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Annual Report 2018
Important Notice
This report has been prepared by 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
Contents
FY18 Highlights
Chairman and 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
Corporate Directory
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
10
12
13
14
15
35
36
40
77
78
82
84
86
3
Little Giants ELC, Killara, NSW
Arena REIT • Annual Report 2018 FY18 Highlights
Arena REIT is an ASX300
listed group that owns,
manages and develops
social infrastructure
property across Australia.
Our objective is to
deliver an attractive and
predictable distribution to
investors with earnings
growth prospects over the
medium to long term.
$34.7m
Net Operating profit
Up 21% on FY17
$726.1m
Total Assets
Up 17% on 30 June 2017
13.1¢
Distributable income
(earnings) per security (EPS)
Up 6.5% on FY17
12.8¢
Distributions per security
(DPS)
Up 6.7% on FY17
$64.4m
$1.97
Statutory Net Profit
Down 33% on FY17,
predominantly due to
reduced uplift in investment
property valuations
Net Asset Value (NAV) per
security
Up 7.1% on 30 June 2017
4
Green Leaves ELC, Richmond, VIC
$579.1m
ASX Market Capitalisation
As at 30 June 2018
78%
Interest rate hedge cover
5.9 years weighted average
hedge term
2.6%
Average like-for-like
rental growth
23.6% p.a.
12.9 yrs
14
Five-year total ASX return
performance
Weighted average lease
expiry (WALE)
Development projects
completed during FY18
24.7%
$31.6m
Gearing
4.4 years average facility term
Annual revaluation uplift
5.3% increase in value
5
Arena REIT • Annual Report 2018 Petit Early Learning Journey,
Richmond, VIC
Chairman
and Managing
Director’s report
We are proud to report another
year of positive financial and
operational performance,
delivering growth for
securityholders.
In June 2018, Arena marked five years
since its ASX listing. We are pleased to
report that over this period Arena has
delivered a five year ASX total return
of 23.6%1 per annum to 30 June 2018.
While the one year ASX total return
to 30 June 2018 was relatively flat at
1.2%1 for the year the financial results
and portfolio metrics were strong and
the Arena team remain focused on
delivering long term investor value.
We see this performance as an
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.
23.6
18.6
13.2
12.2
10.0
1.2
1 yr
3 yrs p.a.
5 yrs p.a.
Arena REIT
ASX300 A-REIT Accumulation Index
ASX total return performance
To 30 June 2018 (%)
Financial results
We are pleased to report another strong
year for Arena, with net operating profit
of $34.7 million, an increase of 21% on
the prior year.
Key contributors to the result were
rental income growth from annual rent
reviews and income from acquisitions
and development projects completed
in FY17 and FY18. This result represents
David Ross
Chairman
Bryce
Mitchelson
Managing
Director
1. UBS, UBS Australian REIT month in review to 30 June 2018.
6
distributable income (earnings)
per security (EPS) of 13.1 cents, an
increase of 6.5% over the prior year.
In line with guidance issued in August
2017 Arena has paid a full-year
distribution of 12.8 cents per security,
an increase of 6.7% on the prior
year. Statutory net profit for the year
was $64.4 million, 33% down on the
prior year, primarily due to reduced
revaluation gains.
Arena’s total assets increased by
17% to $726.1 million as a result of
acquisitions, development capital
expenditure and the positive
revaluation of the portfolio. The
revaluation uplift contributed to the
7% increase in Net Asset Value (NAV)
per security to $1.97 at 30 June 2018.
Portfolio overview
Portfolio composition
At 30 June 2018, Arena’s property
portfolio comprised 207 early
learning centre (ELC) properties
and development sites (88% of
portfolio value) and seven healthcare
properties (12% of portfolio value).
The portfolio is 100% occupied by
19 tenants, the largest three being
Goodstart Early Learning (34% of
portfolio income), Primary Health
Care (13% of portfolio income) and
Affinity Education (13% of portfolio
income). The majority of Arena’s
portfolio is located in Australia’s
eastern states of Queensland (33%
of portfolio value); Victoria (31% of
portfolio value); and NSW (23% of
portfolio value).
Acquisition of property
development portfolio
In August 2017, Arena acquired a
portfolio of nine ELC properties
in development for a total cost of
$65 million2. These properties were
acquired on a fund through basis3,
with a forecast average yield on cost
of 6.25%.
Each of these developments has a
triple-net lease for an initial 20 year
term and annual rent reviews of the
greater of CPI or 3% per annum (with
a market rent review at each 10 year
anniversary).
Average annual rental growth of
2.6%
Annual rent reviews across the
portfolio have recorded an average
like-for-like rental increase of 2.6%.
Key contributors to this result were
the high level of ‘Fixed’ or ‘CPI with
minimum increase of 2.5%’ rent
reviews during the year; with only 2%
of all rent reviews being subject to a
market review.
The market rent reviews which were
undertaken during the year were
completed at an average increase of
6.3%.
Weighted average lease expiry
increased to 12.9 years
Throughout the year, occupancy
was maintained at 100% and the
portfolio’s weighted average lease
expiry (WALE) was extended from
12.8 years at 30 June 2017 to 12.9
years. The primary driver of this
extension was the completion of
14 development projects with an
average initial lease term of 19.7
years.
Arena’s 100% lease renewal rate over
the past four years has resulted in a
strong lease expiry profile, with only
2% of portfolio income subject to
expiry over the next four years.
2. Total cost includes property purchase price and project costs of $63.3 million plus stamp duty and
associated transaction costs.
3. A fund through acquisition involves the acquisition of land and progressive payment of
development costs on which a return is derived.
1.97
1.84
1.54
1.33
1.13
FY14 FY15
FY16
FY17
FY18
Net Asset Value
(NAV) per security
As at 30 June
2018 ($)
13.1
12.3
11.1
10.2
8.9
8.2
FY13
FY14
FY15
FY16
FY17
FY18
Earnings per
security (cents)
12.8
12.0
10.9
10.0
8.8
8.0
FY13
FY14
FY15
FY16
FY17
FY18
Distributions per
security (cents)
7
Arena REIT • Annual Report 2018 Chairman and Managing Director’s report
continued
Portfolio
valuations
Early Learning
Healthcare
Total Portfolio
Development
projects
completed
Leasehold
developments
Freehold
developments
Total
development
Valuation
Weighted average
passing yield
30 June 2018
Change
30 June 2018
Change
$m
614.0
85.4
699.4
$m
29.7
1.9
31.6
%
5.8
2.3
5.3
%
6.46
6.85
6.52
(bps)
(27)
(7)
(24)
Number
of projects
Total
cost
Initial yield
on cost
Average
lease term
Long day
care places
No.
1
13
14
$m
2.5
85.8
88.3
%
8.7
6.6
6.7
years
25.3
No.
108
19.2
1,617
19.7
1,725
The average size of the completed
centres is 123 childcare places and
the average initial lease term was
19.7 years. See table above.
Development pipeline of
$31 million
The development pipeline now
comprises five ELC projects with
a forecast total cost of $31 million
and a weighted average initial yield
on cost of 6.5%; two projects have
reached practical completion since
balance date.
The forecast return of projects in the
pipeline reflects Arena’s preference
at this point in the cycle to have
a higher weighting to projects
that offer a lower risk profile. Core
development focus remains on
securing quality investments that
exhibit Arena’s preferred property
characteristics and generate a
predictable income stream.
Portfolio revaluation uplift
of $31.6 million
A revaluation uplift of $31.6 million
was recorded across Arena’s
portfolio, equivalent to an increase
of 5.3%. The portfolio’s weighted
average passing yield firmed 24
basis points to 6.5%. The weighted
average passing yield on the ELC
portfolio firmed 27 basis points
to 6.46% and the valuation of the
healthcare portfolio firmed from
6.92% to 6.85%. See table above.
Development projects
14 development projects
completed
A record 14 ELC development
projects were completed during the
year, for a total cost of $88.3 million.
Six of the projects were part of the
August 2017 development portfolio
acquisition, and the remaining eight
were projects in progress at 30 June
2017 with an initial yield on total
cost at completion of 6.7%.
8
Capital management
During the year Arena has
undertaken a number of initiatives
aimed at strengthening its financial
position:
• $69.3 million new equity raised
– Arena raised $55 million via
an institutional placement and a
further $10 million via a security
purchase plan in August 2017. The
funds were used to 100% equity
fund the development portfolio
acquisition in August 2017. An
additional $4.3 million was raised
via the dividend and distribution
reinvestment plan (DRP), which
remains open;
• Refinancing of debt facility to
extend duration and increase
limit – Arena renegotiated its debt
facility and weighted average
debt duration is now 4.4 years
(from 2.5 years at 30 June 2017)
and increased the facility limit to
$230 million;
• Interest rate hedging extended
– Interest rate hedging was also
extended during the year, with
the weighted average hedge
duration lengthened to 5.9 years
at an average swap rate of 2.44%
compared with 4.3 years at 2.39%
as at 30 June 2017. At 30 June
2018, 78% of drawn debt was
hedged.
Notwithstanding the extended
debt and hedge term, Arena’s all-in
weighted average cost of debt was
3.85% p.a.
Capacity to fund new
opportunities
At 30 June 2018, Arena’s gearing
was 24.7%, down from 27.5% at
30 June 2017 with undrawn debt
capacity of $50 million available
to fund outstanding development
capital expenditure and new
investments.
12.8
12.9
9.7
8.5
8.9
Early Learning
Healthcare
61.2
2.0
11.1
6.5
0.5
0.5
1.6
16.8
FY14 FY15
FY16
FY17
FY18
FY19
FY20
FY21 FY22
FY23
FY24
FY25
FY26
FY27
FY28
FY29
FY30+
Portfolio WALE (years)
Lease expiry profile by income (%)
FY19 distribution
guidance
Arena has provided FY19
distribution per security (DPS)
guidance of 13.5 cents per security4.
This reflects growth of 5.5% over
last year, and forecast compound
average growth in DPS since listing
in June 2013 of 9.3% per annum.
Outlook
We remain positive about the
outlook for Arena’s portfolio for
FY19 due to its strong position
supported by:
• 100% occupancy;
• long term triple net leases with
minimum annual rent increases;
• higher level of market reviews in
FY19;
• annualisation of FY18
development completions; and
• funding capacity to execute on
selective new investment and
development activities.
While demand for high quality
and well located early learning
and healthcare property continues
to be underpinned by growing
community demand and supportive
demographic trends, we are likely
to see some further short term
pressure on child care operators
from increased supply. Over time
we expect the benefits of the new
government childcare subsidy to
start flowing through to changes in
consumer behaviour and increase
demand.
As a long–term investor our focus
is on maximising the quality of our
portfolio and we see opportunities
for Arena to enhance existing
properties for increased return
as well as the acquisition and
development of new high quality
assets.
We continue to differentiate Arena’s
brand in the marketplace through
our partnership approach, working
collaboratively with our tenants and
business partners.
We have a highly engaged and
passionate team and as investor
interest in social infrastructure
property investment 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. Arena is
well placed to continue to deliver
on our investment objective – to
generate attractive and predictable
distributions to investors with
earnings growth prospects over the
medium to long term.
Finally on behalf of the Board and
management we would like to
thank our securityholders, tenants
and business partners for their
ongoing support; and the Arena
team for their ongoing commitment
and contribution to Arena’s
performance.
We encourage you to join us at
our Annual General Meeting on 20
November 2018 to meet the Board
and management team.
We look forward to reporting to you
on another successful year in FY19.
Yours sincerely,
David Ross,
Chairman
Bryce Mitchelson,
Managing Director
4. Estimated on a status quo basis assuming no new acquisitions or disposals, developments in progress are completed in line with forecast
assumptions, and tenants comply with their lease obligations.
9
Arena REIT • Annual Report 2018 Portfolio summary
As at 30 June 2018
Arena’s portfolio of social infrastructure
properties is leased to a diversified tenant base in
the early learning and healthcare sectors.
NT Metro
2
214
Total properties
– 202 Early Learning Centres
– 7 Healthcare
– 5 ELC development sites
$699.4m
Total portfolio value
– $614.0m Early Learning Centres
– $85.4m Healthcare
12.9 yr
Weighted average lease expiry
– 14.2 years Early Learning Centres
– 4.5 years Healthcare
WA Metro
17
WA Regional
5
10
Sector Diversification
By value (%)
Early Learning Centres (202 properties)
Healthcare (7 properties)
ELC development sites (5 properties)
Early Learning
88%
Healthcare
12%
Geographic Diversification
By value (%)
23
7
3
3
1
33
QLD Regional
38
31
QLD Metro
36
1
1
Queensland
Victoria
New South Wales
Western Austrlia
Tasmania
South Australia
Northern Territory
Tenant Diversification
By income (%)
13
13
12
NSW Metro
4
5
1
NSW Regional
25
1
34
8
6
3
3
8
SA Metro
5
1
VIC Regional
26
VIC Metro
37
1
TAS Regional
1
TAS Metro
6
1
Goodstart Early Learning
Primary Health Care
Affinity Education
Green Leaves Early Learning Centres
G8 Education
Petit Early Learning Journey
Oxanda Childcare
YMCA
Other
11
Arena REIT • Annual Report 2018 YMCA ELC, Torquay, VIC
Corporate
Governance
View Arena’s key policies and
the full Corporate Governance
Statement for the 2018 financial
year at
www.arena.com.au/about/
governance
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:
• Communications Policy
• Continuous Disclosure Policy
• Diversity Policy
• Dividend and Distribution Policy
• Privacy Policy
• Securities Trading Policy
• Summary of Risk Management
Framework
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.
12
Arena REIT
Financial Report 2018
For the year ending 30 June 2018
Contents
Directors’ Report
Auditor’s independence declaration
Financial Statements
15
35
36
Consolidated statement of comprehensive income 36
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
37
38
39
40
77
78
82
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 600 069 761). The
Responsible Entity’s registered office is:
Level 5, 41 Exhibition Street,
Melbourne VIC 3000
Petit Early Learning Journey, Clifton Hill, VIC
14
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 2018.
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 for which the units and shares 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
Arena REIT 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
2018
$'000
8,570
8,583
8,600
8,619
2017
$'000
6,807
6,834
7,205
7,222
2018
cps
3.2000
3.2000
3.2000
3.2000
2017
cps
2.9250
2.9250
3.0750
3.0750
Total distributions to securityholders
34,372
28,068
12.8000
12.0000
15
Arena REIT • Annual Report 2018 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
FY18 highlights
30 June 2018
30 June 2017
Change
$64.4 million
$96.8 million
$34.7 million
$28.7 million
13.1 cents
12.8 cents
12.3 cents
12.0 cents
$726.1 million
$621.3 million
$699.4 million
$591.7 million
$179.5 million
$171.0 million
$531.6 million
$432.5 million
$1.97
24.7%
$1.84
27.5%
- 33%
+ 21%
+ 7%
+ 7%
+ 17%
+ 18%
+ 5%
+ 23%
+ 7%
- 280 bps
• Net statutory profit was $64.4 million, down 33% on the prior year. This is primarily due to the reduced uplift in
investment property valuations (FY18: $31.6 million; FY17: $66.9 million);
• Net operating profit was $34.7 million, up 21% on the previous year;
• The property portfolio increased with the addition of 10 Early Learning Centre (‘ELC’) development sites and one
operational ELC. During the year, 14 ELC developments were completed and leases commenced;
• Distributions for the year were 12.8 cents per security, up 7% on the prior year;
• The Group completed a fully underwritten Institutional Placement in July 2017, raising $55 million through the issue
of 27.1 million securities;
• In conjunction with the Institutional Placement, the Group offered a Security Purchase Plan (SPP) to eligible investors
in August 2017. $10 million was raised through the issue of 4.9 million securities;
• NAV per security at 30 June 2018 was $1.97, an increase of 7% on 30 June 2017. This was primarily due to an
increase in investment property values; and
• Gearing was 24.7% at 30 June 2018, representing a 280bps reduction on 30 June 2017, primarily due to the
proceeds from equity issued during the year to fund the Group’s ELC developments.
16
Directors’ Report continued FY18 highlights (continued)
Financial results
30 June 2018
30 June 2017
Property income
Other income
Total operating income
Property expenses
Operating expenses
Finance costs
Net operating profit (distributable income) *
Non-distributable items:
Investment property revaluation and straight-lining of rent
Change in fair value of derivatives
Profit/(loss) on sale of investment properties
Transaction costs
Amortisation of security-based payments (non-cash)
Other
Statutory net profit
* Net operating profit (distributable income) is not a statutory measure of profit.
Financial results summary
Net operating profit (distributable income) ($'000)
Weighted average number of ordinary securities ('000)
Distributable income per security (cents)
$'000
43,128
770
43,898
(832)
(3,493)
(4,883)
34,690
31,591
(553)
30
(541)
(855)
70
$'000
37,437
689
38,126
(1,152)
(3,535)
(4,714)
28,725
66,856
1,805
12
(77)
(576)
46
64,432
96,791
30 June 2018
30 June 2017
34,690
264,878
13.10
28,725
233,557
12.30
• 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 14 ELC developments completed during the year, and the acquisition
of an operational ELC during the year; and
– The full year effect of acquisitions and developments completed during FY17.
• Non-distributable items primarily decreased due to lower revaluation gains for investment properties and
derivatives compared to the prior year. This is partially offset by a higher straight-line rental income adjustment
compared to the prior year as a result of the lease extensions agreed in late FY17 and recently completed
developments.
17
Arena REIT • Annual Report 2018 Financial results summary (continued)
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 2018
30 June 2017
$699.4 million
$591.7 million
209
5
-
214
195
10
-
205
100%
100%
12.9 years
12.8 years
• The increase in the value of investment properties is primarily due to the addition of:
– A net revaluation increment to the portfolio of $26.5 million for the year; and
– New ELC development expenditure and capital expenditure of $80.5 million.
• Offset by the following investment property disposals during the year:
– One ELC development and one operating ELC were sold during the year with sale proceeds of $3.9 million.
Capital management
Equity
• During the year, 2.02 million securities were issued at an average price of $2.16 to raise $4.3 million of equity
pursuant to the Dividend and Distribution Re-investment Plan (DRP);
• On 3 August 2017, 27,093,596 securities were issued at a price of $2.03 following the completion of a fully
underwritten placement to institutional and professional investors;
• On 5 September 2017, 4,925,032 securities were issued at a price of $2.03 following the completion of the Security
Purchase Plan (SPP).
Bank facilities & gearing
• The Group refinanced its syndicated debt facility during the year, increasing the facility limit by $25 million to
$230 million and extending maturity dates. The Group’s debt facility now comprises an $80 million facility expiring
31 March 2022 and a $150 million facility expiring 31 March 2023 providing a remaining weighted average term of
4.4 years as at 30 June 2018;
• The balance drawn increased by $8.5 million to fund acquisitions and development capital expenditure;
• Gearing was 24.7% at 30 June 2018 (30 June 2017: 27.5%);
• The Group was fully compliant with all bank facility covenants throughout FY18 and as at 30 June 2018. At 30 June
2018 the Loan to Valuation Ratio was 27.8% (Covenant: 50%) and the Interest Cover Ratio was 5.95 times (Covenant:
2.0 times).
Interest rate management
• As at 30 June 2018, 78% of Arena REIT borrowings are hedged for a weighted average term of 5.9 years (2017: 79%
for 4.3 years). The average swap fixed rate at 30 June 2018 is 2.44% (2017: 2.39%).
18
Directors’ Report continued FY19 outlook
The Group has provided FY19 distribution guidance of 13.5 cents per security, which represents an increase of 5.5%
on FY18.
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
No matter or circumstance has arisen since 30 June 2018 that has 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 Framework under which it identifies, assesses,
monitors and manages these risks.
Concentration risk
The Group’s property portfolio is presently 88% invested in ELCs and ELC development sites and 12% in healthcare
assets. Adverse events to the early learning 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
2018, 60% of the portfolio by income (excluding developments) is leased to the largest three tenants (Goodstart Early
Learning Ltd with 34%, Primary Health Care Limited with 13% and Affinity Education Group with 13%). 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 8(d) for further details on
tenancy risk for the portfolio.
19
Arena REIT • Annual Report 2018 Information on directors
The directors at the date of this report are:
David Ross, Independent Non-Executive Chairman
David has over 30 years’ ASX listed company and corporate experience in the property and property
funds management industries in Australia and overseas, including Global and US Chief Executive
Officer Real Estate Investments and Chief Executive Officer Asia Pacific for Lend Lease, Chief
Executive Officer for General Property Trust and Chief Operating Officer for Babcock and Brown. He
is currently an Independent Non-Executive Director at Charter Hall Group and was formerly a non-
executive Director of Sydney Swans Foundation Limited.
David holds a Bachelor of Commerce from the University of Western Australia, an Associate Diploma in Valuation from
Curtin University in Western Australia 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.
Dr Simon Parsons, Independent Non-Executive Director
Simon has over 35 years’ experience in the commercial property industry including former senior
positions and directorships with Property Investment Research, Colliers International, Jones Lang
Wootton (now Jones Lang La Salle). He is presently Managing Director of Parsons Hill Stenhouse Pty
Ltd, a commercial property practice.
Simon holds a Master of Science (Real Estate), a Master of Social Science (Env & Planning), and a
PhD in land use planning, public policy and land economics. He holds an estate agent’s license and is a Fellow of both
the Royal Institution of Chartered Surveyors (RICS) and the Australian Institute of Company Directors (FAICD).
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 35 years’ experience in the financial services, funds management and property
industries including senior management, board and compliance committee roles.
Dennis is a member of the Chartered Accountants Australia and New Zealand (CA ANZ) and is a
Fellow of the Australian Institute of Company Directors (FAICD).
Other current directorships: Investa Office Management Limited; Investa Wholesale Funds
Management Limited, ICPF Holdings Limited.
Former directorships in last 3 years: None.
Bryce Mitchelson, Executive Director
Bryce is Managing Director of Arena and joined Arena in May 2009.
Bryce has more than 30 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. He is a member of the Australian Institute of Company
Directors (AICD).
Other current directorships: None.
Former directorships in last 3 years: None.
20
Directors’ Report continued Information on directors (continued)
Gareth Winter, Executive Director and Company Secretary
Gareth was appointed Chief Financial Officer of Arena in March 2012 and Executive Director
of Arena REIT Management Limited in December 2014. Gareth was formerly a partner at
PricewaterhouseCoopers and has over 25 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 Chartered Accountants Australia and New Zealand (CA ANZ) 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 2018, 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
11
11
11
11
*
B
11
11
11
11
*
A
14
14
14
14
14
B
14
14
14
14
14
A
9
9
9
*
*
B
9
9
9
*
*
A
3
3
3
*
*
B
3
3
3
*
*
A - Number of meetings held during the year.
B - Number of meetings attended.
* = Not a member of the relevant board / committee.
21
Arena REIT • Annual Report 2018 Remuneration report
The 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 2018. 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 FY18
Governance and
Independent Review
In FY17, 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. The outcome of the review was introduced
into Arena’s remuneration policy with effect from FY18.
Section
1.1
KMP
No change in KMP in FY18.
Remuneration Mix
The relative weighting of at-risk remuneration for Executive KMP attributable
to STI and LTI opportunity was amended to implement the outcome of the
independent review of Arena’s remuneration framework.
Fixed Remuneration (TFR)
Executive KMP received an average TFR increase of 3% in FY18. Non-
Executive Director fees increased by 3%.
Short Term Incentive (STI)
Arena introduced a deferred component to the STI plan in FY18 whereby the
vesting of 50% of an STI award to Executive KMP will be deferred for a period
of 1 year with payment to be delivered in the form of Arena Stapled Securities.
Long Term Incentive (LTI)
Executive KMP were awarded between 85-90% of STI opportunity based on
the achievement of financial targets in FY18 and the assessment of individual
performance against non-financial KPIs.
The testing of hurdles and other conditions in relation to the FY15 LTI Grant
occurred during FY18.
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.
Key Decisions in respect to FY19 Remuneration and LTI Assessment
Governance and
Remuneration Framework
Short Term Incentive (STI)
Long Term Incentive (LTI)
No change proposed in FY19.
Performance Rights in respect of the Deferred STI introduced in FY18 will be
granted after 30 June 2018. The number of Rights granted will be based on
the volume weighted average price of Arena Stapled Securities in the 15 days
prior to 30 June 2018.
The testing of hurdles and other conditions in relation to the FY16 LTI Grant
occurred after 30 June 2018.
The FY16 LTI grant will 100% vest in August 2018 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 FY18 Distributable Income per Security exceeded the performance
hurdle range.
1.2
3
3.2
4.2
4.4
1.1
4.2
4.4
22
Directors’ Report continued Remuneration report (continued)
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. In the prior 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. The outcome of the independent review was introduced into
Arena’s remuneration framework and policy with effect from FY18.
1.2 Key Management Personnel (KMP)
KMP are persons identified as having authority and responsibility for planning, directing and controlling the activities
of Arena REIT. There has been no change in KMP since the end of the reporting period.
Non-Executive Directors
Position
FY18 KMP
FY17 KMP
David Ross
Non-Executive Chairman
Yes
Yes
Chair – Remuneration & Nomination Committee
Member – Audit Committee
Simon Parsons
Non-Executive Director
Yes
Yes
Member – Remuneration & Nomination Committee
Member – Audit Committee
Dennis Wildenburg
Non-Executive Director
Yes
Yes
Chair – Audit Committee
Member – Remuneration & Nomination Committee
Executive KMP
Position
FY18 KMP
FY17 KMP
Bryce Mitchelson
Managing Director
Gareth Winter
Robert de Vos
Executive Director & Chief Financial Officer
Head of Property
Yes
Yes
Yes
Yes
Yes
Yes
1.3 Remuneration Framework
The Directors of Arena REIT 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 REIT business, its ability to pay and
the role and experience of employees;
• The remuneration framework supports the delivery of Arena REIT’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.
23
Arena REIT • Annual Report 2018 Remuneration report (continued)
2. Non-Executive Director Remuneration Framework
Each non-executive director of Arena REIT is paid an amount determined by the Board to a maximum aggregate
amount approved by securityholders 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 FY18 (inclusive of superannuation) were:
Board Fees
Audit Committee Fees
Remuneration & Nomination
Committee Fees
Chairman1
$193,000
Member
$98,000
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 FY18, Executive KMP remuneration comprised:
• total fixed remuneration (TFR);
• short term incentive (STI); and
• long term incentive (LTI).
The FY18 Total Maximum Remuneration (TMR) mix for the Executive KMP is set out in the table below. The at risk
component of TMR was increased by 5% for all Executive KMP in FY18 and further weighting applied to equity based
remuneration through the introduction in FY18 of an STI deferral whereby 50% of an STI award is deferred for 12
months and paid in Arena Stapled Securities.
At Risk Performance Based Remuneration
Executive KMP
Position
Bryce Mitchelson Managing Director
Gareth Winter
Chief Financial Officer
Robert de Vos
Head of Property
TFR
45%
50%
45%
Cash STI
15%
12.5%
15%
Equity
Deferred STI
Equity LTI
15%
12.5%
15%
25%
25%
25%
3.1 Total Fixed Remuneration (TFR)
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 Executive KMP is based on the STI proportion of their TMR. The actual award is based on the
achievement of specific Key Performance Indicators (KPIs) for each Executive KMP.
24
Directors’ Report continued Remuneration report (continued)
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 KMPs’ short
term incentive KPIs is designed to align Executive KMP to Arena REIT’s objectives.
FY18 performance was measured across two categories of KPIs:
• 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.
From FY18, an STI award is payable in two tranches. The first tranche of 50% is payable in cash and second tranche of
50% is payable in the form of Deferred STI Rights.
Key terms of the Deferred STI Rights are:
• Vesting occurs 12 months after the grant date if the Executive KMP remains employed.
• Each Deferred STI Right represents an entitlement to an Arena Stapled Security.
• The number of Deferred STI Rights granted is based on the volume weighted average price of Arena Stapled
Securities in the 15 days prior to the end of the relevant financial year.
• Deferred STI Rights are not entitled to receive distributions, however, additional rights will be granted on vesting
equivalent to the distribution paid on Arena Stapled Securities during the deferral period.
• If employment is terminated during the vesting period then Deferred STI Rights lapse, subject to the Board’s
discretion for the rights to vest or remain on-foot if the Executive KMP is considered a ‘good-leaver’.
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 REIT’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 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 FY18 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 REIT’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 FY18 Performance Rights grant are the members of the S&P / ASX 300 A-REIT Index at the
commencement of the performance period.
25
Arena REIT • Annual Report 2018 Remuneration report (continued)
The Relative TSR vesting schedule is as follows:
Arena REIT’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% (i.e. 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 REIT securityholder returns;
• The effects of market cycles are reduced as it measures Arena REIT’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 REIT’s Dividend and Distribution Policy.
The DIS vesting schedule is as follows:
Arena REIT’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%
(i.e. 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 REIT securityholder returns;
• DIS is a key performance indicator referenced by the Board in preparing the annual budget and business plan and
in measuring Arena REIT’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 REIT’s business performance.
Recognition Rights were subject to an employment retention period ended on 30 June 2017 and the Recognition
Rights were vested in FY18. The Board considered the Recognition Rights to be an important incentive for Executive
KMP to remain with the business during Arena REIT’s transition to an internalised management structure.
26
Directors’ Report continued 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 lapse 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 REIT’s remuneration policy assesses variable remuneration outcomes in the context of performance and change
in securityholder 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 REIT’s key financial and performance metrics over the 5 year period
to 30 June 2018.
Metric
FY18
FY17
FY16
FY15
FY14
Net Profit (Statutory) ($million)
Distributable Income ($million)
Distributable Income per Security (cents)
Distributions per Security (cents)
Net Asset Value per Security
ASX Security Price at 30 June
Gearing
Annual Total Shareholder Return (TSR)
Annual TSR of ASX-300 A-REIT Index
64.4
34.7
13.1
12.8
$1.97
$2.15
24.7%
1.2%
13.2%
96.8
28.7
12.3
12.0
$1.84
$2.25
27.5%
19.8%
(5.6%)
72.6
25.6
11.1
10.9
$1.54
$1.99
26.8%
37.6%
24.6%
61.0
22.1
10.2
10.0
$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%
27
Arena REIT • Annual Report 2018 Remuneration report (continued)
4.2 FY18 STI Performance Measures
A key measure of Arena REIT’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 FY18 Distribution of 12.8 cents per
• Achieved
security (7% increase on FY17)
• Achieve a stretch target distributable income per security
• Substantially achieved
STI Non-Financial Objectives
The Committee set each Executive KMP relevant KPIs in relation to strategy development and execution, progression
of developments, business performance, risk management, leadership, people, 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 FY18 STI Awards
As a result of the performance assessment, the Board awarded STIs in respect of FY18 as set out below.
Executive KMP
STI Award
Bryce Mitchelson
Gareth Winter
Robert de Vos
1. Any STI opportunity not awarded is forfeited.
$
294,666
162,000
192,000
Cash
$
147,333
81,000
96,000
Deferred
STI Rights
Award as a %
of STI Opportunity1
$
147,333
81,000
96,000
%
85
90
90
28
Directors’ Report continued Remuneration report (continued)
4.4 LTI Performance Measures
An assessment of the FY15 LTI grant was performed in FY18 to determine if the relevant vesting conditions were met
as set out in the table below.
An assessment of the FY16 LTI grant vesting conditions was performed post 30 June 2018 and FY16 LTI grant
Performance Rights will vest in FY19 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
Distributable
Income per
Security (DIS)
Relative TSR1
FY18
Distributable
Income per
Security (DIS)
FY17
FY17 – FY19
Relative TSR1
FY19
Distributable
Income per
Security (DIS)
FY18
FY18 – FY20
Relative TSR1
FY20
Distributable
Income per
Security (DIS)
Performance Hurdle
Result
Vesting
Outcome
50% of rights vest at the
50th percentile; with pro rata
vesting until 100% vesting at
the 75th percentile.
Target exceeded.
100%
Arena ranked in the top
quartile of the comparator
group over the Performance
Measurement Period.
Target range of 11.0 cents to
12.0 cents
Target exceeded.
100%
Actual DIS of 12.3 cents
50% of rights vest at the
50th percentile; with pro rata
vesting until 100% vesting at
the 75th percentile.
Target exceeded.
100%
Arena ranked in the top
quartile of the comparator
group over the Performance
Measurement Period.
Target range of 11.5 cents to
12.5 cents
Target exceeded.
100%
Actual DIS of 13.1 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
50% of rights vest at the
50th percentile; with pro rata
vesting until 100% vesting at
the 75th percentile.
Target range of 13.5 cents to
14.25 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.
29
Arena REIT • Annual Report 2018 Remuneration report (continued)
4.5 LTI Grants
LTI Grants to Executive KMP during FY18 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
56%
50%
56%
Performance Rights
1 July 2017
30 June 2020
Performance Rights
1 July 2017
30 June 2020
Performance Rights
1 July 2017
30 June 2020
193,885
120,805
119,314
$1.49
$1.49
$1.49
1. Grants were approved by securityholders at the AGM held on 15 November 2017.
2. Fair Value per Right was determined by an independent valuation. Refer to Note 23 of the financial report for information on the valuation inputs.
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
Payments1
$
Salary Cash STI
Non-
Monetary
Benefits
Perfor-
mance
Rights
Recog-
nition
Rights
Super-
annuation
Total
Bryce Mitchelson
Gareth Winter
Robert de Vos
FY18
FY17
FY18
FY17
FY18
FY17
499,951
227,250
485,384
208,250
339,952
120,909
330,384
107,667
12,116
11,329
10,615
9,961
–
–
157,275
80,788
–
–
299,951
147,250
10,615
142,979
73,443
290,384
122,715
9,961
–
–
19,616
20,049
19,616
20,049
19,616
724,579
729,588
467,628
694,287
442,676
339,575
174,427
20,049
1,273,368
1. Equity based payments based on the ASX price of an Arena Stapled Security on the date of issue of a security from the vesting of a right.
30
Directors’ Report continued Remuneration report (continued)
4.7 Remuneration Summary (Statutory)
The table below discloses the remuneration in respect of the KMP measured in accordance with the requirements of
accounting standards.
Short Term
Benefits
Equity Based
Payments
$
Salary /
fees
Non-
Monetary
Benefits
Deferred
STI
Rights1
Cash
STI
LTI
Perfor-
mance
Rights1
LTI
Recog-
nition
Rights1
Long
Service
Leave2
Super-
annuation
Total
Non-Executive Director
David Ross
FY18 176,256
FY17
160,250
Simon Parsons
FY18
98,630
FY17
95,890
FY18 103,196
FY17
91,456
Dennis
Wildenburg
Executive KMP
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Bryce Mitchelson FY18 499,951 147,333
12,116
73,667 261,968
–
–
–
–
–
–
–
–
–
–
–
–
–
16,744
193,000
26,750
187,000
9,370
9,110
9,804
108,000
105,000
113,000
18,544
110,000
11,489
20,049 1,026,573
FY17
485,384 227,250
11,329
–
221,566
37,205
11,077
19,616
1,013,427
Gareth Winter
FY18 339,952
81,000
10,615
40,500 150,718
–
FY17
330,384 120,909
9,961
–
116,620
17,232
9,427
7,770
20,049
652,261
19,616
622,492
Robert de Vos
FY18 299,951
96,000
10,615
48,000 147,203
–
10,552
20,049
632,370
FY17
290,384 147,250
9,961
–
111,495
15,665
6,013
19,616
600,384
1. Represents change in accounting accrual. Entitlement subject to vesting conditions.
2. 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 FY18 Remuneration
Summary (Statutory).
Executive KMP
Bryce Mitchelson
Gareth Winter
Robert de Vos
TFR
52%
57%
52%
STI
14%
12%
15%
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.
LTI
34%
31%
33%
31
Arena REIT • Annual Report 2018 Remuneration report (continued)
5. Interests in Securities
Interests in Arena REIT securities held by Directors and Executive KMP is set out below.
Ordinary Stapled Securities
Independent Directors
David Ross
Simon Parsons
Dennis Wildenburg
Executive KMP
Bryce Mitchelson
Gareth Winter
Robert de Vos
Balance
30 June 2017
Acquired
Disposed
Received as
Remuneration
Balance
30 June 2018
200,000
200,000
150,000
774,907
75,000
29,616
–
4,079
4,079
8,158
4,079
8,373
–
–
–
–
–
–
–
–
–
200,000
204,079
154,079
229,465
106,278
96,617
1,012,530
185,357
134,606
Performance Rights and Recognition Rights
Executive KMP
Bryce Mitchelson
Performance Rights
Performance Rights
Performance Rights
Performance Rights
Recognition Rights
Gareth Winter
Performance Rights
Performance Rights
Performance Rights
Performance Rights
Recognition Rights
Robert de Vos
Performance Rights
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
FY18
FY17
FY16
FY15
FY15
FY18
FY17
FY16
FY15
FY15
FY18
FY17
FY16
FY15
FY15
–
193,885
195,736
247,745
151,596
77,869
–
–
–
–
–
120,805
123,326
114,478
70,213
36,066
–
–
–
–
–
119,314
120,156
110,192
63,830
32,787
–
–
–
–
–
–
–
151,596
77,869
–
–
–
70,213
36,066
–
–
–
63,830
32,787
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
193,885
$288,890
$436,241
195,736
$252,500
$391,472
247,475
$245,000
$388,536
–
–
$142,500
$224,362
$95,000
$115,246
120,805
$180,000
$271,811
123,326
$159,091
$246,652
114,478
$113,333
$179,730
–
–
$66,000
$108,128
$44,000
$55,542
119,314
$177,779
$268,457
120,156
$155,000
$240,312
110,192
$109,090
$173,001
–
–
$60,000
$40,000
$98,298
$50,492
1. Testing of the performance and other hurdles in relation to the Rights issued in FY16 occurred post 30 June 2018. 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 other 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 vesting conditions are not met and the Rights lapse.
32
Directors’ Report continued 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 REIT
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 REIT
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
2018 are disclosed in note 24 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 22
of the financial statements.
Interests in the Group
The movement in securities on issue in the Group during the year is disclosed in note 13 to the financial statements.
33
Arena REIT • Annual Report 2018 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 35.
This report is made in accordance with a resolution of directors.
David Ross, Chairman
Melbourne, 21 August 2018
34
Directors’ Report continued 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 2018, 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.
Charles Christie
Partner
PricewaterhouseCoopers
Melbourne
21 August 2018
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.
35
Arena REIT • Annual Report 2018 Consolidated statement
of comprehensive income
For the year ended 30 June 2018
Income
Property income
Management fee income
Interest
Realised gain on sale of investment properties
Revaluation of investment properties
Total income
Expenses
Property expenses
Management and administration expenses
Net (loss)/gain on change in fair value of derivative financial instruments
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 2018
30 June 2017
Notes
$’000
$’000
8(c)
48,240
38,169
411
429
30
26,479
75,589
(832)
(4,300)
(553)
(5,183)
(289)
(11,157)
64,432
–
64,432
58,593
6,287
(448)
64,432
Cents
22.12
21.99
24.33
24.18
582
152
12
66,124
105,039
(1,152)
(4,061)
1,805
(4,714)
(126)
(8,248)
96,791
–
96,791
87,161
10,256
(626)
96,791
Cents
37.32
37.08
41.44
41.18
8
8(c)
3
5
5
5
5
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying
notes.
36
Consolidated
balance sheet
As at 30 June 2018
Current assets
Cash and cash equivalents
Trade and other receivables
Total current assets
Non-current assets
Receivables
Property, 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 2018
30 June 2017
Notes
$’000
$’000
6
7
7
8
9
10
12
11
13
14
15
8,654
6,386
15,040
668
154
699,409
10,816
711,047
726,087
6,127
312
8,619
15,058
561
334
178,491
179,386
194,444
531,643
259,780
190,618
81,245
531,643
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
37
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
Arena REIT • Annual Report 2018 Consolidated statement
of changes in equity
For the year ended 30 June 2018
Contributed
equity
Accumulated
profit
$’000
$’000
Balance at 1 July 2016
Profit for the year
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Issue of securities under the DRP
Security-based benefits
Distributions to securityholders
Balance at 30 June 2017
Balance at 1 July 2017
Profit for the year
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Issue of securities under the DRP
Issue of securities under the Institutional Placement
Issue of securities under the Security Purchase Plan
Security-based benefits
Distributions to securityholders
197,224
–
–
4,955
–
–
202,179
202,179
–
–
3,773
45,478
8,350
–
–
Consolidated
Non-controlling
interests -
ARL & ARF2
Total equity
$’000
61,082
9,630
9,630
744
561
(3,649)
68,368
68,368
5,839
5,839
568
8,544
1,564
830
$’000
357,493
96,791
96,791
5,699
561
(28,068)
432,476
432,476
64,432
64,432
4,341
54,022
9,914
830
99,187
87,161
87,161
–
–
(24,419)
161,929
161,929
58,593
58,593
–
–
–
–
(29,904)
(4,468)
(34,372)
Balance at 30 June 2018
259,780
190,618
81,245
531,643
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
38
Consolidated statement
of cash flows
For the year ended 30 June 2018
Consolidated
30 June 2018
30 June 2017
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
16
Cash flows from investing activities
Proceeds from sale of investment properties
Payments for investment properties and capital expenditure
Net cash (outflow) from investing activities
Cash flows from financing activities
Net proceeds from issue of securities
Distributions paid to securityholders
Loan establishment costs paid
Capital receipts from lenders
Capital payments to lenders
Net cash inflow 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
6
48,159
(9,931)
(4,837)
409
33,800
7,120
(83,034)
(75,914)
63,908
(28,607)
(1,093)
23,500
(16,022)
41,686
(428)
9,082
8,654
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
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
39
Arena REIT • Annual Report 2018 Contents
Notes to the financial statements
1
General information
Financial results, assets and liabilities
2
3
4
5
6
7
8
9
10
11
Segment information
Finance costs
Income taxes
Earnings per security (‘EPS’)
Cash and cash equivalents
Trade and other receivables
Investment properties
Intangible assets
Trade and other payables
Interest bearing liabilities
12 Derivative financial instruments
13 Contributed equity
14 Accumulated profit
15 Non-controlling interests
16 Cashflow information
Risk
17
Financial risk management and fair value
measurement
18 Capital management
Group structure
19
Investments in controlled entities
Unrecognised items
20 Contingent assets and liabilities and commitments
21
Events occurring after the reporting period
Other information
Related party disclosures
Security-based benefits
Remuneration of auditors
Parent entity financial information
Summary of other significant accounting policies
22
23
24
25
26
40
Page
41
43
43
44
45
46
46
48
52
52
53
55
56
57
58
59
60
64
65
65
65
66
67
69
69
70
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 21 August 2018. The directors have the power
to amend and reissue the financial statements.
(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.
Going Concern
As at 30 June 2018, the Group had a net working capital deficiency of $0.018 million. This deficiency is due to working
capital management within the Arena stapled group, and the difference in the timing of drawdowns from the Group’s
debt facility and the timing of capital expenditure on developments and asset acquisitions. The Group has $50.5
million of unused debt facility which can be drawn to fund cashflow requirements.
After taking into account all available information, the directors of the Group have concluded that there are
reasonable grounds to believe:
• The Group will be able to pay its debts as and when they fall due; and
• The basis of preparation of the financial report on a going concern basis is appropriate.
(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 2017:
• AASB 2016-2 Disclosure Initiative: Amendments to AASB 107 Statement of Cash Flows;
• AASB 2017-2 Amendments to Australian Accounting Standards - Annual Improvements to Australian Accounting
Standards 2014-2016 Cycle.
The adoption of these amendments did not result in any adjustments to the values included in the 30 June 2018
financial statements. The disclosure requirements of the above standards have been incorporated into this financial
report.
41
Arena REIT • Annual Report 2018 1. General information (continued)
(b) Critical accounting estimates and judgements
The Group makes estimates and judgements 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. Estimates and judgements
which are material to the financial report are found in the following notes:
• Investment properties – Note 8
• Impairment of goodwill – Note 9
• Financial instruments – Notes 12, 17
42
Notes to the consolidated financial statements continued Financial results, assets and liabilities
This section provides additional information about those individual line items in the financial statements that the
directors consider most relevant in the context of the operations of the Group, including:
(a) accounting policies that are relevant for an understanding of the items recognised in the financial statements
(b) analysis and sub-totals
(c) information about estimates and judgements made in relation to particular items.
2. 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 Board (as 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.
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
(a) Accounting policy - Finance costs
Consolidated
30 June 2018
30 June 2017
$’000
$’000
4,646
237
300
5,183
1,498
6,681
4,496
218
–
4,714
1,040
5,754
Finance costs include interest and amortisation of costs incurred in connection with the arrangement of borrowings.
Finance 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 for the acquisition,
construction or production of a qualifying asset, the finance costs capitalised are those incurred in relation to that
qualifying asset.
43
Arena REIT • Annual Report 2018 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
Tax at the applicable Australian tax rate of 30% (2017 - 30%)
Profit attributable to entities not subject to tax
Deferred tax assets not recognised
Income tax expense
Consolidated
30 June 2018
30 June 2017
$’000
64,432
(19,330)
19,464
(134)
–
$’000
(96,791)
29,037
29,225
(188)
–
Unrecognised deferred tax assets are $0.1 million (2017: $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.
(b) Accounting policy - 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.
44
Notes to the consolidated financial statements continued 4. Income taxes (continued)
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
ARL 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, ARL, 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, ARL 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 ARL. As there is no tax sharing
agreement in place the current tax receivable or payable is transferred from each controlled entity to ARL as a
contribution to (or distribution from) wholly owned entities.
5. 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
2018
Cents
22.12
21.99
24.33
24.18
2017
Cents
37.32
37.08
41.44
41.18
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
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
2018
2017
Number of
securities
Number of
securities
‘000
264,878
1,615
266,493
‘000
233,557
1,506
235,063
30 June 2018
30 June 2017
$’000
58,593
58,593
64,432
64,432
$’000
87,161
87,161
96,791
96,791
45
Arena REIT • Annual Report 2018 5. Earnings per security (‘EPS’) (continued)
(a) Accounting policy - earnings per security
(i) Basic earnings per security
Basic earnings per security is calculated by dividing:
• the profit attributable to the securityholders, 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.
6. Cash and cash equivalents
Cash at bank
Term deposits
Total cash and cash equivalents
Consolidated
30 June 2018
30 June 2017
$’000
8,654
–
8,654
$’000
7,782
1,300
9,082
Term deposits are used to secure bank guarantees in respect of development properties.
(a) Accounting policy - 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.
7. Trade and other receivables
(a) Trade and other receivables - Current
Trade receivables
Other receivables
Prepayments
Deferred management & performance fees receivable
46
Consolidated
30 June 2018
30 June 2017
$’000
192
5,510
604
80
6,386
$’000
149
7,758
459
247
8,613
Notes to the consolidated financial statements continued 7. Trade and other receivables (continued)
Other receivables as at 30 June 2018 includes $3.6 million of sales proceeds payable to the Group following the
disposal of an ELC asset in June 2018 (30 June 2017: $6.8 million).
(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
Impairment
Gross
Impairment
2018
$’000
60
132
–
–
–
192
2018
$’000
−
–
–
–
–
–
2017
$’000
129
20
-
-
-
149
2017
$’000
–
–
–
–
–
–
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
Consolidated
30 June 2018
30 June 2017
$’000
668
$’000
860
Consolidated
30 June 2018
Carrying amount
Fair value
$’000
668
$’000
668
47
Arena REIT • Annual Report 2018 7. Trade and other receivables (continued)
(c) Accounting policy - 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.
8. Investment properties
(a) Valuations and carrying amounts
Property Portfolio
Carrying amount
Latest external valuation
ELC properties
ELC developments
Healthcare properties
Total
2018
$’000
596,678
17,338
85,393
2017
$’000
468,627
38,989
84,096
2018
$’000
551,225
9,420
80,400
699,409
591,712
641,045
2017
$’000
430,205
20,930
78,000
529,135
Arena 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 42 Early Learning Centres (‘ELC’) as at 31 December 2017, and a further
29 ELCs and two healthcare centres as at 30 June 2018. The directors have reviewed these valuations and have
determined they are appropriate to adopt during the financial period ending 30 June 2018. Director valuations were
performed on investment properties not independently valued.
The key inputs into valuations are:
• Passing rent;
• Market rents;
• Capitalisation rates;
• Lease terms;
• Discount rates (healthcare properties); and
• Capital expenditure and vacancy contingencies (healthcare properties).
48
Notes to the consolidated financial statements continued 8. Investment properties (continued)
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
(b) Movements during the financial year
At fair value
Opening balance
Property acquisitions and capital expenditure
Disposals
Revaluations
Other IFRS revaluation adjustments
Closing balance
30 June 2018
30 June 2017
$1,500 to $5,000
$1,500 to $3,900
5.0% to 8.5%
5.5% to 8.5%
4.0% to 9.0%
4.5% to 10.25%
30 June 2018
30 June 2017
6.0% to 7.0%
6.0% to 7.0%
6.0% to 7.75%
6.0% to 7.75%
Consolidated
30 June 2018
30 June 2017
$’000
$’000
591,712
491,439
80,498
(4,402)
26,479
5,122
39,971
(6,622)
66,124
800
699,409
591,712
49
Arena REIT • Annual Report 2018 8. Investment properties (continued)
(c) Amounts recognised in profit or loss for investment properties
Property income
Other property income (recognised on a straight line basis)
Direct operating expenses from property that generated property income
Revaluation gain on investment properties
Consolidated
30 June 2018
30 June 2017
$’000
43,128
5,112
(832)
26,479
$’000
37,437
732
(1,152)
66,124
(d) Tenancy risk
Set out below are details of the major tenants who lease properties from the Group:
Goodstart Early Learning Ltd (‘Goodstart’) - representing 34% 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 13% of the Group’s investment property portfolio by income. PRY
is an ASX 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
received a parent entity guarantee from PRY to provide security for their performance under the leases.
Affinity Education Group Limited (‘Affinity’) - representing 13% 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 Arena with a pooled bank guarantee as security against each of
the properties leased.
Other Tenants
Operator
Green Leaves
G8 Education
Petit Early Learning Journey
Oxanda Education
% of Investment Property Portfolio by Income
12%
8%
6%
3%
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 11 for information on investment properties and other assets pledged as security by the Group.
50
Notes to the consolidated financial statements continued 8. Investment properties (continued)
(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 2018
30 June 2017
$’000
7,178
$’000
12,719
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 2018
30 June 2017
$’000
$’000
44,415
182,820
460,790
688,025
37,882
157,933
383,856
579,671
(h) Accounting policy - 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 have 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.
51
Arena REIT • Annual Report 2018 9. Intangible assets
Goodwill
Consolidated
30 June 2018
30 June 2017
$’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
Arena REIT 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 8.16% 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.
(a) Accounting policy - 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.
10. Trade and other payables
Consolidated
30 June 2018
30 June 2017
$’000
1,880
4,247
6,127
$’000
2,020
7,285
9,305
Prepaid rental income
Sundry creditors and accruals
Trade and other payables are non-interest bearing.
52
Notes to the consolidated financial statements continued 11. Interest bearing liabilities
Non-current:
Secured
Syndicated facility
Unamortised transaction costs
Total secured non-current borrowings
(a) Financing arrangements
Consolidated
30 June 2018
30 June 2017
$’000
$’000
179,500
(1,009)
171,000
(376)
178,491
170,624
Consolidated
30 June 2018
30 June 2017
$’000
$’000
Committed facilities available at the end of the reporting period
Interest bearing liabilities
230,000
205,000
Facilities used at the end of the reporting period
Interest bearing liabilities
179,500
171,000
The Group refinanced its syndicated debt facility during the year, increasing the facility limit by $25 million to $230
million and extending the maturity dates. The Group now has an $80 million facility expiring 31 March 2022 and a $150
million facility expiring 31 March 2023 providing a remaining weighted average term of 4.4 years as at 30 June 2018.
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.
53
Arena REIT • Annual Report 2018 11. Interest bearing liabilities (continued)
(b) Assets pledged as security
The bank facilities are secured by a registered first mortgage over investment property and a fixed and floating charge
over the assets of ARF1 and ARF2.
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 2018
30 June 2017
$’000
$’000
5,087
6,342
11,429
699,409
699,409
6,052
8,171
14,223
591,712
591,712
The covenants over the Group’s bank facility require an interest cover ratio of greater than 2.0 times (Actual at 30 June
2018 of 5.95 times) and a loan to market value of investment properties ratio of less than 50% (Actual at 30 June 2018
of 27.8%). The Group was in compliance with its covenants throughout the year.
(d) Accounting policy - 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. Transaction costs
are 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.
54
Notes to the consolidated financial statements continued 12. Derivative financial instruments
Non-current liabilities
Interest rate swaps
Consolidated
30 June 2018
30 June 2017
$’000
$’000
561
561
1,031
1,031
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 78% (2017: 79%) of the facility principal outstanding. The weighted average fixed
interest swap rate at 30 June 2018 was 2.44% (2017: 2.39%), and the weighted average term was 5.9 years (2017: 4.3
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
Consolidated
30 June 2018
30 June 2017
$’000
–
–
22,500
15,000
15,000
87,500
$’000
–
10,000
35,000
22,500
22,500
45,000
140,000
135,000
(a) Accounting policy - Derivative financial instruments
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently
remeasured to their fair value at the end of each reporting period. The Group does not designate any derivatives as
hedges in a hedging relationship and therefore changes in the fair value of any derivative instrument are recognised
immediately in the statement of comprehensive income.
(b) Key estimate - Fair value of financial instruments
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter
derivatives or unquoted securities) is determined using valuation techniques.
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.
55
Arena REIT • Annual Report 2018 13. Contributed equity
(a) Securities
30 June 2018
30 June 2017
30 June 2018
30 June 2017
Securities ‘000
Securities ‘000
$’000
$’000
Consolidated
Ordinary Securities
Fully paid
269,351
234,843
259,780
202,179
Other contributed equity attributable to securityholders of the Group relating to ARF2 and ARL of $51.6 million is
included within Non-controlling interests - ARF2 and ARL (30 June 2017: $40.4 million).
(b) Movements in ordinary securities
Date
Details
1 July 2016
Opening balance
Issue of securities under the DRP (i)
30 June 2017
Closing balance
Number of
securities
‘000
231,966
2,877
234,843
$’000
197,224
4,955
202,179
1 July 2017
Opening balance
234,843
202,179
Issue of securities under the DRP (i)
3 August 2017
Issue of securities under the Institutional Placement (ii)
5 September 2017
Issue of securities under the Security Purchase Plan (iii)
Vesting of security-based benefits (iv)
2,022
27,094
4,925
467
3,773
45,478
8,350
–
30 June 2018
Closing balance
269,351
259,780
(i) Dividend and Distribution Re-investment Plan (DRP)
The Group has a Dividend and 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.
(ii) Institutional Placement
The Group completed a fully underwritten placement to institutional and professional investors in July 2017 which
raised $55 million through the issue of 27,093,596 stapled securities at a price of $2.03 per stapled security. Settlement
of the new stapled securities under the placement occurred on 3 August 2017.
(iii) Security Purchase Plan (SPP)
In conjunction with the Institutional Placement, the Group offered a Security Purchase Plan (SPP) to eligible investors
in August 2017. $10 million was raised through the issue of 4,925,032 stapled securities at a price of $2.03 per stapled
security. Settlement of the new stapled securities under the SPP occurred on 5 September 2017.
(iv) Security-based benefits
In September 2017, 467,154 performance and recognition rights granted to employees of an associate of the
Responsible Entity in FY15 vested as a result of performance and service conditions being fulfilled.
56
Notes to the consolidated financial statements continued 14. Accumulated profit
Movements in accumulated profit were as follows:
Opening accumulated profit
Net profit for the half-year/year attributable to ARF1
Distribution paid or payable attributable to ARF1
Closing accumulated profit
Distributions to securityholders
Consolidated
30 June 2018
30 June 2017
$’000
$’000
161,929
58,593
(29,904)
99,187
87,161
(24,419)
190,618
161,929
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 $4.5 million (30 June 2017: $3.6
million).
Distributions declared
September quarter
December quarter
March quarter
June quarter
2018
$’000
8,570
8,583
8,600
8,619
2017
$’000
6,807
6,834
7,205
7,222
2018
cps
3.2000
3.2000
3.2000
3.2000
2017
cps
2.9250
2.9250
3.0750
3.0750
Total distributions to securityholders
34,372
28,068
12.8000
12.0000
57
Arena REIT • Annual Report 2018 15. 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 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)
Closing balance - 30 June 2017
Opening balance - 1 July 2017
Issue of securities under the DRP
Issue of securities under the Institutional Placement
Issue of securities under the Security Purchase Plan
Vesting of security-based benefits
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
$’000
46,954
744
10,256
(3,649)
–
54,305
$’000
14,128
–
(626)
–
561
14,063
$’000
61,082
744
9,630
(3,649)
561
68,368
ARF2
ARL
Total
30 June 2018
30 June 2018
30 June 2018
$’000
54,305
568
6,787
1,242
–
6,287
(4,468)
–
$’000
14,063
–
1,757
322
487
(448)
–
343
$’000
68,368
568
8,544
1,564
487
5,839
(4,468)
343
Closing balance - 30 June 2018
64,721
16,524
81,245
(i) Reserves
Opening balance
Vesting of security-based benefits
Security-based benefits expense
Balance 30 June
Consolidated
30 June 2018
30 June 2017
$’000
1,023
(487)
830
1,366
$’000
462
–
561
1,023
The security-based benefits reserve is used to recognise the fair value of rights issued under the Group’s Deferred
Short Term and Long Term Incentive Plan.
58
Notes to the consolidated financial statements continued 16. Cashflow information
(a) Reconciliation of profit/(loss) to net cash inflow/(outflow) 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 derivative financial instruments
Security-based payments expense
Other
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 2018
30 June 2017
$’000
64,432
460
(26,479)
(5,112)
553
830
37
194
(1,136)
21
$’000
96,791
141
(66,124)
(732)
(1,805)
561
81
(47)
215
(92)
Net cash inflow from operating activities
33,800
28,989
(b) Net debt reconciliation
This section sets out an analysis of the net debt movements for the financial year:
Net debt as at 30 June 2017
Cash flows
Other non-cash movements
Cash and cash
equivalents
Interest
bearing
liabilities
Derivative
financial
instruments
$’000
9,082
(428)
–
$’000
(170,624)
(7,407)
(460)
$’000
(1,031)
1,022
(552)
Total
$’000
(162,573)
(6,813)
(1,012)
Net debt as at 30 June 2018
8,654
(178,491)
(561)
(170,398)
59
Arena REIT • Annual Report 2018 Risk
This section of the notes discusses the Group’s exposure to various risks and shows how these could affect the
Group’s financial position and performance.
17. 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 2018
30 June 2017
$’000
$’000
Financial assets
Cash and cash equivalents (floating interest rate)
8,654
9,082
Financial liabilities
Interest bearing liabilities - floating interest rate
Derivative financial instruments (notional principal amount) - fixed rate interest rate swaps
Net Exposure
(179,500)
140,000
(171,000)
135,000
(30,846)
(26,918)
60
Notes to the consolidated financial statements continued 17. 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 (2017: 100 bp)
Market interest rate decreased by 100 basis points (2017: 100 bp)
Instruments with fair value risk:
Derivative financial instruments
Consolidated
2017
$’000
(269)
269
2018
$’000
(308)
308
140,000
135,000
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 (2017: 100 bp)
Market interest rate decreased by 100 basis points (2017: 100 bp)
7,418
(7,418)
5,530
(5,530)
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 2018
30 June 2017
$’000
8,654
2,850
–
$’000
9,082
2,214
–
Maximum exposure to credit risk
11,504
11,296
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.
61
Arena REIT • Annual Report 2018 17. Financial risk management and fair value measurement (continued)
At the end of the reporting period there are no issues with the credit quality of financial assets that are either past due
or impaired, and all amounts are expected to be received in full.
(c) Liquidity risk
Liquidity risk is the risk that the 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 2018
Trade and other payables
Interest rate swaps
Interest bearing liabilities
Contractual cash flows (excluding gross settled derivatives)
Consolidated
30 June 2017
Trade and other payables
Interest rate swaps
Interest bearing liabilities
Contractual cash flows (excluding gross settled derivatives)
(d) Fair value estimation
Less than
12 months
1-2 years
Greater than
2 years
$’000
$’000
$’000
14,746
706
6,091
21,543
–
708
6,107
6,815
–
3,219
193,715
196,934
Less than
12 months
1-2 years
Greater than
2 years
$’000
$’000
$’000
16,526
1,041
4,977
22,544
–
1,020
106,058
107,078
–
2,762
71,688
74,450
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.
62
Notes to the consolidated financial statements continued 17. 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 2018 and 30 June 2017 on a recurring basis:
Consolidated
30 June 2018
Financial liabilities
Interest rate swaps
Total
30 June 2017
Financial liabilities
Interest rate swaps
Total
Level 1
$’000
Level 2
$’000
Level 3
$’000
–
–
–
–
561
561
1,031
1,031
–
–
–
–
Total
$’000
561
561
1,031
1,031
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 2018.
(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.
63
Arena REIT • Annual Report 2018 17. Financial risk management and fair value measurement (continued)
(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.
18. 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.
Consistent with others in the industry, the Group monitors capital through the analysis of a number of financial ratios,
including the Gearing ratio.
Gearing Ratio
Interest bearing liabilities
Total assets
Gearing ratio
2018
$’000
179,500
726,087
24.7%
2017
$’000
171,000
621,282
27.5%
64
Notes to the consolidated financial statements continued Group structure
This section provides information which will help users understand how the Group structure affects the financial
position and performance of the Group as a whole.
19. Investments in controlled entities
The consolidated financial statements incorporate the assets, liabilities and results of the following:
Name of entity
Country of
incorporation
Class of shares
2018
2017
Equity holding
Citrus Investment Services Limited
Arena REIT Management Limited
Arena REIT Operations Pty Ltd
Australia
Australia
Australia
Ordinary
Ordinary
Ordinary
%
100
100
100
%
100
100
100
Unrecognised items
This section of the notes provides information about items that are not recognised in the financial statements as
they do not satisfy the recognition criteria.
20. Contingent assets and liabilities and commitments
There are no material outstanding contingent assets or liabilities as at 30 June 2018 and 30 June 2017. For details of
commitments of the Group as at 30 June 2018, refer to note 8.
21. Events occurring after the reporting period
No significant events have occurred since the end of the reporting period which would impact on the financial
position of the Group disclosed in the consolidated balance sheet as at 30 June 2018 or on the results and cash flows
of the Group for the year ended on that date.
65
Arena REIT • Annual Report 2018 Other information
This section of the notes includes other information that must be disclosed to comply with the accounting
standards and other pronouncements, but that is not immediately related to individual line items in the financial
statements.
22. Related party disclosures
Subsidiaries
Investments in controlled entities 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
30 June 2018
30 June 2017
$
$
1,875,616
96,064
31,468
–
722,055
1,980,409
113,251
24,860
–
519,783
2,725,203
2,638,303
Detailed remuneration disclosures are provided in the Remuneration report.
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
30 June 2018
30 June 2017
$
$
27,083
216,404
14,054
50,000
389,089
46,550
69,875
44,770
Amounts receivable:
Amount receivable from other related parties at the end of the reporting period
Deferred management and performance fees receivable at the end of the reporting period
26,755
748,143
71,971
1,106,580
Amounts payable:
Amounts payable to other related parties at the end of the reporting period
–
–
66
Notes to the consolidated financial statements continued 23. Security-based benefits
(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
2018
2017
2016
2015
Total
Number
Number
Number
Number
Number
Rights issued
658,098
524,092
535,655
304,987
2,022,832
Performance rights issued
658,098
524,092
535,655
304,987
2,022,832
Number rights forfeited/lapsed in prior years
–
–
Number rights forfeited/lapsed in current year
(56,118)
(21,394)
Number rights vested in prior years
Number rights vested in current year
–
–
–
–
(21,010)
(4,646)
–
–
(9,574)
–
–
(30,584)
(82,158)
–
(295,413)
(295,413)
Closing balance
601,980
502,698
509,999
–
1,614,677
Recognition rights
2018
2017
2016
2015
Total
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
Number
Number
Number
Number
Number
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
186,660
186,660
186,660
186,660
(14,918)
(14,918)
–
–
–
–
(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
Deferred Short Term Incentive Rights
30 June 2018
30 June 2017
$’000
$’000
645
185
830
561
-
561
The Deferred Short-Term Incentive Rights represents an accrual for rights that may be granted in a subsequent
period. No rights were granted during the reporting period.
67
Arena REIT • Annual Report 2018 23. Security-based benefits (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 FY18 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 2017
$2.25
$1.49
20%
1.96%
(d) Accounting policy - Security-based benefits
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.
68
Notes to the consolidated financial statements continued 24. 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 2018
30 June 2017
$
$
108,500
10,200
118,700
42,587
42,587
105,550
10,150
115,700
42,213
42,213
Total remuneration of PricewaterhouseCoopers
161,287
157,913
25. Parent entity financial information
The financial information for the parent entity Arena REIT No. 1, has been prepared on the same basis as the
consolidated financial statements.
(a) 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 2018
30 June 2017
$’000
$’000
58,593
87,161
Total comprehensive income attributable to Arena REIT No. 1
58,593
87,161
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
8,541
614,016
622,557
14,964
157,195
172,159
259,780
190,618
450,398
12,662
507,616
520,278
14,347
141,823
156,170
202,179
161,929
364,108
69
Arena REIT • Annual Report 2018 26. Summary of other significant accounting policies
This note provides a list of the significant accounting policies adopted in the preparation of these consolidated
financial statements to the extent they have not already been disclosed in the other notes above. These policies have
been consistently applied to all years presented, unless otherwise stated.
(a) 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 2018, 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 26(c)).
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.
(b) 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.
70
Notes to the consolidated financial statements continued 26. Summary of other significant accounting policies (continued)
(c) 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.
(d) 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 scheme or trust acquisitions and disposals.
Management fees are recognised on an accrual 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).
71
Arena REIT • Annual Report 2018 26. Summary of other significant accounting policies (continued)
(e) Expenses
All expenses are recognised in profit or loss on an accruals basis.
(f) 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.
(g) 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).
(h) Assets held for sale
Assets are classified as held-for-sale when a sale is considered highly probable and their carrying amount will be
recovered principally through a sale transaction rather than through continued use. Assets classified as held-for-sale
are presented separately from the other assets in the consolidated balance sheet.
Assets classified as held-for-sale are measured at the lower of their carrying amount and fair value less costs to sell.
Changes to fair value are recorded in the consolidated statement of comprehensive income.
An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal group) to fair
value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset
(or disposal group), but not in excess of any cumulative impairment loss previously recognised. A gain or loss
not previously recognised by the date of the sale of the asset (or disposal group) is recognised at the date of
derecognition.
Assets (including those that are part of a disposal group) are not depreciated or amortised while they are classified as
held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale
continue to be recognised.
72
Notes to the consolidated financial statements continued 26. Summary of other significant accounting policies (continued)
(i) Property, plant and equipment
Property, 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.
(j) 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.
(k) 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.
73
Arena REIT • Annual Report 2018 26. Summary of other significant accounting policies (continued)
(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 17(d).
Loans and receivables
Loan assets are measured initially at fair value plus transaction costs and subsequently amortised using the effective
interest rate method, less impairment losses if any. Such assets are reviewed at the end of each reporting period to
determine whether there is objective evidence of impairment.
If evidence of impairment exists, an impairment loss is recognised in profit or loss as the difference between the
asset’s carrying amount and the present value of estimated future cash flows discounted at the original effective
interest rate.
If in a subsequent period the amount of an impairment loss recognised on a financial asset carried at amortised cost
decreases and the decrease can be linked objectively to an event occurring after the write-down, the write-down is
reversed through profit or loss.
(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.
(l) 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.
(m) 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.
74
Notes to the consolidated financial statements continued 26. Summary of other significant accounting policies (continued)
(n) 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.
(o) New accounting standards and interpretations
Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2018
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
AASB 9 Financial
Instruments
AASB 15 Revenue
from contracts
with customers
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 has assessed the effects of applying the
new standard on the Group’s financial statements and has
determined that as of 1 January 2018, the impact is not
expected to be material.
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 has assessed the effects of applying the
new standard on the Group’s financial statements and has
determined that no impact is expected.
75
Arena REIT • Annual Report 2018 26. Summary of other significant accounting policies (continued)
Effective annual
reporting periods
beginning on or
after
Expected to be
initially applied in
the financial year
ending
1 January 2019
30 June 2020
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 has assessed the effects of applying the
new standard on the Group’s financial statements and has
determined that as of 1 January 2019, the impact is not
expected to be material.
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.
76
Notes to the consolidated financial statements continued Directors’
declaration
In the opinion of the directors:
(a) the financial statements and notes set out on pages 36 to 76 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 2018 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 1(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, 21 August 2018
77
Arena REIT • Annual Report 2018 Independent
auditor’s report
Independent auditor’s report
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
Arena REIT Stapled Group) is in accordance with the Corporations Act 2001, including:
(a)
performance for the year then ended
giving a true and fair view of the Group's financial position as at 30 June 2018 and of its financial
(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 2018
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.
78
Materiality
Audit scope
Key audit matters
Amongst other relevant topics,
we communicated the following key
audit matter to the Audit
Committee:
Fair value of investment
properties
Key audit matters section of our
report.
This is further described in the
For the purpose of our audit we used
overall group materiality of $1.93 million
which represents approximately 5% of the
Group’s profit before tax adjusted for
significant non-cash fair value movements.
Our audit focused on where the
Group made subjective judgements;
for example, significant accounting
estimates involving assumptions and
inherently uncertain future events.
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 benchmark used
to measure the performance of the Group. We
adjusted Group profit before tax for fair value
movements in investment properties and fair
value changes in derivatives.
We utilised a 5% threshold based on our
professional judgement, noting it is within the
range of commonly acceptable thresholds.
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
How our audit addressed the key audit matter
Fair value of investment properties
(Refer to note 8)
The Group’s portfolio of investment properties
was recognised as an asset in the financial
report at $699.4m at 30 June 2018 and
comprised of 214 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:
As at 30 June 2018, the Group obtained independent valuations on 29
ELC properties and two 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
79
Arena REIT • Annual Report 2018 Independent auditor’s report
continued
Key audit matter
How our audit addressed the key audit matter
the magnitude of the investment
properties asset balance relative to the net
assets of the Group
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
Other information
the underlying leases
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
The directors are responsible for the other information. The other information comprises the information
included in the annual report for the year ended 30 June 2018, but does not include the financial report and our
auditor’s report thereon. Prior to the date of this auditor's report, the other information we obtained included the
Directors’ report, Corporate directory and ASX additional information. We expect the remaining other
information to be made available to us after the date of this auditor's report, including the Highlights, Chairman
and Managing Director’s Report, Property 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.
80
Responsibilities of the directors for the financial report
The directors of Arena REIT Management Limited (the responsible entity of ARF1) are responsible for the
preparation of the financial report that gives a true and fair view in accordance with Australian Accounting
Standards and Corporations Act 2001 and for such internal control as the directors determine is necessary to
enable the preparation of the financial report that gives a true and fair view and is free from material
misstatement, whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as
a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance
with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of 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 22 to 33 of the directors’ report for the year ended
30 June 2018.
In our opinion, the remuneration report of Arena REIT No. 1 for the year ended 30 June 2018 complies with
section 300A of the Corporations Act 2001.
Responsibilities
The directors of Arena REIT Management Limited (the responsible entity of 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
Charles Christie
Partner
Melbourne
21 August 2018
81
Arena REIT • Annual Report 2018 ASX additional information
Additional Securities Exchange Information as at 16 August 2018
There were 270,264,611 fully paid ordinary securities on issue, held by 6,035 securityholders. There were 255 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
1,271
1,600
845
2,206
113
616,483
4,265,013
6,591,406
64,118,293
194,673,416
0.23
1.58
2.44
23.72
72.03
6,035
270,264,611
100.00
Number of
securities
Fully Paid (%)
27,677,037
16,352,388
15,832,698
11,748,203
10.24
6.05
5.86
4.35
82
Twenty largest securityholders
Holder Name
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
BNP Paribas Noms Pty Ltd
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