
• The increase in net operating profit during the year is primarily due to:
– Ongoing fixed annual rent increases and market rent reviews on the Group’s property portfolio;
– Commencement of rental income from the 8 ELC development projects completed during the year, and the
acquisition of new ELC development projects during the year;
– The full year effect of acquisitions and developments completed during FY16;
– Lower cost of debt compared to the prior year following the completion of the debt refinance and extension in
December 2015.
• Non-distributable items primarily increased due to a higher investment property revaluation gain compared to the
prior period.
19
Arena REIT / Financial Report 2017 Investment property portfolio
Key property metrics
Total value of investment properties
Number of properties under lease
Development sites
Properties available for lease or sale
Total properties in portfolio
Portfolio occupancy
Weighted average lease expiry (WALE)
30 June 2017
30 June 2016
$591.7 million
$491.4 million
195
10
–
205
189
14
–
203
100%
12.8 years
100%
9.7 years
• The increase in the value of investment properties is primarily due to the addition of:
– A net revaluation increment to the portfolio of $66.1 million for the year; and
– New ELC development expenditure and capital expenditure of $40.0 million.
• Offset by the following investment property disposals during the year:
– One ELC development and one operating ELC were sold in June 2017 with sale proceeds of $6.8 million to be
received in FY18.
Capital management
Equity
• During the year, 2.9 million securities were issued at an average price of $1.99 to raise $5.7 million of equity pursuant
to the Distribution Re-investment Plan (DRP).
Bank facilities & gearing
• The total facility limit of the Group was extended by $30 million in January 2017. At 30 June 2017, the Group had
$102.5 million of debt facility expiring on 31 December 2018 and $102.5 million of debt facility expiring on 31
December 2020;
• The balance drawn increased by $33 million to fund acquisitions and development capital expenditure;
• Gearing was 27.5% at 30 June 2017 (30 June 2016: 26.8%);
• The Group was fully compliant with all bank facility covenants throughout FY17 and as at 30 June 2017. At 30 June
2017 the Loan to Valuation Ratio was 32.0% (Covenant: 50%) and the Interest Cover Ratio was 5.6 times (Covenant:
2.0 times).
Interest rate management
• During the year the Group managed its interest rate risk in accordance with its interest rate risk management policy.
The swap portfolio average term was extended due to near term swap expiry;
• As at 30 June 2017, 79% of the Group’s borrowings are hedged for a weighted average term of 4.3 years (2016: 72%
for 4.0 years). The average swap fixed rate at 30 June 2017 is 2.39% (2016: 2.48%);
• The Group will manage its interest rate swaps to deal with near term expiry and as debt is drawn in accordance with
its interest rate risk management policy.
20
Directors’ ReportArena REIT FY18 outlook
The Group has provided market guidance for FY18 distribution of 12.8 cents per security, which represents an increase
of 6.7% on FY17.
The distribution outlook assumes a status quo basis, with no new acquisitions or disposals, developments in progress
are completed in line with budget assumptions and tenants comply with their lease obligations.
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 Group that occurred during the financial year.
Matters subsequent to the end of the financial year
On 28 July 2017, the Group announced the acquisition of a portfolio of nine ELC properties under development for
a total cost of $65 million. In conjunction with this acquisition, the Group undertook a fully underwritten Institutional
Placement of $55 million.
On 7 August 2017, the Group issued a Security Purchase Plan for eligible Australian and New Zealand investors to
raise up to $10 million. This offer remains open as at the date of this report.
Other than those matters identified above, no other significant events have occurred since 30 June 2017 that have
affected, or may significantly affect:
(i) the operations of the Group in future financial years; or
(ii) the results of those operations in future financial years; or
(iii) the state of affairs of the Group in future financial years.
Likely developments and expected results of operations
The Group will continue to be managed in accordance with its existing investment objectives and guidelines.
The results of the Group’s operations will be affected by a number of factors, including the performance of investment
markets in which the Group 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.
Material business risks
The material business risks that could adversely affect the achievement of the Group’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 Group’s property portfolio is presently 86% invested in childcare centres and childcare centre development sites
and 14% in healthcare assets. Adverse events to the childcare sector or healthcare sector may result in a general
deterioration of tenants’ ability to meet their lease obligations and the future growth prospects of the current
portfolio. As at 30 June 2017, 70% of the portfolio by income (excluding developments) is leased to the largest three
tenants (Goodstart Early Learning Ltd with 40%, Primary Health Care Limited with 15% and Affinity Education Group
with 15%). Any material deterioration in the operating performance of these tenants may result in them not meeting
their lease obligations which could reduce the Group’s income.
Tenant risk
The Group relies on tenants to generate its revenue. Tenants may be not for profit companies limited by guarantee,
private entities or listed public companies. If a tenant is affected by financial difficulties they may default on their
rental or other contractual obligations which may result in loss of rental income and loss in value of the Group’s
properties. Typically, 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 generally equivalent to
six months’ rent (plus GST) as security for their performance under the lease. Refer to note 9(d) for further details on
tenancy risk for the portfolio.
21
Arena REIT / Financial Report 2017 Information on directors
The directors at the date of this report are:
David Ross, Independent Non-Executive Chairman
David has over 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, 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 was appointed as an Independent Non-Executive Director of Charter Hall Group in December 2016.
David holds a Bachelor of Commerce, a Property Valuation qualification and is a Fellow of the Australian Institute of
Company Directors (FAICD).
Other current directorships: Charter Hall Group.
Former directorships in last 3 years: None.
Simon Parsons, Independent Non-Executive Director
Simon has over 30 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), a Fellow of the Australian
Institute of Company Directors (FAICD), and is a member of the RICS Oceania Property Board.
Simon holds a Master of Science (Real Estate) and a Master of Social Science (Env & Planning).
Other current directorships: None.
Former directorships in last 3 years: None.
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 and is a Fellow of the
Australian Institute of Company Directors (FAICD).
Other current directorships: Investa Wholesale Funds Management Limited, ICPF Holdings Limited.
Former directorships in last 3 years: None.
Bryce Mitchelson, Executive Director
Bryce is Managing Director of the Group and joined in May 2009.
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: None.
22
Directors’ ReportArena REIT Gareth Winter, Executive Director and Company Secretary
Gareth was appointed Chief Financial Officer of the Group in March 2012, and Executive
Director of Arena REIT Management Limited in December 2014. Gareth was formerly a partner at
PricewaterhouseCoopers and has over 20 years’ professional experience.
Throughout his professional career Gareth specialised in advising the listed and unlisted property
and infrastructure funds management sector on corporate finance, capital management, risk
management, transaction structuring and financial systems and reporting.
Gareth is a member of the Institute of Chartered Accountants in Australia and holds a Bachelor of Commerce.
Other current directorships: None.
Former directorships in last 3 years: None.
Meetings of directors
The number of meetings of the Responsible Entity’s board of directors and of each board committee held during the
year ended 30 June 2017, and the number of meetings attended by each director were:
ARL Board
ARML Board
Audit Committee
Remuneration &
Nomination Committee
David Ross
Simon Parsons
Dennis Wildenburg
Bryce Mitchelson
Gareth Winter
A
8
8
8
8
*
B
8
8
8
8
*
A
11
11
11
11
11
B
11
11
11
11
11
A
8
8
8
*
*
B
8
8
8
*
*
A
4
4
4
*
*
B
4
4
4
*
*
A - Number of meetings held during the year.
B - Number of meetings attended.
* = Not a member of the relevant committee.
Remuneration Report
Arena REIT’s (‘Arena’) Remuneration and Nomination Committee presents the Remuneration Report which includes
information on the remuneration arrangements for Key Management Personnel (KMP) for the year ended 30 June
2017. The report has been prepared and audited in accordance with the requirements of the Corporations Act and
Regulations.
Remuneration Report Summary
Key Decisions and Remuneration outcomes in respect of FY17
Section
KMP
Remuneration Mix
No change in KMP in FY17
The relative weighting of at-risk remuneration for Executive KMP attributable
to LTI opportunity was increased by 5% (excluding the Managing Director).
Fixed Remuneration (TFR)
Executive KMP received an average TFR increase of 3% in FY17.
Short Term Incentive (STI)
Executive KMP were awarded between 90-95% of STI opportunity based on
exceeding financial targets and the assessment of individual performance
against non-financial KPIs.
Long Term Incentive (LTI)
No LTI vested in FY17.
1.2
3
4.2
4.4
23
Arena REIT / Financial Report 2017 Remuneration report (continued)
Remuneration Report Summary
Key Decisions in respect to FY18 Remuneration Framework and LTI Assessment
The Committee engaged Conari Partners to undertake an independent review
of Arena’s remuneration framework, incentive plans, performance hurdles and
benchmarked the level of remuneration in comparison to market practice.
Arena will introduce a deferred component to the STI plan from FY18 whereby
the vesting of 50% of any STI awarded to Executive KMP will be deferred for
a period of 1 year and payment will be delivered in the form of Arena Stapled
Securities.
The testing of hurdles and other conditions in relation to the FY15 LTI Grant
occurred after 30 June 2017.
The FY15 LTI grant was 100% vested in August 2017 as:
• Arena’s relative TSR ranked in the top quartile of the comparator group
comprising the members of the ASX300 A-REIT Index over the performance
period; and
• Arena’s FY17 Distributable Income per Security exceeded the performance
hurdle range.
1.1
4.4
Governance and
Independent Review
Short Term Incentive (STI)
Long Term Incentive (LTI)
1. Overview
1.1 Governance
The directors have appointed a Remuneration and Nomination Committee (the ‘Committee’) to advise the Board
on remuneration policy and practices. The Committee is comprised of the independent directors and is chaired by
Mr David Ross. The Committee will, as required, appoint remuneration advisers to review and advise on aspects
of a remuneration policy and associated frameworks. During the year, the Committee engaged Conari Partners
to conduct an independent review of Arena’s remuneration framework, incentive plans and benchmarked the
level of remuneration in comparison to market practice in the A-REIT sector. Conari Partners did not provide any
remuneration recommendations in respect of KMP.
1.2 Key Management Personnel (KMP)
KMP are persons identified as having authority and responsibility for planning, directing and controlling the activities
of Arena. There has been no change in KMP since the end of the reporting period.
Non-Executive Directors
Position
FY17 KMP
FY16 KMP
David Ross
Simon Parsons
Dennis Wildenburg
Non-Executive Chairman
Chair – Remuneration & Nomination Committee
Member – Audit Committee
Non-Executive Director
Member – Remuneration & Nomination Committee
Member – Audit Committee
Non-Executive Director
Chair – Audit Committee
Member – Remuneration & Nomination Committee
Yes
Yes
Yes
Yes
Yes
Yes
Executive KMP
Position
FY17 KMP
FY16 KMP
Bryce Mitchelson
Managing Director
Gareth Winter
Robert de Vos
Executive Director & Chief Financial Officer
Head of Property
Yes
Yes
Yes
Yes
Yes
Yes
24
Directors’ ReportArena REIT Remuneration report (continued)
1.3 Remuneration Framework
The directors of Arena have adopted a remuneration framework that recognises the need to attract, motivate and
retain employees to deliver sustainable and superior business performance. The remuneration policy is underpinned
by the following principles:
• Remuneration is externally competitive in terms of quantum, mix and design to support the attraction and retention
of employees and takes into account the relative size and nature of the Arena business, its ability to pay and the role
and experience of employees;
• The remuneration framework supports the delivery of Arena’s business strategy;
• Remuneration is made up of fixed and variable reward;
• Variable reward will be used to recognise performance in both the short term and longer term and will depend on
performance against key targets and objectives.
2. Non-Executive Director Remuneration Framework
Each non-executive director of Arena is paid an amount determined by the Board to a maximum aggregate amount
approved by security holders of $650,000 per annum.
Fees are set to ensure non-executive directors are remunerated fairly for their services, recognising the level of skill,
expertise and experience required to perform the role. Non-executive directors do not receive any equity based
payments, retirement benefits or incentive payments.
Annual fees in respect of FY17 (inclusive of applicable superannuation) were:
Board Fees
Audit Committee Fees
Remuneration & Nomination
Committee Fees
Chairman1
$187,000
Member
$95,000
Chairman
$10,000
Member
$5,000
Chairman
$10,000
Member
$5,000
1. The Board fee received by the Chairman of the Board is inclusive of all Committee fees.
3. Executive KMP Remuneration Framework
In FY17, Executive KMP remuneration comprised:
• total fixed remuneration (TFR);
• short term incentive (STI); and
• long-term incentive (LTI).
The FY17 Total Maximum Remuneration (TMR) mix for the Executive KMP is set out in the table below:
Executive KMP
Position
Bryce Mitchelson
Managing Director
Gareth Winter
Robert de Vos
Chief Financial Officer
Head of Property
At Risk Performance
Based Remuneration
TFR
50%
55%
50%
STI
25%
20%
25%
LTI
25%
25%
25%
25
Arena REIT / Financial Report 2017 Remuneration report (continued)
3.1 Total Fixed Remuneration
TFR consists of base salary, employer superannuation contributions, salary sacrifice benefits and other non-monetary
benefits. TFR is set based on the role responsibilities, experience and qualifications of the individual, and with
reference to market data of comparable organisations. TFR will generally be reviewed on an annual basis.
3.2 Short Term Incentive Plan (STI)
The short term incentive is a performance based component of remuneration and is designed to reward annual
performance and focus Executive KMP on meeting business plan objectives. Executive KMP participation in the STI is
at the discretion of the Board.
The STI opportunity for each Executive KMP is based on the STI proportion of their TMR. The actual award is based
on the achievement of specific Key Performance Indicators (KPI’s) for each Executive KMP.
STI objectives for each Executive KMP take into account their respective role and the objectives of the organisation to
which they are expected to contribute. The link between the organisation’s objectives and the Executive KMP’s short
term incentive KPI’s is designed to align Executive KMP to Arena’s objectives.
FY17 performance was measured across two categories of KPI’s:
• Financial – Target Distributions per Security and Distributable Income per Security;
• Non-financial – linked to non-financial metrics specific to each role eg. strategy development and execution,
business performance, risk management, leadership, human resources, stakeholder management and relationships
and specific personal objectives.
The FY17 STI will be paid in cash following Board approval. Taking into consideration circumstances over the course
of the financial year, the Board has discretion to reduce, cancel or increase STI payments.
3.3 Long Term Incentive Plan (LTI)
The LTI Plan is an equity based incentive scheme designed to align the interests of key management personnel and
investors over the long term and retain high performing individuals. Executive KMP (and other Arena staff) participate
in the LTI at the discretion of the Board.
The LTI opportunity for each Executive KMP is based on the LTI proportion of their TMR. The actual benefit delivered
to the Executive KMP will depend on the quantum of rights granted, the extent to which the performance hurdles are
achieved and security price performance. The LTI will be satisfied through the issue of 1 fully paid ordinary stapled
security for each Right that vests.
3.3.1 LTI - Performance Rights
Arena’s ongoing LTI Plan is in the form of Performance Rights. The vesting of each grant of Performance Rights is
subject to the achievement of threshold and performance hurdles measured over a 3 year period. The number of
Performance Rights granted is based on the value of the LTI award opportunity divided by an independent valuation
of the fair value of a Performance Right as at the grant date. The fair value and the face value of each grant of
Performance Rights on the relevant grant date is set out in Section 5 of this report.
Under the LTI Plan grants for FY17 there are two independent hurdles to the vesting of Performance Rights, each with
a 50% weighting:
Hurdle 1: Relative total shareholder return (TSR)
Relative TSR performance is determined based on Arena’s total ASX return (assuming reinvestment of distributions)
ranked against the members of the comparator group over the performance period. The comparator group in respect
of the FY17 Performance Rights grant are the members of the S&P / ASX 300 A-REIT Index at the commencement of
the performance period.
26
Directors’ ReportArena REIT Remuneration report (continued)
The Relative TSR vesting schedule is as follows:
Arena’s TSR ranking
Proportion of TSR Hurdle Performance Rights that vest
Below 50th percentile
50th to 75th percentile
0%
50% at the threshold plus progressive pro-rata vesting between 50% and
100% (ie on a straight-line basis)
At or above the 75th percentile
100%
Relative TSR was selected as a performance condition because:
• It aligns Executive KMP rewards with Arena security holder returns;
• The effects of market cycles are reduced as it measures Arena’s performance relative to its peers, which are
presently considered to be the A-REIT members of the S&P / ASX 300 Index.
Hurdle 2: Distributable Income per Security (DIS)
The DIS hurdle is based on a target range to be assessed in the final year of a three year performance period. DIS is
determined in accordance with Arena’s Distribution Policy.
The DIS vesting schedule is as follows:
Arena’s DIS
(in year 3 of the performance period)
Below the Target Range
In the Target Range
Proportion of DIS Hurdle Performance Rights that vest
0%
50% plus progressive pro-rata vesting between 50% and 100%
(ie on a straight-line basis)
Above the Target Range
100%
DIS was selected as a performance condition (for STI and LTI) because:
• It aligns Executive KMP rewards with Arena security holder returns;
• DIS is a key performance indicator referenced by the Board in preparing the annual budget and business plan and
in measuring Arena’s underlying performance.
The Board retains discretion to adjust the conditions and / or the performance outcome used for assessing whether
the performance related conditions have been satisfied to ensure that executive KMP are neither advantaged nor
disadvantaged by matters that affect the conditions, for example the timing of a material equity raising or excluding
the effects of one-off / non recurrent items.
3.3.2 LTI - Recognition Rights
Executive KMP received a once-off grant of Recognition Rights in FY15 to recognise their commitment to the Arena
REIT internalisation and reward ongoing effort to deliver Arena’s business performance.
Recognition Rights were subject to an employment retention period ended on 30 June 2017. The Board considered
the Recognition Rights to be an important incentive for Executive KMP to remain with the business during Arena’s
transition to an internalised management structure.
27
Arena REIT / Financial Report 2017 Remuneration report (continued)
3.3.3 Other LTI Plan Terms
Other key terms of the LTI Plan are:
• Participants do not receive distributions or dividends on unvested LTI awards during the performance period;
• No payment for Performance Rights or Recognition Rights is required;
• No payment is required on the issue of stapled securities in respect of a vested Performance Right or Recognition
Right;
• In the event of termination of employment, the following treatment applies to unvested awards:
– Dismissal for cause or resignation: unvested awards will lapse unless the Board determines otherwise;
– In all other circumstances: unvested awards will remain on-foot subject to the original performance conditions and
vesting period. The Board will have discretion to pro-rate awards which remain on foot (eg to reflect the portion
of the performance / vesting period that has elapsed). The Board may cancel an award in full and also allow
accelerated vesting (pro-rated for time and performance) in special circumstances subject to termination benefit
rules.
• In the event of an actual or proposed change of control event that the Board in its discretion determines should be
treated as a change of control, a pro-rata number of unvested grants vest at the time of the relevant event, based
on the performance period elapsed and the extent to which performance hurdles have been achieved at the time
(unless the Board determines another treatment in its discretion);
• The LTI Plan restricts Executive KMP from entering into transactions (through the use of derivatives or otherwise)
that would have the effect of limiting the economic risk from participating in the LTI Plan.
4. Performance & Variable Remuneration Outcomes
Arena’s remuneration policy assesses variable remuneration outcomes in the context of performance and change
in security holder wealth. The Remuneration and Nomination Committee is responsible for assessing performance
against KPIs and determining the STI to be paid and the extent to which the LTI vests. To assist in this process the
Committee receives detailed financial reports, data capable of independent confirmation and individual performance
assessments.
4.1 Performance Indicators
The table below summarises information on Arena’s key financial and performance metrics over the 5 year period to
30 June 2017.
Metric
FY17
FY16
FY15
FY14
FY13
Net Profit (Statutory) ($million)
Distributable Income ($million)
Distributable Income per Security (cents)
Distributions per Security (cents)
Net Asset Value per Security
ASX Security Price
Gearing
Annual Total Shareholder Return (TSR)
Annual TSR of ASX-300 A-REIT Index
96.8
28.7
12.30
12.00
$1.84
$2.25
27.5%
19.8%
(5.6%)
72.6
25.6
11.11
10.90
$1.54
$1.99
26.8%
37.6%
24.6%
61.0
22.1
10.20
10.00
$1.33
$1.54
29.1%
36.3%
20.2%
44.6
18.5
8.85
8.75
$1.13
$1.20
33.3%
26.7%
11.1%
17.2
11.2
8.20
8.00
$1.02
$1.02
10.4%
n/a1
n/a1
1. Arena listed on ASX in June 2013. Prior data is not available or relates to a period when the fund was unlisted.
28
Directors’ ReportArena REIT Remuneration report (continued)
4.2 FY17 STI Performance Measures
A key measure of Arena’s performance and contributor to STI performance assessment is the annual underlying profit
and distribution.
STI Financial Objective
Result
Underlying Profit Performance:
• Deliver a minimum FY17 Distribution of 11.7 cents per
• Actual FY17 Distribution of 12.0 cents per security (10%
security (7% growth on FY16)
growth on FY16)
• Deliver a target distributable income per security
• Target Exceeded
STI Non-Financial Objectives
The Committee set each Executive KMP relevant KPIs in relation to strategy development & execution, progression
of developments, business performance, risk management, leadership, human resources, stakeholder management,
funding and liquidity. The achievement of KPIs was assessed by the Committee in the determination of each
Executive KMP’s STI award.
4.3 FY17 STI Awards
As a result of the performance assessment, the Board awarded STI’s in respect of FY17 as set out below.
Executive KMP
Bryce Mitchelson
Gareth Winter
Robert de Vos
1. Any STI opportunity not awarded is forfeited.
STI Award ($)
Award as a % of STI Opportunity1
227,250
120,909
147,250
90%
95%
95%
29
Arena REIT / Financial Report 2017 Remuneration report (continued)
4.4 LTI Performance Measures
No Performance Rights or Recognition Rights were vested or eligible for exercise during FY17. An assessment of the
FY15 LTI grant was performed following 30 June 2017 to determine if the relevant vesting conditions were met as set
out in the table below.
LTI Year
FY15
Performance
Measurement
Period
LTI Performance
Measure
12 December 2014
to 30 June 2017
Relative TSR1
FY17
FY16
FY16 – FY18
FY18
FY17
FY17 – FY19
FY19
Distributable
Income per
Security (DIS)
Relative TSR1
Distributable
Income per
Security (DIS)
Relative TSR1
Distributable
Income per
Security (DIS)
Performance Hurdle
Result
50% of rights vest at the
50th percentile; with pro rata
vesting until 100% vesting at
the 75th percentile.
Target exceeded.
Arena ranked in the top
quartile of the comparator
group over the Performance
Measurement Period.
Vesting
Outcome
100%
Target range of 11.0 cents to
12.0 cents
Target exceeded.
Actual DIS of 12.3 cents
100%
50% of rights vest at the
50th percentile; with pro rata
vesting until 100% vesting at
the 75th percentile.
Target range of 11.5 cents to
12.5 cents
50% of rights vest at the
50th percentile; with pro rata
vesting until 100% vesting at
the 75th percentile.
Target range of 12.5 cents to
13.25 cents
N/A
N/A
1. Relative TSR versus a comparator group comprising the members of the ASX300 A-REIT Index at the commencement of each relevant 3 year
performance period.
4.5 LTI Grants
LTI Grants to Executive KMP during FY17 are set out in the table below.
Executive KMP
Maximum
LTI Award
as % of TFR Type
Grant Date Vesting Date
Rights
Granted
Fair value
per Right2
Bryce Mitchelson1
Gareth Winter1
Robert de Vos
50%
45%
50%
Performance Rights
1 July 2016
30 June 2019
Performance Rights
1 July 2016
30 June 2019
Performance Rights
1 July 2016
30 June 2019
195,736
123,326
120,156
$1.29
$1.29
$1.29
1. Grants were approved by security holders at the AGM held on 17 November 2016.
2. Fair Value per Right was determined by an independent valuation. Refer to Note 20 of the financial report for further information on the valuation
inputs.
30
Directors’ ReportArena REIT Remuneration report (continued)
4.6 Remuneration Summary (Actual Amounts Received)
The table below is a voluntary disclosure of the remuneration actually received by Executive KMP. It does not align
with information required by accounting standards (which is set out in section 4.7) as it does not include accounting
accruals for STI awards or LTI grants that may not be received as they are based on performance and other conditions.
Short Term
Benefits
Equity Based
Payments
Long
Term
Post
Employment
$
Salary
STI1,2
Non-
Monetary
Benefits
Perfor-
mance
Rights
Recog-
nition
Rights
Long
Service
Leave
Super-
annuation
Total
Executive KMP
Bryce Mitchelson FY17 485,384 208,250
11,329
FY16
470,692
111,791
Gareth Winter
FY17 330,384 107,667
FY16
320,692
60,914
Robert de Vos
FY17 290,384 122,715
FY16
280,692
69,220
10,361
9,961
9,201
9,961
9,201
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
19,616
724,579
19,308
612,152
19,616
467,628
19,308
410,115
19,616
442,676
19,308
378,421
1. The STI represents the payment of the STI earned in the prior financial year.
2. The STI paid in FY16 is for the period from 12 December 2014 to 30 June 2015.
4.7 Remuneration Summary (Statutory)
The following tables disclose the remuneration in respect of the KMP measured in accordance with the requirements
of accounting standards.
Short Term
Benefits
Equity Based
Payments
Long
Term
Post
Employment
$
Salary
STI
Non-
Monetary
Benefits
Perfor-
mance
Rights
Recog-
nition
Rights
Long
Service
Leave
Super-
annuation
Total
Non-Executive Director
David Ross
FY17 160,250
FY16
148,521
Simon Parsons
FY17
95,890
FY16
92,237
Dennis Wildenburg FY17
91,456
FY16
88,901
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
26,750
187,000
31,479
180,000
9,110
105,000
8,763
101,000
18,544
110,000
17,099
106,000
31
Arena REIT / Financial Report 2017 Remuneration report (continued)
Short Term
Benefits
Equity Based
Payments
Long
Term
Post
Employment
$
Salary
STI
Executive KMP
Non-
Monetary
Benefits
Perfor-
mance
Rights1,2
Recog-
nition
Rights1
Long
Service
Leave3
Super-
annuation
Total
Bryce Mitchelson
FY17 485,384 227,250
11,329
221,566
37,205
11,077
19,616 1,013,427
FY16
470,692
208,250
10,361
137,776
37,307
Gareth Winter
FY17 330,384 120,909
9,961
116,620
17,232
FY16
320,692
107,667
9,201
63,765
17,279
Robert de Vos
FY17 290,384 147,250
9,961
111,495
15,665
FY16
280,692
122,715
9,201
59,992
15,708
9,351
7,770
3,282
6,013
1,680
19,308
893,045
19,616
622,492
19,308
541,194
19,616
600,384
19,308
509,296
1. Represents change in accounting accrual. Entitlement subject to vesting conditions.
2. FY17 amount reflects the amortisation of three separate LTI grants since the management internalisation. By comparison, the FY16 amount reflects
the amortisation of two separate LTI grants.
3. Represents change in accounting accrual. Entitlement subject to legislated minimum period of employment.
4.8 Executive KMP Remuneration Mix
The following table summarises the relative proportions of total remuneration based on the FY17 Remuneration
Summary (Statutory).
Executive KMP
Bryce Mitchelson
Gareth Winter
Robert de Vos
TFR
51%
57%
53%
STI
22%
20%
25%
LTI
27%
23%
22%
Variation between TMR and total actual remuneration mix occurs as a result of non-vesting of opportunities and
timing differences between the granting of an LTI and the accounting recognition of the LTI expense which is
generally amortised over the relevant vesting period.
5. Interests in Securities
Interests in Arena securities held by directors and executive KMP is set out below.
Ordinary Securities
Ordinary Securities
Independent Directors
David Ross
Simon Parsons
Dennis Wildenburg
32
Balance
30 June 2016
Acquired
Disposed
Received as
Remuneration
Balance
30 June 2017
200,000
200,000
150,000
–
–
–
–
–
–
–
–
–
200,000
200,000
150,000
Directors’ ReportArena REIT Remuneration report (continued)
Ordinary Securities
Executive KMP
Bryce Mitchelson
Gareth Winter
Robert de Vos
Balance
30 June 2016
Acquired
Disposed
Received as
Remuneration
Balance
30 June 2017
753,907
75,000
27,941
21,000
–
1,675
–
–
–
–
–
–
774,907
75,000
29,616
Performance Rights and Recognition Rights
Executive KMP
Bryce Mitchelson
Performance Rights
Performance Rights
Performance Rights
Recognition Rights
Gareth Winter
Performance Rights
Performance Rights
Performance Rights
Recognition Rights
Robert de Vos
Performance Rights
Performance Rights
Performance Rights
Recognition Rights
Grant
Year
Opening
Balance
Rights
Granted
Rights
Vested1
Rights
Lapsed
Closing
Balance1
Fair Value
at Grant
Date2
Face Value
at Grant
Date3
FY17
FY16
FY15
FY15
FY17
FY16
FY15
FY15
FY17
FY16
FY15
FY15
–
195,736
247,745
151,596
77,869
–
–
–
–
123,326
114,478
70,213
36,066
–
–
–
–
120,156
110,192
63,830
32,787
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
195,736
$252,500
$391,472
–
–
–
247,475
$245,000
$388,536
151,596
$142,500
$224,362
77,869
$95,000
$115,246
–
123,326
$159,091
$246,652
–
–
–
114,478
$113,333
$179,730
70,213
36,066
$66,000
$108,128
$44,000
$55,542
–
120,156
$155,000
$240,312
–
–
–
110,192
$109,090
$173,001
63,830
32,787
$60,000
$40,000
$98,298
$50,492
1. Testing of the performance and other hurdles in relation to the Rights issued in FY15 did not occur until post 30 June 2017. Vesting of Rights in
accordance with the LTI assessment in Section 4.4 of this Remuneration Report will be reflected in the following year.
2. Fair value determined by independent valuation.
3. Number of Rights granted multiplied by the security price on the relevant grant date. If Rights vest (subject to performance and vesting
conditions), the actual security price on the date of issue of securities may be higher or lower than at the relevant grant date. The value of the
unvested Rights may be nil if the relevant vesting conditions are not met and the Rights lapse or are forfeited.
33
Arena REIT / Financial Report 2017 Remuneration report (continued)
6. Service Agreements
Executive KMP Service Agreements detail the individual terms and conditions applying to the employment of the
Executive KMP. Key employment terms in addition to the remuneration arrangements set out in this report are set out
below:
Managing Director
Other Executive KMP
Contract Term
Ongoing
Termination by the
Executive KMP
9 months’ notice.
Ongoing
6 months’ notice.
Unvested STI or LTI entitlements lapse
unless the Board determines otherwise.
Unvested STI or LTI entitlements lapse
unless the Board determines otherwise.
Termination by Arena
without cause or mutually
agreed resignation
9 months’ notice or equivalent payment in
lieu of notice based on TFR.
6 months’ notice or equivalent payment in
lieu of notice based on TFR.
Any unvested STI and LTI awards will be
governed by the applicable STI or LTI
plan rules summarised above.
Any unvested STI and LTI awards will be
governed by the applicable STI or LTI plan
rules summarised above.
Termination by Arena for
serious misconduct
No notice period or termination payment
unless the board determines otherwise.
No notice period or termination payment
unless the Board determines otherwise.
Post-employment restraints Restrained from soliciting suppliers,
customers and staff for a maximum of 9
months post-employment.
Restrained from soliciting suppliers,
customers and staff for a maximum of 6
months post- employment.
Indemnification and insurance of officers and auditors
During the year, the Group has paid insurance premiums to insure each of the directors, and officers of the Group
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 Group other than conduct involving a wilful breach of duty in relation to
the Group.
The contract of insurance prohibits disclosure of the nature of the liability covered and the amount of the premium.
The Group has not, during or since the end of the financial year indemnified or agreed to indemnify an auditor of the
Group or of any related body corporate against a liability incurred in their capacity as an auditor.
Non-audit services
Details of the non-audit services provided to the Group by the Independent Auditor during the year ended 30 June
2017 are disclosed in note 5 of the financial statements.
Fees paid to and interests held in the Group by the Responsible Entity or its associates
Fees paid to the Responsible Entity and its associates out of Group property during the year are disclosed in note 18
of the financial statements.
Interests in the Group
The movement in securities on issue in the Group during the year is disclosed in note 14 of the financial statements.
34
Directors’ ReportArena REIT Corporate governance statement
The board of directors for Arena REIT Limited and Arena REIT Management Limited work together and take a co-
ordinated approach to the corporate governance of the Group.
Each Board has a Board Charter which details the composition, responsibilities, and protocols of the Board. In
addition, the Boards have a Code of Conduct which sets out the standard of business practices required of the
Group’s directors and staff.
Arena conducts its business in accordance with these policies and code, as well as other key policies which are
published on its website. These include:
• Arena REIT Continuous Disclosure Policy;
• Arena REIT Diversity Policy;
• Arena REIT Privacy Policy;
• Arena REIT Communications Policy;
• Arena REIT Summary of Risk Management Framework;
• Arena REIT Securities Trading Policy.
In compliance with ASX Listing Rule 4.10.3, Arena has also published a statement disclosing the extent to which the
Group has followed the recommendations for good corporate governance set by the ASX Corporate Governance
Council (3rd Edition) during the reporting period on its website, www.arena.com.au/about/governance.
Environmental regulation
The operations of the Group 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 Group is an entity of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument
2016/191, 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 Instrument, unless otherwise indicated.
Auditor’s independence declaration
The Auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on
page 36.
This report is made in accordance with a resolution of directors.
David Ross, Chairman
Melbourne, 24 August 2017
35
Arena REIT / Financial Report 2017 Auditor’s independence
declaration
Auditor’s Independence Declaration
As lead auditor for the audit of Arena REIT No. 1 for the year ended 30 June 2017, 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 No. 1 and the entities it controlled during the period.
Elizabeth O’Brien
Partner
PricewaterhouseCoopers
Melbourne
24 August 2017
36
Arena REIT Consolidated statement
of comprehensive income
For the year ended 30 June 2017
Income
Property rental
Management fee income
Interest
Net gain/(loss) on fair value of derivative financial instruments
Revaluation of investment properties
Total income
Expenses
Property expenses
Management and administration expenses
Finance costs
Other expenses
Total expenses
Net profit for the year
Other comprehensive income
Total comprehensive income for the year
Total comprehensive income for the year is attributable to Arena REIT
stapled group investors, comprising:
Unitholders of Arena REIT No. 1
Unitholders of Arena REIT No. 2 (non-controlling interest)
Unitholders of Arena REIT Limited (non-controlling interest)
Earnings per security:
Basic earnings per security in Arena REIT No. 1
Diluted earnings per security in Arena REIT No. 1
Basic earnings per security in Arena REIT Group
Diluted earnings per security in Arena REIT Group
Consolidated
30 June 2017
30 June 2016
Notes
$’000
$’000
9(c)
9
9(c)
3
6
6
6
6
38,169
582
152
1,805
66,124
106,832
(1,152)
(4,061)
(4,714)
(114)
(10,041)
32,989
429
167
(2,915)
51,062
81,732
(1,003)
(3,544)
(4,333)
(231)
(9,111)
96,791
72,621
–
96,791
–
72,621
87,161
10,256
(626)
96,791
Cents
37.32
37.08
41.44
41.18
59,155
14,175
(709)
72,621
Cents
25.70
25.59
31.55
31.41
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying
notes.
37
Arena REIT / Financial Report 2017 Consolidated
balance sheet
As at 30 June 2017
Current assets
Cash and cash equivalents
Trade and other receivables
Total current assets
Non-current assets
Receivables
Plant and equipment
Investment properties
Intangible assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Provisions
Distributions payable
Total current liabilities
Non-current liabilities
Derivative financial instruments
Provisions
Interest bearing liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity - ARF1
Accumulated profit
Non-controlling interests - ARF2 and ARL
Total equity
Consolidated
30 June 2017
30 June 2016
Notes
$’000
$’000
7
8
8
9
10
11
13
12
14
15
16
9,082
8,613
17,695
860
199
591,712
10,816
603,587
621,282
9,305
288
7,221
16,814
1,031
337
170,624
171,992
188,806
432,476
202,179
161,929
68,368
432,476
9,446
969
10,415
1,062
219
491,439
10,816
503,536
513,951
8,687
250
6,437
15,374
3,030
467
137,587
141,084
156,458
357,493
197,224
99,187
61,082
357,493
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
38
Arena REIT Consolidated statement
of changes in equity
Consolidated
Contributed
equity
Accumulated
profit
Non-controlling
interests -
ARL & ARF2
Total equity
$’000
$’000
$’000
$’000
Balance at 1 July 2015
Profit for the year
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Securities issued under DRP
Employee - LTI Performance Plan
Distributions to securityholders
Balance at 30 June 2016
Balance at 1 July 2016
Profit for the year
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Securities issued under DRP
Employee - LTI Performance Plan
Distributions to securityholders
191,845
–
–
5,379
–
–
197,224
197,224
–
–
4,955
–
–
61,900
59,155
59,155
–
–
(21,868)
99,187
99,187
87,161
87,161
–
–
(24,419)
49,746
13,466
13,466
788
350
(3,268)
61,082
61,082
9,630
9,630
744
561
(3,649)
303,491
72,621
72,621
6,167
350
(25,136)
357,493
357,493
96,791
96,791
5,699
561
(28,068)
Balance at 30 June 2017
202,179
161,929
68,368
432,476
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
39
Arena REIT / Financial Report 2017 Consolidated statement
of cash flows
For the year ended 30 June 2017
Consolidated
30 June 2017
30 June 2016
Notes
$’000
$’000
Cash flows from operating activities
Receipts in the course of operations
Payments in the course of operations
Finance costs paid
Interest received
Net cash inflow from operating activities
23
Cash flows from investing activities
Acquisition of subsidiaries
Net payments/proceeds from sale of investment properties
Payments for investment properties and capital expenditure
Net cash (outflow) from investing activities
Cash flows from financing activities
Payment of transaction costs from issue of securities
Distributions paid to securityholders
Loan establishment costs paid
Capital receipts from lenders
Capital payments to lenders
Net cash inflow/(outflow) from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Cash and cash equivalents at the end of the financial year
7
41,664
(8,290)
(4,531)
146
28,989
–
(43)
(40,545)
(40,588)
(27)
(21,557)
(104)
33,117
(194)
11,235
(364)
9,446
9,082
37,331
(7,292)
(4,018)
165
26,186
(995)
7,139
(21,579)
(15,435)
(28)
(18,325)
(491)
10,500
(3,849)
(12,193)
(1,442)
10,888
9,446
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
40
Arena REIT Contents
Notes to the financial statements
1. General information
2. Summary of significant accounting policies
3. Finance costs
4.
Income taxes
5. Remuneration of auditors
6. Earnings per security (‘EPS’)
7. Cash and cash equivalents
8. Trade and other receivables
9.
Investment properties
10. Intangible assets
11. Trade and other payables
12. Interest bearing liabilities
13. Derivative financial instruments
14. Contributed equity
15. Accumulated profit
16. Non-controlling interests
17. Segment information
18. Related party disclosures
19. Investments in subsidiaries
20. Security-based benefits expense
21. Financial risk management and fair value
measurement
22. Parent entity financial information
23. Reconciliation of profit to net cash inflow
from operating activities
24. Contingent assets and liabilities and
commitments
25. Events occurring after the reporting period
42
42
54
54
55
55
56
56
58
61
61
61
63
63
65
65
66
66
67
68
69
73
74
74
74
41
Arena REIT / Financial Report 2017 Notes to the consolidated
financial statements
1. General information
These financial statements cover Arena REIT (the ‘Group’) comprising Arena REIT No. 1, Arena REIT No. 2, Arena REIT
Limited, and their controlled entities. Arena REIT is listed on ASX and registered and domiciled in Australia.
The Arena REIT Stapled Group (the ‘Group’) comprises Arena REIT No. 1 (‘ARF1’), Arena REIT No. 2 (‘ARF2’) and
Arena REIT Limited (‘ARL’). The Responsible Entity of ARF1 and ARF2 is Arena REIT Management Limited (the
‘Responsible Entity’).
The financial statements were authorised for issue by the directors on 24 August 2017. The directors 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.
(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, derivative financial instruments which are measured at fair value,
and assets held for sale which are recognised at fair value less costs to sell. Cost is based on the fair value of
consideration given in exchange for assets. Comparative information is reclassified where appropriate to enhance
comparability.
Compliance with International Financial Reporting Standards
The financial statements of the Group also comply with International Financial Reporting Standards as issued by the
International Accounting Standards Board.
(i) New and amended standards adopted by the Group
The Group has applied the following standards and amendments for the first time for their annual reporting period
commencing 1 July 2016:
• AASB 2014-4 Amendments to Australian Accounting Standards - Clarification of Acceptable Methods of
Depreciation and Amortisation;
• AASB 2015-1 Amendments to Australian Accounting Standards - Annual Improvements to Australian Accounting
Standards 2012-2014 Cycle;
• AASB 2015-2 Amendments to Australian Accounting Standards - Disclosure Initiative: Amendments to AASB 101.
The adoption of these amendments did not result in any adjustments to the values included in the 30 June 2017
financial statements. The disclosure requirements of the above standards have been incorporated into this financial
report.
(b) Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating
Decision Maker.
The Board as the Chief Operating Decision Maker is responsible for making strategic decisions about the Group,
assessing the financial performance and financial position of the Group, determining the allocation of resources, and
risk management.
42
Arena REIT 2. Summary of significant accounting policies (continued)
(c) Principles of consolidation
(i) Stapled entities
The units of ARF1, ARF2 and the shares of ARL are combined and issued as stapled securities in the Arena REIT
Stapled Group. The units of ARF1, ARF2 and shares of ARL cannot be traded separately and can only be traded as
a stapled security. This financial report consists of the consolidated financial statements of the Arena REIT Stapled
Group, which comprises ARF1, ARF2, and ARL and its controlled entities.
AASB 3 Business Combinations requires one of the stapled entities in a stapling structure to be identified as the
parent entity for the purpose of preparing consolidated financial reports. In accordance with this requirement, ARF1
has been identified as the parent entity in relation to the stapling with ARF2 and ARL.
The consolidated financial statements of the Arena REIT Stapled Group incorporate the assets and liabilities of the
entities controlled by ARF1 at 30 June 2017, including those deemed to be controlled by ARF1 by identifying it as
the parent of the Arena REIT Stapled Group, and the results of those controlled entities for the year then ended. The
effects of all transactions between entities in the consolidated entity are eliminated in full. Non-controlling interests
in the results and equity are shown separately in the Statement of Comprehensive Income and Statement of Financial
Position respectively. Non-controlling interests are those interests in ARF2 and ARL which are not held directly or
indirectly by ARF1.
(ii) Subsidiaries
Subsidiaries are all entities (including structured entities) over which the group has control. The group controls an
entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the
ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated
from the date on which control is transferred to the group. They are deconsolidated from the date that control ceases.
The acquisition method of accounting is used to account for business combinations by the group (refer to note 2(f)).
Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated.
Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred
asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies
adopted by the group.
Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statement
of comprehensive income, statement of changes in equity and balance sheet respectively.
(iii) Changes in ownership interests
When the Group 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 becomes
the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint
venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect
of that entity are accounted for as if the group 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 joint venture 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.
(d) Presentation of members interests in ARF2 and ARL
As ARF1 has been assessed as the parent entity of the Group, the securityholders interests in ARF2 and ARL are
included in equity as “non-controlling interests” relating to the stapled entity. Securityholders interests in ARF2 and
ARL are not presented as attributable to owners of the parent reflecting the fact that they are not owned by ARF1, but
by the securityholders of the stapled group.
(e) Parent entity financial information
Parent entity information has been prepared on the same basis as the rest of the financial report.
43
Arena REIT / Financial Report 2017 2. Summary of significant accounting policies (continued)
(f) Business combinations
The acquisition method of accounting is used to account for all business combinations, regardless of whether
equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary
comprises the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the
Group. The consideration transferred also includes the fair value of any asset or liability resulting from a contingent
consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary. Acquisition-related
costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a
business combination are, with limited exceptions, measured initially at their fair values at the acquisition-date. On an
acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value
or at the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets.
The excess of the consideration transferred and the amount of any non-controlling interest in the acquiree over the
fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value
of the net identifiable assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the
difference is recognised directly in profit or loss as a bargain purchase.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted
to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate,
being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms
and conditions.
Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability
are subsequently remeasured to fair value with changes in fair value recognised in profit or loss.
(g) 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 Group 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.
Management service fees earned from managed investment schemes or trusts are calculated based on the agreed
percentage of funds under management and agreed percentages of schemes or trust acquisitions and disposals.
Management fees are recognised on an accruals basis.
Performance fees earned from managed funds are recorded when the Group has a legal or constructive right as
a result of past events, and it is probable that an inflow of resources will occur and the amount can be reliably
estimated.
Deferred management fees and performance fees are measured at the present value of the Responsible Entity’s
best estimate of the amount receivable 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 asset.
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).
44
Notes to the consolidated financial statementsArena REIT 2. Summary of significant accounting policies (continued)
(h) Expenses
All expenses are recognised in profit or loss on an accruals basis.
(i) Employee benefits
(i) Short-term obligations
Liabilities for wages and salaries, including non-monetary benefits that are expected to be settled wholly within 12
months after the end of the period in which the employees render the related service are recognised in respect of
employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid
when the liabilities are settled. The liabilities are presented as current employee benefit obligations in the balance
sheet.
(ii) Other long-term employee benefit obligations
The liabilities for long service leave and annual leave that are not expected to be settled wholly within 12 months
after the end of the period in which the employees render the related service. They are therefore measured as the
present value of expected future payments to be made in respect of services provided by employees up to the end
of the reporting period. Consideration is given to expected future wage and salary levels, experience of employee
departures and periods of service.
The obligations are presented as current liabilities in the balance sheet if the entity does not have an unconditional
right to defer settlement for at least twelve months after the reporting period, regardless of when the actual
settlement is expected to occur.
(iii) Security-based payments
For information relating to the Group’s Long Term Incentive Plan, refer to note 20.
Employees may receive remuneration in the form of security-based incentives, whereby employees render services
as consideration for equity-based incentives (equity-settled transactions). The Group did not have any cash-settled
security-based incentives in the financial year.
The cost of equity-settled transactions is recognised, together with a corresponding increase in reserves in equity,
over the period in which the performance and service conditions are fulfilled. The cumulative expense recognised
for these transactions at each reporting date until the vesting date reflects the extent to which the vesting period has
expired and for awards subject to non-market vesting conditions, the Group’s best estimate of the number of equity
instruments that will ultimately vest in respect of the relevant rights. The income statement expense or credit for a
period represents the movement in cumulative expense recognised as at the beginning and end of that period and is
recognised in employee expenses.
If the terms of an equity-settled transaction are modified, the minimum expense recognised is the expense as if the
terms had not been modified, if the original terms of the award are met. An additional expense is recognised for
any modification that increases the total fair value of the transaction, or is otherwise beneficial to the employee as
measured at the date of modification.
If an equity-settled award is cancelled, it is treated as if it vested on the date of cancellation, and any expense not
yet recognised for the award is recognised immediately. This includes any award where non-vesting conditions within
the control of either the Group or the employee are not met. However, if a new award is substituted for the cancelled
award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are
treated as if they were a modification of the original award.
45
Arena REIT / Financial Report 2017 2. Summary of significant accounting policies (continued)
(j) Income tax
(i) Trusts
Arena REIT No.1 and Arena REIT No.2 (the Trusts) are not subject to Australian income tax provided their taxable
income is fully distributed to securityholders.
(ii) Companies
The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based
on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities
attributable to temporary differences and to unused tax losses.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the
tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However,
deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is
also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business
combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income
tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the
reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred
income tax liability is settled.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable
that future taxable amounts will be available to utilise those temporary differences and losses.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets
and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax
liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis,
or to realise the asset and settle the liability simultaneously.
Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other
comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or
directly in equity, respectively.
(iii) Tax consolidation legislation
Arena REIT Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation
legislation. As a consequence, these entities are taxed as a single entity and the deferred tax assets and liabilities of
these entities are set off in the consolidated financial statements.
The head entity, Arena REIT Limited, and the controlled entities in the tax consolidated group account for their own
current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group
continues to be a standalone taxpayer in its own right.
In addition to its own current and deferred tax amounts, Arena REIT Limited also recognises the current tax liabilities
(or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled
entities in the tax consolidated group.
All current tax balances are transferred from the controlled entities in the group to Arena REIT Limited. As there is
no tax sharing agreement in place the current tax receivable or payable is transferred from each controlled entity to
Arena REIT Limited as a contribution to (or distribution from) wholly owned entities.
(k) Distributions
The Group distributes income adjusted for amounts determined by the Group. Provision is made for any distribution
amounts declared, being appropriately disclosed and no longer at the discretion of the entity, on or before the end of
the reporting date but not distributed at the end of the reporting period. The distributions are recognised within the
balance sheet and statement of changes in equity as a reduction in accumulated profit/(losses).
46
Notes to the consolidated financial statementsArena REIT 2. Summary of significant accounting policies (continued)
(l) Earnings per security (EPS)
(i) Basic earnings per security
Basic earnings per security is calculated by dividing:
• the profit attributable to the security holders, excluding any costs of servicing equity other than ordinary securities;
• by the weighted average number of ordinary securities outstanding during the financial year.
(ii) Diluted earnings per security
Diluted earnings per security adjust the figures used in the determination of basic earnings per security to take into
account:
• the effect of interest and other financial costs associated with dilutive potential ordinary securities;
• the weighted average number of additional ordinary securities that would have been outstanding assuming the
conversion of all dilutive potential ordinary securities.
(m) 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.
(n) 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 Group 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.
(o) 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.
47
Arena REIT / Financial Report 2017 2. Summary of significant accounting policies (continued)
(o) Assets held for sale (continued)
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.
(p) Plant and equipment
Plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly
attributable to the acquisition of the items. Cost may also include transfers from equity of any gains or losses on
qualifying cash flow hedges of foreign currency purchases of property, plant and equipment.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate,
only when it is probable that future economic benefits associated with the item will flow to the group and the cost
of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is
derecognised when replaced. All other repairs and maintenance are charged to profit or loss during the reporting
period in which they are incurred.
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting
period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying
amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by
comparing proceeds with carrying amount. These are included in profit or loss.
(q) 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.
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 price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The directors 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, and using capitalisation rates and discount rates that reflect current market assessments of the uncertainty
in the amount and timing of cash flows.
(r) Intangible assets - Goodwill
Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is not amortised but it is tested
for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired,
and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the
carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those
cash-generating units or groups of cash-generating units that are expected to benefit from the business combination
in which the goodwill arose. The units or groups of units are identified at the lowest level at which goodwill is
monitored for internal management purposes, being the operating segments.
48
Notes to the consolidated financial statementsArena REIT 2. Summary of significant accounting policies (continued)
(s) 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 of disposal 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.
(t) Financial instruments
(i) Classification
The Group’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 Group 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 Group’s documented investment strategy. The
Group’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 Group
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 Group 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 Group 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 21(d).
49
Arena REIT / Financial Report 2017 2. Summary of significant accounting policies (continued)
(t) Financial instruments (continued)
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.
(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.
(u) Provisions
A provision is recognised when the Group 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 Group’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.
(v) 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.
(w) 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.
50
Notes to the consolidated financial statementsArena REIT 2. Summary of significant accounting policies (continued)
(x) 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 gross 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.
(y) Use of estimates
The Group 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.
(i) Financial instruments
For certain Group’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 more information on how fair value is
calculated please refer to note 21.
For certain other financial instruments, the carrying amounts approximate fair value due to the short-term nature of
these financial instruments.
(ii) Investment properties
The Group carries its investment properties at fair value with changes in the fair values recognised in profit or loss.
It obtains independent valuations of each property at least every 3 years. At the end of each reporting period, the
directors update their assessment of the fair value of each property, taking into account the most recent independent
valuations. The key assumptions used in this determination are set out in note 2(q) and 9.
(iii) Impairment of intangibles - Goodwill
The Group assesses the recoverability of intangibles and goodwill on at least an annual basis. In determining the
recoverability of these assets the Group uses a number of assumptions and estimates. The methodology and
assumptions used are disclosed in note 10.
(iv) Income taxes
The Group may be subject to income taxes in Australia. Certain judgment is required in determining the provision
for income taxes. There are many transactions and calculations undertaken during the ordinary course of business for
which the ultimate tax determination is uncertain. The Group recognises liabilities for anticipated tax outcomes based
on estimates of taxes which may be due. Where the final tax outcome of these matters is different from the amounts
that were initially recorded, such differences will impact the current and deferred tax provisions in the period in which
a determination is made.
51
Arena REIT / Financial Report 2017 2. Summary of significant accounting policies (continued)
(y) Use of estimates (continued)
(v) Deferred disposal and performance fees
The Group may receive management fees on the sale of property by an investment scheme for which it is the
responsible entity. Revenue for deferred disposal and performance fees is recognised for finite life schemes when the
performance criteria has been met, and for indefinite life schemes, in the period when the decision to sell a property
has been made. The amount of this “deferred” management fee is dependent on the sale price of the property. In
the calculation of deferred disposal and performance fees, the sale price is assumed to be the most current valuation
as reported in the investment scheme.
(z) Rounding of amounts
The Group is an entity of the kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports)
Instrument 2016/191, 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 Instrument, unless
otherwise indicated.
(aa) New accounting standards and interpretations
Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2017
reporting periods. The Group has not early adopted these standards/interpretations. The Group’s assessment of the
impact of relevant new standards and interpretations is set out below:
Effective annual
reporting periods
beginning on or
after
Expected to be
initially applied in
the financial year
ending
1 January 2018
30 June 2019
1 January 2018
30 June 2019
Standard /
Interpretation
Impact
The standard addresses the classification, measurement and
derecognition of financial instruments. For financial liabilities
that are measured under the fair value option, entities will
need to recognise the part of the fair value change that is due
to changes in their own credit risk in other comprehensive
income rather than profit or loss.
New hedge accounting rules align hedge accounting more
closely with common risk management processes. As a general
rule, it will be easier to apply hedge accounting going forward.
The new standard also introduces expanded disclosure
requirements and changes in presentation.
In December 2014, the AASB introduced a new impairment
model. The new impairment model is an expected credit loss
(ECL) model which may result in the earlier recognition of
credit losses.
Management does not expect the above changes to have a
significant impact on the Group’s financial statements.
The AASB has issued a new standard for the recognition of
revenue. This will replace AASB 118 which covers contracts for
goods and services and AASB 111 which covers construction
contracts. The new standard is based on the principle that
revenue is recognised when control of a good or service
transfers to a customer - so the notion of control replaces the
existing notion of risks and rewards.
Management does not expect this to have an impact on the
Group’s financial statements.
AASB 9 Financial
Instruments
AASB 15
Revenue from
contracts with
customers
52
Notes to the consolidated financial statementsArena REIT 2. Summary of significant accounting policies (continued)
(aa) New accounting standards and interpretations (continued)
Standard /
Interpretation
Impact
IFRS 16 Leases
In February 2016, the AASB issued AASB 16 Leases. The
standard provides a single lessee accounting model, requiring
lessees to recognise an asset (the right to use the leased item)
and a financial liability to pay rentals. The only exemptions are
where the lease term is 12 months or less, or the underlying
asset has a low value. Lessor accounting is substantially
unchanged under AASB 16.
Management does not expect the above changes to have
a significant impact on the Group’s financial statements on
adoption.
Effective annual
reporting periods
beginning on or
after
Expected to be
initially applied in
the financial year
ending
1 January 2019
30 June 2020
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.
53
Arena REIT / Financial Report 2017 3. Finance costs
Finance costs:
Interest paid or payable
Loan establishment and 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 2017
30 June 2016
$’000
$’000
4,496
218
–
4,714
1,040
5,754
3,951
181
201
4,333
1,172
5,505
(a) Finance costs are 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
Group’s outstanding borrowings at the end of each month.
4. Income taxes
Under current Australian income tax legislation, ARF1 and ARF2 are not liable to Australian income tax, provided that
the members are presently entitled to the income of the Trusts. Trust distributions are subject to income tax in the
hands of securityholders.
ARL and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation. ARL
as the head entity in the tax consolidated group, accounts for its own current and deferred tax amounts. ARL also
recognises the current and deferred tax liabilities (or assets) of the entities in the tax consolidation group. Where
appropriate, deferred tax assets and liabilities are offset.
(a) Numerical reconciliation of tax expense per the statutory income tax rate to income tax expense
recognised
Profit before income tax
Consolidated
30 June 2017
30 June 2016
$’000
96,791
$’000
72,621
Tax at the applicable Australian tax rate of 30% (2016 - 30%)
(29,037)
(21,786)
Profit attributable to entities not subject to tax
Deferred tax assets not recognised
Income tax expense
29,225
(188)
–
21,999
(213)
–
Unrecognised deferred tax assets are $0.2 million (2016: $0.2 million). These have not been recognised as it is not
probable that future taxable profit will arise to offset these deductible temporary differences.
54
Notes to the consolidated financial statementsArena REIT 5. Remuneration of auditors
During the year the following fees were paid or payable for services provided by the auditor of the Group:
PricewaterhouseCoopers Australian firm
Audit and other assurance services
Audit and review of financial statements
Audit of compliance plans
Total remuneration for audit and other assurance services
Taxation services
Tax compliance services, including review of income tax returns
Total remuneration for taxation services
Consolidated
30 June 2017
30 June 2016
$
$
105,550
10,150
115,700
42,213
42,213
104,000
10,000
114,000
31,673
31,673
Total remuneration of PricewaterhouseCoopers
157,913
145,673
6. Earnings per security (‘EPS’)
Basic EPS in Arena REIT No. 1
Diluted EPS in Arena REIT No. 1
Basic EPS in Arena REIT Group
Diluted EPS in Arena REIT Group
2017
Cents
37.32
37.08
41.44
41.18
2016
Cents
25.70
25.59
31.55
31.41
The following information reflects the income and security numbers used in the calculations of basic and diluted EPS.
Weighted average number of ordinary securities used in calculating basic EPS
Unvested LTI performance rights
Adjusted weighted average number of ordinary securities used in calculating diluted EPS
2017
2016
Number of
securities
Number of
securities
‘000
233,557
1,506
235,063
‘000
230,165
1,012
231,177
55
Arena REIT / Financial Report 2017 6. Earnings per security (‘EPS’) (continued)
Earnings used in calculating basic EPS for Arena REIT No. 1
Earnings used in calculating diluted EPS for Arena REIT No. 1
Earnings used in calculating basic EPS for Arena REIT Group
Earnings used in calculating diluted EPS for Arena REIT Group
7. Cash and cash equivalents
Cash at bank
Term deposits
Total cash and cash equivalents
30 June 2017
30 June 2016
$’000
87,161
87,161
96,791
96,791
$’000
59,155
59,155
72,621
72,621
Consolidated
30 June 2017
30 June 2016
$’000
7,782
1,300
9,082
$’000
8,146
1,300
9,446
Term deposits are used to secure bank guarantees in respect of development properties.
8. Trade and other receivables
(a) Trade and other receivables - Current
Trade receivables
Other receivables
Prepayments
Deferred performance fees receivable
Consolidated
30 June 2017
30 June 2016
$’000
149
7,758
459
247
8,613
$’000
75
391
503
-
969
Other receivables as at 30 June 2017 includes $6.8 million of sales proceeds payable to the Group following the
disposal of two ELC assets in June 2017.
56
Notes to the consolidated financial statementsArena REIT 8. Trade and other receivables (continued)
(i) 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
2017
$’000
Impairment
2017
$’000
Gross
2016
$’000
Impairment
2016
$’000
129
20
–
–
–
149
–
–
–
–
–
–
75
–
–
–
–
75
–
–
–
–
–
–
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.
(b) Receivables - Non-current
Deferred management & performance fees receivable
(i) Impairment and ageing
None of the non-current receivables are impaired or past due but not impaired.
(ii) Fair values
The fair values and carrying values of non-current receivables are as follows:
Deferred management & performance fees receivable
Consolidated
30 June 2017
30 June 2016
$’000
860
$’000
1,062
Consolidated
30 June 2017
Carrying amount
Fair value
$’000
860
$’000
860
57
Arena REIT / Financial Report 2017 9. Investment properties
(a) Valuations and carrying amounts
Property Portfolio
Carrying amount
Most recent external valuation
ELC properties
ELC developments
Healthcare properties
Total
2017
$’000
468,627
38,989
84,096
2016
$’000
391,037
22,216
78,186
2017
$’000
430,205
20,930
78,000
591,712
491,439
529,135
2016
$’000
354,388
13,570
74,128
442,086
The Group 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.
Independent valuations were performed on 38 Early Learning Centres (‘ELC’) as at 31 December 2016, and a
further 62 ELCs and 3 healthcare centres as at 30 June 2017. The directors have reviewed these valuations and has
determined they are appropriate to adopt during the financial period ending 30 June 2017. Director valuations were
performed on investment properties which were not independently valued.
The key inputs into valuations are:
• Passing rent;
• Market rents;
• Capitalisation rates;
• Lease terms;
• Discount rates (healthcare properties); and
• Capital expenditure contingencies (healthcare properties).
The key inputs into the valuation are based on market information for comparable properties. The majority
of childcare and healthcare properties are located in markets with evidence to support valuation inputs and
methodology. The independent valuers have experience in valuing similar assets and have access to market evidence
to support their conclusions. Comparable assets are considered those in similar markets and condition.
Investment properties have been classified as Level 2 in the fair value hierarchy.
There have been no transfers between the levels in the fair value hierarchy during the year.
(i) Key assumptions - ELCs
Market rent per licenced place
Capitalisation rates
Passing yields
(ii) Key assumptions - Healthcare properties
Capitalisation rates
Passing yields
58
30 June 2017
30 June 2016
$1,500 to $3,900
$1,400 to $3,900
5.5% to 8.5%
6.0% to 8.5%
4.5% to 10.25%
5.25% to 10.0%
30 June 2017
30 June 2016
6.0% to 7.0%
6.5% to 7.5%
6.0% to 7.75%
6.25% to 8.0%
Notes to the consolidated financial statementsArena REIT 9. Investment properties (continued)
(b) Movements during the financial year
At fair value
Opening balance
Property acquisitions and capital expenditure
Disposals
Revaluations
Other IFRS revaluation adjustments
Closing balance
(c) Amounts recognised in profit or loss for investment properties
Rental income
Other rental income (recognised on a straight line basis)
Direct operating expenses from property that generated rental income
Direct operating expenses from property that did not generate rental income
Revaluation gain on investment properties
Consolidated
30 June 2017
30 June 2016
$’000
$’000
491,439
39,971
(6,622)
66,124
800
420,532
21,277
(1,150)
51,062
(282)
591,712
491,439
Consolidated
30 June 2017
30 June 2016
$’000
37,437
732
(765)
(387)
66,124
$’000
33,316
(327)
(724)
(279)
51,062
(d) Tenancy risk
Set out below are details of the major tenants who lease properties from the Group:
Goodstart Early Learning Ltd (“Goodstart”) - representing 40% of the Group’s investment property portfolio by
income. Like many not-for-profit entities, Goodstart is a company limited by guarantee. 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. Goodstart’s “capital” is loan capital of varying
degrees of risk and subordination.
Primary Health Care Limited (“PRY”) - representing 15% of the Group’s investment property portfolio by income.
PRY is a listed company and a major operator of medical clinics throughout Australia. PRY has entered into a deed of
cross guarantee with its subsidiaries which are parties to the Group’s healthcare property leases. The Group also has a
parent entity guarantee with PRY to provide security for their performance under the leases.
Affinity Education Group Limited (“Affinity”) - representing 15% of the Group’s investment property portfolio by
income. Affinity is a privately held provider of early childhood education, owning and operating over 150 childcare
centres throughout Australia. Affinity have provided the Group with a pooled bank guarantee as security against each
of the properties leased.
59
Arena REIT / Financial Report 2017 9. Investment properties (continued)
Other Tenants
Operator
Petit Early Learning Journey
Oxanda Education
G8 Education
Green Leaves
% of Investment Property Portfolio by Income
5%
5%
5%
4%
All of the above tenants are childcare centre operators. G8 Education is listed on the Australian Securities Exchange.
The other tenants are privately owned with experience operating ELCs and their lease obligations are typically
secured by bank guarantees and cross defaults.
(e) Assets pledged as security
Refer to note 12 for information on investment properties and other assets pledged as security by the Group.
(f) Contractual obligations
Capital expenditure contracted for at the end of the reporting period but not recognised as liabilities is as follows:
Investment properties
30 June 2017
30 June 2016
$’000
12,719
$’000
14,456
The above commitments include the costs associated with developments, and the acquisition of childcare properties.
(g) Leasing arrangements
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 receivable under non-cancellable operating leases of investment
properties not recognised in the financial statements are receivable as follows:
Within one year
Later than one year but not later than 5 years
Later than 5 years
Consolidated
30 June 2017
30 June 2016
$’000
$’000
37,882
157,933
383,856
579,671
34,015
142,989
201,204
378,208
60
Notes to the consolidated financial statementsArena REIT 10. Intangible assets
Goodwill
Consolidated
30 June 2017
30 June 2016
$’000
10,816
10,816
$’000
10,816
10,816
The intangible asset held by the Group represents goodwill on acquisition. There are no other intangibles held by the
Group.
Goodwill has been allocated to the Group’s lowest cash generating unit representing funds management across the
Group’s business as a whole.
The Group tests impairment of goodwill annually by comparing its carrying amount with its recoverable amount. The
recoverable amount is determined by a value in use calculation which uses the discounted cash flow methodology
based on five years of cash flow projections, based on financial budgets, plus a terminal value.
Key assumptions include:
• growth rates set in the range of 2% to 3% per annum; and
• cash flows are discounted at a rate of 8.33% per annum.
The Group has considered and assessed reasonably possible changes in key assumptions and have not identified any
instances that could cause the carrying amount to exceed its recoverable amount.
11. Trade and other payables
Prepaid rental income
Sundry creditors and accruals
Trade and other payables are non-interest bearing.
12. Interest bearing liabilities
Non-current:
Secured
Syndicated facility
Unamortised transaction costs
Total secured non-current borrowings
Consolidated
30 June 2017
30 June 2016
$’000
2,020
7,285
9,305
$’000
2,059
6,628
8,687
Consolidated
30 June 2017
30 June 2016
$’000
$’000
171,000
(376)
170,624
138,000
(413)
137,587
61
Arena REIT / Financial Report 2017 12. Interest bearing liabilitiess (continued)
(a) Financing arrangements
Consolidated
30 June 2017
30 June 2016
$’000
$’000
Committed facilities available at the end of the reporting period
Interest bearing liabilities
205,000
175,000
Facilities used at the end of the reporting period
Interest bearing liabilities
171,000
138,000
In January 2017, the total facility limit of the Group was extended by $30 million. At 30 June 2017, the Group had
$102.5 million of debt facility expiring on 31 December 2018 and $102.5 million of debt facility expiring on 31
December 2020. The facilities are available to both ARF1 and ARF2 and the assets of both Trusts are held as security
under the facilities.
The interest rate applying to the drawn amount of the facilities is set on a monthly basis at the prevailing market
interest rates.
The undrawn amount of the bank facilities may be drawn at any time.
(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 Arena REIT No. 1 and Arena REIT No. 2.
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
(c) Covenants
Consolidated
30 June 2017
30 June 2016
$’000
$’000
6,052
8,171
14,223
6,444
613
7,057
591,712
591,712
491,439
491,439
The covenants over the Group’s bank facility require an interest cover ratio of greater than 2.0 times (Actual at 30 June
2017 of 5.6 times) and a loan to market value of investment properties ratio of less than 50% (Actual at 30 June 2017 of
32.0%). The Group was in compliance with its covenants throughout the year.
62
Notes to the consolidated financial statementsArena REIT 13. Derivative financial instruments
Non-current liabilities
Interest rate swaps
Consolidated
30 June 2017
30 June 2016
$’000
$’000
1,031
1,031
3,030
3,030
The Group has entered into interest rate swap contracts under which they receive interest at variable rates and pay
interest at fixed rates to protect interest bearing liabilities from exposure to changes in interest rates.
Swaps currently in place cover 79% (2016: 72%) of the facility principal outstanding. The weighted average fixed
interest swap rate at 30 June 2017 was 2.39% (2016: 2.48%), and the weighted average term was 4.3 years (2016: 4.0
years).
Periodic swap settlements match the period for which interest is payable on the underlying debt, and are settled on a
net basis.
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
4 - 5 years
Greater than 5 years
14. Contributed equity
(a) Securities
Consolidated
30 June 2017
30 June 2016
$’000
–
10,000
35,000
22,500
22,500
45,000
$’000
–
25,000
10,000
20,000
22,500
22,500
135,000
100,000
30 June 2017
30 June 2016
30 June 2017
30 June 2016
Securities ‘000
Securities ‘000
$’000
$’000
Consolidated
Ordinary Securities
Fully paid
234,843
231,966
202,179
197,224
Other contributed equity attributable to securityholders of the Group relating to ARF2 and ARL of $40.4 million is
included within Non-controlling interests - ARF2 and ARL (30 June 2016: $39.7 million).
63
Arena REIT / Financial Report 2017 14. Contributed equity (continued)
(b) Movements in ordinary securities
Date
Details
1 July 2015
Opening balance
Issue of securities under DRP (i)
30 June 2016
Closing balance
1 July 2016
Opening balance
Issue of securities under DRP (i)
30 June 2017
Closing balance
(i) Distribution Re-investment Plan (DRP)
Number of
securities
‘000
228,290
3,676
231,966
231,966
2,877
234,843
$’000
191,845
5,379
197,224
197,224
4,955
202,179
The Group has a Distribution Reinvestment Plan (DRP) under which securityholders may elect to have all or part of
their distribution entitlements satisfied by the issue of new securities rather than being paid in cash. The DRP first
came into operation with the distribution for the quarter-ended 30 September 2014 and remains open at the date of
these financial statements.
(c) Capital management
The objectives of the Stapled Group are to generate attractive and predictable income distributions to investors with
earnings growth prospects over the medium to long term.
The Group aims to invest to meet the Group’s investment objectives while maintaining sufficient liquidity to meet
its commitments. The Group regularly reviews performance, including asset allocation strategies, investment and
operational management strategies, investment opportunities, performance review, and risk management.
In order to maintain its capital structure, the Group may adjust the amount of distributions paid to securityholders,
return capital to securityholders, issue new securities or sell assets to reduce debt.
The Group monitors capital through the analysis of a number of financial ratios, including the Gearing ratio.
2017
$’000
171,000
621,282
27.5%
2016
$’000
138,000
513,951
26.8%
Gearing Ratio
Interest bearing liabilities
Total assets
Gearing ratio
64
Notes to the consolidated financial statementsArena REIT 15. Accumulated profit
Movements in accumulated profit were as follows:
Opening accumulated profit
Net profit for the year attributable to ARF1
Distribution paid or payable attributable to ARF1
Closing accumulated profit
Distributions to securityholders
Consolidated
30 June 2017
30 June 2016
$’000
$’000
99,187
87,161
(24,419)
161,929
61,900
59,155
(21,868)
99,187
The following table details the distributions to securityholders during the financial year on a consolidated basis,
including distributions declared by ARF2 (classified as a non-controlling interest) of $3.6 million (30 June 2016: $3.3
million).
Distributions declared
September quarter
December quarter
March quarter
June quarter
2017
$’000
6,807
6,834
7,205
7,222
2016
$’000
6,128
6,158
6,413
6,437
2017
cps
2.9250
2.9250
3.0750
3.0750
2016
cps
2.6750
2.6750
2.7750
2.7750
Total distributions to securityholders
28,068
25,136
12.0000
10.9000
16. Non-controlling interests
The financial statements reflect the consolidation of ARF1, ARF2 and ARL. For financial reporting purposes, one entity
in the stapled group must be identified as the acquirer or parent entity of the others. ARF1 has been identified as the
acquirer of ARF2 and ARL, resulting in ARF2 and ARL being disclosed as Non-controlling interests.
Movements in non-controlling interests were as follows:
Opening balance - 1 July 2015
Securities issued under DRP
Net profit/(loss) for the year attributable to non-controlling interests
Distributions paid or payable attributable to non-controlling interests
Increase/(decrease) in reserves (i)
ARF2
ARL
Total
30 June 2016
30 June 2016
30 June 2016
35,259
788
14,175
(3,268)
–
14,487
–
(709)
–
350
49,746
788
13,466
(3,268)
350
Closing balance - 30 June 2016
46,954
14,128
61,082
65
Arena REIT / Financial Report 2017 16. Non-controlling interests (continued)
Opening balance - 1 July 2016
Securities issued under DRP
Net profit/(loss) for the year attributable to non-controlling interests
Distributions paid or payable attributable to non-controlling interests
Increase/(decrease) in reserves (i)
ARF2
ARL
Total
30 June 2017
30 June 2017
30 June 2017
46,954
744
10,256
(3,649)
–
14,128
-
(626)
–
561
61,082
744
9,630
(3,649)
561
Closing balance - 30 June 2017
54,305
14,063
68,368
(i) Reserves
Opening balance
Security-based benefts expense for the period
Balance 30 June
Consolidated
30 June 2017
30 June 2016
$’000
462
561
1,023
$’000
112
350
462
The security-based benefits reserve is used to recognise the fair value of rights issued under the Group’s Long Term
Incentive Plan.
17. Segment information
The Group operates as one business segment being investment in real estate, and in one geographic segment
being Australia. The Group’s segments are based on reports used by the Chief Operating Decision Maker in making
strategic decisions about the Group, assessing the financial performance and financial position of the Group,
determining the allocation of resources, and risk management.
18. Related party disclosures
Subsidiaries
Investments in subsidiaries is set out in note 19.
Key management personnel compensation
Short-term employee benefits
Post-employment benefits
Long-term benefits
Termination benefits
Security-based benefits expense
Detailed remuneration disclosures are provided in the Remuneration report.
66
30 June 2017
30 June 2016
$
$
1,980,409
113,251
24,860
–
519,783
1,869,119
115,265
14,313
–
331,827
2,638,303
2,330,524
Notes to the consolidated financial statementsArena REIT 18. Related party disclosures (continued)
Stapled group
The Arena REIT Stapled Group comprises ARF1, ARF2, and ARL and its controlled entities.
Arena REIT Management Limited (a wholly owned subsidiary of ARL) is Responsible Entity of the Trusts.
Responsible entity
The Responsible Entity or its related parties are entitled to receive fees in accordance with the Group’s constitution,
from the Group and its controlled entities.
The following transactions occurred with related parties:
Property management income received from other related parties
Management fees received by the Group from other related parties
Property income received from other related parties
Increase/(decrease) in fair value of performance fee receivable by the Group from
other related parties
Amounts receivable:
30 June 2017
30 June 2016
$
$
50,000
389,089
46,550
28,000
344,234
43,163
44,770
(127,326)
Amount receivable from other related parties at the end of the reporting period
71,971
52,752
Deferred management and performance fees receivable at the end of the reporting
period
1,106,580
1,061,811
Amounts payable:
Amounts payable to other related parties at the end of the reporting period
–
–
19. Investments in subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries of
ARL:
Name of entity
Country of
incorporation
Class of shares
Equity holding
Citrus Investment Services Limited
Arena REIT Management Limited
Arena REIT Operations Pty Limited
Australia
Australia
Australia
Ordinary
Ordinary
Ordinary
2017
%
100
100
100
2016
%
100
100
100
The management function of the Group was internalised from 12 December 2014. The internalisation process
involved the stapling of each share in Arena REIT Limited (‘ARL’) to each existing stapled security, as well as the
acquisition by ARL of Citrus Investment Services Pty Ltd and Arena REIT Management Limited.
67
Arena REIT / Financial Report 2017 20. Security-based benefits expense
(a) Performance Rights and Recognition Rights Plan (Rights)
The performance rights and recognition rights are unquoted securities. Conversion to stapled securities is subject to
service and performance conditions which are discussed in the Remuneration Report.
Performance rights
Rights issued
Performance rights issued
Number rights forfeited/lapsed in prior years
Number rights forfeited/lapsed in current year
Number rights vested in prior years
Number rights vested in current year
2017
Number
523,916
523,916
–
–
–
–
2016
Number
535,655
535,655
(4,848)
(16,162)
–
–
2015
Number
304,987
304,987
-
(9,574)
–
–
Total
Number
1,364,558
1,364,558
(4,848)
(25,736)
–
–
Closing balance
523,916
514,645
295,413
1,333,974
Recognition rights
Rights issued
Recognition rights issued
Number rights forfeited/lapsed in prior years
Number rights forfeited/lapsed in current year
Number rights vested in prior years
Number rights vested in current year
Closing balance
(b) Rights expense
2017
Number
2016
Number
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2015
Number
186,660
186,660
(10,000)
(4,918)
–
–
Total
Number
186,660
186,660
(10,000)
(4,918)
–
–
171,742
171,742
Total expenses relating to the Rights recognised during the year as part of employee benefit expense was as follows:
Performance Rights and Recognition Rights
30 June 2017
30 June 2016
$’000
561
561
$’000
350
350
68
Notes to the consolidated financial statementsArena REIT 20. Security-based benefits expense (continued)
(c) Rights valuation inputs
Rights issued were independently valued for the purposes of valuation and accounting using a Binomial Tree or
Monte Carlo method, as applicable. The model inputs for the Rights issued during FY17 to assess the fair value are as
follows:
Performance rights
Grant date
Security price at grant date
Fair value of right
Expected price volatility
Risk-free interest rate
1 July 2016
$2.00
$1.29
20%
1.53%
21. Financial risk management and fair value measurement
The Group’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 Group is exposed to are market
risk, credit risk and liquidity risk. The exposure to each of these risks, as well as the Group’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 interest rate risk and price risk. The Group’s
strategy on the management of investment risk is driven by the Group’s investment objective. The Group’s market risk
is managed in accordance with the investment guidelines as outlined in the Group’s Product Disclosure Statement.
(i) Cash flow and fair value interest rate risk
The Group’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 Group economically 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 Group has limited its
exposure to changes in interest rates on its cash flows. The portion that is hedged is set by the board of directors and
is influenced by the hedging requirements set out in the Group’s debt facility documents, and the market outlook.
The Group ensures the maturity of individual swaps does not exceed the expected life of assets.
The Group’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:
Consolidated
30 June 2017
30 June 2016
$’000
$’000
Financial assets
Cash and cash equivalents (floating interest rate)
9,082
9,446
Financial liabilities
Interest bearing liabilities - floating interest rate
Derivative financial instruments (notional principal amount) - fixed rate interest rate swaps
Net Exposure
(171,000)
135,000
(26,918)
(138,000)
100,000
(28,554)
69
Arena REIT / Financial Report 2017 21. Financial risk management and fair value measurement (continued)
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 (2016: 100 bp)
Market interest rate decreased by 100 basis points (2016: 100 bp)
Instruments with fair value risk:
Derivative financial instruments
Consolidated
2016
$’000
(286)
286
2017
$’000
(269)
269
135,000
100,000
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 (2016: 100 bp)
Market interest rate decreased by 100 basis points (2016: 100 bp)
5,530
(5,530)
3,571
(3,571)
The interest rate range for sensitivity purposes has been determined using the assumption that interest rates
changed by +/- 100 basis points from year end rates with all other variables held constant. In determining the impact
of an increase/decrease in equity to securityholders arising from market risk the Group has considered prior period
and expected future movements of the portfolio information in order to determine a reasonable possible shift in
assumptions.
(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 Group’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
Consolidated
30 June 2017
30 June 2016
$’000
9,082
2,214
–
$’000
9,446
1,528
–
Maximum exposure to credit risk
11,296
10,974
The Group 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 Group endeavours to obtain financial information from the
prospective tenant, and rental guarantees are sought before a tenancy is approved. Third party credit risk is secured
by corporate, personal and bank guarantees where possible.
All receivables are monitored by the Group. 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.
70
Notes to the consolidated financial statementsArena REIT 21. Financial risk management and fair value measurement (continued)
(c) Liquidity risk
Liquidity risk is the risk that the Group 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 Group monitors its exposure to liquidity risk by ensuring that as required there is sufficient cash on hand or debt
facility funding available to meet the contractual obligations of financial liabilities as they fall due. The Group sets
budgets to monitor cash flows.
The table below analyses the Group’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 2017
Trade and other payables
Interest rate swaps
Interest bearing liabilities
Less than
12 months
$’000
16,526
1,041
4,977
1-2 years
$’000
–
1,020
106,058
Greater than
2 years
$’000
–
2,762
71,688
Contractual cash flows (excluding gross settled derivatives)
22,544
107,078
74,450
Consolidated
30 June 2016
Trade and other payables
Interest rate swaps
Interest bearing liabilities
Less than
12 months
$’000
1-2 years
$’000
Greater than
2 years
$’000
15,124
625
3,347
–
613
3,347
–
1,373
146,775
Contractual cash flows (excluding gross settled derivatives)
19,096
3,960
148,148
(d) Fair value estimation
The carrying amounts of the Group’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.
71
Arena REIT / Financial Report 2017 21. Financial risk management and fair value measurement (continued)
(e) Fair value hierarchy
(i) Classification of financial assets and financial liabilities
AASB 13 requires disclosure of fair value measurements by level of fair value hierarchy. 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.
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 following table presents the Group’s financial assets and liabilities (by class) measured at fair value according to
the fair value hierarchy at 30 June 2017 and 30 June 2016 on a recurring basis:
Consolidated
30 June 2017
Financial liabilities
Interest rate swaps
Total
Consolidated
30 June 2016
Financial liabilities
Interest rate swaps
Total
Level 1
$’000
Level 2
$’000
Level 3
$’000
–
–
Level 1
$’000
–
–
1,031
1,031
Level 2
$’000
3,030
3,030
–
–
Level 3
$’000
–
–
Total
$’000
1,031
1,031
Total
$’000
3,030
3,030
The Group’s policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the
reporting period. There were no transfers between levels during the year.
The Group did not measure any financial assets or financial liabilities at fair value on a non-recurring basis as at 30
June 2017.
72
Notes to the consolidated financial statementsArena REIT 21. Financial risk management and fair value measurement (continued)
(ii) Valuation techniques used to derive level 2 and level 3 values
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter
derivatives) is determined using valuation techniques. These valuation techniques maximise the use of observable
market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs
required to fair value an instrument are observable, the instrument is included in level 2.
If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.
The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on
observable yield curves, taking into account any material credit risk.
(f) AFSL financial compliance risk
The Group is exposed to the risk of having inadequate capital and liquidity. Arena REIT Management Limited, a
subsidiary of ARL, holds an Australian Financial Services License (‘AFSL’) and acts as a responsible entity for the
Group’s managed investment schemes. The AFSL requires minimum levels of net tangible assets, liquid assets, cash
reserves and liquidity, which may restrict the Group in paying dividends that would breach these requirements.
The directors regularly review and monitor the Group’s balance sheet to ensure ARML’s compliance with its AFSL
requirements.
22. Parent entity financial information
Summary of 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 No. 1
Comprehensive income information
30 June 2017
30 June 2016
$’000
$’000
87,161
59,155
Total comprehensive income attributable to Arena REIT No. 1
87,161
59,155
Balance Sheet
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Equity attributable to securityholders of Arena REIT No. 1
Contributed equity
Accumulated profit
12,662
507,616
520,278
14,347
141,823
156,170
202,179
161,929
364,108
6,330
413,253
419,583
13,161
110,010
123,171
197,224
99,188
296,412
73
Arena REIT / Financial Report 2017 23. 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
Straight lining adjustment on rental income
Net (gain)/loss on sale of direct property
Net (gain)/loss on derivative financial instruments
Security-based payments expense
Other
Asset transaction costs
Changes in operating assets and liabilities
Decrease/(increase) in trade and other receivables
(Decrease)/increase in trade and other payables
(Decrease)/increase in provisions
Consolidated
30 June 2017
30 June 2016
$’000
96,791
141
(66,124)
(732)
–
(1,805)
561
81
–
(47)
215
(92)
$’000
72,621
103
(51,062)
327
121
2,915
350
174
201
79
303
54
Net cash inflow from operating activities
28,989
26,186
24. Contingent assets and liabilities and commitments
There are no material outstanding contingent assets or liabilities as at 30 June 2017 and 30 June 2016. For details of
commitments of the Group as at 30 June 2017, refer to note 9.
25. Events occurring after the reporting period
On 28 July 2017, the Group announced the acquisition of a portfolio of nine ELC properties under development for
a total cost of $65 million. In conjunction with this acquisition, the Group undertook a fully underwritten Institutional
Placement of $55 million.
On 7 August 2017, the Group issued a Security Purchase Plan for eligible Australian and New Zealand investors to
raise up to $10 million. This offer remains open as at the date of this report.
Other than those matters identified above, no other significant events have occurred since the end of the reporting
period which would impact on the financial position of the Group disclosed in the consolidated balance sheet as at 30
June 2017 or on the results and cash flows of the Group for the year ended on that date.
74
Notes to the consolidated financial statementsArena REIT Directors’ declaration
In the opinion of the directors:
(a) the financial statements and notes set out on pages 37 to 74 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 Group’s financial position as at 30 June 2017 and of its performance for the
financial year ended on that date, and
(b) there are reasonable grounds to believe that the Group 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 director 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, 24 August 2017
75
Arena REIT / Financial Report 2017 Independent auditor’s report
Independent auditor’s report to the security holders of Arena REIT No. 1
Report on the audit of the financial report
Our opinion
In our opinion:
The accompanying financial report of Arena REIT No. 1 (ARF1) and its controlled entities (together the Group
or the Arena REIT Stapled Group) is in accordance with the Corporations Act 2001, including:
a)
giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its financial
performance for the year then ended
b)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The Group financial report comprises:
the consolidated balance sheet as at 30 June 2017
the consolidated statement of comprehensive income for the year then ended
the consolidated statement of changes in equity for the year then ended
the consolidated statement of cash flows for the year then ended
the notes to the consolidated financial statements, which include a summary of significant accounting
policies
the directors’ declaration.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those
standards are further described in the Auditor’s responsibilities for the audit of the financial report section of
our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Independence
We are independent of the Group in accordance with the auditor independence requirements of the
Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards
Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the
financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the
Code.
Our audit approach
An audit is designed to provide reasonable assurance about whether the financial report is free from material
misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of
the financial report.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the
financial report as a whole, taking into account the geographic and management structure of the Group, its
accounting processes and controls and the industry in which it operates.
PricewaterhouseCoopers, ABN 52 780 433 757
2 Riverside Quay, 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.
76
Arena REIT Materiality
Audit scope
Key audit matters
For the purpose of our audit we used
Our audit focused on areas where
the Group made subjective
judgements; for example, significant
accounting estimates involving
assumptions and inherently
uncertain future events.
overall group materiality of $1.44 million
which represents approximately 5% of the
Group’s profit before tax adjusted for
significant non-cash fair value movements.
We applied this threshold, together with
qualitative considerations, to determine
the scope of our audit and the nature,
timing and extent of our audit procedures
and to evaluate the effect of misstatements
on the financial report as a whole.
We chose profit before tax adjusted for
significant non-cash fair value movements
because, in our view, it is the key
performance measure used by
shareholders to measure the performance
of the Group and it underpins the basis of
distributable income. We adjusted Group
profit before tax for fair value movements
in investment properties and fair value
changes in derivatives.
Amongst other relevant topics,
we communicated the
following key audit matter to
the Audit Committee:
Fair value of investment
properties
This is further described in the
‘key audit matters’ section of
our report.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit
of the financial report for the current period. The key audit matters were addressed in the context of our audit
of the financial report as a whole and in forming our opinion thereon, and we do not provide a separate opinion
on these matters. Further, any commentary on the outcomes of a particular audit procedure is made in that
context.
Key audit matter
Fair value of investment properties
(Refer to note 9 in the financial report)
The Group’s portfolio of investment properties
was recognised as an asset in the financial report
at $591.7m at 30 June 2017 and comprised of
205 properties in the Early Learning Centres
(ELC) and healthcare sectors in Australia.
The investment properties are recognised at fair
value, with changes in the fair values recognised
in the profit and loss.
The estimation of fair value for investment
properties was a key audit matter because of:
the magnitude of the investment
properties asset balance relative to the
net assets of the Group
How our audit addressed the key audit matter
As at 30 June 2017, the Group obtained independent valuations on 62
ELC properties and 3 healthcare centres. We checked that investment
properties were valued by external experts as required by the Group’s
valuation program.
For a sample of investment properties with external valuations, we
assessed the objectivity, competency, and independence of the
external experts.
In addition, for a sample of the investment properties where the
Group involved external valuation experts, we:
considered the external valuer’s terms of engagement and
checked for factors such as caveats or limitations that may
have influenced the outcomes. We did not note any such
factors
agreed the passing rents and lease terms applied in the
valuations to the underlying leases
77
Arena REIT / Financial Report 2017 Independent auditor’s report
Key audit matter
How our audit addressed the key audit matter
the level of judgement involved in the
underlying assumptions used in the
models determining the fair value of
investment properties (the fair value
models)
the sensitivity of fair value to any
changes in key inputs and assumptions
used in the models
the potential impact to profit as a result
of the revaluation of investment
properties.
The fair value of investment properties is
influenced by:
the valuation methodology adopted
key judgemental assumptions used in the fair
value models, such as capitalisation rate,
market rent per licensed place (ELC
properties) and passing yields
other key inputs in the fair value models,
such as passing rent and lease terms.
assessed the external experts’ valuations against our industry
and market knowledge
inspected the final valuation reports and agreed the fair value
to the Group’s accounting records noting no exceptions.
In respect to other investment properties, we:
checked that Group staff with relevant professional
qualification assisted in estimating the fair value
on a sample basis, agreed the passing rent and lease terms
applied in the fair value models to the underlying leases
on a sample basis, compared key assumptions (e.g.
capitalisation rates, market rent per licensed place, passing
yields) applied in the fair value models to independent
sources and similar sized properties in the market, with
consideration of historical data and known external factors.
In instances where key assumptions fell outside of our
anticipated ranges, we challenged the rationale supporting
the assumptions applied in the fair value models by
discussing with management and obtaining supporting
evidence. We note that the reasons provided by management
were appropriate.
considered the independent valuers report on the directors’
valuation assessment and checked for indicators that may
suggest the director valuations are outside a reasonable
range
Other information
The directors are responsible for the other information. The other information included in the Group’s annual
report for the year ended 30 June 2017 comprises the Directors’ report, ASX additional information and
Corporate directory (but does not include the financial report and our auditor’s report thereon), which we
obtained prior to the date of this auditor’s report. We also expect other information to be made available to us
after the date of this auditor’s report, including the Highlights, Letter from the Chairman, Managing Director’s
Report, Portfolio Summary, Corporate Governance and Investor Information.
Our opinion on the financial report does not cover the other information and we do not and will not express an
opinion or any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
identified above and, in doing so, consider whether the other information is materially inconsistent with the
financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed on the other information that we obtained prior to the date of this
auditor’s report, we conclude that there is a material misstatement of this other information, we are required to
report that fact. We have nothing to report in this regard.
When we read the other information not yet received as identified above, if we conclude that there is a material
misstatement therein, we are required to communicate the matter to the directors and use our professional
judgement to determine the appropriate action to take.
Responsibilities of the directors for the financial report
The directors of Arena REIT Management Limited (the responsible entity of the ARF1) 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 controls as the directors determine is necessary
to enable the preparation of the financial report that gives a true and fair view and is free from material
misstatement, whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no
realistic alternative but to do so.
78
Arena REIT Auditor’s responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance
with the Australian Auditing Standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they
could reasonably be expected to influence the economic decisions of users taken on the basis of the financial
report.
A further description of our responsibilities for the audit of the financial report is located at the Auditing and
Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This
description forms part of our auditor’s report.
Report on the remuneration report
Our opinion on the remuneration report
We have audited the remuneration report included in pages 23 to 34 of the directors’ report for the year ended
30 June 2017.
In our opinion, the Remuneration Report of Arena REIT No. 1 for the year ended 30 June 2017 complies with
section 300A of the Corporations Act 2001.
Responsibilities
The directors of Arena REIT Management Limited (the responsible entity of the ARF1) are responsible for the
preparation and presentation of the remuneration report in accordance with section 300A of the Corporations
Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit
conducted in accordance with Australian Auditing Standards.
PricewaterhouseCoopers
Elizabeth O’Brien
Partner
24 August 2017
Melbourne
79
Arena REIT / Financial Report 2017 ASX additional information
Additional Securities Exchange Information as at 17 August 2017
There were 262,431,895 fully paid ordinary securities on issue, held by 4,296 securityholders. There were 170 holders
holding less than a marketable parcel.
The voting rights attaching to the ordinary securities, set out in section 253C of the Corporations Act 2001, are:
(i) on a show of hands every person present who is a securityholder has one vote; and
(ii) on a poll each securityholder present in person or by proxy or attorney has one vote for each security they have in
the Group.
Distribution of securityholders
Number of securities held
Number of
securityholders
Total
securities held
% of total
securities on issue
1-1,000
1,001-5,000
5,001-10,000
10,001-100,000
100,000 and over
Total
Substantial securityholders
Name of substantial securityholder
Australian Unity Funds Management Limited
The Vanguard Group, Inc
Commonwealth Bank of Australia
BT Investment Management Limited
559
864
703
2,069
101
239,289
2,552,422
5,656,678
62,791,438
191,192,068
0.09
0.97
2.16
23.93
72.85
4,296
262,431,895
100.00
Number of
securities
27,677,037
16,352,388
15,907,988
11,748,203
Fully Paid (%)
12.08
8.10
6.94
5.00
80
Arena REIT Twenty largest securityholders
Holder Name
HSBC Custody Nominees (Australia) Limited
BNP Paribas Noms Pty Ltd
J P Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
National Nominees Limited
The Trust Company Limited
BNP Paribas Nominees Pty Ltd
Sandhurst Trustees Ltd
HSBC Custody Nominees (Australia) Limited - A/c 2
Mr David Calogero Loggia
Brispot Nominees Pty Ltd
Keith David Kirk
Navigator Australia Ltd
Austral Capital Pty Ltd
Mr Jiebo Huang
Mr David Stewart Field
Norcad Investments Pty Ltd
National Nominees Limited
Mr Philippe Denis Georges Perez
Netwealth Investments Limited
Number of
securities
Fully Paid (%)
48,920,540
34,305,895
28,045,434
18,601,644
18,025,519
10,370,309
6,754,755
2,664,364
2,509,977
1,127,260
808,699
722,195
627,684
600,000
547,030
545,780
495,050
475,882
470,251
463,008
18.64
13.07
10.69
7.09
6.87
3.95
2.57
1.02
0.96
0.43
0.31
0.28
0.24
0.23
0.21
0.21
0.19
0.18
0.18
0.18
Totals
177,081,276
67.48
81
Arena REIT / Financial Report 2017 Investor Information
ASX listing
Distribution payments
Arena REIT is listed on the Australian Securities
Exchange (ASX) under the code ARF.
Arena REIT securities
A stapled security in Arena REIT comprises:
• one share in Arena REIT Limited;
• one unit in Arena REIT No.1; and
• one unit in Arena REIT No.2;
Arena makes distribution payments on a quarterly basis,
typically within six weeks of the quarter end. Details of
the 2017 financial year distributions are provided in the
table below.
FY17 distributions
Quarter ended
Payment date
Distribution
amount (cps)
stapled and traded together as one security.
30 September 2016
11 November 2016
Accessing information on Arena
The Arena website www.arena.com.au provides access
to the latest announcements, reports and presentations
released by Arena. It also provides information on
Arena’s Board and management team, as well as access
to information on your investment via the Investor
Centre.
Receiving information electronically
By electing to receive information from Arena
electronically, you will receive secure and
environmentally friendly email notifications of ASX
announcements, distribution and annual tax statements,
annual reports and upcoming events. If you wish to
register for electronic communications you can log in
and update your details online, download the form from
the registry website at www.boardroomlimited.com.au/
investor-forms/or call 1800 008 494 to request a form.
Managing your investment online
You can manage your holding online by registering
at the Investor Centre on the Arena website. To
register, please call 1800 008 494 and request an online
password. Once received, go to the Investor Centre
at www.arena.com.au/Investor-Centre and click on
‘Investor Login’ to register.
82
31 December 2016
9 February 2017
31 March 2017
11 May 2017
30 June 2017
10 August 2017
2.925
2.925
3.075
3.075
To ensure timely receipt of your distribution, please
consider the following:
Direct credit
Arena encourages investors to receive distribution
payments by direct credit to their nominated bank
account. If you wish to register for direct credit or
update your payment details you can log in and amend
your details online, download the form from the registry
website at www.boardroomlimited.com.au/investor-
forms/ or call 1800 008 494 to request a form.
Dividend and distribution reinvestment plan
The dividend and distribution reinvestment plan (DRP)
is currently in operation and allows investors to reinvest
their distribution payments automatically into additional
securities, without brokerage or other transaction costs.
Participation is optional and investors can join, vary their
participation or withdraw from the DRP at any time.
Please visit the Investor Centre www.arena.com.au/
Investor-Centre for further details.
Tax File Number (TFN) notification
You are not required by law to provide your TFN,
Australian Business Number (ABN) or exemption
status. However, if you do not provide your TFN, ABN
or exemption, withholding tax at the highest marginal
rate for Australian resident members may be deducted
from distributions paid to you. If you wish to update
your TFN, ABN or exemption status, you can log in and
amend your details online, download the form from the
registry website at www.boardroomlimited.com.au/
investor-forms/ or call 1800 008 494 to request a form. If
you are a chess holder, please contact your sponsoring
broker.
Arena REIT Annual tax statement and 2017 tax guide
Arena calendar*
An annual tax statement is dispatched to investors in
August each year. To assist in completion of your tax
return, Arena also publishes an annual tax guide each
year. The 2017 tax guide is available for download from
the Investor Centre www.arena.com.au/Investor-Centre.
Investor feedback or complaints
February
• Interim results released
• Distribution paid for quarter ended 31 December
May
• Distribution paid for quarter ended 31 March
If you have any complaints or feedback, please direct
these in writing to:
August
Arena REIT
Locked Bag 32002
Collins Street East
Melbourne VIC 8003
Telephone: 1800 008 494
Email: complaints@arena.com.au
• Annual results released
• Distribution paid for quarter ended 30 June
• Annual tax statements dispatched
September
• Annual Report released
If you make a complaint and do not receive a satisfactory
outcome, you can contact the Financial Ombudsman
Service Limited (FOS), of which Arena is a member, on
the details below. FOS is an external dispute resolution
scheme approved by the Australian Securities and
Investments Commission (ASIC). Please note that FOS
will not deal with complaints that have not first been
referred to Arena for resolution.
• Notice of Annual General Meeting dispatched
November
• Distribution paid for quarter ended 30 September
• Annual General Meeting
*The dates listed above are indicative only and subject to change.
FOS can be contacted at:
Financial Ombudsman Service Limited
GPO Box 3
Melbourne VIC 3001
Telephone: 1800 367 287
Email: info@fos.org.au
Privacy policy
Arena is committed to ensuring the confidentiality and
security of investors’ personal information. Arena’s
privacy policy, detailing how we handle personal
information, is available on the Arena website
www.arena.com.au
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Arena REIT / Annual Report 2017 Corporate
Directory
Arena REIT Limited
ACN 602 365 186
Arena REIT Management Limited
ACN 600 069 761 AFSL 465754
Registered Office
Level 5, 41 Exhibition Street
Melbourne VIC 3000
Phone: +61 3 9093 9000
Fax: +61 3 9093 9093
Email: info@arena.com.au
Website: www.arena.com.au
Directors
David Ross (Independent,
Non-Executive Chairman)
Simon Parsons (Independent,
Non-Executive Director)
Dennis Wildenburg (Independent,
Non-Executive Director)
Bryce Mitchelson (Managing Director)
Gareth Winter (Executive Director)
Company Secretary
Gareth Winter
Auditor
PricewaterhouseCoopers
2 Riverside Quay
Southbank VIC 3006
Registry
Boardroom Pty Limited
Level 12, 225 George Street
Sydney NSW 2001
Telephone: 1300 737 760
Investor inquiries and
correspondence
Arena REIT
Locked Bag 32002
Collins Street East
Melbourne VIC 8003
Telephone: 1800 008 494
Website: www.arena.com.au
Email: info@arena.com.au
Stock exchange listing
Arena REIT stapled securities are listed on
the Australian Securities Exchange (ASX)