Centuria Capital Group
Annual Report 2019

Plain-text annual report

Annual Report 2019 Centuria Capital Group Contents Joint Chief Executive’s Report Centuria in the Community Senior Executive Committee About Centuria Directors’ Report Board of Directors Chairman’s Report 01 03 06 16 18 20 25 39 40 90 91 98 99 100 Corporate directory Disclaimers Financial statements Directors’ Declaration Independent Auditor’s Report Additional stock exchange information Lead Auditor’s Independence Declaration CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 About Centuria Centuria Capital Group is an established specialist investment manager that operates under the ASX code CNI. With $6.2 billion of assets under management, Centuria Capital Group provides investors with exposure to quality real estate and investment bond sectors. Real estate funds management is the largest component of the Centuria Capital Group’s platform with $5.3 billion of assets under management that is underpinned by listed real estate investment trusts (AREITs) and a range of unlisted funds. Centuria’s integrated property platform delivers expertise in origination, capital sourcing and funds management along with asset and property management, facilities management and property value add initiatives with a strong focus on identifying and meeting the needs of our tenant customers whilst seeking opportunities to create value for our investors. Centuria’s drive, knowledge and intimate understanding of the real estate and investment bonds universe, allows them to transform opportunities into meaningful investments centred around clients and their investment profiles. Further information can be found on our website centuria.com.au As at 31 July 2019 with pro forma adjustments to reflect Centuria Heathley Transaction and assets held for settlement 01 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Centuria Capital funds management platform $6.2bn Group AUM1 ASX:CNI Market Capitalisation $746m2 $5.3bn Real Estate AUM $0.9bn Investment Bonds AUM $0.4bn CNI Co-Investments $2.7bn Listed Property AUM $2.6bn Unlisted Property AUM Centuria Life Centuria Metropolitan REIT (CMA) Centuria Centuria Industrial REIT Industrial REIT (CIP) (CIP) Centuria Unlisted Centuria Heathley Healthcare real estate Centuria LifeGoals Guardian Friendly Society Capital Guaranteed Funds Existing Funds Centuria Metropolitan REIT (CMA) Centuria Industrial REIT (CIP) $1.4bn $1.3bn $2.0bn $0.6bn Australia’s largest domestic pure play office REIT Australia’s largest domestic pure play industrial REIT • 14 fixed term funds • Wholsesale relationships • CDPF CNI economic funds 63.06% $251m3 $208m4 24.9%3 22.3%4 1 AUM as at 31 July 2019 with pro forma adjustments to reflect Centuria Heathley Transaction and assets held for settlement 2 Based on CNI closing price of $1.95 on 31 July 2019 3 Based on CMA closing price of $2.83 on 31 July 2019. Includes ownership by associates of Centuria Capital Group 4 Based on CIP closing price of $3.18 on 31 July 2019. Includes ownership by associates of Centuria Capital Group Centuria Metropolitan REIT (CIP) Strategic vision and objectives Vision Continue to build a leading funds management platform with quality strategic pillars A clear and simple strategy Deliver income and capital growth from compelling real estate and investment bond sectors for a broad range of investor profiles CNI is An established, specialist investment manager Embedding larger recurring revenue streams Generating real estate fund opportunities Promoting contemporary investment bond options Key objective Support platform expansion Deliver recurring revenues, Unlock performance fees Capital origination and deployment Grow Centuria LifeGoals Create growth opportunities through select asset and platform acquisitions Sustainably underpin distributions through diverse recurring revenue streams Establish quality wholesale partnerships Deliver new funds to our core distribution network Align to some of the best fund managers in Australia and the world who are specialists in their field 02 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Chairman’s report Chairman’s report Dear Investors, I am delighted to again be writing to you as Chairman of Centuria Capital Group (Centuria). Your Board remains committed to building a world class funds management platform with high quality operating divisions, each executing on a clear and considered strategy in the real estate funds management and investment bond sectors. In addition to working with management to set strategy and define culture, the Board closely supports the group’s management team in assessing, developing and implementing opportunities to optimise the outcome for Centuria and its stakeholders. Performance FY19 delivered strong organic and inorganic growth and Centuria continues to increase its investor relevance and scale as a leading listed funds manager. In FY16 our organisation had a market capitalisation of just $79 million1 and $1.9 billion of assets under management (AUM) spread between our real estate and the Investment Bonds divisions. In FY19, with a market capitalisation of $746 million2, $6.2 billion3 of AUM spread across Centuria Metropolitan REIT (ASX:CMA), Australia’s largest pure play office REIT, Centuria Industrial REIT (ASX:CIP), Australia’s largest domestic pure play industrial REIT, our strongly performing unlisted real estate division, the newly formed healthcare sector Centuria Heathley, our Investment Bond division. As Centuria’s platform expands, we are experiencing growing support from domestic and international equity fund managers. Centuria’s strong security price appreciation during FY19 leaves the Group well positioned for continued equity fund manager and general market support, with the recent heavily oversubscribed $100 million equity raising providing good evidence of this demand. Pleasingly, Centuria’s combination of strong security price appreciation and consistent distributions generated a total securityholder return (TSR4) of 34.4% for the FY19 year. We have continued to see further investor interest and growing market presence with our market capitalisation now over $830 million at the time of writing and the recent inclusion of CNI into the S&P/ASX 300 index along-side CMA and CIP. Management Over the course of this year, there have been some important structural changes within the organisation. Notably, Jason Huljich was promoted to Joint CEO alongside, John McBain, that was championed not only by the Board but by John himself. Having worked together for over 23 years, one may consider the appointment an obvious one. Nevertheless, the Board considered carefully the advantages and disadvantages of having joint CEO’s. Ultimately, their shared history of collegiate success not only gave us great comfort but allowed the company to make sure its next generation of leadership was firmly secured. Ross Lees has been promoted from his role as CIP’s Fund Manager to Head of Funds Management, reporting through to Jason. Ross has done an exceptional job in actively managing CIP’s performance in recent years. His promotion, consistent with Centuria’s desire to develop talented employees and promote from within the organisation wherever possible, is again a part of our future proofing the continued stable growth and operation of your company. You may have recently read about Centuria’s acquisition of a 63% economic interest in Heathley Limited. Now renamed Centuria Heathley, this business is one of Australia’s leading real estate fund managers specialising in healthcare property and has over $600 million of funds under management. It gives me great pleasure to welcome the Centuria Heathley family to our group, in particular the chairman and directors of their associated boards and their CEO Andrew Hemming together with his executive team. Centuria Heathley is looking forward to establishing compelling investment opportunities for our investors within the healthcare real estate markets as we integrate their knowledge and operating relationships with our own distribution network. Governance and Community Standards The financial services industry is operating in a transformed and transformative regulatory environment and, together with my fellow board members and the management team , we are committed to not only keeping abreast of the evolving requirements within our industry but also adopting best practices to ensure not only compliance but adherence to community expectations of Centuria as a responsible and contributing corporate entity. During FY19, the team took further steps to enhance its governance framework and resources as the scale of our platform increases. Along with increased staffing within our governance and compliance team, we have introduced a Senior Executive Non- Financial Risk Committee, an Information Communication Technology Committee, to address cyber security issues, and implemented new finance systems for increased efficiency and efficacy. I am also delighted to welcome Professor Simon Rice OAM as an independent member of our Conflicts Committee. Commercial and legal conflicts regularly arise in day to day transactions in a growing group such as Centuria and there is a community and regulatory expectation that they be dealt with ethically and properly matched equality by the core belief from within. Professor Rice, who is, inter alia, currently Professor of Law and a Director of Professional and Community Engagement at Sydney University and a member of the Code of Conduct Committee, Australian Council for International Development, will bring an independent and analytical rigour to this important internal Committee. Consistent with the abovementioned community expectations and our own internal ones, Centuria Life is currently working on implementing an impact and sustainable investment option in our Life Goals product capacity. Further, in 1 Based on CNI closing price of $1.22 on 30 June 2017 2 Based on CNI closing price of $1.95 on 31 July 2019 3 AUM as at 31 July 2019 with pro forma adjustments to reflect Centuria Heathley transactions and assets held for settlement 4 Source: Moelis Australia. Based on movement in security price from ASX closing on 1 July 2018 to ASX closing on 30 June 2019 plus distributions paid during the respective period(s) assuming re-investment of all distributions. Excludes non-cash dividend paid on 29 June 2019. Past performance is not a reliable indicator of future performance 03 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Chairman’s report a more immediately practical example of our environmental commitment, our portfolio management team has recently established an initiative to offer our tenants solar panels for our industrial properties, whereby they can activate electrical supply savings from on-site production of energy from roof top solar. Conclusion I would like to express my sincere thanks to my fellow directors from both the group and responsible entity boards for their ongoing dedication towards ensuring a strong performance throughout FY19. Your commitment to exceptional leadership and the expertise you bring to Centuria sets the foundation for a collegiate and dynamic framework in which we continually challenge ourselves and seek to deliver superior results whist delivering as a good corporate citizen. Finally, I would like to thank our securityholders for their ongoing support for Centuria Capital Group. We remain highly focused on identifying value generating opportunities across the asset classes that form our funds management platform and delivering the results you expect of us. I look forward to discussing our results with you at our upcoming AGM. GARRY CHARNY Chairman, Centuria Capital Group 04 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Key financial metrics OPERATING NET PROFIT AFTER TAX ($m)1 OPERATING NET PROFIT AFTER TAX ($m) OPERATING EARNINGS PER SECURITY2 (cents) OPERATING EARNINGS PER SECURITY (CENTS) 45.1 45.7 $50m 40 30 20 10 0 15.5 11.3 5.9 6.3 16c 12 8 4 0 16.3 14.8 12.7 10.3 7.6 8.1 FY14 FY15 FY16 FY17 FY18 FY19 FY14 FY15 FY16 FY17 FY18 FY19 STATUTORY NET PROFIT AFTER TAX ($m) STATUTORY NET PROFIT AFTER TAX ($m)3 NET ASSETS PER SECURITY ($) NET TANGIBLE ASSETS PER SECURITY ($) $60m 50 40 30 20 10 0 54.8 $1.80 50.9 191 Increase in FY18 1.20 1.54 1.42 1.32 1.29 1.32 1.16 17.3 9.1 8.6 12.3 0.60 0 FY14 FY15 FY16 FY17 FY18 FY19 FY14 FY15 FY16 FY17 FY18 FY19 4 DISTRIBUTIONS PER SECURITY (CENTS) DISTRIBUTIONS PER SECURITY (CENTS) TOTAL SECURITYHOLDER RETURN5 9.25 8.20 7.50 4.75 5.25 10.0c 7.5 5.0 2.5 2.75 0 35.0% 30.0% 25.0% 20.0 15.0 10.0 5.0 0.0 34.4% 23.3% 22.2% 18.5% 24.3% 2.75c 4.75c 5.25c 7.50c 8.20c 3.60c 5.50c 3.90c 2.70c FY14 FY15 FY16 FY17 FY18 FY19 FY15 FY16 FY17 FY18 FY18 FY14 FY15 FY16 FY17 FY18 TRUST DISTRIBUTION DIVIDEND (FULLY FRANKED) 1 Operating NPAT of the Group comprises of the results of all operating segments and excludes non-operating items such as transaction costs, mark to market movements on property and derivative financial instruments, the results of Benefit Funds, Controlled Property Funds and share of equity accounted net profit in excess of distributions received 2 Operating EPS is calculated based on the Operating NPAT of the Group divided by the weighted average number of securities 3 Attributable to securityholders 4 Number of securities on issue at 30 June 2019: 383,557,332 (at 30 June 2018: 304,793,174) 5 Source: Moelis Australia. Based on movement in security price from ASX closing on 1 July 2018 to ASX closing on 30 June 2019 plus distributions per security paid during the respective period(s) assuming re-investment of all distributions. Excludes non cash dividend paid on 29 June 2019. Past performance is not a reliable indicator of future performance. CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 05 05 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Joint CEO Report John McBain JOINT CEO | Centuria Capital Group Jason Huljich JOINT CEO | Centuria Capital Group Dear Investors, It gives us great pleasure to present the 2019 Centuria Capital Limited (Centuria) Annual Report to you. This year has been another transformative one for Centuria, as we have continued to grow both in terms of scale and market position. The Centuria real estate funds management platform which, to date, has specialised in the commercial office and industrial sectors has now expanded to include the healthcare real estate funds management sector with the recent acquisition of a major interest in Heathley Limited. This is an established healthcare property funds management business which has been renamed Centuria Heathley Limited. Headline metrics for FY19 include total group assets under management (AUM) growing during FY19 from $4.9 billion to $6.2 billion1, a year on year increase of 27% with further growth experienced in the early stages of FY20. In addition, total securityholder return (TSR2) for FY19 was 34.4% with significant security price accretion being experienced both during FY19 and beyond FY19 close. It is this pattern of growing securityholder distributions combined with growth in scale and profitability which the Board and management strive to deliver year on year. In terms of market position, Centuria Capital recently joined the S&P ASX 300 Index which is a significant milestone for the group offering Centuria increased exposure to a wider range of investors both globally and domestically. Both Centuria REITs, Centuria Metropolitan REIT (ASX Code: CMA) and Centuria Industrial REIT (ASX Code: CIP) are already on the S&P/ASX 300 Index and it is our intention to continue to grow these vehicles as well as Centuria Capital to a point where they all qualify for inclusion in the S&P ASX 200 Index as a “next step” goal. While FY19 has been an active year for Centuria in terms of scale, our platform is now broader offering an increased range of quality investment opportunities across listed and unlisted funds in the commercial, industrial and healthcare real estate sectors. We have also bolstered our property team enabling improved Capital Transactions capacity and end to end active management of the Group’s assets. We continue to reposition the Centuria Investment Bond division, Centuria Life. During FY19 we launched the Centuria Life Goals product which is gaining traction in its market and we will discuss its progress later in this report. We are pleased to report that Jason Huljich has been promoted from Head of Real Estate and Funds Management to Joint Chief Executive alongside John McBain. Jason and John established the Centuria Group over twenty years ago and bring strong complementary skills to the business. This appointment “future proofs” Centuria to some extent and is an excellent working example of the Board ensuring that the senior executive level is refreshed whilst retaining valuable experience and relationships within the team. Post FY19, Centuria Capital successfully completed a $100 million equity raising by way of an institutional placement at $2.10 per security and also initiated a Securityholder Purchase Plan at the same price. The funds were used to coinvest in CMA’s recent equity raising and for investment and capital management initiatives. Separately we committed to retiring $35.0m of 7.0%, 2021 fixed rate corporate bonds from existing cash reserves due to past asset disposals. 1 AUM as at 31 July 2019 with pro forma adjustments to reflect Centuria Heathley Transaction and assets held for settlement 2 Source: Moelis Australia. Based on movement in security price from ASX closing on 1 July 2018 to ASX closing on 30 June 2019 plus distributions paid during the respective period(s) assuming re-investment of all distributions. Excludes non-cash dividend paid on 29 June 2019. Past performance is not a reliable indicator of future performance 06 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Centuria platform grows 27% to $6.2bn1 Assets under management ($bn) 30% CAGR2 FY17-FY19 $6.2bn1 $4.9bn $3.8bn $1.9bn FY16 FY17 FY18 FY19 1 AUM as at 31 July 2019 with pro forma adjustments to reflect Centuria Heathley Transaction and assets held for settlement 2 Past performance is not indicative of future performance 1.7 billion3 of real estate aquisitions in FY19 CMA $569m CIP Centuria Unlisted Healthcare $190m $304m $620m • • Included Australia’s third largest real estate transaction in CY18 Reduced CMA’s average asset age, diversified tenant profile and income • • Eight assets acquired Majority of acquisitions transacted off market • • Three assets and one JV with Lederer Group Strategy to increase institutional partnering • • New healthcare real estate initiative Strong potential for institutional mandates 1 3 Includes pro forma adjustments to reflect Centuria Heathley Transaction and assets held for settlement CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 07 Joint CEO Report FINANCIAL RESULTS During FY19 Centuria generated an operating net profit after tax (NPAT3) of $45.7 million with operating earnings per stapled security (EPS4) of 12.7 cents (FY19 operating NPAT was $45.1 million). Total distributions (DPS) of 9.25 cents per stapled security were paid during FY19 which reflected a 12.8% increase on FY18. FY19 EPS was skewed relative to the FY18 Operating EPS (16.3 cents per stapled security) arising from the abnormally high performance fee generated by the sale of 10 Spring Street, Sydney during FY18. As total revenues grow and the new accounting standard in relation to performance fee treatment becomes embedded, we expect that the level of ongoing performance fees in relative terms to be less variable and more predictable. Recurring revenues accounted for 77.1% of total Group revenues in FY19 and Centuria’s co-investments contributed $27.6 million towards FY19 recurring revenues, while providing a total annualised return of 26.6%5. Property funds management operating profit excluding performance fees increased 13.1% to $25.1 million for the year, reflecting the expansion of our real estate platform and underpinning strong recurring revenue contributions. Centuria’s balance sheet continues to strengthen with $87.8 million of cash on hand as at 30 June 2019. Centuria is utilising its cash surplus to fund the acquisition of Heathley Limited securities, for deposits and co-investments in relation to managed funds, and to fund future growth opportunities. AN ESTABLISHED PROPERTY FUNDS MANAGEMENT PLATFORM FY19 marked another period of strong growth for Centuria’s property funds management platform. Property AUM expanded 33% to $5.3 billion and was underpinned by acquisitions in both the listed and unlisted divisions. The Group activated $1.7 billion6 of real estate transactions in FY19 across the platform. This was spread across four divisions including $569 million for CMA, $190 million for CIP, $304 million for Centuria Unlisted and $620 million (settled post FY19) through healthcare and the formation of Centuria Heathley. Centuria’s real estate platform is well positioned to unlock attractive investments in a continuing low interest rate environment. It is aligned to the strong office, industrial and healthcare real estate sectors and enjoys a range of tenants whose rent roll underpins our fee income streams. We believe these are compelling asset sectors which all enjoy positive demographic themes and we are confident that our operating divisions will continue to thrive in this backdrop. We continue to seek to broaden our range of capital sources, in particular we aim to expand our institutional property mandates, assisting our ability to unlock new acquisition opportunities for the Group. The recent $500 million healthcare real estate mandate Centuria Heathley has agreed with Grosvenor Group and AXA IM Real Assets is a great example of the type of mandate we wish to roll out over the various asset sectors we operate in. Finally, our investor distribution network continues to grow. Aside from our financial adviser distribution capacity, Centuria has built an extremely strong private investor network which we believe to be one of the most extensive and sophisticated in Australia. UNLISTED REAL ESTATE DIVISION WELL POSITIONED TO GENERATE NEW OPPORTUNITIES Centuria operates one of Australia’s leading unlisted property funds management businesses. For over 20 years, we have established deep expertise in identifying and delivering unlisted funds to our deep distribution networks. Presently, Centuria’s unlisted division has $2.0 billion of AUM across 14 fixed term funds7, institutional wholesale relationships and the Centuria Diversified Property Fund (CDPF). During FY19, our open-ended diversified property fund, CDPF, increased its AUM to $118.9 million, growing some 215% year on year and recently this fund completed two commercial property acquisitions with further acquisitions in due diligence at present. Since FY19, we have launched the Centuria 80 Flinders Street Fund which is acquiring a high quality $127 million Adelaide CBD asset. This fund has generated outstanding interest from both our retail investor network and adviser channel and was over-subscribed in record time. We are extremely proud of our real estate team’s ability to acquire and manage assets and add value. In the IPD/MSCI quarterly fund index, 6 of our unlisted funds have held top 10 positions for the last 10 quarters8. FY19 also provided another example of our active management capabilities, culminating in the sale of 821 Pacific Highway, Chatswood, NSW (The Zenith) owned in partnership with global wholesale capital partner, Blackrock. The jointly owned A-Grade asset was acquired for $279 million in 2016 and recently sold for $438 million generating a strong capital gain for investors and crystallising a performance fee of over $9 million for Centuria. FORMATION OF CENTURIA HEATHLEY During the year, the Group entered the strongly performing healthcare real estate sector acquiring a 63.06% economic interest in Heathley Limited for $24.4 million. Forming Centuria Heathley marks a new focus for our Group and effectively adds a fourth “pillar” to our existing listed and unlisted real estate funds business and with it an opportunity to scale up property funds management AUM. Whilst already a rapidly expanding sector globally, we anticipate that healthcare will continue to emerge as an increasingly established real estate sector domestically, underpinned by strong fundamentals from Australia’s ageing population, longer life expectancy, increased requirements for ongoing Operating NPAT of the Group comprises of the results of all operating segments and excludes non-operating items such as transaction costs, mark to market movements on property and derivative financial instruments, the results of Benefit Funds, Controlled Property Funds and share of equity accounted net profit in excess of distributions received Operating EPS is calculated based on the Operating NPAT of the Group divided by the weighted average number of securities Calculated based on total revenue divided by average carrying value of investments for the year ended 30 June 2019. Excludes finance costs Includes pro forma adjustments to reflect Centuria Heathley Transaction and assets held for settlement Includes pro forma adjustments for assets held for settlement Top 10 Property Council/IPD Australia Unlisted Core Retail Property Fund Index for the 12 months to 30 June 2019 and each quarter for the last ten quarters (overall investment for the twelve months to the end of each quarter) 3 4 5 6 7 8 08 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Unlisted real estate funds continue to generate robust demand AUM1 $2.0bn Wholesale relationships & CDPF Fixed term funds1 6 Funds in the top 10 index2 CDPF Gross AUM3 increase of 215% from FY18 Gross assets under management ($m) 118.9m 37.8m 13.2m 0.7m FY16 FY17 FY18 FY19 Established presence in the attractive, fragmented healthcare real estate sector $0.6bn4 AUM 46 ASSETS 9 UNLISTED FIXED-TERM FUNDS Includes pro forma adjustments for assets held for settlement 1 2 Top 10 Property Council/IPD Australia Unlisted Core Retail Property Fund Index for the 12 months to 30 June 2019 and each quarter for the last ten quarters (overall investment for the twelve months to the end of each quarter) 3 Includes debt and amortised acquisition costs 4 Settlement of Taringa occurred during April 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 09 Y T R E P O R P D E T S I L N U Y T R E P O R P E R A C H T L A E H CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 Joint CEO Report healthcare and continued focus from the Federal Government on preventative care. With over $0.6 billion of assets under management, and an active pipeline providing capacity for near term AUM growth to approximately $1.0 billion, Centuria Heathley has the potential to expand its asset footprint, increase recurring revenues and offer investors strong and stable returns via a range of wholesale and retail unlisted healthcare real estate funds. During the Heathley Limited acquisition due diligence period, a $500 million institutional healthcare real estate mandate was agreed with AXA Investment Managers – Real Assets (AXA IM) and Grosvenor Group (Grosvenor) was agreed. Centuria Heathley will take a stake in ADHF, which has been established with two seed assets, being the Mater Private Hospital in Townsville QLD and The Westside Private Hospital in Brisbane QLD. These assets have a combined value of $88 million. ADHF represents the Group’s largest institutional mandate to date and presents a new opportunity for us to work closely with our partners to grow the portfolio while utilising our transactional and active management capabilities. CENTURIA’S A-REITS During FY19, Centuria Metropolitan REIT (ASX:CMA) and Centuria Industrial REIT (ASX:CIP) continued to increase in scale and investor relevance. Both are included on the S&P/ASX300 index, and in total they comprise over 40% of Centuria’s total AUM. CMA - AUSTRALIA’S LARGEST PURE PLAY OFFICE REIT CMA was launched by Centuria in an initial public offering in December 2014. Since than the portfolio has transformed from a relatively small diversified trust into an established pure play office REIT. CMA has expanded its portfolio from 6 office and two industrial assets to 20 office assets and as at FY19 close had reached a market capitalisation of over $1.0 billion and an AUM of $1.4 billion. CMA has reweighted from smaller suburban properties to institutional grade office assets as it has improved its geographic spread. CMA has a clear and simple objective, to continue building Australia’s leading pure play office REIT. CMA’s focus is on generating predictable and quality income streams and executing initiatives to create value across a portfolio of Australian office assets including reducing the portfolios average building age (by value) from 29.3 years to just 15.9 years. During FY19, CMA acquired four high quality office properties valued at approximately $520 million supported by a $276 million equity raising. Additionally, CMA recorded a 12-month total unitholder return9 of 22.4% vs the S&P/ASX300 A-REIT Index of 19.4%. Post 30 June 2019, CMA has conditionally exchanged contracts to acquire two A-Grade, fringe Sydney and Perth CBD assets for $380.5 million and completed a successful $273 million equity raising. Subject to completion, the acquisition will increase CMA’s AUM to $1.8 billion, improve the portfolio WALE10 from 3.9 to 4.8 years and introduce new tenants to its top 10 profile. As part of the process, CNI will commit $37.5 million split between a $7.5 million entitlement and $30 million conditional placement, which is subject to CMA Unitholder approval. Post completion of the transaction, CNI would hold approximately 22.6% of CMA’s units on issue (previously 24.9%). CIP - AUSTRALIA’S LARGEST DOMESTIC PURE PLAY INDUSTRIAL REIT CIP has been under Centuria’s management since January 2017. CIP has a clear and simple objective, to continue building Australia’s leading domestic pure play industrial REIT. CIP continued to enhance the quality of its portfolio over FY19 with $203.7 million of transactions executed. CIP’s high occupancy has been driven by another year of strong leasing results with over 113,000 sqm leased. Importantly, during FY19 all tenancies that expired were either renewed or re-leased prior to the conclusion of FY19. Additionally, CIP recorded a 12 month total unitholder return11 of 27.0% vs the S&P/ASX300 A-REIT Index of 19.4%. CIP has commenced FY20 strongly and is well positioned for further growth with: • • • • • AUM increasing to $1.3 billion The settlement of 680 Boundary Road Richlands, QLD and 75-95 & 105 Corio Quay Road, VIC Conditional exchange for the $19.5m acquisition of 32-34 Kaurna Avenue, Edinburgh Park SA Portfolio occupancy10 increasing to 96.1% and a WALE12 of 4.3 years A market capitalisation around $1.0 billion CENTURIA LIFE LAUNCHES CENTURIA LIFEGOALS Centuria Life is the fourth largest investment bond provider in Australia’s $7.4 billion11 investment bond market. For more than 35 years, Centuria Life has focused on offering flexible, tax effective investment options. In FY19, investment bonds represented $0.9 billion of AUM across unitised bonds, Guardian prepaid funeral plans12 and the recently launched Centuria LifeGoals. With the official launch of Centuria LifeGoals in the early part of 2H19 and with increased investment and a broader national distribution team to service new product, we have seen an increase in applications and strong interest from investor and advisor groups for FY20. Centuria LifeGoals utilises an active manager selection process and features a menu of investment options to suit a range of investment styles and risk appetites in a structure that provides tax benefits, flexibility and importantly; accessibility. 9 Source: Moelis Australia. Based on movement in security price from ASX closing on 1 July 2018 to ASX closing on 30 June 2019 plus distributions per security paid during the respective period(s) assuming re-investment of distributions. Past performance is not a reliable indicator of future performance 10 By income 11 QDS Report March 2019 12 Centuria Life Limited (CLL) is the key service provider to Over 50 Guardian Friendly Society 10 CIP: Centuria management creating unitholder value CENTURIA CAPITAL GROUP ANNUAL REPORT 2019CMA: Centuria management creating unitholder value since inception CNI co-investment 24.9% Market Capitalisation $1.0 billion1 Included in the S&P/ASX300 Index Australia’s largest pure play office REIT Portfolio Value ($bn) Y T R E P O R P D E T S I L 44.3% FY15-FY19 CAGR2 1.4 0.9 0.3 12 ASSETS 0.6 0.4 13 ASSETS 15 ASSETS 19 ASSETS 20 ASSETS FY15 FY16 FY17 FY18 FY19 CIP: Centuria management creating unitholder value CNI co-investment 22.3% Market Capitalisation $934 million3 Included in the S&P/ASX300 Index Australia’s largest domestic pure play Industrial REIT Portfolio Value ($bn) 24% FY15-FY19 CAGR2 1.34 0.9 0.9 1.0 0.5 22 ASSETS 37 ASSETS 38 ASSETS 37 ASSETS 45 ASSETS FY15 FY16 FY17 FY18 FY19 1 Based on CMA closing price of $2.80 on 30 June 2019 2 Past performance is not indicative of future performance 3 Based on CIP closing price of $3.18 on 31 July 2019 4 Includes 75-95 & 105 Corio Quay Road North Geelong, and 680 Boundary Road, Richlands, which exchanged, but not settled by 30 June 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 11 11 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 Particular areas of focus include; • • • Growing our funds management platform both organically and by complimentary corporate acquisitions Continuing to grow recurring revenue as a proportion of all revenues and to unlock ongoing performance fees from our managed funds Attracting further institutional capital partners in tandem with growing our already extensive retail investor network • Matching increased investor appetite for Centuria property funds with increased asset origination, always tempered by our firm commitment to high quality investment real estate acquisitions • • Expanding the Investment bond business including Centuria LifeGoals Increasing market awareness for the Centuria group We want to take this opportunity to thank our extremely committed and driven staff and our fellow senior managers for their hard work and dedication during FY19. In addition, we wish to thank the Chairmen and the directors of both the Group and Responsible Entity boards both at Centuria and Centuria Heathley. They are a highly committed and experienced group who are extremely generous with their time and expertise. We thank them sincerely for their dedication, guidance and contribution to the Group. Finally, we wish to thank securityholders sincerely for the confidence you place in us and the un-ending support you give us. Joint CEO Report There has been good progress on our dealer group awareness with growing inclusion on dealer group approved product lists. Additionally, Centuria LifeGoals recently achieved a Recommended rating1 from Lonsec and Very Strong rating1 from Australia Ratings. We remain committed to the expansion of our investment bond business and believe that financial markets will continue to support this product in a rapidly changing investment and superannuation environment. OUTLOOK Centuria has commenced FY20 strongly and has issued FY20 distribution guidance of 9.7 cents per stapled security, an increase of 4.9% over FY19. Activity to date has been strong, including; • • • • • • A successful equity raising for the $127 million unlisted Centuria 80 Flinders Street Fund Settling a 63% economic interest in Centuria Heathley Establishing a $500 million healthcare real estate institutional mandate with AXA IM Real Assets and Grosvenor Group Inclusion in the S&P/ASX 300 index Completion of a $100 million equity raise within Centuria Capital Currently in due diligence for three additional unlisted assets for consideration of ~$290m In an increasingly uncertain global market, Australia remains an attractive investment destination for offshore capital. Domestic interest rates and deposit rates are expected to fall and remain subdued for an extended period, and it seems likely that commercial real estate yields may contract further. In contrast, global real estate yields are in some cases markedly lower again, underpinning a healthy level of offshore demand in support of commercial property values. Whilst there are differing views regarding how long interest rates will remain low, our base case is for this to hold true for an extended period, certainly in the two – four year range. Accordingly, our business has strategies in place that respond to these settings and investor returns from our funds should be able to continue to provide attractive spreads against domestic deposit rates and the risk-free rate generally. We remain focused on building a strong funds management platform aligned to the commercial, industrial and healthcare real estate sectors as well as continuing to build its investment bond business. We continue to assess transaction opportunities that will complement the existing platform, using our expanded balance sheet and increased scale to generate further growth opportunities. 1 Refer to page 99 and page 100 for Lonsec and Australia Ratings disclaimers 12 JOHN MCBAIN JASON HULJICH Joint CEO, Centuria Capital Group Joint CEO, Centuria Capital Group CENTURIA CAPITAL GROUP ANNUAL REPORT 201932 MORROW STREET, TARINGA QLD JASON HULJICH Joint CEO, Centuria Capital Group CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 13 13 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Centuria Investment Bonds Continued investment in Centuria Life TOTAL AUM($m) FY18 FY19 FY18 CHANGE to FY19 (%) FLOWS BREAKDOWN ($M) CENTURIA LIFEGOALS2 UNITISED BONDS CAP GUAR PRE-PAID FUNERAL PLANS TOTAL Prepaid funeral plans (Guardian)1 508.5 534.0 5.0 Applications Capital Guaranteed (Centuria Life) 216.0 194.0 (10.2) Redemptions 4.2 - 11.0 2.4 35.7 53.3 (7.6) (24.8) (37.4) (69.8) Unitised Bonds (Centuria Life) 141.9 137.8 (2.9) Centuria LifeGoals2 - 4.2 866.4 870.0 - 0.4 38 ASSETS 37 ASSETS 45 ASSETS The Centuria Life Investment Committee has chosen 1 Centuria Life Limited (CLL) is the key service provider to Over 50 Guardian Friendly Society 2 Commencing February 2019 14 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CMA: 154 MELBOURNE STREET, SOUTH BRISBANE QLD CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 15 Centuria in the community Centuria has a strong commitment towards positively contributing in our community while hoping to raise the profile of organisations we work with. St Lucy’s School is a primary school for students with disabilities. It provides excellence in education that empowers students with the values, knowledge, attitudes and skills to flourish and participate fully in society. Centuria actively participated in activities to support St Lucy’s School during the year, including Centuria staff volunteering at the school. Our annual trivia night once again generated significant interest and support with over 220 attendees and $115,000 raised resulting in our most successful fundraising to date. Monies raised will go to support the school’s Psychological Support Program and Family Support Program. We sincerely thank all our partners and volunteers whose generosity and involvement supported the cause. RECORD FUNDRAISING FOR ST LUCY’S SCHOOL As part of the Commonwealth Government’s National and Affordable Housing Agreement (NAHA) and the NSW State Government’s Social and Affordable Housing Fund 2 (SAHF2), Centuria has partnered with Compass Housing and Tetris Capital, providers and owners of social and affordable housing, to source, develop and deliver 192 dwellings across four separate properties throughout the NSW Hunter and Central Coast regions. Centuria has agreed to contribute circa $20 million of equity towards the partnership, which is one of the largest in NSW. The Social and Affordable Housing sector is well positioned to benefit from State and Commonwealth Government commitments towards providing affordable living solutions in NSW and other states. RECORD FUNDRAISING FOR ST LUCY’S SCHOOL We take great pride in developing strong relationships and great results through our Employee Volunteering Program, which provides opportunities for staff to enhance skills and raise awareness of the challenges faced by charities and community organisations. 16 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019CIP: 69 RIVERGATE PLACE, MURRARIE QLD CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 17 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Board of Directors Garry Charny John McBain Peter Done CHAIRMAN EXECUTIVE DIRECTOR GROUP JOINT CEO INDEPENDENT NON-EXECUTIVE DIRECTOR Peter was appointed to the Board on 28 November 2007. Peter was a partner of KPMG for 27 years until retirement in June 2006. He has extensive knowledge in accounting, audit and financial management in the property development and financial services industries, corporate governance, regulatory issues and Board processes through his many senior roles. Garry was appointed to the Board on 23 February 2016 and appointed Chairman on 30 March 2016. Garry is also Chairman of Centuria Life and Over Fifty Guardian Friendly Society. He is Managing Director and founding principal of Wolseley Corporate, an Australian based corporate advisory and investment house which transacts both domestically and internationally. He has had a broad range experience in both listed and unlisted companies across a diverse range of sectors including property, retail, technology and media. He formerly practised as a barrister in the fields of commercial and equity. John was a founding director and major shareholder in boutique property funds manager Centry Funds Management, which was established in 1999 and was acquired by Over Fifty Group in July 2006. He joined the Over Fifty Group Board on 10 July 2006 and was appointed Chief Executive Officer in 2008. In 2011 the company was renamed Centuria Capital. Prior to forming Century, in 1990 John founded Hanover Group, a specialist property investment consultancy and in 1995 he formed Waltus Investments Australia, a dedicated property fund manager. John formerly held senior positions in a number of property development and property investment companies in Australia, New Zealand and United Kindgdom. 18 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019John Slater Nicholas Collishaw Susan Wheeldon-Steele Jason Huljich INDEPENDENT NON-EXECUTIVE DIRECTOR NON-EXECUTIVE DIRECTOR INDEPENDENT NON-EXECUTIVE DIRECTOR EXECUTIVE DIRECTOR GROUP JOINT CEO John was appointed to the Board on 22 May 2013 having been an adviser to the Centuria Life Friendly Society Investment Committees since 2011. John was a senior executive in the KPMG Financial Services practice from 1989 to 1999 and acted as state director of the Brisbane practice. he has also served on the Investment Committees of KPMG Financial Services, Berkley Group and Byron Capital. In 2008, John founded boutique FInancial Advisory firm Riviera Campital, subsequently sold in 2016 and has a wealth of financial services experience. Nicholas was appointed CEO - Listed Property Funds at Centuria Property Funds on 1 May 2013 and to the Board on 27 August 2013. Effective 1 January 2018, Nicholas resigned as CEO - Listed Property Funds and became a Non-Executive Director. Prior to this role, Nicholas held the position of CEO and Managing Director at the Mirvac Group. During his time at Mirvac (2005-2012), Nicholas was responsible for successfully guiding the business through the GFC and implementing a strategy of sustained growth for the real estate development and investment company. During Nicholas’ 30 year career, he has held senior positions with James Fielding Group, Paladin Australia, Schroders Australia and Deutsche Asset Management. He has extensive experience in all major real estate markets in Australia and investment markets in United States, United Kingdom and the Middle East. Susan was appointed to the Board on 31 August 2016. Jason was appointed to the Board on 28 November 2007. Susan is the Head of Agency at Google where she works with major national and global companies to develop and deliver growth startegies that future proof and build clients’ businesses and brands in a constantly changing environment. She has previous experience in retail property asset management at AMP Capital Shopping Centres, as Head of Brand & Retail, responsible for delivering alternative revenue from 38 retail assets across Australia and New Zealand with combined annual sales in excess of $5 billion. Jason leads Centuria’s Property Funds Management business, which is responsible for both listed and unlisted property funds, the property and debt opportunities. In this role he provides strategic leadership, ensuring the effective operation of Centuria’s property business. He has extensive experience in the commercial property sector, with specialist skills in property investment and funds management. He is also the immediate past President of the Property Funds Association (PFA), which represents the $125 billion direct property investment body in Australia, and continues to serve on their national executive. 19 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Senior Executive Committee John McBain Jason Huljich Simon Holt EXECUTIVE DIRECTOR GROUP JOINT CEO EXECUTIVE DIRECTOR GROUP JOINT CEO CHIEF FINANCIAL OFFICER John joined the Centuria Board (formerly Over Fifty Group) on 10 July 2006. He was appointed as Chief Executive Officer of the Over Fifty Group in April 2008. John was also a founding director and major shareholder in boutique funds manager Century Funds Management, which was established in 1999 and acquired by Over Fifty Group in July 2006. Prior to forming Century, John founded property funds manager Waltus Investments Australia Limited and Hanover Group Pty Limited a specialised property consultancy. Waltus was formed in 1995 and was one of the first dedicated property funds managers in Australia. Prior to 1990 John held senior positions in a number of property development and property investment companies in Australia, New Zealand and the United Kingdom. John holds a Diploma in Urban Valuation (University of Auckland). Jason became the Centuria Group Joint CEO in June 2019 after previously leading Centuria’s Real Estate and Funds Management business. Jason was also a founding director and major shareholder in boutique funds manager Century Funds Management, which was established in 1999 and acquired by Over Fifty Group in July 2006. He is an Executive Director of Centuria Capital Group. In his role Jason provides strategic leadership, ensuring the effective operation of Centuria’s real estate business. Jason has extensive experience in the commercial property sector, with specialist skills in property investment and funds management. He is also a past President of the Property Funds Association (PFA), which represents the $125 billion direct property investment body in Australia, and continues to serve on their national executive. Jason holds a Bachelor of Commerce (Commercial Law) from the University of Auckland, New Zealand. Simon joined Centuria Capital as Chief Financial Officer in May 2016. He brings with him a wealth of local and global experience covering the corporate, treasury and listed securitisation areas. He is accountable for financial and treasury management of the Group and, with the CEO, is also tasked with a specific focus on expanding the parent company, Centuria Capital. Simon was most recently Chief Financial Officer of WorleyParsons where he spent eight years. Previously, he held a range of senior Finance positions at Westfield Group and Westfield Trust, again spanning eight years. Simon is a Chartered Accountant and holds a degree in Business (major in Accounting and Marketing). He is also a Member of Australian Institute of Company Directors. 20 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 Anna Kovarik Victor Georos Michael Blake GENERAL COUNSEL AND COMPANY SECRETARY HEAD OF PORTFOLIO AND ASSET MANAGEMENT HEAD OF CENTURIA LIFE Anna joined Centuria in July 2018 in the role of General Counsel and Company Secretary. Prior to joining Centuria, Anna held the position of Group Risk Manager at Mirvac Group and was previously Head of Group Insurance for AMP and General Counsel and Company Secretary at AMP Capital Brookfield. Anna holds a Masters of Information Technology, a BA (Hons) in Systems Management, and was awarded a distinction in the Global Executive MBA program at the University of Sydney. She is qualified as a solicitor in both the UK and NSW and was a senior associate at Allens law firm in Sydney where she specialised in the areas of real estate and funds management. Victor joined Centuria as Senior Portfolio Manager in April 2013 and was appointed Head of Portfolio and Asset Management in July 2015. In his role he is responsible for overseeing portfolio and asset management of Centuria’s portfolio, including the development and implementation of strategies to enhance value through active asset management and development. Victor works closely with the Funds Management team and the Development team. In addition Victor manages the Centuria Property Fund’s Valuation program and is actively involved with the constant review of best practice policies and procedures. Victor has extensive experience in asset and investment management, development and funds management, across the office, retail and industrial sectors, with a key focus on results and ability to build high performance teams across all sectors. Prior to joining Centuria Victor held senior positions with GPT Group and Lend Lease, including Head of Industrial & Business Parks at GPT. Victor holds a Bachelor of Land Economy and a Graduate Diploma of Finance and Investment (FINSIA). Head of Centuria Life. Michael commenced his career with AAP Reuters Economic Services. He went on to hold senior positions with Heine Funds Management, Mercantile Mutual, Zurich, HSBC Asset Management and Cromwell Property Group. Michael holds a Bachelor of Financial Administration, Diploma of Financial Planning, Masters of Business Administration and is a Graduate of the Institute of Company Directors. Michael has held board positions locally and offshore. 21 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Senior exectutive team Ross Lees Andrew Essey André Bali HEAD OF FUNDS MANAGEMENT HEAD OF TRANSACTIONS HEAD OF DEVELOPMENT Ross Lees is the Head of Centuria’s Real Estate Funds Management business, which is responsible for both listed and unlisted property funds. This includes two ASX listed REITs as well as 16 unlisted funds. Ross was previously the Fund Manager, Centuria Industrial REIT (ASX:CIP), with overall responsibility for the operation, performance and strategy of the REIT. The REIT is Australia’s largest domestic only pure play industrial REIT, with a portfolio of 45 assets and a value of $1.3bn. Ross joined Centuria in 2017 and has over 15 years of industrial investment management experience having joined Centuria from Dexus where he held senior transactional and portfolio management roles. Prior experience includes over six years at Stockland, and four years at Logos Property Australia having established and led their asset management platform. After joining Centuria Property Funds in February 2013 as National Leasing Manager, Andrew was appointed Fund Manager in November 2015, and transitioned to the role of Head of Transactions in July 2017. As Head of Transactions, Andrew is responsible for originating and managing the Group’s property transactions and oversight of the Group’s acquisitions team. Prior to joining Centuria, Andrew worked for DTZ in Sydney’s North Shore Agency from 2007, most recently holding the position of Director. While at DTZ, Andrew’s focus was on leasing and sales within Sydney’s North Shore industrial and office park markets. During his nearly six years with DTZ, Andrew was directly involved in over 180 transactions while representing both institutional and private investors. Ross holds a Master of Applied Finance from Macquarie University and Bachelor of Business (Property Economics) from UWS. Andrew holds a Bachelor of Business Administration from Radford University, Virginia, USA with a Major in marketing and a Minor in economics. André joined Centuria in 2007 and oversees the Group’s project and property development functions, including development and debt funds. In his role he is responsible for overseeing both passive and active management of Centuria’s portfolio including capital works, planning, strategic repositioning of assets to maximise returns, commercial risk management, joint ventures and partnerships, and working closely with Centuria’s leasing, capital transactions and funds management teams to enhance value for Centuria’s investors. André has extensive experience in development and investment management across numerous sectors including office, residential, industrial and retail. Prior to Centuria Andre founded and operated a specialised property consulting and advisory company, and prior to that held several senior positions in a number of property development companies. André holds an Honors Degree in Applied Science from UNSW, Masters of Commerce (Land Economics) from UWS, Graduate Certificate of Finance from AGSM, and held non-executive roles on several not-for-profit organisations including Habitat for Humanity. 22 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 This Page has been left intentionally blank 23 Directors’ ReportCENTURIA CAPITAL GROUP ANNUAL REPORT 2019Contents Centuria Capital Group comprises of Centuria Capital Limited ABN 22 095 454 336 (the ‘Company’) and its subsidiaries and Centuria Capital Fund ARSN 613 856 358 (‘CCF’) and its subsidiaries. The Responsible Entity of CCF is Centuria Funds Management Limited ACN 607 153 588, AFSL 479 873, a wholly owned subsidiary of the Company. The consolidated financial statements were authorised for issue by the Directors on 13 August 2019. Through the use of the internet, we have ensured that our corporate reporting is timely and complete. All press releases, financial reports and other information are available at our Shareholder Centre on our website: www.centuria.com.au Directors' report Audited remuneration report Lead auditor's independence declaration Consolidated financial statements Independent auditor's report Additional stock exchange information Page 25 31 39 40 91 98 These consolidated financial statements are the financial statements of the consolidated entity consisting of Centuria Capital Limited and its subsidiaries. A list of all subsidiaries is included in note E3. The consolidated financial statements are presented in the Australian currency. Centuria Capital Limited is a company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Centuria Capital Limited Level 41, Chifley Tower, 2 Chifley Square Sydney NSW 2000 24 24 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 Directors’ ReportCENTURIA CAPITAL GROUP ANNUAL REPORT 2019Director’s Report The directors of Centuria Capital Limited (the ‘Company’) present their report together with the consolidated financial statements of the Company and its controlled entities (the ‘Group’) for the financial year ended 30 June 2019 and the auditor’s report thereon. Special responsibilities Chairman of the Audit, Risk Management and Compliance Committee Member of the Nomination and Remuneration Committee ASX listed Centuria Capital Group consists of the Company and its controlled entities including Centuria Capital Fund (‘CCF’). The shares in the Company and the units in CCF are stapled, quoted and traded on the Australian Securities Exchange (‘ASX’) as if they were a single security under the ticker code ‘CNI’. Interests in CNI Ordinary stapled securities: 1,300,412 MR JOHN R. SLATER, DIP.FS (FP), F FIN. Independent Non-Executive Director DIRECTORS AND DIRECTORS’ INTERESTS MR GARRY S. CHARNY, BA. LL.B. Independent Non-Executive Director and Chairman Experience and expertise Garry was appointed to the Board on 23 February 2016 and appointed Chairman on 30 March 2016. Garry is also Chairman of Centuria Life and Over Fifty Guardian Friendly Society. He is Managing Director and founding principal of Wolseley Corporate, an Australian based corporate advisory and investment house which transacts both domestically and internationally. He has had a broad range experience in both listed and unlisted companies across a diverse range of sectors including property, retail, technology and media. He formerly practised as a barrister in the fields of commercial and equity. Other directorships Garry is Chairman of Wolseley Corporate. He is also Chairman of Spotted Turquoise Films, an international Film and Television company based in Sydney and Los Angeles. He is Chairman of Shero Investments, a Sydney based investment company. Special responsibilities Chairman of the Board Chairman of the Conflicts Committee Chairman of the Nomination and Remuneration Committee Member of the Audit, Risk Management and Compliance Committee Interests in CNI Ordinary stapled securities: 326,345 MR PETER J. DONE, B.COMM, FCA. Independent Non-Executive Director Experience and expertise Peter was appointed to the Board on 28 November 2007. Peter was a partner of KPMG for 27 years until his retirement in June 2006. He has extensive knowledge in accounting, audit and financial management in the property development and financial services industries, corporate governance, regulatory issues and Board processes through his many senior roles. Other directorships None. Experience and expertise John was appointed to the Board on 22 May 2013 having been an adviser to the Centuria Life Friendly Society Investment Committees since 2011. John was a senior executive in the KPMG Financial Services practice from 1989 to 1999 and acted as State director of the Brisbane practice. He has also served on the Investment Committees of KPMG Financial Services, Berkley Group and Byron Capital. In 2008, John founded boutique Financial Advisory firm Riviera Capital, subsequently sold in 2016 and has a wealth of financial services experience. Other directorships None. Special responsibilities Member of the Nomination and Remuneration Committee Member of the Audit, Risk Management and Compliance Committee Interests in CNI Ordinary stapled securities: 3,200,000 MS SUSAN WHEELDON-STEELE, MBA. Independent Non-Executive Director Experience and expertise Susan was appointed to the Board on 31 August 2016. Susan is the Head of Agency at Google where she works with major national and global companies to develop and deliver growth strategies that future proof and build clients’ businesses and brands in a constantly changing environment. She has previous experience in retail property asset management at AMP Capital Shopping Centres, as Head of Brand & Retail, responsible for delivering alternative revenue from 38 retail assets across Australia and New Zealand with combined annual sales in excess of $5 billion. Other directorships None. Special responsibilities Member of the Conflicts Committee Interests in CNI Ordinary stapled securities: Nil. CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 25 25 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Directors’ Report MR NICHOLAS R. COLLISHAW, SAFIN, FAAPI, FRICS. Non-Executive Director MR JASON C. HULJICH, B. COMM. Executive Director and Joint Chief Executive Officer Experience and expertise Jason was appointed to the Board on 28 November 2007. Jason leads Centuria’s Property Funds Management business, which is responsible for both listed and unlisted property funds, the property services business, property acquisition and disposal and special property and debt opportunities. In this role he provides strategic leadership, ensuring the effective operation of Centuria’s property business. He has extensive experience in the commercial property sector, with specialist skills in property investment and funds management. He is also the immediate past President of the Property Funds Association (PFA), which represents the $125 billion direct property investment body in Australia, and continues to serve on their national executive. Other directorships None. Special responsibilities Joint Chief Executive Officer Interests in CNI Ordinary stapled securities: 3,433,294 Performance rights granted: 1,077,789 Experience and expertise Nicholas was appointed CEO - Listed Property Funds at Centuria Property Funds on 1 May 2013 and to the Board on 27 August 2013. Effective 1 January 2018, Nicholas resigned as CEO - Listed Property Funds and became a Non-Executive Director. Prior to this role, Nicholas held the position of CEO and Managing Director at the Mirvac Group. During his time at Mirvac (2005-2012), Nicholas was responsible for successfully guiding the business through the GFC and implementing a strategy of sustained growth for the real estate development and investment company. During Nicholas’ 30 year career, he has held senior positions with James Fielding Group, Paladin Australia, Schroders Australia and Deutsche Asset Management. He has extensive experience in all major real estate markets in Australia and investment markets in the United States, United Kingdom and the Middle East. Other directorships Chairman of Redcape Hotel Group Management Ltd Special responsibilities None Interests in CNI Ordinary stapled securities: 3,586,227 Performance rights granted: 558,811 MR JOHN E. MCBAIN, DIP. URBAN VALUATION Executive Director and Joint Chief Executive Officer Experience and expertise John was a founding director and major shareholder in boutique property funds manager Century Funds Management, which was established in 1999 and was acquired by Over Fifty Group in July 2006. He joined the Over Fifty Group Board on 10 July 2006 and was appointed Chief Executive Officer in 2008. In 2011 the company was renamed Centuria Capital. Prior to forming Century, in 1990 John founded Hanover Group, a specialist property investment consultancy and in 1995 he formed Waltus Investments Australia, a dedicated property fund manager. John formerly held senior positions in a number of property development and property investment companies in Australia, New Zealand and the United Kingdom. Other directorships John is also a director of QV Equities Limited, a licensed investment company listed on the ASX. Special responsibilities Joint Chief Executive Officer Interests in CNI Ordinary stapled securities: 5,865,404 Performance rights granted: 1,652,712 26 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 DIRECTORS’ MEETINGS The following table sets out the number of directors’ meetings (including meetings of committees of directors) held during the financial year and the number of meetings attended by each director (while they were a director or committee member). Board Meetings Audit, Risk, Management & Compliance Committee Meetings Nomination & Remuneration Committee Meetings Conflicts Committee Meetings A 23 24 24 21 24 23 21 B 24 24 24 24 24 24 24 A 6 6 5 # # # # B 6 6 6 # # # # A 2 2 2 # # # # B 2 2 2 # # # # A 10 # # 8 # # # B 10 # # 10 # # # Director Mr Garry S. Charny Mr Peter J. Done Mr John R. Slater Ms Susan Wheeldon-Steele Mr Nicholas R. Collishaw Mr John E. McBain Mr Jason C. Huljich A = Number of meetings attended B = Number of meetings held during the time the Director held office during the year # = Not a member of committee COMPANY SECRETARY Anna Kovarik was appointed to the position of Company Secretary on 5 July 2018. Anna holds a Masters of Information Technology, a BA (Hons) in Systems Management and was awarded a distinction in the Global Executive MBA program at the University of Sydney. She is qualified as a solicitor in both the UK and NSW and was a senior associate at Allens law practice in Sydney. Prior to joining Centuria, Anna held the position of Group Risk Manager at Mirvac Group and was previously Head of Group Insurance for AMP and General Counsel and Company Secretary at AMP Capital Brookfield. Mr James Lonie held the position of company secretary from 16 June 2017 until his resignation on 5 July 2018. PRINCIPAL ACTIVITIES The principal activities of the Group during the financial year were the marketing and management of investment products including friendly society investment bonds and property investment funds as well as direct interest in property funds and other liquid investments. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS Significant changes in the state of affairs of the Group during the financial year, in addition to the operating and financial review below were as follows: – Contributed equity attributable to Centuria Capital Group increased by $127,902,000 from $343,700,000 to $471,602,000 as a result of equity raisings, capital reallocation and vesting of rights under the Employee share scheme. Details of changes in contributed equity are disclosed in Note C10 to the consolidated financial statements. – On 22 October 2018, the Group issued Tranche 3 of secured notes to the value of $80,000,000 consisting of $35,000,000 floating rate secured notes and $45,000,000 6.5% fixed rate secured notes. These notes mature on 21 April 2023. – The Group increased its stake in Centuria Metropolitan REIT and Centuria Industrial REIT (CIP) to greater than 20% and these investments have been equity accounted in these financial statements. – The Group sold its strategic stake in Propertylink Group (PLG) of 19.51% for $136,899,000 cash consideration. – The Group announced the acquisition of a 63.06% economic interest (50.0% voting interest) in Heathley Limited’s property funds management platform for $24,400,000. This transaction is due to be settled following a Heathley shareholder vote post 30 June 2019 and satisfaction of certain other conditions precedent. As the shareholder vote and the remaining conditions precedent were not satisfied as at 30 June 2019, the transaction was not completed and Group did not have any economic interest in Heathley nor an entitlement to any dividends. As a result, the Group has not consolidated Heathley as at 30 June 2019. Under the terms of the Heathley transaction, the Group will seek to raise $61,700,000 by using its unlisted distribution network to support funding requirements for two Heathley funds. The Group will manage and underwrite any shortfall in the fund raising to satisfy the overall funding requirements of $61,700,000 in addition to a further $11,000,000 committed post year-end. CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 27 27 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 OPERATING AND FINANCIAL REVIEW The Group recorded a consolidated statutory net profit after tax for the year of $50,941,000 (2018: $56,190,000). Statutory net profit after tax has been prepared in accordance with the Corporations Act 2001 and Australian Accounting Standards, which comply with International Financial Reporting Standards. The Group recorded an operating profit after tax of $45,706,000 (2018: $45,087,000). Operating profit after tax excludes non- operating items such as transaction costs, fair value movements and share of net profit of equity accounted investments in excess of distributions received. The statutory net profit after tax includes a number of items that are not operating in nature, the table below provides a reconciliation from statutory profit to operating profit. Reconciliation of statutory profit to operating profit Statutory profit after tax 2019 $’000 50,941 2018 $’000 56,190 Statutory earnings per security (EPS) (cents) 14.2 19.8 Less non-operating items: Gain on fair value movements in derivatives and investments Transaction and other costs Impairment charges in relation to seed capital valuations Loss/(profit) attributable to controlled property funds Eliminations between the operating and non-operating segment Share of equity accounted net profit in excess of distributions received Tax impact of above non-operating adjustments Operating profit after tax (4,572) 6,625 - 7,390 (5,256) (8,433) (989) 45,706 (8,604) 230 380 (8,061) 5,761 - (809) 45,087 Operating EPS (cents) 12.7 16.3 A summary of the Group’s operating segments is provided in Note A4 of the Financial Report. The Operating Profit after tax for the Group comprise of the result of the divisions which report to the Joint CEOs and Board of Directors for the purpose of resource allocation and assessment of performance. Segment Property Funds Management Investment Bonds Management Co-Investments Corporate Total Operating profit after tax $’000 2019 33,140 2,446 14,505 (4,385) 45,706 2018 34,221 3,473 11,717 (4,324) 45,087 Increase/ (Decrease) $’000 (1,081) (1,027) 2,788 (61) Increase/ (Decrease) % Highlights (3) (30) 24 1 (A) (B) (C) A detailed Segment Profit and Loss as well as a detailed Segment Balance Sheet are outlined in Notes B1 and C1 respectively. 28 28 28 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 Directors’ ReportCENTURIA CAPITAL GROUP ANNUAL REPORT 2019Operational highlights for the key segments were as follows: (A) PROPERTY FUNDS MANAGEMENT For the year ended 30 June 2019, excluding the after tax impact of performance fees the Property Funds Management segment profit increased by $1,870,000 or 12% reflecting the growth in assets under management (AUM). Operational highlights for the year included: – Increase in recurring Property Funds Management fees of $10,166,000 or 31% from $32,649,000 for the year ended 30 June 2018 to $42,815,000 for the year ended 30 June 2019 – 29% increase in Listed AUM from $2.1 billion as at 30 June 2018 to $2.7 billion as at 30 June 2019 – Centuria Industrial REIT acquired eight properties with a total value of $147.4 million – Centuria Metropolitan REIT acquired four properties with a total value of $0.5 billion – Performance fees recognised of $22,552,000. – Acquisition fees of $1,135,110 from Centuria Diversified Property fund which acquired two properties during the year with a total value of $54.7 million. For the year ended 30 June 2019, Property Funds Management operating profit after tax of $33,140,000 was lower than the prior year ending 30 June 2018 by $1,081,000 primarily due to the impact of $22 552,000 performance fees recognised in the current year in accordance with AASB 15 compared to $25,830,000 of performance fees earned on the sale of 10 Spring Street property in the prior year. (B) INVESTMENT BONDS MANAGEMENT For the year ended 30 June 2019, the Investment Bonds Management segment’s operating profit after tax decreased by $1,027,000 to $2,446,000 due to strategic review costs and launch of new and expanded range of 22 high-quality investment bond, called Centuria LifeGoals. Centuria’s Investment Bonds Management business is the fourth largest friendly society/insurance bond issuer in Australia. (C) CO-INVESTMENTS For the year ended 30 June 2019, the Co-Investments segment operating profit after tax increased by $2,788,000. This was primarily due to a significant increase in Co-Investment holdings across Centuria’s listed REITS compared to the prior year. During the year, the Group’s ownership stakes in Centuria Metropolitan REIT (CMA) and Centuria Industrial REIT (CIP) increased to 20.76% and 24.15% respectively. As a result, the Group’s accounting treatment of these investments changed from being recognised as financial assets held at fair value to equity accounted investments. The operating profit after tax for the Co-Investments segment represents the distributions and returns generated from those investments after the applicable financing costs. EARNINGS PER SECURITY (EPS) Basic EPS (cents/security) Diluted EPS (cents/security) 2019 2018 Operating Statutory Operating Statutory 12.7 11.9 14.2 13.2 16.3 14.9 19.8 18.1 DIVIDENDS AND DISTRIBUTIONS Dividends and distributions paid or declared by the Group during the current financial year were: Dividends/distributions paid during the year Final 2018 dividend (100% franked) Final 2018 Trust distribution Interim 2019 dividend (100% franked) Interim 2019 Trust distribution Special non-cash divdend/capital reallocation Dividends/distributions declared during the year Final 2019 dividend (100% franked) Final 2019 Trust distribution Total amount Cents per security Total amount $’000 Date paid/payable 1.00 3.10 0.85 3.40 7.80 0.50 4.50 21.15 3,048 9,449 3,260 13,038 30,000 1,918 17,262 77,975 27 July 2018 27 July 2018 4 February 2019 4 February 2019 29 June 2019 16 August 2019 16 August 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 29 29 Directors’ ReportCENTURIA CAPITAL GROUP ANNUAL REPORT 2019EVENTS SUBSEQUENT TO THE REPORTING DATE NON-AUDIT SERVICES During the financial year, KPMG, the Group’s auditor, has performed services in addition to the audit and review of the financial statements. Details of amounts paid or payable to KPMG are outlined in Note F4 to the financial statements. The directors are satisfied that the provision of non-audit services during the year, by the auditor (or by another person or firm on the auditor’s behalf) is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are of the opinion that the services as disclosed in the financial statements do not compromise the external auditor’s independence, based on advice received from the Audit, Risk Management & Compliance committee, for the following reasons: – all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and – none of the services undermine the general principles relating to auditor independence as set out in Code of Conduct APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional & Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision- making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and rewards. A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 39. ROUNDING OF AMOUNTS The Group is an entity of a kind referred to in ASIC Legislative Instrument 2016/191, related to the ‘rounding off’ of amounts in the Directors’ Report and financial statements. Amounts in the Directors’ Report and financial statements have been rounded off, in accordance with the instrument to the nearest thousand dollars, unless otherwise indicated. Since the end of the financial year, the shareholders of Heathley have convened a meeting and approved the proposed acquisition of Heathley by the Group. There are still a number of other conditions precedent outstanding which will need to be satisfied prior to the completion of the transaction. In addition, since the end of the financial year, the Group has committed to a further $11,000,000 in addition to its original commitment of $61,700,000 to support funding requirements for Heathley funds. The Group will seek to raise these funds by using its unlisted distribution network and will manage and underwrite any shortfall in the fund raising to satisfy the overall funding requirements. As at 30 June 2019, the Group had already provided funding of $2,800,000 with a further $2,100,000 invested since the end of the financial year. Other than the above, there has not arisen in the interval between 30 June 2019 and the date hereof any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, that would affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years. LIKELY DEVELOPMENTS The Group continues to pursue its strategy of focusing on its core operations, utilising a strengthened balance sheet to provide support to grow and develop these operations. Further information about likely developments in the operations of the Group and the expected results of those operations in future financial years has not been included in this report because disclosure of the information would be likely to result in unreasonable prejudice to the Group. ENVIRONMENTAL REGULATION The Group’s operations are not subject to any significant environmental regulation. INDEMNIFICATION OF OFFICERS AND AUDITORS The Company has agreed to indemnify all current and former directors and executive officers of the Company and its controlled entities against all liabilities to persons (other than the Company or a related body corporate) which arise out of the performance of their normal duties as a director or executive officer unless the liability relates to conduct involving a lack of good faith. The Company has agreed to indemnify the directors and executive officers against all costs and expenses incurred in defending an action that falls within the scope of the indemnity and any resulting payments. The directors have not included details of the nature of the liabilities covered or the amount of premium paid in respect of the Directors’ and Officers’ liability and legal expenses insurance contracts, as such disclosure is prohibited under the terms of the contracts. The Company has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified or agreed to indemnify an officer or auditor of the Company or any related body corporate against a liability incurred as such an officer or auditor. 30 30 30 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 Directors’ ReportCENTURIA CAPITAL GROUP ANNUAL REPORT 2019AUDITED REMUNERATION REPORT – Ensuring the overall cost of remuneration is managed and The remuneration report provides information about the remuneration arrangements for key management personnel (KMP), which includes Non-executive Directors and the Group’s most senior management, for the year to 30 June 2019 The report is structured as follows: – Details of KMP covered in this report – Remuneration policy and link to performance – Remuneration of executive directors and senior management – Key terms of employment contracts – Non-executive director remuneration – Director and senior management equity holdings and other transactions DETAILS OF KMP COVERED IN THIS REPORT The following persons are considered KMP of the Company during or since the end of the most recent financial year: Name Role Mr Garry S. Charny Mr Peter J. Done Mr John R. Slater Ms Susan Wheeldon-Steele Independent Non-Executive Director and Chairman Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Mr Nicholas R. Collishaw Non-Executive Director Mr John E. McBain Mr Jason C. Huljich Executive Director and Joint Chief Executive Officer Executive Director and Joint Chief Executive Officer Mr Simon W. Holt Chief Financial Officer The term ‘senior management’ is used in this remuneration report to refer to the executive directors and the Chief Financial Officer. REMUNERATION POLICY AND LINK TO PERFORMANCE The Group recognises the important role people play in the achievement of its long-term objectives and as a key source of competitive advantage. To grow and be successful, the Group must be able to attract, motivate and retain capable individuals. The Group’s remuneration policy focuses on the following: – Ensuring competitive rewards are provided to attract and retain executive talent; – Linking remuneration to performance so that higher levels of performance attract higher rewards; – Aligning rewards of all staff, but particularly senior management, to the creation of value to shareholders; – Making sure the criteria used to assess and reward staff include financial and non-financial measures of performance; linked to the ability of the Group to pay; and – Ensuring severance payments due to the Joint Chief Executive Officers on termination are limited to pre- established contractual arrangements which do not commit the Group to making any unjustified payments in the event of non-performance. The main objective in rewarding the Group’s senior management for their performances is to ensure that shareholders’ wealth is maximised through the Group’s continued growth. It is necessary to structure and strengthen this focus to drive this strategy so that they are aligned with the Group’s objectives and successes. Under the remuneration policy, senior management’s remuneration includes a fixed remuneration component, short- term and long-term incentive arrangements. The long-term incentives are based on the Group’s performance for the year in reference to specific Earnings per Security (EPS) hurdles and Key Strategic Goals being met. The Group’s remuneration is directly related to the performance of the Group through the linking of short and long-term incentives to these financial and non-financial measures. The short-term incentives are based on the individual’s performance in the preceding 12 months compared to pre- agreed goals. Where senior management is remunerated with shares, the Remuneration Policy places no limitations to their exposure to risk in relation to the shares. Target incentive remuneration refers to the incentive pay provided for meeting performance requirements. Actual incentive remuneration can vary for senior management depending on the extent to which they meet performance requirements. In accordance with the Group’s corporate governance, the structure of non-executive director and senior management remuneration is separate and distinct. REMUNERATION OF SENIOR MANAGEMENT Objective The Group aims to reward senior management with a level and mix of remuneration commensurate with their position and responsibilities within the Group so as to: – Reward senior management for company, business unit and individual performance against targets set by reference to appropriate benchmarks; – Align the interests of senior management with those of stakeholders; – Link rewards with the strategic goals and performance of the Group; and – Ensure total remuneration is competitive by market standards. CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 31 31 Directors’ ReportCENTURIA CAPITAL GROUP ANNUAL REPORT 2019 Structure In determining the level and make-up of senior management remuneration, the Joint Chief Executive Officers and Board have regard to market levels of remuneration for comparable executive roles. Remuneration packages include a mix of fixed and variable remuneration and short and long-term performance-based incentives. The proportion of fixed and variable remuneration for senior management (excluding the Joint Chief Executive Officers) is established by the Joint Chief Executive Officers and the Nomination & Remuneration Committee. The proportion of fixed and variable remuneration for the Joint Chief Executive Officers is established solely by the Nomination & Remuneration Committee. While the allocation may vary from period to period, the graph below details the approximate fixed and variable components for senior management. OTHER SENIOR MANAGEMENT JOINT CEO 50% 30% 20% 36% 28% 36% 0% 20% 40% 60% 80% 100% FIXED REMUNERATION VARIABLE REMUNERATION (STI) VARIABLE REMUNERATION (LTI) (a) Fixed Remuneration Fixed remuneration consists of base remuneration (which is calculated on a total cost basis and includes any FBT charges related to employee benefits including motor vehicles), as well as employer contributions to superannuation funds. For senior management excluding the Joint Chief Executive Officers, this is reviewed annually by the Joint Chief Executive Officers and the Nomination & Remuneration Committee. The process consists of a review of Group, business unit and individual performance as well as relevant comparative remuneration in the market. The same process is used by the Nomination & Remuneration Committee when reviewing the fixed remuneration of the Joint Chief Executive Officers. Senior management are given the opportunity to receive their fixed remuneration in a variety of forms including cash and salary sacrifice items such as motor vehicles, motor vehicle allowances and/or additional superannuation contributions. (b) Variable Remuneration Under the Group’s Senior Management Remuneration Policy, long and short-term performance incentives may be made under the Group’s incentive plans. These are discussed further below. (i) Short-term Incentives (STI) The objective of the STI program is to link the achievement of the Group’s non-financial and financial targets with the remuneration received by senior management charged with meeting those targets. The total potential STI available is set at a level so as to provide sufficient incentive to senior management to achieve operational targets and such that the cost to the Group is reasonable in the circumstances. At the Board’s absolute discretion, employees may be provided with the opportunity to receive an annual, performance-based incentive, either in the form of cash or the issue of shares in the Group, or a combination of both. During the current financial year, the Group issued Nil (2018: Nil) STI ordinary securities to employees in addition to cash bonuses provided to employees. (ii) Long-term Incentives (LTI) The Group has an Executive Incentive Plan (“LTI Plan”) which forms a key element of the Group’s incentive and retention strategy for senior management under which Performance Rights (“Rights”) are issued. The primary objectives of the Plan include: – focusing executives on the longer term performance of the Group to drive long term shareholder value creation; – ensure senior management remuneration outcomes are aligned with shareholder interests, in particular, the strategic goals and performance of the Group; and – ensure remuneration is competitive and aligned with general market practice by ASX listed entities. Rights issued under the LTI Plan are issued in accordance with the thresholds approved at the Annual General Meeting (AGM). 32 32 32 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 Directors’ ReportCENTURIA CAPITAL GROUP ANNUAL REPORT 2019A summary of the key terms of the Performance Rights are set out below. Term Detail Performance Rights (“Rights”) Each Right is a right to receive a fully paid ordinary stapled security in the Group (“Security”), subject to meeting the Performance Conditions. Upon meeting the Performance Conditions, the Rights vest and securities are allocated. Rights do not carry a right to vote or to dividends or, in general, a right to participate in other corporate actions such as bonus issues. Vesting conditions The Rights will vest to the extent that the board determines that: – The performance conditions that apply to the Rights were satisfied; and – The employee was continuously employed by the Company until the end of the Performance Period. Vesting date The date on which the Board determines the extent to which the performance conditions are satisfied and the Rights vest. Performance Conditions The Performance Conditions set out in the LTI Plan relate to: – Growth in Earnings Per Share (“EPS hurdle”); – Growth in property and friendly society funds under management (“FUM Hurdle”); and – Absolute Total Securityholder Return Performance (“Absolute TSR Hurdle”). Unvested rights Subject to the Board’s discretion, unvested Rights lapse upon the earliest of ceasing employment, corporate restructuring, divestment of material business or subsidiary, change of control, clawback and lapse for fraud and breach, failure to satisfy the Performance Conditions and the 15th anniversary of the date of the grant. The Group currently operates three tranches of the Executive Incentive Plan (“Plan”) as below. Tranche Grant Date Performance Period 4 5 6 1 January 2017 1 November 2017 1 February 2019 1 July 2016 to 30 June 2019 1 July 2017 to 30 June 2020 1 July 2018 to 30 June 2021 The performance objectives for performance rights granted under Tranche 4 were met in full by 30 June 2019. As a result, these rights will vest on 14 August 2019. The Group’s overall objective is to reward executive directors and senior management based on the Group’s performance and build on shareholders’ wealth but this is subject to market conditions for the year. The table below sets out summary information about the Group’s earnings for the past five years. 5 year summary Statutory profit after tax attributable to Centuria Capital Group securityholders ($'000) Operating profit after tax ($'000) Share price at start of year Share price at end of year Interim dividend Final dividend Special non-cash dividend 30 June 2019 30 June 2018 30 June 2017 30 June 2016 30 June 2015 50,795 45,706 $1.40 $1.77 4.25cps 5.0cps 7.8cps 54,765 45,087 $1.23 $1.40 4.1cps 4.1cps 17,323 15,489 $1.05 $1.23 2.3cps 5.2cps - 17.27cps 12,303 11,344 $0.93 $1.05 8,566 6,280 $0.80 $0.93 2.25cps 2.0cps 3.0cps 2.75cps - 15.8cps 14.8cps - 11.0cps 8.1cps Statutory basic earnings per Centuria Capital Group security 14.2cps 19.8cps 11.5cps Operating basic earnings per Centuria Capital Group security 12.7cps 16.3cps 10.3cps CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 33 33 Directors’ ReportCENTURIA CAPITAL GROUP ANNUAL REPORT 2019 EPS Hurdle The percentage of Rights subject to the EPS Hurdle that vest, if any, will be determined as follows: Compound annual growth Rate Portion of Rights that vest Tranche 4 (30% of rights granted) Maximum % or above 10% or greater 100% Between threshold % and maximum % More than 6%, less than 10% Pro-rata between 50% and 100% More than 4%, less than 6% Pro-rata between 25% and 50% Threshold % Less than the threshold % 4% Less than 4% 25% 0% The Board has discretion to adjust the EPS performance hurdle to ensure that participants are neither advantaged nor disadvantaged by matters outside managements’ control that affect EPS (for example, by excluding one-off non-recurrent items or the impact of significant acquisitions or disposals). Tranche 5 and Tranche 6 did not include an EPS hurdle. FUM Hurdle The percentage of Rights subject to the growth in FUM Hurdle that vest, if any, will be determined as follows: Maximum % or above Between threshold % and maximum % Compound annual growth Rate Portion of Rights that vest Compound annual growth Rate Portion of Rights that vest Compound annual growth Rate Portion of Rights that vest Tranche 4 (20% of rights granted) Tranche 5 (25% of rights granted) Tranche 6 (25% of rights granted) 15% or greater 100% 20% or greater 100% 20% or greater 100% More than 12%, less than 15% More than 10%, less than 12% Pro-rata vesting between 50% to 100% Pro-rata vesting between 25% to 50% More than 10%, less than 20% Pro-rata vesting between 25% to 100% More than 10%, less than 20% Pro-rata vesting between 25% to 100% Threshold % 10% Less than the threshold % Less than 10% 25% 0% 10% Less than 10% 25% 0% 10% Less than 10% 25% 0% Absolute TSR Hurdle The percentage of Rights subject to the Absolute TSR Hurdle that vest, if any, will be determined as follows: Maximum % or above Between threshold % and maximum % Compound annual growth Rate Portion of Rights that vest Compound annual growth Rate Portion of Rights that vest Compound annual growth Rate Portion of Rights that vest Tranche 4 (50% of rights granted) Tranche 5 (75% of rights granted) Tranche 6 (75% of rights granted) 18% or greater 100% 15% or greater 100% 15% or greater 100% More than 15% less than 18% More than 12%, less than 15% Pro-rata vesting between 50% to 100% Pro-rata vesting between 25% to 50% More than 10% less than 15% Pro-rata vesting between 25% to 100% More than 10% less than 15% Pro-rata vesting between 25% to 100% Threshold % 12% Less than the threshold % Less than 12% 25% 0% 10% Less than 10% 25% 0% 10% Less than 10% 25% 0% 34 34 34 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 Directors’ ReportCENTURIA CAPITAL GROUP ANNUAL REPORT 2019 Rights Granted The following Rights were granted to senior management: Key management personnel Tranche 4 (grant date of 1 January 2017) (i) Mr John E. McBain Mr Jason C. Huljich Mr Nicholas R. Collishaw Mr Simon W. Holt Total No. of Rights granted Vesting conditions Fair value at Grant Date 153,409 102,273 255,682 76,875 51,250 128,125 76,875 51,250 128,125 35,642 23,761 59,403 1,142,670 EPS Hurdle FUM Growth Hurdle Absolute TSR Growth Hurdle EPS Hurdle FUM Growth Hurdle Absolute TSR Growth Hurdle EPS Hurdle FUM Growth Hurdle Absolute TSR Growth Hurdle EPS Hurdle FUM Growth Hurdle Absolute TSR Growth Hurdle $0.88 $0.88 $0.16 $0.88 $0.88 $0.16 $0.88 $0.88 $0.16 $0.88 $0.88 $0.16 (i) The performance objectives for performance rights granted under Tranche 4 were met in full by 30 June 2019. As a result, these rights will vest on 14 August 2019. Key management personnel Tranche 5 (grant date of 1 November 2017) No. of Rights granted Vesting conditions Fair value at Grant Date Mr John E. McBain Mr Jason C. Huljich Mr Nicholas R. Collishaw Mr Simon W. Holt Total Key management personnel Tranche 6 (grant date of 1 February 2019) Mr John E. McBain Mr Jason C. Huljich Mr Simon W. Holt Total 125,762 377,287 79,055 237,165 75,640 226,921 43,834 131,502 1,297,166 No. of Rights granted 159,575 478,724 126,330 378,989 57,624 172,872 1,374,114 FUM Growth Hurdle Absolute TSR Growth Hurdle FUM Growth Hurdle Absolute TSR Growth Hurdle FUM Growth Hurdle Absolute TSR Growth Hurdle FUM Growth Hurdle Absolute TSR Growth Hurdle $1.24 $0.62 $1.24 $0.62 $1.24 $0.62 $1.24 $0.62 Vesting conditions Fair value at Grant Date FUM Growth Hurdle Absolute TSR Growth Hurdle FUM Growth Hurdle Absolute TSR Growth Hurdle FUM Growth Hurdle Absolute TSR Growth Hurdle $1.11 $0.19 $1.11 $0.19 $1.11 $0.19 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 35 35 Directors’ ReportCENTURIA CAPITAL GROUP ANNUAL REPORT 2019Statutory remuneration table The following table discloses total remuneration of executive directors and senior management in accordance with the Corporations Act 2001: Short-term employee benefits Post employment benefits Other long-term benefits Share- based payments Mr John E. McBain 2019 1,179,469 Mr Jason C. Huljich Mr Nicholas R. Collishaw Note (i) Mr Simon W. Holt Total Year Salaries ($) Bonus ($) Super- annuation ($) 804,951 934,469 900,000 1,118,750 850,000 679,076 1,025,000 - 345,340 629,469 459,201 - - 422,500 412,500 2018 2019 2018 2019 2018 2019 2018 2019 2,743,407 2,172,500 2018 2,288,568 2,556,250 20,531 20,049 20,531 20,049 - 8,160 20,531 20,049 61,593 68,307 Long service leave ($) 121,136 33,495 (93,160) (38,845) - - - - $ Total $ 367,324 2,588,460 620,019 2,597,264 226,523 1,938,363 187,742 1,873,022 152,267 184,229 111,878 63,926 152,267 537,729 1,184,378 955,676 27,976 857,992 5,863,468 (5,350) 1,055,916 5,963,691 Note (i) Mr Collishaw’s role changed from Executive Director and CEO - Listed Property Funds to Non-Executive Director effective 1 January 2018. Mr Collishaw’s share based payment amount relates to expense recognised on performance rights granted to him under Tranche 4 and Tranche 5 while he was still employed as an Executive Director. KEY TERMS OF EMPLOYMENT CONTRACTS Group Joint Chief Executive Officers Mr John E. McBain, was appointed as Chief Executive Officer of the Group in April 2008. Mr Jason C. Huljich, was appointed as Joint Chief Executive Officer of the Group in June 2019. Mr John E. McBain and Mr Jason C. Huljich are employed under contract. The summary of the major terms and conditions of their employment contracts are as follows: – Fixed Compensation plus superannuation contributions; – Car parking within close proximity to the Company’s office; – Eligible to participate in the bonus program determined at the discretion of the Board; – The Group may terminate this employment contract by providing six months written notice or provide payment in lieu of the notice period plus an additional six months. Any payment in lieu of notice will be based on the total fixed compensation package; and – The Group may terminate the employment contract at any time without notice if serious misconduct has occurred. When termination with cause occurs the Joint Chief Executive Officers are only entitled to remuneration up to the date of termination. Other senior management (standard contracts) All senior management are employed under contract. The Group may terminate their employment agreement by providing three months written notice or providing payment in lieu of the notice period (based on the total fixed compensation package). NON-EXECUTIVE DIRECTOR REMUNERATION Objective The Board seeks to set aggregate remuneration at a level that provides the Group with the ability to attract and retain directors of the highest calibre, whilst incurring a cost that is acceptable to shareholders. Structure The Constitution and the ASX Listing Rules specify that the aggregate remuneration of non-executive directors shall be determined from time to time by a general meeting. An amount not exceeding the aggregate amount determined is then divided between the directors as agreed. An aggregate maximum amount of not more than $2,000,000 per year was approved at the 2017 Annual General Meeting. 36 36 36 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 Directors’ ReportCENTURIA CAPITAL GROUP ANNUAL REPORT 2019 Directors’ Fees Each director receives a fee for being a director of Group companies and an additional fee is paid to the Chairman and to the Chairman of each Board Committee. The payment of the additional fees to each Chairman recognises the additional time commitment and responsibility associated with the position. Mr Garry S. Charny Mr Peter J. Done Mr John R. Slater Ms Susan Wheeldon-Steele Mr Nicholas R. Collishaw Total Short-term benefits Post employment benefits Bonus ($) 215,753 205,479 182,220 164,384 124,658 118,722 92,055 87,671 115,068 54,795 729,754 631,051 Superannuation ($) 20,497 19,521 6,780 15,616 11,842 11,278 8,745 8,329 10,932 5,205 58,796 59,949 Year 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 Total $ 236,250 225,000 189,000 180,000 136,500 130,000 100,800 96,000 126,000 60,000 788,550 691,000 Director and senior management equity holdings and other transactions Director and senior management equity holdings Set out below are details of movements in fully paid ordinary shares held by directors and senior management as at the date of this report. Name Mr Garry S. Charny Mr Peter J. Done Mr John R. Slater Ms Susan Wheeldon-Steele Mr Nicholas R. Collishaw Mr John E. McBain Mr Jason C. Huljich Mr Simon W. Holt Balance at 1 July 2018 Movement Balance at 30 June 2019 Changes prior to signing Balance at signing date 237,314 1,083,676 2,889,075 - 3,086,227 5,191,995 3,133,294 301,021 89,031 216,736 310,925 - 500,000 673,409 300,000 76,923 326,345 1,300,412 3,200,000 - 3,586,227 5,865,404 3,433,294 377,944 – – – – – – – 326,345 1,300,412 3,200,000 - 3,586,227 5,865,404 3,433,294 377,944 37 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 37 37 Directors’ ReportCENTURIA CAPITAL GROUP ANNUAL REPORT 2019DIRECTOR AND SENIOR MANAGEMENT EQUITY HOLDINGS AND OTHER TRANSACTIONS Transactions with key management personnel As a matter of Board policy, all transactions with directors and director-related entities are conducted on arms-length commercial or employment terms. During the financial year, the following transactions occurred between the Group and key management personnel: – Wolseley Corporate Pty Ltd, a related party of Mr Garry S. Charny, was paid $588,500 (inclusive of GST) (2018: $611,796) for corporate advisory fees. – Tailwind Consulting Pty Ltd, a related party of Mr John R. Slater was paid a total of $279,836 (inclusive of GST) (2018: $198,000) for consultancy services. In addition, Tailwind Consulting paid the Group $4,840 for rental of office space (2018: $5,280). – Mr Nicholas R. Collishaw was paid a total of $66,000 (inclusive of GST) (2018: $62,570) for consultancy services. This report is made in accordance with a resolution of Directors. Mr Garry S. Charny Director Sydney Mr Peter J. Done Director Sydney 13 August 2019 38 38 38 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 Directors’ ReportCENTURIA CAPITAL GROUP ANNUAL REPORT 2019 Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To the Directors of Centuria Capital Limited I declare that, to the best of my knowledge and belief, in relation to the audit of Centuria Capital Group for the financial year ended 30 June 2019 there have been: i. ii. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. PAR_SIG_01 KPMG PAR_NAM_01 PAR_POS_01 PAR_DAT_01 PAR_CIT_01 Nigel Virgo Partner Sydney 13 August 2019 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation. CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 39 39 Directors’ ReportCENTURIA CAPITAL GROUP ANNUAL REPORT 2019Financial statements 40 40 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 Directors’ ReportCENTURIA CAPITAL GROUP ANNUAL REPORT 2019Financial statements 30 June 2019 Contents Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements A About the report A1 General information A2 Significant accounting policies A3 Use of judgements and estimates A4 Segment summary B Business performance B1 Segment profit and loss B2 Revenue B3 Expenses B4 Finance costs B5 Taxation B6 Earnings per security B7 Dividends and distributions C Assets and liabilities C1 Segment balance sheet C2 Receivables C3 Financial assets C4 Investment properties held for sale C5 Investment properties C6 Intangible assets C7 Payables C8 Borrowings C9 Commitments and contingencies C10 Contributed equity D Cash flows D1 Operating segment cash flows D2 Cash and cash equivalents D3 Reconciliation of profit for the period to net cash flows from operating activities E Group Structure E1 Interests in associates and joint ventures E2 Business combination E3 Interests in material subsidiaries E4 Parent entity disclosure F Other F1 Share-based payment arrangements F2 Guarantees to Benefit Fund policyholders F3 Financial instruments F4 Remuneration of auditors F5 Adoption of new accounting standards and interpretations F6 Other new Accounting Standards and Interpretations F7 Events subsequent to the reporting date Directors' declaration Independent auditor’s report Page 42 43 44 46 47 47 47 47 47 48 49 49 54 56 57 57 60 60 61 61 63 63 66 66 68 69 69 70 71 72 72 73 73 74 74 75 75 77 78 78 79 79 87 87 89 89 90 91 41 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Consolidated statement of comprehensive Revenue Share of net profit of equity accounted investments Net movement in policyholder liability Fair value movements of financial instruments and property Expenses Finance costs Profit before tax Income tax expense Profit after tax Profit after tax is attributable to: Centuria Capital Limited Centuria Capital Fund (non-controlling interests) External non-controlling interests Profit after tax Other comprehensive income Total comprehensive income for the year Total comprehensive income for the year is attributable to: Centuria Capital Limited Centuria Capital Fund (non-controlling interests) External non-controlling interests Total comprehensive income Profit after tax attributable to: Centuria Capital Limited Centuria Capital Fund (non-controlling interests) Profit after tax attributable to Centuria Capital Group securityholders Earning per Centuria Capital Group security Basic (cents per stapled security) Diluted (cents per stapled security) Earnings per Centuria Capital Limited share Basic (cents per share) Diluted (cents per share) Notes B1, B2 E1 B3 B4 B5 2019 $’000 115,977 30,213 17,370 (2,262) (80,692) (20,262) 60,344 (9,403) 50,941 19,611 31,184 146 50,941 - 50,941 19,611 31,184 146 50,941 19,611 31,184 50,795 2018 $’000 134,513 - 9,053 10,103 (67,617) (15,989) 70,063 (13,873) 56,190 24,540 30,225 1,425 56,190 - 56,190 24,540 30,225 1,425 56,190 24,540 30,225 54,765 B6 B6 Cents Cents 14.2 13.2 5.5 5.1 19.8 18.1 8.9 8.1 The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes. 42 42 42 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Consolidated statement of financial position As at 30 June 2019 Cash and cash equivalents Receivables Income tax receivable Financial assets Other assets Investment properties held for sale Equity accounted investments Investment properties Intangible assets Total assets Payables Liability to 360 Capital Group Provisions Borrowings Interest rate swaps at fair value Benefit Funds policyholder's liability Provision for income tax Deferred tax liabilities Total liabilities Net assets Equity Equity attributable to Centuria Capital Limited Contributed equity Reserves Retained earnings Total equity attributable to Centuria Capital Limited Equity attributable to Centuria Capital Fund (non-controlling interests) Contributed equity Retained earnings Total equity attributable to Centuria Capital Fund (non-controlling interests) Total equity attributable to Centuria Capital Group securityholders Equity attributable to external non-controlling interests Contributed equity Retained earnings Total equity attributable to external non-controlling interests Total equity Notes D2 C2 C3 C4 E1 C5 C6 C7 C8 B5(b) B5(c) C10 C10 2019 $’000 124,673 69,862 - 356,114 5,741 - 386,713 177,500 157,663 2018 $’000 101,914 21,164 161 644,832 2,036 63,400 - 147,100 157,663 1,278,266 1,138,270 42,232 - 1,878 303,110 28,814 339,557 813 10,494 726,898 551,368 128,164 2,101 12,438 142,703 343,438 19,067 362,505 505,208 32,927 13,233 46,160 551,368 32,405 41,161 1,597 245,739 23,411 349,677 - 3,119 697,109 441,161 98,770 1,896 28,005 128,671 244,930 18,183 263,113 391,784 32,927 16,450 49,377 441,161 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 43 43 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Consolidated statement of changes in equity For the year ended 30 June 2019 s t s e r e t n i g n i l l o r t n o c - n o n p u o r G l a t i p a C l a t o T l e b a t u b i r t t a a i r u t n e C o t l a n r e t x E ) s t s e r e t n i g n i l l o r t n o c - n o n ( d e t i m i L l a t i p a C a i r u t n e C d n u F l a t i p a C a i r u t n e C l a t o T y t i u q e 0 0 0 ’ $ l a t o T 0 0 0 ’ $ 0 0 0 ’ $ i d e n a t e R i s g n n r a e d e t u b i r t n o C - y t i r u c e S y t i u q e 0 0 0 ’ $ 0 0 0 ’ $ s r e d o h l l a t o T 0 0 0 ’ $ 0 0 0 ’ $ i d e n a t e R i s g n n r a e y t i u q e 0 0 0 ’ $ d e t u b i r t n o C l a t o T 0 0 0 ’ $ 0 0 0 ’ $ i d e n a t e R i s g n n r a e 0 0 0 ’ $ s e v r e s e R y t i u q e 0 0 0 ’ $ d e t u b i r t n o C 1 6 1 , 1 4 4 7 7 3 , 9 4 0 5 4 , 6 1 7 2 9 , 2 3 4 8 7 , 1 9 3 3 1 1 , 3 6 2 0 3 9 , 4 4 2 1 7 6 , 8 2 1 5 0 0 , 8 2 6 9 8 , 1 0 7 7 , 8 9 8 1 0 2 y l u J 1 t a e c n a l a B 1 4 9 , 0 5 6 4 1 1 4 9 , 0 5 6 4 1 1 7 1 , 1 - 6 4 1 6 4 1 - ) 1 4 8 , 8 3 ( ) 3 6 3 , 3 ( ) 3 6 3 , 3 ( - ) 3 8 1 , 3 ( 9 1 1 , 0 0 1 - - - - - - - - - - - - - 5 9 7 , 0 5 4 8 1 , 1 3 3 8 1 , 8 1 4 8 1 , 1 3 1 7 1 , 1 - - 5 9 7 , 0 5 4 8 1 , 1 3 4 8 1 , 1 3 ) 8 7 4 , 5 3 ( ) 0 0 3 , 0 3 ( ) 0 0 3 , 0 3 ( - - - - - 9 1 1 , 0 0 1 0 0 0 0 3 , 4 9 6 0 7 , ) 3 8 1 , 3 ( ) 6 8 1 , 2 ( - - - ) 6 8 1 , 2 ( ) 7 9 9 ( 4 9 6 0 7 , 5 2 4 , 9 2 - - 0 0 0 0 3 , ) 0 0 0 0 3 ( , ) 0 0 0 0 3 ( , ) 8 7 1 , 5 ( ) 8 7 1 , 5 ( 1 1 6 9 1 , 1 1 6 9 1 , 1 1 6 , 9 1 1 1 6 , 9 1 - - - - 1 7 1 , 1 - 5 0 2 6 6 9 d e s a b e r a h s d e l t t e s y t i u q E e s n e p x e s t n e m y a p e v i s n e h e r p m o c l a t o T r a e y e h t r o f e m o c n i r a e y e h t r o f t fi o r P - - - - - - i d e u r c c a / d a p s n o i t u b i r t s i d h s a c - n o n l i a c e p S l a t i p a c / d n e d v d i i d n a s d n e d v D i i n o i t a c o l l a e r 5 2 4 , 9 2 d e u s s i s e i t i r u c e s d e p a t S l ) 7 9 9 ( g n i s i a r y t i u q e f o t s o C 8 6 3 , 1 5 5 0 6 1 , 6 4 3 3 2 , 3 1 7 2 9 , 2 3 8 0 2 , 5 0 5 5 0 5 , 2 6 3 7 6 0 , 9 1 8 3 4 , 3 4 3 3 0 7 , 2 4 1 8 3 4 , 2 1 1 0 1 , 2 4 6 1 , 8 2 1 9 1 0 2 e n u J 0 3 t a e c n a l a B . s e t o n g n i y n a p m o c c a e h t h t i w n o i t c n u n o c n j i l d a e r e b d u o h s y t i u q e n i s e g n a h c f o t n e m e t a t s d e t a d i l o s n o c e v o b a e h T 44 44 44 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 Consolidated statement of changes in equity For the year ended 30 June 2019 s t s e r e t n i g n i l l o r t n o c - n o n d n u F l a t i p a C a i r u t n e C p u o r G l a t i p a C l a t o T l e b a t u b i r t t a a i r u t n e C o t l a n r e t x E ) s t s e r e t n i g n i l l o r t n o c - n o n ( d e t i m i L l a t i p a C a i r u t n e C ) 7 5 1 , 1 2 ( ) 5 3 0 , 1 2 ( ) 5 9 5 , 8 ( ) 0 4 4 , 2 1 ( ) 2 2 1 ( ) 2 2 1 ( ) 2 2 1 ( - - 1 5 9 , 1 4 3 7 6 8 , 5 7 0 0 5 , 0 3 7 6 3 , 5 4 4 8 0 , 6 6 2 6 1 5 , 5 7 1 4 4 8 , 4 2 7 6 0 7 1 , l a t o T y t i u q e 0 0 0 ’ $ l a t o T 0 0 0 ’ $ 0 0 0 ’ $ i d e n a t e R i s g n n r a e d e t u b i r t n o C - y t i r u c e S y t i u q e 0 0 0 ’ $ 0 0 0 ’ $ s r e d o h l l a t o T 0 0 0 ’ $ 0 0 0 ’ $ i d e n a t e R i s g n n r a e y t i u q e 0 0 0 ’ $ d e t u b i r t n o C 0 9 1 , 6 5 5 2 4 , 1 5 2 4 , 1 0 9 1 , 6 5 5 2 4 , 1 5 2 4 , 1 0 8 8 - - ) 0 7 4 , 3 ( 0 4 6 , 8 9 - - - - ) 3 7 8 , 1 3 ( ) 0 8 8 , 6 ( ) 0 8 8 , 6 ( - - - - - - 5 6 7 , 4 5 5 2 2 , 0 3 5 2 2 , 0 3 5 6 7 , 4 5 5 2 2 , 0 3 5 2 2 , 0 3 0 8 8 - - ) 3 9 9 , 4 2 ( ) 4 6 7 , 6 1 ( ) 4 6 7 , 6 1 ( - - - - 0 4 6 , 8 9 6 4 1 , 7 7 ) 0 7 4 , 3 ( ) 8 8 8 , 2 ( - - ) 8 8 8 , 2 ( ) 2 8 5 ( 6 4 1 , 7 7 4 9 4 , 1 2 0 8 8 - 5 4 3 5 3 5 l a t o T 0 0 0 ’ $ 8 6 5 , 0 9 0 4 5 , 4 2 0 0 0 ’ $ i d e n a t e R i s g n n r a e 4 9 6 , 1 1 0 4 5 , 4 2 0 4 5 , 4 2 0 4 5 , 4 2 - - - - 0 0 0 ’ $ s e v r e s e R y t i u q e 0 0 0 ’ $ d e t u b i r t n o C 1 5 5 , 1 3 2 3 , 7 7 7 1 0 2 y l u J 1 t a e c n a l a B d e s a b e r a h s d e l t t e s y t i u q E e s n e p x e s t n e m y a p e v i s n e h e r p m o c l a t o T r a e y e h t r o f e m o c n i r a e y e h t r o f t fi o r P d n a s d n e d v D i i ) 9 2 2 , 8 ( ) 9 2 2 , 8 ( - - - - - - - - i d e u r c c a / d a p s n o i t u b i r t s i d 4 9 4 , 1 2 d e u s s i s e i t i r u c e s d e p a t S l ) 2 8 5 ( g n i s i a r y t i u q e f o t s o C f o n o i t a d i l o s n o c e D - s d n u f y t r e p o r p d e l l o r t n o c 1 6 1 , 1 4 4 7 7 3 , 9 4 0 5 4 , 6 1 7 2 9 , 2 3 4 8 7 , 1 9 3 3 1 1 , 3 6 2 3 8 1 , 8 1 0 3 9 , 4 4 2 1 7 6 , 8 2 1 5 0 0 , 8 2 6 9 8 , 1 0 7 7 , 8 9 8 1 0 2 e n u J 0 3 t a e c n a l a B . s e t o n g n i y n a p m o c c a e h t h t i w n o i t c n u n o c n j i l d a e r e b d u o h s y t i u q e n i s e g n a h c f o t n e m e t a t s d e t a d i l o s n o c e v o b a e h T CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 45 45 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 Consolidated statement of cash flows For the year ended 30 June 2018 Cash flows from operating activities Management fees received Performance fees received Rent received Interest received Distributions received Interest paid Income taxes paid Payments to suppliers and employees Applications - Benefits Funds Redemptions - Benefits Funds Net cash provided by operating activities Cash flows from investing activities Proceeds from sale of related party investments Purchase of investments in related parties Loans to related parties for purchase of properties Repayment of loans by related parties Purchase of other investments Loans provided to other parties Loans repaid by other parties Proceeds from sale of investment property Payments in relation to investment properties Benefit Funds disposals of investments in financial assets Collections from reverse mortgage holders Payments for property, plant and equipment Cash contribution to related party Purchase of equity accounted investments Proceeds from sale of investments Return of investment to external non-controlling interests Deconsolidation of controlled property funds cash balance Net cash used in investing activities Cash flows from financing activities Proceeds from issues of securities to securityholders of Centuria Capital Group Equity raising costs paid Proceeds from borrowings Repayment of borrowings Capitalised borrowing costs paid Distributions paid to securityholders of Centuria Capital Group Distributions paid to external non-controlling interests Net cash provided by financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at end of year Notes 2019 $’000 2018 $’000 D3 46,330 1,361 20,775 6,863 34,628 (15,761) (1,052) (64,906) 17,160 (32,494) 12,904 50,322 23,768 23,349 9,985 22,760 (14,162) (16,817) (53,440) 21,942 (30,777) 36,930 3,552 62,494 (173,294) (123,760) - 5,865 (72,263) (5,925) - 22,600 (1,896) 20,001 953 (3,713) (20,000) (23,960) 136,899 (5,865) 2,000 (52,723) (25,980) 25,980 22,000 (8,840) 13,202 2,113 (788) - - - - - (5,366) (766) (111,181) (96,299) 100,119 (3,179) 80,000 (21,705) (1,725) (29,111) (3,363) 121,036 22,759 101,914 124,673 98,639 (3,710) 37,748 (14,185) (446) (24,310) (6,835) 86,901 27,532 74,382 101,914 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. 46 46 46 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019A About the report A1 GENERAL INFORMATION A2 SIGNIFICANT ACCOUNTING POLICIES The shares in Centuria Capital Limited, (the ‘Company’) and the units in Centuria Capital Fund (‘CCF’) are stapled to trade together as a single stapled security (‘Stapled Security’) on the ASX as ‘Centuria Capital Group’ (the ‘Group’) under the ticker code ‘CNI’. The Group is a for-profit entity and its principal activities are the marketing and management of investment products, including property investment funds and friendly society investment bonds and co-investment in property investment funds. STATEMENT OF COMPLIANCE The consolidated financial statements are general purpose financial statements which have been prepared in accordance with Australian Accounting Standards adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The consolidated financial statements comply with International Financial Reporting Standards (IFRS) adopted by the International Accounting Standards Board (IASB). The consolidated financial statements of the Group comprising the Company (as ‘Parent’) and its controlled entities for the year ended 30 June 2019 were authorised for issue by the Group’s Board of Directors on 13 August 2019. BASIS OF PREPARATION The consolidated financial statements have been prepared on the basis of historical cost, except for financial assets at fair value through profit and loss, other financial assets, investment properties and derivative financial instruments which have been measured at fair value at the end of each reporting period. Cost is based on the fair values of the consideration given in exchange for assets. All amounts are presented in Australian dollars, which is the company’s functional currency, unless otherwise noted. Assets and liabilities have been presented on the face of the statement of financial position in decreasing order of liquidity and do not distinguish between current and non-current items. ROUNDING OF AMOUNTS The Group is an entity of a kind referred to in ASIC Legislative Instrument 2016/191, related to the ‘rounding off’ of amounts in the Directors’ Report and financial statements. Amounts in the Directors’ Report and financial statements have been rounded off, in accordance with the instrument to the nearest thousand dollars, unless otherwise indicated. The accounting policies and methods of computation in the preparation of the consolidated financial statements are consistent with those adopted in the previous financial year ended 30 June 2018 with the exception of the adoption of new accounting standards outlined below or in the relevant notes to the consolidated financial statements. When the presentation or classification of items in the consolidated financial statements has been amended, comparative amounts are also reclassified, unless it is impractical. Accounting policies are selected and applied in a manner that ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events are reported. The Group has now applied equity accounting to its investments in Centuria Metropolitan REIT (CMA) and Centuria Industrial REIT (CIP) as the Group’s ownership in these entities exceeded 20% during the year and significant influence was established. These investments were previously recognised as financial assets at fair value. Details of the accounting policy on equity accounted investments are included in Note E1. The Group has applied new accounting standards and their impact is disclosed in Note F5. These financial statements contain all significant accounting policies that summarise the recognition and measurement basis used and which are relevant to provide an understanding of the financial statements. Accounting policies that are specific to a note to the financial statements are described in the note to which they relate. A3 USE OF JUDGEMENTS AND ESTIMATES In preparing these consolidated financial statements, management has made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense that are not readily apparent from other sources. The judgements, estimates and assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. Information about critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements is included in the following notes: – Note C5 Investment properties – Note C6 Intangible assets – Note F3 Financial instruments CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 47 47 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019A About the report A4 SEGMENT SUMMARY As at 30 June 2019 the Group has four reportable operating segments. These reportable operating segments are the divisions which report to the Group’s Joint Chief Executive Officers and Board of Directors for the purpose of resource allocation and assessment of performance. The reportable operating segments are: Operating Segments Description Property Funds Management Investment Bonds Management Co-Investments Corporate Management of listed and unlisted property funds and rendering of services in social and affordable housing developments. Management of the Benefit Funds of Centuria Life Limited and management of the Over Fifty Guardian Friendly Society Limited. The Benefit Funds include a range of financial products, including single and multi-premium investments. Direct interest in property funds and other liquid investments Overheads for supporting the Group’s operating segments and management of a reverse mortgage lending portfolio In addition, the Group also provides disclosures in relation to a further four non-operating segments, which are: Non-operating segments Description Non-operating items Benefit Funds Controlled Property Funds Eliminations Comprises transaction costs, mark-to-market movements on property and derivative financial instruments, share of equity accounted net profit in excess of distributions received and all other non-operating activities Represents the operating results and financial position of the Benefit Funds which are required to be consolidated in the Group’s financial statements in accordance with accounting standards Represents the operating results and financial position of property funds which are controlled by the Group and consolidated under accounting standards Elimination of transactions between the operating segments and the other three non-operating segments above Where relevant, comparative financial information has been restated to ensure consistency in presentation of financial information across the applicable comparative periods. The accounting policies of reportable segments are the same as the Group’s accounting policies. Refer below for an analysis of the Group’s segment results: – Note B1 Segment profit and loss – Note C1 Segment balance sheet – Note D1 Operating segment cash flows 48 48 48 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019B Business performance t fi o r p 0 0 0 ’ $ y r o t u t a t S 5 3 1 , 1 0 4 1 , 2 4 2 2 5 , 2 2 8 5 5 , 1 5 5 3 , 1 5 3 5 , 9 3 5 6 , 4 1 8 2 3 , 4 0 0 0 ’ $ ) 3 4 5 , 7 ( - - - - - - ) 0 4 1 ( s n o i t a n m i i l E 7 0 4 , 2 4 4 4 , 2 - - 0 0 9 , 3 1 ) 6 5 0 , 1 ( - - - - 1 4 ) 6 2 2 ( 3 5 6 , 4 1 8 2 3 , 4 - - 9 1 1 - - - - - - - 3 5 4 , 5 - - - - - - - - 3 6 1 , 7 ) 8 9 7 , 9 1 ( 1 9 5 , 7 2 7 5 1 7 0 4 , 2 - - - 8 6 1 , 2 6 1 t fi o r p 0 0 0 ’ $ 3 8 6 , 9 4 5 3 1 , 1 2 2 5 , 2 2 8 5 5 , 1 1 8 5 , 1 1 8 1 , 4 - - - - - - - 3 4 4 , 3 - - - - - - - - - - - 7 1 3 - 6 8 6 1 9 5 , 7 2 - - - - 8 7 - - - - 2 7 2 3 6 9 9 , d e l l o r t n o C n o N y t r e p o r P s t fi e n e B g n i t a r e p o g n i t a r e p O - o C s d n o B s d n u F t n e m t s e v n I y t r e p o r P I S S O L D N A T F O R P T N E M G E S 1 B s d n u F 0 0 0 ’ $ s d n u F 0 0 0 ’ $ s m e t i 0 0 0 ’ $ 0 0 0 ’ $ e t a r o p r o C s t n e m t s e v n I t n e m e g a n a M t n e m e g a n a M 0 0 0 ’ $ 0 0 0 ’ $ 0 0 0 ’ $ s e t o N d e d n e r a e y e h t r o F 9 1 0 2 e n u J 0 3 3 1 2 , 0 3 0 7 3 , 7 1 - - - - 0 7 3 , 7 1 - 2 8 9 , 1 1 3 2 , 8 2 - - - - - - - - - - - - 7 7 9 , 5 1 1 ) 9 3 7 , 8 ( 5 1 9 , 8 1 0 8 1 , 5 1 ) 8 9 7 , 9 1 ( 9 1 4 , 0 1 1 9 5 4 , 3 4 9 5 , 8 2 3 1 3 , 0 1 ) 2 6 2 , 2 ( ) 2 9 6 , 0 8 ( ) 2 6 2 , 0 2 ( 4 4 3 , 0 6 2 1 3 , 6 3 4 5 , 7 0 4 1 6 5 2 , 5 ) 5 3 6 , 4 ( ) 0 9 3 , 7 ( ) 4 ( 1 4 0 , 1 ) 3 5 9 0 1 ( , ) 3 9 1 , 2 ( 2 7 5 , 4 ) 7 1 7 , 0 1 ( ) 4 9 2 , 1 3 ( ) 5 2 6 6 ( , ) 9 9 5 , 9 3 ( ) 8 7 2 , 2 1 ( ) 5 6 ( ) 2 9 7 , 6 ( ) 4 6 4 , 0 2 ( - ) 3 6 7 , 5 1 ( ) 3 1 9 , 1 ( ) 6 4 8 , 3 1 ( ) 2 ( ) 2 ( 0 8 3 , 6 7 5 0 , 5 5 ) 2 3 7 , 0 1 ( 3 8 6 , 4 1 9 1 5 , 3 7 8 5 , 7 4 x a t e r o f e b ) s s o L ( / t fi o r P 5 3 1 , 1 0 2 7 , 9 3 2 2 5 , 2 2 8 5 5 , 1 1 8 5 , 1 3 4 3 - - - - 4 9 1 , 1 3 5 0 , 8 6 - - - s e e f e c n a m r o f r e p y t r e p o r P s e e f n o i t i s i u q c a y t r e p o r P e u n e v e r t n e m p o e v e D l s e e f t n e m e g a n a M l s e e f s e a s y t r e p o r P e u n e v e r t s e r e t n I e m o c n i l a t n e R i s g n o g t u o e b a r e v o c e R l 1 E s t n e m t s e v n i d e t n u o c c a y t i u q e f o t fi o r p t e n f o e r a h S n i t n e m e v o m t e N y r a n o i t e r c s i d - s m u m e r P i s e r u t a e f n o i t a p c i t r a p i e u n e v e r e m o c n i r e h t O e u n e v e R l a t o T i i d n e d v d / n o i t u b i r t s i D s e i t i l i b a i l l r e d o h y c i l o p 3 B 4 B s t s o c e c n a n F i s e s n e p x E y t r e p o r p f o s t n e m e v o m e u a v r i a F l d n a s t n e m u r t s n i l i a c n a n fi 49 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 49 49 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019 B Business performance t fi o r p 0 0 0 ’ $ y r o t u t a t S ) 3 0 4 , 9 ( 1 4 9 , 0 5 1 1 6 , 9 1 4 8 1 , 1 3 ) 3 0 4 , 9 ( 1 4 9 , 0 5 d e l l o r t n o C n o N y t r e p o r P s t fi e n e B g n i t a r e p o g n i t a r e p O - o C s d n o B s d n u F t n e m t s e v n I y t r e p o r P 5 9 7 , 0 5 ) 0 8 2 , 2 ( - 6 4 1 1 1 6 , 9 1 1 4 9 , 0 5 4 8 1 , 1 3 - 6 3 5 , 7 6 5 2 , 5 ) 0 8 2 , 2 ( - - ) 0 9 3 , 7 ( ) 0 9 3 , 7 ( 6 5 2 , 5 ) 0 9 3 , 7 ( - - ) 0 8 2 , 2 ( - - - 6 5 2 , 5 ) 0 9 3 , 7 ( 0 0 0 ’ $ s n o i t a n m i i l E s d n u F 0 0 0 ’ $ s d n u F 0 0 0 ’ $ - - ) 1 4 0 , 1 ( - - - - - ) 1 4 0 , 1 ( - - - - s m e t i 0 0 0 ’ $ 9 8 9 9 6 3 , 7 ) 2 6 5 , 2 ( 1 3 9 9 , 9 8 9 9 6 3 , 7 9 6 3 , 7 - ) 2 6 5 , 2 ( 9 6 3 , 7 1 3 9 9 , t fi o r p 0 0 0 ’ $ 0 0 0 ’ $ e t a r o p r o C s t n e m t s e v n I t n e m e g a n a M t n e m e g a n a M 0 0 0 ’ $ 0 0 0 ’ $ 0 0 0 ’ $ s e t o N d e d n e r a e y e h t r o F 9 1 0 2 e n u J 0 3 ) 1 5 3 , 9 ( 7 4 3 , 6 6 0 7 , 5 4 ) 5 8 3 , 4 ( ) 8 7 1 ( 5 0 5 , 4 1 ) 3 7 0 , 1 ( 6 4 4 , 2 ) 7 4 4 , 4 1 ( 0 4 1 , 3 3 5 B / t fi e n e b x a t e m o c n I ) e s n e p x e ( x a t r e t f a ) s s o L ( / t fi o r P x a t r e t f a ) s s o l ( / t fi o r P l : o t e b a t u b i r t t a ) 0 1 7 , 3 1 ( 7 1 4 6 4 4 , 2 0 2 0 , 3 3 d e t i m i L l a t i p a C a i r u t n e C 3 7 1 , 2 2 3 3 5 , 3 2 ) 1 5 3 , 9 ( 5 2 3 , 9 7 4 3 , 6 6 0 7 , 5 4 ) 5 8 3 , 4 ( 8 8 0 , 4 1 - ) 8 7 1 ( 5 0 5 , 4 1 ) 3 7 0 , 1 ( 6 4 4 , 2 0 2 1 ) 7 4 4 , 4 1 ( 0 4 1 , 3 3 6 0 7 , 5 4 ) 5 8 3 , 4 ( 5 0 5 , 4 1 6 4 4 , 2 0 4 1 , 3 3 - 3 7 1 , 2 2 6 0 7 , 5 4 3 3 5 , 3 2 - ) 5 8 3 , 4 ( ) 0 1 7 , 3 1 ( 5 2 3 , 9 - 7 1 4 5 0 5 , 4 1 8 8 0 , 4 1 - - 6 4 4 , 2 6 4 4 , 2 - 0 2 1 0 2 0 , 3 3 0 4 1 , 3 3 5 B r e t f a ) s s ) e o s l ( n / e t fi p o x r e P ( l d n u F / t fi e n e b x a t e m o c n a t i p a C a i r u t n e C I s t s e r e t n i d e t i m i L x a t x a t p u o r G x a t l o t e b a t u b i r t t a x a t r e t f a ) s s o L ( / t fi o r P l a t i p a C a i r u t n e C l r e t f a ) s s o l ( / t fi o r P s r e d o h y t i r u c e s l r e t f a ) s s o l ( / t fi o r P a t i p a C a i r u t n e C g n i l l l : o t e b a t u b i r t t a o r t n o c - n o N d n u F l a t i p a C a i r u t n e C 5 9 7 , 0 5 ) 0 8 2 , 2 ( - 6 4 1 1 4 9 , 0 5 6 3 5 , 7 6 5 2 , 5 ) 0 9 3 , 7 ( ) 0 9 3 , 7 ( - - - 9 6 3 , 7 - 9 6 3 , 7 6 0 7 , 5 4 ) 5 8 3 , 4 ( 5 0 5 , 4 1 6 4 4 , 2 0 4 1 , 3 3 p u o r G l a t i p a C a i r u t n e C l s r e d o h y t i r u c e s r e t f a ) s s o l ( / t fi o r P l o t e b a t u b i r t t a x a t - - - - - s t s e r e t n i g n i l l o r t n o c - n o N 6 0 7 , 5 4 ) 5 8 3 , 4 ( 5 0 5 , 4 1 6 4 4 , 2 0 4 1 , 3 3 x a t r e t f a ) s s o l ( / t fi o r P ) D E U N T N O C I I ( S S O L D N A T F O R P T N E M G E S 1 B 50 50 50 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 50 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019 B Business performance t fi o r p 0 0 0 ’ $ y r o t u t a t S 1 1 4 , 3 3 0 7 0 , 4 8 3 7 , 6 2 1 7 9 , 2 8 0 1 , 1 1 5 9 9 , 6 1 8 5 5 , 4 0 0 0 ’ $ ) 2 8 8 , 7 ( - - - - - ) 2 1 1 ( s n o i t a n m i i l E 1 1 7 , 2 0 3 3 , 2 - - 1 2 6 , 9 2 ) 3 4 2 ( 3 1 5 , 4 3 1 ) 7 3 2 , 8 ( 1 0 8 , 1 2 9 7 1 , 0 2 - 3 5 0 9 , - - - - - 3 5 0 9 , ) 2 ( - - - 1 8 8 8 9 6 1 , 8 5 5 , 4 - - 6 7 1 - - - - - - 8 1 4 , 6 0 8 8 , 0 1 0 7 1 1 1 7 , 2 - - - - - - - - - - - - - d e l l o r t n o C n o N y t r e p o r P s t fi e n e B g n i t a r e p o g n i t a r e p O - o C s d n o B s d n u F t n e m t s e v n I y t r e p o r P s d n u F 0 0 0 ’ $ s d n u F 0 0 0 ’ $ s m e t i 0 0 0 ’ $ 0 0 0 ’ $ e t a r o p r o C s t n e m t s e v n I t n e m e g a n a M t n e m e g a n a M 0 0 0 ’ $ 0 0 0 ’ $ 0 0 0 ’ $ s e t o N d e d n e r a e y e h t r o F 8 1 0 2 e n u J 0 3 ) D E U N T N O C I I ( S S O L D N A T F O R P T N E M G E S 1 B 51 t fi o r p 0 0 0 ’ $ 5 9 2 , 1 4 0 7 0 , 4 8 3 7 , 6 2 1 7 9 , 2 1 2 7 , 4 7 - - 4 8 9 , 8 1 7 - - - - - - - - - - - 8 0 8 , 2 6 5 5 , 1 - - - 5 6 1 4 8 9 , 8 1 - - - 5 7 - - - - 8 1 4 9 9 2 , 0 1 4 8 9 , 1 0 3 - - - - - - - - - - - - 0 7 7 , 0 0 1 5 4 8 , 2 5 0 7 , 0 2 2 9 7 , 0 1 6 9 9 , 0 3 0 7 0 , 4 8 3 7 , 6 2 2 8 2 1 7 9 , 2 - - - - 1 7 3 , 1 8 2 4 , 6 6 - - - s e e f e c n a m r o f r e p y t r e p o r P s e e f n o i t i s i u q c a y t r e p o r P s e e f t n e m e g a n a M l s e e f s e a s y t r e p o r P e u n e v e r t s e r e t n I e m o c n i l a t n e R y r a n o i t e r c s i d - s m u m e r P i s e r u t a e f n o i t a p c i t r a p i e u n e v e r e m o c n i r e h t O e u n e v e r l a t o T y t i u q e f o t fi o r p t e n f o e r a h S s t n e m t s e v n i d e t n u o c c a n i t n e m e v o m t e N i i d n e d v d / n o i t u b i r t s i D i s g n o g t u o e b a r e v o c e R l s e i t i l i b a i l l r e d o h y c i l o p f o s t n e m e v o m e u a v r i a F l d n a s t n e m u r t s n i l i a c n a n fi s t s o c e c n a n F i s e s n e p x E y t r e p o r p 3 0 1 , 0 1 ) 8 1 5 , 5 ( 7 4 3 , 3 0 7 6 , 3 4 0 6 , 8 ) 7 1 6 , 7 6 ( ) 9 8 9 , 5 1 ( 2 1 1 2 8 8 , 7 ) 0 9 4 , 5 ( ) 3 ( - ) 8 0 6 , 0 1 ( ) 8 1 9 , 1 ( ) 0 8 6 , 8 ( ) 1 ( ) 9 ( ) 7 9 5 , 1 1 ( ) 1 5 7 , 9 2 ( ) 0 1 6 ( ) 1 4 5 , 3 3 ( ) 7 1 1 , 0 1 ( ) 4 3 1 ( ) 6 1 8 , 5 ( ) 4 7 4 , 7 1 ( 3 6 0 , 0 7 ) 1 6 7 , 5 ( 1 6 0 , 8 8 4 1 , 3 4 9 9 , 7 1 2 6 6 5 , ) 0 9 1 , 9 ( 1 9 8 , 1 1 5 7 9 , 4 5 4 9 , 8 4 x a t e r o f e b ) s s o L ( / t fi o r P CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 51 51 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019 B Business performance t fi o r p 0 0 0 ’ $ y r o t u t a t S 0 0 0 ’ $ s n o i t a n m i i l E ) 3 7 8 , 3 1 ( - 0 9 1 , 6 5 ) 1 6 7 , 5 ( 0 4 5 , 4 2 ) 2 3 1 ( ) 3 7 8 , 3 1 ( 5 2 2 , 0 3 0 9 1 , 6 5 5 6 7 , 4 5 0 5 2 4 4 5 , , 1 4 2 5 0 2 9 2 1 , , 6 0 5 3 - ) 9 2 6 , 5 ( ) 1 6 7 , 5 ( ) 2 - 3 1 ( ) 1 6 7 , 5 ( ) ) 9 1 6 2 7 6 , , 5 5 ( ( 5 6 7 , 4 5 5 2 4 , 1 0 9 1 , 6 5 ) 1 6 7 , 5 ( - ) 1 6 7 , 5 ( d e l l o r t n o C n o N y t r e p o r P s t fi e n e B g n i t a r e p o g n i t a r e p O - o C s d n o B s d n u F t n e m t s e v n I y t r e p o r P ) D E U N T N O C I I ( S S O L D N A T F O R P T N E M G E S 1 B t fi o r p 0 0 0 ’ $ 0 0 0 ’ $ e t a r o p r o C s t n e m t s e v n I t n e m e g a n a M t n e m e g a n a M 0 0 0 ’ $ 0 0 0 ’ $ 0 0 0 ’ $ s e t o N d e d n e r a e y e h t r o F 8 1 0 2 e n u J 0 3 s d n u F 0 0 0 ’ $ - 1 6 0 , 8 7 4 - 9 8 5 , 6 1 6 0 , 8 6 3 6 6 , 5 7 4 2 4 , 1 1 9 6 8 0 5 , , 8 6 6 3 6 6 , 5 2 4 , 1 1 6 0 , 8 s d n u F 0 0 0 ’ $ ) 8 4 1 , 3 ( - - - ) 8 4 1 , 3 ( - - - - - - - - - s m e t i 0 0 0 ’ $ 9 0 8 3 0 8 , 8 ) 7 6 2 , 2 ( 2 9 8 , 6 2 ) 8 0 2 , 1 1 ( 9 0 8 0 7 0 , 1 1 3 0 8 , 8 3 0 8 , 8 ) 7 - 6 2 , 2 ( 3 0 0 7 0 8 , , 1 8 1 5 9 1 , 8 1 ) 4 3 5 , 1 1 ( 4 8 8 , 6 6 6 8 , 4 7 8 0 , 5 4 ) 4 2 3 , 4 ( 7 8 0 , 5 4 2 - 9 8 , 6 2 7 5 8 9 0 1 , , 5 8 1 4 ) 4 2 3 , 4 ( ) 8 - 0 2 , 1 1 ( ) 4 4 8 2 8 3 , , 6 4 ( 6 0 4 ) 4 7 1 ( 1 1 3 , 1 1 7 1 7 , 1 1 - 6 0 4 7 1 7 , 1 1 7 1 1 1 3 7 , , 1 1 1 1 3 7 4 , 3 - ) 2 0 5 , 1 ( 3 7 4 , 3 3 7 4 , 3 3 - 7 4 , 3 3 - 7 4 , 3 1 2 2 , 4 3 - ) 4 2 7 , 4 1 ( 1 2 2 , 4 3 1 2 2 , 4 3 1 - 2 2 , 4 3 1 - 2 2 , 4 3 3 0 8 , 8 7 8 0 , 5 4 ) 4 2 3 , 4 ( 7 1 7 , 1 1 3 7 4 , 3 1 2 2 , 4 3 ) 4 3 5 , 1 1 ( 6 6 8 , 4 7 8 0 , 5 4 ) 4 2 3 , 4 ( ) 4 7 1 ( 7 1 7 , 1 1 ) 2 0 5 , 1 ( 3 7 4 , 3 ) 4 2 7 , 4 1 ( 1 2 2 , 4 3 5 B 5 B / t fi e n e b x a t e m o c n I ) e s n e p x e ( x a t r e t f a ) s s o L ( / t fi o r P x a t r e t f a ) s s o l ( / t fi o r P l : o t e b a t u b i r t t a d e t i m i L l a t i p a C a i r u t n e C x a t l d n u F / t fi e a n t e i p b a x C a t a e i r m u t o n c e n C I l r e t f a ) s s o L ( / t fi o r P o t e b a t u b i r t t a x a t r e t f a ) s s o l ( / t fi o r P ) e s n e p x e ( s t d s e e t r i e m t i n L i l g a n t i i p l l a o C r t n a o i r c u - t n n e o N C d x n a u t F r e l a t f t a i p ) a s C s o a l i ( r / u t t fi n o e r C P p u o r G l a t i p a C a i r u t n e C l s r e d o h y t i r u c e s r e t f a ) s s o l ( / t fi o r P l o t e b a t u b i r t t a x a t p u x o a r t G r e l a t t f a i p ) a s C s o a l i ( r / u t t fi n o e r C P l l s : r o e t d e o b h a y t t u i r b u i c r t e t a s - - - - - - s t s e r e t n i g n i l l o r t n o c - n o N 3 0 8 , 8 7 8 0 , 5 4 ) 4 2 3 , 4 ( 7 1 7 , 1 1 3 7 4 , 3 1 2 2 , 4 3 x a t r e t f a ) s s o l ( / t fi o r P 52 52 52 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019 This Page has been left intentionally blank 53 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 53 53 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019B Business performance B2 REVENUE (A) RECOGNITION AND MEASUREMENT Revenue is recognised over time if: – the customer simultaneously receives and consumes the benefits as the entity performs; – the customer controls the asset as the entity creates or enhances it; or – the seller’s performance does not create an asset for which the seller has an alternative use and there is a right to payment for performance to date. Type of revenue Description Management fees The Group provides: Revenue recognition policy under AASB 118 Revenue recognition policy under AASB 15 a) fund management services to property funds in accordance with the fund constitutions. The services are provided on an ongoing basis and revenue is calculated and recognised in accordance with the relevant constitution. The fees are invoiced and paid monthly in arrears. Recognised on accruals basis based on the contract terms. Over-time b) property management services to the owners of property assets in accordance with property services agreements. The services are utilised on an ongoing basis and revenue is calculated and recognised in accordance with the specific agreement. The fees are invoiced monthly with variable payment terms depending on the individual agreements. c) lease management service to the owners. The revenue is recognised when the specific service is delivered (e.g. on lease execution) and consideration is due 30 days from invoice date. d) short-term development management services to the owners of property assets in accordance with development management agreements. Revenue is calculated in accordance with the specific agreement and invoiced in accordance with the contract terms. Consideration is due from the customer based on the specific terms agreed in the contract and is recognised when the Company has control of the benefit. Over-time Recognised on an accruals basis based on the contract terms. Point-in-time Point-in-time Recognised in the period in which the services are rendered. Recognised in the period in which the services are rendered. Performance fees The Group receives a performance fee for providing management services where the property fund outperforms a set IRR benchmark at the time the property is sold. Over-time Recognised in the period in which the services are rendered. The consideration is due upon successful sale of the investment property if the performance hurdles are satisfied. In assessing the timing and measurement of performance fees to be recognised, consideration is given to the facts and circumstances with respect to each investment property including external factors such as its current valuation, passage of time and outlook of the property market. Performance fees are only recognised when they are deemed to be highly probable and the amount of the performance fees will not result in a significant reversal in future periods. The Group recovers the costs associated with general building and tenancy operation from lessees in accordance with specific clauses within lease agreements. These are invoiced monthly based on an annual estimate. The consideration is due 30 days from invoice date. Should any adjustment be required based on actual costs incurred, this is recognised in the statement of financial performance within the same reporting period and billed annually. Recoverable outgoings Over-time Recognised on an accruals basis based on the contract terms. Property acquisition fees The Group provides property acquisition related services to property funds and the revenue is based on a fixed percentage included in the PDS issued at the establishment of the fund. The consideration is due upon successful settlement of the investment property. Recognised in the period in which the services are rendered. Point-in-time 54 54 54 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019B Business performance Type of revenue Description Property sales fees The Group provides sales services to the owners of property assets in accordance with property management agreements. The consideration is due upon successful sale of the investment property. Revenue recognition policy under AASB 118 Revenue recognition policy under AASB 15 Point-in-time Recognised in the period in which the services are rendered. Development revenue The Group provides property development services to customers in accordance with development agreements. The input method is used to recognise development revenue over-time on an expected cost plus margin approach. Recognised in the period in which the services are rendered. Over-time The recognition and measurement of revenue outside the scope of AASB 15 are as follows: (i) Interest revenue Interest revenue is accrued on a time basis, by reference to the principal outstanding using the effective interest rate method. (ii) Distribution/dividend reve nue Distribution/dividend revenue from investments is recognised when the shareholder’s right to receive payment has been established (provided that it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably). (iii) Rental income Rental income from investment property is recognised in profit or loss on a straight line basis over the term of the lease. (B) TRANSACTION PRICE ALLOCATED TO THE REMAINING PERFORMANCE OBLIGATIONS The following table includes revenue expected to be recognised in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the reporting date. Property performance fees* Development revenue Management fees** Balance of unrecognised performance obligations $’000 1,989 66,617 46,830 Recognised in 2019 $’000 22,522 7,278 38,566 * The underlying property funds managed by the Group have recognised a total performance fee of $56,905,000, the Group has recognised $22,522,000 of this amount, with a total constrained amount being $24,511,000. ** Only relates to unlisted property funds management fees which have defined fund terms. (C) TRANSACTIONS WITH RELATED PARTIES Management fees are charged to related parties in accordance with the respective trust deeds and management agreements. Management fees from Property Funds managed by Centuria Distributions from Property Funds managed by Centuria Property acquisition fees from Property Funds managed by Centuria Performance fees from Property Funds managed by Centuria Management fees from Over Fifty Guardian Friendly Society Sales fees from Property Funds managed by Centuria Interest income on loans to Property Funds managed by Centuria Fees from Debt funds managed by Centuria Distributions and interest from Debt Funds managed by Centuria 2019 $ 2018 $ 38,566,046 29,704,620 2,121,706 1,135,110 14,467,430 4,070,177 22,522,000 26,737,500 3,574,208 1,354,000 36,958 1,209,583 202,062 3,552,177 2,970,550 501,525 1,054,857 108,825 70,721,673 83,167,661 55 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 55 55 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019B Business performance (i) Terms and conditions of transactions with related parties Investments in property funds and benefit funds held by certain directors and director-related entities are made on the same terms and conditions as all other persons. Directors and director-related entities receive the same returns on these investments as all other investors and policyholders. The Company and its related parties entered into transactions, which are insignificant in amount, with directors and their director- related entities in their domestic dealings and are made in arm’s length transactions at normal market prices and on normal commercial terms. The Group pays some expenses on behalf of related entities and receives a reimbursement for these payments. B2 EXPENSES Employee benefits expense Consulting and professional fees Property outgoings and fund expenses Transaction costs Administration fees Impairment of seed capital Cost of sales - development Claims - discretionary participation features only Property management fees paid Other expenses 2019 $’000 26,084 3,805 7,992 5,934 2,019 - 848 24,985 1,336 7,689 80,692 2018 $’000 21,260 3,966 8,531 230 2,316 380 - 23,144 - 7,790 67,617 (A) TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL (i) Transactions with directors For transactions with directors, refer to details included in the Audited remuneration report on page 31. (ii) Key management personnel compensation The aggregate compensation paid to key management personnel of the Group is set out below: Short-term employee benefits Post-employment benefits Other long-term employment benefits Share-based payments Detailed information on key management personnel is included in the Audited remuneration report. 2019 $ 2018 $ 5,645,160 5,475,869 120,390 115,816 857,992 6,739,358 128,256 (5,350) 1,055,916 6,654,691 56 56 56 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 56 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019B Business performance B4 FINANCE COSTS Operating interest charges Bank loans in Controlled Property Funds interest charges Reverse mortgage facility interest charges (Gain)/loss on derivatives on fair value hedges Loss/(gain) on financial assets fair value hedges Other finance costs RECOGNITION AND MEASUREMENT The Group’s finance costs include: – Interest expense recognised using the effective interest method. – The net gain or loss on hedging instruments that are recognised in profit or loss. B5 TAXATION Current tax expense in respect of the current year Adjustments to current tax in relation to prior years Deferred tax expense relating to the origination and reversal of temporary differences Income tax expense 2019 $’000 13,003 4,636 1,888 (6,909) 6,909 735 20,262 2019 $’000 2,542 (514) 2,028 7,375 9,403 2017 $’000 8,567 5,490 1,738 1,115 (1,115) 194 15,989 2018 $’000 13,203 (102) 13,101 772 13,873 (A) RECONCILIATION OF INCOME TAX EXPENSE The prima facie income tax expense on profit before income tax reconciles to the income tax expense in the consolidated financial statements as follows: Profit before tax Less: profit not subject to income tax Income tax expense calculated at 30% Add/(deduct) tax effect of amounts which are not deductible/(assessable): Tax offset for franked dividends Non-allowable expenses - seed capital impairment Non-allowable expenses - other Recognition of previously unbooked capital losses Adjustments to current tax in relation to prior years Income tax expense 2019 $’000 60,344 (27,211) 33,133 9,940 (617) - 594 - (514) 9,403 2018 $’000 70,063 (20,222) 49,841 14,952 (1,032) 114 181 (240) (102) 13,873 The tax rate used in the above reconciliation is the corporate tax rate of 30% payable by Australian corporate entities on taxable profits under Australian tax law. There has been no change in the corporate tax rate when compared with the previous reporting period. 57 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 57 57 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019 B Business performance (B) CURRENT TAX ASSETS AND LIABILITIES Current tax assets/(liabilities) attributable to: Benefit Funds Securityholders (C) MOVEMENT OF DEFERRED TAX BALANCES Financial year ended 30 June 2019 Deferred tax assets Provisions Revenue tax losses Capital losses Deferred tax liabilities Indefinite life management rights Accrued performance fees Transaction costs Accrued income Unrealised gain/(loss) on financial assets Prepayments Fair value measurements in mortgage assets Other Financial year ended 30 June 2018 Deferred tax assets Provisions Capital losses Transaction costs Deferred tax liabilities Indefinite life management rights Accrued income Unrealised gain/(loss) on financial assets Prepayments Fair value measurements in mortgage assets 2019 $’000 2018 $’000 (738) (75) (813) Movement $’000 (1,083) 4,021 (22) 690 (529) 161 Closing balance $’000 1,560 4,021 26,792 - (27,638) (6,115) (5,079) - 1,097 - (62) (132) (6,115) (4,733) (290) (1,432) (6) (2,521) (132) (7,375) (10,494) Movement $’000 436 (826) (28) - - (1,522) - 1,141 (799) Closing balance $’000 2,643 26,814 346 (27,638) (290) (2,529) (6) (2,459) (3,119) Opening balance $’000 2,643 - 26,814 (27,638) - 346 (290) (2,529) (6) (2,459) - (3,119) Opening balance $’000 2,207 27,640 374 (27,638) (290) (1,007) (6) (3,600) (2,320) (D) CAPITAL TAX LOSSES At 30 June 2019, the Group has no unrecognised capital tax losses (2018: $nil). 58 58 58 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 58 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019B Business performance RECOGNITION AND MEASUREMENT Income tax expense represents the sum of the tax currently payable and deferred tax. (i) Current tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated profit or loss because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. (ii) Deferred tax Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities and the corresponding tax bases. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are recognised for all deductible temporary differences, unused tax losses and tax offsets, to the extent that it is probable that sufficient future taxable profits will be available to utilise them. However, deferred tax assets and liabilities are not recognised for: – taxable temporary differences that arise from the initial recognition of assets or liabilities in a transaction that is not a business combination which affects neither taxable income nor accounting profit; – taxable temporary differences relating to investments in subsidiaries, associates and joint ventures to the extent that the Group is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and – taxable temporary differences arising from goodwill The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. (iii) Tax consolidation The Company and all its wholly-owned Australian resident companies are part of a tax-consolidated group under Australian taxation law. The Company is the head entity in the tax-consolidated group. Tax expense/benefit, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-consolidated group are recognised in their separate financial statements using a ‘standalone tax payer’ approach. Under the tax funding arrangement between members of the tax-consolidated group, amounts are recognised as payable to or receivable by each member in relation to the tax contribution amounts paid or payable between Company and the members of the the tax-consolidated group. Centuria Capital Fund (CCF) and its subsidiaries are not part of the tax-consolidation group. Under current Australian income tax legislation, Trusts are not liable for income tax, provided their securityholders are presently entitled to the taxable income of the Trust including realised capital gains each financial year. The Benefit Funds are part of the tax consolidated group, and they are allocated a share of the income tax liability attributable to Centuria Life Limited equal to the income tax liability that would have arisen to the Benefit Funds had they been stand-alone. (iv) Current and deferred tax for the period Income taxes relating to items recognised directly in equity are recognised directly in equity and not in the statement of comprehensive income. In the case of a business combination, the tax effect is included in the accounting for the business combination. 59 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 59 59 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019B Business performance B6 EARNINGS PER SECURITY Basic (cents per stapled security) Diluted (cents per stapled security) 2019 Cents 14.2 13.2 2018 Cents 19.8 18.1 The earnings used in the calculation of basic and diluted earnings per security is the profit for the year attributable to Centuria Capital Group securityholders as reported in the consolidated statement of comprehensive Income. The weighted average number of ordinary securities used in the calculation of basic and diluted earnings per security is as follows: Weighted average number of ordinary securities (basic) Weighted average number of ordinary securities (diluted) (i) 2019 2018 358,809,337 277,224,977 383,381,274 301,789,890 (i) The weighted average number of ordinary securities used in the calculation of diluted earnings per security is determined: - as if 30 June 2019 was the end of the performance period of the grants of Rights under the LTI plan. All Rights that would have vested if 30 June 2019 was the end of the performance period are deemed to have been issued at the start of the financial year. - as if 20,098,470 unexercised options with an exercise price of $1.30 per option have been converted to ordinary securities at the start of the financial year. B7 DIVIDENDS AND DISTRIBUTIONS Dividends/distributions paid during the year Final year-end dividend (fully franked) Final year-end distribution Interim dividend (fully franked) Interim distribution Special non-cash dividend/capital reallocation Dividends/distributions declared during the year Final dividend (fully franked) (i) Final distribution (i) 2019 2018 Cents per security Total $’000 Cents per security 1.00 3.10 0.85 3.40 7.80 0.50 4.50 3,048 9,449 3,260 13,038 30,000 1,918 17,262 2.40 2.80 1.70 2.40 - 1.00 3.10 Total $’000 5,453 6,361 5,184 7,314 - 3,048 9,449 Dividends/distributions paid/declared to Centuria Capital Group securityholders (iii) 21.15 77,975 13.40 36,809 (i) The Group declared a final dividend/distribution in respect of the year ended 30 June 2019 of 5.0 cents per stapled security which included a dividend of 0.50 cents per share and a distribution of 4.50 cents per security. The final dividend had a record date of 28 June 2019 and to be subsequently paid on 16 August 2019. The total amount payable of $19,180,000 (2018: $12,497,000) has been provided as a liability in these financial statements. (ii) On 29 June 2019, a special non-cash dividend was paid by Centuria Capital Limited of $30,000,000 which was reinvested as capital into Centuria Capital Fund. (iii) In addition to the dividends and distributions paid to Centuria Capital Group securityholders, the Group paid distributions of $3,363,000 (2018: $6,880,000) to external non-controlling interests. (A) FRANKING CREDITS Amount of franking credits available to shareholders of the Company for subsequent financial years(i) (i) Before taking into account the impact of the final dividend payable on 16 August 2019. 2019 $’000 2018 $’000 337 15,682 60 60 60 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 60 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019C Assets and liabilities t e e h s 0 0 0 ’ $ e c n a l a b y r o t u t a t S 1 4 7 , 5 3 7 6 , 4 2 1 2 6 8 , 9 6 4 1 1 , 6 5 3 3 1 7 , 6 8 3 0 0 5 , 7 7 1 3 6 6 , 7 5 1 0 0 0 ’ $ - - ) 3 8 3 , 1 ( ) 0 4 9 9 3 ( , - - - s n o i t a n m i i l E d e l l o r t n o C s d n u F 0 0 0 ’ $ s d n u F 0 0 0 ’ $ y t r e p o r P s t fi e n e B - - - ) 0 6 4 ( 1 9 7 , 4 - 3 2 1 , 2 3 9 7 9 , 5 4 9 7 , 3 8 2 3 1 3 , 6 2 - 0 0 5 , 7 7 1 - - 6 6 2 , 8 7 2 , 1 ) 3 2 3 , 1 4 ( 1 3 8 , 1 8 1 9 0 2 , 8 4 3 0 1 1 , 3 0 3 ) 0 0 0 , 2 ( 9 0 3 , 4 9 8 7 8 , 1 2 3 2 , 2 4 4 1 8 , 8 2 3 1 8 7 5 5 , 9 3 3 4 9 4 , 0 1 8 9 8 , 6 2 7 8 6 3 , 1 5 5 ) 3 8 3 , 1 ( 5 8 9 , 4 2 6 9 , 2 - - - - - - - - - 1 3 7 - - - 8 3 7 2 5 9 , 4 7 5 5 , 9 3 3 ) 3 8 3 , 3 ( ) 0 4 9 , 7 3 ( 6 0 8 , 1 8 - 5 2 0 , 0 0 1 9 0 2 , 8 4 3 t e e h s 0 0 0 ’ $ e c n a l a b g n i t a r e p O 9 5 7 , 7 8 6 2 7 , 5 6 1 4 7 , 5 0 6 2 , 2 1 1 0 0 4 , 0 6 3 - 3 6 6 , 7 5 1 9 4 5 , 9 8 7 8 7 8 , 1 8 6 6 , 5 3 1 0 8 , 0 1 2 3 8 0 , 8 2 - 5 7 2 4 5 , 5 7 4 0 , 2 8 2 2 0 5 , 7 0 5 e t a r o p r o C s t n e m t s e v n I t n e m e g a n a M t n e m e g a n a M - o C s d n o B s d n u F t n e m t s e v n I y t r e p o r P 0 0 0 ’ $ 0 0 0 ’ $ 0 0 0 ’ $ 0 0 0 ’ $ s e t o N 9 1 0 2 e n u J 0 3 t a s A s t e s s A T E E H S E C N A L A B T N E M G E S 1 C - - - 0 6 4 , 5 8 5 6 , 4 7 4 4 , 5 0 2 7 , 3 5 - - - 7 1 8 , 2 6 1 8 1 , 2 2 0 4 5 , 8 5 0 0 4 , 0 6 3 - - - - 7 4 9 8 4 2 9 8 2 , 6 5 8 2 , 9 6 8 3 9 , 3 0 5 4 8 4 , 7 9 9 5 , 2 1 0 6 0 0 2 , 9 6 4 0 2 0 , 1 4 9 1 , 8 3 8 0 , 8 2 - ) 5 4 3 , 2 ( ) 6 8 6 , 7 ( 5 6 8 , 9 3 0 2 4 , 9 2 - - - - 7 0 6 , 2 0 2 - - - - - 5 1 6 , 5 2 8 2 , 8 2 2 6 5 6 , 5 7 2 ) 4 0 2 ( 5 6 2 9 1 2 , 7 - - - 6 4 3 9 1 , 3 1 0 4 9 , 7 3 3 6 6 , 7 5 1 2 4 8 , 8 0 2 8 5 8 0 4 5 , 2 - - - 0 2 4 , 2 7 1 8 , 7 5 3 6 , 3 1 7 0 2 , 5 9 1 2 D 2 C 3 C 1 E 5 C 6 C 7 C 8 C ) c ( 5 B l i s t n e a v u q e h s a c d n a h s a C l s e b a v e c e R i s t e s s a r e h t O s t e s s a l i a c n a n F i s t n e m t s e v n i d e t n u o c c a y t i u q E s e i t r e p o r p t n e m t s e v n I s t e s s a e b g n a t n i l I l e u a v r i a f t a p a w s e t a r t s e r e t n I s t e s s a l a t o T s e i t i l i b a i L l s e b a y a P s n o i s i v o r P i s g n w o r r o B ' l s r e d o h y c i l o p s d n u F t fi e n e B y t i l i b a i l x a t e m o c n i r o f n o i s i v o r P y t i l i b a i l x a t d e r r e f e D s e i t i l i b a i l l a t o T s t e s s a t e N 61 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 61 61 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019 C Assets and liabilities t e e h s 0 0 0 ’ $ e c n a l a b y r o t u t a t S 4 1 9 , 1 0 1 4 6 1 , 1 2 1 6 1 6 3 0 , 2 2 3 8 , 4 4 6 ) 1 5 6 , 1 1 ( - - - - - - ) 9 0 0 , 2 ( ) 8 7 3 ( 7 7 3 , 5 - 0 9 6 8 4 1 , 0 2 0 0 4 , 6 9 8 3 , 6 7 1 5 1 , 7 1 ) 9 2 5 ( 6 3 0 , 2 ) 7 3 9 ( 0 3 7 , 1 0 9 2 , 3 9 9 4 , 6 3 - - 1 3 5 , 1 1 4 3 3 , 6 5 0 5 , 0 3 3 8 7 9 , 5 2 3 9 5 0 , 8 4 9 1 9 , 7 7 2 0 0 4 , 3 6 0 0 1 , 7 4 1 3 6 6 , 7 5 1 - - - - 0 0 4 , 3 6 0 0 1 , 7 4 1 - - - 0 7 2 , 8 3 1 , 1 ) 0 6 6 , 3 1 ( 9 9 4 , 5 1 2 3 4 7 , 7 5 3 - - 3 6 6 , 7 5 1 8 8 6 , 8 7 5 - - - - - - 1 4 6 , 8 8 4 8 7 , 5 9 2 0 5 6 , 7 1 6 1 , 1 4 7 9 5 , 1 - - 5 0 4 , 2 3 ) 9 0 0 , 2 ( - 2 5 6 , 5 9 9 5 , 4 3 9 3 7 , 5 4 2 ) 0 0 0 , 2 ( 8 5 7 , 5 1 1 1 1 4 , 3 2 7 7 6 , 9 4 3 9 1 1 , 3 9 0 1 , 7 9 6 1 6 1 , 1 4 4 - - - - - 2 7 4 ) 9 0 0 , 4 ( ) 1 5 6 , 9 ( 1 8 4 , 6 5 1 8 1 0 , 9 5 6 1 9 , 1 6 4 8 , 6 2 6 2 4 , 1 1 - - - - 2 6 5 , 6 7 9 5 , 1 1 8 9 , 1 3 1 9 3 9 , 2 2 - 2 1 7 9 2 4 , 8 9 3 9 , 2 2 , 7 7 6 9 4 3 - - - 0 5 1 , 6 3 4 7 , 7 5 3 ) 1 3 0 , 3 ( ) 0 6 8 , 3 ( 4 9 8 , 6 8 1 4 9 7 , 1 9 3 6 4 6 , 9 3 5 9 9 , 8 4 - 3 8 7 , 2 1 2 6 5 , 6 2 5 5 , 3 2 1 - - - 7 9 8 , 2 4 1 7 8 8 , 2 5 1 - - - - - 9 2 7 ) 4 9 ( 5 3 6 5 1 0 , 7 ) 2 8 ( 4 4 2 0 7 1 , 6 8 1 3 , 1 - - - - - - - 2 6 0 9 4 9 8 1 , 2 2 9 0 2 , 6 3 6 6 , 7 5 1 3 1 6 6 8 1 , - 5 8 8 8 0 9 , 1 - - - 3 2 9 6 1 7 , 3 7 9 8 , 2 8 1 2 D 2 C 3 C 5 C 6 C 7 C 8 C ) c ( 5 B l i s t n e a v u q e h s a c d n a h s a C l s e b a v e c e R i l i e b a v e c e r x a t e m o c n I l d e h s e i t r e p o r p t n e m t s e v n I s e i t r e p o r p t n e m t s e v n I l e a s r o f s t e s s a l i a c n a n F i s t e s s a r e h t O s t e s s a e b g n a t n i l I s t e s s a l a t o T s e i t i l i b a i L l s e b a y a P l e u a v r i a f t a p a w s e t a r t s e r e t n I s n o i s i v o r P i s g n w o r r o B p u o r G l a t i p a C 0 6 3 o t y t i l i b a i L ' l s r e d o h y c i l o p s d n u F t fi e n e B y t i l i b a i l x a t d e r r e f e D s e i t i l i b a i l l a t o T s t e s s a t e N y t i l i b a i l 0 0 0 ’ $ s n o i t a n m i i l E d e l l o r t n o C s d n u F 0 0 0 ’ $ s d n u F 0 0 0 ’ $ y t r e p o r P s t fi e n e B t e e h s 0 0 0 ’ $ e c n a l a b g n i t a r e p O e t a r o p r o C s t n e m t s e v n I t n e m e g a n a M t n e m e g a n a M - o C s d n o B s d n u F t n e m t s e v n I y t r e p o r P 0 0 0 ’ $ 0 0 0 ’ $ 0 0 0 ’ $ 0 0 0 ’ $ s e t o N 8 1 0 2 e n u J 0 3 t a s A s t e s s A ) D E U N T N O C I ( T E E H S E C N A L A B T N E M G E S 1 C 62 62 62 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 62 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019 2 3 8 , 4 4 6 ) 1 5 6 , 1 1 ( 5 0 5 , 0 3 3 8 7 9 , 5 2 3 9 5 0 , 8 4 9 1 9 , 7 7 2 ) 9 0 0 , 2 ( ) 8 7 3 ( 7 7 3 , 5 0 0 0 ’ $ s n o i t a n i m i l E s d n u F 0 0 0 ’ $ y t r e p o r P d e l l o r t n o C s d n u F 0 0 0 ’ $ s t fi e n e B 0 9 6 8 4 1 , 0 2 0 0 4 , 6 - - - - - - - 0 0 4 , 3 6 0 0 1 , 7 4 1 2 5 6 , 5 9 9 5 , 4 3 2 7 4 - - - - - - - - - t e e h s 0 0 0 ’ $ e c n a l a b y r o t u t a t S 4 1 9 , 1 0 1 4 6 1 , 1 2 1 6 1 6 3 0 , 2 0 0 4 , 3 6 0 0 1 , 7 4 1 3 6 6 , 7 5 1 1 6 1 , 1 4 7 9 5 , 1 1 1 4 , 3 2 7 7 6 , 9 4 3 9 1 1 , 3 9 0 1 , 7 9 6 1 6 1 , 1 4 4 - - - - - - - - - - - 9 3 7 , 5 4 2 ) 0 0 0 , 2 ( 8 5 7 , 5 1 1 ) 9 0 0 , 4 ( ) 1 5 6 , 9 ( 1 8 4 , 6 5 1 8 1 0 , 9 5 0 5 1 , 6 3 4 7 , 7 5 3 7 7 6 , 9 4 3 - ) 1 3 0 , 3 ( ) 0 6 8 , 3 ( 4 9 8 , 6 8 1 4 9 7 , 1 9 3 6 4 6 , 9 3 5 9 9 , 8 4 7 9 8 , 2 4 1 7 8 8 , 2 5 1 ) 4 9 ( 5 3 6 5 1 0 , 7 3 2 9 6 1 7 , 3 7 9 8 , 2 8 1 0 7 2 , 8 3 1 , 1 ) 0 6 6 , 3 1 ( 9 9 4 , 5 1 2 3 4 7 , 7 5 3 1 4 6 , 8 8 4 8 7 , 5 9 2 0 5 6 , 7 5 0 4 , 2 3 ) 9 0 0 , 2 ( 6 1 9 , 1 6 4 8 , 6 2 6 2 4 , 1 1 9 2 7 8 0 9 , 1 7 C t e e h s 0 0 0 ’ $ e c n a l a b g n i t a r e p O e t a r o p r o C s t n e m t s e v n I t n e m e g a n a M t n e m e g a n a M - o C s d n o B s d n u F t n e m t s e v n I y t r e p o r P 0 0 0 ’ $ 0 0 0 ’ $ 0 0 0 ’ $ 0 0 0 ’ $ s e t o N 8 1 0 2 e n u J 0 3 t a s A ) D E U N I T N O C ( T E E H S E C N A L A B T N E M G E S 1 C - - 3 6 6 , 7 5 1 8 8 6 , 8 7 5 2 6 5 , 6 7 9 5 , 1 1 8 9 , 1 3 1 9 3 9 , 2 2 - - - - - 2 1 7 9 2 4 , 8 9 3 9 , 2 2 - - - - - - - - - 3 8 7 , 2 1 2 6 5 , 6 2 5 5 , 3 2 1 - - - - - - - - - 9 8 3 , 6 7 1 5 1 , 7 1 ) 9 2 5 ( 6 3 0 , 2 ) 7 3 9 ( 0 3 7 , 1 0 9 2 , 3 9 9 4 , 6 3 1 3 5 , 1 1 4 3 3 , 6 ) 2 8 ( 4 4 2 0 7 1 , 6 8 1 3 , 1 2 6 0 9 4 9 8 1 , 2 2 9 0 2 , 6 - - - - - - - 3 6 6 , 7 5 1 3 1 6 , 6 8 1 5 8 8 2 D 2 C 3 C 5 C 6 C 8 C s t n e l a v i u q e h s a c d n a h s a C s t e s s A e l b a v i e c e r x a t e m o c n I s e l b a v i e c e R s t e s s a l a i c n a n i F s t e s s a r e h t O d l e h s e i t r e p o r p t n e m t s e v n I e l a s r o f s e i t r e p o r p t n e m t s e v n I s t e s s a e l b i g n a t n I p u o r G l a t i p a C 0 6 3 o t y t i l i b a i L s t e s s a l a t o T s e i t i l i b a i L s e l b a y a P s n o i s i v o r P s g n i w o r r o B ) c ( 5 B y t i l i b a i l x a t d e r r e f e D e u l a v r i a f t a p a w s e t a r t s e r e t n I ' s r e d l o h y c i l o p s d n u F t fi e n e B y t i l i b a i l s e i t i l i b a i l l a t o T s t e s s a t e N C Assets and liabilities C3 RECEIVABLES Receivables from related parties Other receivables Contract assets - Development Notes C2(a) 2019 $’000 51,708 10,846 7,308 69,862 2018 $’000 11,682 9,482 - 21,164 The Group does not hold any collateral or other credit enhancements over these balances nor does it have a legal right of offset against any amounts owed by the Group to the counterparty. (A) RECEIVABLES FROM RELATED PARTIES The following amounts were owed by related parties of the Group at the end of the financial year: Management fees owing from property funds managed by Centuria Sales fees owing from property funds managed by Centuria Performance fees owing from property funds managed by Centuria Acquisition fee receivable from Centuria 80 Grenfell Fund Distribution receivable from Centuria Industrial REIT Recoverable expenses owing from property funds managed by Centuria Distribution receivable from Centuria Metropolitan REIT Receivable from Over Fifty Guardian Friendly Society Distribution receivable from Centuria Diversified Property Fund Distribution receivable from Centuria Scarborough House Fund Redemption funds receivable from Centuria Diversified Property Fund Receivables from debt funds managed by Centuria Interest receivable from Centuria 80 Grenfell Fund 2019 $ 4,324,197 985,000 22,296,386 - 2,958,601 1,404,810 2,814,461 435,035 110,393 699 16,000,000 378,571 - 2018 $ 3,126,289 - 357,000 1,765,177 2,346,074 1,486,241 1,250,856 758,951 28,378 613 435,781 64,000 62,799 51,708,153 11,682,159 RECOGNITION AND MEASUREMENT Receivables are initially recognised at fair value and subsequently at amortised cost using the effective interest rate method, less an allowance for impairment. Due to the short-term nature of these financial rights, their carrying amounts are estimated to represent their fair values. (i) Contract balances The timing of revenue recognition, billings and cash collections results in billed accounts receivable (trade receivables) and unbilled receivables (contract assets) on the consolidated statement of financial position. In respect to the Social Affordable Housing Developments within the Property Funds Management segment, billing occurs subsequent to revenue recognition, resulting in contract assets. C3 FINANCIAL ASSETS Investments in trusts, shares and other financial instruments at fair value Investment in related party unit trusts at fair value Loans receivable from related parties Loans receivable(i) Reverse mortgage receivables(ii) Reverse mortgages - hedged item Notes C3(a) C3(b) 2019 $’000 281,757 14,571 - 6,066 26,702 27,018 356,114 2018 $’000 362,799 228,109 5,865 - 28,289 19,770 644,832 (i) This is an unsecured loan to a third party that accrues interest at 10% per annum. (ii) Whilst some mortgages are likely to be repaid during the next 12 months, the Group does not control the repayment date. 63 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 63 63 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019 C Assets and liabilities (A) INVESTMENTS IN RELATED PARTY UNIT TRUSTS CARRIED AT FAIR VALUE THROUGH PROFIT OR LOSS The following table details related party investments carried at fair value through profit and loss. Fair value $ 2019 Units held Ownership % Fair value $ 2018 Units held Ownership % Financial assets held by the Group Centuria Industrial REIT* Centuria Metropolitan REIT* - - - - 0% 0% 124,317,757 48,372,668 68,555,158 27,643,209 Centuria Diversified Property Fund 11,591,312 8,060,718 14.92% 7,050,751 5,250,001 Centuria Bottleyard Fund Centuria Rouse Hill Debt Fund - - - - 0% 0% 1,548,500 1,630,000 1,515,527 1,515,527 Centuria Scarborough House Fund 102,826 102,826 0.22% 102,826 102,826 11,694,138 203,090,519 Financial assets held by the Benefit Funds Centuria Metropolitan REIT* Centuria Industrial REIT* - - - - 0% 0% 17,454,984 7,038,300 2,601,467 1,012,244 Centuria Iskia Development Fund 1,850,000 1,850,000 15.83% 1,850,000 1,850,000 Centuria Bottleyard Fund Centuria SOP Fund - - 0% 1,425,000 1,500,000 1,026,800 1,000,000 3.28% 951,400 1,000,000 Centuria Rouse Hill Debt Fund - - 0% 735,716 735,716 19.48% 11.39% 18.88% 14.17% 18.20% 0.22% 2.90% 0.41% 15.83% 13.04% 3.28% 8.83% 2,876,800 14,570,938 25,018,567 228,109,086 * These investments which were previously held as related party investments are equity accounted for the year ended 30 June 2019. See Note E1 for details. Also, see below for a movement of the related party unit trusts during the year. Opening balance Investment purchases Return of investment Disposal Fair value gain Carrying value transferred to equity accounted investments 30 June 2019 $’000 228,109 139,424 (5,895) (16,000) 2,693 (333,760) 14,571 (B) LOANS RECEIVABLE FROM RELATED PARTIES The following short-term loans were receivable from related parties of the Group at the end of the financial year: Centuria 80 Grenfell Street Fund 2019 $ 2018 $ - 5,865,000 64 64 64 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019C Assets and liabilities RECOGNITION AND MEASUREMENT Policy application at 30 June 2018 All financial assets are recognised and derecognised on trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned, and are initially measured at fair value plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value. Financial assets are classified as financial assets at fair value through profit or loss when the financial asset is either held for trading or it is designated as at fair value through profit or loss. Financial assets at fair value through profit and loss are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset and is included in the statement of comprehensive income. Reverse mortgage loan receivable financial assets are recognised at FVTPL. Policy application from 1 July 2018 AASB 9 contains three principal classification categories for financial assets: – measured at amortised cost; – fair value through other comprehensive income (FVOCI); and – fair value through profit and loss (FVTPL). The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows. (i) Financial assets at amortised cost Loans and receivables are initially recognised at fair value and subsequently at amortised cost using the effective interest rate method less any allowance under the ECL model. (ii) Recoverability of loans and receivables At each reporting period, the Group assesses whether financial assets carried at amortised cost are ‘credit-impaired’. A financial asset is ‘credit-impaired’ when one or more events that has a detrimental impact on the estimated future cash flows of the financial asset have occurred. The Group recognises loss allowances at an amount equal to lifetime ECL on trade and other receivables. Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets. Lifetime ECLs are the ECLs that result from all possible default events over the expected life of the trade receivables and are a probability-weighted estimate of credit losses. Credit losses are measured as the difference between cash flows due to the Group in accordance with the contract and the cash flows that the Group expects to receive. The Group analyses the age of outstanding receivable balances and applies historical default percentages adjusted for other current observable data as a means to estimate lifetime ECL, including forecasts of interest rates and inflation, as well as the financial stress of counterparties and their ability to operate as a going concern. Debts that are known to be uncollectable are written off when identified. (iii) Financial assets at fair value through profit and loss All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets. On initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI or at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise. A financial asset (unless it is a trade receivable without a significant financing component that is initially measured at the transaction price) is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition. Financial assets at FVTPL are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognised in profit or loss. Financial assets recognised at FVTPL include reverse mortgage loan receivables, reverse mortgage derivatives and investments in trusts. CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 65 65 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019C Assets and liabilities C4 INVESTMENT PROPERTIES HELD FOR SALE In June 2018, the Group Group decided to sell the investment properties within Centuria Retail Fund. Windsor Marketplace, Windsor NSW was sold during December 2018 for $22,600,000, however City Centre Plaza Rockhampton QLD was taken off the market and is no longer held for sale and has been reclassified as an investment property. Property City Centre Plaza, Rockhampton QLD Windsor Marketplace, Windsor NSW 2019 $’000 - - - 2018 $’000 40,000 23,400 63,400 The fair values listed above do not include estimated selling costs which are expected to be incurred upon disposal. RECOGNITION AND MEASUREMENT Investment properties are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. These investment properties are carried at fair value. The valuation techniques to determine the fair value of investment properties held for sale are the same as the valuation techniques of investment properties described in Note C5(a). C5 INVESTMENT PROPERTIES Opening balance Capital improvements and associated costs Loss on fair value Change in deferred rent and lease incentives Deconsolidation of Havelock House Fund Sale of investment property Transfer from/(to) investment properties held for sale Closing balance ^ 2019 $’000 147,100 1,726 (10,705) (621) - - 40,000 177,500 2018 $’000 257,100 3,985 (3,041) 2,456 (28,000) (22,000) (63,400) 147,100 ^ The carrying amount of investment properties includes components related to deferred rent, capitalised lease incentives and leasing fees amounting to $12,000,000 (30 June 2018: $9,387,000). Property 111 St George Terrace, Perth WA City Centre Plaza, Rockhampton Qld Total fair value KEY ESTIMATE AND JUDGEMENTS 2019 $’000 150,000 27,500 177,500 2018 $’000 147,100 - 147,100 2019 Capitalisation rate % 7.00% 8.75% 2018 Discount rate % 7.25% 8.75% 2018 Valuer Colliers Urbis (A) VALUATION TECHNIQUES AND SIGNIFICANT UNOBSERVABLE INPUTS The fair value of the investment properties were determined by the Directors of the Responsible Entity of the relevant funds or by an external, independent valuer having an appropriate recognised professional qualification and recent experience in the location and category of the properties being valued. Fair value is based on market values, being the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. The valuations were prepared by considering the following valuation methodologies: – Capitalisation approach: the annual net rental income is capitalised at an appropriate market yield to arrive at the property’s 66 66 66 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019C Assets and liabilities market value. Appropriate capital adjustments are then made where necessary to reflect the specific cash flow profile and the general characteristics of the property. – Discounted cash flow approach: this approach incorporates the estimation of future annual cash flows over a 10 year period by reference to expected rental growth rates, ongoing capital expenditure, terminal sale value and acquisition and disposal costs. The present value of future cash flows is then determined by the application of an appropriate discount rate to derive a net present value for the property. – Direct comparison approach: this approach identifies comparable sales on a dollar per square metre of lettable area basis and compares the equivalent rates to the property being valued to determine the property’s market value. The valuations reflect, when appropriate, the type of tenants actually in occupation or responsible for meeting lease commitments or likely to be in occupation after letting of vacant accommodation and the market’s general perception of their credit-worthiness; the allocation of maintenance and insurance responsibilities between the lessor and lessee; and the remaining economic life of the property. It has been assumed that whenever rent reviews or lease renewals are pending with anticipated reversionary increases, all notices and, where appropriate, counter notices have been served validly and within the appropriate time. The most significant unobservable input used in the above valuation techniques and its relationship with fair value measurement is the capitalisation rate. The higher/lower the rate, the lower/higher the fair value. (B) FAIR VALUE MEASUREMENT The fair value measurement of investment properties has been categorised as a Level 3 fair value as it is derived from valuation techniques that include inputs that are not based on observable market data (unobservable inputs). CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 67 67 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019C Assets and liabilities C6 INTANGIBLE ASSETS Indefinite life management rights Goodwill Balance at the beginning of the period Acquired goodwill Acquired management rights 2019 $’000 92,128 65,535 157,663 2019 $’000 2018 $’000 92,128 65,535 157,663 2018 $’000 157,663 157,663 - - - - 157,663 157,663 Goodwill and management rights are solely attributable to the Property Funds Management cash generating unit with recoverability determined by a value in use calculation using profit and loss projections covering a five year period, with a terminal value determined after five years. RECOGNITION AND MEASUREMENT (i) Indefinite life management rights Management rights acquired in a business combination are initially measured at fair value and reflect the right to provide asset and fund management services in accordance with the management agreements. (ii) Goodwill Goodwill acquired in a business combination is measured at cost and subsequently measured at cost less any impairment losses. The cost represents the excess of the cost of a business combination over the fair value of the identifiable assets, liabilities and contingent liabilities acquired. (iii) Impairment Goodwill and intangible assets that have an indefinite useful life are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are reviewed 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. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows that are largely independent of the cash inflows from other assets or groups of assets (cash generating units or CGUs). Non- financial assets other than goodwill that were previously impaired are reviewed for possible reversal of the impairment at each reporting date. KEY ESTIMATES AND JUDGEMENTS The key assumptions used in the value in use calculations for the Property Funds Management cash-generating unit are as follows: REVENUE Revenues in 2020 are based on the Board approved budget for 2020 and are assumed to increase at a rate of 7.5% (2018: 7.5%) per annum for years 2021-2023. The directors believe this is a prudent and achievable growth rate based on past experience. EXPENSES Expenses in 2020 are based on the budget for 2020 and are assumed to increase at a rate of 5.0% (2018: 5.0%) per annum for the years 2021-2023. The directors believe this is an appropriate growth rate based on past experience. DISCOUNT RATE Discount rates are determined to calculate the present value of future cash flows. A pre-tax rate of 9.53% (2018: 10.28%) is applied to cash flow projections. In determining the appropriate discount rate, regard has been given to relevant market data as well as Company specific inputs. TERMINAL GROWTH RATE Beyond 2023, a growth rate of 3.0% (2018: 3.0%), in line with long term economic growth, has been applied to determine the terminal value of the asset. 68 68 68 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019 C Assets and liabilities SENSITIVITY TO CHANGES IN ASSUMPTIONS As at 30 June 2019, the estimated recoverable amount of intangibles including goodwill relating to the Property Funds Management cash-generating unit exceeded its carrying amount by $188.1 million (2018: $175.2 million). The table below shows the key assumptions used in the value in use calculation and the amount by which each key assumption must change in isolation in order for the estimated recoverable amount to be equal to its carrying value. Assumptions used in value in use calculation Rate required for recoverable amount to equal carrying value 7.50% (0.40)% 9.53% 17.55% 5.00% 12.63% Revenue growth rate (average) Pre-tax discount rate Expenses growth rate C7 PAYABLES Sundry creditors (i) Dividend/distribution payable Accrued expenses 2019 $’000 13,869 19,180 9,183 42,232 2018 $’000 10,880 12,813 8,712 32,405 (i) Sundry creditors are non-interest bearing liabilities and are payable on commercial terms of 7 to 60 days. RECOGNITION AND MEASUREMENT Payables are recognised when the Group becomes obliged to make future payments resulting from the purchase of goods and services. Due to the short-term nature of these financial obligations, their carrying amounts are estimated to represent their fair values. C8 BORROWINGS Fixed rate secured notes Floating rate secured notes Reverse mortgage bill facilities and notes Bank loans in Controlled Property Funds Borrowing costs capitalised Notes C8(a) C8(a) C8(b) C8(c) 2019 $’000 128,000 75,000 8,194 94,309 (2,393) 303,110 2018 $’000 83,000 40,000 8,429 115,758 (1,448) 245,739 The terms and conditions relating to the above facilities are set out below. (A) SECURED NOTES The Group issued Tranche 1 of secured corporate notes to the value of $100,000,000 on 21 April 2017. This consisted of an issue of $40,000,000 floating rate secured notes and $60,000,000 7% fixed rate secured notes. The Group issued Tranche 2 to the value of $23,000,000 7% fixed rate secured notes on 11 September 2017. These notes mature on 21 April 2021 and are secured against assets within certain subsidiaries of the Centuria Capital Fund Group. The Group issued Tranche 3 of secured corporate notes to the value of $80,000,000 on 22 October 2018. This consisted of an issue of $35,000,000 floating rate secured notes and $45,000,000 6.5% fixed rate secured notes. These notes mature on 21 April 2023 and are secured against assets within certain subsidiaries of Centuria Capital Fund. (B) REVERSE MORTGAGE BILL FACILITIES AND NOTES (SECURED) As at 30 June 2019, the Group had $8,194,000 (2018: $8,429,000) non-recourse notes on issue to ANZ Bank, secured over the remaining reverse mortgages held in Senex Warehouse Trust No.1 (a subsidiary of the Group) due to mature on 30 September 2020. The facility limit as at 30 June 2019 is $9,100,000 (2018: $10,000,000) and is reassessed every 6 months with a view to reducing the facility in line with the reduction in the reverse mortgage book. Under the facility agreement, surplus funds (being mortgages repaid (including interest) less taxes, administration expenses and any hedge payments) are required to be applied against the facility each month. CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 69 69 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019 C Assets and liabilities Facility Amount used at reporting date Amount unused at reporting date 2019 $’000 9,100 (8,194) 906 2018 $’000 10,000 (8,429) 1,571 (C) BANK LOANS - CONTROLLED PROPERTY FUNDS (SECURED) Each controlled property fund has debt facilities secured by first mortgage over each of the fund’s investment property and a first ranking fixed and floating charge over all assets of each of the funds. Details of the amounts drawn and the maturity of each facility are as follows: Fund 30 June 2019 Centuria 111 St Georges Terrace Fund Centuria Retail Fund 30 June 2018 Centuria 111 St Georges Terrace Fund Centuria Retail Fund Current/ non-current classification Maturity date Facility limit $’000 Funds available $’000 Draw down $’000 Borrowing costs $’000 Draw down $’000 Non-current 30 June 2022 90,000 10,521 Current 31 December 2019 14,938 - 79,479 14,938 (107) 79,372 (1) 14,937 94,309 Current 30 June 2019 83,800 4,320 79,480 (130) 79,350 Current 31 July 2018 37,400 992 36,408 - 36,408 115,758 RECOGNITION AND MEASUREMENT Borrowings are initially recognised at fair value, net of transaction costs. They are subsequently measured at amortised cost using the effective interest rate method. C9 COMMITMENTS AND CONTINGENCIES (A) OPERATING LEASES (i) Group as a leasee The Group has commercial leases with respect to its Sydney and Melbourne office premises. Future minimum rentals payable under operating leases are as follows: Not longer than 1 year Longer than 1 year and not longer than 5 years Longer than 5 years (ii) Group as a lessor The Group leases out its investment properties under operating leases. The future minimum lease payments receivable under non-cancellable leases are as follows: 2019 $’000 2,241 10,023 14,691 26,955 2018 $’000 865 158 - 1,023 70 70 70 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019C Assets and liabilities Not longer than 1 year Longer than 1 year and not longer than 5 years Longer than 5 years 2019 $’000 10,201 42,376 63,631 116,208 2018 $’000 13,574 39,120 27,176 79,870 (B) COMMITTMENT AND CONTINGENCIES The Group has provided bank guarantees of $3,279,301 for commercial leases with respect to its Sydney and Melbourne office premises. These bank guarantees are cash collateralised. The above guarantees are issued in respect of the Group and do not constitute an additional liability to those already existing in interest bearing liabilities on the statement of financial position. As at 30 June 2019, the Group has outstanding commitments of $58.9 million in relation to the proposed funding support for Heathley funds. The Group will seek to raise these funds by using its unlisted distribution network and will manage and underwrite any shortfall in the fund raising to satisfy the overall funding requirements. This is in addition to the Group’s agreed acquisition price of $24.4 million which will be payable on successful completion of the Heathley transaction. The Directors of the Group are not aware of any other contingent liabilities in relation to the Group, other than those disclosed in the financial statements, which should be brought to the attention of securityholders as at the date of completion of this report. RECOGNITION AND MEASUREMENT When the terms of a lease transfer substantially all the risks and rewards of ownership to the Group, the lease is classified as a finance lease. All other leases are classified as operating leases. (i) Group as a leasee Operating lease payments are recognised as an expense on a straight-line basis over the term of the lease, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed. (ii) Group as a lessor Lease income from operating leases where the Group is a lessor is recognised in income on a straight-line basis over the lease term. C10 CONTRIBUTED EQUITY Centuria Capital Limited Balance at beginning of the period Equity settled share based payments expense Stapled securities issued Cost of equity raising Balance at end of period Centuria Capital Fund (non-controlling interests) 2019 2018 No. of securities 304,793,174 1,747,653 77,016,505 - $’000 No. of securities 98,770 229,815,736 966 29,425 (997) 875,401 74,102,037 - 383,557,332 128,164 304,793,174 2019 2018 No. of securities $’000 No. of securities $’000 77,323 535 21,494 (582) 98,770 $’000 Balance at beginning of the period 304,793,174 244,930 229,815,736 170,672 Equity settled share based payments expense Cost of equity raising Stapled securities issued Special non-cash dividend/capital reallocation(i) 1,747,653 - 77,016,505 - - 875,401 (2,186) 70,694 30,000 - 74,102,037 - - (2,888) 77,146 - Balance at end of the period 383,557,332 343,438 304,793,174 244,930 Fully paid ordinary securities carry one vote per security and carry the right to distributions. On 29 June 2017, the Group issued 20,098,470 options to subscribe for stapled securities. The options have an exercise price of $1.30 per stapled security and expire on 29 June 2022. (i) On 29 June 2019, a special non-cash dividend was paid by Centuria Capital Limited of $30,000,000 which was reinvested as capital into Centuria Capital Fund. RECOGNITION AND MEASUREMENT Incremental costs directly attributed to the issue of ordinary shares are accounted for as a deduction from equity, net of any tax effects. CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 71 71 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019D Cash flows D1 OPERATING SEGMENT CASH FLOWS (I) Cash flows from operating activities Management fees received Performance fees received Distributions received Interest received Payments to suppliers and employees Income tax paid Interest paid Net cash provided by operating activities Cash flows from investing activities Repayment of loans by related parties Collections from reverse mortgage holders Purchase of investments in related parties Purchase of other investments Payments for plant and equipment Loans provided to other parties Cash contribution to related party Purchase of equity accounted investments Proceeds from sale of related party investments Loans to related parties for purchase of properties Proceeds from sale of investments Loans repaid by other parties Net cash used in investing activities Cash flows from financing activities Proceeds from issue of securities Proceeds from borrowings Repayment of borrowings Distributions paid Capitalised borrowing costs paid Equity raising costs paid Net cash provided by financing activities Net increase in operating cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period 2019 $’000 2018 $’000 55,406 1,361 27,246 1,509 (56,420) (242) (11,261) 17,599 5,865 952 (173,487) (72,262) (3,713) (5,925) (20,000) (23,960) 3,552 - 136,899 - 54,632 26,738 15,529 2,268 (36,342) (15,353) (9,281) 38,191 4,650 2,113 (123,762) (52,723) (788) (25,980) - - 64,009 (5,865) - 25,980 (152,079) (112,366) 100,119 80,000 (235) (29,111) (1,744) (3,179) 145,850 11,370 76,389 87,759 98,639 25,375 (718) (24,310) (446) (3,710) 94,830 20,655 55,734 76,389 (i) (i) The operating segment cash flows support the segment note disclosures of Centuria Capital Group and provide details in relation to the Operating Segment cash flows performance of the Group. The Operating Segment cash flows exclude the impact of cash flows attributable to Benefit Funds and Controlled Property Funds. Refer to page 46 of the consolidated financial statements for the full statutory cash flow statement of the Group. 72 72 72 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019D Cash Flows D2 CASH AND CASH EQUIVALENTS Included in cash and cash equivalents of $124,673,000 attributable to shareholders is $39,359,000 (2018: $27,268,000) relating to amounts held by Centuria Life Limited, Senex Warehouse Trust No.1 and the Benefit Funds which is not readily available for use by the Group. D3 RECONCILIATION OF PROFIT FOR THE PERIOD TO NET CASH FLOWS FROM OPERATING ACTIVITIES Profit for the year Add (deduct) non-cash items: Depreciation and amortisation Impairment of seed capital Share-based payment expense Amortisation of borrowing costs Profit on sale of investment property Fair value movement of financial assets Interest revenue from reverse mortgages Interest expense reverse mortgage facility Contract asset- development Non-cash performance and sales fees Equity accounted profit in excess of distribution paid Unrealised gain on investment properties Amortisation of lease incentives Costs paid for debt issuance Provision for doubtful debts Changes in net assets and liabilities: (Increase)/decrease in assets: Receivables Prepayments Increase/(decrease) in liabilities: Other payables Tax provision Deferred tax liability Provisions Policyholder liability Net cash flows provided by operating activities 2019 $’000 50,941 460 - 966 799 - (8,434) (2,530) 1,495 (7,278) (22,270) (10,415) 10,695 1,602 1,744 - (1,406) (452) (2,699) 975 7,375 1,454 (10,118) 12,904 2018 $’000 56,190 370 380 662 58 (2,000) (13,894) (2,453) - - - - 5,790 1,650 446 100 (7,526) (67) (2,660) (3,113) 820 515 1,662 36,930 RECOGNITION AND MEASUREMENT For the purposes of the statement of cash flows, cash and cash equivalents includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash, which are subject to an insignificant risk of changes in value and have a maturity of three months or less at the date of acquisition. Bank overdrafts are shown within borrowings in the statement of financial position. CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 73 73 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019 E Group Structure E1 INTERESTS IN ASSOCIATES AND JOINT VENTURES During the year, the Group’s investment in Centuria Metropolitan REIT (CMA) and Centuria Industrial REIT (CIP) exceeded 20% and significant influence was established. As a result, these investments which were previously recognised as financial assets at fair value are now accounted for using the equity method. Set out below are the associates of the Group as at 30 June 2019 which, in the opinion of the Directors, are material to the Group and are accounted for using the equity method. The entities listed below have share capital consisting solely of ordinary units, which are held directly by the Group. The country of incorporation or registration is Australia which is also their principal place of business, and the proportion of ownership interest is the same as the proportion of voting rights held. Name of entity Centuria Metropolitan REIT Centuria Industrial REIT Total equity accounted investments % of ownership interest 30 June 2019 % Principal activity Quoted fair value 30 June 2019 $’000 Carrying amount 30 June 2019 $’000 20.76 Property investment 24.15 Property investment 207,104 200,138 407,242 203,435 183,278 386,713 (A) SUMMARISED FINANCIAL INFORMATION FOR ASSOCIATES AND JOINT VENTURES The tables below provide summarised financial information for those associates. The information disclosed reflects the amounts presented in the consolidated financial statements of the relevant associates and not the Group share of those amounts. Summarised balance sheet (excluding intangibles) Centuria Metropolitan REIT 30 June 2019 $’000 Centuria Industrial REIT 30 June 2019 $’000 Total 30 June 2019 $’000 Cash and cash equivalents Investment properties held for sale Other current assets Total current assets Investment properties Total tangible non-current assets Other current liabilities Total current liabilities Borrowings Other non-current liabilities Total non-current liabilities Net tangible assets Group share in % Group share Goodwill Carrying amount Movements in carrying amounts of equity accounted investments Opening balance Carrying value transferred from financial assets Investment Share of net profit after tax Distributions received/receivable Closing balance 17,546 78,500 5,544 101,590 1,321,475 1,321,475 30,451 30,451 497,222 7,180 504,402 888,212 20.76 184,392 19,043 203,435 - 179,736 20,000 13,369 (9,670) 203,435 9,348 11,400 9,144 29,892 1,209,850 1,209,850 28,724 28,724 468,431 3,541 471,972 739,046 24.15 178,544 4,734 183,278 - 154,024 23,960 16,844 (11,550) 183,278 26,894 89,900 14,688 131,482 2,531,325 2,531,325 59,175 59,175 965,653 10,721 976,374 1,627,258 362,936 23,777 386,713 - 333,760 43,960 30,213 (21,220) 386,713 74 74 74 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 74 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019E Group Structure Summarised statement of comprehensive income Revenue Interest income Other income Net gain on fair value of investment properties Loss on fair value of derivative financial instruments Finance costs Other expenses Centuria Metropolitan REIT 30 June 2019 $’000 Centuria Industrial REIT 30 June 2019 $’000 Total 30 June 2019 $’000 108,859 93,863 202,722 334 8 7,143 (6,752) (22,110) (33,910) 195 602 53,808 (3,581) (21,496) (34,563) 529 610 60,951 (10,333) (43,606) (68,473) Profit from continuing operations 53,572 88,828 142,400 Profit for the year Other comprehensive income Total comprehensive income 53,572 - 53,572 88,828 - 88,828 142,400 - 142,400 RECOGNITION AND MEASUREMENT Associates are all entities over which the Group has significant influence but not control or joint control. This is generally the case where the Group holds between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting, after initially being recognised at cost. Under the equity method of accounting, the investments are initially recognised at cost and adjusted thereafter to recognise the Group’s share of the post-acquisition profits or losses of the investee in profit or loss, and the Group’s share of movements in other comprehensive income of the investee in other comprehensive income. Dividends received or receivable from associates and joint ventures are recognised as a reduction in the carrying amount of the investment. When the Group’s share of losses in an equity-accounted investment equals or exceeds its interest in the entity, including any other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the other entity. Unrealised gains on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group’s interest in these entities. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of equity accounted investees have been changed where necessary to ensure consistency with the policies adopted by the Group. The carrying amount of equity-accounted investments is tested for impairment. E2 BUSINESS COMBINATION (A) CURRENT YEAR During the current year, there were no business combinations. (B) PRIOR YEAR During the prior year, there were no business combinations. E3 INTERESTS IN MATERIAL SUBSIDIARIES The Group’s principal subsidiaries at 30 June 2019 are set out below. Unless otherwise stated, they have issued capital consisting solely of ordinary shares or units that are held directly by the Group, and the proportion of ownership interests held equals the voting rights held by the Group. The subsidiaries of the Group were incorporated in Australia which is also their principal place of business. The parent entity of the Group is Centuria Capital Limited. CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 75 75 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019E Group Structure Name of subsidiary Centuria Capital Fund (refer to Note A1) A.C.N. 062 671 872 Pty Limited Belmont Road Development Pty Limited Belmont Road Management Pty Limited Centuria Belmont Road Development Fund Centuria Canberra No. 3 Pty Limited Centuria Capital No. 2 Fund Centuria Capital No. 2 Industrial Fund Centuria Capital No. 2 Office Fund Centuria Capital No. 3 Fund Centuria Capital No. 4 Fund Centuria Capital No. 5 Fund Centuria Capital No. 7 Fund Centuria Capital Private Limited Centuria Developments (Cardiff) Pty Limited Centuria Developments (Mann Street) Pty Limited Centuria Developments (Mayfield) Pty Limited Centuria Developments (Young Street) Pty Limited Centuria Developments Pty Limited Centuria Employee Share Fund Pty Ltd Centuria Finance Pty Ltd Centuria Funds Management Limited Centuria Industrial Property Services Pty Limited Centuria Institutional Investments No. 3 Pty Limited Centuria Investment Holdings Pty Limited Centuria Investment Management (CDPF) Pty Ltd Centuria Investment Services Pty Limited Centuria Lane Cove Debt Fund Centuria Life Limited Centuria Nominees No. 3 Pty Limited Centuria Platform Investments Pty Limited Centuria Properties No. 3 Limited Centuria Property Funds Limited Centuria Property Funds No. 2 Limited Centuria Property Services Pty Limited Centuria Strategic Property Limited Centuria SubCo Pty Limited Over Fifty Capital Pty Ltd Over Fifty Funds Management Pty Ltd Over Fifty Investments Pty Ltd Over Fifty Seniors Equity Release Pty Ltd Senex Warehouse Trust No. 1 76 76 76 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 Ownership interest % 2019 2018 0% (100% NCI) 0% (100% NCI) 100% 100% 100% -% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 0% 100% 100% 100% 100% 100% 100% 100% 100% 100% 27% 100% 100% 100% 100% 100% 0% 0% 0% 100% 0% 0% 0% 0% 0% 100% 100% 100% 0% 100% 100% 100% 100% 100% 100% 100% 0% 100% 100% 100% 100% 100% 0% 100% 100% 100% 100% 100% 76 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019E Group Structure RECOGNITION AND MEASUREMENT (i) Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company. The Group controls an entity when it 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 over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases. Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. The Company is required by AASB 10 Consolidated Financial Statements to recognise the assets, liabilities, income, expenses and equity of the benefit funds of its subsidiary, Centuria Life Limited (the “Benefit Funds”). The assets and liabilities of the Benefit Funds do not impact the net profit after tax or the equity attributable to the securityholders of the Company and the shareholders of the Company have no rights over the assets and liabilities held in the Benefit Funds. In order to reflect the assets and liabilities pertaining to the benefit funds an equal and offsetting policyholder liability is recognised on consolidation. On a consistent basis, on consolidation of the various income and expenses attributable to benefit funds an equal and opposite net change in policyholder liabilities is recorded in the statement of comprehensive income. The Company has majority representation on the Board of the Over Fifty Guardian Friendly Society Limited (Guardian). However, as Guardian is a mutual organisation, the Company has no legal rights to Guardian’s net assets, nor does it derive any benefit from exercising its power and therefore does not control Guardian. E4 PARENT ENTITY DISCLOSURE As at, and throughout the current and previous financial year, the parent entity of the Group was Centuria Capital Limited. Result of parent entity Profit or loss for the year Total comprehensive income for the year Financial position of parent entity at year end Total assets Total liabilities Net assets 2019 $’000 43,386 43,386 180,847 (50,557) 130,290 2018 $’000 13,147 13,147 104,332 (11,830) 92,502 The parent entity presents its assets and liabilities in order of liquidity. The assets of the parent entity mainly consist of cash, short term receivables, investments in subsidiaries and deferred tax assets. The liabilities of the parent entity mainly consist of short term payables. Total equity of the parent entity comprising of: Share capital Share-based incentive reserve Retained earnings/(loss) Total equity 128,143 2,102 45 130,290 98,770 1,896 (8,164) 92,502 (A) GUARANTEES ENTERED INTO BY THE PARENT ENTITY The parent entity has, in the normal course of business, entered into guarantees in relation to the debts of its subsidiaries during the financial year. (B) COMMITMENTS AND CONTINGENT LIABILITIES OF THE PARENT ENTITY The parent entity has bank guarantees of $3,279,301 for commercial leases with respect to its Sydney and Melbourne office premises. These bank guarantees are cash collateralised. The above guarantees are issued in respect of the parent entity and do not constitute an additional liability to those already existing in interest bearing liabilities on the statement of financial position. The Directors of the Company are not aware of any other contingent liabilities in relation to the parent entity, other than those disclosed in the financial statements. CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 77 77 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019F Other F1 SHARE-BASED PAYMENT ARRANGEMENTS (A) LTI PLAN DETAILS The Company has an Executive Incentive Plan (“LTI Plan”) which forms a key element of the Company’s incentive and retention strategy for senior executives under which Performance Rights (“Rights”) are issued. Each employee receives ordinary securities of the Group on vesting of the performance rights. No amounts are paid or payable by the recipient on receipt of the performance rights or on vesting. The performance rights carry neither rights to dividends nor voting rights prior to vesting. It is expected that future annual grants of performance rights will be made, subject to the Board’s determination of the overall performance of the Group and market conditions. The vesting of any performance rights awarded will be subject to attainment of appropriate performance hurdles and on the basis of continuing employment with the Group. Further details of the LTI Plan are included in the Audited remuneration report from page 32 to page 35. Performance rights outstanding at the beginning of the year Performance rights granted during the year Performance rights lapsed during the year Performance rights vested during the year Performance rights outstanding at the end of the year 2019 Number 5,368,687 2,276,559 (288,868) 2018 Number 5,103,963 2,113,780 (458,129) (1,629,244) (1,390,927) 5,727,134 5,368,687 The performance objectives for 1,529,430 of the performance rights issued under Tranche 4 were met in full at 30 June 2019. As a result, these rights will vest on 14 August 2019. (B) MEASUREMENT OF FAIR VALUES The fair value of the rights was calculated using a binomial tree valuation methodology for the Rights with non-market vesting conditions and a Monte-Carlo simulation for the Rights with market vesting conditions. The inputs used in the measurement of the fair values at grant date of the rights were as follows: Expected vesting date Share price at the grant date Expected life Volatility Risk free interest rate Dividend yield Tranche 4 Tranche 5 Tranche 6 14 August 2019 31 August 2020 31 August 2021 $1.02 2.7 years 20% 1.94% 5.7% $1.46 $1.32 2.8 years 2.6 years 20% 1.96% 5.7% 18% 1.75% 6.5% The following table sets out the fair value of the rights at the respective grant date: Performance Condition Tranche 4 Tranche 5 Tranche 6 EPS Growth in FUM Absolute TSR $0.88 $0.88 $0.16 N/A $1.24 $0.62 N/A $1.11 $0.19 During the year, share based payment expenses were recognised of $1,172,048 (2018: $1,478,291). RECOGNITION AND MEASUREMENT Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of equity instruments that will eventually vest. At the end of each reporting period, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates with respect to non-market vesting conditions, if any, is recognised in profit for the year such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equity-settled employee benefits reserve. 78 78 78 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019F Other F2 GUARANTEES TO BENEFIT FUND POLICYHOLDERS Centuria Life Limited (CLL) provides a guarantee to policyholders of two of its Benefit Funds, Centuria Capital Guaranteed Bond Fund and Centuria Income Accumulation Fund as follows: If, when CLL, in light of the Bonds, is required under the bond rules to pay policy benefits to a policy owner as a consequence of the termination of the Bond or the maturity or surrender of a policy, and CLL determines that the sums to be paid to the policy owner from the bonds shall be less than the amounts standing to the credit of the relevant accumulation account balance, (or in the case of a partial surrender, the relevant proportion of the accumulation account balance), CLL guarantees to take all action within its control, including making payment from its management fund to the policy owner to ensure that the total sums received by the policy owner as a consequence of the termination, maturity or surrender equal the relevant accumulation account balance, (or) in the case of a partial surrender, the relevant proportion thereof. No provision has been raised in respect of these guarantees at this time for the following reasons: – The funds follow an investment strategy that is appropriate for the liabilities of the fund. The Fund cannot alter their investment strategy without the approval of the members and APRA, following a report from the appointed actuary; – The funds must meet the capital adequacy standards of APRA which results in additional reserves being held within the funds to enable the funds to withstand a “shock” in the market value of assets. If the Funds can withstand a shock in asset values and still meet their liabilities from their own reserves, then this further reduces the likelihood of the Funds calling on the guarantee provided; and – CLL also continues to meet the ongoing capital requirements set by APRA. F3 FINANCIAL INSTRUMENTS (A) MANAGEMENT OF FINANCIAL INSTRUMENTS The Board is ultimately responsible for the Risk Management Framework of the Group. The Group employs a cascading approach to managing risk, facilitated through delegation to specialist committees and individuals within the Group. The Group is exposed to a variety of financial risks as a result of its activities. These risks include market risk (including interest rate risk and price risk), credit risk and liquidity risk. The Group’s risk management and investment policies, approved by the Board, seek to minimise the potential adverse effects of these risks on the Group’s financial performance. These policies may include the use of certain financial derivative instruments. Centuria Life Limited (CLL) has also established an Investment Committee. The Investment Committee’s function is to manage and oversee the Benefit Fund investments in accordance with the investment objectives and framework. Specifically, it has responsibility for setting and reviewing strategic asset allocations, reviewing investment performance, reviewing investment policy, monitoring and reporting on the performance of the investment risk management policy and performing risk management procedures in respect of the investments. From time to time, the Group outsources certain parts of the investment management of the Benefit Funds to specialist investment managers including co-ordinating access to domestic and international financial markets, and managing the financial risks relating to the operations of the Group in accordance with an investment mandate set out in the Group’s constitution and the Benefit Funds’ product disclosure statements. The Benefit Funds’ investment mandates are to invest in equities and fixed interest securities via unit trusts, discount securities and may also invest in derivative instruments such as futures and options. The Group uses interest rate swaps to manage interest rate risk and not for speculative purposes in any situation. Hedging is put in place where the Group is either seeking to minimise or eliminate cash-flow variability, i.e., converting variable rates to fixed rates, or changes in the fair values of underlying assets or liabilities, i.e., to convert fixed rates to variable rates. Derivative financial instruments of the Benefit Funds, consolidated into the financial statements of the Group under AASB 10 Consolidated Financial Statements, are used only for hedging factual or anticipated exposures relating to investments. The use of financial derivatives in respect of Benefit Funds is governed by the Funds’ investment policies, which provide written principles on the use of financial derivatives. (B) CAPITAL RISK MANAGEMENT The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to stakeholders through the optimisation of debt and equity capital. This overall strategy remains unchanged from the prior year. The Group’s capital structure consists of net debt (borrowings, offset by cash and cash equivalents) and equity of the Group (comprising issued capital, reserves and retained earnings). The Group carries on business throughout Australia, primarily through subsidiary companies that are established in the markets in which the Group operates. The operations of Centuria Life Limited are regulated by APRA and the management fund of the Society has a minimum Prescribed Capital Amount (PCA) that must be maintained at all times. It is calculated monthly and these results are reported to the Board each month. The current level of share capital of Centuria Life Limited meets the PCA requirements. In addition, Centuria Property Funds Limited, Centuria Funds Management Limited and Centuria Property Fund No.2 Limited have AFS licences so as to operate registered property trusts. Regulations require these entities to hold a minimum net asset amount which is maintained by way of cash term deposits and listed liquid investments. CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 79 79 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019F Other Operating cash flows are used to maintain and, where appropriate, expand the Group’s funds under management as well as to make the routine outflows of tax, dividends and repayment of maturing debt. The Group reviews regularly its anticipated funding requirements and the most appropriate form of funding (capital raising or borrowings) depending on what the funding will be used for. The capital structure of the Benefit Funds (and management fund) consists of cash and cash equivalents, bill facilities and mortgage assets. The Benefit Funds also hold a range of financial assets for investment purposes including investments in unit trusts, equity and floating rate notes. The Investment Committee aims to ensure that there is sufficient capital for possible redemptions by unit holders of the Benefit Funds by regularly monitoring the level of liquidity in each fund. The Benefit Funds have no restrictions or specific capital requirements on the application and redemption of units. The Benefit Funds’ overall investment strategy remains unchanged from the prior year. (C) FAIR VALUE OF FINANCIAL INSTRUMENTS (i) Valuation techniques and assumptions applied in determining fair value The fair values of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices (includes listed redeemable notes, bills of exchange, debentures and perpetual notes). The fair values of other financial assets and financial liabilities (excluding derivative instruments) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions and dealer quotes for similar instruments. Discount rates are determined based on market rates applicable to the financial asset or liability. The valuation technique used to determine the fair value of the Group’s reverse mortgage loan book is as follows: – the weighted average reverse mortgage holders’ age is 80 years; – the future cash flows calculation is related to borrowers’ mortality rates and mortality improvements. The data is sourced from mortality tables provided by the actuary; – fixed or variable interest rates charged to borrowers are used to project future cash flows; – a redemption rate, which is based on historical loan redemption experience, applies to future cash flow forecast; and – year-end yield curve plus a credit margin is used to discount future cash flows back to 30 June 2019 to determine the fair value. (ii) Valuation techniques and assumptions applied in determining fair value of derivatives TThe fair values of derivative instruments are calculated using quoted prices. Where such prices are not available, discounted cash flow analysis is performed using the applicable yield curve for the duration of the instruments for non-optional derivatives, and option pricing models for optional derivatives. The valuation technique used to determine the fair value of the Fixed for Life interest rate swaps is as follows: – the weighted average reverse mortgage holders’ age is 80 years; – the expected future cash flows in relation to the swaps are based on reverse mortgage borrowers’ expected life expectancy sourced from mortality tables provided by the actuary; and the difference between the fixed swap pay rates and forward rates as of 30 June 2019 is used to calculate the future cash flows in relation to the swaps; and year-end yield curve plus a credit margin is used to discount future cash flows back to 30 June 2019 to determine the fair value. (iii) Fair value measurements recognised in the statement of financial position The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy for financial instruments measured at fair value. The table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable. – Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. – Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). – Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). There were no transfers between Level 1, 2 and 3 in the period. 80 80 80 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019F Other (iii) Fair value measurements recognised in the statement of financial position (continued) 30 June 2019 Financial assets Cash and cash equivalents Receivables Financial assets Financial assets Financial assets - mortgage backed assets Reverse mortgages receivables Financial liabilities Payables Benefit Funds policy holders' liability Borrowings (net of borrowing costs) Interest rate swaps - controlled property funds Interest rate swaps - reverse mortgage fixed-for-life 30 June 2018 Financial assets Cash and cash equivalents Receivables Financial assets Financial assets Financial assets - mortgage backed assets Measurement basis Fair value hierarchy Amortised cost Not applicable Amortised cost Not applicable Fair value Fair value Fair value Fair value Level 1 Level 2 Level 3 Level 3 Amortised cost Not applicable Amortised cost Not applicable Amortised cost Not applicable Fair value Fair value Level 2 Level 3 Measurement basis Fair value hierarchy Amortised cost Not applicable Amortised cost Not applicable Fair value Fair value Fair value Level 1 Level 2 Level 3 Level 3 Level 3 Reverse mortgages receivables Amortised cost Reverse mortgages - hedged item fair value adjustment Fair value Financial liabilities Payables Liability to 360 Capital Group Benefit Funds policy holders' liability Borrowings (net of borrowing costs) Interest rate swaps - controlled property funds Interest rate swaps - reverse mortgage fixed-for-life Amortised cost Not applicable Amortised cost Not applicable Amortised cost Not applicable Amortised cost Not applicable Fair value Fair value Level 2 Level 3 Carrying amount $’000 124,673 69,862 252,883 48,296 1,215 53,720 Fair value $’000 124,673 69,862 252,883 48,296 1,215 53,720 550,649 550,649 42,232 339,557 303,110 731 28,083 713,713 Carrying amount $’000 101,914 21,164 495,837 99,721 1,215 28,289 19,770 767,910 32,405 41,161 349,677 245,739 472 22,939 692,393 42,232 339,557 309,624 731 28,083 720,227 Fair value $’000 101,914 21,164 495,837 99,721 1,215 28,289 19,770 767,910 32,405 41,161 349,677 246,854 472 22,939 693,508 The Group determines Level 2 fair values for financial assets and liabilities without an active market based on broker quotes. Level 2 fair values for simple over-the-counter derivatives are also based on broker quotes. Those quotes are tested for reasonableness by discounting expected future cash flows using market interest rates for a similar instrument at the measurement date. Fair values reflect the credit risk of the instrument and include adjustments to take account of the credit risk of the entity and counterparty where appropriate. The Level 3 financial asset held by the Group is the fair value of the residential mortgage receivables attributable to interest rate risk. The Level 3 financial liability held by the Group is the fixed-for-life interest rate swaps. These items are designated in a fair value hedging relationship, with the fair value movements on the swaps offset by the fair value movements in the mortgage receivables. However, as the Group has only designated the fair value movements attributable to interest rate risk in the hedging relationship, any other fair value movements impact the profit and loss directly, such as credit risk movements. 81 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 81 81 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019F Other (iv) Reconciliation of Level 3 fair value measurements of financial assets and liabilities Year ended 30 June 2019 Balance at 1 July 2018 Loan repaid Accrued interest Attributable to interest rate and other risk Attributable to credit risk Balance at 30 June 2019 Year ended 30 June 2018 Balance at 1 July 2017 Loan repaid Accrued interest Attributable to interest rate and other risk Attributable to credit risk Balance at 30 June 2018 Other mortgage backed assets at fair value $’000 Reverse mortgages fair value $’000 Fixed-for-life interest rate swaps $’000 1,215 - - - - 1,215 48,059 (1,379) 2,956 5,061 (977) 53,720 (22,939) 227 (1,495) (7,211) 3,335 (28,083) Other mortgage backed assets at fair value $’000 Reverse mortgages fair value $’000 Fixed-for-life interest rate swaps $’000 1,215 - - - - 46,187 (1,695) 2,453 1,114 - (18,191) 471 (1,466) (1,114) (2,639) 1,215 48,059 (22,939) Total $’000 26,335 (1,152) 1,461 (2,150) 2,358 26,852 Total $’000 29,211 (1,224) 987 - (2,639) 26,335 KEY ESTIMATES AND JUDGEMENTS The fair value of the 50-year residential mortgage loans and 50-year swaps are calculated using a valuation technique based on assumptions that are not supported by prices from observable current market transactions in the same instrument and not based on available observable market data due to the illiquid nature of the instruments. A discounted cash flow model is used for analysis using the applicable yield curve out to 20 years, with the yield curve at 20 years employed as the best proxy for subsequent rates due to non-observable market data and to reflect the average remaining life expectancy of the borrowers. Assumptions and inputs used for valuation of reverse mortgage loan receivables: – The loan interest compounding period is the expected remaining life of the borrower; – Mortality rates for males and females are based on portfolio-adjusted 2013-2015 Life Tables; – The compounding interest rate is the fixed rate of loan for the period from day 1 up to the point of time when loan carrying amount equals the property value. After that point of time, the loan compounding rate will be reduced to the same as long term residential property growth rate determined by Management, on the grounds that any fixed rate exceeds the property growth rate will not be recovered after that point of time; – For 30 June 2019 valuation, the property growth rates are -5% for FY2020, -3% for FY2021, then reverted back to 3% flat rate from FY22 onwards; – Discount factors are calculated based on the market quoted long term rates on 30 June 2019; – The 1% flat credit risk premium, reflecting the portfolio default profile on 30 June 2019, is added to the monthly cash flow discount factors to discount future cash flows generated by the reverse mortgage loans. Assumptions and inputs used for valuation of the 50-year interest rate swaps: – Mortality rates for males and females based on portfolio-adjusted 2013-2015 Life Tables. The improvement factor tapers down to 1% p.a. at age, 90 and then zero at age 100; – Joint life mortality is calculated based on last death for loans with joint borrowers; – 46% of the residential mortgage loan portfolio consists of joint lives; – Discount factors are calculated based on the market quoted long term rates on 30 June 2019; – The 1.881% flat credit risk premium, reflecting the business default profile on 30 June 2019, is added to the monthly cash flow discount factors to discount future cash flows generated by the reverse mortgage loans. 82 82 82 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 82 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019F Other RECOGNITION AND MEASUREMENT The Group enters into derivative financial instruments such as interest rate swaps to manage its exposure to interest rate risk. Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting period. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event, the timing of the recognition in profit or loss depends on the nature of the hedge relationship. The hedge is considered ineffective if it falls outside the range of 80% to 125%. (D) CREDIT RISK Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral or other security, where appropriate, as a means of mitigating risk of financial loss from default. The credit risk on financial assets of the Group and the parent recognised in the statement of financial position is generally the carrying amount, net of allowance for impairment loss. Concentration of risk may exist when the volume of transactions limits the number of counterparties. (i) Credit risk of reverse mortgages Concentration of credit risk in relation to reverse mortgage loans is minimal, as each individual reverse mortgage loan is secured by an individual residential property. The loan is required to be paid off from the proceeds of disposal of the secured property after the borrower’s death. Individual property valuations are conducted at least every 3 years in accordance with financier’s requirements. At 30 June 2019, the highest loan to value ratio (LVR) of a loan in the reverse mortgage loan book is 103% (2018: 107%), and there are 63 out of 212 (2018: 58 out of 222) reverse mortgage loans where the LVR is higher than 50%. (ii) Credit risk on other financial assets Credit risk on other financial assets such as investments in floating rate notes, standard discount securities and unit trusts is managed through strategic asset allocations with creditworthy counterparties and the on-going monitoring of the credit quality of investments, including the use of credit ratings issued by well-known rating agencies. The exposure of credit risk in respect of financial assets is minimal. The Group does not have any significant credit risk exposure to any single entity in other financial assets or any group of counterparties having similar characteristics. (E) LIQUIDITY RISK The Group’s approach to managing liquidity is to ensure that it will always have sufficient liquidity to meet its liabilities. The liquidity risk is managed for the Group at a corporate level. Bank account balances across all entities, current and future commitments, and expected cash inflows are reviewed in detail when the monthly cash flow projection is prepared for management purposes and presented to the Board at its regular monthly meetings. By comparing the projected cash flows with the assets and liabilities shown in the individual and consolidated statements of financial position, which are also prepared on a monthly basis for management purposes and presented to the Board, liquidity requirements for the Group can be determined. Based on this review, if it is considered that the expected cash inflows plus liquidity on hand, may not be sufficient in the near term to meet cash outflow requirements, including repayment of borrowings, a decision can be made to carry out one or more of the following: – renegotiate the repayment terms of the borrowings; – sell assets that are held on the statement of financial position; and/or – undertake an equity raising. This, combined with a profitable business going forward, should ensure that the Group continues to meet its commitments, including repayments of borrowings, as and when required. The Group’s overall strategy to liquidity risk management remains unchanged from the prior year. The following table summarises the Group’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group and the parent can be required to pay. The tables include both interest and principal cash flows. To the extent that interest flows are at floating rate, the undiscounted amount is derived from interest rate curves at the end of the reporting period. The policy holders in the Benefit Funds are able to redeem their policies at any time and the Benefit Funds are therefore exposed to the liquidity risk of meeting policyholders’ withdrawals at any time. The Investment Committee aims to ensure that there is sufficient capital for possible redemptions by policyholders of the Benefit Funds by regularly monitoring the level of liquidity in each fund. 83 83 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 83 83 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019F Other Non-derivative financial liabilities 2019 Borrowings Payables Benefit Funds policyholder's liability Total 2019 Borrowings Payables Liability to 360 Capital Group Benefit Funds policyholder's liability Total On demand $’000 Less than 3 months $’000 3 months to 1 year $’000 1-5 years $’000 5+ years $’000 Total $’000 - - 339,557 339,557 - - - 349,677 349,677 1,141 42,232 - 29,603 317,172 - - - - 43,373 29,603 317,172 38,213 32,405 - - 90,160 148,460 - 41,161 - - - - 70,618 131,321 148,460 - - - - - - - - - 347,916 42,232 339,557 729,705 276,833 32,405 41,161 349,677 700,076 The following table summarises the maturing profile of derivative financial liabilities. The table has been drawn up based on the undiscounted net cash flows on the derivative instruments that settle on a net basis. Derivative financial liabilities 2019 Interest rate swaps Total 2018 Interest rate swaps Total On demand $’000 Less than 3 months $’000 3 months to 1 year $’000 1-5 years $’000 5+ years $’000 - - - - 39 39 - - 789 789 393 393 1,446 1,446 1,214 1,214 49,182 49,182 46,588 46,588 Total $’000 51,456 51,456 48,195 48,195 (F) MARKET RISK Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises interest rate risk and price risk. Due to the nature of assets held by the Group (excluding the Benefit Funds), there is an asset and liability management process which determines the interest rate sensitivity of the statement of financial position and the implementation of risk management practices to hedge the potential effects of interest rate changes. The Group manages the market risk associated with its Benefit Funds by outsourcing its investment management. The Investment Manager manages the financial risks relating to the operations of the Benefit Funds in accordance with an investment mandate set out in the Benefit Funds’ constitution and product disclosure statement. There has been no change to the Group’s exposure to market risks or the manner in which it manages and measures the risk. (i) Interest rate risk management The Group is exposed to interest rate risk because entities in the Group borrow funds at floating interest rates. Management of this risk is evaluated regularly and interest rate swaps are used accordingly. 84 84 84 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 84 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 84 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019F Other The tables below detail the Group’s interest bearing financial assets and liabilities. 2019 Financial assets Cash and cash equivalents Other financial assets held by Benefit Funds Other interest bearing loans Reverse mortgage receivables Total financial assets Financial liabilities Borrowings Total financial liabilities Net interest bearing financial assets/(liabilities) 2018 Financial assets Cash and cash equivalents Other financial assets held by Benefit Funds Reverse mortgage receivables Total financial assets Financial liabilities Borrowings Total financial liabilities Net interest bearing financial assets/(liabilities) Weighted average effective interest rate % 1.31% 2.93% 10.00% 8.73% 5.24% Weighted average effective interest rate % 1.63% 2.91% 8.72% 13.26% 5.23% Variable rate $’000 Fixed rate $’000 Total $’000 104,462 124,120 - 1,158 229,740 (175,110) (175,110) 54,630 Variable rate $’000 75,522 205,035 1,316 281,873 (162,739) (162,739) 119,134 20,211 5,065 6,066 52,562 83,904 (128,000) (128,000) (44,096) Fixed rate $’000 26,392 26,229 26,973 79,594 (83,000) (83,000) (3,406) 124,673 129,185 6,066 53,720 313,644 (303,110) (303,110) 10,534 Total $’000 101,914 231,264 28,289 361,467 (245,739) (245,739) 115,728 (ii) Interest rate swap contracts Under interest rate swap contracts, the Group agrees to exchange the difference between fixed and floating rate interest amounts calculated on agreed notional principal amounts. Such contracts enable the Group to mitigate the risk of changing interest rates on the fair value of fixed rate financial assets held and the cash flow exposures on the issued variable rate debt. The following table details the notional principal amounts and remaining expiry of the Group’s outstanding interest rate swap contracts as at reporting date. These swaps are at fair value through profit and loss. Pay fixed for floating contracts designated as effective in fair value hedge Average contracted rate Notional principal amount Fair value 2019 2018 2019 2018 2019 2017 % % $'000 $'000 $'000 $'000 Controlled property funds interest rate swaps Benefit funds interest rate swaps 50 years swaps contracts 1.36% -% 7.48% 2.33% 2.02% 7.48% 84,815 - 10,402 95,217 99,600 3,000 10,677 113,277 (731) - (472) 5 (28,083) (22,939) (28,814) (23,406) CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 85 85 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019 F Other (iii) Interest rate sensitivity The sensitivity analysis below has been determined based on the parent and the Group’s exposure to interest rates at the balance date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period, in the case of financial assets and financial liabilities that have variable interest rates. A 100 basis point (1%) increase or decrease represents management’s assessment of the reasonably possible change in interest rate. At reporting date, if variable interest rates had been 100 (2018: 100) basis points higher or lower and all other variables were held constant, the impact to the Group would have been as follows: Consolidated Interest rate risk Interest rate risk Change in variable +1% -1% Effect on profit after tax 2019 $’000 631 (537) 2018 $’000 568 (405) The methods and assumptions used to prepare the sensitivity analysis have not changed in the year. The sensitivity analysis takes into account interest-earning assets and interest-bearing liabilities attributable to the shareholders only, and does not take into account the bank bill facility margin changes. (iv) Fair value hedges The Group held the following instruments to hedge exposures to changes in interest rates. Interest rate swaps - as at 30 June 2019 Net exposure ($'000) Average fixed interest rate Interest rate swaps - as at 30 June 2018 Net exposure ($'000) Average fixed interest rate Maturity 1-6 months 6-12 months - - - - - - - - More than one year 10,402 7.48% 10,677 7.48% The amounts relating to items designated as hedging instruments and hedge ineffectiveness were as follows. Interest rate swaps 30 June 2019 Nominal Amount 10,402 30 June 2018 10,677 Assets Liabilities - - (28,083) (22,939) Line item in the statement of financial position where the hedging instrument is included Interest rate swaps at fair value Interest rate swaps at fair value Hedge ineffectiveness recognised in profit or loss Line item in profit or loss that includes hedge ineffectiveness 37 Finance costs 144 Finance costs 86 86 86 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019 F Other F4 REMUNERATION OF AUDITORS Amounts received or due and receivable by KPMG: Audit and review of the financial report Other services including AFSL and compliance plan audits Non-audit services 2019 $ 479,218 64,831 84,837 628,886 2018 $ 347,165 52,275 89,175 488,615 F5 ADOPTION OF NEW ACCOUNTING STANDARDS AND INTERPRETATIONS New and amended accounting standards relevant to the Group as well as their impact on the Group’s consolidated financial statements that are effective for the period are as follows: (A) AASB 9 FINANCIAL INSTRUMENTS AASB 9 addresses the classification, measurement and derecognition of financial assets and financial liabilities, introduces new rules for hedge accounting and a new impairment model for financial assets. This standard replaces AASB 139 Financial Instruments: Recognition and Measurement. (i) Classification - Financial assets AASB 9 contains a new classification and measurement approach for financial assets that reflects the business model in which assets are managed and their cash flow characteristics. AASB 9 contains three principal classification categories for financial assets: measured at amortised cost, fair value through other comprehensive income (FVOCI) and fair value through profit and loss (FVTPL). The standard eliminates the existing AASB 139 categories of held to maturity, loans and receivables and available for sale. On transition to AASB 9, the new classification requirements do not have an impact on the Group’s accounting for all receivables and financial assets (which are already carried at fair value with the exception of reverse mortgage loan receivables and trade receivables). Reverse mortgage loan receivables were previously recorded at amortised cost using the effective interest method less impairment. On transition to AASB 9, these receivables have been be reclassified to FVTPL as the criteria for solely payments of principal and interest (SPPI) criteria was not satisfied. There is no material change in their measurement and as a result there is no impact on the Group’s equity at 1 July 2018. The implication of the change from amortised cost to FVTPL could result in increased volatility in the Group’s results as gains or losses arising from changes in fair value measurement assumptions are reported through the profit and loss. (ii) Impairment - Receivables AASB 9 replaces the ‘incurred loss’ model in AASB 139 with a forward-looking ‘expected credit loss’ (ECL) model. This will require considerable judgement about how changes in economic factors affect ECLs, determined on a probability-weighted basis. The new impairment model applies to the Group’s receivables which continue to be measured at amortised cost. The new impairment model does not apply to the Group’s reverse mortgage loan receivables which are now classified as FVTPL under AASB 9. On transition to AASB 9, the new impairment model does not have a material impact on the Group’s equity as at 1 July 2018 and no material impact during the year ended 30 June 2019. CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 87 87 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019F Other The following table shows the changes in classification, if any, as at 1 July 2018, between AASB 139 and AASB 9. There is no material impact to retained earnings at 1 July 2018. Financial assets Cash and cash equivalents Receivables Financial assets Financial assets Financial assets - mortgage backed assets Reverse mortgages receivables Reverse mortgages - hedged item Total financial assets Original classification under AASB 139 New Classification under AASB 9 Original carrying amount under AASB 139 $’000 New carrying amount under AASB 9 $’000 Amortised cost Amortised cost Amortised cost Amortised cost Fair value Fair value Fair value Amortised cost Fair value Fair value Fair value Fair value Fair value Fair value 101,914 21,164 495,837 99,721 1,215 28,289 19,770 767,910 101,914 21,164 495,837 99,721 1,215 28,289 19,770 767,910 Original classification under AASB 139 New Classification under AASB 9 Original carrying amount under AASB 139 $’000 New carrying amount under AASB 9 $’000 Financial liabilities Payables Liability to 360 Capital Group Benefit Funds policy holders' liability Borrowings (net of borrowing costs) Amortised cost Amortised cost Amortised cost Amortised cost Amortised cost Amortised cost Amortised cost Amortised cost Interest rate swaps - controlled property funds Interest rate swaps - reverse mortgage fixed-for-life Fair value Fair value Fair value Fair value 32,405 41,161 349,677 245,739 472 22,939 32,405 41,161 349,677 245,739 472 22,939 Total financial assets 692,383 692,393 (iii) Classification - Financial liabilities There is no impact on the Group’s accounting for financial liabilities, as AASB 9 requirements only affect the accounting for financial liabilities that are designated at fair value through profit or loss and the Group does not have any such liabilities. The derecognition rules have been transferred from AASB 139 Financial Instruments: Recognition and Measurement and have not been changed. (iv) Hedge accounting The new hedge accounting rules generally allow for more hedge relationships to be eligible for hedge accounting, as the standard introduces a more principles-based approach. The Group does not have a significant impact as a result of the hedging changes on transition on 1 July 2018. The Group has made an election under AASB 9 to continue to apply the hedge accounting requirements in AASB 139 instead of AASB 9 for its fair value hedges. (v) Transition Changes in accounting policies resulting from the adoption of AASB 9 have been applied retrospectively, however as there is no material impact on carrying amounts of financial assets and financial liabilities, there are no transitional implications on the Group’s equity at 1 July 2018 nor it’s comparatives. (B) AASB 15 REVENUE FROM CONTRACTS WITH CUSTOMERS AASB 15 Revenue from customers applies to all contracts with customers to deliver goods or services as part of the entity’s ordinary course of business excluding insurance contracts, financial instruments and leases which are addressed by other standards. It replaces existing revenue recognition guidance, including AASB 118 Revenue and AASB 111 Construction Contracts. AASB 15 replaces the considerations of risks and rewards under AASB 118 to the concept of when control passes to the customer as the trigger point for the recognition of revenue. The Group’s revenue streams which are in scope under the new standard include management fees from property funds, property acquisition fees, property sales fees, recoverable outgoings and property performance fees. Rental income, interest income, distribution and dividend income and fair value movements in investment properties are excluded from the scope of this standard. 88 88 88 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019F Other (i) Impact The Group has adopted AASB 15 using the cumulative effect method and as a result, there has been no impact on the Group’s previously reported financial position. In accordance with AASB 15, based on the Group’s assessment of when performance obligations are satisfied there is no change to the classification, measurement or timing of revenue recognition (other than property performance fees) when comparing to the previous accounting policy, other than the change in terminology. Performance fees were previously recognised upon satisfaction of all conditions precedent to the sale of an investment property and when significant risks and rewards have transferred. There is no transitional impact from adoption of AASB 15, however future performance fees will be recognised over-time. In assessing the timing and measurement of performance fees to be recognised, consideration is given to the facts and circumstances with respect to each investment property including external factors such as its current valuation, passage of time and outlook of the property market. Performance fees are only recognised when they are deemed to be highly probable and the amount of the performance fees will not result in a significant reversal in future periods. In accordance with AASB 15, the Group has recognised $22,522,000 of property performance fees for the year ended 30 June 2019. Under AASB 118, performance fees of $11,133,735 would be recognised for the year ended 30 June 2019. On transition to AASB 15, there is no material impact on the Group’s equity as at 1 July 2018 and no other material impact for the year ended 30 June 2019. Refer to Note B2 for a summary of the changes in terminology with respect to the timing of revenue recognition between AASB 111 and AASB 118 compared to AASB 15 and the new revenue recognition policies under AASB 15. F6 OTHER NEW ACCOUNTING STANDARDS AND INTERPRETATIONS Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2019 reporting periods and have not been early adopted by the Group. The Group’s assessment of the impact of these new standards and interpretations is set out below. (A) AASB 16 LEASES (i) Nature of change AASB 16 Leases was issued in February 2016. It will result in almost all leases being recognised on the balance sheet, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low-value leases. (ii) Impact The new standard will primarily impact the accounting for the Group’s operating leases. As at the reporting date, the Group has only one material operating lease commitments at Level 41 Chifley Square, Sydney NSW. The application of the new standard will result in the recognition of a right of use asset along with a lease liability in the consolidated statement of financial position. The adoption of the new standard will also require reclassifications on the consolidated statement of profit or loss and other comprehensive income with the lease repayments expense associated with this lease replaced with depreciation expense on the leased asset and in interest charge with respect to the lease liability. The changes on first time adoption of the new standard are not expected to have a material impact on retained earnings, and the consolidated statement of profit or loss and other comprehensive income in future periods. Upon adoption of the new leasing standard effective 1 July 2019, management estimate that the lease assets would increase by approximately $20,000,000 offset by a corresponding increase in lease liabilities amounting to approximately $20,000,000, with no material impact to net profit. (iii) Mandatory application date It is mandatory for financial years commencing on or after 1 January 2019, but available for early adoption. The Group will adopt this standard in the year ending 30 June 2020. There are no other standards that are not yet effective and that would expect to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions. F7 EVENTS SUBSEQUENT TO THE REPORTING DATE Since the end of the financial year, the shareholders of Heathley have convened a meeting and approved the proposed acquisition of Heathley by the Group. There are still a number of other conditions precedent outstanding which will need to be satisfied prior to the completion of the transaction. In addition, since the end of the financial year, the Group has committed to a further $11,000,000 in addition to its original commitment of $61,700,000 to support funding requirements for Heathley funds. The Group will seek to raise these funds by using its unlisted distribution network and will manage and underwrite any shortfall in the fund raising to satisfy the overall funding requirements. As at 30 June 2019, the Group had already provided funding of $2,800,000 with a further $2,100,000 invested since the end of the financial year. Other than the above, there has not arisen in the interval between 30 June 2019 and the date hereof any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years. CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 89 89 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Notes to the consolidated financial statementsFor the year ended 30 June 2019 Directors’ declaration For the year ended 30 June 2019 In the opinion of the Directors’ of Centuria Capital Limited: (a) the consolidated financial statements and notes set out on pages 40 to 89 and the Remuneration Report set out on pages 31 to 38 in the Directors’ Report, 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. Note A1 confirms that the consolidated financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The Directors have been given the declarations by the chief executive officer and chief financial officer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of Directors. Mr Garry S. Charny Director Sydney Mr Peter J. Done Director Sydney 13 August 2019 90 90 90 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 90 Independent Auditor’s Report To the stapled security holders of Centuria Capital Group Report on the audit of the Financial Report Opinion We have audited the Financial Report of Centuria Capital Limited (the Company) as the deemed parent presenting the stapled security arrangement of the Centuria Capital Group (the Stapled Group Financial Report). In our opinion, the accompanying Stapled Group Financial Report is in accordance with the Corporations Act 2001, including: • • giving a true and fair view of the Stapled Group’s financial position as at 30 June 2019 and of its financial performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for opinion The Financial Report of the Stapled Group comprises: • Consolidated statement of financial position as at 30 June 2019 • Consolidated statement of comprehensive income, Consolidated statement of changes in equity, and Consolidated statement of cash flows for the year then ended • Notes including a summary of significant accounting policies • Directors’ Declaration. The Stapled Group consists of the Company and the entities it controlled at the year-end or from time to time during the financial year and Centuria Capital Fund and the entities it controlled at the year-end or from time to time during the financial year. We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 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 Stapled Group and Company in accordance with 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 fulfilled our other ethical responsibilities in accordance with the Code. KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation. 91 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 91 91 Directors’ ReportCENTURIA CAPITAL GROUP ANNUAL REPORT 2019Key Audit Matters The Key Audit Matters we identified for the Stapled Group are: • Recognition of performance fee income • Value of equity accounted investments • Recoverable amount of goodwill and indefinite life intangible assets 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. Recognition of performance fee income ($22.5m) Refer to Note B2 to the Financial Report The key audit matter How the matter was addressed in our audit The Stapled Group, in its capacity as a property fund manager, earns performance fees based on agreements with some of its managed property funds. Performance fees are triggered when underlying funds internal rate of return exceeds the agreed hurdle rate. Recognition of performance fee income is considered a key audit matter due to the: • Quantum of performance fee income, • representing 19% of the Stapled Group’s total revenue; and Significant judgement exercised by us in assessing the amount of performance fees recognised by the Stapled Group. The key assumptions impacting the amount of performance fees, are subject to estimation uncertainty, bias and inconsistent application. This increases the risk of inaccurate forecasts or a wider range of possible outcomes for us to consider. Increased time and effort is spent by the audit team in assessing these key assumptions. The amount of performance fees recognised are impacted by key assumptions including: • Fair value of underlying investment properties held by the funds. The valuation of investment properties contains assumptions with estimation uncertainty such as expected capitalisation rates and market rental yields. This leads to additional audit effort due to the differing assumptions based on asset • • In performing our procedures, we: • Read the Stapled Group’s agreements with managed property funds to understand the key terms related to performance fees, including hurdle rates. Evaluated the Stapled Group’s accounting policies regarding the recognition of performance fee income against accounting standard requirements. This included assessing the Stapled Group’s policies for constraining performance fee income and valuing investment properties against accounting standard requirements. Assessed the scope, competence and objectivity of the funds external experts and their internal valuers to fair value the underlying investment properties held by the funds. • • With the assistance of our real-estate valuation specialists, challenged specific property fair value assumptions such as capitalisation rates and market rental yields by comparing to market analysis published by industry experts, recent market transactions, inquiries with the Stapled Group, historical performance of the underlying investment properties and using our industry experience. Assessed the Stapled Group’s determination of the forecast fund end date based on the underlying managed property fund agreements, the fair value of underlying investment properties, the Stapled Group’s 92 92 92 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 92 Directors’ ReportCENTURIA CAPITAL GROUP ANNUAL REPORT 2019• • fund strategy and history of extending fund term end dates. Recalculated the Stapled Group’s performance fee recognised against hurdles in the underlying performance fee agreements with managed property funds. Challenged the constraints applied in determining the amount of performance fees that are highly probable to be received by the Stapled Group, based on the Stapled Group’s estimate of current and forecast property fund performance. We used our knowledge of the Stapled Group, their past performance, business, and our industry experience. • • classes, geographies and characteristics of individual investment properties. Forecast fund end date. The fund end date impacts the level of returns that can be achieved over the course of the funds life and may change depending on management’s view of when maximum value can be obtained for unitholders of the fund. Constraint. This is impacted by the Stapled Group’s expectations of how much of the performance fee is highly probable to be received in accordance with the requirements of the accounting standards. In the financial year the Stapled Group adopted AASB 15 Revenue from Contracts with Customers (AASB 15). This required the Stapled Group to assess their accounting policies against the revenue recognition requirements of this accounting standard. This required additional audit effort for us to assess the Stapled Group’s performance fee income in the current year. In assessing this Key Audit Matter, we involved our real-estate valuation specialists, who understand the Group’s investment profile and business. Value of equity accounted investments ($386.7m) Refer to Note E1 to the Financial Report The key audit matter How the matter was addressed in our audit The Stapled Group holds equity accounted investments in Centuria Industrial REIT (CIP) and Centuria Metropolitan REIT (CMA), the value of which is underpinned by investment property valuations. The value of equity accounted investments is a key audit matter as they are significant in value (being 30% of total assets) and the valuation of underlying investment properties contain assumptions with estimation uncertainty. This leads to additional audit effort due to the differing assumptions based on asset classes, geographies and characteristics of individual investment properties. In performing our procedures, we: • Obtained an understanding of the Stapled Group’s process regarding the valuation of their equity accounted investments, in particular for the investment properties within. • Assessed the methodologies used in the valuations of their equity accounted investments, in particular the investment properties within, for consistency with accounting standards, industry practice and the Stapled Group’s policies. • Assessed the scope, competence and objectivity of the funds external experts and their internal valuers. • Worked with our real estate valuation specialists to read published reports and industry 93 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 93 93 Directors’ ReportCENTURIA CAPITAL GROUP ANNUAL REPORT 2019The Underlying investment properties held by CIP and CMA, making up the majority of the equity accounted investees, are valued at fair value. The fair value is determined by CIP and CMA using internal methodologies and through the use of external valuation experts. The valuations of CIP and CMA’s property assets include a number of significant assumptions: • capitalisation rates; • market rental yield; • weighted average lease expiry and vacancy levels; capital adjustments; and leasing incentives. • • In assessing this Key Audit Matter, we involved our real-estate valuation specialists, who understand the Group’s investment profile and business and the economic environment it operates in. commentary to gain an understanding of prevailing property market conditions. • On a portfolio basis, took into consideration asset classes, geographies and characteristics of individual investment properties, challenged, with reference to published reports or industry commentary, capitalisation rates. • With the assistance of our real-estate valuation specialists, assessed a sample of key valuation assumptions for individual investment properties. These assumptions included capitalisation rates, market rental yields, weighted average lease expiry and vacancy levels, capital adjustments and leasing incentives. We did this by comparison to market analysis published by industry experts, recent market transactions, inquiries with the Stapled Group, historical performance of the investment properties and using our industry experience. Recoverable amount of goodwill and indefinite life intangible assets ($157.7m) Refer to Note C6 to the Financial Report The key audit matter How the matter was addressed in our audit A key audit matter was the Group’s annual testing of goodwill and indefinite life intangible assets for impairment, given the size of the balance and sensitivity of the forward looking assumptions to small changes. We focussed on the significant forward-looking assumptions the Stapled Group applied in their value in use model, including: • forecast operating cash flows, growth rates and terminal growth rates (taking into consideration future growth in funds under management and transactional fees). The Group’s model is sensitive to small changes in these assumptions, which may reduce available headroom. This drives additional audit effort specific to their feasibility and consistency of application to the Group’s strategy. discount rate – this is complicated in nature and varies according to the conditions and environment the specific • In performing our procedures, we: • Considered the appropriateness of the value in use method applied by the Stapled Group, to perform the annual test of goodwill and indefinite life intangible assets for impairment, against the requirements of the accounting standards. • Compared the forecast cash flows contained in the value in use model to the Board approved forecast. • Assessed the accuracy of previous Stapled Group’s forecasts to inform our evaluation of forecasts incorporated in the model. • Challenged the Group’s significant forecast cash flow and growth assumptions: - Challenged the Group’s significant forecast cash flow by comparing baseline cash flows to actual historic cash flows and comparing key events to the Board approved plan and strategy. 94 94 94 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 94 Directors’ ReportCENTURIA CAPITAL GROUP ANNUAL REPORT 2019Cash Generating Unit (CGU) is subject to from time to time. We involved valuation specialists in assessing this key audit matter. - With the assistance of our valuation specialists, compared terminal growth rates to published studies of industry trends and expectations, and considered differences for the Stapled Group’s operations. We used our knowledge of the Stapled Group, their past performance, business and customers, and our industry experience. Checked the consistency of the forecast growth rates to the Stapled Group’s stated plan and strategy and our experience regarding the feasibility of these in the economic environment in which they operate. - • Worked with our valuation specialists to independently develop a discount rate range considered comparable using publicly available market data for comparable entities, adjusted by risk factors specific to the Stapled Group and the industry it operates in. • Considered the sensitivity of the model by varying key assumptions, such as forecast growth rates, terminal growth rates and discount rates, within a reasonably possible range. We did this to identify those assumptions at higher risk of bias or inconsistency in application and to focus our further procedures. • Assessed the disclosures in the financial report using our understanding of any issues obtained from our testing and against the requirements of the accounting standards. 95 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 95 95 Directors’ ReportCENTURIA CAPITAL GROUP ANNUAL REPORT 2019Other Information Other Information is financial and non-financial information in Centuria Capital Group’s annual reporting which is provided in addition to the Financial Report and the Auditor’s Report. The Directors of the Company are responsible for the Other Information. The Other Information we obtained prior to the date of this Auditor’s Report was the Director’s Report. The Key Financial Metrics, Chairman’s Report, Chief Executive’s Report, Unlisted Property, Listed Property, Centuria Life and Centuria in the Community are expected to be made available to us after the date of the Auditor’s Report. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not and will not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we 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. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of the Directors for the Financial Report The Directors of the Company are responsible for: • preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 • • implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error assessing the Stapled Group’s ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Stapled 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 objective is: • • 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 Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They 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. 96 96 96 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 96 Directors’ ReportCENTURIA CAPITAL GROUP ANNUAL REPORT 2019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 Opinion Directors’ responsibilities In our opinion, the Remuneration Report of Centuria Capital Limited (the Company) for the year ended 30 June 2019, complies with Section 300A of the Corporations Act 2001. The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001. Our responsibilities We have audited the Remuneration Report included in pages 10 to 20 of the Directors’ report for the year ended 30 June 2019. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPM_INI AR_SIG_01 PAR_NAM_01 PAR_POS_01 PAR_DAT_01 PAR_CIT_01 KPMG Nigel Virgo Partner Sydney 13 August 2019 97 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 97 97 Directors’ ReportCENTURIA CAPITAL GROUP ANNUAL REPORT 2019Additional stock exchange information The securityholder information set out below was applicable as at 31 July 2019. DISTRIBUTION OF SECURITIES Analysis of numbers of securityholders by size of holding: Holding 1 - 1000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over There were 184 holders of less than a marketable parcel of securities holding 18,705 securities. TOP 20 SECURITYHOLDERS The names of the twenty largest holders of securities are listed below: HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED J P MORGAN NOMINEES AUSTRALIA PTY LIMITED CS THIRD NOMINEES PTY LIMITED THE TRUST COMPANY (AUSTRALIA) LIMITED CITICORP NOMINEES PTY LIMITED HWM (NZ) HOLDINGS LIMITED GH 2016 PTY LIMITED NATIONAL NOMINEES LIMITED BNP PARIBAS NOMS (NZ) LTD RESOLUTE FUNDS MANAGEMENT ERSKINE IMPORT PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2 CICERONE CAPITAL PTY LTD PARITAI PTY LIMITED BRYSHAW MANAGEMENT PTY LTD BNP PARIBAS NOMS PTY LTD PARSONAGE PROVIDENT P/L MR ROGER WILLIAM DOBSON ONE MANAGED INVESTMENT FUNDS LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSI EDA SUBSTANTIAL HOLDERS Substantial holders in the Group are set out below as at 19 July 2019. ESR Pte. Ltd Magic TT Pty Ltd including Moelis Australia Limited Investment Administration Services Pty ltd BlackRock, Inc. VOTING RIGHTS All ordinary securities carry one vote per security without restriction. Number of holders Number of securities 906 4,026 895 1,090 450,430 9,891,118 6,230,035 31,026,683 150 335,959,066 7,067 383,557,332 Number held 62,994,692 56,973,253 56,834,761 28,415,438 27,037,714 10,020,000 9,536,034 7,839,171 6,251,937 4,230,079 4,076,238 3,627,629 3,512,057 3,206,531 2,925,002 2,849,812 2,200,830 1,576,050 1,500,000 1,467,696 Percentage of issued securities 16.42 14.85 14.82 7.41 7.05 2.61 2.49 2.04 1.63 1.10 1.06 0.95 0.92 0.84 0.76 0.74 0.57 0.41 0.39 0.38 297,074,924 77.44 Number held Percentage 56,834,761 42,677,495 21,625,155 26,239,552 147,376,963 14.82% 11.13% 7.10% 6.84% 39.89% 98 98 98 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 98 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019Disclaimers DISCLAIMER This annual report is provided for general information purposes only. It is not a prospectus, product disclosure statement, pathfinder document or any other disclosure document for the purposes of the Corporations Act and has not been, and is not required to be, lodged with the Australian Securities & Investments Commission. It should not be relied upon by the recipient in considering the merits of CNI or the acquisition of securities in CNI. Nothing in this annual report constitutes investment, legal, tax, accounting or other advice and it is not to be relied upon in substitution for the recipient’s own exercise of independent judgment with regard to the operations, financial condition and prospects of CNI. The information contained in this annual report does not constitute financial product advice. Before making an investment decision, the recipient should consider its own financial situation, objectives and needs, and conduct its own independent investigation and assessment of the contents of this annual report, including obtaining investment, legal, tax, accounting and such other advice as it considers necessary or appropriate. This annual report has been prepared without taking account of any person’s individual investment objectives, financial situation or particular needs. It is not an invitation or offer to buy or sell, or a solicitation to invest in or refrain from investing in, securities in CNI or any other investment product. The information in this annual report has been obtained from and based on sources believed by CNI to be reliable. To the maximum extent permitted by law, CNI and the members of the Centuria Capital Group make no representation or warranty, express or implied, as to the accuracy, completeness, timeliness or reliability of the contents of this annual report. To the maximum extent permitted by law, CNI does not accept any liability (including, without limitation, any liability arising from fault or negligence) for any loss whatsoever arising from the use of this annual report or its contents or otherwise arising in connection with it. This annual report may contain forward-looking statements, guidance, forecasts, estimates, prospects, projections or statements in relation to future matters (‘Forward Statements’). Forward Statements can generally be identified by the use of forward looking words such as “anticipate”, “estimates”, “will”, “should”, “could”, “may”, “expects”, “plans”, “forecast”, “target” or similar expressions. Forward Statements including indications, guidance or outlook on future revenues, distributions or financial position and performance or return or growth in underlying investments are provided as a general guide only and should not be relied upon as an indication or guarantee of future performance. No independent third party has reviewed the reasonableness of any such statements or assumptions. Neither CNI nor any member of Centuria Capital Group represents or warrants that such Forward Statements will be achieved or will prove to be correct or gives any warranty, express or implied, as to the accuracy, completeness, likelihood of achievement or reasonableness of any Forward Statement contained in this annual report. Except as required by law or regulation, CNI assumes no obligation to release updates or revisions to Forward Statements to reflect any changes. The reader should note that this annual report may also contain pro-forma financial information. Distributable earnings is a financial measure which is not prescribed by Australian Accounting Standards (”AAS”) and represents the profit under AAS adjusted for specific non- cash and significant items. The Directors of CFML consider that distributable earnings reflect the core earnings of the Centuria Capital Fund. All dollar values are in Australian dollars ($ or A$) unless stated otherwise. LONSEC RATINGS DISCLAIMER: The Lonsec Rating (assigned August 2019) presented in this presentation is published by Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445. The Rating is limited to “General Advice” (as defined in the Corporations Act 2001 (Cth)) and based solely on consideration of the investment merits of the financial product(s). Past performance information is for illustrative purposes only and is not indicative of future performance. It is not a recommendation to purchase, sell or hold Centuria LifeGoals product(s), and you should seek independent financial advice before investing in this product(s). The Rating is subject to change without notice and Lonsec assumes no obligation to update the relevant document(s) following publication. Lonsec receives a fee from the Fund Manager for researching the product(s) using comprehensive and objective criteria. For further information regarding Lonsec’s Ratings methodology, please refer to our website at: http://www.lonsecresearch. com.au/research-solutions/our-ratings. CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 99 99 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019AUSTRALIA RATINGS - RATING REPORT DISCLAIMER: This report has been prepared solely by Australia Ratings Analytics Pty Ltd. under Australian Financial Services Licence No. 494552. This report is for information purposes only. It is neither an offer to sell nor a solicitation of any offer to purchase any securities in an investment product or managed investment scheme. Any investment in a financial product or fund involves a degree of risk. It is important to note that past performance is not an indication of future performance. An investment fund rating reflects Australia Ratings’ current opinion of a fund or investment’s ability to achieve its stated investment objectives in the near term. The rating expresses a view on the expected consistency of the fund or investment’s performance within the peer/style groups and the ability of the manger to produce superior performance amongst its peers in the near term with due regard to the medium-term consensus view of the asset class to which the product is benchmarked. A superannuation fund or investment bond rating reflects Australian Ratings’ current opinion of the quality and utility to investors of the product offer. It takes into account the structure of the product, including fees and ease of use, the diversity and the selection process for the investment options, and the strength, compliance, and support provided by the Trustee or Issuer. The rating and research report will maintain current, unless amended, until the anniversary date of the report. The investment rating and research report reflects the research methodology published on the website of Australia Ratings Analytics. Ratings are assigned according to Australia Ratings Analytics investment scale which ranges from Superior to Weak and is described on the website. Australia Ratings Analytics has made every effort to ensure the reliability of the views and rating expressed in this report and those published on its website. Australia Ratings research is based upon information provided by the investment manager that which is known to us or which was obtained from sources which we believed to be reliable and accurate at time of publication. All opinions and views expressed constitute judgment as of the date of the report and may change at any time without notice and without obligation. Such information may be based on certain assumptions and involve elements of subjective judgment and analysis. Australia Ratings Analytics Pty Ltd has received a fee paid by either the fund manager or investment product sponsor for the rating and this report. This report is prepared for general information only, and individual financial positions, objectives and circumstances have not been taken into consideration. Individuals should therefore discuss, with their financial planner or advisor, the merits of each rating for their own specific circumstances and realise that not all investments will be appropriate for all subscribers. Investment returns can go up and down. Past performance is not necessarily indicative of future performance. To the extent permitted by law, Australia Ratings Analytics Pty Ltd and its employees, agents and authorised representatives exclude all liability for any arising from the use of, or reliance on, any information within the report whether or not caused by any negligent act or omission. If the law prohibits the exclusion of such liability, Australia Ratings Analytics Pty Ltd hereby limits its liability, to the extent permitted by law, to the resupply of the said information. Corporate directory CONTACT US Shareholder Enquiries 1800 182 257 HEAD OFFICE Level 41, Chifley Tower, 2 Chifley Square SYDNEY NSW 2000 Telephone: (02) 8923 8923 Facsimile: (02) 9460 2960 contactus@centuria.com.au SHAREHOLDER ENQUIRIES Boardroom Pty Limited Centuria Capital Limited, GPO Box 3993 Sydney NSW 2001 Telephone: 1800 182 257 Email: CNI.Enquiry@CenturiaInvestor.com.au FRIENDLY SOCIETY INVESTOR ENQUIRIES Centuria Life Limited, Level 32, 120 Collins Street Melbourne VIC 3000 Telephone: 1300 50 50 50 contactus@centuria.com.au COMPANY SECRETARY Anna Kovarik Level 41, Chifley Tower, 2 Chifley Square SYDNEY NSW 2000 Telephone: (02) 8923 8923 Facsimile: (02) 9460 2960 100 100 100 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 100 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 This Page has been left intentionally blank centuria.com.au 101 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019 101 CENTURIA CAPITAL GROUP ANNUAL REPORT 2019102 centuria.com.au Directors’ ReportCENTURIA CAPITAL GROUP ANNUAL REPORT 2019