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American TowerAR ENA REIT
2 01 9
ANNU A L
RE P O RT
C ONT ENTS
FY19 HIGHLIGHTS
CHAIR 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
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12
13
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75
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84
2
Further information can be
found online at:
www.arena.com.au
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).
IMPORTANT NOTICE
This report has been prepared by Arena REIT (Arena)
comprising Arena REIT Limited (ACN 602 365 186), Arena
REIT Management Limited (ACN 600 069 761 AFSL No.
465754) as responsible entity of Arena REIT No.1 (ARSN
106 891 641) and Arena REIT No.2 (ARSN 101 067 878).
The information contained in this report is current only as
at the date of this report or as otherwise stated herein.
This report may not be reproduced or distributed without
Arena’s prior written consent. The information contained
in this report is not investment or financial product advice
and is not intended to be used as the basis for making
an investment decision. Arena has not considered the
investment objectives, financial circumstances or particular
needs of any particular recipient. You should consider
your own financial situation, objectives and needs,
conduct an independent investigation of, and if necessary
obtain professional advice in relation to, this report. Past
performance is not an indicator or guarantee of future
performance.
Except as required by law, no representation or warranty,
express or implied, is made as to the fairness, accuracy,
completeness or correctness of the information, opinions
and conclusions, or as to the reasonableness of any
assumption, contained in this report. By receiving this
report and to the extent permitted by law, you release
Arena and its directors, officers, employees, agents,
advisers and associates from any liability (including,
without limitation, in respect of direct, indirect or
consequential loss or damage or any loss or damage
arising from negligence) arising as a result of the reliance
by you or any other person on anything contained in or
omitted from this report.
This report is for information purposes only and should
not be considered as a solicitation, offer or invitation
for subscription, purchase or sale of securities in any
jurisdiction, or to any person to whom it would not be
lawful to make such an offer or invitation.
This report contains forward-looking statements including
certain forecast financial information. The words
“anticipate”, “believe”, “expect”, “project”, “forecast”,
“estimate”, “outlook”, “upside”, “likely”, “intend”,
“should”, “could”, “may”, “target”, “plan”, and other
similar expressions are intended to identify forward-
looking statements. The forward-looking statements
are made only as at the date of this announcement
and involve known and unknown risks, uncertainties,
assumptions and other factors, many of which are beyond
the control of Arena and its directors. Such statements
are not guarantees of future performance and actual
results may differ materially from anticipated result,
performance or achievements expressed or implied by
the forward-looking statements. Other than as required
by law, although they believe there is a reasonable
basis for the forward-looking statements, neither Arena
nor any other person (including any director, officer, or
employee of Arena or any related body corporate) gives
any representation, assurance or guarantee (express
or implied) as to the accuracy or completeness of each
forward-looking statement or that the occurrence of any
event, result, performance or achievement will actually
occur. You should not place undue reliance on any of the
forward-looking statements.
A R E N A R E I T 2 0 1 9 A N N U A L R E P O R T
3
FY19
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.
$59.3m
Statutory Net Profit
Down 8% on FY18
$37.7m
Net Operating Profit
Up 9% on FY18
13.8¢
Earnings per security (EPS)
Up 5.3% on FY18
13.5¢
Distributions per
security (DPS)
Up 5.5% on FY18
$825.7m
Total assets
Up 14% on 30 June 2018
$2.10
Net Asset Value (NAV) per
security
Up 7% on 30 June 2018
4
3.6%
Average like-for-like
rental growth
$32.4m
Revaluation uplift
4.6% increase in value
14.1yrs
Weighted average lease
expiry (WALE)
$72m
Acquisitions and
development
completions in FY19
$798m
25%
Market Capitalisation
As at 30 June 2019
Per annum, five year total
ASX return performance
22.8%
82%
Gearing
3.3 years average facility term
Interest rate hedge cover
4.8 years weighted average
hedge term
A R E N A R E I T 2 0 1 9 A N N U A L R E P O R T
5
ARENA REIT 2019 ANNUAL REPORT C HAIR AN D MANA GIN G
DIRECTOR’ S REP ORT
We are pleased to report that Arena continues to execute on its
strategy and has achieved another year of strong financial and
operational results for our securityholders.
Arena has produced strong earnings
and capital growth, successfully
delivered development completions,
replenished the development
pipeline, reduced gearing and
increased the average duration of its
leases with its tenant partners during
financial year 2019 (FY19).
These positive outcomes are a result
of the quality of Arena’s property
portfolio, the proactive approach
of Arena’s management team and
the strong macro-economic themes
that support investment in social
infrastructure property. It is also an
endorsement of Arena’s disciplined
strategy and ability to deliver against
our investment objectives.
Arena has delivered a one year ASX
total return of 34.3% and five year
ASX total return of 25% per annum to
30 June 20191.
FINANCIAL RESULTS
Arena’s net operating profit
increased by 8.7% to $37.7 million in
FY19.
Key contributors to the result were
rental income growth from annual
rent reviews and income from
acquisitions and development
projects completed in financial year
2018 (FY18) and FY19. This result
represents distributable income
(earnings) per security (EPS) of 13.8
cents, an increase of 5.3% over the
prior year. Arena has paid a full-year
distribution of 13.5 cents per security,
an increase of 5.5% on the prior
year. Statutory net profit for the year
was $59.3 million, 7.9% lower than
the prior year, primarily due to the
negative revaluation of interest rate
hedges during the year.
David Ross
Chair
Rob de Vos
Managing Director
34.3
25.0
19.4
17.6
8.4
14.1
12.8
12.9
2.10
1.97
1.84
1.54
13.8
9.7
8.9
1.33
1.13
1 yr
3 yrs p.a.
5 yrs p.a.
FY15
FY16
FY17
FY18
FY19
FY14
FY15
FY16
FY17
FY18
FY19
ASX total return performance1
To 30 June 2019 (%)
Arena REIT
ASX300 A-REIT Accumulation Index
Portfolio WALE (years)
NAV per security ($)
1. UBS, UBS Australian REIT month in review, June 2019; ASX total return includes security price growth and reinvestment of distributions.
6
66.3
0.7
2.2
1.4
16.9
7.3
5.2
FY20 FY21 FY22
FY23
FY24
FY25 FY26 FY27
FY28
FY29
FY30
FY31
FY32+
Lease expiry profile by income (%)
Early Learning
Healthcare
Arena’s total assets increased by
13.8% to $825.7 million as a result
of acquisitions, development
capital expenditure and the positive
revaluation of the portfolio. The
revaluation uplift was the primary
contributor to the 7% increase in
net asset value (NAV) per security to
$2.10 at 30 June 2019.
P O RTFO LIO OV ERVI EW
Portfolio composition
At 30 June 2019, Arena’s property
portfolio comprised 216 early
learning centre (ELC) properties
and development sites (85% of
portfolio by value) and 10 healthcare
properties (15% of portfolio by
value). The portfolio is 100%
occupied.
Acquisition of specialist disability
accommodation portfolio
During the year Arena acquired
a $24 million portfolio of three
specialist disability accommodation
(SDA) properties in metropolitan
Adelaide, all leased to SACARE, a
leading provider of disability care
and rehabilitation services in South
Australia.
The acquisition of SDA properties
is consistent with Arena’s strategy
to grow and diversify its existing
healthcare portfolio and further
diversify its portfolio of social
infrastructure property. The quality
of the assets, our tenant partner
and the underlying demand for
the services they provide are
demonstrative of the characteristics
Arena seeks when considering such
opportunities.
Partnership approach to healthcare
portfolio lease extension
Arena’s healthcare portfolio leases
with Healius were extended from
an average of 4 years to 14.6 years
during FY19 with the expiries on the
initial lease terms now staggered
from FY29 to FY36.
Average annual rental growth of
3.6%
Annual rent reviews across the
portfolio have recorded an average
like-for-like rental increase of 3.6%.
Key contributors to this result were
39 market rent reviews completed
during FY19 at an average increase
of 9.4%2.
2. Ten market rent reviews scheduled for FY19 had not been agreed as at 30 June 2019.
“We remain focused
on selective new
investments that
deliver predictable
earnings and earnings
growth prospects
while maintaining our
investment discipline.”
Weighted average lease expiry
increased to 14.1 years
Throughout the year the portfolio’s
weighted average lease expiry
(WALE) was extended from 12.9
years at 30 June 2018 to 14.1 years.
The primary drivers of this extension
were the renegotiation of leases
over the Healius portfolio, property
acquisitions and ELC development
completions.
Arena now has less than 3% of
portfolio income subject to expiry
over the next eight years.
Portfolio revaluation uplift of
$32.4 million
A revaluation uplift of $32.4 million
was recorded across Arena’s
portfolio, equivalent to an increase
of 4.6%. The portfolio’s weighted
average passing yield firmed 14 basis
points to 6.38%.
ELC acquisitions and development
completions
Arena acquired five operating ELC
properties during FY19 at a net initial
yield on cost of 6.7% and average
initial lease term of 19 years. Four
ELC development projects were
completed during FY19 at a net
initial yield on cost of 6.4% all on new
20 year leases.
7
ARENA REIT 2019 ANNUAL REPORT CHAIR AND MANAGING DIR E C T O R ’ S R E PO RT
c o n t i n u e d
via the dividend and distribution
reinvestment plan (DRP) during FY19,
which remains open.
date to fund development capital
expenditure and potential new
investments.
Development pipeline of
$50 million
Arena acquired eight new ELC
development projects during FY19
taking the current development
pipeline to nine ELC projects with a
forecast total cost of $50 million and
an anticipated weighted average
initial yield on cost of 6.7%.
CA PITAL MAN AG EMENT
Increase in debt facility limit
Arena increased its total debt facility
limit to $280 million though the
establishment of an additional $50
million facility during FY19. Arena’s
weighted average cost of debt fell to
3.65% as at 30 June 2019 compared
with 3.85% as at 30 June 2018.
Low risk funding profile
Arena raised $50 million via a
fully underwritten institutional
placement in May 2019 and a
further $16.4 million via a security
purchase plan in July 2019. An
additional $6.5 million was raised
Capacity to fund new investment
opportunities
At 30 June 2019, Arena’s balance
sheet debt gearing was 22.8%,
compared with 24.7% at 30 June
2018 with undrawn debt capacity
of $91.5 million as at balance
Financial year 2020 (FY20)
distribution guidance
Arena has provided FY20 distribution
per security (DPS) guidance of 14.3
cents per security3 reflecting growth
of 5.9% over last year.
CORPORATE
GOVERNANCE
During FY19, Arena announced the
retirement of Bryce Mitchelson and
the appointment of his successor
Rob de Vos (formerly Arena’s Head
of Property) as the new Chief
Executive Officer and Managing
PO RT FOLIO VAL UAT IONS
Number of
assets
30 June 2019
valuation
Net valuation movement
30 June 2019
passing yield
Change
No.
216
10
226
$m
676.2
122.1
798.3
$m
21.6
10.8
32.4
%
3.5
12.7
4.6
%
6.44
6.08
6.38
bps
(2)
(77)
(14)
ELC portfolio
Healthcare portfolio
Total portfolio
AC QUISITIO NS AND D EVELO P MENT COMPLETION S
Operating ELC acquisitions
Operating healthcare acquisitions
ELC development completions
Total/weighted average
Number of
properties
Total cost
Initial yield
on cost
Initial lease
terms
No.
5
3
4
12
$m
23.0
24.0
25.0
72.0
%
6.7
6.0
6.4
6.4
years
19.0
15.0
20.0
18.1
3. 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.
8
Director. We would like to thank
Bryce for his leadership of Arena
and acknowledge his passion for the
business and substantial contribution
to the strong performance of Arena
since its ASX listing in June 2013.
Bryce retires after close to 10 years
with Arena and its predecessor
business and we wish him all the
best.
Arena also recently welcomed Ms
Rosemary Hartnett as a new non-
executive director. Rosemary is
currently the independent chair of
IPST and has more than 30 years’
experience in the Australian property
sector, including extensive senior
management experience in property
finance, funds management,
investment and social enterprise.
Rosemary will make a valuable
contribution to Arena and her broad
experience will complement the
Board’s existing mix of skills and
experience.
OU TLO OK
Arena’s outlook is positive and
our portfolio remains in a strong
position, supported by:
t 100% occupancy;
t long term predominantly triple net
leases with minimum annual rent
escalations;
t market rent reviews scheduled for
FY20 and financial year 2021;
t annualisation of FY19
development completions; and
t debt capacity to execute on
selective new investment
opportunities.
Demand for high quality and
well located early learning and
healthcare property continues to be
underpinned by growing community
demand and supportive domestic
macro-economic trends including:
t actual and projected population
growth4;
t record and growing female
workplace participation rate5;
t strong long day care participation
rate6;
t improved affordability for
early learning from the federal
government’s Child Care Subsidy
(CCS)7; and
t aging population and increased
prevalence of chronic health
conditions8.
Arena remains focused on
maximising the quality of its portfolio
and sees opportunities to enhance
existing properties for increased
return, to acquire and develop new
high quality assets and sell assets
that no longer meet our investment
criteria.
Arena’s management team has
specialist asset management and
development expertise and a
strong track record that includes
the successful delivery of 37
development projects over the past
seven years at a total cost of $170
million.
Arena continues to differentiate its
brand in the marketplace through
a partnership approach, working
collaboratively with our tenants and
business partners.
In closing, we are pleased to confirm
that Arena is well placed to continue
to deliver on its investment objective
– to generate attractive and
predictable distributions to investors
with earnings growth prospects over
the medium to long term.
On behalf of the Board we would like
to thank our investors, 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 for
our Annual General Meeting on
22 November 2019 to meet the
Board and management team.
We will continue to work hard for our
securityholders and look forward to
reporting to you in FY20.
Yours sincerely,
David Ross,
Chair
Rob de Vos,
Managing Director
4. ABS Australian Demographic Statistics.
5. ABS Female Labour Force Participation Rate (aged 20-74 at least one dependent child of ELC age).
6. Australian Government ’Early Childhood and Child Care in Summary’ Reports 2012-2018.
7. Arena analysis based on operating data provided by Arena’s tenant partners as at 31 March 2019.
8. ABS National Health Survey.
9
ARENA REIT 2019 ANNUAL REPORT 2
PORTFOLIO
SUMMARY
AS AT 30 JUNE 2019
Arena’s portfolio of social infrastructure
properties is leased to a diversified
tenant base in the early learning and
healthcare sectors.
226
Total properties
– 210 Early Learning Centres
– 10 Healthcare
– 6 development sites
17
$798.3m
Total portfolio value
– $676.2m Early Learning
Centres
– $122.1m Healthcare
5
Early Learning Centres (210 properties)
Healthcare (10 properties)
ELC development sites (6 properties)
14.1yrs
WALE
– 14.1 years Early Learning
Centres
– 14.2 years Healthcare
10
Sector Diversification
By value (%)
Early Learning
85%
Healthcare
15%
Geographic Diversification
By value (%)
23
7
5
3
1
33
28
Queensland
Victoria
New South Wales
Western Australia
South Australia
Tasmania
Northern Territory
Tenant Diversification
By income (%)
12
14
11
31
7
5
3
17
Goodstart Early Learning
Green Leaves
Healius
Affinity Education
G8 Education
Petit Early Learning
Oxanda Education
Other
11
40
40
1
3
4
5
1
26
1
1
6
3
26
37
1
6
1
ARENA REIT 2019 ANNUAL REPORT C ORPORATE
G OVERNAN CE
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:
t Communications Policy;
t Continuous Disclosure Policy;
t Diversity Policy;
t Privacy Policy;
t Securities Trading Policy;
t 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.
View Arena’s key policies and the full
Corporate Governance Statement
for the 2019 Financial Year at:
www.arena.com.au/about/governance
12
AR ENA REIT
2 01 9
FI NAN CIAL
RE P ORT
FO R THE YEAR ENDED
30 JU NE 201 9
CON TENTS
DIRECTORS’ REPORT
AUDITOR’S INDEPENDENCE
DECLARATION
FINANCIAL STATEMENTS
15
33
34
Consolidated statement of comprehensive income 34
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
35
36
37
38
74
75
ABO U T THIS RE PORT
These financial statements cover Arena REIT (the
‘Group’) comprising Arena REIT No. 1, Arena REIT
No. 2, Arena REIT Limited, and their controlled
entities. The financial statements are presented in
Australian currency.
The Responsible Entity of Arena REIT No. 1 and
Arena REIT No. 2 (the ‘Trusts’) is Arena REIT
Management Limited (ACN 600069761). The
Responsible Entity’s registered office is:
Level 5, 41 Exhibition Street
Melbourne VIC 3000
14
DIREC TOR S’
REPO RT
D IRECT ORS ’ 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 2019. 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.
D IRECT ORS
The following persons held office as directors of ARL during the financial year and up to the date of this report:
t David Ross (Chairman) (Independent, non-executive)
t Simon Parsons (Independent, non-executive)
t Dennis Wildenburg (Independent, non-executive)
t Bryce Mitchelson (Executive) (retired from his executive position and resigned from the board on 19 February 2019)
t Rob de Vos (Executive) (appointed 19 February 2019)
The following persons held office as directors of ARML during the financial year and up to the date of this report:
t David Ross (Chairman) (Independent, non-executive)
t Simon Parsons (Independent, non-executive)
t Dennis Wildenburg (Independent, non-executive)
t Bryce Mitchelson (Executive) (retired from his executive position and resigned from the board on 19 February 2019)
t Rob de Vos (Executive) (appointed 19 February 2019)
t Gareth Winter (Executive)
P RIN C IPAL ACT IV ITI ES
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.
D ISTRIB UTIONS TO SE CURITY HOLDERS
The following table details the distributions to securityholders declared during the financial year:
September quarter
December quarter
March quarter
June quarter
2019
$’000
9,138
9,157
9,179
9,832
2018
$’000
8,570
8,583
8,600
8,619
2019
cps
3.375
3.375
3.375
3.375
2018
cps
3.200
3.200
3.200
3.200
Total distributions to securityholders
37,306
34,372
13.500
12.800
15
ARENA REIT 2019 ANNUAL REPORT OP ERAT ING AND FI NANC IAL RE V IEW
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:
t Early learning / child care services;
t Healthcare - including medical centres, diagnostic facilities, hospitals, aged care and associated facilities;
t Education - including schools, colleges and universities and associated facilities.
KE Y FINA NCIAL ME TRIC S
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
30 June 2019
30 June 2018
Change
$59.3 million
$64.4 million
$37.7 million
$34.7 million
13.8 cents
13.5 cents
13.1 cents
12.8 cents
$825.7 million
$725.8 million
$798.3 million
$699.4 million
$188.5 million
$179.5 million
$610.3 million
$531.6 million
$2.10
22.8%
$1.97
24.7%
- 8%
+ 9%
+ 5%
+ 5%
+ 14%
+ 14%
+ 5%
+ 15%
+ 7%
- 190 bps
FY19 H IGHLIGHT S
t Net statutory profit was $59.3 million, down 8% on the prior year. This is primarily due to the revaluation of interest
rate hedge derivatives compared to the prior year (FY19: $8.6 million; FY18: $0.6 million);
t Net operating profit was $37.7 million, up 9% on the previous year;
t Distributions for the year were 13.5 cents per security, up 5.5% on the prior year;
t NAV per security at 30 June 2019 was $2.10, an increase of 7% on 30 June 2018. This was primarily due to an
increase in the value of investment property, offset by the revaluation of derivatives;
t Gearing was 22.8% at 30 June 2019, down from 24.7% at 30 June 2018;
t The Group completed a fully underwritten Institutional Placement in May 2019, raising $50 million through the issue
of 18.7 million securities;
t In December 2018, the Group extended the lease term on six healthcare properties leased to Healius Limited
(formerly Primary Health Care Limited) for further terms ranging from 10-14 years beyond the previous expiry date.
The lease extensions have contributed to an increase in the portfolio WALE to 14.1 years as at 30 June 2019 (30
June 2018: 12.9 years); and
t The property portfolio increased with the addition of five Early Learning Centre (‘ELC’) development sites,
five operational ELCs, and three specialised disability accommodation properties. During the year, four ELC
developments were completed and leases commenced.
16
DIRECTORS’ REPORT continued FY1 9 H IG HLI GHTS c o n t i n u e d
Financial results
Property income
Other income
Total operating income
Property expenses
Operating expenses
Finance costs
Net operating profit (distributable income)*
Non-distributable items:
Investment property revaluation and straight-lining of rent
Change in fair value of derivatives
Profit/(loss) on sale of investment properties
Transaction costs
Amortisation of equity-based remuneration (non-cash)
Other
Statutory net profit
* Net operating profit (distributable income) is not a statutory measure of profit
FIN ANCIAL RESULTS S UMMARY
Net operating profit (distributable income) ($’000)
Weighted average number of ordinary securities (‘000)
Distributable income per security (cents)
30 June 2019
30 June 2018
$’000
$’000
48,744
583
49,327
(360)
(3,937)
(7,337)
37,693
32,362
(8,619)
(223)
(474)
(1,169)
(247)
59,323
42,673
770
43,443
(377)
(3,493)
(4,883)
34,690
31,591
(553)
30
(566)
(830)
70
64,432
30 June 2019
30 June 2018
37,693
273,055
13.80
34,690
264,878
13.10
t 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 cash flow.
t 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 four ELC developments completed during the year;
– Commencement of rental income following the acquisition of five operational ELCs and three specialised
disability accommodation properties during the year; and
– The full year effect of acquisitions and developments completed during FY18.
t Non-distributable items primarily decreased due to the greater loss on revaluation of derivatives compared to the
prior year.
17
ARENA REIT 2019 ANNUAL REPORT INVE STMEN T P ROPERTY P ORT F OLIO
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 2019
30 June 2018
$798.3 million
$699.4 million
220
6
–
226
209
5
–
214
100%
100%
14.1 years
12.9 years
t The increase in the value of investment properties is primarily due to the addition of:
– Property acquisition, development and capital expenditure of $70.9 million; and
– A net revaluation increment to the portfolio of $32.4 million for the year, inclusive of straight-lining of rent
accrual.
t Offset by the following investment property disposals during the year:
– One operating ELC was sold during the year with sale proceeds of $4.3 million.
CA PITAL MANAG EMENT
Equity
t During the year, 2.74 million securities were issued at an average price of $2.38 to raise $6.5 million of equity
pursuant to the Distribution Re-investment Plan (DRP);
t On 27 May 2019, 18,726,592 securities were issued at a price of $2.67 following the completion of a fully
underwritten placement to institutional and professional investors;
t A Security Purchase Plan (SPP) was offered in June 2019 to eligible investors, in conjunction with the Institutional
Placement.
Bank facilities & gearing
t The Group refinanced its syndicated debt facility during the year, increasing the facility limit by $50 million to $280
million. The Group’s debt facility now comprises a $130 million facility expiring 31 March 2022 and a $150 million
facility expiring 31 March 2023, providing a remaining weighted average term of 3.3 years as at 30 June 2019;
t The balance drawn increased by $9 million to fund acquisitions and development capital expenditure, offset by
Institutional Placement proceeds;
t Gearing was 22.8% at 30 June 2019 (30 June 2018: 24.7%);
t The Group was fully compliant with all bank facility covenants throughout FY19 and as at 30 June 2019. At 30 June
2019 the Loan to Valuation Ratio was 24.8% (Covenant: 50%) and the Interest Cover Ratio was 5.5 times (Covenant:
2.0 times).
Interest rate management
t As at 30 June 2019, 82% of Arena REIT borrowings are hedged for a weighted average term of 4.8 years (2018: 78%
for 5.9 years). The average swap fixed rate at 30 June 2019 is 2.42% (2018: 2.44%).
18
DIRECTORS’ REPORT continued FY2 0 OU TLOOK
The Group has provided FY20 distribution guidance of 14.3 cents per security, which represents an increase of 5.9%
on FY19.
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.
SIGN IFICANT C HANGE S IN S TAT E 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.
MATT ERS S UBSEQUE NT TO T HE END OF THE FINANCIAL YEAR
In conjunction with the Institutional Placement, the Group offered a Security Purchase Plan (SPP) to eligible investors
in June 2019. $16.37 million was raised through the issue of 6.2 million securities on 1 July 2019.
Other than the matter identified above, no other significant events have occurred since 30 June 2019 that have
affected, or may significantly affect:
(i) the operations of the Group in future financial years; or
(ii) the results of those operations in future financial years; or
(iii) the state of affairs of the Group in future financial years.
LI KELY DEV ELOPMENT S AND E XPECTED 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.
MATERI AL BUSI NESS RI SK S
The material business risks that could adversely affect the achievement of the Group’s financial prospects are as
follows. The Responsible Entity has in place a Risk Management Policy and Framework under which it identifies,
assesses, monitors and manages these risks.
Concentration risk
The Group’s property portfolio is presently 85% invested in ELCs and ELC development sites and 15% 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
2019, 68% of the portfolio by income (excluding developments) is leased to the largest four tenants (Goodstart Early
Learning Ltd 31%, Green Leaves Group Ltd 14%, Healius Limited 12% and Affinity Education Group 11%). 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 2019 ANNUAL REPORT INFO RMATIO N O N DI REC TOR S
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 LaSalle) and Parsons Hill Stenhouse.
Simon holds a Master of Science (Real Estate), a Master of Social Science (Environment & Planning),
and a PhD in land use planning, public policy and land economics. He 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 Chartered Accountants Australia and New Zealand (CA ANZ) and is a Fellow
of the Australian Institute of Company Directors (FAICD).
Other current directorships: Investa Wholesale Funds Management Limited; ICPF Holdings Limited.
Former directorships in last 3 years: None.
Rob de Vos, Executive Director
Rob was appointed Managing Director of Arena on 19 February 2019.
Rob has over 20 years’ experience in the real estate and property funds management industry
including acquisitions, developments, funds management, portfolio management and strategy, with
expertise across both traditional and specialised property assets.
Prior to joining Arena, Rob held senior roles with Jones Lang LaSalle, Becton Property Group and
Ceramic Funds Management.
Rob is a licensed real estate agent (VIC) and holds diplomas in Financial Markets and Property Operations.
Other current directorships: None.
Former directorships in last 3 years: None.
20
DIRECTORS’ REPORT continued IN FO RMATION ON DI REC TOR S c o n t i n u e d
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.
ME ETINGS OF DI REC TORS
The number of meetings of the Responsible Entity’s board of directors and of each board committee held during the
year ended 30 June 2019, and the number of meetings attended by each director were:
ARL Board
ARML Board
Audit Committee
Remuneration &
Nomination Committee
A
15
15
15
10
6
*
B
15
14
15
9
6
*
A
16
16
16
11
6
16
B
16
15
16
10
6
16
A
10
10
10
*
*
*
B
10
10
10
*
*
*
A
3
3
3
*
*
*
B
3
3
3
*
*
*
David Ross
Simon Parsons
Dennis Wildenburg
Bryce Mitchelson
Rob de Vos
Gareth Winter
A - Number of meetings held during the time the director held office or was a member of the committee during the year.
B - Number of meetings attended.
* = Not a member of the relevant board/committee.
REM U NERAT IO N RE PO RT
The Board’s Remuneration and Nomination Committee (Committee) presents the Remuneration Report which
includes information on the remuneration arrangements for Arena’s Key Management Personnel (KMP) for the
year ended 30 June 2019. The report has been prepared and audited in accordance with the requirements of the
Corporations Act and Regulations.
Governance
Who are the members
of the Committee?
What does the
Committee do?
Who is included in the
remuneration report?
The Committee is comprised of the independent directors and is chaired by Mr David Ross.
Advises the Board on remuneration policy and practices. The Committee also appoints
remuneration advisers to review and advise on aspects of a remuneration policy and associated
frameworks.
The independent non-executive directors; and
The Executive KMP:
t Mr Rob de Vos - appointed Managing Director on 19 February 2019 (formerly Head of Property);
t Mr Gareth Winter – Executive Director & Chief Financial Officer; and
t Mr Bryce Mitchelson – retired as Managing Director on 19 February 2019.
21
ARENA REIT 2019 ANNUAL REPORT REMUNERATION RE PORT c o n t i n u e d
Key Committee Decisions and remuneration outcomes in FY19
Governance
The Committee engaged Conari Partners to undertake an independent review of Arena’s
remuneration framework for implementation in FY18. No further changes were introduced in
FY19.
Remuneration Mix
No change in the weighting of at-risk remuneration for Executive KMP in FY19.
Total Fixed
Remuneration (TFR)
Short Term Incentive
(STI)
Long Term Incentive
(LTI)
Retirement of
Managing Director
KMP received an average TFR increase of 3.9% in FY19.
50% of an STI award to Executive KMP is deferred for 1 year with payment delivered in the form
of Arena Stapled Securities.
Executive KMP were awarded between 70-100% of their FY19 STI opportunity based on the
achievement of financial targets, period of service and the assessment of individual performance
against non-financial KPIs.
The testing of hurdles and other conditions in relation to the FY16 LTI Grant occurred during
FY19. The FY16 LTI grant vested in August 2018:
t Arena’s FY18 Distributable Income per Security exceeded the performance hurdle range; and
t Arena’s 3 year Total Securityholder Return (TSR) of 63% ranked at the 89th percentile of the
comparator group comprising the members of the ASX300 A-REIT Index over the performance
period.
Mr Mitchelson received a termination payment of 9 months TFR for his contractual notice period.
In recognition of Mr Mitchelson’s near 10 years of service prior to his retirement on 19 February
2019, the Committee determined that Mr Mitchelson would also retain:
t An entitlement to an FY19 STI (50% deferred);
t Deferred STI rights granted in respect of his FY18 STI;
t LTI performance rights granted in FY17 and a proportion of his FY18 and FY19 LTI performance
rights representative of the performance period elapsed (including the notice period) and
progress towards achievement of performance hurdles.
The vesting of Deferred STI and LTI performance rights will be assessed in conjunction with the
normal periodic assessment of performance and other vesting conditions.
Key Decisions in respect to FY20 Remuneration and LTI Assessment
Governance
No change to the remuneration framework is proposed in FY20.
Fixed Remuneration
(TFR)
The Managing Director’s TFR will increase to $500,000 from 1 July 2019 (previously $435,000) in
recognition of performance since appointment and comparison to market remuneration. The
FY20 STI opportunity will be $333,334 (previously $290,000) based on the target remuneration
mix.
Short Term Incentive
(STI)
Deferred STI Rights in respect of the deferred component of the FY19 STI are granted after
30 June 2019. The number of Rights granted is based on the volume weighted average price
(VWAP) of Arena Stapled Securities in the 15 days prior to 30 June 2019.
Long Term Incentive
(LTI)
The testing of hurdles and other conditions in relation to the FY17 LTI Grant occurred after 30
June 2019.
The FY17 LTI grant will vest in August 2019:
t Arena’s FY19 Distributable Income per Security exceeded the performance hurdle range; and
t Arena’s 3 year TSR of 66% ranked at the 68th percentile of the comparator group comprising
the members of the ASX300 A-REIT Index over the performance period.
22
DIRECTORS’ REPORT continued RE MUNERAT ION RE PORT c o n t i n u e d
Executive KMP Remuneration Framework linked to performance
Executive KMP Remuneration Framework Objectives
Attract, retain and incentivise Executive KMP
Align remuneration to performance and strategy
t Market competitive rewards
t Incentivise with opportunity for performance based pay
t Generate market competitive returns for
securityholders
t Assess incentives against financial and non-financial
measures aligned with strategy and values
t Deliver a meaningful component of KMP remuneration
in the form of equity subject to performance hurdles
Remuneration Components
Fixed Remuneration
STI (variable)
LTI (variable)
t Base level of annual remuneration
t Set based on role, experience and
qualifications
t Market data of comparable
organisations considered
t Generally reviewed annually
t Performance based focused on
t Performance based aligned with
security holder returns
t Discretionary participation
t Opportunity based on a
percentage of fixed remuneration
t 3 year performance period
t Payable in equity to align KMP and
securityholders
t Vesting determined by
performance against Distributable
Income Target and Relative TSR
ranking against the members of
the ASX300 AREIT Index
t Independently assessed fair value
used to allot LTI opportunity and
the face value of LTI opportunity
disclosed to securityholders
t Taking into consideration
circumstances over the course of
the performance period, the Board
has discretion to reduce, cancel or
increase LTI payments
business plan objectives including
delivery of distributions to
securityholders
t Discretionary participation
t Opportunity based on a
percentage of fixed remuneration
t Financial measures based on DPS
and an EPS growth target
t Non-financial measures consider
role and objectives of the
organisation to which they are
expected to contribute
t Non-financial objectives based on
leadership, strategy development
and execution, risk management,
funding, liquidity, people,
culture and values, stakeholder
management, key relationships,
and project delivery
t Payable 50% in cash and 50%
in equity with vesting of equity
component deferred for 1 year
t Taking into consideration
circumstances over the course of
the financial year, the Board has
discretion to reduce, cancel or
increase STI payments
23
ARENA REIT 2019 ANNUAL REPORT REMUNERATION RE PORT c o n t i n u e d
Executive KMP Remuneration Mix
At Risk Performance Based
Remuneration
Cash
Equity
STI
%
15
12.5
Deferred
STI
%
15
12.5
15
15
LTI
%
25
25
25
TFR
%
45
50
45
Executive KMP
Robert de Vos
Gareth Winter
Former Executive KMP
Bryce Mitchelson
Executive KMP Employment Agreements
Contract duration
Ongoing
Termination by the
Executive KMP
Managing Director: 9 months’ notice
Chief Financial Officer: 6 months’ notice.
Unvested STI or LTI entitlements lapse unless the Board determines otherwise.
Termination by Arena REIT
without cause, mutually
agreed resignation,
retirement or other
circumstance
Standard notice period applies or equivalent payment in lieu of notice based on TFR.
Unvested STI or LTI 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 (for time and performance). The Board may lapse an award in full and also
allow accelerated vesting in special circumstances subject to termination benefit rules.
Termination by Arena REIT
for cause
No notice period or termination payment unless the board determines otherwise.
Unvested STI or LTI entitlements lapse unless the Board determines otherwise.
Post-employment restraints
Restrained from soliciting suppliers, customers and staff for the term of the relevant notice
period post-employment.
Performance & Variable Remuneration Outcomes
5 Year Performance Indicators
Metric
Net Profit (Statutory)
Distributable Income
Distributable Income per Security
Distributions per Security
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
FY19
FY18
FY17
FY16
FY15
$m
$m
cents
cents
$
$
%
%
%
59.3
37.7
13.8
13.5
2.10
2.74
22.8
34.3
11.4
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
24
DIRECTORS’ REPORT continued RE MUNERAT ION RE PORT c o n t i n u e d
Executive KMP FY19 STI Performance Measures and Assessment
STI Financial Objective
Underlying Profit Performance:
t Deliver a minimum FY19 Distribution of 13.5 cents per security (5.5% increase on FY18)
t Achieve a stretch target distributable income per security
Result
Achieved
Achieved
Executive KMP FY19 STI Awards
Executive KMP
Robert de Vos
Gareth Winter
Former Executive KMP
Bryce Mitchelson4
Award as
a % of STI
Opportunity1
%
100
100
STI Award
$
243,334
187,500
Cash
Component
Equity
Component2,3
$
$
121,667
93,750
121,667
93,750
250,000
70
125,000
125,000
1. The Board awards STIs based on a performance assessment of financial and individual non-financial objectives. An STI opportunity not awarded is forfeited.
2. Number of Deferred STI Rights which convert into Arena Stapled Securities on meeting vesting conditions. The number of rights is based on dividing the
value of the award by the VWAP of Arena Stapled Securities in the 15 days prior to the end of the financial year.
3. Deferred STI Rights do not receive cash distributions. However, additional rights will be granted equivalent to the distribution paid on Arena Stapled
Securities during the 12 month deferral period.
4. Bryce Mitchelson retired as Managing Director on 19 February 2019.
25
ARENA REIT 2019 ANNUAL REPORT REMUNERATION RE PORT c o n t i n u e d
LTI Performance Measures and Assessment
Performance
Measurement
Period
LTI
Performance
Measure4
LTI Year
FY16
FY16 – FY18
Relative TSR1
FY18
DIS2,3
FY17
FY17 – FY19
Relative TSR1
Performance Hurdle
Result
50% of rights vest at the 50th
percentile; with pro rata vesting
until 100% vesting at the 75th
percentile.
Arena’s TSR of 63% ranked
at the 89th percentile of the
comparator group over the
Performance Measurement
Period.
Target range of 11.5 cents to
12.5 cents5
Target range exceeded.
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.
Arena’s TSR of 66% ranked
at the 68th percentile of the
comparator group over the
Performance Measurement
Period.
Vesting
Outcome6
100%
100%
100%7
FY19
DIS2,3
Target range of 12.5 cents to
13.25 cents5
Target range exceeded.
Actual DIS of 13.8 cents
100%
FY18
FY18-FY20
Relative TSR1
FY20
DIS2,3
FY19
FY19-FY21
Relative TSR1
FY21
DIS2,3
50% of rights vest at the 50th
percentile; with pro rata vesting
until 100% vesting at the 75th
percentile.
N/A
Target range of 13.5 cents to
14.25 cents5
50% of rights vest at the 50th
percentile; with pro rata vesting
until 100% vesting at the 75th
percentile.
N/A
Target range of 14.3 cents to
15.0 cents5
1. Relative TSR versus a comparator group comprising the members of the ASX300 A-REIT Index at the commencement of each 3 year performance period
(assuming reinvestment of distributions). Relative TSR performance reduces the effect of market cycles as it measures Arena’s performance relative to its
peers.
2. DIS (Distributable Income per Security) is a key performance indicator referenced by the Board in preparing business plans and measuring Arena’s
performance. DIS is determined in accordance with Arena’s Distribution Policy.
3. The DIS performance hurdle is based on a target range assessed in the final year of a three year performance period.
4. A 50% weighting is attributed to each performance measure.
5. 50% vesting at the threshold of the target range plus progressive pro-rata vesting between 50% and 100% (ie on a straight-line basis) with 100% vesting at or
above the upper target.
6. The Board retains full discretion in respect of the LTI award including adjust the conditions and / or performance outcomes 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 items.
7. Based on a TSR ranking at the 68th percentile of the comparator group as at 30 June 2019, 93% of the FY17 LTI would have vested. The Committee noted that
Arena’s TSR was ranked at the 84th percentile of the comparator group as at 20 May 2019, being the day prior to undertaking an Institutional Placement and
announcing a Security Purchase Plan which collectively raised $66.4 million to support future investment and growth opportunities. The Committee is of the
view that the capital raisings undertaken for the benefit of securityholders has influenced the short term relative performance of Arena in the period between
20 May 2019 and 30 June 2019 and this impacted the outcome. On that basis, and in recognition of the strong operating performance over the duration of
the 3 year performance period, the Committee recommended to the Board that it exercise discretion in respect of the TSR outcome and award 100% to the
Executive KMP.
26
DIRECTORS’ REPORT continued RE MUNERAT ION RE PORT c o n t i n u e d
Executive KMP Remuneration Summary (Actual Amounts Received)1
Short Term Benefits
Equity Based Payments3
Salary2 Cash STI
Non-
Monetary
Benefits
LTI
Performance
Rights
LTI
Recognition
Rights
Termination
Accrued
Leave
Entitlements
$
$
$
$
Executive KMP
Robert de Vos
FY19
FY18
371,304
96,000
320,000
147,250
11,862
10,615
Gareth Winter
FY19
FY18
375,000
81,000
360,000
120,909
11,862
10,615
261,155
142,979
271,313
157,275
$
–
73,443
–
80,788
$
–
–
–
–
$
–
–
–
–
Total
$
740,321
694,287
739,175
729,587
Former Executive KMP
Bryce Mitchelson4
FY19
FY18
350,310
147,333
520,000
227,250
7,627
12,116
586,516
339,575
–
401,250
241,070
1,734,106
174,427
–
–
1,273,368
1. Voluntary disclosure of actual remuneration received by Executive KMP. It does not align with information required by accounting standards.
2. Salary includes mandatory superannuation contributions.
3. The value of vested equity based payments is based on the ASX price of an Arena Stapled Security on the date of issue of a stapled security.
4. Mr Mitchelson retired as Managing Director on 19 February 2019.
Executive KMP Remuneration measured in accordance with accounting standards (statutory)
Short Term Benefits
Equity Based Payments
Salary1 Cash STI
Non-
Monetary
Benefits
Deferred STI
Rights
LTI
Performance
Rights
Long
Service
Leave
Termination
Total
$
$
$
$
$
$
Executive KMP
Robert de Vos
FY19
FY18
371,304
121,667
320,000
96,000
Gareth Winter
FY19
FY18
375,000
93,750
360,000
81,000
11,862
10,615
11,862
10,615
114,045
48,000
172,854
111,495
91,768
40,500
175,418
116,620
22,065
10,552
11,531
9,427
$
–
–
–
–
$
813,797
632,370
759,329
652,260
Former Executive KMP
Bryce Mitchelson
FY19
FY18
350,310
125,000
520,000
147,333
7,627
12,116
206,662
73,667
367,680
221,566
3,895
11,489
401,250 1,462,424
–
1,026,573
1. Salary includes mandatory superannuation contributions.
27
ARENA REIT 2019 ANNUAL REPORT REMUNERATION RE PORT c o n t i n u e d
Executive KMP Statutory Remuneration Mix1,2
Executive KMP
Robert de Vos
Gareth Winter
Former Executive KMP
Bryce Mitchelson
TFR
%
47
51
34
STI
%
29
24
31
LTI
%
24
25
35
1. Variation between TMR and actual remuneration mix is a result of non-vesting of
opportunities and timing differences between granting an LTI and the
amortisation for accounting of the LTI expense over the vesting period.
2. Excludes amounts paid on termination.
Executive KMP Interests in Securities
Ordinary Stapled Securities
Balance
30 June 2018
Acquired
Disposed
Received as
Remuneration
Other
Changes1
Balance
30 June 2019
No.
No.
No.
No.
No.
No.
Executive KMP
Robert de Vos
Gareth Winter
134,606
185,357
Former Executive KMP
Bryce Mitchelson
1,012,530
–
–
–
–
–
–
110,192
114,478
–
–
244,798
299,835
247,475
(1,260,005)
–
1. Represents the balance of securities held on the date ceased to be an Executive KMP.
Deferred STI Rights
Year1
Opening
Balance
Rights
Granted2
Rights
Vested
Rights
Lapsed
Closing
Balance
Grant
Value3
No.
No.
No.
No.
No.
$
Executive KMP
Robert de Vos
Gareth Winter
Former Executive KMP
Bryce Mitchelson
FY18
FY18
FY18
–
–
–
43,636
36,818
66,970
–
–
–
–
–
–
43,636
36,818
96,000
81,000
66,970
147,333
1. Represents the period in respect of which the STI was awarded. The actual grant of Deferred STI Rights occurs in the following financial year.
2. 50% of total STI award divided by the 15 day VWAP to the end of the relevant financial year (FY18 $2.20).
3. Represents the value of the STI award at grant date. This also represents a reasonable estimation of the fair value of the grant as Deferred STI Rights are
entitled to distribution equivalents during the 12 month vesting period.
28
DIRECTORS’ REPORT continued RE MUNERAT ION RE PORT c o n t i n u e d
LTI Performance Rights5,6,7,8
Grant
Year
Opening
Balance
Rights
Granted1,2
Rights
Vested3
Rights
Lapsed
Closing
Balance
Fair Value at
Grant Date2
Face Value
at Grant
Date4
No.
No.
No.
No.
No.
$
$
Executive KMP
Robert de Vos
Gareth Winter
FY19
FY18
FY17
FY16
FY19
FY18
FY17
FY16
–
139,410
119,314
120,156
110,192
–
–
–
–
140,450
120,805
123,326
114,478
–
–
–
Former Executive KMP
Bryce Mitchelson
FY19
–
222,638
FY18
FY17
FY16
193,885
195,736
247,745
–
–
–
–
–
–
(110,192)
–
–
–
(114,478)
–
–
–
(247,745)
–
–
–
–
–
–
–
–
139,410
119,314
120,156
–
140,450
120,805
123,326
–
$186,112
$299,732
$177,779
$155,000
$109,090
$268,457
$240,312
$173,001
$187,500
$301,968
$180,000
$159,091
$113,333
$271,811
$246,652
$179,730
(111,319)
111,319
$297,222
$478,672
(38,777)
155,108
–
–
195,736
–
$288,890
$252,500
$245,000
$436,241
$391,472
$388,536
1. LTI opportunity divided by an independent valuation of the fair value of a Performance Right as at the grant date.
2. FY19 Grants have a grant date of 1 July 2018 and a vesting date of 30 June 2021. The Fair Value per Right of $1.335 was determined by an independent
valuation. Refer to Note 23 of the financial report for information on the valuation inputs.
3. 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
FY17 LTI assessment will be reflected in FY20.
4. Number of Rights granted multiplied by the security price on the relevant grant date. If Rights vest (subject to performance and other conditions), the security
price on the date of issue of securities may be higher or lower than grant date. The value of the unvested Rights may be nil if the vesting conditions are not
met and the rights lapse.
5. Distributions are not paid on unvested LTI awards;
6. No payment is required on issue of performance rights or stapled securities respect of a vested performance right;
7. 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 will 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);
8. 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.
29
ARENA REIT 2019 ANNUAL REPORT REMUNERATION RE PORT c o n t i n u e d
Non-Executive Director Remuneration Framework
How are Non-Executive
Director fees set?
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.
Who approves the
fees?
Each non-executive director of Arena REIT is paid an amount determined by the Board. Non-
executive directors do not receive any equity based payments, retirement benefits or incentive
payments.
Is there a maximum
fee?
Non-Executive Director fees are subject to a maximum aggregate amount approved by
securityholders of $650,000 per annum.
FY19 Board and Committee Fees
Board Fee1 Audit Committee
$
199,000
101,000
$
10,000
5,000
Remuneration
& Nomination
Committee
$
10,000
5,000
Chairman
Member
1. The Board fee received by the Chairman of the Board is inclusive of all Committee fees.
2. All Fees are inclusive of Superannuation.
Non-Executive Director Reported Remuneration (statutory)
Fee1
$
199,000
193,000
111,000
108,000
116,000
113,000
David Ross (Chairman)
Simon Parsons
Dennis Wildenburg
FY19
FY18
FY19
FY18
FY19
FY18
1. Fee includes mandatory superannuation contributions
Non-Executive Director Security Holdings
Balance
30 June 2018
Acquired
Disposed
Balance
30 June 2019
No.
No.
No.
No.
200,000
204,079
154,079
–
–
–
–
–
–
200,000
204,079
154,079
Ordinary Securities
David Ross
Simon Parsons
Dennis Wildenburg
30
DIRECTORS’ REPORT continued IN DEMNI FIC ATI ON AND I NS URAN CE 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.
NO N-AUDIT SERV ICE S
Details of the non-audit services provided to the Group by the Independent Auditor during the year ended 30 June
2019 are disclosed in note 24 of the financial statements.
FE ES PAID TO AND IN TERES T S HELD IN THE GROUP BY THE RESPONSIB LE
E NTITY OR I TS ASSOCI AT ES
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.
IN TERESTS IN THE G ROUP
The movement in securities on issue in the Group during the year is disclosed in note 13 to the financial statements.
CO RPORATE G OV ERNANC E S TATEMEN T
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.
The Group conducts its business in accordance with these policies and code, as well as other key policies which are
published on its website. These include:
t Communications Policy;
t Continuous Disclosure Policy;
t Diversity Policy;
t Privacy Policy;
t Securities Trading Policy;
t Summary of Risk Management Framework.
In compliance with ASX Listing Rule 4.10.3, the Group 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.
E NVIRO NMENTAL REG ULATI ON
The operations of the Group are not subject to any particular or significant environmental regulations under a
Commonwealth, State or Territory law.
31
ARENA REIT 2019 ANNUAL REPORT ROUN DING OF AMOUNTS TO T HE NEAREST THOUSAND DOLLAR S
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 IND EPE ND ENCE D E CLA RAT ION
The Auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on
page 33.
This report is made in accordance with a resolution of directors.
David Ross, Chairman
Melbourne, 13 August 2019
32
DIRECTORS’ REPORT continued AU DITOR’ S INDEPEND ENCE
DEC LARATIO N
Auditor’s Independence Declaration
As lead auditor for the audit of Arena REIT No. 1 for the year ended 30 June 2019, 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
13 August 2019
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.
33
ARENA REIT 2019 ANNUAL REPORT
CON SOLIDATED STATEMENT
OF C OMPREHENS IVE I NCOME
For the year ended 30 June 2019
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 June2019
30 June 2018
Notes
$’000
$’000
8(c)
55,235
47,785
372
206
–
25,964
81,777
(453)
(5,375)
(8,619)
(7,337)
(670)
411
429
30
26,479
75,134
(377)
(4,300)
(553)
(5,183)
(289)
(22,454)
(10,702)
59,323
–
59,323
45,995
14,404
(1,076)
59,323
Cents
16.84
16.74
21.73
21.59
64,432
–
64,432
58,593
6,287
(448)
64,432
Cents
22.12
21.99
24.33
24.18
8
8(c)
3
5
5
5
5
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying
notes.
34
CON SOLIDATED
BALAN C E SHEE T
As at 30 June 2019
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 2019
30 June 2018
Notes
$’000
$’000
6
7
7
8
9
10
12
11
13
8,134
7,711
15,845
603
139
798,318
10,816
809,876
825,721
8,364
167
9,832
18,363
9,180
278
187,570
197,028
215,391
610,330
306,368
204,155
99,807
610,330
8,654
6,146
14,800
668
154
699,409
10,816
711,047
725,847
5,887
312
8,619
14,818
561
334
178,491
179,386
194,204
531,643
259,780
190,618
81,245
531,643
35
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
ARENA REIT 2019 ANNUAL REPORT CON SOLIDATED STATEMENT
OF C HA NGES IN E QUIT Y
Contributed
equity
Accumulated
profit
$’000
$’000
202,179
–
–
3,773
45,478
8,350
–
–
161,929
58,593
58,593
–
–
–
(29,904)
–
Consolidated
Non-controlling
interests -
ARL & ARF2
Total equity
$’000
68,368
5,839
5,839
568
8,544
1,564
(4,468)
830
$’000
432,476
64,432
64,432
4,341
54,022
9,914
(34,372)
830
259,780
190,618
81,245
531,643
259,780
–
–
5,640
40,948
–
–
190,618
45,995
45,995
–
–
(32,458)
–
81,245
13,328
13,328
849
8,064
(4,848)
1,169
531,643
59,323
59,323
6,489
49,012
(37,306)
1,169
306,368
204,155
99,807
610,330
Balance at 1July 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
Distributions to securityholders
Equity-based remuneration
Balance at 30 June 2018
Balance at 1July 2018
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
Distributions to securityholders
Equity-based remuneration
Balance at 30 June 2019
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
36
CO NS OLI DATED STAT EMENT
OF C ASH FLO WS
Consolidated
30 June 2019
30 June 2018
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
54,523
(10,786)
(7,076)
206
36,867
3,518
(69,143)
(65,625)
48,973
(29,565)
(170)
59,000
(50,000)
28,238
(520)
8,654
8,134
47,658
(9,430)
(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.
37
ARENA REIT 2019 ANNUAL REPORT CON TENTS
NOTE S TO TH E FI NANCI AL S TAT E MENT S
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
FURTHER DETAILS
Related party disclosures
Equity-based remuneration
Remuneration of auditors
Parent entity financial information
Summary of other significant accounting policies
22
23
24
25
26
38
39
41
41
42
43
44
44
46
50
50
51
53
54
55
56
57
58
62
63
63
63
64
65
67
67
68
NO TES TO
TH E C ON SO LIDATED
FINANC IAL STATEMENTS
1. G ENE RAL I NFOR MATI ON
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 13 August 2019. 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 2019, the Group had a net working capital deficiency of $2.5 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. As at the date
of this report, the Group has in excess of $90 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:
t The Group will be able to pay its debts as and when they fall due; and
t 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 2018:
t AASB 9 Financial Instruments
t AASB 15 Revenue from Contracts with Customers
The impact of the adoption of these standards is summarised below:
AASB 9 Financial Instruments
The revised AASB 9 Financial Instruments addresses the classification, measurement and derecognition of financial
instruments and introduces new rules for hedge accounting. As the Group classifies its investments at fair value
39
ARENA REIT 2019 ANNUAL REPORT 1. GENERAL INFORMATI ON c o n t i n u e d
through profit or loss and does not apply hedge accounting, there is no impact to the Group due to the adoption of
this standard.
In December 2014, the AASB also introduced a new impairment model (an expected credit loss model). As the
impairment requirements of AASB 9 do not apply to financial assets at fair value through profit or loss and the Group
also has a history of recovering all trade debtors, there is no impact on the financial statements due to the adoption of
this standard.
AASB 15 Revenue from Contracts with Customers
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 previous notion of risk and reward.
The Group’s primary source of income is rent from investment properties, which is excluded from the scope of AASB
15 as it falls within the scope of AASB 140 Investment Property.
The Group has assessed the impact of the application of AASB 15 and concludes that it does not have any material
revenue streams within the scope of AASB 15. Therefore the adoption of this standard has no material impact on the
financial statements.
(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:
t Investment properties – Note 8
t Impairment of goodwill – Note 9
t Financial instruments – Notes 12,17
40
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued F IN AN CIAL RESULTS, ASSETS AND LIAB ILITIE S
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 I NFORMAT ION
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. FINANC E COS TS
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 2019
30 June 2018
$’000
$’000
7,008
329
–
7,337
478
7,815
4,646
237
300
5,183
1,498
6,681
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.
41
ARENA REIT 2019 ANNUAL REPORT 4. INC O M E TAXE S
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 27.5% (2018 - 27.5%)
Profit attributable to entities not subject to tax
Deferred tax assets not recognised
Income tax expense
Consolidated
30 June 2019
30 June 2018
$’000
$’000
(59,323)
16,314
16,610
(296)
–
(64,432)
17,719
17,842
(123)
–
Unrecognised deferred tax assets are $0.3 million (2018: $0.1 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.
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.
42
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued 4. INC O ME TA XES c o n t i n u e d
(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. EARNI NGS P ER SEC URI TY(‘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
2019
Cents
16.84
16.74
21.73
21.59
2018
Cents
22.12
21.99
24.33
24.18
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
Rights granted under employee incentive plans
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
2019
2018
Number of
securities
Number of
securities
‘000
‘000
273,055
1,730
274,785
264,878
1,615
266,493
30 June 2019
30 June 2018
$’000
45,995
45,995
59,323
59,323
$’000
58,593
58,593
64,432
64,432
43
ARENA REIT 2019 ANNUAL REPORT 5. E ARN ING S PER SE CURI TY (‘EP S ’) c o n t i n u e d
(a) Accounting policy - earnings per security
(i) Basic earnings per security
Basic earnings per security is calculated by dividing:
t the profit attributable to the securityholders, excluding any costs of servicing equity other than ordinary securities;
t 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:
t the effect of interest and other financial costs associated with dilutive potential ordinary securities;
t 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 CAS H EQ UI VAL EN T S
Cash at bank
Total cash and cash equivalents
Consolidated
30 June 2019
30 June 2018
$’000
8,134
8,134
$’000
8,654
8,654
(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 OT HER R ECE I VAB L ES
(a) Trade and other receivables - Current
Consolidated
30 June 2019
30 June 2018
$’000
258
6,418
975
60
7,711
$’000
192
5,510
364
80
6,146
Trade receivables
Other receivables
Prepayments
Deferred management fees receivable
44
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
7. TR A DE AND OT HER RECEI VABLES c o n t i n u e d
Other receivables as at 30 June 2019 includes $4.3 million of sales proceeds payable to the Group following the
disposal of an ELC asset in June 2019 (30 June 2018: $3.6 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
2019
$’000
233
–
25
–
–
258
2019
$’000
–
–
–
–
–
-
2018
$’000
60
132
–
–
–
192
2018
$’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
Consolidated
30 June 2019
30 June 2018
$’000
603
$’000
668
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
30 June 2019
30 June 2018
Carrying
amount
$’000
603
Fair value
$’000
603
Carrying
amount
$’000
668
Fair value
$’000
668
45
ARENA REIT 2019 ANNUAL REPORT
7. TRADE AND OT HER R ECE I VAB L ES c o n t i n u e d
(c) Accounting policy - Receivables
Receivables may include amounts for interest and trust distributions. 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. INV ESTMENT PR OP ERTI E S
(a) Valuations and carrying amounts
Property Portfolio
Carrying amount
Latest external valuation
ELC properties
ELC developments
Healthcare properties
Total
2019
$’000
662,692
13,492
122,134
2018
$’000
596,678
17,338
85,393
2019
$’000
639,470
9,055
109,770
798,318
699,409
758,295
2018
$’000
551,225
9,420
80,400
641,045
The Group has adopted a valuation program that provides for each property to be independently valued by suitably
qualified valuers at least once every three years. Changes in market conditions may necessitate more frequent
independent revaluations of properties.
Independent valuations were performed on 40 Early Learning Centres (‘ELC’) as at 31 December 2018, and a further
45 ELCs and two healthcare centres as at 30 June 2019. The directors have reviewed these valuations and has
determined they are appropriate to adopt during the financial period ending 30 June 2019. Director valuations were
performed on investment properties not independently valued.
The key inputs into valuations are:
t Passing rent;
t Market rents;
t Capitalisation rates;
t Lease terms;
t Discount rates (healthcare properties); and
t Capital expenditure and vacancy contingencies (healthcare properties).
46
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued 8. INVE STMENT P ROPERTI ES c o n t i n u e d
The key inputs into the valuation are based on market information for comparable properties. The majority of early
learning 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
(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
30 June 2019
30 June 2018
$1,600 to $5,000
$1,500 to $5,000
5.0% to 8.25%
5.0% to 8.5%
4.5% to 9.0%
4.0% to 9.0%
30 June 2019
30 June 2018
5.25% to 6.50%
6.0% to 7.0%
5.50% to 6.75%
6.0% to 7.75%
Consolidated
30 June 2019
30 June 2018
$’000
$’000
699,409
591,712
70,936
(4,455)
25,964
6,464
80,498
(4,402)
26,479
5,122
798,318
699,409
Consolidated
30 June 2019
30 June 2018
$’000
48,744
6,491
(453)
25,964
$’000
42,673
5,112
(377)
26,479
47
ARENA REIT 2019 ANNUAL REPORT 8. INV ESTMENT PR OP ERTI E S c o n t i n u e d
(d) Tenancy risk
Set out below are details of the major tenants who lease properties from the Group:
t Goodstart Early Learning Ltd (‘Goodstart’) - representing 31% 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.
t Green Leaves Group Limited (‘Green Leaves’) - representing 14% of the Group’s investment property portfolio
by income. Green Leaves is a privately held provider of early childhood education, owning and operating
approximately 30 ELCs throughout Australia.
t Healius Limited (‘Healius’) - representing 12% of the Group’s investment property portfolio by income. Healius is an
ASX listed company and a major operator of multi-disciplinary medical clinics throughout Australia. Healius leases
property from the Group through a wholly-owned subsidiary, providing a corporate guarantee from the listed entity
to provide security for their performance under the leases.
t Affinity Education Group Limited (‘Affinity’) - representing 11% of the Group’s investment property portfolio by
income. Affinity is a privately held provider of early childhood education, owning and operating over 150 ELCs
throughout Australia.
Other Tenants
Operator
G8 Education
Petit Early Learning Journey
Oxanda Education
% of Investment Property Portfolio by Income
7%
5%
3%
All of the above tenants are ELC operators. G8 Education is listed on the Australian Securities Exchange. The
other tenants are privately owned with experience operating ELCs. 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
of the lease, for an amount generally equivalent to six months’ rent (plus GST) as security for their performance under
the lease.
(e) Assets pledged as security
Refer to note 11 for information on investment properties and other assets pledged as security by the Group.
(f) Contractual obligations
Capital expenditure contracted for at the end of the reporting period but not recognised as liabilities is as follows:
Investment properties
30 June 2019
30 June 2018
$’000
13,770
$’000
7,178
The above commitments include the costs associated with developments, and the acquisition of early learning
properties.
48
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued 8. INVE STMENT P ROPERTI ES c o n t i n u e d
(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 2019
30 June 2018
$’000
$’000
50,348
212,812
591,779
854,939
44,415
182,820
460,790
688,025
(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 has adopted a valuation program that
provides for each property to be independently valued by suitably qualified valuers at least once every three years.
Changes in market conditions may necessitate more frequent independent revaluations of properties.
Valuations are derived from a number of factors that may include a direct comparison between the subject property
and a range of comparable sales evidence, the present value of net future cash flow projections based on reliable
estimates of future cash flows, existing lease contracts, external evidence such as current market rents for similar
properties, and using capitalisation rates and discount rates that reflect current market assessments of the uncertainty
in the amount and timing of cash flows.
49
ARENA REIT 2019 ANNUAL REPORT 9. INTA NGI BLE AS S ETS
Goodwill
Consolidated
30 June 2019
30 June 2018
$’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:
t growth rates set in the range of 2% to 3% per annum; and
t cash flows are discounted at a rate of 6.76% 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. TR A DE AND OT HER PAYABLE S
Consolidated
30 June 2019
30 June 2018
$’000
2,128
6,236
8,364
$’000
1,640
4,247
5,887
Prepaid rental income
Sundry creditors and accruals
Trade and other payables are non-interest bearing.
50
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued 11. INTE REST BE AR ING LI A BI LI TIES
Non-current:
Secured
Syndicated facility
Unamortised transaction costs
Total secured non-current borrowings
(a) Financing arrangements
Consolidated
30 June 2019
30 June 2018
$’000
$’000
188,500
(930)
179,500
(1,009)
187,570
178,491
Consolidated
30 June 2019
30 June 2018
$’000
$’000
Committed facilities available at the end of the reporting period
Interest bearing liabilities
280,000
230,000
Facilities used at the end of the reporting period
Interest bearing liabilities
188,500
179,500
The Group refinanced its syndicated debt facility during the year, increasing the facility limit by $50 million to
$280 million. The Group now has a $130 million facility expiring 31 March 2022 and a $150 million facility expiring
31 March 2023, providing a remaining weighted average term of 3.3 years as at 30 June 2019.
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.
51
ARENA REIT 2019 ANNUAL REPORT 11. INTEREST BEAR ING LI ABILI T IE S c o n t i n u e d
(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 2019
30 June 2018
$’000
$’000
3,749
7,498
11,247
5,087
6,102
11,189
30 June 2019
30 June 2018
$’000
$’000
798,318
798,318
699,409
699,409
The covenants over the Group’s bank facility require an interest cover ratio of greater than 2.0 times (actual at 30 June
2019 of 5.5 times) and a loan to market value of investment properties ratio of less than 50% (actual at 30 June 2019 of
24.8%). 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.
52
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued 12. DERI VATI VE FI NANCI AL INSTRUMEN TS
Non-current liabilities
Interest rate swaps
Consolidated
30 June 2019
30 June 2018
$’000
$’000
9,180
9,180
561
561
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 82% (2018: 78%) of the facility principal outstanding. The weighted average fixed
interest swap rate at 30 June 2019 was 2.42% (2018: 2.44%), and the weighted average term was 4.8 years (2018: 5.9
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 2019
30 June 2018
$’000
$’000
–
22,500
15,000
30,000
15,000
72,500
–
–
22,500
15,000
15,000
87,500
155,000
140,000
(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.
53
ARENA REIT 2019 ANNUAL REPORT 13. C ON TRIBUT ED E QUIT Y
(a) Securities
30 June 2019
30 June 2018
30 June 2019
30 June 2018
Securities ’000
Securities ’000
$’000
$’000
Consolidated
Ordinary Securities
Fully paid
291,325
269,351
306,368
259,780
Other contributed equity attributable to securityholders of the Group relating to ARF2 and ARL of $61.0 million is
included within non-controlling interests - ARF2 and ARL (30 June 2018: $51.6 million).
(b) Movements in ordinary securities
Date
Details
1 July 2017
Opening balance
Issue of securities under the DRP (i)
Vesting of equity-based remuneration (ii)
3 August 2017
Issue of securities under the Institutional Placement (iii)
5 September 2017
Issue of securities under the Security Purchase Plan
30 June 2018
Closing balance
1 July 2018
Opening balance
Issue of securities under the DRP (i)
Vesting of equity-based remuneration (ii)
27 May 2019
Issue of securities under the Institutional Placement (iii)
30 June 2019
Closing balance
(i) Distribution Re-investment Plan (DRP)
Number of
securities
‘000
$’000
234,843
2,022
467
27,094
4,925
269,351
202,179
3,773
–
45,478
8,350
259,780
269,351
259,780
2,738
510
18,726
5,640
–
40,948
291,325
306,368
The Group has a Distribution Reinvestment Plan (DRP) under which securityholders may elect to have all or part of
their distribution entitlements satisfied by the issue of new securities rather than being paid in cash.
(ii) Equity-based remuneration
In September 2018, 509,999 performance rights granted to employees of an associate of the Responsible Entity in
FY16 vested as a result of performance conditions being fulfilled.
(iii) Institutional Placement
The Group completed a fully underwritten placement to institutional and professional investors in May 2019 which
raised $50 million through the issue of 18,726,592 stapled securities at a price of $2.67 per stapled security. Settlement
of the new stapled securities under the placement occurred on 27 May 2019.
54
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued 14. A C CUMULATE D PR OFI T
Movements in accumulated profit were as follows:
Opening accumulated profit
Net profit for the year attributable to ARF1
Distribution paid or payable attributable to ARF1
Closing accumulated profit
Distributions to securityholders
Consolidated
30 June 2019
30 June 2018
$’000
$’000
190,618
45,995
(32,458)
161,929
58,593
(29,904)
204,155
190,618
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 $4.8 million (30 June 2018: $4.5
million).
Distributions declared
September quarter
December quarter
March quarter
June quarter
2019
$’000
9,138
9,157
9,179
9,832
2018
$’000
8,570
8,583
8,600
8,619
2019
cps
3.375
3.375
3.375
3.375
2018
cps
3.200
3.200
3.200
3.200
Total distributions to securityholders
37,306
34,372
13.500
12.800
55
ARENA REIT 2019 ANNUAL REPORT 15. NO N-C ONTR OL LI NG I NT ERES TS
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 2017
Securities issued under DRP
Issue of securities under the Institutional Placement
Issue of securities under the Security Purchase Plan
Vesting of equity-based remuneration
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 2018
30 June 2018
30 June 2018
$’000
$’000
$’000
54,305
14,063
68,368
568
6,787
1,242
–
6,287
(4,468)
–
–
1,757
322
487
(448)
–
343
568
8,544
1,564
487
5,839
(4,468)
343
Closing balance - 30 June 2018
64,721
16,524
81,245
Opening balance - 1 July 2018
Issue of securities under the DRP
Issue of securities under the Institutional Placement
Vesting of equity-based remuneration
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 2019
30 June 2019
30 June 2019
$’000
$’000
$’000
64,721
16,524
81,245
849
6,577
–
14,404
(4,848)
–
–
1,487
505
(1,076)
–
664
849
8,064
505
13,328
(4,848)
664
Closing balance - 30 June 2019
81,703
18,104
99,807
(i) Reserves
Opening balance
Vesting of equity-based remuneration
Equity-based remuneration expense
Balance 30 June
Consolidated
30 June 2019
30 June 2018
$’000
1,366
(505)
1,169
2,030
$’000
1,023
(487)
830
1,366
The equity-based remuneration reserve is used to recognise the fair value of rights issued under the Group’s Deferred
Short Term and Long Term Incentive Plan.
56
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued 16. C ASH F LOW INF ORMATIO N
(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 sale of direct property
Net (gain)/loss on derivative financial instruments
Equity-based remuneration 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 2019
30 June 2018
$’000
$’000
59,323
249
(25,964)
(6,491)
223
8,619
1,168
150
229
(438)
(201)
64,432
460
(26,479)
(5,112)
(30)
553
830
67
194
(1,136)
21
Net cash inflow from operating activities
36,867
33,800
(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 2018
Cash flows
Other non-cash movements
Cash
and cash
equivalents
$’000
8,654
(520)
–
Interest
bearing
liabilities
$’000
(178,491)
(8,830)
(249)
Derivative
financial
instruments
$’000
(561)
–
(8,619)
Total
$’000
(170,398)
(9,350)
(8,868)
Net debt as at 30 June 2019
8,134
(187,570)
(9,180)
(188,616)
57
ARENA REIT 2019 ANNUAL REPORT RIS K
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. FINANC IAL RIS K MANAG EMENT AND FAIR VALUE MEASUREM ENT
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 2019
30 June 2018
$’000
$’000
Financial assets
Cash and cash equivalents (floating interest rate)
8,134
8,654
Financial liabilities
Interest bearing liabilities - floating interest rate
Derivative financial instruments (notional principal amount) - fixed rate interest rate swaps
Net Exposure
(188,500)
155,000
(179,500)
140,000
(25,366)
(30,846)
58
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued 17 . FINANCI AL RI SK MANAG EMENT AND FAIR VALUE M EASUREM EN T c o n t i n u e d
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 (2018: 100 bp)
Market interest rate decreased by 100 basis points (2018: 100 bp)
Instruments with fair value risk:
Derivative financial instruments
Consolidated
30 June 2019
30 June 2018
$’000
(254)
254
$’000
(308)
308
155,000
140,000
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 (2018: 100 bp)
Market interest rate decreased by 100 basis points (2018: 100 bp)
7,146
(7,146)
7,418
(7,418)
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 2019
30 June 2018
$’000
8,134
3,989
–
$’000
8,654
2,850
–
Maximum exposure to credit risk
12,123
11,504
The Group manages credit risk and the losses which could arise from default by ensuring that parties to contractual
arrangements are of an appropriate credit rating, or do not show a history of defaults. Financial assets such as cash at
bank and interest rate swaps are held with high credit quality financial institutions (rated equivalent A or higher by the
major rating agencies). Before accepting a new tenant, the Group endeavours to obtain financial information from the
prospective tenant, and rental guarantees are sought before a tenancy is approved. Third party credit risk is secured
by corporate, personal and bank guarantees where possible.
All receivables are monitored by the Group. If any amounts owing are overdue these are followed up and if necessary,
allowances are made for debts that are doubtful.
At the end of the reporting period there are no issues with the credit quality of financial assets that are either past due
or impaired, and all amounts are expected to be received in full.
59
ARENA REIT 2019 ANNUAL REPORT 17. FINANC IAL RIS K MANAG EMENT AND FAIR VALUE MEASUREM ENT c o n t i n u e d
(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 2019
Trade and other payables
Interest rate swaps
Interest bearing liabilities
Contractual cash flows (excluding gross settled derivatives)
Consolidated
30 June 2018
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
18,196
1,740
5,456
25,392
–
1,662
5,446
7,108
–
5,446
195,506
200,952
Less than
12 months
1-2 years
Greater than
2 years
$’000
$’000
$’000
14,506
706
6,091
21,303
–
708
6,107
6,815
–
3,219
193,715
196,934
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.
60
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued 17 . FINANCI AL RI SK MANAG EMENT AND FAIR VALUE M EASUREM EN T c o n t i n u e d
(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:
t Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1);
t 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);
t 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 2019 and 30 June 2018 on a recurring basis:
Consolidated
30 June 2019
Financial liabilities
Interest rate swaps
Total
Consolidated
30 June 2018
Financial liabilities
Interest rate swaps
Total
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
–
–
Level 1
$’000
9,180
9,180
Level 2
$’000
–
–
Level 3
$’000
–
–
561
561
–
–
9,180
9,180
Total
$’000
561
561
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 2019.
61
ARENA REIT 2019 ANNUAL REPORT 17. FINANC IAL RIS K MANAG EMENT AND FAIR VALUE MEASUREM ENT c o n t i n u e d
(ii) Valuation techniques used to derive level 2 and level 3 values
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter
derivatives) is determined using valuation techniques. These valuation techniques maximise the use of observable
market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs
required to fair value an instrument are observable, the instrument is included in level 2.
If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.
The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on
observable yield curves, taking into account any material credit risk.
(f) AFSL financial compliance risk
The Group is exposed to the risk of having inadequate capital and liquidity. Arena REIT Management Limited, a
subsidiary of ARL, holds an Australian Financial Services License (‘AFSL’) and acts as a responsible entity for the
Group’s managed investment schemes. The AFSL requires minimum levels of net tangible assets, liquid assets, cash
reserves and liquidity, which may restrict the Group in paying dividends that would breach these requirements.
The directors regularly review and monitor the Group’s balance sheet to ensure ARML’s compliance with its AFSL
requirements.
18. C A PITAL MANAG EMENT
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
30 June 2019
30 June 2018
$’000
$’000
188,500
825,721
22.8%
179,500
725,847
24.7%
62
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued G ROU P 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. INV ESTMENTS I N CONTR OL LED ENTITIES
The consolidated financial statements incorporate the assets, liabilities and results of the following:
Name of entity
Country of
incorporation
Class of shares
2019
2018
Equity holding
Citrus Investment Services Limited
Australia
Arena REIT Management Limited
Arena REIT Operations Pty Ltd
Australia
Australia
Ordinary
Ordinary
Ordinary
%
100
100
100
%
100
100
100
UNRE COGN ISED ITE MS
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. C ON TINGENT ASSE TS AND LIAB ILITIES AN D COMMITMENTS
There are no material outstanding contingent assets or liabilities as at 30 June 2019 and 30 June 2018. For details of
commitments of the Group as at 30 June 2019, refer to note 8.
21. EVE NTS OCCURRING AFTE R THE REPORTING PERIOD
In conjunction with the Institutional Placement, the Group offered a Security Purchase Plan (SPP) to eligible investors
in June 2019. $16.37 million was raised through the issue of 6.2 million securities on 1 July 2019.
Other than the matter identified above, no other significant events have occurred since the end of the reporting
period which would impact on the financial position of the Group disclosed in the consolidated balance sheet as at 30
June 2019 or on the results and cash flows of the Group for the year ended on that date.
63
ARENA REIT 2019 ANNUAL REPORT FURT HE R DETAILS
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 D ISC LOSURES
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
Equity-based remuneration
30 June 2019
30 June 2018
$
$
1,800,963
1,875,616
93,419
37,491
401,250
1,128,427
96,064
31,468
–
722,055
3,461,550
2,725,203
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
Amounts receivable:
30 June 2019
30 June 2018
$
$
39,783
216,250
11,550
27,083
216,404
14,054
(5,330)
69,875
Amount receivable from other related parties at the end of the reporting period
29,754
26,755
Deferred management and performance fees receivable at the end of the reporting
period
662,813
748,143
Amounts payable:
Amounts payable to other related parties at the end of the reporting period
–
–
64
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued 23. EQUITY BASED RE MUNE RATION
(a) Performance Rights and Deferred Short Term Incentive Rights Plan (Rights)
The performance rights and deferred short term incentive rights are unquoted securities. Conversion to stapled
securities is subject to performance conditions which are discussed in the Remuneration Report.
Performance rights
2019
2018
2017
2016
Total
Number
Number
Number
Number
Number
Rights issued
Performance rights issued
604,596
604,596
658,098
524,092
535,655
2,322,441
658,098
524,092
535,655
2,322,441
Number rights forfeited/lapsed in prior years
–
Number rights forfeited/lapsed in current year
(111,319)
Number rights vested in prior years
Number rights vested in current year
–
–
(56,118)
(38,777)
–
–
(21,394)
(25,656)
(103,168)
(150,096)
–
–
–
(509,999)
(509,999)
–
–
–
Closing balance
493,277
563,203
502,698
–
1,559,178
Deferred Short Term Incentive Rights
2019
2018
2017
2016
Total
Number
Number
Number
Number
Number
Rights issued
Deferred Short Term Incentive 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
171,120
171,120
–
–
–
–
Closing balance
171,120
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
171,120
171,120
–
–
–
–
171,120
(b) Rights expense
Total expenses relating to the Rights recognised during the year as part of equity-based remuneration was as follows:
Performance Rights
Deferred Short Term Incentive Rights
30 June 2019
30 June 2018
$’000
752
417
1,169
$’000
645
185
830
65
ARENA REIT 2019 ANNUAL REPORT 23. EQ UIT Y-BASE D R EMUNER ATI O N c o n t i n u e d
(c) Rights valuation inputs
(i) Performance Rights
Performance 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 FY19 to assess the fair
value are as follows:
Grant date
Security price at grant date
Fair value of right
Expected price volatility
Risk-free interest rate
1 July 2018
$2.15
$1.335
20%
2.10%
(ii) Deferred Short Term Incentive Rights
The valuation of Deferred Short Term Incentive Rights is based on the volume weighted average price (‘VWAP’)15
days prior to the commencement of the performance period. The VWAP is deemed to be a reasonable estimation of
fair value, as the rights are entitled to distribution equivalents over the performance period.
(d) Accounting policy - Equity-based remuneration
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
equity-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.
66
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued 24. R EM U NERAT IO N OF AU DI TORS
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
Tax consulting
Total remuneration for taxation services
Consolidated
30 June 2019
30 June 2018
$
$
116,500
14,000
130,500
42,918
36,340
79,258
108,500
10,200
118,700
34,387
8,200
42,587
Total remuneration of PricewaterhouseCoopers
209,758
161,287
25 . PARENT ENT ITY FINANC IAL 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 2019
30 June 2018
$’000
$’000
45,995
58,593
Total comprehensive income attributable to Arena REIT No. 1
45,995
58,593
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
9,898
676,184
686,082
18,718
156,841
175,559
306,368
204,155
510,523
8,541
614,016
622,557
14,964
157,195
172,159
259,780
190,618
450,398
67
ARENA REIT 2019 ANNUAL REPORT 26. SU M M ARY OF O THE R SI G NI F ICANT 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 2019, 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.
68
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued 26. SUMMARY OF OTHER SI G NI FICANT ACCOUNTING POLICIES c o n t i n u e d
(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 schemes 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).
69
ARENA REIT 2019 ANNUAL REPORT 26. SU M M ARY OF O THE R SI G NI F ICANT ACCOUNTING POLICIES c o n t i n u e d
(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.
70
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued 26. SUMMARY OF OTHER SI G NI FICANT ACCOUNTING POLICIES c o n t i n u e d
(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:
t 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.
t 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.
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ARENA REIT 2019 ANNUAL REPORT 26. SU M M ARY OF O THE R SI G NI F ICANT ACCOUNTING POLICIES c o n t i n u e d
(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.
72
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued 26. SUMMARY OF OTHER SI G NI FICANT ACCOUNTING POLICIES c o n t i n u e d
(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 2019
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 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.
73
ARENA REIT 2019 ANNUAL REPORT DIRECTO RS’
DEC LARATIO N
In the opinion of the directors:
(a) the financial statements and notes set out on pages 34 to 73 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 2019 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, 13 August 2019
74
INDEP ENDENT
AUDITOR’S RE PORT
Independent auditor’s report
To the members of Arena REIT No. 1
Report on the audit of the financial report
Our opinion
In our opinion:
The accompanying financial report of Arena REIT No. 1 (ARF1) and its controlled entities (together the
Group or Arena REIT Stapled Group) is in accordance with the Corporations Act 2001, including:
(a) giving a true and fair view of the Group's financial position as at 30 June 2019 and of its financial
performance for the year then ended
(b) complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The Group financial report comprises:
•
•
•
•
•
•
the consolidated balance sheet as at 30 June 2019
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 declaration of the directors.
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.
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.
75
ARENA REIT 2019 ANNUAL REPORT
INDEP ENDENT A UDITOR’S R E P O RT
c o n t i n u e d
76
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. Materiality Audit scope Key audit matters • For the purpose of our audit we used overall group materiality of $2.109 million which represents approximately 5% of the Group’s profit before tax adjusted for significant non-cash fair value movements. • We applied this threshold, together with qualitative considerations, to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial report as a whole. • We chose profit before tax adjusted for significant non-cash fair value movements because, in our view, it is the key 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. • Our audit focused on where the Group made subjective judgements; for example, significant accounting estimates involving assumptions and inherently uncertain future events. • Amongst other relevant topics, we communicated the following key audit matters to the Audit Committee: − Fair value of investment properties • These are further described in the Key audit matters section of our report. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our
audit of the financial report for the current period. The key audit matters were addressed in the context of
our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a
separate opinion on these matters. Further, any commentary on the outcomes of a particular audit
procedure is made in that context.
Key audit matter
Fair value of investment properties
(Refer to note 8)
The Group’s portfolio of investment properties
was recognised as an asset in the financial report
at $798.3m at 30 June 2019 and comprised of
properties in the Early Learning Centres (ELC)
and healthcare sectors in Australia.
The investment properties are recognised at fair
value, with changes in the fair values recognised
in the profit and loss.
The estimation of fair value for investment
properties was a key audit matter because of:
•
• the magnitude of the investment properties
asset balance relative to the net assets of the
Group
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
How our audit addressed the key audit
matter
As at 30 June 2019, the Group obtained
independent valuations on 45 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 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
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ARENA REIT 2019 ANNUAL REPORT
INDEP ENDENT A UDITOR’S R E P O RT
c o n t i n u e d
Key audit matter
How our audit addressed the key audit
matter
value models to independent sources and
similar sized properties in the market, with
consideration of historical data and known
external factors. In instances where key
assumptions fell outside of our anticipated
ranges, we challenged the rationale supporting
the assumptions applied in the fair value
models by discussing with management and
obtaining supporting evidence. We note that the
reasons provided by management were
appropriate.
•
considered the independent valuers report on
the directors’ valuation assessment and checked
for indicators that may suggest the director
valuations are outside a reasonable range.
Other information
The directors are responsible for the other information. The other information comprises the information
included in the annual report for the year ended 30 June 2019, 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 and Corporate directory. We expect the remaining other
information to be made available to us after the date of this auditor's report.
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
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, if we conclude that there is a material misstatement
therein, we are required to communicate the matter to the directors and use our professional judgement
to determine the appropriate action to take.
Responsibilities of the directors for the financial report
The directors of Arena REIT Management Limited (the responsible entity of ARF1) are responsible for the
preparation of the financial report that gives a true and fair view in accordance with Australian
Accounting Standards and the Corporations Act 2001 and for such internal 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.
78
79
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 21 to 30 of the directors’ report for the year ended 30 June 2019. In our opinion, the remuneration report of Arena REIT No. 1 for the year ended 30 June 2019 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 Melbourne Partner 13 August 2019 ARENA REIT 2019 ANNUAL REPORT ASX ADD ITI ONAL
INFO RMATIO N
ADDITIONAL SE CURIT IES E XCH A NGE INFORMATION
AS AT 16 AUGUST 20 19
There were 298,453,779 fully paid ordinary securities on issue, held by 4,805 securityholders. There were 262 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.
DISTRIBUTIO N OF SEC URI TY HOLD ERS
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
SUBS TAN TIAL SE CURIT YHOL D E RS
Name of substantial securityholder
The Vanguard Group, Inc
Australian Unity Funds Management Limited
757
922
834
2,178
114
274,699
2,717,442
6,427,427
61,468,440
227,565,771
0.09
0.91
2.15
20.60
76.25
4,805
298,453,779
100.00
Number of
securities
26,562,449
23,775,729
Fully Paid (%)
8.90
7.97
80
TW EN TY LARGES T SEC UR ITY HOLDERS
Holder Name
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
NATIONAL NOMINEES LIMITED
BNP PARIBAS NOMS PTY LTD
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