C A N B E R R A N O R T H . A C T A N N U A L R E P O R T J U N E 2 0 1 9 BLACKWALL TY T UST PROPER R W S N . D A O R E G R I D B T N O M R Y P C O N T E N T S 3 4 7 8 9 10 11 19 23 24 2019 Results Directors’ Report Balance Sheet Statement of Profit or Loss and Other Comprehensive Income Statement of Cash Flows Statement of Changes in Equity Notes to the Financial Statements Directors’ Report Continued Directors’ Declaration Auditor’s Independence Declaration and Report 2019 RESULTS Gross assets $317 million 3.5 cpu Distribution 100% tax deferred to be paid on 8 October 2019 Gearing 18% NTA $1.48 No of Properties 11 C A N B E R R A S O U T H . A C T 3 BlackWall Property Trust - June 2019 Directors’ Report Chairman’s Commentary Over the past year we have dramatically expanded the BWR balance sheet and laid a foundation for future growth. To maximise our return on cash reserves we have elected to repay debt rather than hold cash on deposit which has had the effect of reducing our gearing to just 18%. Some would describe this as a lazy balance sheet but we believe that we are now strategically positioned to take advantage of future opportunities. With property yields at record lows we think it unlikely that BWR will acquire passive real estate investments in the near term but we are on the hunt for active investments and special situations where we believe we can succeed regardless of market conditions. V A R S I T Y L A K E S , Q L D We have a strong track record of finding and executing turnaround projects and our strong balance sheet means that we can now act quickly to capitalise on these opportunities when they arise. In our view, commercial property yields are at unsustainably low levels and a correction is coming. Our aim is to be ready to act when investors are most fearful. We have some immediate opportunities to grow income through the leasing up of our newly acquired Brisbane and Adelaide properties and we have a development opportunity with our Canberra North property. To further improve our yield in the short term we have created a small loan book on properties that we control. These are secured against the underlying properties and receive around 2% higher interest than we would achieve through leaving money on deposit. Importantly, we can call these loans at short notice and deploy the capital when we are ready. BWR will be paying a final distribution of 3.5 cents per unit on 8 October 2019. The following page shows the property portfolio as it stands today. Seph Glew Chairman 4 BlackWall Property Trust - June 2019 Portfolio Yandina, QLD 54 Pioneer Rd, Yandina Value: $20,450,000 NLA: 9,100 sqm Purpose built printing facility leased to News Limited. Houses News Limited’s main printing press servicing SE Queensland. Fortitude Valley, QLD 76-84 Brunswick Street, Fortitude Valley Value: $8,680,000 NLA: 2,400 sqm Prominent corner property with development potential now comprising two adjacent buildings after recent acquisition. Home to WOTSO and looking to find a child care and gym operator. Toowoomba, QLD 52 Industrial Avenue, Toowomba Value: $5,000,000 NLA: 4,200 sqm Industrial asset in Toowoomba. Legacy property which is on the market for sale. Varsity Lakes, QLD 194 Varsity Parade, Varsity Lakes Value: $18,500,000 NLA: 5,000 sqm Four storey office building on Queensland’s Gold Coast with a gym, child care centre, café and office tenants. Major tenants include Coral Homes and WOTSO. Adelaide, SA 217-221 Flinders Street, Adelaide Value: $6,900,000 NLA: 4,300 sqm Two adjacent buildings on the fringe of the Adelaide CBD. 217 established home to WOTSO, 221 recently acquired and being fitted out for WOTSO. Hobart, TAS 162 Macquarie Street, Hobart Value: $9,250,000 NLA: 3,500 sqm Six storey office building in Hobart CBD with WOTSO and RGIT as major tenants. Sippy Downs, QLD 30 Chancellor Village Blvd, Sippy Downs Value: $27,300,000 NLA: 9,500 sqm Mixed use commercial centre with tenants including Joyce Mayne, First Choice Liquor, My Fitness Club, Sunshine Toyota and WOTSO. Pyrmont Bridge Road, NSW 55 Pyrmont Bridge Rd, Pyrmont Value: $126,300,000 NLA: 15,000 sqm City fringe seven storey mixed use building. Major tenants include Verizon, IAG and WOTSO. Villawood, NSW 850 Woodville Rd, Villawood Value: $19,500,000 NLA: 9,400 sqm Entertainment precinct in Sydney’s West. Zone Bowling, Flipout and Sydney Indoor Climbing Gym are amongst some of the action filled businesses. Canberra North, ACT 490 Northbourne Ave, Dickson Value: $30,700,000 NLA: 8,000 sqm Prominent seven storey building leased to ACT Government and WOTSO. Home to over 100 SMEs. Canberra South, ACT 10-14 Wormald Street, Symonston Value: $8,500,000 NLA: 2,700 sqm Former Canberra Eye Hospital now occupied by WOTSO, Cardno Young and others. 5 BlackWall Property Trust - June 2019 P Y R M O N T B RID G E R O A D.N S W Case Study 55 Pyrmont Bridge Road BlackWall was introduced to assist with this property turn-around in late 2013 on behalf of NAB as mortgagee in possession and PWC as administrators. BlackWall formulated a repositioning strategy and in late 2014 structured a transaction to move the asset off the bank’s balance sheet by way of a distressed debt purchase. BlackWall raised $15 million and NAB invested the same amount with the asset valued at $80 million. By late 2017 BlackWall had retired the bank’s investment completely (save a conforming debt facility) and took full control of the project. 6 Since 2016 BWR has been building an investment in the asset by underwriting an equity raising and acquiring seed investor’s positions on a secondary sale basis. By June 2017 BWR’s investment was such that the asset was consolidated onto its balance sheet. When BlackWall took control, 55 Pyrmont Bridge Road was valued at $80 million and had over 6,000 sqm of actual or imminent vacancy. Today the property has no vacancy and was recently valued at $126 million. BWR continues to grow its investment in the property. BlackWall Property Trust - June 2019 Financial Statements Balance Sheet at 30 June 2019 ASSETS Current Assets Cash and cash equivalents Trade and other receivables Bakehouse Quarter investment Financial assets Borrowing costs Loan portfolio Total Current Assets Non-current Assets Financial assets Property investment portfolio Total Non-current Assets TOTAL ASSETS LIABILITIES Current Liabilities Trade and other payables Other liabilities Borrowings Interest rate hedges Total Current Liabilities Non-current Liabilities Borrowings Interest rate hedges Total Non-current Liabilities TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Retained earnings / (accumulated losses) Attributable to owners of the Trust Non Controlling Interests TOTAL EQUITY Net tangible assets Number of units on issue NTA per unit Note 4 5 6 5 7 8 9 9 9 9 2019 $’000 9,719 559 - 2,000 32 17,180 29,490 6,000 281,080 287,080 2018 $’000 1,083 115 36,133 - 131 - 37,462 - 235,350 235,350 316,570 272,812 4,276 572 57,000 282 62,130 - - - 1,471 713 53,882 255 56,321 65,000 57 65,057 62,130 121,378 254,440 151,434 254,710 (35,311) 219,399 35,041 254,440 136,036 (33,040) 102,996 48,438 151,434 Property Investment Portfolio Canberra North, ACT Varsity Lakes, QLD Pyrmont Bridge Road, NSW Hobart, TAS Canberra South, ACT Adelaide, SA Fortitude Valley, QLD Mixed Use Sippy Downs, QLD Villawood, NSW Bakehouse Quarter, NSW Industrial Yandina, QLD Toowoomba, QLD Ownership 100% 100% 41% 100% 100% 100% 100% 100% 46% - 100% 100% Passing Yield 7.4% 5.9% 6.0% 6.2% 6.7% 2.5% 2.3% 5.9% 5.8% - 13.7% 4.0% Fully Let Yield 8.2% 7.4% 6.0% 7.2% 7.0% 10.9% 7.5% 6.7% 7.7% - 13.7% 11.5% 2019 $’000 30,700 18,500 126,300 9,250 8,500 6,900 8,680 27,300 19,500 - 20,450 5,000 2018 $’000 30,000 18,200 117,000 8,800 8,250 - - 26,400 - 36,133 20,100 6,600 Total property investment portfolio 281,080 271,483 All properties are carried at the fair values determined by independent valuations which were undertaken for the purposes of the BWR restructure set out in the Notice of Meeting released to the market on 8 April 2019. The value of properties have been adjusted to include any capital expenditure that has occurred since the date of the independent valuations. These adjustments don’t assume any value margin on capex but simply add the amount of capital expended. Reconciliation of Property Investment Portfolio 2019 $’000 271,483 19,452 9,817 8,655 6,816 4,328 1,152 1,068 674 545 (34,483) (5,387) (1,650) (1,390) - - - Opening balance Acquisition of Villawood Revaluation of Pyrmont Acquisition of Fortitude Valley Acquisition of Adeliade Capital improvements Revaluation of Canberra North Straight-line rental income Revaluation of other property investments Revaluation of Yandina Bakehouse Quarter disposal Depreciation Distributions from Kirela (prior to acquisition) Revaluation of Toowoomba Pyrmont net acquisition Revaluation of Bakehouse Quarter Returns of capital – Pyrmont 219,399 148,516,055 $1.48 102,996 66,635,378 $1.55 Closing Balance Disclosed as follows: Bakehouse Quarter investment – current asset Property investment portfolio – non-current asset Total 281,080 - 281,080 281,080 2018 $’000 156,293 - 6,240 - - 1,998 4,761 850 2,346 (1,921) (18) (4,421) (743) - 99,319 8,679 (1,900) 271,483 36,133 235,350 271,483 7 BlackWall Property Trust - June 2019 Directors’ Report Management Commentary The Bakehouse Quarter settled in April 2019. Following this transaction BWR undertook a restructure of its balance sheet by way of the acquisition of the wholesale investment trust (known as the Kirela Development Unit Trust) which owned the Bakehouse Quarter and a number of other assets. In addition, BWR acquired a property located at Fortitude Valley in Brisbane. These transactions were approved by BWR unitholders at an EGM on 10 May 2019. The relevant Notice of Meeting and accompanying Independent Expert’s Report were released to the market on 8 April 2019 and set out the transaction in detail. Completion of acquisitions set out in the Notice of Meeting occurred on 24 May 2019. As a consequence, the earnings shown in these financial statements only include approximately 6 weeks of revenue from the properties acquired in the BWR restructure. 8 Statement of Profit or Loss and Other Comprehensive Income for the year ended 30 June 2019Note 2019$’0002018$’000RevenueProperty income25,14319,075Net gain / (loss) on assets210,81620,457Interest income37519Other income-4Total Revenue36,33439,555ExpensesProperty outgoings(9,472)(6,025)Depreciation expense(5,259)(4,025)Finance costs(5,026)(4,133)Administration expenses3(2,677)(1,920)Amortisation of lease incentive(116)(396)Gain / (loss) on sale of assets(807)(8)Total Expenses(23,357)(16,507)Profit for the year12,97723,048Other comprehensive income--Profit and other comprehensive income12,97723,048Profit and other comprehensive income attributable to:Owners of the Trust4,39317,985Non Controlling Interests8,5845,06312,97723,048Earnings Per UnitBasic earnings per unit5.9 cents27.0 centsCalculated as follows:Profit for the year4,393 17,985Weighted average number of units for EPU74,935,611 66,635,378BlackWall Property Trust - June 2019 Statement of Cash Flows for the year ended 30 June 2019 Cash Flows From Operating Activities Receipts from tenants Payments to suppliers Interest paid Interest received Net Cash Flows From/(Used in) Operating Activities Cash Flows From Investing Activities Cash inflow on Kirela acquisition Distributions from Kirela Payment for Kirela units Payment for additional Pyrmont investment Loan advance made - portfolio Net cash outflow on Kirela disposal Payment for capital expenditure Purchase of property – Fortitude Valley Net acquisition of Fortitude Valley subsidiary Loan advance made - BWF and others Proceeds from sale of The Woods units Returns of capital from Pyrmont Bridge Trust Cash acquired on consolidation of Pyrmont Proceeds from sale of other investments 2019 $’000 25,766 (13,749) (5,162) 375 7,230 205,309 3,865 (73,809) (17,436) (17,180) (10,122) (4,542) (3,875) (2,674) (1,045) - - - - Net Cash Flows From/(Used in) Investing Activities 78,491 Cash Flows From Financing Activities Repayment of bank borrowings Distributions paid – members of the trust Distributions paid – non controlling interests Payment for capital raising costs Net Cash Flows From/(Used in) Financing Activities Net Increase / (Decrease) in Cash Held Cash and cash equivalents at the beginning of the year Cash and Cash Equivalents at End of the Period (68,882) (6,664) (1,454) (85) (77,085) 8,636 1,083 9,719 Reconciliation of Operating Cash Flows 2018 $’000 20,132 (9,576) (3,969) Profit for the year Non-cash flows in profit: Depreciation and amortisation Net gain on assets 19 Straight-line rental income 6,606 Changes in operating assets and liabilities: (Increase) / decrease in trade and other receivables (Increase) / decrease in other assets Increase / (decrease) in trade and other payables Increase / (decrease) in other liabilities Net cash flows from operating activities - 1,568 - (3,772) (1,100) - (1,998) - - 3,992 2,470 62 9 1,231 (200) (7,663) (581) - (8,444) (607) 1,690 1,083 2019 $’000 12,977 5,375 (10,009) (1,068) (464) 1 568 (150) 7,230 2018 $’000 23,048 4,401 (20,449) (850) (268) 184 235 305 6,606 9 BlackWall Property Trust - June 2019 Statement of Changes in Equity Balance at 1 July 2018 Issue of units Transaction costs on units Profit for the year Distributions paid Non-controlling interests on acquisition of Villawood Purchase of additional Pyrmont units Balance at 30 June 2019 Net tangible assets per unit Balance at 1 July 2017 Acquisition of subsidiary Profit for the year Distributions paid Balance at 30 June 2018 Net tangible assets per unit Issued Capital No.’000 Issued Capital $’000 Retained Earnings/ (Accumulated Losses) $’000 Attributable to Owners of the parent $’000 Non Controlling Interests $’000 Total Equity $’000 66,636 81,880 - - - 136,036 121,183 (2,509) - - (33,040) - - 4,393 (6,664) 148,516 254,710 (35,311) 66,636 136,036 - - - - - - 66,636 136,036 (43,362) - 17,985 (7,663) (33,040) 102,996 121,183 (2,509) 4,393 (6,664) 219,399 $1.48 92,674 - 17,985 (7,663) 102,996 $1.55 48,438 - - 8,584 (2,026) 5,159 (25,114) 35,041 - 43,956 5,063 (581) 48,438 151,434 121,183 (2,509) 12,977 (8,690) 5,159 (25,114) 254,440 92,674 43,956 23,048 (8,244) 151,434 10 BlackWall Property Trust - June 2019 Notes 1. Segment Reporting The Trust operates in one business segment being the ownership and leasing of investment properties in Australia. 2. Net gain / (loss) on assets ($’000) 2018 6,240 4,761 852 (1,921) - - - 484 370 208 433 8,679 20,106 351 20,457 Pyrmont Bridge Road, NSW Canberra North, ACT Varsity Lakes, QLD Yandina, QLD Villawood, NSW Adelaide, SA Fortitude Valley, QLD Hobart, TAS Sippy Downs, QLD Toowoomba, QLD Canberra South, ACT Bakehouse Quarter, NSW Total net gain / (loss) on property investment portfolio Net gain / (loss) on interest rate hedges Total net gain / (loss) on assets 3. Expenses ($’000) Administration expenses: Responsible entity fees Compliance expenses (listing, registry etc) Total 2019 9,818 1,152 583 545 265 84 51 43 9 (1,390) (374) - 10,786 30 10,816 2019 1,709 968 2,677 4. Current Assets – Trade and Other Receivables ($’000) Trade and other receivables Other Total 2019 559 559 No debtors have been provided for as at 30 June 2019 (2018: $Nil) or at the date of this report. 5. Financial Assets ($’000) Current - YuHu group Australia Non-current - YuHu group Australia Total 2019 2,000 6,000 8,000 2018 - - - This deposit is a retention amount relating to the sale of the Bakehouse Quarter. An amount of $2 million will be released each financial year provided WOTSO North Strathfield meets its rental obligations. The amount is held in a solicitor’s Trust account and receives interest. 6. Loan Portfolio ($’000) BWR has made loans totaling $17.2 million to related parties. The loans are documented and secured against real estate with a combined value of $50.2 million. The loans are priced at a margin of 200 basis points above the RBA cash rate. Each loan is repayable on a call from BWR. 7. Current Liabilities – Trade and Other Payables ($’000) Trade payables Related parties Other parties Tenant deposits Total 2018 8. Current Liabilities – Other Liabilities ($’000) Rental income received in advance Total 1,388 532 1,920 2018 115 115 2019 2,998 972 306 4,276 2019 572 572 2018 116 1,187 168 1,471 2018 713 713 11 BlackWall Property Trust - June 2019 9. Current and Non-current liabilities – Borrowings and Interest Rate Hedges The mark to market value of all interest rate hedges are calculated as at 30 June and shown above as a negative number if they are out of the money and a positive if they are in the money. The gain or loss from valuing the interest rate collar at fair value is recognised in profit or loss. Borrowings (S’000) All facilities are priced off BBSY. The facilities have no undrawn balance. The LVR (loan to value ratio) shown below is calculated against the carrying value in these financial statements with the facility LVR covenant LVR Borrowings Security Value Expiry Margin Lender shown in parenthesis. Security Various Villawood Unencumbered Properties 43% (65%) 36% (65%) 50,000 7,000 115,240 19,500 10/19 12/19 2.10% 1.65% - 181,830 - - Total June 2019 18% 57,000 316,570 Various Hobart Total current Pyrmont Canberra North Total non-current Total June 2018 43% (65%) 44% (50%) 43% (90%) 50% (61%) 50,000 3,882 53,882 50,000 15,000 65,000 118,882 10/18 02/19 12/19 09/19 2.10% 2.10% 2.20% 2.10% 10. Property Acquisitions On 24 May 2019 BlackWall Property Trust acquired 100% control of the units in Kirela Unit Trust. The transaction was undertaken by way of a scrip for scrip swap at respective net tangible asset (NTA) values. The NTA value of BlackWall Property Trust was $1.48 per unit and the NTA value of Kirela was $403 per unit. BlackWall issued 81,880,677 new units. Various holdings in other entities held directly by Kirela prior to the transaction taking place resulted in those entities joining the BlackWall Property Trust group. As part of this transaction all the units in Bakehouse Quarter Trust (BQT) were also acquired. The above transaction resulted in three additional investment properties being added to the group. The properties are Villawood, Fortitude Valley and Flinders Street. These properties have been shown in the respective properties investment portfolio disclosures. 11. Distributions A distribution of 3.5 cents per unit has been declared to be paid on 8 October 2019. Distributions paid before the balance date are listed below: Prior year final distribution Current year interim distribution Total 2019 5.0 cpu 5.0 cpu 2019 $’000 3,332 3,332 6,664 2018 6.5 cpu 5.0 cpu 2018 $’000 4,331 3,332 7,663 NAB NAB - NAB NAB NAB NAB The Pyrmont, Canberra North and Hobart borrowings totalling $68.9 million were repaid during the year and 12. Lease Commitments Receivable ($’000) those respective properties are now unencumbered. Interest Rate Hedges Bank $’000 Type Floor Cap Expiry June 2019 Total June 2018 Total NAB NAB NAB NAB NAB 20,000 30,000 7,000 57,000 20,000 30,000 50,000 Collar Collar Swap 2.72% 2.24% 4.55% 3.24% Fixed at 2.99% 07/19 01/20 12/19 Collar Collar 2.72% 2.24% 4.55% 3.24% 07/19 01/20 MTM Value $’000 (21) (198) (63) (282) (166) (146) (312) Future minimum rent receivable under non-cancellable operating leases as at 30 June are as follows: Receivable within 1 year Receivable within 2 – 5 years Receivable for more than 5 years Total 2019 20,414 53,313 24,870 98,597 2018 16,306 33,517 24,795 74,618 13. Commitments and Contingencies There were no operating leases, capital commitments or contingencies as at 30 June 2019 (June 2018: Nil). 12 BlackWall Property Trust - June 2019 14. Subsequent Events (b) Interests in Related Parties Apart from subsequent events disclosed in the Directors’ report, to the best of the Directors’ knowledge, since As at year end the Trust owned units in the following funds. The funds and the Trust have a common the end of the financial year there have been no other matters or circumstances that have materially affected Responsible Entity or are related entities of BlackWall: the Trust’s operations or may materially affect its operations, state of affairs or the results of operations in Holdings (No.’000) $’000 Distribution Percentage Owned Unlisted Funds / Entities Kirela Development Unit Trust Pyrmont Bridge Trust Bakehouse Quarter Trust 2019 - - - 2018 82 - - 2019 1,650 - - 1,650 2018 742 2,280 1 3,023 future financial years. 15. Controlled Entities Name Parent entity: BlackWall Property Trust Controlled entity of parent entity: Yandina Sub-Trust BlackWall Telstra House Trust BlackWall Hobart Unit Trust Flinders Street Unit Trust 84 Brunswick Street Unit Trust Bakehouse Quarter Trust Pyrmont Bridge Property Pty Ltd* Pyrmont Bridge Trust WRV Unit Trust** Woods PIPES Fund Parent and controlled entities are all incorporated in Australia. *Consolidated because BWR is the most significant shareholder and exercises management control. **Consolidated due to the contractual arrangement with the Woods Pipes Fund which gives control to Woods Pipes Fund . 16. Related Party Transactions (a) Related Entities In these financial statements, related parties are parties as defined by AASB 124 Related Party Disclosures rather than the definition of related parties under the Corporations Act 2001 and ASX Listing Rules. 2019 100% 100% 100% 100% 100% 100% 100% 41% 68% 46% 65% 2018 100% 100% 100% 100% - - - 32% 25% - - For further details refer to the Reconciliation of Property Investment Portfolio table. Income received from Kirela was in the form of discounted capital gains. Pyrmont Bridge Trust and Bakehouse Quarter Trust are now consolidated in these financial statements. As a result the Trust’s holdings above are eliminated and shown as nil. (c) Loans to related parties As at year end the Trust has made loans to the following director related entities: Planloc Pty Ltd Alerik Pty Ltd as trustee for Alerik Unit Trust Gymea Bay Pty Ltd as trustee for Gymea Bay Unit Trust Total 2019 11,150 4,525 1,505 17,180 2018 - - - - 13 BlackWall Property Trust - June 2019 2019 $’000 (290) (290) 18,395 257,832 276,227 (62,369) - (62,369) 2018 $000 9,302 9,302 661 153,908 154,569 (50,606) (1,975) (52,581) 213,858 101,988 (d) Related Entity Transactions 17. Parent Entity Disclosures In accordance with the terms of the Trust Constitution and the Information Memorandum, the Responsible The following summarises the financial information of the Trust’s parent entity, BlackWall Property Trust, as at Entity is entitled to receive a management fee based on 0.65% p.a. of the value of the Trust’s assets and the and for the year ended 30 June. recovery of other administrative costs. The major transaction fee was paid in relation to the Kirela transaction as described in note 10. Profit (loss) for the year All transactions with related parties were made on normal commercial terms and conditions, at market rates Total comprehensive income (loss) for the year Financial position: Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets and were approved by the Board. Related party transactions that occurred during the year are as follows: Revenue WOTSO WorkSpace rent, outgoings and utilities Interest income Total revenue Expenses Remuneration paid to Responsible Entity Property and project management, leasing and accounting fees Transaction fees Total expenses 2019 $’000 2,472 63 2,535 1,709 2,011 2,449 6,169 2018 $000 1,219 - 1,219 1,335 582 - 1,917 Refer to Directors’ Report for Key Management Personnel’s relevant interests in the Trust. (e) Terms and Conditions Recovery of the $8 million financial asset referred to in note 5 is dependent upon a related party (WOTSO North Strathfield) meeting its rental obligations for the next four years. 14 The parent entity had no contingencies at 30 June 2019 (2018: Nil). The parent entity has not entered into any capital commitments as at 30 June 2019 (2018: Nil). 18. Financial Risk Management (a) Financial risk management The main risks the Trust is exposed to through its financial instruments are market risk (including interest rate risk and price risk), credit risk and liquidity risk. The Trust’s principal financial instruments are property investment structures and borrowings (including interest rate hedges). Additionally, the Trust has various other financial instruments such as cash, trade debtors and trade creditors, which arise directly from its operations. This note presents information about the Trust’s exposure to each of the above risks, their objectives, policies and processes for measuring and managing risk, and the management of capital. The Board of Directors of the Responsible Entity has overall responsibility for the establishment and overseeing of the risk management framework. The Board monitors the Trust’s risk exposure by regularly reviewing finance and property markets. Major financial instruments held by the Trust which are subject to financial risk analysis are as follows: Financial assets Property investment structures Loan portfolio Financial liabilities Borrowings 2019 $’000 - 17,180 2018 $000 36,133 - 57,000 118,882 The property investment structures referred to above represent the Trust’s investment in The Bakehouse Quarter. BlackWall Property Trust - June 2019 (b) Sensitivity analysis (e) Fair value measurements The Group is exposed to interest rate and credit risk. The loan portfolio has been made to related parties with (i) Fair value hierarchy property as security and thus management consider this to be a low credit risk. In relation to interest rate risk, if interest rates were to increase by 1% profit after tax would be reduced by following fair value measurement hierarchy: AASB 7 Financial Instruments: Disclosures requires disclosure of fair value measurements by level of the $400,000. (c) Capital management The Trust’s objectives when managing capital are to: • Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities; • Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset, either directly (as prices) or indirectly (derived from prices); and • Level 3 – Inputs for the asset that are not based on observable market data (unobservable • safeguard its ability to continue as a going concern, so that it can continue to provide returns inputs). The Trust currently does not have any assets or liabilities that are traded in an active market. The fair value of financial assets and financial liabilities that are not traded in an active market is determined using valuation techniques. For investments in related party unlisted unit trusts, fair values are determined by reference to published unit prices of these investments which are based on the net tangible assets of the investments. The following table presents the Trust’s financial assets and financial liabilities measured at fair value as at 30 June. The Refer to the Critical Accounting Estimates and Judgment note for further details of assumptions used and how fair values are measured. At 30 June 2019 ($’000) Loan portfolio Interest rate hedges At 30 June 2018 ($’000) Property investment portfolio Interest rate hedges Level 1 Level 2 Level 3 Total - - - - - (282) - (312) 17,180 - 36,133 - 17,180 (282) 36,133 (312) for unitholders and benefits for other stakeholders, and • maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Trust may adjust the amount of return of capital paid to unitholders, issue new units, buy-back units, purchase or sell assets. (d) Liquidity risk The major liquidity risk faced by the Trust is its ability to realise assets. The Trust has borrowings of $57 million and total gross assets of $317 million, of which $281 million are income producing real estate assets for which there is a deep and active market. At the end of the reporting period, the Trust held the following financial arrangements: $’000 At 30 June 2019 Financial liabilities Trade and other payables Other liabilities Borrowings Interest rate hedges At 30 June 2018 Financial liabilities Trade and other payables Other liabilities Borrowings Interest rate hedges Maturing Maturing Maturing Within 1 year 2 – 5 years Over 5 years Total 3,970 572 57,000 282 61,824 1,303 713 53,882 255 56,153 306 - - - 306 168 - 65,000 57 65,225 - - - - - - - - - - 4,276 572 57,000 282 62,130 1,471 713 118,882 312 121,378 15 BlackWall Property Trust - June 2019 (ii) Valuation techniques used to derive Level 3 fair values Key estimates - impairment The fair value of the unlisted securities is determined by reference to the net assets of the underlying entities. All these instruments are included in Level 3. The Trust assesses impairment at each reporting date by evaluating conditions specific to the Trust that may lead to impairment of assets. Refer to Trade and Other Receivables note for impairment details. There were no transfers between Level 1, 2 and 3 financial instruments during the year. For all other financial assets and financial liabilities, carrying value is an approximation of fair value. Key estimates – financial assets Significant unobservable inputs associated with the valuations of investment properties are as follows: Significant unobservable inputs used to measure fair value Capitalisation rate (%) Net market rent ($ per sqm) Range of unobservable inputs Impact of increase in input on fair value 2.6 – 13.0 116 – 1,043 Decrease Increase Impact of decrease in input on fair value Increase Decrease (iii) Fair value measurements using significant observable inputs (Level 3) The following table is a reconciliation of the movements in financial assets classified as Level 3 for the year ended 30 June: At 30 June 2019 Balance at the beginning of the year Return of capital Disposal of Kirela Loan portfolio advanced Balance at the end of the year At 30 June 2018 Balance at the beginning of the year Purchase of Pyrmont units Return of capital Fair value movement through the profit and loss Consolidation of Pyrmont Other Balance at the end of the year 36,133 (1,650) (34,483) 17,180 17,180 41,893 3,772 (2,643) 8,515 (15,388) (16) 36,133 19. Critical Accounting Estimates and Judgments The Directors of the Responsible Entity evaluate estimates and judgments incorporated into the financial statements based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the Trust. 16 The property investment portfolio contains a portion of financial assets being property investment structures at FVTPL. All gains and losses in relation to financial assets are recognised in profit or loss. The fair value of the unlisted securities is determined by reference to the net assets of the underlying entities. Key estimates – fair values of investment properties The Trust carries its investment properties at fair value with changes in the fair values recognised in profit or loss. At the end of each reporting period, the Directors of the Responsible Entity update their assessment of the fair value of each property, taking into account the most recent independent valuations. The key assumptions used in this determination are set out in Property Investment Portfolio table on page 7. Passing yield in this table represents the rate that is derived by dividing the passing net income by the property value. Fully Let Yield represents the rental income assuming 100% occupancy at prevailing market rents. If there are any material changes in the key assumptions due to changes in economic conditions, the fair value of the investment properties may differ and may need to be re-estimated. 20. Changes in liabilities arising from financing activities ($’000) Total liabilities from financing activities as at 1 July 2017 Net cash from/(used in) financing activities Acquisition of Pyrmont Total liabilities from financing activities as at 30 June 2018 Net cash from/(used in) financing activities Repayment of NAB borrowings Acquisition of Villawood Total liabilities from financing activities as at 30 June 2019 Borrowings (68,882) 1,300 (51,300) (118,882) - 68,882 (7,000) (57,000) Total (68,882) 1,300 (51,300) (118,882) - 68,882 (7,000) (57,000) 21. Statement of Significant Accounting Policies The financial statements cover BlackWall Property Trust and its controlled entities. BlackWall Property Trust is a managed investment scheme registered in Australia. All controlled funds are established and domiciled in Australia. The financial statements for the Trust were authorised for issue in accordance with a resolution of the Directors of the Responsible Entity on the date they were issued. BlackWall Property Trust - June 2019 Basis of Preparation Principles of Consolidation These financial statements are general purpose financial statements that have been prepared in accordance with Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Controlled entities Standards Board and the Corporations Act 2001. The financial statements of the Trust also comply with IFRS as issued by the International Accounting Standards Board. The financial statements have been prepared on an accruals basis and are based on historical costs modified by the revaluation of selected non-current assets, financial assets and financial liabilities for which the fair value basis of accounting has been applied. The Trust is a group of the kind referred to in ASIC Class Order 2016/191 and, in accordance with that Class Order, amounts in the Directors’ Report and the financial statements are rounded off to the nearest thousand dollars, unless otherwise indicated. The following is a summary of the material accounting policies adopted by the Trust in the preparation of the financial statements. The accounting policies have been consistently applied, unless otherwise stated. Going concern These financial statements have been prepared on a going concern basis, which contemplates continuity of normal business activities and the realisation of assets and settlement of liabilities in the ordinary course of business. Comparative figures When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. Any change of presentation has been made in order to make the financial statements more relevant and useful to the user. Segment Reporting AASB 8 requires operating segments to be identified on the basis of internal reports about components of the Trust that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance. The Trust invests in property in Australia and reports to management in a single segment. As a result, there is only one segment to report for the Trust. Presentation currency Both the functional and presentation currency of the Trust is Australian dollars. The consolidated financial statements comprise the financial statements of the Trust (refer to the Controlled Entities note). The controlled entity has a June financial year end and uses consistent accounting policies. Investments in the controlled entity held by the parent entity are accounted for at cost less any impairment charges (refer to the Parent Entity Disclosures note). Subsidiaries are all those entities over which the consolidated entity has control. The consolidated entity controls an entity when the consolidated entity 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 consolidated entity. They are de-consolidated from the date that control ceases. Inter-entity balances All inter-entity balances and transactions between entities in the Trust, including any unrealised profits or losses, have been eliminated on consolidation. Accounting policies of the controlled entity have been changed where necessary to ensure consistencies with those policies applied by the parent entity. Impairment of assets At each reporting date, the Trust reviews the carrying values of its assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. In assessing value in use, either the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset, or the income of the asset is capitalised at its relevant capitalisation rate. An impairment loss is recognised if the carrying value of an asset exceeds its recoverable amount. Impairment losses are expensed to the income statement. Impairment losses recognised in prior periods are assessed at each reporting date for any indication that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss has been recognised. 17 BlackWall Property Trust - June 2019 Financial Instruments Interest rate hedges The Trust uses derivative financial instruments such as interest rate swaps to hedge its risks associated with interest rates. Such derivative financial instruments are initially recognised at fair value on the date the derivative contract is entered into and are subsequently remeasured to fair value. Derivatives are carried as assets when their net fair value is positive and as liabilities when their net fair value is negative. The fair values of interest rate swap and collar are determined by reference to market values for similar instruments. Any gains or losses arising from changes in the fair value of derivatives are taken directly to profit or loss for the year. Non-derivative financial instruments Non-derivative financial instruments comprise financial assets (including property investment structures), loans and borrowings, and trade and other payables. financial assets are assessed collectively in groups that share similar credit risk characteristics. Impairment losses are recognised in the statement of profit or loss and other comprehensive income. Financial liabilities Non-derivative financial liabilities are recognised at amortised cost, comprising original debt less principal payments and unrealised movements. Financial assets (property investment portfolio) The property investment portfolio contains a portion of financial assets being property investment structures at FVTPL. All gains and losses in relation to financial assets are recognised in profit or loss. The Trust classifies its financial assets in the following measurement categories: those to be measured subsequently at fair value and those to be measured at amortised cost. The classification depends on the Trust’s business model for managing the financial assets and the contractual terms of the cash flows. All equity investments are measured at fair value. Equity investments that are held for trading are measured Non-derivative financial instruments are recognised at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs. Subsequent to initial recognition non- derivative financial instruments are measured as described below. at fair value through profit or loss. Measurement Recognition A financial instrument is recognised if the Trust becomes a party to the contractual provisions of the instrument. Financial assets are recognised if the Trust’s contractual rights to the cash ow from the financial assets expire or if the Trust transfers the financial assets to another party without retaining control or substantially all risks At initial recognition, the Trust measures a financial asset at its fair value. Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss. The Trust subsequently measures all equity investments at fair value. Changes in the fair value of financial assets at fair value through profit or loss are recognised in profit or loss as applicable. and rewards of the asset. Purchases and sales of financial assets are accounted for at trade date, i.e. the date that the Trust commits itself to purchase or sell the asset. Financial liabilities are derecognised if the Trust’s Held for sale properties obligations specified in the contract expire or are discharged or cancelled. Properties are classified as held for sale if their carrying amount will be recovered principally through a sale Loans and receivables transaction rather through continuing use and a sale is considered highly probable. They are measured at their carrying amount. Any subsequent increases or decreases in carrying amount is recognised in the profit Loans and receivables include loans to related entities. Gains and losses are recognised in profit and loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process. and loss. Investment properties Fair value For investments in unlisted unit trusts, fair values are determined by reference to published unit prices of these investments which are based on the net tangible assets of each of the investments. Impairment At each reporting date, the Trust assesses whether there is objective evidence that a financial instrument has Investment properties are measured initially at cost, including transaction costs. The carrying amount includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met and excludes the costs of day-to-day servicing of an investment property. Subsequent to initial recognition, investment properties are stated at fair value, which is based on active market prices, adjusted if necessary, for any difference in the nature, location or condition of the specific asset at the balance sheet date. Gains or losses arising from changes in the fair values of investment properties are recognised in profit or loss in the year in which they arise. Included in the value measurement are adjustments for straight- been impaired. A financial instrument is considered to be impaired if objective evidence indicates that one or lining of lease income. more events have had a negative effect on the estimated future cash flows of that asset. Individually significant financial instruments are tested for impairment on an individual basis. The remaining 18 BlackWall Property Trust - June 2019 Cash and cash equivalents Income tax Cash and cash equivalents include cash on hand, deposits held at call with banks, other short term highly Under current income tax legislation the Trust is not liable to Australian income tax provided the unitholders liquid investments with original maturities of three months or less, and bank overdrafts. are presently entitled to the taxable income of the Trust. The Trust has over $5 million of carried forward Trade and other receivables Trade receivables are recognised and carried at original invoice amount less a provision for any uncollectable revenue tax losses. GST debts. An estimate for doubtful debts is made when there is objective evidence that the Trust will not be able Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST to collect the receivable. Financial difficulties of the debtor and default payments are considered objective incurred is not recoverable from the Australian Taxation Office. In these circumstances the GST is recognised evidence of impairment. Bad debts are written off when identified as uncollectable. as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables Trade and other payables in the balance sheet are shown inclusive of GST. Cash flows are presented in the cash flow statement on a gross basis for the operating cash flows only. Liabilities for trade creditors are carried at cost which is the fair value of the consideration to be paid in the future for goods or services received, whether or not billed to the Trust at balance date. The amounts are EPU unsecured and are usually paid within 30 days of recognition. The Trust presents basic and diluted EPU. Basic EPU is calculated by dividing the profit or loss attributable Interest bearing borrowings Interest bearing borrowings are initially recognised at fair value less any related transaction costs. Subsequent to initial recognition, interest bearing borrowings are stated at amortised cost. Revenue Rent to ordinary unitholders of the Trust by the weighted average number of units outstanding during the period. Diluted EPU is determined by adjusting the profit or loss attributable to ordinary unitholders and the weighted average number of units outstanding for the effects of all dilutive potential units. Diluted EPU is the same as basic EPU. New Accounting Standards and Interpretations Certain new accounting standards and interpretations have come into effect for the current reporting period. The impact of these new standards and interpretations is set out below. Rent comprises rental and recovery of outgoings from property tenants. Rental income from investment AASB 9 Financial Instruments (effective for annual reporting periods beginning on or after 1 January 2018) properties is accounted for on a straight-line basis over the lease term Lease incentives The Trust has adopted AASB 9 early on 1 January 2013 except for the new hedging rules which should not have any material effects to the Trust’s financial statements. Rent free incentives granted are recognised as an integral part of total rental income. AASB 15 Revenue from Contracts with Customers (effective for annual reporting periods beginning on or after Cash incentives paid or payable to tenants are capitalised as part of investment properties. 1 January 2018) Investment income Interest income is recognised as interest accrues using the effective interest method. Property investment structure income is recognised when the right to receive distribution has been established. For tax deferred distributions (returns of capital) earned from any trusts that have significant carried forward tax losses, such distributions are brought on to the balance sheet by an adjustment in the carrying value of the relevant investment and then reflected in the profit and loss as an unrealised gain. AASB 15 is a new Standard introduced by AASB to replace AASB 118. The Trust has applied AASB 15 for the first time in the current period. AASB 15 requires an entity to recognise revenue in a manner that represents the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled. This means that revenue will be recognised when control of goods and/or services is transferred, rather than on transfer of risks and rewards. The Directors have reviewed and assessed the Trust’s recognition and measurement of revenue from 1 July 2018 based on the facts and circumstances that existed from this date and concluded that the application of AASB 15 has had no material impact on the recognition or measurement of the revenue for the Trust in the current reporting period and prior reporting period. IFRS 16 Leases (effective for annual reporting periods beginning on or after 1 January 2019) There will be no impact to the group upon adopting AASB 16. 19 BlackWall Property Trust - June 2019 Directors’ Report Continued Subsequent Events ASX Additional Information Additional information required by the Australian Securities Exchange and not shown elsewhere in this report is as follows. The unitholder information set out below was current as at 16 August 2018. To the best of the Directors’ knowledge, since the end of the financial half year there have been no matters or circumstances except for the comments above that have materially affected the Trust’s operations or may materially affect its operations, state of affairs or the results of operations in future financial years. 1. Unitholders The Trust’s top 20 largest unitholdings were: Directory of Properties Property Property address Pyrmont Bridge Road 55 Pyrmont Bridge Rd, Pyrmont NSW 2009 Canberra North Sippy Downs Yandina Villawood Varsity Lakes Hobart Fortitude Valley Canberra South Adelaide Toowoomba 490 Northbourne Ave, Dickson ACT 2602 30 Chancellor Village Blvd, Sippy Downs QLD 4556 54 Pioneer Rd, Yandina QLD 4561 850 Woodville Rd, Villawood NSW 2163 194 Varsity Pde, Varsity Lakes QLD 4227 162 Macquarie St, Hobart TAS 7000 76 & 84 Brunswick St, Fortitude Valley QLD 4006 10-14 Wormald St, Symonston ACT 2609 217 & 221 Flinders St, Adelaide SA 5000 50 Industrial Ave, Toowoomba QLD 4350 Investor Jagar Holdings Pty Ltd Hollia Pty Limited SAO Investments Pty Ltd BlackWall Fund Services Limited Pelorus Private Equity Limited Vintage Capital Pty Limited Seno Management Pty Ltd Castle Bay Pty Ltd Mr Archibald Geoffrey Loudon 1 2 3 4 5 6 7 8 9 10 Mr Richard Hill & Mrs Evelyn Hill 11 12 PRSC Pty Ltd Tampopo Pty Ltd 13 Ms Gia Ravazzotti 14 15 16 Alerik Pty Limited Koonta Pty Ltd Lymkeesh Pty Ltd 17 Mr Peter John Gray 18 Rigi Investments Pty Limited 19 Methuselah Capital Management Pty Ltd 20 Mr Peter Joy Units(No.) 18,000,000 13,814,865 11,875,000 10,919,554 10,750,000 10,116,032 5,030,700 3,846,869 3,707,894 3,309,871 3,000,000 2,858,747 2,700,000 2,000,000 1,899,383 1,857,512 1,723,370 1,550,552 1,126,756 1,000,000 Units(%) 12.12 9.30 8.00 7.35 7.24 6.81 3.39 2.59 2.50 2.23 2.02 1.92 1.35 1.35 1.28 1.25 1.16 1.04 0.76 0.67 20 BlackWall Property Trust - June 2019 2. Distribution of Unitholders Information on Officeholders of the Responsible Entity The distribution of unitholders by size of holding was: The Responsible Entity is a wholly-owned subsidiary of BlackWall Limited. BlackWall Limited’s directors Category 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over comprise the board of the Responsible Entity. No. of Holders 301 600 241 421 101 As a result of a reorganisation of the BlackWall Limited management structure, there have been some changes in the BlackWall board and as a result there have been changes to the board of the Responsible Entity. Richard Hill has stepped down as Chairman and is replaced by Joseph (Seph) Glew. Richard will remain on the board as a non-executive director. Jessica (Jessie) Glew will join the board and will be appointed as joint managing director together with Tim Brown. Stuart Brown has resigned as CEO of BlackWall and will remain on the board in a non-executive capacity. All of these changes are effective as at the date of these financial Total number of unitholders 1,664 statements. The Trust has 148,516,055 units on issue. All units carry one vote per unit without restrictions. All units are The names of the Officeholders during or since the end of the year are set out below. quoted on the Australian Securities Exchange (ASX: BWR). 3. Substantial Unitholders The Trust’s substantial unitholders are set out below: Investor Seph Glew Paul Tressider Robin Tedder BlackWall Limited Pelorus Private Equity Limited Units(No.) 50,745,311 42,209,620 11,847,407 10,919,554 10,750,000 Joseph (Seph) Glew Non-Executive Director and Chairman Seph has worked in the commercial property industry in New Zealand, the USA and Australia and has driven large scale property development and financial structuring for real estate for over 40 years. In addition, since Units(%) the early 1990s Seph has run many “turn-around” processes in relation to distressed properties and property 34.17 28.42 7.98 7.35 7.24 structures for both private and institutional property owners. While working for the Housing Corporation of New Zealand and then AMP, Seph qualified as a registered valuer and holds a Bachelor of Commerce. In the 1980s he served as an Executive Director with New Zealand based property group Chase Corporation and as a Non-Executive Director with a number of other listed companies in New Zealand and Australia. Timothy Brown Joint Managing Director and CFO 4. Key Management Personnel’s Relevant Interests The current relevant interests in the Trust held by Key Management Personnel of the Responsible Entity are shown below. Name (Position) Seph Glew (non-executive director) Timothy Brown (joint MD and CFO) Jessie Glew (joint MD and COO) Stuart Brown (non-executive director) Richard Hill (non-executive director) 10 August 2018 8,734,100 Net Change 42,011,211 16 August 2019 50,745,311 Commerce from the University of New South Wales and is a member of the Institute of Chartered Accountants of Australia. With over 20 years’ experience in the financial services and property industries, he started his Tim is Joint Managing Director and Chief Financial Officer for the BlackWall Group and its funds. Tim joined the Group in 2008 as Financial Controller and became Chief Financial Officer in 2009. He has a Bachelor of 349,758 294,868 977,104 663,039 149,998 499,756 career with Deloitte and joined Lend Lease Corporation in 2002. Tim is also on the board of Eastern Suburbs - 50,222 5,505,579 6,449,373 294,868 1,027,326 6,168,618 11,847,407 Cricket Club and Coogee Boys’ Preparatory School. Jessica (Jessie) Glew Joint Managing Director and COO Robin Tedder (non-executive director) 5,398,034 Total 16,416,903 54,166,383 70,583,286 Jessie is Joint Managing Director and Chief Operating Officer for the BlackWall Group and its funds. Jessie has been with BlackWall since early 2011. Prior to her appointment as Joint Managing Director, Jessie was COO at BlackWall. She has a Bachelor of International Communication from Macquarie University and finalising a Bachelor of Property Economics at the University of Technology Sydney. 21 BlackWall Property Trust - June 2019 Stuart Brown Non-Executive Director Stuart has been involved in property investment for over 20 years. Stuart has run debt and equity raising in relation to listed and unlisted real estate structures with over a half a billion dollars in value. In his earlier career, Stuart practised as a solicitor in the areas of real estate, mergers and acquisitions and corporate advisory with Mallesons and Gilbert + Tobin. Stuart is also an independent Director of Coogee Boys’ Preparatory School and Randwick District Rugby Union Football Club. Richard Hill Non-Executive Director Richard Hill has extensive investment banking experience and was the founding partner of the corporate advisory firm Hill Young & Associates. Richard has invested in BlackWall’s projects since the early 1990s. Meeting Attendances Director Seph Glew Timothy Brown Jessie Glew (appointed after 30 June 2019) Stuart Brown Richard Hill Robin Tedder Options No. of Board Meetings Held Board Meeting Attendance 10 10 n/a 10 10 10 10 10 n/a 10 10 10 There were no options granted during the year ended 30 June 2019. There are no options on issue as at the Prior to forming Hill Young, Richard held a number of Senior Executive positions in Hong Kong and New date of this report. York with HSBC. He was admitted as an attorney in New York State and was registered by the US Securities & Exchange Commission and the Ontario Securities Commission. Richard is Chairman of the Westmead Institute for Medical Research. In the last three years, Richard has served as a director (Chairman) of Sirtex Medical Limited (Sirtex), listed on ASX. Richard retired as director of Sirtex on 28 October 2017. Robin Tedder Non-Executive Director Responsible Entity and Custodian Remuneration The Responsible Entity’s remuneration details can be found under the Related Party Transactions note of the financial statements. The Custodian is Perpetual Limited. The custody fee is calculated at the greater of $15,000 p.a. or 0.025% p.a. of the gross asset value up to $100 million then 0.015% for gross assets value between $100-$500 million of Robin began his career on the dealing desk of a merchant bank in 1976. In 1981 he founded Hatmax the Trust, plus GST. In addition, the Custodian is entitled to be paid any out-of-pocket expenses incurred in Capital Markets which grew rapidly through organic development and merger with Australian Gilt the performance of its duties. Securities in 1988, such that by the time he departed after 14 years as CEO in 1995, over 80 people were employed across debt capital markets, both the Sydney Futures Exchange and ASX, in asset management and corporate finance. In 1995 Robin established Vintage Capital which became an active investor in funds management, commercial property, retailing, healthcare and logistics. He has been an investor in Blackwall projects since 1997, is a former member of ASX, and has served on various boards of both listed and private companies since 1984. He is the Chairman of Blackwall’s Board Audit Committee. Sophie Gowland Company Secretary Interests in the Trust At the date of this report, the Trust has 148,516,055 units on issue (June 2018: 66,635,377 units on issue). The Responsible Entity and its associates held 10.9 million units in the Trust. Value of the Trust’s Assets At 30 June 2019, the Trust’s assets value is set out in the Trust’s Consolidated Balance Sheet. Refer to the Property Investment Portfolio table for valuation details. Sophie is a lawyer with over 10 years of experience in legal practice and financial services. Prior to joining BlackWall, Sophie practiced in the areas of corporate advisory, equity capital markets and mergers and Environmental Regulation acquisitions with firms including Gilbert + Tobin. Sophie was previously an investment banker with Credit The Trust and its controlled entity’s operations are not regulated by any significant environmental law or Suisse, specialising in equity capital markets. Sophie holds a Bachelor of Commerce and Bachelor of Laws regulation under either Commonwealth or State legislation. However, the Responsible Entity believes that (First Class Honours) from the University of Queensland. the Trust and its controlled entity have adequate systems in place for the management of its environmental requirements and is not aware of any instances of non-compliance of those environmental requirements as they apply to the Trust. 22 BlackWall Property Trust - June 2019 Indemnities of Officers During the financial year the Responsible Entity has paid premiums to insure each of the Directors named in this report along with Officers of the Responsible Entity against all liabilities for costs and expenses incurred by them in defending any legal proceedings arising out of their conduct while acting in the capacity of Director or Officer of the Responsible Entity, other than conduct involving a willfvul breach of duty. The insurance policy prohibits disclosure of the nature of the liability, the amount of the premium and the limit of liability. No indemnities have been given or insurance premiums paid, during or since the end of the financial year, for any person who is or has been an auditor to the Trust. Corporate Governance Statement Directors’ Declaration In the opinion of the Directors of BlackWall Fund Services Limited, the Responsible Entity of BlackWall Property Trust: ( a ) the financial statements and notes 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 Trust’s financial position as at 30 June 2019 and of A description of the Trust’s current corporate governance practices is set out in the Trust’s corporate its performance for the financial year ended on that date; and governance statement which can be viewed at http://www.blackwall.com.au/about- us.html. ( b ) there are reasonable grounds to believe that the Trust will be able to pay its debts as and Auditor and Non-audit Services when they become due and payable. Statement of Significant Accounting Policies confirms that the financial statements also comply with $60,000 and $12,000 was paid to the auditor for audit and non-audit services respectively during the year International Financial Reporting Standards as issued by the International Accounting Standards Board. (2018: $50,000 and $12,000). The Directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised. The Directors of the Responsible Entity have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act 2001. A copy of the auditor’s independence declaration as required under Section 307C of the Corporations Act This declaration is made in accordance with a resolution of the Board of Directors of the Responsible Entity. 2001 is set out in these financial statements. ESV continues in office in accordance with section 327 of the Corporations Act 2001. Rounding of Amounts The Company is of a kind referred to in ASIC Legislative Instrument 2016/191, and in accordance with that legislative instrument amounts in the Directors’ Report and the financial statements are rounded off to the nearest thousand dollars, unless otherwise indicated. Tim Brown Director Jessie Glew Director Sydney, 26 August 2019 Sydney, 26 August 2019 Signed in accordance with a resolution of the Board of Directors. Tim Brown Director Jessie Glew Director Sydney, 26 August 2019 Sydney, 26 August 2019 23 BlackWall Property Trust - June 2019 Auditors Independence Declaration and Audit Report AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001 As auditor for the audit of Blackwall Property Trust and its Controlled Entities for the year ended 30 June 2019, I declare that, to the best of my knowledge and belief, there have been: (i) no contraventions of the auditor’s independence requirements as set out in the Corporations Act 2001 in relation to the audit; and (ii) no contraventions of any applicable code of professional conduct in relation to the audit. Dated at Sydney the 26th day of August 2019. ESV Accounting and Business Advisors Tim Valtwies Partner INDEPENDENT AUDITOR’S REPORT TO THE UNITHOLDERS OF BLACKWALL PROPERTY TRUST AND CONTROLLED ENTITIES Report on the Audit of the Financial Report Opinion We have audited the financial report of Blackwall Property Trust and its controlled entities (‘the Group’), which comprises the consolidated statement of financial position as at 30 June 2019, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended on pages 7,8,9 and 10, notes including a summary of significant accounting policies on pages 11-19, and the directors’ declaration of the Group. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: giving a true and fair view of the Group’s financial position as at 30 June 2019 and of its financial performance for the year then ended; and complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the Independence declaration required by the Corporations Act 2001, which has been given to the directors of Blackwall Fund Services Limited, the Responsible Entity of the Group, would be in the same terms if given to the directors at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 24 BlackWall Property Trust - June 2019 Key Audit Matter Valuation of Property Investment Portfolio As at 30 June 2019, the total property investment portfolio of the group is valued at $281 million (2018: $235 million) which is significant to the balance sheet. The property investment portfolio is recorded at fair value. The external valuations and internal valuations make a number of property specific key estimates and assumptions; in particular, assumptions in relation to market comparable yields and estimates in relation to future rental income increases or decreases and discount rates and other inputs. The valuation of the property investment portfolio held is the key driver of the net assets value and total return. Incorrect valuation could have significant impact on the investment valuation and, therefore, the return generated for shareholders. How the scope of our audit responded to the risk Our procedures covering investment property included, but were not limited to for : We assessed managements procedures in respect of property valuation for external and internal valuations. We assessed the independence and competence of the external valuers as experts and examined the engagement correspondence for any scope limitations or anything which may indicate that their objectivity may be impaired. For both the external and internal valuations on a sample basis, we assessed the reasonableness of the significant judgements and assumptions applied to the valuation model, including occupancy rates, lease incentives, lease terms and passing yields. We agreed the key inputs to underlying lease contracts and results. Internal and external valuations are used by management to make recommendations to the board about the carrying value of investment property. We compared the yield and capitalisation rates to published material for external market trends and discussed with management anomalies, movements and property specific matters impacting valuations. We have also reviewed the details of option agreements to director valuations. Other Information Other information is financial and non-financial information in the Group’s annual report which is provided in addition to the Financial Report and the Auditor’s Report for the year ended 30 June 2019. The directors of the Responsible Entity (‘the directors’) are responsible for the other information. The other information comprises the information included in the Directors’ report (pages 4-6 and 20-23) which we obtained prior to the date of this auditor’s report but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information; we are required to report that fact. We have nothing to report in this regard. Directors’ Responsibilities for the Financial Report The directors of the responsible entity are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Related Party Transactions Our procedures included but were not limited to: Auditor’s Responsibilities for the Audit of the Financial Report During the financial year, a number of related party transactions were undertaken by entities controlled by Blackwall Ltd the parent of the Responsible Entity. The nature and amount of these related party transactions are disclosed under note 16. Reviewed the Group structure and processes in place to identify related parties and inquired with management and those charged with governance of any transactions with those parties during the period. Given the number of material related party transactions occurring throughout the period, there is a risk that these transactions are not identified, disclosed and conducted on normal commercial terms and conditions. Reviewed the minutes of meetings of the Board of Directors and other management meetings for material transactions. Identified the related party transactions and on a sample basis verified the transactions with supporting documentation including the assumptions used by management in determining that transactions were made on normal commercial terms and conditions. We also assessed the appropriateness of the related party disclosures in note 16 to the consolidated financial statements. 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/ar2.pdf This description forms part of our auditor’s report. Dated at Sydney the 26th day of August 2019. ESV Accounting and Business Advisors Tim Valtwies Partner 25 BlackWall Property Trust - June 2019 BLACKWALL TY T UST PROPER R ARSN 109 684 773 ABN 68 450 446 692 RESPONSIBLE ENTITY BlackWall Fund Services Limited TELEPHONE +61 2 9033 8611 ADDRESS 50 Yeo Street Neutral Bay NSW 2089 EMAIL info@blackwall.com.au WEBSITES www.blackwall.com.au REGISTRY Computershare Investor Services Pty Limited Level 3, 60 Carrington Street Sydney NSW 2000 www.computershare.com.au C O M P A N Y I N F O R M A T I O N