Cromwell Group
Annual Report 2013

Plain-text annual report

2013 ANNUAL REPORT well versed well timed well considered well versed well timed well considered CONTENTS 04 Financial Highlights 06 Chairman’s Report 08 CEO’s Report 16 Annual Financial Report 18 Directors’ Report 37 Auditor’s Independence Declaration 38 Consolidated Statements of Comprehensive Income 39 Consolidated Statements of Financial Position 40 Consolidated Statements of Changes in Equity 42 Notes to the Consolidated Financial Statements 93 Directors’ Declaration 96 Corporate Governance Statement 103 Securityholder Information 41 Consolidated Statements of Cash Flows 94 Independent Auditor’s Report 2 Cromwell Property Group | Annual Report 2013 well versed well timed well considered Cromwell Property Group Cromwell Property Group (“Cromwell” or “the Group”) is an internally managed Australian Real Estate Investment Trust (A-REIT) which owns a quality property portfolio and operates a funds management business that creates and manages unlisted property investments. This document is issued by Cromwell Property Group consisting of Cromwell Corporation Limited ABN 44 001 056 980 and Cromwell Property Securities Limited AFS 238052 ABN 11 079 147 809 as responsible entity for Cromwell Diversified Property Trust ARSN 102 982 598 ABN 30 074 537 051 Listed on the Australian Securities Exchange (ASX: CMW) as a stapled security, the Group has over $3 billion in assets under management (including unlisted funds) and manages 33 commercial properties throughout Australia. The Group delivered operating earnings of over $100 million in the 2013 financial year (FY13) from the Group’s property portfolio and funds management business. Cromwell achieves a large proportion of earnings from a core investment portfolio leased predominately to Government and blue chip corporate tenants. Cromwell is well placed to continue to deliver the strong returns historically achieved, whilst being able to take advantage of current market conditions to continue to buy quality property at attractive prices. Level 19, 200 Mary Street Brisbane QLD 4000 AUSTRALIA Phone: +61 7 3225 7777 Fax: +61 7 3225 7788 Web: www.cromwell.com.au invest@cromwell.com.au Email: Securityholder Enquiries All enquiries and correspondence regarding securityholdings should be directed to Cromwell’s registry provider: Link Market Services Limited Level 15, 324 Queen Street Brisbane QLD 4000 AUSTRALIA Phone: 1300 550 841 Outside Australia: +61 2 8280 7124 Fax: +61 2 9287 0303 Web: www.linkmarketservices.com.au Email: cmw@linkmarketservices.com.au Cromwell Property Group | Annual Report 2013 3 well versed well timed well considered fiNANCiAL highLighTS Another successful yeAr in fy13 Record operating profit of $102.4 million or 7.6 cents per security (cps), up 28% Distributions up 3.6% to 7.25 cps Statutory profit of $46.2 million, an increase of 100% Increase in like-for-like property income of 2.8% Funds management contribution increased to $5.8 million External assets under management up 19% to $749 million financial results summary Statutory profit ($’000) Statutory profit (cents per security) Property Investment Funds Management Development Operating profit ($’000)1 Operating profit (cents per security) Distributions ($’000) Distributions (cents per security) Payout Ratio (%) FY13 46,156 3.44 97,172 5,754 (515) 102,411 7.63 FY12 23,077 2.16 80,425 223 (638) 80,010 7.48 97,4482 75,019 7.25 95% 7.0 93% Change 100% 59% 21% 2,480% 19% 28% 2% 30% 4% 2% 1. See page 31 for further details of operating profit and reconciliation to statutory profit 2. Excludes $4.2 million of distributions above pro rata entitlement attributable to equity raisings 4 Cromwell Property Group | Annual Report 2013 finAnciAl Position strengthened Net tangible assets (NTA) per security increased from $0.67 to $0.70 Issued 544 million new securities at an average price of $0.90 Gearing reduced from 51% to 46%, within target range of 35-55% Largest debt facility extended to January 2016 at reduced cost No debt maturities until December 2014 Cash $126 million available financial Position Total assets ($’000) Net assets ($’000) Net tangible assets ($’000) (1) Net debt ($’000) (2) gearing(3) Securities issued (’000) NTA per security NTA per security (excluding interest rate swaps) 1. Net assets less deferred tax asset and intangible assets. 2. Borrowings less cash and cash equivalents and restricted cash. 3. Net debt divided by total assets less cash and cash equivalents. FY13 2,546,110 1,200,852 1,199,018 1,106,787 46% 1,713,721 $0.70 $0.72 FY12 1,837,601 788,989 787,442 905,024 51% 1,169,689 $0.67 $0.71 fy14 guidAnce Operating earnings expected to be at least 8.3 cps in FY14, an increase of 9% Distributions expected to be 7.5 cps in FY14, an increase of 3% Targeting improvement in debt profile and growth in NTA per security Continued focus on acquiring long-leased office property assets 5 Cromwell Property Group | Annual Report 2013 well versed well timed well considered ChAiRmAN’S REPORT “this year, with the acquisition of $641 million in assets and the rapid growth in our funds management business, we have moved into a new league.” “cromwell’s fund management business hit new heights during the year, more than tripling its unlisted fund raisings” Geoffrey H Levy, AO in the 2013 financial year, we continued to grow and enhance our property portfolio and to further develop our funds management business. This was a landmark year in which Cromwell made a number of larger acquisitions that moved us to a new level in terms of portfolio size and funds under management. The key acquisitions on our balance sheet were the portfolio of seven office assets purchased from the NSW Government for $405 million, and two Brisbane CBD office towers acquired for $65 million. Our funds management business also hit new heights during the year, more than tripling our unlisted fund raisings from $61 million in the 2012 financial year to $258 million in 2013. The business successfully completed two major property investment offerings, the Cromwell Ipswich City Heart Trust and the Box Hill Trust. The award-winning Cromwell Phoenix Property Trust also enjoyed record inflows. During the financial year, Cromwell’s market capitalisation more than doubled, reaching $1.67 billion at June 2013 and making Cromwell the 105th largest company by market cap on the ASX. This was partly achieved through $444 million in capital raisings which brought many new institutional investors onto our register and greatly improved our liquidity. We also saw a substantial increase in our security price from $0.67 at June 2012 to $0.975 at June 2013 as the market came to appreciate the value of a company with the potential to grow both earnings and distributions in what have been relatively challenging economic times. More importantly, the increased size and scale of the business, combined with a larger spread of institutional securityholders facilitated our inclusion into the S&P/ASX300 in March 2013. Subsequent to the end of the financial year we have also been included in the benchmark S&P/ASX 200 Index. Because a large proportion of capital invested 6 Cromwell Property Group | Annual Report 2013Qantas Headquarters, Mascot, NSW Symantec Building: Sydney, NSW Crown Street: Wollongong, NSW by professional fund managers and other large scale investors is directed towards companies that are part of these indices, our ability to raise large amounts of equity capital when needed has become greatly enhanced. Inclusion into these indices has been a long term goal for Cromwell and one which we are proud to have achieved. Most importantly, we continued to maintain our prudent approach to acquisitions and capital management which ensured that Cromwell’s Earnings and Distribution per security remains predictable and attractive. Distributions paid for the year were 7.25 cents up from 7.00 cents in 2012. This represents a growth in distributions per security of 3.6% in 2013. Distributions paid during the year, combined with the increase is Security price resulted in a 12 month total return of 54.4% to our Securityholders. Whilst this is an impressive increase, we recognise it has been partly achieved with the tailwind of an improving market and anticipation of our inclusion in the indices previously referred. However, we remain focussed on longer term sustainable returns and we encourage our investors, be they Cromwell Securityholders or unitholders in our managed funds, to do likewise. In that regard, we are very happy to have delivered total securityholder returns of 16.4% per annum over the past 5 years. This compares pretty well against the A-REIT average of just 0.3% per annum and the ASX All Ordinaries returns of 2.2% per annum over the same period. It also represents a pretty descent absolute return from what we consider to be a relatively low risk business model. We will not rest on our laurels nor simply grow for size sake. We will continue to actively reposition and reduce or increase our portfolio depending on the circumstances and consistent with our long term goals. We remain steadfast in our focus to return sustainable distributions over the longer term whilst preserving the capital value of our investment pool. I would like to thank our CEO, Paul Weightman and his outstanding and resourceful team for their tireless work through the year which has left us in a very strong position to continue to grow our earnings and distributions, and to capitalise on further opportunities in the future. I would also like to thank my fellow board members for their commitment, insights and continued efforts. Finally, I would like to thank all of our Securityholders for their support as we continue to reap the benefits of our discipline in these demanding times. Geoffrey H Levy, AO Chairman Cromwell Property Group | Annual Report 2013 7 well versed well timed well considered CEO’S REPORT “our consistent and disciplined approach to growth has been rewarded through significant outperformance” Paul Weightman 2013 was a breakthrough year for Cromwell. We achieved a 28% increase in operating earnings to a record $102.4 million and substantially improved the size and quality of both our investment portfolio and our assets under management. During the year Cromwell and our managed funds completed the acquisition of investment properties to the value of $641 million,resulting in an increase in the value of our asset base by 39%. Cromwell was admitted to the S&P/ASX300 Index in March 2103 and in September 2013, we were admitted to the S&P/ASX200 Index. Our market capitalisation more than doubled from $801 million at June 2012 to $1.67 billion at June 2013. Importantly, as we have grown in size and achieved index inclusion we have increasedboth earnings and distributions per Security. We have not grown just to get bigger. Our consistent and disciplined approach has resulted in Cromwell outperforming the S&P/ASX300 A-REIT Accumulation Index over time, as shown in the graph below. cromwell Performance June 2013 (Annualised Total Securityholder Return) 1 60% 50% 40% 30% 20% 10% 0% 54.4% Cromwell Property Group S&P/ASX 300 A-REIT Accumulation Index Excess Returns 35.4% 32.7% 30.5% 24.0% 22.9% 16.4% 16.1% 13.4% 9.5% 1 year 3 years 0.3% 5 years 2.7% 10 years 1. Includes distributions 8 Cromwell Property Group | Annual Report 2013 ProPerty Portfolio Cromwell seeks to obtain the best possible risk adjusted returns from our property portfolio, and to maintain a strong bias towards predictable income streams. Our property investments continued to provide most of Cromwell’s income during the year Property income contributed $97.2 million after debt costs, or 95% of operating earnings for the year, an increase of 21% over the previous year. The increase included growth in “like-for-like” property income of 2.8% over the previous year. This was a well above average result in what was, and remains a very difficult leasing environment. Growth also came via additional rental income from property acquisitions during the past 2 years including the NSW Portfolio and Brisbane CBD properties acquired in May 2013. Property valuations for the $2.3 billion portfolio fell a modest 1.8% during the year, as a result of softening market rentals. The weighted average capitalisation rate, or property yield, was 8.51% across the portfolio at June 2013, compared with 8.28% at June 2012. This change was largely a function of the acquisitions we made during the year. The portfolio was 96.1% leased at year-end, with a 6.1 year weighted average lease term. Importantly, tenant quality remains very high, with 46% of rental income at balance date underpinned by Government owned or Government funded entities, and a further 37% from listed companies or their subsidiaries. geographic diversification 1% 1% 19% 18% 28% 33% ACT NSW QLD VIC TAS SA sector diversification by gross income 4% 3% Commercial Retail Industrial 93% tenant classification by gross income 17% Listed Company/Subsidiary 37% Government Authority Private Company 46% 207 Kent Street Sydney, NSW McKell Building Sydney, NSW Bligh House Sydney, NSW seven nsW Portfolio Assets Station Street Penrith, NSW Crown Street Wollongong, NSW Farrer Place Queanbeyan, NSW Bull Street Newcastle, NSW 9 Property yield vs. 10 year bond rate Office cap rate (7.6%) 10-year bond (3.8%) Cromwell cap rate (8.5%) 10% 8% 6% 4% 2% 0% 2001 2003 2005 2007 2009 2011 2013 Source: IRESS; BofA Merrill Lynch Global Research The biggest change in the portfolio during the year came from our purchase in May 2013 of seven office assets from the NSW State Government. The purchase price of the NSW Portfolio was $405 million, which represented an attractive initial yield of 9.0%. Approximately 63% of the NSW Portfolio is leased to the NSW Government, with an overall NSW Portfolio weighted average lease expiry (WALE) of 9.4 years. The NSW Portfolio comprised three Sydney CBD assets worth a total of $316 million and four regional NSW assets valued at $89 million. The transaction enhanced Cromwell’s existing portfolio quality by increasing Cromwell’s weighted average lease expiry to 6.1 years and providing additional income from Government tenants as well as providing additional weighting to the Sydney and broader NSW office market. The acquisition of the NSW Portfolio was consistent with our strategy of providing secure, steadily growing distributions to investors through the management of a portfolio of high quality assets with a long weighted average lease expiry. In another significant acquisition during the period, Cromwell entered into an agreement to purchase two Brisbane office buildings for a combined purchase price of $65 million. The buildings, known as Health House and Forestry House are adjoining properties situated at 147-163 Charlotte Street and 146-160 Mary Street in the Brisbane CBD. Both buildings are of a similar size and design and are leased to the Queensland State Government for an average of 3.2 years, with the lease over 100% of Health House expiring in July 2015 and Forestry House in November 2017. The passing income of both buildings is approximately $13.5 million per annum which represents a yield of approximately 20% on the purchase price. This acquisition delivered to Cromwell well-located assets that will provide significant cash flow in coming years. We believe that there is also substantial upside potential which can be realised in many ways on expiry of the current leases. The acquisition was funded from existing cash reserves. Cromwell also continued its ongoing portfolio recycling strategy. In January 2013, we sold an office tower at 101 Grenfell Street, Adelaide for $43.1 million, in line with the most recent independent valuation. Approximately half the proceeds from the sale were used for debt repayment, with the balance held for future investment opportunities. Cromwell intends to continue to seek acquisition opportunities which complement our investment strategy and existing portfolio. We target assets that show an initial acquisition yield of at least 8% pa, and a total return of at least 12% pa. Cromwell will continue to look for properties that we consider will outperform and are undervalued by the wider market. Over the medium term, we believe there is significant opportunity for capital upside. In our current low interest rate environment buyers of property are increasingly prepared to accept lower property yields, particularly where a property has strong future cash flows. If interest rates remain low, as we expect them to do for a number of years, this continuing trend will result in increasing property valuations. Cromwell can be a significant beneficiary of this trend in coming years. 10 Cromwell Property Group | Annual Report 2013 well versed well timed well consideredfunds MAnAgeMent Cromwell provides investors with two points of entry to commercial property investments that it manages – through owning the listed securities of Cromwell itself, and through investing in the unlisted managed funds. Each has a slightly different risk and return profile. Earnings from the Funds Management business increased to $5.8 million in 2013 from $0.2 million in 2012, reflecting Cromwell’s continuing success in delivering new products to the market and a resulting increase in recurring revenue from assets under management. The significant growth in earnings from funds management activities reinforced the value and future potential of this management platform. We believe the funds management business is a valuable asset which provides the group with additional growth potential to complement Cromwell’s strong property income stream. The business has built a considerable record of success in recent years with an attractive range of products and we anticipate continued significant growth in earnings from Funds Management in FY14. The funds management business had a busy year, starting with its promotion of the Cromwell Ipswich City Heart Trust which closed early and oversubscribed in October 2012 having raised $52.5 million. Inflows to the Trust were aided by the announcement of an increase in forecast Trust distributions combined with falling official interest rates. The Cromwell Ipswich City Heart Trust is a 7-year single property trust which owns an office asset which is the first stage of the $1 billion ICON Ipswich Masterplanned redevelopment. Many of the 860 investors in the Trust invested in a Cromwell managed fund for the first time and the average investment size was approximately $60,000. Like the successful Cromwell Riverpark Trust before it, the Ipswich Trust’s income is underpinned by a long term pre-commitment from a blue chip tenant (in this case the Queensland Government) which signed a 15-year lease over 91% of the net lettable area. Cromwell launched the Cromwell Box Hill Trust in December 2012 and closed it oversubscribed in April 2013. The single asset unlisted property trust managed by Cromwell Funds Management Limited raised approximately $66.5 million to fund construction of an eco-friendly, 20-storey office building in Box Hill in Melbourne. The building is 97% leased to the Commonwealth Government for 15 years from completion and will house the Australian Taxation Office. Construction commenced in early 2013 and is due for completion in March 2015. The success of these two fund raisings further demonstrated the attractiveness of Cromwell’s back-to-basics investment offerings and the strength of its distribution network. From our perspective, the strong response from investors proved the continuing appeal of simple, transparent, yield-based products underpinned by quality Australian commercial property assets. Assets under Management ($m) Property Securities External Direct Internal $4,000 M $3,500 M $3,000 M $2,500 M $2,000 M $1,500 M $1,000 M $ 500 M $ M Jun-01 Jun-03 Jun-05 Jun-07 Jun-09 Jun-11 Jun-13 Jun-13 Pro Forma1 1. Includes expected on-completion properties under construction 11 Cromwell Property Group | Annual Report 2013 well versed well timed well considered ...from page 11 The success of these two fund raisings further demonstrated the attractiveness of Cromwell’s back-to-basics investment offerings and the strength of its distribution network. The strong response from investors to these offerings reinforced in our minds the continuing appeal of simple, transparent, yield-based products underpinned by quality Australian commercial property assets. Cromwell, through boutique fund manager Phoenix Portfolios, now also manages over $400 million in property securities funds, including the Cromwell Phoenix Property Securities Fund, on behalf of retail and selected institutional investors. Phoenix Portfolios is jointly owned by Phoenix staff and Cromwell. The Cromwell Phoenix Property Securities Fund, which invests in listed A-REITs and infrastructure funds, substantially increased its funds under management during the year. The Fund also won the Money Management/ Lonsec Fund Manager of the Year Award for Australian property securities for the third year in a row. With a distribution network of more than 20,000 retail investors, more than 5,000 of whom are current fund investors, continuing support from many of Cromwell’s 13,000 plus securityholders, and relationships with thousands of financial planners, we believe we can continue to grow the funds management business into the future. Initiatives are currently in place to add 5,000 plus new prequalified investors in next 12 months. As at December 2012, there were more than 496,000 self- managed superannuation funds in Australia, holding $136 billion in cash and term deposits. Investors are currently at an inflection point with cash returns having been reduced significantly over the past 18 months. Over time, investors will seek to move cash into more attractive and higher yielding investments. We have seen a significant increase in investment inflows and enquiries. Our experience tells us that reputation, product quality and structure are the key factors in attracting retail investor demand. Cromwell is well positioned to take advantage of the opportunities in the market We have maintained a strong reputation and network through the years since the GFC, we have a limited number of competitors, and we are able to secure quality properties because of our track record and balance sheet. 12 “the strong demand which saw the early closure of cromwell ipswich city heart trust fund raising last year continued to gain momentum with the cromwell Box hill trust and in March cromwell experienced some of the largest weekly inflows in the history of its funds management business.” Cromwell Property Group | Annual Report 2013Direct retail investor Direct retail investor base growing fast base growing fast • over 5,000 current fund investors • over 5,000 current fund investors • over 13,000 retail cromwell securityholders • over 13,000 retail cromwell securityholders • over 23,000 potential investors • over 23,000 potential investors 13 Cromwell Property Group | Annual Report 2013well versed well timed well considered 14 cAPitAl MAnAgeMent NTA per security increased during the year from $0.67 to $0.70, primarily as a result of the issue of new equity to fund acquisitions. In December 2012 we successfully raised $143 million from institutional placements which were exceptionally well supported by a number of new and existing international and domestic institutional investors. That raising was followed up by a share purchase plan in February 2013, which raised a further $39 million from our retail securityholders. We raised a further $250 million in May and June 2013 through a placement and institutional offer. We were delighted by the strong support we received from our existing securityholders and we were happy to welcome a number of new institutional securityholders to the register. debt expiry Profile 551 million 228 million 227 million 232 million $600 M $500 M $400 M $300 M $200 M $100 M $ M 1H14 2H14 1H15 2H15 1H16 2H16 We have now raised $761.4 million of new equity since July 2009, at an average issue price of $0.82. Debt increased during the year due to the additional borrowings drawn down to fund acquisitions. Gearing, however, decreased from 51% to 46% as a result of new equity raised and remains well within the preferred range of 35-55%. As well as lower gearing, our debt profile also continued to improve with our largest debt facility extended from May 2014 to January 2016. We were also able to negotiate a reduced interest cost for this facility. Our weighted average debt maturity at the end of the year was 2.2 years. Cromwell’s average interest cost fell during the year from 6.9% to 6.4% reflecting lower variable interest rates as the Reserve Bank reduced the cash rate. Cromwell Property Group | Annual Report 2013 outlook Looking forward, we will continue to seek long-term value for Cromwell Securityholders and for investors in our unlisted funds by buying well, managing our assets through the property market’s cycles and adjusting the portfolio ahead of changing conditions to maximise return and minimise risk. The outlook for Cromwell remains positive despite the continuing sluggish pace of economic growth. Cromwell’s property portfolio is expected to continue to deliver consistent earnings in the 2014 financial year and operating earnings per security are forecast to rise to at least 8.3 cents, an increase of 9.2% over 2013. Property income remains resilient in the current soft market. Approximately 60% of the portfolio has a fixed rent increase built into the lease in FY14, with an average fixed increase amount of 3.9%. Additionally, the Cromwell portfolio has minimal vacancy and very low lease expiries in the next 2 years. We also expect growth in earnings from our funds management business and there is future upside potential from lower base interest rates which will reduce debt repayments. There is also growth potential through accretive acquisitions. We anticipate good growth in both operating earnings and distributions per security in 2014, underpinned by ourstrong property portfolio and the funds management business, which we believe can continue to deliver significant growth in future years. lease expiry Profile % gross income 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 42.8% 24.8% 16.8% 7.3% 3.9% 4.4% Vacant FY14 FY15 FY16 FY17 Thereafter 15 Cromwell Property Group | Annual Report 2013 Cromwell Corporation Limited ABN 44 001 056 980 Level 19, 200 Mary Street Brisbane QLD 4000 Cromwell Diversified Property Trust ARSN 102 982 598 Responsible Entity: Cromwell Property Securities Limited ABN 11 079 147 809 AFSL: 238052 Level 19, 200 Mary Street Brisbane QLD 4000 16 Cromwell Property Group | Annual Report 2013 FINANCIALS Cromwell Property Group Annual Financial Report 30 June 2013 CoNteNtS Directors’ Report Auditor’s Independence Declaration 18 37 Consolidated Statements of Comprehensive Income 38 Consolidated Statements of Financial Position Consolidated Statements of Changes in Equity Consolidated Statements of Cash Flows Notes to the Consolidated Financial Statements Directors’ Declaration Independent Auditor’s Report 39 40 41 42 93 94 Cromwell Property Group | Annual Report 2013 17 Directors report The directors of Cromwell Corporation Limited and Cromwell Property Securities Limited as Responsible Entity for the Cromwell Diversified Property Trust (collectively referred to as “the Directors”) present their report together with the consolidated financial statements for the year ended 30 June 2013 for both: • the Cromwell Property Group (“the Group”) consisting of Cromwell Corporation Limited (“the Company”) and its controlled entities and Cromwell Diversified Property Trust (“the CDPT”) and its controlled entities; and • the CDPT and its controlled entities (“the Trust”). The shares of the Company and units of the CDPT are combined and issued as stapled securities in the Group. The shares of the Company and units of the Trust cannot be traded separately and can only be traded as stapled securities. 1. Directors & Officers (a) Directors The persons who were Directors at any time during the financial year and up to the date of this report (unless otherwise stated) were: Mr Geoffrey Levy (AO) – Chairman Mr Levy has extensive public company executive and directorship experience and is the former Chief Executive Officer and current Deputy Chairman of Investec Bank (Australia) Ltd. He is currently Chairman of ASX listed Speciality Fashion Group Limited, and Monash Private Capital. He was appointed an Officer in the Order of Australia in the Queen’s Birthday Honours List in June 2005. He has also been appointed by the NSW State Government to chair its Property Asset Utilisation Taskforce. Mr Robert Pullar – Non-Executive Director Mr Pullar is a Director of the Brisbane based property development company operating in Australia, Citimark Properties. He was previously a partner with a mid- tier chartered accounting firm, specialising in property investment, taxation and corporate reorganisation. Mr Pullar is a member of the Institute of Chartered Accountants and a Fellow of the Australian Institute of Company Directors. He is Chairman of Cromwell’s Nomination & Remuneration Committee, Chairman of Cromwell’s Investment Committee and a member of Cromwell’s Audit & Risk Committee. Ms Michelle McKellar – Non-Executive Director Ms McKellar has a wealth of property and portfolio management experience having held Chief Executive positions with CB Richard Ellis throughout Asia Pacific and subsequently the Jen Group of Companies overseeing the development and management of a significant commercial and retail portfolio. She is a senior member of the Property and Land Economy Institute, a member of the Australian Institute of Company Directors and operates her private property companies in Australia and NZ. Ms McKellar is a member of Cromwell’s Nomination & Remuneration, Audit & Risk and Investment Committees. Mr David Usasz – Non-Executive Director Mr Usasz has 20 years experience as a partner with PricewaterhouseCoopers and has been involved in merger and acquisition advice, accounting and financial consultancy, specialising in corporate reorganisations. He is a director of Queensland Investment Corporation Limited. He holds a Bachelor of Commerce and is a Fellow of the Institute of Chartered Accountants. Mr Usasz is Chairman of Cromwell’s Audit & Risk Committee and a member of Cromwell’s Nomination & Remuneration Committee. Mr Richard Foster – Non-Executive Director Mr Foster is a licensed real estate agent with substantial experience in the real property industry specialising in large- scale property acquisition for most of his professional life. He has also been closely involved with the acquisition and marketing of direct property investments valued in excess of $1.2 billion. He has had substantial input to the growth and development of the business and the Group’s investment products. Mr Foster is a member of Cromwell’s Nomination & Remuneration and Investment Committees. Mr Marc Wainer – Non-Executive Director Mr Wainer has more than 35 years experience in the property industry in South Africa, including founding Investec Property Group, Investec Bank’s property division. Marc is Chief Executive Officer and an Executive Director of listed South African property group Redefine Properties which he founded, and a director of Redefine International plc, a listed property investment company which is a substantial securityholder of Cromwell Property Group. He also is a non-executive director of Hyprop Investments Limited, a South African listed retail property fund. Mr Michael J Watters – Non-Executive Director Mr Watters was appointed in April 2011, is a qualified engineer with a BSc Eng. (Civil) Degree and an MBA and has over 25 years experience in the investment banking and real estate industries. He has held directorships of some of South Africa’s top rated listed property funds including Sycom Property Fund and Hyprop Investments Limited. He is the CEO of the Redefine International Group. Mr Paul Weightman – Managing Director/ Chief Executive Officer Mr Weightman practised as a solicitor for more than 20 years and holds degrees in commerce and law. He has extensive experience in property development and investment, financial structuring, public listings, mergers and acquisitions, revenue matters and joint ventures. Mr Weightman was Cromwell’s Executive Chairman from 1998 until the appointment of Mr Levy in April 2008, and has 18 Cromwell Property Group | Annual Report 2013Geoffrey H Levy, AO NON-EXECUTIVE CHAIRMAN Paul Weightman MANAGING DIRECTOR / CEO Daryl Wilson DIRECTOR – FINANCE & FUNDS MANAGEMENT Robert Pullar NON-EXECUTIVE DIRECTOR 6/29* 15/29* 14/22* 11/27* Michelle Mckellar NON-EXECUTIVE DIRECTOR 7/29* Michael J Watters NON-EXECUTIVE DIRECTOR Richard Foster NON-EXECUTIVE DIRECTOR Marc Wainer NON-EXECUTIVE DIRECTOR 4/27* 15/44* 4/37* David Usasz NON-EXECUTIVE DIRECTOR 7/35* * YEARS wITH CROMwEll / YEARS EXpERIENCE acted as Chief Executive Officer since that date. He has been a director of companies in the property, energy and retail sectors. Mr Weightman is a member of Cromwell’s Investment Committee. Mr Daryl Wilson – Director – Finance & Funds Management Mr Wilson joined Cromwell in August 1999 and has primary responsibility for the finance and funds management functions. Mr Wilson has led the development of Cromwell’s funds management capabilities and has many years experience as a chartered accountant. He holds a Bachelor of Commerce and a Diploma of Financial Planning. Mr Wilson is a member of Cromwell’s Investment Committee. Mr Geoffrey Cannings – Alternate Director Mr Cannings is an alternate director to Mr Michael J Watters and was appointed on 1 August 2011. All Directors of the company are also Directors of Cromwell Property Securities Limited, the Responsible Entity of CDPT. (b) Directorships of other listed entities in last 3 years Mr Levy has been a Director of Specialty Fashion Group since 8 April 2005. Mr Usasz was a director of Queensland Mining Corporation Limited from 15 June 2007 until his resignation on 28 February 2013. Mr Wainer is a Director of Redefine International plc, a property investment company which is listed on the London Stock Exchange and a Director of Redefine Properties, a property group which is listed on the Johannesburg Stock Exchange. Mr Watters is a Director of Redefine International plc, a property investment company which is listed on the London Stock Exchange. No other Director has been a director of any other listed company during the 3 years preceding the end of the financial year and up to the date of this report. (c) Company secretary Ms Nicole Riethmuller Ms Riethmuller has over 15 years experience as a corporate lawyer having worked primarily in the financial services industry. Prior to joining Cromwell, Nicole was General Counsel at the Queensland Investment Corporation where she headed the in-house legal team. Before that she was a Senior Associate in the Funds Management team at Minter Ellison lawyers in Sydney. Nicole has also been a lawyer and Assistant Company Secretary at Queensland Sugar Corporation. She has a Bachelor of Laws and a Bachelor of Commerce from the University of Queensland. 19 Cromwell Property Group | Annual Report 2013 (d) Directors’ Meetings The number of Directors’ meetings (including meetings of committees of the Board) and number of meetings attended by each of the Directors of the Company during the financial year were: Director Board Nomination & Remuneration Committee Audit & Risk Committee Investment Committee Geoffrey Levy Robert Pullar Michelle McKellar David Usasz Richard Foster Marc Wainer Michael Watters (1) Paul Weightman Daryl Wilson A 15 14 15 14 15 11 16 16 16 B 16 16 16 16 16 16 16 16 16 A – 5 5 5 5 – – – – B – 5 5 5 5 – – – – A – 5 7 7 – – – – – B – 7 7 7 – – – – – A – 7 9 – 9 – – 9 8 B – 9 9 – 9 – – 9 9 A – Number of meetings attended (1) Includes attendance by alternate director Geoffrey Cannings. B – Number of meetings eligible to attend 2. Principal Activities The principal activities of the Group and Trust during the financial year consisted of property investment. The principal activities of the Group also include funds management, property management and property development. There were no significant changes in the nature of the Group’s or Trust’s principal activities during the financial year. 3. Dividends/Distributions Group 2013 Interim distribution Interim distribution Interim distribution Final distribution 2012 Interim distribution Interim distribution Interim distribution Final distribution Trust 2013 Interim distribution Interim distribution Interim distribution Final distribution 2012 Interim distribution Interim distribution Interim distribution Final distribution Dividend per Security Distribution per Security Total per Security Total $’000 Franked amt per Security Record Date Payment Date – – – – – – – – – – 1.8125¢ 1.8125¢ 1.8125¢ 1.8125¢ 7.2500¢ 1.7500¢ 1.7500¢ 1.7500¢ 1.7500¢ 7.0000¢ 1.8125¢ 1.8125¢ 1.8125¢ 1.8125¢ 7.2500¢ 1.7500¢ 1.7500¢ 1.7500¢ 1.7500¢ 7.0000¢ 21,243 22,874 26,481(1) 31,061(2) 101,659 16,920 17,602 20,027 20,470 75,019 – – – – – – – – – – 05/10/12 31/12/12 28/03/13 28/06/13 04/10/11 30/12/11 30/03/12 29/06/12 14/11/12 13/02/13 15/05/13 15/08/13 16/11/11 15/02/12 16/05/12 16/08/12 Dividend per Security Distribution per Security Total per Security Total $’000 Franked amt per Security Record Date Payment Date – – – – – – – – – – 1.8125¢ 1.8125¢ 1.8125¢ 1.8125¢ 7.2500¢ 1.7500¢ 1.7500¢ 1.7500¢ 1.7500¢ 7.0000¢ 1.8125¢ 1.8125¢ 1.8125¢ 1.8125¢ 7.2500¢ 1.7500¢ 1.7500¢ 1.7500¢ 1.7500¢ 7.0000¢ 21,248 22,879 26,486(1) 31,066(2) 101,679 16,925 17,607 20,032 20,474 75,038 – – – – – – – – – – 05/10/12 31/12/12 28/03/13 28/06/13 04/10/11 30/12/11 30/03/12 29/06/12 14/11/12 13/02/13 15/05/13 15/08/13 16/11/11 15/02/12 16/05/12 16/08/12 (1) Includes an amount of $453,000 for both the Group and Trust in excess of the pro-rata entitlement for the quarterly distribution paid to those securityholders who acquired securities in February 2013 as part of the Security Purchase Plan. (2) Includes an amount of $3,758,000 for both the Group and Trust in excess of the pro-rata entitlement for the quarterly distribution paid to those securityholders who acquired securities in June 2013 as part of the placement and entitlement offer. . 20 Cromwell Property Group | Annual Report 20134. Review of Operations and Results (a) Financial performance The Group recorded a profit of $46,156,000 for the year ended 30 June 2013 compared with a profit of $23,077,000 for the previous year. The Trust recorded a profit of $43,291,000 for the year ended 30 June 2013 compared with a profit of $24,359,000 for the previous year. Net earnings from the property portfolio, after property outgoings costs but before interest expense was $172,660,000, an increase of 15% on the previous year. The increase was primarily as a result of additional rental income generated due to the acquisition of the balance of the Cromwell Property Fund (“CPF”), increased rental income from Qantas Headquarters (due to expansion of the property), the HQ North property (acquired December 2011), the Bundall Corporate Centre property (acquired January 2012), the Brisbane CBD properties (acquired May 2013) and the NSW Portfolio (acquired June 2013). The Group also measures the change in like for like net property earnings, taking into account only properties held in both the current and previous financial years. On this basis, net property earnings increased by 3% in 2013. This demonstrates the value of the strong leasing profile of the Group combined with the in house management which enables Cromwell to get the best out of each property. Interest expense for the year increased to $67,715,000 (2012: $61,963,000). This increase occurred as a result of the additional borrowings for properties acquired during the year. The average interest cost fell during the year from 6.93% to 6.43%. This fall in average rate reflected lower variable interest rates as the Reserve Bank reduced the cash rate during the year. Funds management earnings increased from $223,000 in 2012 to $5,754,000 in 2013, reflecting the continuing success of the Group in delivering new products to the market and an increase in recurring revenue from assets under management. This highlights the attractiveness of having the funds management business, which can provide the Group with additional growth to compliment the strong property income stream. Development activity for this year continued to be limited, with a small amount of industrial land held for development or re- sale when the opportunity arises. The Group does not seek to undertake any material amount of speculative development. The profit for the year includes a number of items which are non-cash in nature or occur infrequently and/or relate to realised or unrealised changes in the values of assets and liabilities and in the opinion of the Directors, need to be adjusted for in order to allow securityholders to gain a better understanding of the Group and Trust’s underlying profit from operations. The most significant of these items impacting the profit of the Group for 2013 and not considered part of the underlying profit from operations were: • A decrease in the fair value of investment properties of $55,747,000 (2012: $12,353,000); and • An increase in the fair value of interest rate derivatives of $7,326,000 (2012: decrease of $38,483,000). The decrease in fair value of investment properties had two significant components. Underlying valuations for investment properties decreased by $32,830,000 during the year, net of property improvements, leasing incentives and lease costs. This is equivalent to a decrease in value of approximately 1.8% or 2.3 cents per stapled security from June 2012 valuations. These decreases were generally concentrated in properties with short to medium-term lease expiries or current vacancies such as Waymouth Street in Adelaide, Mary Street in Brisbane and Tuggeranong Office Park and Keltie Street in Canberra. This is reflective of the current soft economic conditions and a more difficult leasing market which the Group will face over the next 1-2 years. In contrast, properties with longer leases such as the Qantas Headquarters in Sydney and Exhibition Street in Melbourne have increased in value as demand for assets with secure cash flows increases. The Group also recognised $26,372,000 in costs related to the acquisition of properties during the year, primarily a portfolio of seven properties acquired from the NSW Government in June 2013 for $405 million. The majority of these costs relate to stamp duty payable on acquisition. The NSW Government portfolio has a weighted average lease expiry of 10 years and provides an initial yield of approximately 9% on the purchase price. The Group is confident these assets will be seen as a valuable addition to the portfolio in coming years. Change in valuations, net of property improvements, lease costs and incentives Non-cash adjustments for straight-lining of rentals and lease amortisation Acquisition transaction costs (properties acquired during the year) Decrease in fair value of investment properties Group 2013 $’000 (32,830) 3,455 (26,372) (55,747) 2012 $’000 773 813 (13,939) (12,353) 21 Cromwell Property Group | Annual Report 2013The increase in fair value of interest rate derivatives arose as a result of the Group’s policy to hedge a portion of future interest expense. The Group had hedged future interest rates through contracts over 86% of its debt at 30 June 2013 to minimise the risk of changes in interest rates in the future. These contracts expire between November 2013 and December 2017 and can be valued. Although the valuation process is relatively complex, the value is essentially determined by the difference between the actual interest rates which have been agreed under the contracts and what the market forward interest rates are at the date of the valuation until maturity of the hedge contract. The financial result included an increase in fair value of these interest rate derivatives (contracts) held by the Trust of $7,326,000 or 0.5 cents per stapled security. Market rates, and hence valuations, change daily, but the value at the end of an interest rate contract will always be nil and therefore the amounts recognised in the income statements are expected to reverse over time as the interest rate contracts expire. (b) Profit from operations Profit from operations for the year was $102,411,000 (2012: $80,010,000). Profit from operations is considered by the Directors to reflect the underlying earnings of the Group and Trust. It is a key metric taken into account in determining distributions for the Group and Trust, but is a measure which is not calculated in accordance with International Financial Reporting Standards (“IFRS”) and has not been audited or reviewed by the Group’s auditor. Profit from operations has been calculated consistently since stapling of the Group in December 2006. A reconciliation of profit from operations of the Group, as assessed by the Directors, to the reported profit for the year is as follows: Profit from operations Reconciliation to profit for the year Gain/(loss) on sale of investment properties Loss on sale of other assets Merger transaction costs Fair value net gains/(write-downs): Investment properties Interest rate derivatives Investments at fair value through profit or loss Property development inventories Non-cash property investment income/(expense): Straight-line lease income Lease incentive amortisation Lease cost amortisation Other non-cash expenses: Amortisation of finance costs Employee options expense Amortisation and depreciation Relating to equity accounted investments(1) Net tax losses incurred/(utilised)(2) Net profit for the year (1) Comprises fair value adjustments included in share of profit of equity accounted entities. (2) Comprises tax expense attributable to changes in deferred tax assets recognised as a result of carried forward tax losses. Group 2012 $’000 80,010 (331) (44) – (12,353) (38,483) (173) 200 6,892 (6,332) (1,373) (2,560) (601) (604) (993) (178) 23,077 2013 $’000 102,411 132 (146) (631) (55,747) 7,326 47 – 6,071 (8,042) (1,484) (2,581) (669) (643) 481 (369) 46,156 22 Cromwell Property Group | Annual Report 2013 The contribution to profit from operation of each of the 3 segments of the Group was: Property Investment Funds Management Property Development Profit from operations 2013 % 94.9% 5.6% (0.5%) 2012 $’000 97,172 5,754 (515) 102,411 Property Investment contributed $97,172,000 or 95% of profit from operations for the year. (c) earnings and Distributions per stapled security Profit per security (per statutory accounts) Profit from operations per security (see section 4(b)) Distributions per security 2013 % 100.5% 0.3% (0.8%) 2013 Cents 3.44 7.63 7.25 2012 $’000 80,425 223 (638) 80,010 2012 Cents 2.16 7.48 7.00 Profit from operations on a per security basis is considered by the Directors to be the most important measure of underlying financial performance as it excludes certain volatile and non-cash items but includes the impact of changes in the number of securities on issue. Profit from operations per security was 7.60 cents (2012: 7.48 cents). This represents an increase of approximately 1.6% which is considered satisfactory given the current market conditions. Importantly, the property assets acquired during the year are expected to enable the Group to grow profit from operations per security by a much greater amount in the 2014 financial year. Distributions paid for the year were 7.25 cents (2012: 7.00 cents), including a June 2013 quarter distribution of 1.8125 cents per stapled security paid on 15 August 2013. This represents a growth in distributions per security of 3.6% in 2013. Growing distributions per security in a sustainable way remains a key priority in the future. (d) Financial Position Total assets ($’000) Net assets ($’000) Net tangible assets ($’000) (1) Net debt ($’000) (2) Gearing (%) (3) Securities issued (’000) NTA per security (1) NTA per security (excluding interest rate swaps) (1) Net assets less deferred tax asset and intangible assets. (2) Borrowings less cash and cash equivalents and restricted cash. (3) Net debt divided by total assets less cash and cash equivalents. Group Trust 2013 2,546,110 1,200,852 1,199,018 1,106,787 46% 1,713,721 $0.70 $0.72 2012 1,837,601 788,989 787,442 905,024 51% 1,169,689 $0.67 $0.71 2013 2,487,254 1,145,462 1,145,462 1,157,594 48% 1,713,996 $0.67 $0.69 2012 1,820,045 774,720 774,720 913,156 52% 1,169,964 $0.66 $0.70 A total of 11 property assets were externally revalued at June 2013, representing approximately 48% of the property portfolio by value. The balance of the portfolio is subject to internal valuations having regard to previous external valuations and comparable sales evidence. The weighted average capitalisation rate (WACR) was 8.51% across the portfolio, compared with 8.28% at June 2012. Net debt has increased due to the additional borrowings of $353,171,000, including $200,000,000 drawn down to acquire the NSW Portfolio, $112,250,000 assumed as part of the CPF acquisition and $42,921,000 from further draw downs to fund capital expenditure in relation to the Mascot property. Gearing, however, decreased from 51% to 46% during the year as a result of new equity raised to fund property acquisitions and remains within the preferred range of 35-55%. 23 Cromwell Property Group | Annual Report 2013 An additional 544,033,000 stapled securities were issued during the year, at an average issue price of $0.88, comprising 32,339,000 securities issued to CPF investors in exchange for their CPF units in October 2012 and placements to new and existing investors of 182,166,000 securities in December 2012 and 250,000,000 securities in June 2013. The continuing operation of the distribution reinvestment plan also resulted in the issue of 12,362,000 securities during the year. NTA per security has increased during the year from $0.67 to $0.70, primarily as a result of the issue of new equity at an average premium to NTA of 24%. NTA per security excluding the value of interest rate contracts increased slightly to $0.72 per security. 5. Significant Changes in the State of Affairs Changes in the state of affairs of the Group during the financial year are set out within the financial report. There were no significant changes in the state of affairs of the Group during the financial year other than as disclosed in this report and the accompanying financial report. 6. Subsequent Events Other than as set out in note 40 of the financial report, no matter or circumstance has arisen since 30 June 2013 that has significantly affected or may significantly affect: • • • the Group’s operations in future financial years; or the results of those operations in future financial years; or the Group’s state of affairs in future financial years. 7. Likely Developments The outlook remains positive for the Group, despite the continuing sluggish pace of economic growth. The Group’s property portfolio is expected to continue to deliver consistent earnings. The performance of the investment property portfolio reflects the benefits of Cromwell’s integrated property management and tenant relationship activities. The portfolio was 96.0% leased at year-end, with a 6.1 year weighted average lease term. Importantly, tenant quality is also exceptional, with 45.8% of rental income at balance date underpinned by Government or Government owned/funded entities, and a further 37.1% from listed companies or their subsidiaries. The Group expects to achieve good growth in both operating earnings and distributions per security in 2014, underpinned by this strong property portfolio and the funds management business, which has the potential to return to a period of significant growth in future years. The Group gave guidance for 2014 of expected profits from operations per security of 8.3 cents in 2014, an increase of 9% over 2013. This, if it can be achieved, will be an exceptional result in the current climate and demonstrates the continuing resilience of our business model. Distributions are also expected to increase to 7.5 cents per security (annualised) from the September 2013 quarter, an increase of 3.4% on 2013 levels. The Group also aims to grow net tangible assets per security in 2014, to maintain gearing below 50% and to continue to outperform the S&P/ASX 300 A-REIT accumulation index over rolling 3 and 5 year periods. 8. Environmental Regulation The Directors are not aware of any particular and significant environmental regulation under a law of the Commonwealth, State or Territory relevant to the Group. 24 Cromwell Property Group | Annual Report 20139. Directors’ Interests The interests of current Directors in stapled securities of the Group at the date of this report are as follows: Geoffrey Levy Robert Pullar Michelle McKellar David Usasz Richard Foster Marc Wainer Michael J Watters Geoffrey Cannings Paul L Weightman Daryl J Wilson Stapled Securities 2,777,630 6,500,000 514,646 2,405,000 3,811,765 – – 80,000 15,921,167 1,622,200 33,632,408 Performance Rights – – – – – – – – 4,000,000 1,740,000 5,740,000 Options over Securities – – – – – – – – – – – 10. Options and Performance Rights (a) Securities under option through the Performance Rights Plan The Group issues options over stapled securities through the issue of performance rights under the Performance Rights Plan (“PRP”). At the date of this report, performance rights on issue are as follows: Date granted 23/08/10 23/08/10 23/08/10 07/03/11 26/05/11 26/05/11 26/05/11 05/09/11 05/09/11 05/09/11 24/08/12 24/08/12 12/10/12 12/10/12 19/10/12 19/10/12 19/10/12 19/10/12 19/10/12 19/10/12 Performance rights on issue Exercise date 21/08/13 – 21/09/13 21/08/13 – 21/09/13 21/08/13 – 21/09/13 01/07/13 – 01/08/13 01/07/13 – 01/10/13 01/07/14 – 01/10/14 01/07/15 – 01/10/15 06/09/14 – 05/10/14 06/09/14 – 05/10/14 06/09/14 – 05/10/14 24/08/15 – 24/09/15 24/08/15 – 24/09/15 12/10/15 – 12/11/15 12/10/15 – 12/11/15 01/07/13 – 01/08/13 01/07/14 – 01/08/14 01/07/15 – 01/08/15 01/07/13 – 01/08/13 01/07/14 – 01/08/14 01/07/15 – 01/08/15 Exercise price $0.00 $0.10 $0.20 $0.00 $0.50 $0.50 $0.50 $0.20 $0.00 $0.10 $0.00 $0.20 $0.00 $0.20 $0.00 $0.00 $0.00 $0.20 $0.20 $0.20 Expiry date 21/09/13 21/09/13 21/09/13 01/08/13 01/10/13 01/10/14 01/10/15 05/10/14 05/10/14 05/10/14 24/09/15 24/09/15 12/11/15 12/11/15 01/08/13 01/08/14 01/08/15 01/08/13 01/08/14 01/08/15 Number 101,378 47,433 95,894 97,633 1,913,333 1,913,333 1,913,334 393,679 590,622 52,851 81,581 82,142 150,018 229,110 55,561 55,563 55,563 60,292 60,292 60,292 8,009,904 Performance rights on issue at 30 June 2013 represent 0.47% of total issued securities. No holder has any right under the performance rights to participate in any other security or interest of the Company or any other entity, except that performance right holders effectively have a matching in-substance option for units in Cromwell Diversified Property Trust as a result of the Group’s stapling arrangement. No other form of option is on issue at the date of this report. (b) Securities issued on the exercise of performance rights through the Performance Rights Plan The following stapled securities were issued during the year ended 30 June 2013 on the exercise of performance rights granted under the PRP. No further securities have been issued as a result of the exercise of performance rights since that date. No amounts are unpaid on any of the securities. Date performance rights granted 23 August 2010 23 August 2010 Issue Price of Securities $0.00 $0.10 No. of Securities Issued 170,287 123,459 293,746 25 Cromwell Property Group | Annual Report 201311. Remuneration Report The remuneration report is presented for the financial year ending 30 June 2013. The report forms part of the Directors Report and has been prepared and audited in accordance with the requirements of the Corporations Act 2001. This report outlines the remuneration for Non-Executive Directors, Executive Directors and other Key Management Personnel. The report is set out under the following headings: (a) Remuneration principles (b) Details of remuneration (c) Performance assessment (d) Equity based compensation (e) Employment contracts and termination provisions (a) Remuneration principles Governance (i) The Group has appointed a nomination and remuneration committee (“Committee”). The Committee has overall responsibility for the remuneration strategy of the Group. The Committee also advises the Board on remuneration policy and practices. The Committee is chaired by Mr RJ Pullar, a Non-Executive Director. External consultants are appointed to advise the Committee as required. (ii) Remuneration policy Cromwell Property Group is committed to a fair and transparent remuneration strategy. It is considered imperative that the remuneration strategy is aligned with the Group’s overall strategy. The Group aims to deliver increases in operating earnings per security, distributions per security and net tangible asset value per security (excluding interest rate swaps) on an annual basis whilst maintaining gearing at an appropriate level, having regard to the environment, property cycle and quality of forward cash flows from the portfolio. The Group also aims to outperform the S&P/ASX 300 accumulation index over rolling 3 and 5 year periods. These aims are taken into account and this is reflected in the remuneration strategy and structure. Key Management Personnel are rewarded with a mixture of fixed remuneration, short term incentives and long term incentives, designed to allow the Group to retain and motivate key employees. The Board’s policy on the nature and amount of remuneration encompasses the following objectives: • Fixed pay: Key Management Personnel are remunerated at the market median level of their fixed pay, adjusted for factors such as the external market environment and the employee’s position, qualifications, period of service and responsibility within the Group. In assessing the level of fixed pay relative to the market, significant weighting is given to the employee’s period of service and their performance over the total employment period. • Short term incentives: Short term incentives are generally included as part of the remuneration package for those employees that can have a material impact on the key marginal drivers of operating earnings in any given financial year. These include such factors as leasing outcomes and changes in property earnings, interest expense, funds management earnings and changes in the investment property portfolio. The Group does not generally take into account non-financial performance indicators in assessing short term incentives. Short term incentives are available to a number of employees and are generally paid as cash bonuses. For all Key Management Personnel except the Chief Executive Officer and Non- Executive Directors, the Chief Executive Officer is responsible for setting key performance indicator targets and assessing annually whether these targets have been met. The key performance indicator targets for the Chief Executive Officer are set, revised and reviewed annually by the Committee or the Board. • Long term incentives: These are considered to be both a retention tool for employees who are considered key to the longer term succession of the Group and a reward for exceptional performance in a financial year. The maximum value of performance rights issued is generally limited to 25% of the annual fixed remuneration of any employee during the period from grant date to vesting date. Long term incentives are offered by way of the issue of performance rights which, if they vest, allow the employee to obtain stapled securities at a discount to market value. This allows employees to align themselves with securityholders by having a financial interest in the long term value of the Group’s security price. For any given dollar value, a higher discount causes the number of the performance rights offered to decrease. The use of the discount is intended to reduce or avoid the need for employees to obtain significant funding or to sell a substantial number of securities to fund the exercise of performance rights on vesting. The Group expects to introduce a security loan plan during the 2014 year to provide an alternative long term incentive for employees and to assist in enabling employees to retain a long-term ownership of stapled securities. The number of Key Management Personnel participating in the PRP during the year was 7 (2012: 8). The number of performance rights allocated to Key Management Personnel at balance date was 7,058,629 (2012: 6,663,935). 26 Cromwell Property Group | Annual Report 2013External environment (iii) The unemployment rate during the year remained low by historical standards, but has been steadily increasing, in line with the softer economy generally. Whilst this has resulted in an easing labour market, demand for quality employees, particularly in the property and financial services sectors, remains high. (iv) Non-executive directors remuneration Fees and payments to Non-Executive Directors reflect the demands which are made on, and the responsibilities of, the Directors. The Board determines remuneration of Non-Executive Directors within the maximum amount approved by security holders from time to time. This maximum currently stands at $1,000,000 per annum in total for fees, having been increased from $700,000 at the 2011 Annual General Meeting, to be divided among the Non-Executive Directors in such a proportion and manner as they agree. Non-Executive Directors are paid a fixed remuneration, comprising base fees or salary and superannuation (if applicable). Non-Executive Directors do not receive bonus payments or participate in security-based compensation plans, and are not provided with retirement benefits other than statutory superannuation. Chairman Non-Executive Director Audit & Risk Committee – Chairman Audit & Risk Committee – Member Nomination & Remuneration Committee – Chairman Nomination & Remuneration Committee – Member Investment Committee 2013 $ 185,000 85,000 18,000 12,000 7,500 5,000 – 2012 $ 185,000 85,000 18,000 12,000 7,500 5,000 – The Non-Executive Directors’ fees were unchanged in 2013 and were last increased in November 2011. The current and previous year rates are shown above. (v) Use of remuneration consultant In April 2013, to assist with the review of Senior executives remuneration, the Remuneration Committee employed the services of the Avdiev Group to undertake a market review covering the composition and market competitiveness of senior executives remuneration. Under the terms of the engagement, Avdiev Group provided remuneration comparisons and recommendations and was paid $38,000 for these services. The following arrangements were made to ensure the remuneration recommendations were free from undue influence: • Avdiev Group was engaged by and reported directly to the Chairman of the Committee; • The report containing the remuneration recommendations was provided by Avdiev Group directly to the Chairman of the Committee; and • Avdiev Group was given access to senior executives and Committee members throughout the engagement to understand roles and responsibilities. Based on the above arrangements the Board is satisfied the recommendations were made free from undue influence. The recommendations of the Avdiev Group did not impact on remuneration in 2013, but were used by the Committee in reviewing and setting remuneration levels for the 2014 financial year. Voting and comments made at the company’s 2012 Annual General Meeting vi) The Group and Trust’s remuneration report for the 2012 financial year was passed on a ‘show of hands’. Proxies received before the meeting were approximately 93% in favour of the remuneration report. 27 Cromwell Property Group | Annual Report 2013(b) Details of remuneration Remuneration paid, payable, or otherwise made available, directly or indirectly, to key management personnel is set out below. Key Management Personnel during the year were: Non-Executive Directors: Mr GH Levy (AO) Mr RJ Pullar Ms MA McKellar Mr DE Usasz Mr M Wainer Mr WR Foster Mr MJ Watters Mr G Cannings Executive Directors: Mr PL Weightman Mr DJ Wilson Other Senior Executives: Mr B Binning Mr MJ Blake Ms JA Clark Mr PJ Cowling Mr DA Gippel Ms NE Riethmuller Chairman Director Director Director Director Director Director Director (Alternate to Mr Watters) Managing Director/Chief Executive Officer Director – Finance & Funds Management National Leasing Manager National Head of Sales, Director of controlled entity Transactions Manager, Property Licensee, Director of controlled entity Associate Director Transactions, Director of controlled entity Group Treasurer, Director of controlled entity General Counsel/Company Secretary 28 Cromwell Property Group | Annual Report 2013Short-term benefits Short-term benefits Short-term benefits Short-term benefits Post- employment Long-term benefits Cash salary and fees $ Accrued leave (1) $ Cash bonus $ Non-cash benefits $ Super- annuation $ Long service leave (1) $ Share- based payments Total Remuneration % of Remun. that is performance based Options $ $ 169,725 95,872 102,000 99,083 82,569 85,000 65,000 18,349 – – – – – – – – – – – – – – – – – – – – – – – – 15,275 8,628 – 8,917 7,431 – – 1,789 – – – – – – – – – – – – – – – – 185,000 104,500 102,000 108,000 90,000 85,000 65,000 20,138 775,630 433,530 10,456 (17,779) 250,000 150,000 157,900 - 16,470 16,470 23,511 8,264 179,699 78,169 1,413,666 668,654 300,000 270,890 192,324 308,700 283,250 283,250 3,565,172 1,893 1,935 892 4,052 (4,108) (9,066) (11,725) 100,000 166,546 25,500 50,000 100,000 50,000 892,046 – – 6,665 – 25,551 8,232 198,348 16,470 16,470 16,470 16,470 16,470 16,470 173,800 8,154 9,823 5,461 9,483 4,809 4,386 73,891 72,742 38,473 – 69,761 56,411 18,849 514,104 499,259 504,137 247,312 458,466 482,383 372,121 5,405,636 – – – – – – – – 30% 34% 35% 41% 10% 26% 32% 19% 2013 Non-Executive Directors GH Levy RJ Pullar MA McKellar DE Usasz WR Foster M Wainer MJ Watters G Cannings Executive Directors PL Weightman DJ Wilson Other key management personnel B Binning M Blake JA Clark P Cowling D Gippel NE Riethmuller (1) Annual and long service leave are accounted for on an accruals basis. The amounts represent the change in accrued leave during the year. 29 Cromwell Property Group | Annual Report 2013Short-term benefits Short-term benefits Short-term benefits Short-term benefits Post- employment Long-term benefits Cash salary and fees $ Accrued leave (1) $ Cash bonus $ Non-cash benefits $ Super- annuation $ Long service leave (1) $ Share- based payments Total Remuneration % of Remun. that is performance based Options $ $ 159,021 92,813 98,667 96,024 79,511 81,667 43,333 12,232 – – – – – – – – – – – – – – – – – – – – – – – – 14,312 8,353 – 8,642 7,156 – – 963 – – – – – – – – – – – – – – – – 173,333 101,166 98,667 104,666 86,667 81,667 43,333 13,195 – – – – – – – – 770,252 434,225 (29,417) (28,008) 200,000 120,000 163,973 – 15,775 15,775 21,790 12,127 180,210 78,391 1,322,583 632,510 29% 31% 275,000 260,471 202,999 300,000 275,000 96,980 275,000 3,553,195 11,232 11,293 (2,670) (8,705) 5,398 (13,161) 17,189 (36,849) 25,000 27,520 – – 75,000 – – 447,520 – – – – 19,186 – 2,009 185,168 15,775 15,775 15,775 15,775 15,775 5,868 15,775 171,494 7,492 11,195 8,080 11,954 13,105 (5,071) 3,759 84,431 37,485 23,934 – 15,110 95,327 (10,144) 37,272 457,585 371,984 350,188 224,184 334,134 498,791 74,472 351,004 4,862,544 17% 15% – 5% 34% – 11% 2012 Non-Executive Directors GH Levy RJ Pullar MA McKellar DE Usasz WR Foster M Wainer M Watters(2) G Cannings(3) Executive Directors PL Weightman DJ Wilson Other key management personnel B Binning MJ Blake JA Clark P Cowling DA Gippel PW Howard(4) NE Riethmuller (1) Annual and long service leave are accounted for on an accruals basis. The amounts represent the change in accrued leave during the year. (2) Mr Watters was appointed on 4 April 2011 and commenced receiving director’s fees on 1 November 2011. (3) Mr Cannings was appointed as an alternate director for Mr Watters on 1 August 2011 and received a share of Mr Watters directors fees for the year. (4) Mr Howard resigned on 26 October 2011. Unvested performance rights on issue to Mr Howard were forfeited on his resignation. Performance assessment (c) The Group’s performance conditions are chosen to support the sustainable operation of the Group. Financial performance metrics are chosen with the aim of supporting or enhancing the operating earnings per security in any given financial year in a way that does not unduly increase the risk profile of the Group. Short term cash incentives are focused wholly on financial metrics. The remaining performance criteria are intended to facilitate growth within an appropriate framework such that the Group can outperform its peers in the longer term. Although the specific performance criteria may be different for each KMP the overriding principles involve assessment of performance according to a traditional balanced scorecard methodology. The balanced scorecard assigns key performance indicators (KPIs) across broad categories. The KPIs are designed to align securityholder interests with Group goals in the short and long term. Individual KPIs are aligned with Group’s long term objectives. The balanced scorecard methodology assigns performance and responsibility criteria for all employees across four broad categories. These categories are: Financial Measures: Includes both the performance of the Group and the employees’ business unit. The Group focuses on maintaining individual securityholder alignment by using operating earnings per security as the major short term financial metric. Other short term financial metrics include distributions per security and changes in NTA per security (excluding interest rate swaps). The key long term financial metric is Total Securityholder Return (“TSR”) over rolling 3 and 5 year periods relative to the S&P/ASX 300-A-REIT Accumulation Index. 30 Cromwell Property Group | Annual Report 2013Internal Business Measures: Concentrate on improvement of systems and processes to create efficiency and accuracy to support long term business growth. The processes emphasise adherence to governance requirements. Customer Measures: The Group surveys securityholders, tenants, fund investors and other stakeholders to ascertain customer relationship trends and set KPIs for employees to meet the needs identified by those trends, and to coincide with longer term corporate objectives. Innovation & Learning Measures: Focuses on the growth of individuals, departments and corporate culture to innovate and extend current capabilities throughout the Group. The weightings of these categories for any individual are set and assessed in consideration of their responsibility and role. In 2013 there were no non-financial performance conditions in existing short term (cash) incentive plans. All short term conditions related to financial metrics occurring within the 2013 financial year. The key short term financial measures for the last 5 years were: Operating profit ($’000) (as assessed by the Directors – see part 4(b) above) Change over previous year Operating earnings per security (as assessed by the Directors – see part 4(c) above) Change over previous year Distributions per security Change over previous year NTA per security Change over previous year NTA per security (excl. interest rate swaps) Change over previous year 2013 102,411 + 28% 7.6 cents 1% 7.3 cents 4% $0.70 5% $0.72 1% 2012 80,010 + 23% 2011 65,297 + 1% 2010 64,630 + 1% 2009 63,761 (10%) 7.5 cents 6% 7.0 cents 0% $0.67 (8%) $0.71 (3%) 7.1 cents (16%) 7.0 cents (13%) $0.73 3% $0.73 3% 8.5 cents (12%) 8.0 cents (11%) $0.71 (7%) $0.71 (8%) 9.1 cents (10%) 9.0 cents 0% $0.76 (25%) $0.77 (21%) In addition to existing short-term incentive plans, discretionary bonuses of $250,000 in total were also paid to certain Key Management Personnel and other staff who would not normally qualify for short-term incentives, in recognition of a number of significant transactions during the year which the Directors believe will add long-term value. These achievements include negotiation and acquisition of the NSW Government Portfolio, completion of a number of equity raisings with broad support from many existing and new securityholders and inclusion in the S&P/ASX 300 Index. The Group has established a Performance Rights Plan. For KMP, the ability to exercise the Performance Rights is generally conditional on the executive meeting internal performance hurdles including remaining employed by the Group for a specified period. The Group believes this allows employees to align themselves with securityholders by having a financial interest in the long term value of the Group’s security price, which acts to maximise TSR. TSR over 1, 3 and 5 years relative to benchmark indices is shown below. Given the Group’s focus on medium and long term returns, focus is on performance over 3 and 5 year periods against the S&P/ASX 300 A-REIT accumulation index. Total Securityholder Returns (annualised) TSR – Group TSR – S&P/ASX 300 A-REIT accumulation index Group performance against S&P/ASX 300 A-REIT accumulation index TSR – All Ord’s accumulation index Group performance against All Ord’s accumulation index 1 Year 54.4% 24.0% 30.4% 20.7% 33.7% 3 Year 22.9% 13.4% 9.5% 8.0% 14.9% 5 Year 16.4% 0.3% 16.1% 2.2% 14.2% Details of remuneration: cash bonuses and performance rights For each cash bonus and grant of performance rights included in the tables in section (b) above, the percentage of the available bonus or grant that was paid, or that vested, in the year, and the percentage that was forfeited because the person did not meet the service and performance criteria is set out below. No part of the bonus is payable in future years. The performance rights are subject to vesting conditions as outlined above. No performance rights will vest if the conditions are not satisfied, hence the minimum value of performance rights yet to vest is $nil. The maximum value of the performance rights yet to vest has been determined as the amount of the grant date fair value of the performance rights that is yet to be expensed at balance date. References to options in the table below relate to performance rights. 31 Cromwell Property Group | Annual Report 2013Cash Bonus Paid % 100% 100% 100% 100% 100% 100% 100% 100% Financial Year Options Granted Cash Bonus Forfeited % – – – – – – – – 2011 2011 2012/13 2011/12/13 – 2012/13 2012/13 2011/12/13 Options Vested in 2012 % – – – – – – – 100%(1) Options Forfeited in 2012 % Financial Years Options may vest – 2014/15/16 – 2014/15/16 – 2014/15/16 – 2014/15/16 – – – 2014/15/16 – 2014/15/16 2015/16 – Maximum value of grant to vest $ 128,914 56,080 60,462 57,137 – 59,443 59,058 31,380 Name PL Weightman DJ Wilson B Binning MJ Blake JA Clark P Cowling DA Gippel NE Riethmuller (1) Relates to performance rights issued in 2011. (d) equity based compensation Details of the PRP are set out in part (a)(ii) of the remuneration report. All Executive Directors and employees of the Group are considered for participation in the PRP subject to a minimum period of service and level of remuneration, which may be waived by the Committee. Grants to Executive Directors are subject to securityholder approval. Consideration for granting performance rights, grant periods, vesting and exercise dates, exercise periods and exercise prices are determined by the Board or Committee in each case. Performance rights carry no voting rights. When exercised, each performance right is convertible into one stapled security. The terms and conditions of each grant of performance rights under the PRP affecting remuneration for Key Management Personnel in the current or future reporting periods are included in the table below: Grant Date 23/08/2010 23/08/2010 26/05/2011 26/05/2011 26/05/2011 05/09/2011 05/09/2011 05/09/2011 12/10/2012 12/10/2012 19/10/2012 19/10/2012 19/10/2012 19/10/2012 19/10/2012 Expiry Date Exercise Price 21/09/2013 21/09/2013 01/10/2013 01/10/2014 01/10/2015 05/10/2014 05/10/2014 05/10/2014 12/11/2015 12/11/2015 01/08/2013 01/08/2014 01/08/2015 01/08/2013 01/08/2014 01/08/2015 $0.10 $0.20 $0.50 $0.50 $0.50 $0.20 $0.10 – – $0.20 – – – $0.20 $0.20 $0.20 No of Performance Rights Granted 123,459 95,894 1,913,333 1,913,333 1,913,334 308,097 52,851 343,634 50,006 120,584 55,561 55,563 55,563 60,292 60,292 60,292 Assessed Value per Right at Grant Date 50.6¢ 37.0¢ 13.9¢ 12.6¢ 11.5¢ 32.3¢ 41.1¢ 50.0¢ 60.0¢ 41.5¢ 77.6¢ 71.1¢ 65.1¢ 57.9¢ 51.9¢ 46.4¢ 32 Cromwell Property Group | Annual Report 2013Details of changes during the 2013 year in performance rights on issue to Key Management Personnel under the PRP are set out below. Opening balance Granted during year Exercised during the year Forfeited during the year Lapsed during year Closing balance 2013 PL Weightman DJ Wilson DA Gippel B Binning M J Blake JA Clark P Cowling NE Riethmuller 4,000,000 1,740,000 236,248 107,386 232,826 – 171,165 176,310 6,663,935 – – 41,672 180,876 120,584 – 125,015 50,006 518,153 – – – – – – – (123,459) (123,459) – – – – – – – – – – – – – – – – – – 4,000,000 1,740,000 277,920 288,262 353,410 – 296,180 102,857 7,058,629 The assessed fair value at grant date of performance rights granted is allocated equally over the period from grant date to vesting date, and the amount is included in the remuneration tables in part (b) of the remuneration report. Fair value at grant date for performance rights with no market based vesting conditions are determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the performance right, the security price at grant date, expected price volatility of the underlying securities, the expected dividend/distribution yield and the risk-free interest rate for the term of the performance right. A total of 890,414 performance rights were granted during 2013 (2012: 1,037,152) of which 518,153 (2012: 704,582) were issued to Key Management Personnel. The model inputs for performance rights granted during the 2013 year are disclosed in note 31. Plan rules contain a restriction on removing the “at risk” aspect of the instruments granted to executives. Plan participants may not enter into any transaction designed to remove the “at risk” aspect of an instrument before it vests without explicit approval from the Board. At 30 June 2013 no performance rights on issue had vested. Further details relating to performance rights are set out below. Name PL Weightman DJ Wilson B Binning MJ Blake JA Clark P Cowling DA Gippel NE Riethmuller Remuneration consisting of performance rights (1) Value at grant date (2) $ Value at exercise date (3) $ Value at forfeit date (4) $ 13% 12% 15% 8% – 15% 12% 5% – – 94,212 50,000 – 89,063 29,688 30,000 – – – – – – – 62,495 – – – – – – – – (1) The percentage of total remuneration consisting of performance rights, based on the value of performance rights expensed during the year. (2) The value of performance rights granted during the year as part of remuneration calculated at grant date in accordance with AASB 2 Share-based Payment. (3) The value at exercise date of performance rights that were granted as part of remuneration and were exercised during the year, being the intrinsic value of the performance rights at that date. (4) The value at lapse date of performance rights that were granted as part of remuneration and were forfeited during the year because a vesting condition was not satisfied. 33 Cromwell Property Group | Annual Report 2013(e) employment contracts and termination provisions Employment contracts (i) PL Weightman Remuneration and other terms of employment for the Chief Executive Officer are formalised in an employment agreement. The Company may terminate the agreement without notice for gross misconduct; otherwise, the Company may terminate the agreement on six months notice, or payment of entitlements for this period in lieu of notice. Mr Weightman may terminate the agreement at any time with six months notice. Other major provisions of the agreement are as follows: • Term of agreement – Commencing 1 July 2006, no fixed termination date. • Base salary, inclusive of superannuation, for the 2013 year of $950,000, to be reviewed annually by the remuneration committee. Since balance date it has been agreed the base salary will increase to $1,050,000 for the 2014 year. • Performance cash bonus of up to $250,000 with targets to be reviewed annually by the remuneration committee. The performance bonus payable to Mr Weightman for the 2013 year depended on performance criteria being met. The criteria were assessed as being met in full during the financial year, with 100% of the performance bonus amount being paid. DJ Wilson Remuneration and other terms of employment for the Director – Finance & Funds Management are formalised in an employment agreement. The Company may terminate the agreement without notice for gross misconduct; otherwise, the Company may terminate the agreement on six months notice, or payment of entitlements for this period in lieu of notice. Mr Wilson may terminate the agreement at any time with six months notice. Other major provisions of the agreement are as follows: • Term of agreement – commencing 1 July 2006, no fixed termination date. • Base salary, inclusive of superannuation, for the 2013 year of $450,000, to be reviewed annually by the remuneration committee. Since balance date it has been agreed the base salary will increase to $500,000 for the 2014 year. • Performance cash bonus of up to $150,000 with targets to be reviewed annually by the remuneration committee. The performance bonus payable to Mr Wilson for the 2013 year depended on certain criteria being met. The criteria were assessed as being met in full during the financial year, with 100% of the performance bonus amount being paid. All other executives Remuneration and other terms of employment for other executives are contained under standard employment contracts. There are no termination payments due under the contracts other than statutory entitlements for accrued leave. Remuneration is reviewed annually. Termination provisions (ii) There are no fixed term conditions in executive employment contracts. Minimum termination periods for executives are outlined below and adhered to in all cases except in the case of serious breaches of the employment contract. Managing Director/CEO, Director – Finance & Funds Management Group Treasurer All other key management personnel Notice Period Employee 6 months 3 months 1-2 months Notice Period Group 6 months 6 months 1-2 months On termination, a portion of short term incentives may also be paid at the discretion of the CEO, or the Board in the case of termination of the CEO. In addition, other statutory entitlements such as accrued leave may be taken as termination benefits. 34 Cromwell Property Group | Annual Report 201312. Trust Disclosures Fees to Responsible Entity Total amounts paid/payable to the Responsible Entity or its associates during the year were $18,594,286 (2012: $15,113,342). Units held by Responsible Entity Cromwell Corporation Limited, the parent company of the Responsible Entity, held 275,106 (2012: 275,106) units in the Trust throughout the year. Pursuant to Australian Securities & Investments Commission relief, the units are not stapled to shares in Cromwell Corporation Limited. The Responsible Entity held 1,517,000 (2012: 1,517,000) units in the Cromwell Mary Street Planned Investment, a subsidiary of the Trust, throughout the year. The holding represents approximately 8% (2012: 8%) of the issued units in the Cromwell Mary Street Planned Investment. Issued Units Units issued in the Trust during the year are set out in note 23 in the accompanying financial report. There were 1,713,996,562 (2012: 1,169,964,049) issued units in the Trust at balance date. Value of Scheme Assets The total carrying value of the Trust’s assets as at balance date was approximately $2,487,254,000 (2012: $1,820,045,000). Net assets attributable to unitholders of the Trust were $1,140,730,000 (2012: $769,400,000) equating to $0.67 per unit (2012: $0.66 per unit). The Trust’s assets are valued in accordance with policies stated in note 1 of the financial statements. 13. Indemnifying Officers or Auditor Subject to the following, no indemnity or insurance premium was paid during the financial year for a person who is or has been an officer of the Group. The constitution of the Company provides that to the extent permitted by law, a person who is or has been an officer of the Company is indemnified against certain liabilities and costs incurred by them in their capacity as an officer of the Company. Further, the Company has entered into a Deed of access, insurance and indemnity with each of the Directors and the company secretary. Under the deed, the Company agrees to, amongst other things: • indemnify the officer to the extent permitted by law against certain liabilities and legal costs incurred by the officer as an officer of the Company and its subsidiaries; • maintain and pay the premium on an insurance policy in respect of the officer; and • provide the officer with access to board papers and other documents provided or available to the officer as an officer of the Company and its subsidiaries. The Group has paid premiums for Directors and officers’ liability insurance with respect to the Directors, company secretary and senior management as permitted under the Corporations Act 2001. The terms of the policy prohibit disclosure of the nature of the liabilities covered and the premiums payable under the policy. No indemnities have been given or insurance premiums paid, during or since the end of the financial year, for any person who is or has been an auditor of the Company or any of its controlled entities. 14. Rounding of Amounts to Nearest Thousand Dollars The Company is of a kind referred to in Class Order 98/0100, issued by the Australian Securities & Investments Commission, relating to the “rounding off” of amounts in the Directors’ report and financial report. Amounts in the Directors’ report and financial report have been rounded off to the nearest thousand dollars, or in certain cases to the nearest dollar, in accordance with that Class Order. 35 Cromwell Property Group | Annual Report 201315. Auditor Pitcher Partners (formerly known as Johnston Rorke) continues in office in accordance with section 327 of the Corporations Act 2001. The Company may decide to employ Pitcher Partners on assignments additional to their statutory duties where the auditor’s expertise and experience with the Company and/or the Group are important. The Directors have considered the position and, in accordance with advice received from the Audit & Risk Committee, are satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the provision of non-audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 as none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants and all non-audit services have been reviewed by the Audit & Risk Committee to ensure they do not impact the impartiality and objectivity of the auditor. Details of the amounts paid or payable to the auditor and its related parties for non-audit services provided to the Group are set out below: Non-audit Services Other – review of pro forma balance sheets and forecasts Total remuneration for non-audit services 2013 $ 131,200 131,200 2012 $ 70,000 70,000 The auditor receives remuneration for audit and other services relating to other entities for which Cromwell Property Securities Limited and Cromwell Funds Management Limited, both controlled entities, act as responsible entity. The remuneration is disclosed in the relevant entity’s financial reports and totalled $68,500 (2012: $112,500). Auditor’s independence declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is attached to this report. This report is made in accordance with a resolution of the Directors. P.L. Weightman Director Dated this 23rd day of August 2013 36 Cromwell Property Group | Annual Report 2013The Directors Cromwell Corporation Limited and Cromwell Property Securities Limited as Responsible Entity for Cromwell Diversified Property Trust Level 19 200 Mary Street BRISBANE QLD 4000 Dear Sirs, Auditor’s Independence Declaration As lead auditor for the audit of the financial reports of Cromwell Corporation Limited and Cromwell Diversified Property Trust for the year ended 30 June 2013, I declare that, to the best of my knowledge and belief, there have been: (i) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of both Cromwell Corporation Limited and the entities it controlled during the year and Cromwell Diversified Property Trust and the entities it controlled during the year. PITCHER PARTNERS R.C.N. WALKER Partner Brisbane, Queensland 23 August 2013 37 Cromwell Property Group | Annual Report 2013 Consolidated Statements of Comprehensive Income for the year ended 30 June 2013 Revenue and other income Rental income and recoverable outgoings Funds management fees Interest Distributions Gain on sale of investment property Other revenue Share of profits of equity accounted entities Increase in recoverable amount: Property development inventories/provision Fair value net gain from: Interest rate derivatives Investments at fair value through profit or loss Total revenue and other income Expenses Property expenses and outgoings Funds management costs Property development costs Finance costs Employee benefits expense Administration and overhead costs Responsible entity fees Amortisation and depreciation Share of losses of equity accounted entities Loss on sale of investment properties Loss on disposal of other assets Fair value net loss from: Interest rate derivatives Investment properties Investments at fair value through profit or loss Merger transaction costs Total expenses Profit before income tax Income tax expense Profit Other comprehensive income, net of tax Total comprehensive income Profit and Total comprehensive income/(loss) is attributable to Company shareholders Trust unitholders Non-controlling interests Profit and Total comprehensive income Basic earnings/(loss) per company share/trust unit (cents) Diluted earnings/(loss) per company share/trust unit (cents) Basic/diluted earnings/(loss) per stapled security (cents) Notes 5 13(b) Group Trust 2013 $’000 206,665 9,797 5,262 222 132 418 646 2012 $’000 177,245 4,567 4,713 37 – 141 – 2013 $’000 206,478 – 4,604 222 132 192 593 2012 $’000 176,673 – 4,452 37 – 18 – – 200 225 – 7,326 47 230,515 – – 186,903 7,326 47 219,819 34,005 592 359 70,296 14,859 6,398 – 643 – – 146 – 55,747 – 631 183,676 46,839 683 46,156 – 46,156 2,865 43,291 – 46,156 0.21¢ 0.21¢ 3.44¢ 27,087 487 638 64,523 13,347 5,496 - 604 140 331 44 38,483 12,353 173 – 163,706 23,197 120 23,077 – 23,077 (1,282) 24,359 – 23,077 (0.12¢) (0.12¢) 2.16¢ 38,753 – – 70,355 – 1,102 9,959 – – – – – 55,747 – 631 176,547 43,272 – 43,272 – 43,272 – 43,291 (19) 43,272 3.23¢ 3.23¢ – – 181,180 30,530 – – 64,796 – 1,113 8,497 – 131 331 – 38,483 12,353 173 – 156,407 24,773 – 24,773 – 24,773 – 24,359 414 24,773 2.28¢ 2.28¢ 5 5 5 13 (b) 5 5 11 37(ii) 6 28 28 28 The above consolidated statements of comprehensive income should be read in conjunction with the accompanying notes. 38 Cromwell Property Group | Annual Report 2013Consolidated Statements of Financial Position as at 30 June 2013 Current Assets Cash and cash equivalents Trade and other receivables Current tax assets Other current assets Total current assets Non-Current Assets Trade and other receivables Inventories Investment properties Investments at fair value through profit or loss Investments in associates Property, plant and equipment Deferred tax assets Intangible assets Total non-current assets Total assets Current Liabilities Trade and other payables Borrowings Dividends/distributions payable Derivative financial instruments Provisions Current tax liability Other current liabilities Total current liabilities Non-Current Liabilities Borrowings Derivative financial instruments Provisions Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained earnings/(accumulated losses) Equity attributable to shareholders/unitholders Non-controlling interests Trust unitholders Non-controlling interests Total equity Notes 7 8 9 8 10 11 12 13 14 15 16 17 18 19 20 21 22 18 20 21 23 24 25 26 26 Group Trust 2013 $’000 125,933 7,940 – 2,527 136,400 – 3,000 2,396,000 7,468 100 1,308 804 1,030 2,409,710 2,546,110 28,014 – 31,061 17,638 1,215 329 15,468 93,725 1,232,720 17,870 943 1,251,533 1,345,258 1,200,852 103,323 5,198 (48,697) 59,824 1,141,028 – 1,200,852 2012 $’000 59,153 21,505 60 1,791 82,509 19,800 3,000 1,724,400 266 4,752 1,327 914 633 1,755,092 1,837,601 14,472 21,533 20,470 15,127 1,368 – 6,735 79,705 942,644 25,501 762 968,907 1,048,612 788,989 66,344 4,529 (51,562) 19,311 769,678 – 788,989 2013 $’000 75,126 6,816 – 1,844 83,786 – – 2,396,000 7,468 – – – – 2,403,468 2,487,254 27,030 – 31,066 17,638 – – 15,468 91,202 1,232,720 17,870 – 1,250,590 1,341,792 1,145,462 1,257,707 – (116,977) 1,140,730 – 4,732 1,145,462 2012 $’000 51,021 15,618 – 1,047 67,686 22,988 – 1,724,400 266 4,705 – – – 1,752,359 1,820,045 13,311 21,533 20,474 15,127 – – 6,735 77,180 942,644 25,501 – 968,145 1,045,325 774,720 827,989 – (58,589) 769,400 – 5,320 774,720 The above consolidated statements of financial position should be read in conjunction with the accompanying notes. 39 Cromwell Property Group | Annual Report 2013Consolidated Statements of Changes in equity for the year ended 30 June 2013 Attributable to Equity Holders of the Company Group Notes Contributed Equity Accumu- lated Losses Available for Sale Reserve $’000 66,344 – $’000 (51,562) 2,865 $’000 2,340 – 23 27 24 23 27 24 36,979 – – 36,979 103,323 57,073 – 9,271 – – 9,271 66,344 – – – – (48,697) (50,280) (1,282) – – – – (51,562) – – – – 2,340 2,340 – – – – – 2,340 Share Based Payments Reserve $’000 2,189 – Total $’000 19,311 2,865 Non- controlling Interest (Trust) $’000 769,678 43,291 Total Equity $’000 788,989 46,156 – – 669 669 2,858 1,588 – 36,979 – 669 37,648 59,824 429,718 466,697 (101,659) – 328,059 1,141,028 (101,659) 669 365,707 1,200,852 10,721 (1,282) 694,439 24,359 705,160 23,077 – 9,271 125,899 135,170 – 601 601 2,189 – 601 9,872 19,311 (75,019) – 50,880 769,678 (75,019) 601 60,752 788,989 Balance at 1 July 2012 Total comprehensive income/(loss) Transactions with equity holders in their capacity as equity holders: Contributions of equity, net of transaction costs Dividends/distributions paid/payable Employee share options Total transactions with equity holders Balance at 30 June 2013 Balance at 1 July 2011 Total comprehensive income/(loss) Transactions with equity holders in their capacity as equity holders: Contributions of equity, net of transaction costs Dividends/distributions paid/payable Employee share options Total transactions with equity holders Balance at 30 June 2012 Trust Balance at 1 July 2012 Total comprehensive income for the year Transactions with equity holders in their capacity as equity holders: Contributions of equity, net of transaction costs Distributions paid/declared Total transactions with equity holders Balance at 30 June 2013 Balance at 1 July 2011 Total comprehensive income for the year Transactions with equity holders in their capacity as equity holders: Contributions of equity, net of transaction costs Distributions paid/declared Total transactions with equity holders Balance at 30 June 2012 Attributable to Equity Holders of CDPT Notes Contributed Equity $’000 827,989 – Accumu- lated Losses $’000 (58,589) 43,291 Total (CDPT) $’000 769,400 43,291 Non- controlling Interest $’000 5,320 (19) Total Equity $’000 774,720 43,272 23 27 23 27 429,718 – 429,718 1,257,707 – (101,679) (101,679) (116,977) 429,718 (101,679) 328,039 1,140,730 702,090 – (7,910) 24,359 694,180 24,359 125,899 – 125,899 827,989 – (75,038) (75,038) (58,589) 125,899 (75,038) 50,861 769,400 – (569) (569) 4,732 5,463 414 – (557) (557) 5,320 429,718 (102,248) 327,470 1,145,462 699,643 24,773 125,899 (75,595) 50,304 774,720 The above consolidated statements of changes in equity should be read in conjunction with the accompanying notes. 40 Cromwell Property Group | Annual Report 2013Consolidated Statements of Cash Flows for the year ended 30 June 2013 Cash Flows From Operating Activities Receipts in the course of operations Payments in the course of operations Distributions received Interest received Finance costs paid Income tax (paid)/refunded Net cash provided by operating activities Cash Flows From Investing Activities Payments for investment properties Proceeds from sale of investment properties Payments for property, plant and equipment Net inflow of cash on acquisition of controlled entity Payments for investments at fair value through profit or loss Proceeds from sale of investments at fair value through profit or loss Payments for software and other intangible assets Loans to related entities Repayment of loans by related entities Payment of merger transaction costs Net cash used in investing activities Cash Flows From Financing Activities Proceeds from borrowings Repayment of borrowings Payment of loan transaction costs Proceeds from issue of stapled securities/units Equity issue transaction costs Payment of dividends/distributions Payment for derivative financial instruments Net cash provided by financing activities Net increase in cash and cash equivalents Cash and cash equivalents at 1 July Cash and cash equivalents at 30 June Notes Group Trust 2013 $’000 2012 $’000 2013 $’000 2012 $’000 245,581 (78,461) 204 7,110 (68,715) (184) 105,535 (591,962) 42,571 (304) 2,560 (7,720) 565 (863) (19,606) 32,391 (631) (542,999) 240,921 (84,144) (2,661) 443,731 (11,590) (80,780) (1,233) 504,244 66,780 59,153 125,933 197,506 (58,484) 637 5,243 (61,528) 67 83,441 (339,985) 38,998 (464) – (577) 4,315 (408) (19,786) 7,000 – (310,907) 364,509 (183,450) (3,052) 133,695 (3,828) (66,129) (1,698) 240,047 12,581 46,572 59,153 231,798 (71,371) 204 6,448 (68,773) – 98,306 (591,962) 42,571 – 2,560 (7,720) 565 – (23,668) 35,580 (631) (542,705) 240,921 (84,144) (2,661) 408,723 (10,939) (82,163) (1,233) 468,504 24,105 51,021 75,126 193,533 (54,808) 637 5,219 (61,528) – 83,053 (339,985) 38,998 – – (577) 4,315 – (19,786) 14,000 – (303,035) 364,509 (183,450) (3,052) 124,615 (3,648) (67,078) (1,698) 230,198 10,216 40,805 51,021 29 37 7 The above consolidated statements of cash flows should be read in conjunction with the accompanying notes. 41 Cromwell Property Group | Annual Report 2013Notes to the Financial Statements for the year ended 30 June 2013 1. Summary of Significant Accounting Policies Cromwell Property Group (“the Group”) was formed by the stapling of Cromwell Corporation Limited (“the Company”) and its controlled entities, and Cromwell Diversified Property Trust (“CDPT”) and its controlled entities (“the Trust”). The Financial Reports of the Group and the Trust have been presented jointly in accordance with ASIC Class Order 05/642 relating to combining accounts under stapling and for the purpose of fulfilling the requirements of the Australian Securities Exchange. The Group was established for the purpose of facilitating a joint quotation of the Company and the Trust on the Australian Securities Exchange. The constitutions of the Trust and the Company ensure that, for so long as the two entities remain jointly quoted, the number of units in the Trust and the number of shares in the Company shall be equal and the unitholders and shareholders are identical. Both the Responsible Entity of the Trust and the Company must at all times act in the best interests of the Group. To account for the stapling, Australian Accounting Standards require an acquirer (Cromwell Corporation Limited) to be identified and an acquisition to be recognised. The net assets and net profit of the acquiree (the Trust and its controlled entities) are recognised as non-controlling interest as they are not owned by the acquirer in the stapling arrangement. The stapling arrangement will cease upon the earliest of either the winding up of the Company or the Trust. The principal accounting polices adopted in the preparation of the financial report are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. (a) Basis of preparation The financial report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards (including Australian Accounting Interpretations) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The Group and Trust are for-profit entities for the purpose of preparing the financial statements. Compliance with IFRS The financial report complies with the International Financial Reporting Standards (IFRS) and interpretations adopted by the International Accounting Standards Board. New and amended standards adopted by the Group and Trust None of the new standards and amendments to standards that are mandatory for the first time for the financial year beginning 1 July 2012 affected any of the amounts recognised in the current period or any prior period and are not likely to affect future periods. Historical cost convention The financial report is prepared on the historical cost basis except for the following: • investment properties are measured at fair value; • derivative financial instruments are measured at fair value; and • investments at fair value through profit or loss are measured at fair value. The methods used to measure fair values are discussed further below. Functional and presentation currency The financial report is presented in Australian dollars, which is the functional currency of the Group and Trust. (b) Principles of consolidation Stapling The stapling of the Company and CDPT was approved at separate meetings of the respective shareholders and unitholders on 6 December 2006. Following approval of the stapling, shares in the Company and units in the Trust were stapled to one another and are quoted as a single security on the Australian Securities Exchange. Australian Accounting Standards require an acquirer to be identified and an in-substance acquisition to be recognised. In relation to the stapling of the Company and CDPT, the Company is identified as having acquired control over the assets of CDPT. To recognise the in-substance acquisition, the following accounting principles have been applied: 42 Cromwell Property Group | Annual Report 2013(1) no goodwill is recognised on acquisition of the Trust because no direct ownership interest was acquired by the Company in the Trust; (2) the equity issued by the Company to unitholders to give effect to the transaction is recognised at the dollar value of the consideration payable by the unitholders. This is because the issue of shares by the Company was administrative in nature rather than for the purposes of the Company acquiring an ownership interest in the Trust; and (3) the issued units of the Trust are not owned by the Company and are presented as non-controlling interests in the Group notwithstanding that the unitholders are also the shareholders by virtue of the stapling arrangement. Accordingly, the equity in the net assets of the Trust and the profit/(loss) arising from these net assets have been separately identified in the statement of comprehensive income and statement of financial position. The Trust’s contributed equity and retained earnings/accumulated losses are shown as a non-controlling interest in this Financial Report in accordance with AASB Interpretation 1002 Post-Date-of-Transition Stapling Arrangements and AASB 3 Business Combinations. Even though the interests of the equity holders of the identified acquiree (the Trust) are treated as non-controlling interests the equity holders of the acquiree are also equity holders in the acquirer (the Company) by virtue of the stapling arrangement. Subsidiaries The consolidated financial statements incorporate the assets and liabilities of all subsidiaries as at 30 June 2013 and the results of all subsidiaries for the year then ended. Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity, so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The acquisition method of accounting is used to account for the business combinations by the Group (refer to note 1(n)). Inter-entity transactions, balances and unrealised gains on transactions between the Group entities are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Non-controlling interests in the results and equity of subsidiaries are shown separately in the statement of comprehensive income and statement of financial position respectively. Investments in subsidiaries are accounted for at cost in the individual financial statements of the Company. A list of subsidiaries appears in note 34 to the consolidated financial statements. Associates Associates are all entities over which the Group has significant influence but not control, generally accompanying a holding of between 20% and 50% of the voting rights. Investments in associates are accounted for in the Group’s financial statements using the equity method of accounting, after initially being recognised at cost. The Group’s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition. The Group’s share of its associates’ post-acquisition profits or losses is recognised in profit or loss and its share of post- acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends or distributions receivable from associates are recognised in the Group’s financial statements as a reduction of the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group. Joint venture entities The interest in a joint venture entity is accounted for in the Group’s financial statements using the equity method. Under the equity method, the share of the profits or losses of the joint venture entity is recognised in profit or loss, and the share of movements in reserves is recognised in reserves. Profits or losses on transactions establishing the joint venture entity and transactions with the joint venture are eliminated to the extent of the Group’s ownership interest until such time as they are realised by the joint venture entity on consumption or sale, unless they relate to an unrealised loss that provides evidence of the impairment of an asset transferred. 43 Cromwell Property Group | Annual Report 2013(c) Revenue recognition Rental revenue Rental revenue from investment property is recognised on a straight-line basis over the lease term. Rental revenue not received at reporting date is reflected in the statement of financial position as a receivable or if paid in advance, as rent in advance (unearned income). Lease incentives granted are considered an integral part of the total rental revenue and are recognised as a reduction in rental income over the term of the lease, on a straight-line basis. Contingent rents based on the future amount of a factor that changes other than with the passage of time, including turnover rents and CPI linked rental increases, are only recognised when contractually due. Funds management revenue Acquisition and capital raising fee revenue is recognised at settlement of the relevant property or proportionately as the equity interests are issued/sold to external investors as appropriate. Management fee revenue is recognised on a proportional basis over time as services are performed. Interest Interest revenue is recognised as it accrues using the effective interest method. Income tax (d) Under current income tax legislation the Trust is not liable to pay tax provided its taxable income and taxable realised capital gains are distributed to unitholders. The liability for capital gains tax that may arise if the properties were sold is not accounted for in this report. The Group’s income tax expense for the period is the tax payable on the current period’s taxable income adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Current and deferred tax balances attributable to amounts recognised in other comprehensive income or directly in equity are also recognised in other comprehensive income or directly in equity. Tax consolidation The Company and its wholly-owned entities (this excludes the Trust and its controlled entities) have formed a tax- consolidated group with effect from 1 July 2003 and are, therefore, taxed as a single entity from that date. The head entity within the tax-consolidated group is Cromwell Corporation Limited. Current tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-consolidated group are recognised in the separate financial statements of the members of the tax- consolidated group, using the ‘separate taxpayer within group’ approach by reference to the carrying amounts of assets and liabilities in the separate financial statements of each entity and the tax values applying under tax consolidation. Any current tax liabilities or assets and deferred tax assets arising from unused tax losses of the subsidiaries are assumed by the head entity in the tax-consolidated group and are recognised as amounts payable (receivable) to (from) other entities in the tax-consolidated group in conjunction with any tax funding arrangement amounts referred to in the following section. Any difference between these amounts is recognised by the Company as an equity contribution or distribution. The Company recognises deferred tax assets arising from unused tax losses of the tax-consolidated group to the extent that it is probable that future taxable profits of the tax-consolidated group will be available against which the asset can be utilised. Any subsequent period adjustment to deferred tax assets arising from unused tax losses, as a result of revised assessments of the probability of recoverability, is recognised by the head entity only. 44 Cromwell Property Group | Annual Report 2013Nature of tax funding arrangements and tax sharing arrangements The head entity, in conjunction with other members of the tax-consolidated group, has entered into a tax funding arrangement, which sets out the funding obligations of members of the tax-consolidated group in respect of tax amounts. The tax funding arrangements require payments to/from the head entity equal to the current tax liability (asset) assumed by the head entity and any tax-loss deferred tax asset assumed by the head entity, resulting in the head entity recognising an inter-entity receivable (payable) equal in amount to the tax liability (asset) assumed. The inter-entity receivable (payable) are at call. Contributions to fund the current tax liabilities are payable as per the tax funding arrangement and reflect the timing of the head entity’s obligation to make payments for tax liabilities to the relevant tax authorities. The head entity, in conjunction with other members of the tax-consolidated group, has also entered into a tax sharing agreement. The tax sharing agreement provides for the determination of the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. No amounts have been recognised in the financial statements in respect of this agreement, as payment of any amounts under the tax sharing agreement is considered remote. (e) Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions and other short-term highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. trade and other receivables (f) Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost, less provision for impairment of receivables. Receivables relating to operating leases of investment properties are due on the first day of each month, payable in advance. Other receivables are usually due for settlement no more than 90 days from the date of recognition. Collectibility of trade and other receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. A provision for impairment of receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of trade and other receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term trade and other receivables are not discounted if the effect of discounting is immaterial. The amount of the provision is recognised in profit or loss. Inventories (g) Development properties held for resale are stated at the lower of cost and net realisable value. Cost is assigned by specific identification and includes the cost of acquisition and development and borrowing costs during development. When development is completed borrowing costs and other holding charges are expensed as incurred. Investment properties (h) Investment property is property which is held either to earn income or for capital appreciation or both. Investment property also includes properties that are under construction for future use as investment properties. Initially, investment property is measured at cost including transaction costs. The investment property is subsequently measured at fair value, with any change therein recognised in profit or loss. As part of the process of determining fair value, an external, independent valuer, having an appropriate recognised professional qualification and recent experience in the location and category of property being valued, values individual properties at least every two years on a rotation basis or on a more regular basis if considered appropriate and as determined by management in accordance with the valuation policy of the Group. In addition, the Group has utilised internal valuation processes for determining fair value at balance date. These valuation processes are taken into consideration when determining the fair value of the investment properties. The 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 a willing seller in an arms length transaction after proper marketing wherein the parties had each acted knowledgably, prudently and without compulsion. The valuations are prepared by considering the capitalisation of net income and the discounting of future cash flows to their present value. These methods incorporate assumptions of future rental income and costs, appropriate capitalisation and discount rates and also consider market evidence of transaction prices for similar investment properties. Valuations reflect, where 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 other operating cost responsibilities between lessor and lessee; and the remaining economic life of the property. Further information on assumptions underlying management’s assessment of fair value is contained in note 2. 45 Cromwell Property Group | Annual Report 2013Investments and other financial assets (i) The Group classifies its investments as either financial assets at fair value through profit or loss or available for sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading which are acquired principally for the purpose of selling in the short term with the intention of making a profit. Derivatives are also categorised as held for trading unless they are designated as hedges. Financial assets at fair value through profit or loss also includes financial assets which upon initial recognition are designated as such. Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance date. Regular purchases and sales of investments are recognised on trade date – the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value and transaction costs are expensed in profit or loss. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category, including interest and dividend income, are presented in profit or loss in the period in which they arise. Changes in the fair value of securities classified as available-for-sale are recognised in other comprehensive income. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognised in other comprehensive income are reclassified to profit or loss as gains or losses from investment securities. The Group assesses at each balance date whether there is objective evidence that a financial asset or group of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of a security below its cost is considered in determining whether the security is impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit and loss – is reclassified from equity and recognised in profit or loss as a reclassification adjustment. Impairment losses recognised in profit or loss on equity instruments classified as available for sale are not reversed through profit or loss. Property, plant and equipment (j) Property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred. Depreciation is calculated using the straight line method to allocate cost of assets, net of their residual values, over their estimated useful lives, as follows: Class Plant and equipment Furniture and fittings Rate 10-67% 18% The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (note 1(l)). Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in profit or loss. 46 Cromwell Property Group | Annual Report 2013Intangible assets (k) Software assets have a finite useful life and are carried at cost less accumulated amortisation and impairment losses. Amortisation is calculated using the straight-line method to allocate the cost of software over its estimated useful life of 3 years on average. Impairment of assets (l) Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. At each reporting date, and whenever events or changes in circumstances occur, the Group assesses whether there is any indication that any other asset may be impaired. Where an indicator of impairment exists, the Group makes a formal estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and an impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash generating units). Assets other than goodwill that suffer an impairment are reviewed for possible reversal of the impairment at each reporting date. (m) Fair value estimation The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. The fair value of financial instruments traded in active markets (such as publicly traded derivatives) is based on quoted market prices at the balance sheet date. The quoted market price used for financial assets held by the Group is the current bid price; the appropriate quoted market price for financial liabilities is the current ask price. The fair value of financial instruments that are not traded in an active market (for example, over the counter derivatives) is determined using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance date. Quoted market prices or dealer quotes for similar instruments are used for long term debt instruments held. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments. The carrying value less impairment provision of trade and other receivables and payables are assumed to approximate their fair values due to their short-term nature. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. (n) Business combinations The acquisition method of accounting is used to account for all business combinations regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition- date fair value of any previous equity interest in the acquiree over the fair value of the Group’s share of the net identifiable assets acquired are recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the difference is recognised directly in profit or loss as a bargain purchase. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss. 47 Cromwell Property Group | Annual Report 2013(o) Lease incentives Lessees may be offered incentives as an inducement to enter into non-cancellable operating leases. These incentives may take various forms including up front cash payments, rent free periods, or a contribution to certain lessee costs such as fit out costs or relocation costs. They are recognised as an asset in the statement of financial position as a component of the carrying amount of investment property and amortised over the lease period as a reduction of rental income. Initial direct leasing costs (p) Initial direct leasing costs incurred by the Group in negotiating and arranging operating leases are recognised as an asset in the statement of financial position as a component of the carrying amount of investment property and are amortised as an expense on a straight line basis over the lease term. (q) Repairs and maintenance Repairs and maintenance costs and minor renewals are charged as expenses when incurred. (r) Derivative financial instruments The Group is exposed to changes in interest rates and uses interest rate derivatives to hedge these risks. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured to fair value at balance date. Derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative. The Group enters into interest rate swap agreements that are used to convert certain variable interest rate borrowings to fixed interest rates. The derivatives are entered into with the objective of hedging the risk of adverse interest rate fluctuations. While the Group has determined that these arrangements are economically effective, they have not satisfied the documentation, designation and effectiveness tests required by accounting standards. As a result, they do not qualify for hedge accounting and gains or losses arising from changes in fair value are recognised immediately in profit or loss. (s) trade and other payables Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost. These amounts represent liabilities for goods and services provided to the Group prior to the end of the year and which are unpaid. The amounts are usually unsecured and paid within 30-60 days of recognition. (t) Borrowings and borrowing costs Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost using the effective interest rate method. Under this method fees, costs, discounts and premiums directly related to the financial liability are spread over its expected life. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance date. Borrowing costs incurred for the construction of a qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed. Where funds are borrowed specifically for the acquisition, construction or production of a qualifying asset the amount of borrowing costs capitalised is the actual borrowing costs incurred on that borrowing net of any interest earned on those borrowings. Where funds are borrowed generally the capitalisation rate used to determine the amount of borrowing costs to capitalise is the weighted average interest rate applicable to the Group’s outstanding borrowings during the year. (u) Financial guarantee contracts Financial guarantee contracts are recognised as a financial liability at the time the guarantee is issued. The liability is initially measured at fair value and subsequently at the higher of the amount determined in accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognised less any cumulative amortisation. The fair value of financial guarantees is determined as the present value of the difference in net cash flows between the contractual payments under the debt instrument and the payments that would be required without the guarantee, or the estimated amount that would be payable to a third party for assuming the obligations. Where guarantees in relation to loans or other payables of subsidiaries or associates are provided for no compensation, the fair values are accounted for as contributions and recognised as part of the cost of the investment. 48 Cromwell Property Group | Annual Report 2013(v) Provisions Provisions are recognised when: • • • the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses. (w) employee benefits Wages and salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Long service leave The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to balance date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at balance date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. The obligations for long service leave and annual leave are presented as current liabilities in the balance sheet if the entity does not have an unconditional right to defer settlement for at least twelve months after the reporting date, regardless of when the actual settlement is expected to occur. Superannuation Contributions are made by the Group to defined contribution superannuation funds. Contributions are charged as expenses as they become payable. Security-based payments The fair value of options and performance rights granted is recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the options or performance rights. The fair value at grant date is determined using a pricing model that takes into account the exercise price, the term, the security price at grant date and expected price volatility of the underlying security, the expected distribution yield and the risk free interest rate for the term. The fair value of the options or performance rights granted is adjusted to reflect the probability of market vesting conditions being met, but excludes the impact of any non market vesting conditions (for example, profitability and sales growth targets). Non market vesting conditions are included in assumptions about the number of options or performance rights that are expected to become exercisable. At each balance date, the entity revises its estimate of the number of options or performance rights that are expected to become exercisable. The employee benefit expense recognised each period takes into account the most recent estimate. The impact of the revision to original estimates, if any, is recognised in profit or loss with a corresponding adjustment to equity. Bonus plans The Group recognises a liability and an expense for bonuses where contractually obliged or where there is a past practice that has created a constructive obligation. (x) Leases (as lessee) Leases of assets where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s inception at the lower of the fair value of the leased property and the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in liabilities. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The depreciable assets acquired under finance leases are depreciated over the estimated useful life of the asset. Where there is no reasonable certainty that the lessee will obtain ownership, the asset is depreciated over the shorter of the lease term and the asset’s useful life. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease. 49 Cromwell Property Group | Annual Report 2013Leasehold improvements (y) The cost of improvements to or on leasehold properties is amortised over the unexpired period of the lease or the estimated useful life of the improvement to the Group, whichever is the shorter. The amortisation rate for leasehold improvements is set out in note 1(j). (z) Contributed equity Ordinary shares and units are classified as equity. Incremental costs directly attributable to the issue of new shares, units or options are shown in equity as a deduction, net of tax, from the proceeds. Where any group company purchases the company’s equity instruments, for example as the result of a share buy-back or a share-based payment plan, the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the securityholders as treasury shares until the securities are cancelled or reissued. Where such ordinary securities are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to securityholders. (aa) Dividends/distributions Provision is made for the amount of any dividend/distribution declared, being appropriately authorised and no longer at the discretion of the Group, on or before the end of the financial year but not distributed at balance date. (ab) earnings per share Basic earnings per share Basic earnings per share is calculated by dividing profit/(loss) attributable to equity holders of the Company/CDPT, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. (ac) Goods and services tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except: • where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or • for receivables and payables which are recognised inclusive of GST. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables. (ad) Comparatives Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year. (ae) Rounding of amounts The Company/CDPT is of a kind referred to in Class Order 98/0100, issued by the Australian Securities and Investments Commission, relating to the “rounding off” of amounts in the financial report. Amounts in the financial report have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, to the nearest dollar. (af) New accounting standards and interpretations Relevant accounting standards and interpretations that have been issued or amended but are not yet effective and have not been adopted for the year are as follows: 50 Cromwell Property Group | Annual Report 2013Standard/Interpretation AASB 9 Financial Instruments – revised and consequential amendments to other accounting standards resulting from its issue AASB 10 Consolidated Financial Statements – revised and consequential amendments to other accounting standards resulting from its issue AASB 11 Joint Arrangements AASB 12 Disclosure of Interests in Other Entities AASB 13 Fair Value Measurement AASB 119 Employee Benefits – revised and consequential amendments to other accounting standards resulting from its issue AASB 127 Separate Financial Statements – revised AASB 128 Investments in Associates and Joint Ventures – revised AASB 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements AASB 2012-2 Amendments to Australian Accounting Standards – Disclosures – Offsetting Financial Assets and Financial Liabilities AASB 2012-3 Amendments to Australian Accounting Standards – Offsetting Financial Assets and Financial Liabilities AASB 2012-5 Amendments to Australian Accounting Standards arising from Annual Improvements 2009-2011 Cycle AASB 2013-3 Amendments to AASB 136 – Recoverable Amount Disclosures for Non-Financial Assets AASB 2013-4 Amendments to Australian Accounting Standards – Novation of Derivatives and Continuation of Hedge Accounting Application date of standard Application date for the Group 1 Jan 2015 1 Jul 2015 1 Jan 2013 1 Jan 2013 1 Jan 2013 1 Jan 2013 1 Jan 2013 1 Jan 2013 1 Jan 2013 1 Jul 2013 1 Jul 2013 1 Jul 2013 1 Jul 2013 1 Jul 2013 1 Jul 2013 1 Jul 2013 1 Jan 2013 1 Jul 2013 1 Jan 2013 1 Jul 2013 1 Jan 2014 1 Jul 2014 1 Jan 2013 1 Jan 2014 1 Jul 2013 1 Jul 2014 1 Jan 2014 1 Jul 2014 The Directors anticipate that the adoption of these Standards and Interpretations in future years may have the following impacts: AASB 9 – This revised standard provides guidance on the classification and measurement of financial assets, which is the first phase of a multi-phase project to replace AASB 139 Financial Instruments: Recognition and Measurement. Under the new guidance, a financial asset is to be measured at amortised cost only if it is held within a business model whose objective is to collect contractual cash flows and the contractual terms of the asset give rise on specified dates to cash flows that are payments solely of principal and interest (on the principal amount outstanding). All other financial assets are to be measured at fair value. Changes in the fair value of investments in equity securities that are not part of a trading activity may be reported directly in equity, but upon realisation those accumulated changes in value are not recycled to profit or loss. Changes in the fair value of all other financial assets carried at fair value are reported in profit or loss. The Directors do not expect the new standard to have a significant impact on the financial statements and related disclosures. In the second phase of the replacement project, the revised standard incorporates amended requirements for the classification and measurement of financial liabilities. The new requirements pertain to liabilities at fair value through profit or loss, whereby the portion of the change in fair value related to changes in the entity’s own credit risk is presented in other comprehensive income rather than profit or loss. The Directors believe there will be no impact on the Group’s accounting for financial liabilities, as the Group does not currently have any liabilities at fair value through profit or loss. The Group intends to adopt the new standard from 1 July 2015. AASB 10, AASB 11, AASB 12, AASB 127 and AASB 128 – These new and revised standards are a suite of five standards dealing with consolidation, joint venture arrangements and related disclosures. The main features are: • AASB 10 – Introduces a new control model and replaces parts of AASB 127 Consolidated and Separate Financial Statements. The new model broadens the situations when an entity is considered to be controlled and is likely to lead to more entities being consolidated. • AASB 11 – Replaces AASB131 Interests in Joint Ventures and uses the principle of control from AASB 10 to define joint control. It also removes the option to account for jointly controlled entities using proportionate consolidation. • AASB 12 – Requires disclosure of information pertaining to an entity’s interests in subsidiaries, joint arrangement, associates and structures entities, including significant judgements and assumptions. • AASB 127 – This amended standard deals only with separate financial statements, with the consolidated financial statement requirements having moved to AASB 10. It carries forward the existing accounting and disclosure requirements for separate financial statements, with some minor clarifications. • AASB 128 – Only limited amendments have been made to this standard including accounting for associates and joint ventures held for sale and changes in interests held in associates and joint ventures. The Directors believe the adoption of the standards from 1 July 2013 will not result in any material changes to the Group’s financial statements. 51 Cromwell Property Group | Annual Report 2013AASB 13 – The new standard replaces the fair value measurement guidance contained in the various standards. It provides guidance on how to determine fair value by defining fair value and providing a framework for measurement, but does not change when an entity is required to determine fair value. It also expands the disclosures required when fair value is used. The Directors do not believe current measurement techniques will require revision due to the new guidance, however, it is anticipated that disclosures may be more extensive. The Group intends to adopt the new standard from 1 July 2013. AASB 119 – The relevant amendments apply to the calculation of provisions for employee benefits, including sick, annual and long service leave and payments upon termination. The amendments are expected to impact primarily upon the calculation and classification of employee provisions in respect of annual leave, however the Directors believe the resultant impact upon the financial statements will be immaterial. The Group intends to adopt the new standard from 1 July 2013. AASB 2011-4 – Amends AASB 124 Related Party Disclosures to remove the individual key management personnel (KMP) disclosures required by Australian specific paragraphs and removes a duplication of the requirements with the Corporations Act 2001. While this will reduce the disclosures that are currently required in the notes to the financial statements, it will not affect any of the amounts recognised in the financial statements. The amendments apply from 1 July 2013. Early adoption of this amendment is not permitted. The Group intends to adopt the new standard from 1 July 2013. AASB 2012-2 and AASB 2012-3 – The amendments to AASB 132 clarify when an entity has a legally enforceable right to set-off financial assets and financial liabilities permitting entities to present balances net on the balance sheet. The amendments to AASB 7 increase the disclosure about offset positions, including the gross position and the nature of the arrangements. The Directors believe the adoption of the standards will not result in any material changes to the Group’s financial statements. AASB 2012-5 – These amendments introduce various changes to AASBs. The Directors believe the adoption of the amendments will not result in any material changes to the Group’s financial statements. AASB 2013-3 – These amendments introduce changes to AASB 136 to require the disclosure of additional information about the fair value measurement when the recoverable amount of impaired assets is based on fair value less costs of disposal. This includes further disclosures about the discount rates used in current and previous measurements if the recoverable amount of impaired assets based on fair value less costs of disposal was measured using a present value technique. The Directors believe the adoption of the amendments will not result in any material changes to the Group’s financial statements. AASB 2013-4 – These amendments introduce changes to AASB 139 to permit the continuation of hedge accounting in circumstances where a derivative, which has been designated as a hedging instrument, is novated from one counterparty to a central counterparty as a consequence of laws or regulations. The Directors believe the adoption of the amendments will not result in any material changes to the Group’s financial statements as the Group and Trust currently do not engage in hedge accounting. 2. Critical accounting estimates The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are: estimates of fair value of investment properties The Group has investment properties with a carrying amount of approximately $2,396,000,000 (2012: $1,724,400,000) representing estimated fair value at balance date. These investment properties represent a significant proportion of the total assets of the Group and Trust. Fair value is determined within a range of reasonable estimates utilising both capitalisation of net market income and discounted future cash flow methodologies and comparing the results to market sales evidence. The best evidence of fair value is considered to be current prices in an active market for similar properties, however global economic and financial conditions in recent years have had an impact on many classes of real estate, including commercial real estate in Australia. The most significant impact has been a reduction in the availability of capital (debt and equity) for real estate assets. This reduction in available capital led to falls in asset values, although in recent times there has been stability in pricing and increases in transactional levels. Where sufficient market information is not available, or to supplement this information, management considers other relevant information including: • Current prices for properties of a different nature, condition or location, adjusted to reflect those differences; • Recent prices of similar properties in a less active market, with adjustments to reflect changes in economic conditions or other factors; 52 Cromwell Property Group | Annual Report 2013• Capitalised income calculations based on an assessment of current net market income for that property or other similar properties, a capitalisation rate taking into account market evidence for similar properties and adjustment for any differences between market rents and contracted rents over the term of existing leases and deductions for short term vacancy or lease expiries, incentive costs and capital expenditure requirements; and • Discounted cash flow forecasts including estimates of future cash flows based on current leases in place for that property, historical operating expenses, reasonable estimates of current and future rents and operating expenses based on external and internal assessments and using discount rates that appropriately reflect the degree of uncertainty and timing inherent in current and future cash flows. The fair values adopted for investment properties have been supported by a combination of independent external valuations and detailed internal valuations, which are considered to reflect market conditions at balance date. Key factors which impact assessments of value at each balance date include capitalisation rates, vacancy rates and weighted average lease terms. Details of these factors at each balance date were as follows: % Value of Portfolio by Sector Weighted Average Cap Rate Weighted Average Lease Term Occupancy 2013 93% 4% 3% 100% 2012 94% 4% 2% 100% 2013 8.44% 9.27% 10.04% 8.51% 2012 8.22% 9.36% 9.12% 8.28% 2013 6.2yrs 5.4yrs 5.3yrs 6.1yrs 2012 6.4yrs 3.3yrs 3.5yrs 6.2yrs 2013 96.0% 97.5% 93.3% 96.1% 2012 96.2% 100.0% 98.5% 96.4% Commercial Industrial Retail/Entertainment Total Estimates of fair value take into account factors and market conditions evident at balance date. Uncertainty and changes in global market conditions in the future may impact fair values in the future. estimates of fair value of interest rate derivatives The fair value of interest rate derivatives has been determined using a pricing model based on discounted cash flow analysis and incorporating assumptions supported by market data at balance date including market expectations of future interest rates and discount rates, and taking into account estimates prepared by external counterparties. Whilst certain derivatives may not be quoted on an active market, management have determined a value for those derivatives using market data adjusted for any specific features of the derivatives. All counterparties to interest rate derivatives are Australian financial institutions. 3. Capital Risk Management The Group’s capital management strategy seeks to maximise securityholder value through optimising the level and use of capital resources and the mix of debt and equity funding. The Group’s capital management objectives are to: • ensure that Group entities comply with capital and dividend/distribution requirements of their constitutions and/or trust deeds; • ensure sufficient capital resources to support the Group’s operational requirements; • continue to support the Group’s creditworthiness; • comply with capital requirements of relevant regulatory authorities; and • safeguard the Group’s ability to continue as a going concern. The Group monitors the adequacy of its capital requirements, cost of capital and gearing (i.e. debt/equity mix) as part of its overall strategic plan. The Group’s capital structure is continuously reviewed to ensure: • sufficient funds and financing facilities are available, on a cost effective basis, to implement the Group’s strategies; and • dividends/distributions to members are made within the stated policy. The Group is able to alter its capital mix by: • issuing new stapled securities; • activating its dividend/distribution reinvestment plan; • adjusting the amount of dividends/distributions paid to members; • activating its security buyback program; and • selling assets to reduce borrowings. 53 Cromwell Property Group | Annual Report 2013The Group also protects its equity in assets by taking out insurance cover with creditworthy insurers. Certain entities within the Group hold Australian Financial Services Licences (AFSL) and act as responsible entities for managed investment schemes managed by the Group. The AFSL require these entities to maintain net tangible assets of approximately $7 million in aggregate. As such these entities are restricted from paying dividends to the parent entity that would breach their licence conditions and hold cash as part of their required minimum net tangible assets (see Note 29(c)). The entities monitor their net tangible assets on an ongoing basis to ensure they continue to meet their licence requirements. The entities complied with their AFSL requirements during 2013 and 2012. One of the key ways the Group monitors capital adequacy is on the basis of the gearing ratio. The ratio is calculated as net debt divided by adjusted assets. Net debt is calculated as total borrowings less cash and cash equivalents and restricted cash. Adjusted assets are calculated as total assets less cash and cash equivalents, restricted cash and intangible assets. The gearing ratios for both the Group and the Trust at each balance date were as follows: Total borrowings Less: cash and cash equivalents Net debt Total assets Less: intangible assets and deferred tax assets Less: cash and cash equivalents Adjusted assets Gearing ratio Group Trust 2013 $’000 1,232,720 125,933 1,106,787 2,546,110 1,834 125,933 2,418,343 46% 2012 $’000 964,177 59,153 905,024 1,837,601 1,547 59,153 1,776,901 51% 2013 $’000 1,232,720 75,126 1,157,594 2,487,254 – 75,126 2,412,128 48% 2012 $’000 964,177 51,021 913,156 1,820,045 – 51,021 1,769,024 52% 4. Financial Risk Management The Group’s activities expose it to a variety of financial risks; credit risk, liquidity risk and market risk (interest rate risk and price risk). The overall risk management program focuses on managing these risks and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses derivative financial instruments such as interest rate derivatives to hedge certain risk exposures. The Group seeks to deal only with creditworthy counterparties. Liquidity risk is monitored through the use of future rolling cash flow forecasts. The Group’s management of treasury activities is centralised and governed by policies approved by the Directors who monitor the operating compliance and performance as required. The Group has policies for overall risk management as well as policies covering specific areas such as identifying risk exposure, analysing and deciding upon strategies, performance measurement, the segregation of duties and other controls around the treasury and cash management functions. The Group and the Trust hold the following financial instruments: 125,933 7,940 7,468 141,341 28,014 35,508 1,232,720 31,061 1,327,303 59,153 41,305 266 100,724 14,472 40,628 964,177 20,470 1,039,747 75,126 6,816 7,468 89,410 27,030 35,508 1,232,720 31,066 1,326,324 51,021 38,606 266 89,893 13,311 40,628 964,177 20,474 1,038,590 Financial Assets Cash and cash equivalents (1) Trade and other receivables (1) Investments at fair value through profit and loss (2) Total financial assets Financial Liabilities Trade and other payables (3) Derivative financial instruments (2) Borrowings (3) Dividends/distributions payable (3) Total financial liabilities (1) Loans and receivables (2) At fair value – designated (3) At amortised cost 54 Cromwell Property Group | Annual Report 2013(a) Credit Risk Credit risk is the risk that a counterparty will default on its contractual obligations under a financial instrument and result in a financial loss to the Group. The Group has exposure to credit risk on all financial assets included in the statement of financial position except investments at fair value through profit or loss. The Group manages this risk by: • establishing credit limits for customers and managing exposure to individual entities; • monitoring the credit quality of all financial assets in order to identify any potential adverse changes in credit quality; • derivative counterparties and cash transactions, when utilised, are transacted with high credit quality financial institutions; • providing loans to associates where the Group is comfortable with the underlying exposure; • regularly monitoring loans and receivables on an ongoing basis; and • regularly monitoring the performance of associates on an ongoing basis. The maximum exposure to credit risk at balance date is the carrying amount of financial assets recognised in the statement of financial position of the Group. The Group holds no significant collateral as security. There are no significant financial assets that have had renegotiated terms that would otherwise have been past due or impaired. Cash is held with Australian financial institutions. Interest rate derivative counterparties are all Australian financial institutions. The ageing analysis of receivables past due at balance date but not impaired is as follows: 1 to 3 months* 3 to 6 months* Over 6 months* Group Trust 2013 $’000 3,269 223 345 3,837 2012 $’000 767 452 1,369 2,588 2013 $’000 3,269 223 345 3,837 2012 $’000 505 – 1,369 1,874 (b) Liquidity Risk Prudent liquidity risk management implies maintaining sufficient cash reserves and finance facilities to meet the ongoing operational requirements of the business. It is the Group’s policy to maintain sufficient funds in cash and cash equivalents to meet expected near term operational requirements. The Group prepares and monitors rolling forecasts of liquidity requirements on the basis of expected cash flow. The Group monitors the maturity profile of borrowings and puts in place strategies designed to ensure that all maturing borrowings are refinanced in the required timeframes. The current weighted average debt maturity of the Group and Trust is 2.2 years (2012: 2.4 years). Contractual maturity of financial liabilities (borrowings and payables) of the Group and the Trust, including interest thereon, are as follows: Due within one year Due between one and five years Due after five years 133,850 1,342,138 – 1,475,988 122,147 1,042,481 357 1,164,985 132,869 1,342,138 – 1,475,007 120,954 1,042,481 357 1,163,792 55 Cromwell Property Group | Annual Report 2013(c) Market Risk Price risk – Listed equity securities (i) The Group and Trust are exposed to equity securities price risk. This arises from investments held by the Group and Trust classified on the balance sheet as investments at fair value through profit and loss (refer note 12). The Group and Trust are not exposed to commodity price risk. A small proportion of the Group’s and Trust’s equity investments are publicly traded and are included in the ASX All Ordinaries index. Group and Trust sensitivity Based on the financial instruments held at balance date, had the ASX All Ordinaries index increased/decreased by 20% (2012: 20%) with all other variables held constant and all the Group’s and Trust’s equity instruments moved in correlation with the index, the impact on the Group’s and Trust’s profit and equity for the year would have been $63,000 (2012: $53,000) higher/lower. Price risk – Unlisted equity securities (ii) The Group and Trust is exposed to price risk in relation to its unlisted equity securities (refer note 12) acquired during the year. The Group and Trust uses the fair value of the net assets of the unlisted equity securities to determine the fair value of its investments in the same. The fair value of the net assets of the unlisted equity securities is predominantly dependent on the market value of the investment property they hold. Any movement in the market value of the investment property will impact on the fair value of the Group and Trust’s investment. Sensitivity Based on its investment held at 30 June 2013, had the market values of the investment property’s held by unlisted equity investments increased/decreased by 5% with all other variables held constant the impact on the company’s equity for the year would have been $612,000 higher/lower (2012 - nil). (iii) The Group’s interest-rate risk primarily arises from borrowings. Borrowings issued at variable rates expose the Group to cash flow interest-rate risk. Borrowings issued at fixed rates expose the Group to fair value interest-rate risk. The Group’s policy is to effectively maintain hedging arrangements on not less than 50% of its borrowings. At balance date 86% (2012: 97%) of the Group’s borrowings were effectively hedged. Interest rate risk The Group manages its cash flow interest-rate risk by using interest rate derivatives. Such interest rate derivatives have the economic effect of converting borrowings from floating rates to fixed or a limited range of rates. Generally, the Group raises long term borrowings at floating rates and hedges a portion of them into fixed or capped rates. Under the interest-rate derivatives, the Group agrees with other counter parties to exchange, at specified intervals (usually 30 days), the difference between contract rates and floating-rate interest amounts calculated by reference to the agreed notional principal amounts. The fixed or limited interest rates range between 2.98% and 5.95% (2012: 3.18% and 5.95%) and the variable rates are generally based on the 30 day bank bill swap bid rate which at balance date was 2.87% (2012: 3.63%). At balance date, the notional principal amounts and periods of expiry of the interest rate swap contracts are detailed as follows: Group and Trust Less than 1 year 1-2 years 2-3 years 3-4 years 4-5 years Greater than 5 years 2013 $’000 262,400 216,700 31,730 270,000 286,450 – 1,067,280 2012 $’000 226,600 380,000 216,700 31,730 – 86,450 941,480 Because the Group’s interest rate derivatives do not meet the accounting requirements to qualify for hedge accounting treatment, gains or losses arising from changes in fair value have been reflected in the profit or loss. Information on borrowings and the maturity profile of borrowings including interest thereon is set out in Note 18. Group sensitivity At balance date, if interest rates for all relevant time periods had changed by +/- 100 basis points (1%) from the year end rates with all other variables held constant, profit would have been $33,281,000 higher/lower (2012 – change of 100 bps: $25,097,000 higher/lower), mainly as a result of increase/decrease in the fair value of interest rate derivatives. Equity would have been $33,281,000 higher/lower (2012: $25,097,000 higher/lower) mainly as a result of an increase/decrease in the fair value of interest rate derivates. Trust sensitivity At balance date, if interest rates for all relevant time periods had changed by +/- 100 basis points (1%) from the year end rates with all other variables held constant, profit would have been $32,773,000 higher/lower (2012 – change of 100 bps: $25,016,000 higher/lower), mainly as a result of increase/decrease in the fair value of interest rate derivatives. Equity would have been $32,773,000 higher/lower (2012: $25,016,000 higher/lower) mainly as a result of an increase/decrease in the fair value of interest rate derivates. 56 Cromwell Property Group | Annual Report 2013(d) Fair Value estimation The table below analyses financial instruments carried at fair value, by the source of measurement inputs. The results are the same for both the Group and the Trust. The different levels have been defined as follows: Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices). Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). Group and Trust Financial Assets Investments at fair value through profit or loss Financial Liabilities Derivative financial instruments 2013 2012 Level 1 $’000 Level 2 $’000 Level 1 $’000 Level 2 $’000 315 315 – – 7,153 7,153 35,508 35,508 266 266 – – – – 40,628 40,628 The carrying value of loans and receivables and financial liabilities at amortised cost are assumed to approximate their fair value due to either their short term nature or their terms and conditions including interest receivable/payable at variable rates. 5. Expenses Group Trust Premises rental – minimum lease payments Gain/(loss) on Sale of Investment Properties: Net proceeds from sale of investment properties Carrying value of investment properties sold and other costs of sale Gain/(loss) on sale of investment properties Finance Costs: Total interest Less: interest capitalised Interest expense Amortisation of loan transaction costs Finance Costs Employee Benefits Expense: Wages and salaries including on costs Contributions to defined contribution superannuation plans Equity settled share-based payments Increase in liability for long service and annual leave Less: employee benegits capitalised Employee benefits expense Depreciation/Amortisation: Depreciation of plant and equipment Amortisation of intangibles Depreciation/Amortisation Loss on disposal of other assets: Net loss on disposal of property, plant and equipment Net loss on disposal of intangible assets Loss on disposal of other assets 2013 $’000 456 42,571 (42,439) 132 67,715 – 67,715 2,581 70,296 13,279 833 669 256 15,037 (178) 14,859 320 323 643 3 143 146 2012 $’000 367 38,998 (39,329) (331) 62,855 (892) 61,963 2,560 64,523 11,515 731 601 500 13,347 – 13,347 249 355 604 21 23 44 2013 $’000 – 42,571 (42,439) 132 67,774 – 67,774 2,581 70,355 2012 $’000 – 38,998 (39,329) (331) 62,855 (892) 61,963 2,833 64,796 – – – – – – – – – – – – – – – – – – – – – – – – – – 57 Cromwell Property Group | Annual Report 20136. Income Tax (a) Income tax expense Current tax Deferred tax Change in tax losses recognised Adjustment in relation to prior periods Income tax expense Group 2013 $’000 1,519 137 (933) (40) 683 2012 $’000 58 (121) 178 5 120 (b) Numerical reconciliation of income tax expense to prima facie tax Profit before income tax Tax at the Australian tax rate of 30% (2012: 30%) Tax effect of amounts which are not deductible/ (taxable) in calculating taxable income: Non-taxable trust income Non-deductible expenses Non-deductible property development costs/impairment Assessable for income tax Change in tax losses recognised (note 15) Adjustment in relation to prior periods Income tax expense 46,839 14,052 23,197 6,959 (12,987) 215 278 98 (933) (40) 683 (7,308) 189 (92) 189 178 5 120 (c) Unrecognised deferred tax assets Deferred tax assets have not been recognised in respect of the following items: Tax losses 17,792 18,702 Trust 2013 $’000 2012 $’000 – – – – – – – – – – – – – – – – – – – – – – The tax losses do not expire under current tax legislation. Deferred tax assets have not been recognised in respect of certain tax losses (both revenue and capital) because it is not probable that future taxable profit will be available against which the consolidated entity can utilise the benefits from the deferred tax assets. All unused tax losses were incurred by Australian entities. (d) tax consolidation for details regarding the relevance of the tax consolidation system to the consolidated entity, the tax funding arrangements and other information. No amounts were recognised during the year (2012: $nil) as tax consolidation contributions by, or distributions to, equity participants. 7. Cash and Cash Equivalents Cash at bank Cash and cash equivalents 125,933 125,933 59,153 59,153 75,126 75,126 51,021 51,021 58 Cromwell Property Group | Annual Report 20138. Trade and Other Receivables Current Assets Trade debtors Provision for impairment of trade debtors Other receivables – associates Loans: Associate Related party Trade and other receivables – current Non-Current Assets Loans: Associate Related party Trade and other receivables – non-current Group Trust 2013 $’000 7,940 – – – – 7,940 – – – 2012 $’000 3,093 (127) 1,691 4,062 12,786 21,505 19,800 – 19,800 2013 $’000 6,816 – – – – 6,816 – – – 2012 $’000 1,288 (127) 1,671 – 12,786 15,618 19,800 3,188 22,988 Trade debtors mainly comprises of amounts owing by tenants of the Group’s and Trust’s investment properties and recoverable costs owing by external managed investment schemes. These amounts are usually non-interest bearing, unsecured and generally payable on no more than 30 day terms. (a) Loans – associates and related parties Cromwell Property Fund On 4 October 2012 the Group and Trust acquired the remaining units they did not already own of CPF. As a result, the Group and Trust’s equity interest in CPF increased from 18% to 100% (refer notes 13 and 37) and the loan from the Group to CPF, previously classified as a loan to associate, is now eliminated upon consolidation.. Cromwell Ipswich City Heart Trust On 8 December 2011 the Cromwell Ipswich City Heart Trust ARSN 154 498 923 (“ICH”), an unlisted single property trust, for which Cromwell Funds Management Limited (“CFM”), a subsidiary of the Company, acts as responsible entity, settled the acquisition of land at 117 Brisbane Street, Ipswich, Queensland. A commercial building is currently being constructed on the land for the Queensland Government, who will occupy 91% of the property on completion under a 15 year agreement for lease. The Group and Trust provided an initial loan facility of $20,000,000 to ICH, which was unsecured, to enable settlement of the land and funding for initial construction. CFM issued a product disclosure document (“PDS”) on 16 December 2011 to raise funds from investors for ICH, which was ultimately fully subscribed and completed in October 2012. The loan was repaid in full between March 2012 and October 2012 using funds raised under the PDS. While the loan was drawn down, the Group and Trust earned a return equivalent to the ICH distribution rate of 7.75% to 30 June 2012 and 8.00% from 1 July 2012. (b) Past due but not impaired receivables At balance date, the Group had $3,837,000 (2012: $2,588,000) and the Trust had $3,837,000 (2012: $1,874,000) of trade and other receivables which were past due but not impaired. These consist of $3,837,000 (2012: $296,000) for the Group and $3,837,000 (2012: $296,000) for the Trust which relate to a number of tenants for whom there is no recent history of default. Impaired receivables (c) As at 30 June 2013 no trade receivables of the Group and Trust were impaired (2012: $127,000). The provision as at 30 June 2012 was in respect of an individually impaired receivable relating to a financially distressed tenant. This provision was fully utilised during the current year as the relevant receivable was not recovered. The ageing analysis of this receivable is as follows: 1 to 3 months 3 to 6 months Over 6 months 2013 $’000 – – – – 2012 $’000 78 49 – 127 59 Cromwell Property Group | Annual Report 2013Movements in the provision for impairment of receivables are as follows: Balance at 1 July Provision for impairment recognised during the year Provision for impairment utilised in respect of non-recovered amount Balance at 30 June 2013 $’000 127 – (127) – 2012 $’000 – 127 – 127 The creation of the provision has been included in property expenses and outgoings in the statement of comprehensive income. 9. Other Current Assets Group 2013 $’000 2012 $’000 Trust 2013 $’000 2012 $’000 Prepayments 2,527 1,791 1,844 1,047 10. Inventories Non-current Land held for development and resale (net realisable value) Inventories 11. Investment Properties 3,000 3,000 3,000 3,000 – – – – Investment properties at fair value 2,396,000 1,724,400 2,396,000 1,724,400 (a) Movement in investment properties Balance at 1 July Additions at cost Purchase price of investment property Acquisition of TGA Complex (refer note 37) Acquisition transaction costs Capital Works Property improvements Lifecycle Disposals Straight-lining of rental income Lease costs and incentives Amortisation of lease costs and incentives Net loss from fair value adjustments Balance at 30 June 1,724,400 1,444,850 1,724,400 1,444,850 171,372 463,602 26,372 76,319 6,301 (42,439) 6,071 29,275 (9,526) (55,747) 2,396,000 – 249,483 13,939 50,199 2,614 (39,329) 6,892 15,810 (7,705) (12,353) 1,724,400 171,372 463,602 26,372 76,319 6,301 (42,439) 6,071 29,275 (9,526) (55,747) 2,396,000 – 249,483 13,939 50,199 2,614 (39,329) 6,892 15,810 (7,705) (12,353) 1,724,400 60 Cromwell Property Group | Annual Report 2013 (b) Amounts recognised in profit and loss for investment properties Rental and outgoings from investment properties Direct operating expense from properties that generated rental income Group Trust 2013 $’000 206,665 (34,005) 172,660 2012 $’000 177,245 (27,087) 150,158 2013 $’000 206,478 (38,753) 167,725 2012 $’000 176,673 (30,530) 146,143 (c) Assets pledged as security Borrowings (refer Note 18) are secured by fixed and floating charges over each investment property plus charges over any building document, lease document, performance bond and bank guarantee in addition to a real property mortgage over each property. (d) Leases as a lessor The investment properties are generally leased to tenants on long term operating leases with rentals payable monthly. Minimum lease payments under the non-cancellable operating leases of the investment properties not recognised in the financial statements are receivable as follows: Within one year Later than one year but not later than five years Later than five years 217,749 624,900 741,200 1,583,849 157,012 510,596 226,143 893,751 217,869 624,900 741,200 1,583,969 157,818 510,692 226,143 894,653 (e) Valuation basis Independent valuations of properties were carried out by qualified valuers with relevant experience in the types of property being valued. Independent valuations are mostly carried out at least annually but no later than every two years. The value of investment properties is measured on a fair value basis, being the amounts for which the properties could be exchanged between willing parties in an arm’s length transaction, based on current prices in an active market for similar properties in the same location and condition and subject to similar leases. In assessing the value of the investment properties, the independent valuers have considered both discounted cash flow and capitalisation methodologies. In addition, the Group has utilised similar internal valuation processes for determining fair value where independent valuations are not obtained. Further information on assumptions underlying management’s assessment of fair value is contained in note 2. 61 Cromwell Property Group | Annual Report 2013(f) Details of investment properties Title Acquisition Date (1) Acquisition Price (1) Independent valuation date $’000 200 Mary St, QLD Oracle Building, ACT Village Cinemas, VIC Brooklyn Woolstore, VIC Terrace Office Park, QLD Vodafone Call Centre, TAS Henry Waymouth Centre, SA Regent Cinema Centre, NSW NQX Distribution Centre, QLD Freehold Jun 2001 29,250 Jun 2013 Jun 1999 Freehold 13,600 Dec 2012 Leasehold Nov 2001 23,550 Jun 2013 Feb 2003 Freehold 17,778 Dec 2012 Apr 2003 Freehold 30,420 Dec 2012 Jun 2004 Freehold 34,000 Dec 2012 Jun 2004 Freehold 8,900 Dec 2012 Jun 2004 Freehold 15,900 Dec 2012 Jun 2004 Freehold 9,900 Dec 2012 10,900 Dec 2012 Jun 2004 Freehold Dec 2004 133,000 Dec 2012 Freehold 700 Collins Street, VIC 41,000 Feb 2005 Masters Distribution Centre, VIC Freehold SOLD 35,530 Jun 2013 Leasehold July 2005 19 National Circuit, ACT Jun 2013 88,000 Dec 2005 Freehold SOLD Freehold 30,375 Jan 2006 Freehold Mar 2006 102,650 Jun 2013 85,727 Dec 2012 Freehold Nov 2008 Jun 2013 Leasehold Jun 2008 166,025 Jun 2013 75,000 Leasehold Jul 2010 Tuggeranong Office Park, ACT 475 Victoria Av, NSW Elders Woolstore, SA 380 La Trobe St, VIC 101 Grenfell St, SA Synergy, QLD Independent valuation Carrying amount Fair value adjustment 2013 $’000 81,000 26,500 29,100 25,375 40,000 35,450 12,800 15,000 13,500 16,200 172,000 – 31,000 114,500 – 135,000 73,500 155,000 69,000 2012 $’000 87,000 26,500 28,500 26,500 32,000 34,400 12,100 15,300 13,400 15,000 172,400 – 32,000 107,000 43,200 135,000 73,000 173,000 70,000 2013 $’000 81,000 26,500 29,100 25,375 42,300 36,100 13,900 15,000 13,500 16,700 172,000 – 31,000 114,500 – 135,000 73,500 155,000 69,000 2012 $’000 2013 $’000 2012 $’000 87,000 (7,139) 26,500 (314) 28,500 (934) 26,500 (1,078) 32,000 (6,735) 34,400 1,718 12,100 465 15,300 (244) 13,400 87 15,000 656 172,400 (613) – – 32,000 (918) 107,000 27 43,200 (701) 135,000 1,638 73,000 1,618 173,000 (18,130) 70,000 (1,109) (2,485) (1,807) (4,645) 547 (2,691) (1,659) 400 (858) – 1,243 (913) 230 (4,062) 3,977 2,155 6,861 589 243 (3,937) Leasehold Jul 2010 90,200 Dec 2012 175,000 170,000 180,500 170,000 8,836 970 Freehold Freehold Freehold Oct 2012 20,279 Jun 2013 34,975 Dec 2012 Jun 2013 74,206 Leasehold Aug 2010 143,891 Dec 2012 Dec 2011 186,000 Jun 2013 Freehold HQ North, QLD 63,483 Dec 2012 Jan 2012 Bundall Corporate Centre, QLD Freehold Jun 2013 39,212 Oct 2012 Freehold HomeBase, Prospect, NSW(2) 43 Bridge Street, Oct 2012 Hurstville, NSW(2) 13 Keltie Street, Woden, ACT(2) Leasehold Oct 2012 28-54 Percival Rd, Smithfield, NSW(2) Sturton Road, Oct 2012 Edinburgh Park, SA(2) 147-163 Charlotte Street, QLD Freehold May 2013 Freehold May 2013 146-160 Mary Street, QLD Jun 2013 4-6 Bligh Street, Sydney, NSW Freehold 117 Bull Street, Newcastle, NSW Freehold Jun 2013 11 Farrer Street, Freehold Queanbeyan, NSW 207 Kent Street, Sydney, NSW Freehold 84 Crown Street, Wollongong, NSW 2-24 Rawson Place, Freehold Haymarket, NSW 2-6 Station Street, Penrith, NSW Freehold Total investment properties 2,700 Dec 2012 30,000 May 2013 35,000 May 2013 53,000 May 2013 13,800 May 2013 Jun 2013 22,600 May 2013 Jun 2013 133,025 May 2013 Jun 2013 130,000 May 2013 28,700 May 2013 Jun 2013 23,900 May 2013 1,606,451 Jun 2013 Freehold 232,000 200,000 68,000 36,800 172,400 194,000 65,300 – 275,000 200,000 68,500 36,800 198,800 194,000 65,300 – 8,901 3,673 577 (2,377) (830) (3,484) (2,197) – 31,750 62,500 19,000 2,475 29,000 36,000 53,000 13,800 22,600 133,000 23,900 – – – – – – – – – – – 31,750 62,500 19,000 2,475 30,000 35,000 53,000 13,800 22,600 133,000 23,900 – (3,349) – (11,831) – – – – – – – – – (2,538) (225) (1,743) (2,164) (2,941) (766) (1,254) (6,707) (1,326) 130,000 28,700 (7,214) (1,593) 2,342,450 1,698,000 2,396,000 1,724,400 (55,747) 130,000 28,700 – – – – – – – – – – – – – – – – – (12,353) TGA Complex, ACT 321 Exhibition Street, Melbourne, VIC 203 Coward Street, Mascot, NSW (1) Comprises original acquisition date and price for CDPT or the relevant Syndicate which was mostly prior to the merger and stapling transactions in December 2006. (2) Buildings acquired in a business combination transaction, through the acquisition of the Cromwell Property Fund (see notes 13 and 37.) 62 Cromwell Property Group | Annual Report 201312. Investments at Fair Value Through Profit or Loss Group Unlisted equity securities at fair value Listed equity securities at fair value Investments at fair value through profit or loss 2013 $’000 7,153 315 7,468 2012 $’000 – 266 266 2013 $’000 7,153 315 7,468 Trust 2012 $’000 – 266 266 These investments are designated at fair value through profit or loss. Gains and losses are shown in profit or loss. 13. Investments in Associates At balance date the Group had an investment in one associate, Phoenix Portfolios Pty Ltd (“Phoenix”). This entity was formed in Australia and it’s principal activity is investment management. The reporting date of Phoenix is the same as for the Group. During the year additional non-voting equity was issued to a third party which reduced the Group’s ownership interest from 50% to 45% whilst preserving the Group’s 50% ownership of issued capital to which voting rights attach. The Group and Trust previously held an investment in an associate, CPF. The remaining units of CPF not previously owned by the Group and Trust were acquired during the year (refer note 37). Investments (a) The investments are accounted for using the equity method of accounting. Information relating to the investments is detailed below: Group Investments accounted for using the equity method: CPF – associate Phoenix – associate Trust Investments accounted for using the equity method: CPF – associate Ownership Interest 2013 % 2012 % – 45 18 50 2013 $’000 – 100 100 2012 $’000 4,705 47 4,752 – 18 – 4,705 63 Cromwell Property Group | Annual Report 2013 (b) Movement in carrying amount of investments in jointly controlled entity and associates Group Phoenix $’000 CPF $’000 2013 Balance at 1 July 2012 Share of profit/(loss) Carrying value consolidated (2) Balance at 30 June 2013 2012 Balance at 1 July 2011 Share of profit/(loss) (1) Distributions received Balance at 30 June 2012 Trust 2013 Balance at 1 July 2012 Share of profit/(loss) (1) Carrying value consolidated (2) Balance at 30 June 2013 2012 Balance at 1 July 2011 Share of profit/(loss) (1) Distributions received Balance at 30 June 2012 47 53 – 100 56 (9) – 47 4,705 593 (5,298) – 5,436 (131) (600) 4,705 CPF $’000 4,705 593 (5,298) – 5,436 (131) (600) 4,705 Total $’000 4,752 646 (5,298) 100 5,492 (140) (600) 4,752 Total $’000 4,705 593 (5,298) – 5,436 (131) (600) 4,705 (1) Share of profit/(loss) includes fair value gain/(loss) on investment properties and interest rate derivatives where applicable. (2) The carrying amount of CPF was derecognised following the acquisition of the remaining units of CPF in October 2012, resulting in CPF being fully consolidated by the Group and Trust. (c) Share of assets and liabilities of jointly controlled entity and associates Assets Current assets Non-current assets Investment properties Other Total non-current assets Total assets Liabilities Current liabilities Borrowings Other Total current liabilities Total liabilities Net assets 2013 2012 Phoenix $’000 CPF $’000 Phoenix $’000 CPF $’000 239 – 3 242 242 – (142) (142) (142) 100 – – – – – – – – – – 162 – 4 4 166 – (119) (119) (119) 47 532 29,537 – 29,537 30,069 (23,802) (1,562) (25,364) (25,364) 4,705 (d) Share of revenues, expenses and results of jointly controlled entity and associates Revenue (1) Expenses (1) Share of profit/(loss) 437 (384) 53 1,409 (816) 593 269 (278) (9) 3,560 (3,691) (131) (1) Includes share of fair value adjustment to investment properties and interest rate derivatives where applicable (share of revenue, expenses and result of CPF in 2013 relates to the period from 1 July 2013 until consolidation of CPF). 64 Cromwell Property Group | Annual Report 201314. Property, Plant and Equipment Furniture and fittings at cost Accumulated depreciation Plant and equipment at cost Accumulated depreciation Property, plant and equipment Group Trust 2013 $’000 1,612 (871) 741 2,033 (1,466) 567 1,308 2012 $’000 1,588 (792) 796 1,764 (1,233) 531 1,327 2013 $’000 – – – – – – – 2012 $’000 – – – – – – – (a) Movement in property, plant and equipment Reconciliations of the carrying amounts of each class of property, plant and equipment are set out below. Group Balance at 1 July 2012 Additions Disposals Depreciation Balance at 30 June 2013 Balance at 1 July 2011 Additions Additions Depreciation Balance at 30 June 2012 15. Deferred Tax Assets Deferred tax assets Deferred tax assets and liabilities are attributable to the following: Interests in managed investment schemes Payables Employee benefits Provisions Other accruals and sundry items Tax losses recognised Movements Balance at 1 July Reduction in current tax liability on use of tax losses previously recognised (Debit)/credit to profit or loss Change in tax losses recognised Adjustments in relation to prior periods Balance at 30 June Furniture and fittings $’000 Plant and Equipment Owned $’000 Total $’000 1,327 304 (3) (320) 1,308 1,133 464 (21) (249) 1,327 531 279 (3) (240) 567 394 329 (21) (171) 531 2012 $’000 914 (1,917) 84 540 278 212 1,717 914 921 (23) 121 (178) 73 914 Trust 2013 $’000 – 2012 $’000 – – – – – – – – – – – – – – – – – – – – – – – – – – – 796 25 – (80) 741 739 135 – (78) 796 Group 2013 $’000 804 (1,918) – 718 17 527 1,460 804 914 (1,189) (137) 933 283 804 The benefit of temporary differences and prior year tax losses recognised as a deferred tax asset was based on projected earnings over a limited period that the Directors considered to be probable. Projected earnings are re-assessed at each reporting date. There remains a significant amount of tax losses that have not been recognised as a deferred tax asset (refer note 6). 65 Cromwell Property Group | Annual Report 201316. Intangible Assets Software – at cost Accumulated amortisation Intangible assets Group Trust 2013 $’000 2,737 (1,707) 1,030 2012 $’000 2,405 (1,772) 633 2013 $’000 – – – 2012 $’000 – – – Amortisation of software is included in amortisation expense in profit or loss. Reconciliations of the carrying amounts of software are set out below: Balance at 1 July Additions Disposals Amortisation Balance at 30 June 17. Trade and Other Payables Trade payables and accruals Lease incentives payable Tenant security deposits Amounts payable to related entities (refer note 32(d)) Other payables Trade and other payables 633 863 (143) (323) 1,030 11,662 12,782 1,020 – 2,550 28,014 603 408 (23) (355) 633 – – – – – – – – – – 9,575 2,875 106 – 1,916 14,472 11,818 12,782 1,020 – 1,410 27,030 8,625 2,875 106 540 1,165 13,311 Trade and other payables are generally unsecured, non-interest bearing and paid in cash within 30-60 days of recognition. Lease incentives payable are generally unsecured, non-interest bearing and paid in cash or by way of a rental rebate within 6 months of recognition according to the terms of the underlying lease. 18. Borrowings Current Secured Loans – financial institutions Borrowings – current Non-Current Secured Loans – financial institutions Unamortised transaction costs Borrowings – non-current Total Secured Loans – financial institutions Unamortised transaction costs Total borrowings – – 21,533 21,533 – – 21,533 21,533 1,237,578 (4,858) 1,232,720 947,018 (4,374) 942,644 1,237,578 (4,858) 1,232,720 947,018 (4,374) 942,644 1,237,578 (4,858) 1,232,720 968,551 (4,374) 964,177 1,237,578 (4,858) 1,232,720 968,551 (4,374) 964,177 Loans shown above are net of transaction costs which are amortised over the term of the loan. 66 Cromwell Property Group | Annual Report 2013(a) Borrowing details Borrowings of the Group and Trust are the same and details at balance date are set out below: Facility Note Secured Syndicated Facility Tuggeranong (Tranche 1) Tuggeranong (Tranche 2) Multi Property (Tranche 1) Multi Property (Tranche 2) Multi Property (Tranche 3) Mascot (Tranche 1) Mascot (Tranche 2) Mascot (Tranche 3) HQ North (Tranche 1) HQ North (Tranche 2) Bundall Corporate Centre Cromwell Property Fund NSW Portfolio Total facilities (i) (ii) (ii) (iii) (iii) (iii) (iv) (iv) (iv) (v) (v) (vi) (vii) (viii) Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Maturity Date Jan 2016 June 2015 June 2013 July 2015 July 2015 Dec 2012 Dec 2014 Dec 2014 Dec 2014 Dec 2014 June 2013 Jan 2015 June 2015 June 2016 Facility 2012 $’000 Utilised 2012 $’000 352,467 100,595 – 132,719 100,000 – 62,400 83,750 47,720 106,506 – 34,916 90,560 200,000 1,311,633 352,467 100,595 – 132,719 98,653 – 62,400 58,762 – 106,506 – 34,916 90,560 200,000 1,237,578 Facility 2012 $’000 376,172 107,917 3,321 132,719 100,000 40,000 62,400 83,750 47,720 116,400 4,300 34,916 – – 1,109,615 Utilised 2012 $’000 376,172 107,917 3,321 132,719 98,653 13,913 62,400 17,840 – 116,400 4,300 34,916 – – 968,551 (i) Syndicated Facility The Syndicated finance facility was renegotiated and extended during the 2013 financial year. The Syndicated finance facility is secured by first registered mortgages over a pool of the investment properties held by the Group and a registered floating charge over the assets of the Trust. Interest is payable monthly in arrears at variable rates based on the 30 day BBSY rate which was 2.87% at balance date plus a loan margin. Repayments of $23,705,000 (2012: $21,643,000) were made during the year from proceeds of the sale of the 101 Grenfell St, SA investment property. (ii) Tuggeranong The loan is secured by a first registered mortgage over Tuggeranong Office Park. The first tranche of the loan matures in June 2015. The second tranche matured in June 2013. The loan bears interest at a variable rate based on the 30 day BBSY rate plus a loan margin. Repayments of $10,643,000 (2012: $3,321,000) were made during the year. (iii) Multi Property The loan is secured by first registered mortgage over the Synergy, Mary Street, TGA and Exhibition Street investment properties. The facility limit is $232,719,000 (2012: $272,719,000) and has 2 remaining tranches (previously three). Tranche 1 relates to the TGA Complex in Canberra and the 200 Mary Street and Synergy properties in Brisbane and is fully drawn. Tranche 2 relates to the Exhibition Street property. The facility is for $100,000,000, and is drawn to $98,653,000 with the remainder of the facility being available to be drawn down to fund further capital commitments if required. Tranche 3 was fully repaid ($13,913,000) during 2013. All tranches bear interest at a variable rate based on the 30 day BBSY rate plus a loan margin. (iv) Mascot The loan is secured by a first registered mortgage over the 203 Coward Street, Mascot property. The loan consists of 3 tranches. Tranche 1, $62,400,000, was fully drawn at balance date. Tranche 2, $83,750,000, will provide funding for additional committed capital expenditure. This facility was drawn down to $58,762,000 at balance date (June 2012: $17,840,000). Tranche 3 will provide funding for additional committed capital expenditure and was undrawn at balance date. The loan bears interest at a variable rate based on a margin over the 30 day BBSY rate. (v) HQ North The loan is secured by a first registered mortgage over the HQ North investment property and bears interest at a variable rate based on the 30 day BBSY rate plus a margin. Repayments of $14,194,000 (2012: $nil) were made during the year. 67 Cromwell Property Group | Annual Report 2013(vi) Bundall Corporate Centre The loan is secured by a first registered mortgage over the Bundall Corporate Centre investment property and bears interest at a variable rate based on the 30 day BBSY rate plus a margin. (vii) Cromwell Property Fund CPF became a consolidated entity of the Group during the period (see notes 13 and 37) and as a result the Group and Trust assumed a $112,250,000 loan. The loan is secured by first registered mortgages over the investment properties of CPF (refer note 11) and a registered floating charge over the assets of CPF. The loan bears interest at a variable rate based on a margin over the 30 day BBSY. Repayments of $21,690,000 were made during the year (viii) NSW Portfolio The facility is $200,000,000 and was fully drawn down during June 2013 in order to partly fund the acquisition of the NSW Property Portfolio. The loan bears interest at a variable rate based on a margin over the 30 day BBSY rate. (b) Maturity Profile Maturity profile of the principal amounts of current and non-current borrowings together with estimated interest thereon: Due within one year Due between one and five years Due after five years Group Trust 2013 $’000 60,209 1,312,065 – 1,372,274 2012 $’000 75,610 1,023,554 – 1,099,164 2013 $’000 60,209 1,312,065 – 1,372,274 2012 $’000 75,610 1,023,554 – 1,099,164 (c) Unused Finance Facilities At balance date the Group had unused finance facilities totalling $74,055,000 (2012: $141,064,000). (d) Interest Rate Risk Interest rate derivatives The Group manages its cash flow interest-rate risk by using floating-to-fixed interest rate derivatives. Such interest rate derivatives have the economic effect of converting borrowings from floating rates to fixed rates. Generally, the Group raises long term borrowings at floating rates and a portion of them into fixed or limited range of rates. Information regarding the Group’s exposure to interest rates is provided in note 4. 19. Distributions Payable Distributions payable 31,061 20,470 31,066 20,474 Distributions payable relate to June quarter distributions declared in June and payable in August of each year. 20. Derivative Financial Instruments Current liabilities Interest rate derivatives – at fair value Non-current liabilities Interest rate derivatives – at fair value 17,638 15,127 17,638 15,127 17,638 15,127 17,638 15,127 Details of principal amounts, expiry dates and interest ranges of interest rate derivative (hedging) contracts are set out in note 4(c)(iii). 68 Cromwell Property Group | Annual Report 201321. Provisions Current Employee benefits Property development Provisions Non-Current Employee benefits Make good Provisions Movement in provisions Balance at 1 July Provision reversed Impact of consolidation Balance at 30 June 22. Other Current Liabilities Unearned income Group 2013 $’000 1,215 – 1,215 843 100 943 2012 $’000 1,140 228 1,368 662 100 762 Trust 2013 $’000 2012 $’000 – – – – – – – – – – – – Property Development 2012 2013 $’000 $’000 428 228 (200) – – (228) 228 – Make Good 2013 $’000 100 – – 100 2012 $’000 100 – – 100 Group Trust 2013 $’000 15,468 2012 $’000 6,735 2013 $’000 15,468 2012 $’000 6,735 Unearned income primarily comprises rent paid in advance by tenants. 69 Cromwell Property Group | Annual Report 2013 23. Contributed Equity (a) equity attributable to shareholders/unitholders Contributed equity Group Company CDPT 2013 $’000 1,360,755 2012 $’000 894,058 2013 $’000 103,323 2012 $’000 66,344 2013 $’000 1,257,707 2012 $’000 827,989 Movements in ordinary shares/ordinary units Date Details 1 Jul 11 19 Aug 11 16 Nov 11 16 Nov 11 16 Dec 11 19 Dec 11 20 Dec 11 21 Dec 11 9 Feb 12 15 Feb 12 23 Feb 12 Opening balance Dividend reinvestment plan Dividend reinvestment plan Placement Placement Entitlement offer Entitlement offer Exercise of performance rights Entitlement offer Dividend reinvestment plan Exercise of performance rights Entitlement offer 9 Mar 12 16 May 12 Dividend reinvestment plan Transaction costs 16 Aug 12 20 Sep 12 20 Sep 12 Dividend reinvestment plan Exercise of performance rights Exercise of performance rights CPF acquisition Placement Dividend reinvestment plan Placement Dividend reinvestment plan Security purchase plan 4 Oct 12 8 Oct 12 14 Nov 12 14 Dec 12 13 Feb 13 14 Feb 13 15 May 13 Dividend reinvestment plan Placement 11 Jun 13 Entitlement offer 11 Jun 13 11 Jun 13 Entitlement offer 24 June 13 Entitlement offer Transaction costs Number of Securities 964,737,315 2,108,544 2,058,172 40,591,780 45,588,235 5,846,802 51,470,588 Group Issue Price 68.0¢ 66.0¢ 68.0¢ 68.0¢ 68.0¢ 68.0¢ 659,600 20.0¢ 51,449,138 1,978,895 68.0¢ 70.0¢ 126,859 – 1,470,588 1,602,427 – 1,169,688,943 2,880,765 68.0¢ 71.0¢ – 69.9¢ 170,287 – 123,459 10.0¢ 32,339,260 16,911,765 3,424,554 182,165,605 3,317,803 49,959,701 2,739,314 128,023,212 64,570,891 2,424,768 54,981,129 – 1,713,721,456 75.0¢ 68.0¢ 80.0¢ 78.5¢ 83.5¢ 78.5¢ 101.4¢ 100.0¢ 100.0¢ 100.0¢ 100.0¢ – $’000 758,888 1,424 1,357 27,602 31,000 3,976 35,000 132 34,985 1,381 – 1,000 1,141 (3,828) 894,058 2,013 – 12 24,255 11,500 2,741 143,000 2,771 39,218 2,777 128,023 64,571 2,425 54,981 (11,590) 1,360,755 Company CDPT Issue Price 4.9¢ 4.3¢ 4.5¢ 4.5¢ 4.5¢ 4.5¢ 1.3¢ 5.0¢ 5.2¢ – 5.0¢ 5.3¢ – 5.3¢ – 0.8¢ 5.7¢ 5.1¢ 6.0¢ 5.9¢ 6.3¢ 5.9¢ 8.3¢ 8.2¢ 8.2¢ 8.2¢ 8.2¢ – $’000 57,073 95 89 1,811 2,033 261 2,296 9 2,596 102 – 74 85 (180) 66,344 152 – 1 1,829 867 207 10,782 209 2,957 227 10,446 5,269 198 4,486 (651) 103,323 Issue Price 63.1¢ 61.7¢ 63.5¢ 63.5¢ 63.5¢ 63.5¢ 18.7¢ 63.0¢ 64.8¢ – 63.0¢ 65.7¢ – 64.6¢ – 9.2¢ 69.3¢ 62.9¢ 74.0¢ 72.6¢ 77.2¢ 72.6¢ 93.1¢ 91.8¢ 91.8¢ 91.8¢ 91.8¢ – $’000 702,090 1,329 1,268 25,791 28,967 3,715 32,704 123 32,389 1,279 – 926 1,056 (3,648) 827,989 1,861 – 11 22,426 10,633 2,534 132,218 2,562 36,261 2,550 117,577 59,302 2,227 50,495 (10,939) 1,257,707 The basis of allocation of the issue price of stapled securities issued post stapling is determined by agreement between the Company and the Trust as set out in the Stapling Deed. The Company/CDPT has established a dividend/distribution reinvestment plan under which holders of stapled securities may elect to have all of their dividend/distribution entitlement satisfied by the issue of new ordinary stapled securities rather than being paid in cash. Securities may be issued under the plan at a discount to the market price as determined by the Directors before each dividend/distribution. During 2013 and 2012 all securities were issued at market price, with no discount. 70 Cromwell Property Group | Annual Report 2013 (b) Stapled Securities The ordinary shares of the Company are stapled with the units of the Trust. These entitle the holder to participate in dividends and distributions as declared from time to time and the proceeds on winding up. On a show of hands every holder of stapled securities present at a meeting in person, or by proxy, is entitled to one vote, and upon a poll each stapled security is entitled to one vote. A reconciliation of the stapled number of ordinary shares of the Company and ordinary units of the Trust is as follows: Ordinary shares / ordinary units Unstapled units (held by the Company) 24. Reserves Share based payments Available-for-sale financial assets revaluation reserve Reserves Movements in reserves Share based payments Balance at 1 July Options expensed Balance at 30 June 2013 Company Number 1,713,721,456 – 1,713,721,456 2013 CDPT Number 2012 Company Number 1,713,996,562 1,169,688,943 1,169,964,049 (275,106) 1,713,721,456 1,169,688,943 1,169,688,943 2012 CDPT Number (275,106) – Group Trust 2013 $’000 2,858 2,340 5,198 2,189 669 2,858 2012 $’000 2,189 2,340 4,529 1,588 601 2,189 2013 $’000 – – – – – – 2012 $’000 – – – – – – – – The share based payments reserve is used to recognise the fair value of options issued for employee services. Available-for-sale financial assets revaluation reserve Balance at 1 July Balance at 30 June 2,340 2,340 2,340 2,340 – – Changes in the fair value of investments classified as available-for-sale are taken to the available-for-sale financial assets revaluation reserve. Amounts are recognised in profit or loss when the associated assets are disposed/sold or impaired. For the Group the balance at year end comprises a reserve of a subsidiary attributable to its pre-stapling interest in a trust which continues to be held. For the Group there was no movement in the available-for-sale financial assets revaluation reserve over the last two financial years. 25. Retained Earnings/(Accumulated Losses) Retained Earnings/(Accumulated Losses) (48,697) (51,562) (116,977) (58,589) Movements in retained earnings/(accumulated losses) Balance at 1 July Profit/(loss) for the year Distributions Balance at 30 June (51,562) 2,865 – (48,697) (50,280) (1,282) – (51,562) (58,589) 43,291 (101,679) (116,977) (7,910) 24,359 (75,038) (58,589) 71 Cromwell Property Group | Annual Report 201326. Non-Controlling Interests Non-controlling interests Movements in non-controlling interests Balance at 1 July Units issued by CDPT Profit for the year Distributions paid/payable Balance at 30 June 27. Dividends/Distributions Franking credits Group 2013 $’000 1,141,028 2012 $’000 769,678 Trust 2013 $’000 4,732 769,678 429,718 43,291 (101,659) 1,141,028 694,439 125,899 24,359 (75,019) 769,678 5,320 – (19) (569) 4,732 2012 $’000 5,320 5,463 – 414 (557) 5,320 Franking credits available for subsequent years based on a tax rate of 30% (2012 – 30%) Group 2013 $’000 1,315 2012 $’000 1,410 The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for: • • • franking credits that will arise/(decrease) from the payment/(receipt) of the amount of the provision/(receivable) for income tax; franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; and franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date. Dividends paid/payable by the Company There were no dividends paid or payable by the Company in respect of the 2013 and 2012 financial years. Distributions paid/payable by the Group 2013 Date Paid 14 November 2012 13 February 2013 15 May 2013 15 August 2013 2012 Date Paid 16 November 2011 15 February 2012 16 May 2012 16 August 2012 (1) Cents per stapled security. Distributions paid/payable by the trust 2013 Date Paid 14 November 2012 13 February 2013 15 May 2013 15 August 2013 2012 Date Paid 16 November 2011 15 February 2012 16 May 2012 16 August 2012 (1) Cents per unit. 2013 Cents (1) 1.8125¢ 1.8125¢ 1.8125¢ 1.8125¢ 7.2500¢ 2013 Cents (1) 1.8125¢ 1.8125¢ 1.8125¢ 1.8125¢ 7.2500¢ 2012 Cents (1) 1.7500¢ 1.7500¢ 1.7500¢ 1.7500¢ 7.0000¢ 2012 Cents (1) 1.7500¢ 1.7500¢ 1.7500¢ 1.7500¢ 7.0000¢ 2013 $’000 21,243 22,874 26,481 31,061 101,659 2013 $’000 21,248 22,879 26,486 31,066 101,679 2012 $’000 16,920 17,602 20,027 20,470 75,019 2012 $’000 16,925 17,607 20,032 20,474 75,038 All distributions from the Group and Trust are unfranked. The determination of the Trust’s distributable income excludes unrealised gains/(losses) including fair value adjustments to investment properties and interest rate derivatives. 72 Cromwell Property Group | Annual Report 2013 28. Earnings/(loss) per Share Earnings/(loss) per share/unit Basic earnings/(loss) per share/unit Diluted earnings/(loss) per share/unit Earnings used to calculate basic and diluted earnings/(loss) per share/unit: Profit for the year Profit/(loss) attributable to non-controlling interests Profit/(loss) attributable to ordinary equity holders of the company/trust used in calculating basic/diluted earnings/(loss) per share/unit Weighted average number of ordinary shares/units used in calculating basic earnings/(loss) per share/unit Effect of dilutive securities: – Director and employee performance rights Weighted average number of ordinary shares/units and potential ordinary shares/units used in calculating diluted earnings/(loss) per share/unit Group Trust 2013 0.21¢ 0.21¢ 2012 (0.12¢) (0.12¢) 2013 3.23¢ 3.23¢ 2012 2.28¢ 2.28¢ $’000 $’000 $’000 $’000 46,156 43,291 23,077 24,359 43,272 (19) 24,773 414 2,865 (1,282) 43,291 24,359 Number of Shares Number of Shares Number of Shares Number of Shares 1,341,491,052 1,069,526,714 1,341,766,158 1,069,801,820 4,481,124 3,467,267 4,481,124 3,467,267 1,345,972,176 1,072,993,981 1,346,247,284 1,073,269,087 Performance rights granted under the Performance Rights Plan are considered to be potential ordinary shares/units and have been included in the determination of diluted earnings/(loss) per share/unit to the extent to which they are dilutive. The performance rights have not been included in the determination of basic earnings/(loss) per share/unit. Details relating to the performance rights are set out in Note 31. 73 Cromwell Property Group | Annual Report 2013Earnings/(loss) per stapled security Basic earnings/(loss) per stapled security Diluted earnings/(loss) per stapled security Earnings used to calculate basic and diluted earnings/(loss) per stapled security: Loss for the year attributable to company shareholders Profit for the year attributable to trust unitholders Profit attributable to stapled security holders of the Group used in calculating basic/diluted earnings/(loss) per stapled security Weighted average number of stapled securities used in calculating basic earnings/(loss) per stapled security Effect of dilutive securities: – Director and employee performance rights Weighted average number of ordinary stapled securities and potential ordinary stapled securities used in calculating diluted earnings/(loss) per stapled security Group 2013 3.44¢ 3.44¢ 2012 2.16¢ 2.16¢ $’000 $’000 2,865 43,291 46,156 (1,282) 24,359 23,077 Number of Securities Number of Securities 1,341,491,052 1,069,526,714 4,481,124 3,467,267 1,345,972,176 1,072,993,981 Performance rights granted under the Performance Rights Plan are considered to be potential ordinary stapled securities and have been included in the determination of diluted earnings/(loss) per stapled security to the extent to which they are dilutive. The performance rights have not been included in the determination of basic earnings/(loss) per stapled security. Details relating to the performance rights are set out in Note 31. 74 Cromwell Property Group | Annual Report 201329. Cash flow Information (a) Reconciliation of profit/(loss) to net cash provided by operating activities Net profit Amortisation and depreciation Amortisation of loan transaction costs Amortisation of lease costs and incentives Share of (profits)/losses of associates (net of distributions) (Gain)/loss on sale of investment properties Share based payments Fair value net (gain)/loss from: Investment properties Interest rate derivatives Investments at fair value through profit or loss (Increase)/decrease to recoverable amount: Property development inventories/provisions Straight-line rentals Loss on disposal of property, plant and equipment and intangibles Business combination transaction costs Changes in operating assets and liabilities: (Increase)/decrease: Trade and other receivables Prepayments Tax assets Increase/(decrease): Trade payables and accruals Provisions (employee benefits/restoration) Unearned revenue Net cash provided by operating activities (b) Finance facilities Refer to note 18 for details of unused finance facilities. Group Trust 2013 $’000 46,156 643 2,581 9,526 (646) (132) 669 55,747 (7,326) (47) – (6,071) 146 631 (2,774) (349) 499 (1,264) 28 7,518 105,535 2012 $’000 23,077 604 2,560 7,705 740 331 601 12,353 38,483 173 (200) (6,892) 44 – 1,199 (354) 187 2,680 500 (350) 83,441 2013 $’000 43,272 – 2,581 9,526 (593) (132) – 55,747 (7,326) (47) – (6,071) – 631 (3,251) (410) – (2,914) (225) 7,518 98,306 2012 $’000 24,773 – 2,833 7,705 731 331 – 12,353 38,483 173 – (6,892) – – 1,579 (258) – 1,592 – (350) 83,053 (c) Cash held as part of minimum net tangible assets At balance date cash held by controlled entities of the Company of $9,548,000 (2012: $2,553,000) was utilised to meet minimum net tangible asset requirements under their Australian Financial Services Licence (AFSL). As such, the cash is effectively restricted in its use as it cannot readily be used to meet expenses and obligations of other Group entities without consideration of the AFSL requirements. (d) Non cash items Shares/units issued on reinvestment of distributions Shares/units issued on acquisition of CPF 10,302 24,255 5,303 – 9,508 24,255 4,932 – 75 Cromwell Property Group | Annual Report 201330. Key Management Personnel Disclosures (a) Key management personnel compensation Group and Trust Short-term employee benefits Post-employment benefits Other long-term benefits Share-based payments 2013 $ 4,643,841 173,800 73,891 514,104 5,405,636 2012 $ 4,149,034 171,494 84,431 457,585 4,862,544 (b) equity instrument disclosures relating to key management personnel Performance rights (i) The numbers of performance rights over ordinary shares in the Company (and units in the CDPT through the stapling arrangement) held during the financial year by each director of the Company and other key management personnel of the Group, including their personally related parties, are set out below. Name Balance at 1 July Granted during the year as compensation Exercised during the year Lapsed during the year Balance at 30 June Vested Balance at 30 June Not Vested – – – – – – – – 2013 Non-executive Directors: GH Levy RJ Pullar MA McKellar DE Usasz WR Foster M Wainer MJ Watters G Cannings Executive Directors: PL Weightman DJ Wilson Other key management personnel of the Group: NE Riethmuller DA Gippel JA Clarke MJ Blake B Binning PJ Cowling 176,310 236,248 – 232,826 107,386 171,165 6,663,935 4,000,000 1,740,000 – – – – – – – – – – – – – – – – – – – – 50,006 41,672 – 120,584 180,876 125,015 518,153 (123,459) – – – – – (123,459) – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 4,000,000 1,740,000 102,857 277,920 – 353,410 288,262 296,180 7,058,629 76 Cromwell Property Group | Annual Report 2013 Name Balance at 1 July Granted during the year as compensation Exercised during the year Lapsed during the year Balance at 30 June Vested Balance at 30 June Not Vested – – – – – – – – – 2012 Non–executive Directors: GH Levy RJ Pullar MA McKellar DE Usasz WR Foster M Wainer M Flax (1) MJ Watters G Cannings (2) Executive Directors: PL Weightman DJ Wilson Other key management personnel of the Group: NE Riethmuller PW Howard (3) DA Gippel JA Clark MJ Blake B Binning PJ Cowling 123,459 96,324 659,600 – 95,894 126,859 – 6,842,136 4,000,000 1,740,000 (1) M Flax ceased to be a KMP on 1 August 2011 (2) G Cannings became a KMP on 1 August 2011 (3) PW Howard ceased to be a KMP on 26 October 2011 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 52,851 – 236,248 – 136,932 107,386 171,165 704,582 – – (659,600) – – (126,859) – (786,459) – (96,324) – – – – – (96,324) – – – – – – – – – – – – – – – – – – – – – – – – – – – – 4,000,000 1,740,000 176,310 – 236,248 – 232,826 107,386 171,165 6,663,935 77 Cromwell Property Group | Annual Report 2013Share holdings/unit holdings (ii) The numbers of shares in the Company and units in the CDPT held during the financial year by each director of Cromwell Corporation Limited and other key management personnel of the Group, including their personally related parties, are set out below. Name 2013 Non-executive Directors: GH Levy RJ Pullar MA McKellar DE Usasz WR Foster M Wainer (1) M Watters (2) G Cannings Executive Directors: PL Weightman DJ Wilson Other key management personnel of the Group: NE Riethmuller DA Gippel JA Clarke MJ Blake B Binning PJ Cowling Balance at 1 July On exercise of options Net purchases (sales) Balance at 30 June 2,576,846 14,000,000 454,500 2,320,000 4,061,765 – – 58,000 15,921,167 1,972,200 – – 1,206,864 71,032 1,775,612 141,881 46,235,668 – – – – – – – – – – 200,784 (7,500,000) 60,146 85,000 (250,000) – – 22,000 2,777,630 6,500,000 514,646 2,405,000 3,811,765 – – 80,000 – (350,000) 15,921,167 1,622,200 – 123,459 – – – – 123,459 – – – – (71,514) 12,791 – 123,459 1,206,864 71,032 1,704,098 154,672 (7,790,793) 38,568,334 (1) M Wainer is a director of Redefine International Plc which indirectly owns Redefine Australia Investments Limited, which at 30 June 2013 owned 235,536,192 (2012: 270,580,778) stapled securities in the Group. M Wainer is also CEO and a director of Redefine Properties Limited which at 30 June 2013 owned 212,336,234 (2012: 45,588,235) stapled securities in the Group. (2) M Watters is a director of Redefine International Plc which indirectly owns Redefine Australia Investments Limited, which owns 235,535,192 (2012: 270,580,778) stapled securities in the Group. No shares or units were received by the above persons as compensation during the 2013 year. 78 Cromwell Property Group | Annual Report 2013Name Balance at 1 July On exercise of options 2012 Non-executive Directors: GH Levy RJ Pullar MA McKellar DE Usasz WR Foster M Wainer M Flax (1) MJ Watters (2) G Cannings Executive Directors: PL Weightman DJ Wilson Other key management personnel of the Group: NE Riethmuller PW Howard (3) DA Gippel JA Clarke MJ Blake B Binning PJ Cowling 1,119,430 14,000,000 363,000 2,225,000 5,261,765 – 416,666 – 58,000 15,921,167 1,970,775 – – 547,264 71,032 1,775,612 10,760 1,675,801 45,358,272 – – – – – – – – – – – 123,459 – 659,600 – – 126,859 – 786,459 Net purchases (sales) 1,457,416 – 91,500 95,000 (1,200,000) – – – 58,000 – 1,425 – – – – – 4,262 – 507,603 Ceased to be KMP Balance at 30 June – – – – – – (416,666) – – 2,576,846 14,000,000 454,500 2,320,000 4,061,765 – – – 58,000 – – 15,921,167 1,972,200 – – – – – – – (416,666) – – 1,206,864 71,032 1,775,612 141,881 1,675,801 46,235,668 (1) M Flax resigned as an alternate director and ceased to be a KMP on 1 August 2011. (2) G Cannings became an alternate director for M Watters and a KMP on 1 August 2011. (3) PW Howard resigned and ceased to be a KMP on 26 October 2011. No shares or units were received by the above persons as compensation during the 2012 year. At balance date the numbers above represent the number of stapled securities of the Group held by the Directors and other key management personnel. (c) Loans to key management personnel No loans were made during the 2013 or 2012 years to key management personnel and no loans were outstanding at the reporting date. (d) other transactions with key management personnel The Group rents an apartment, located at 185 Macquarie Street, Sydney, which is owned by Mr. Paul Weightman, a director of the Company. Total rent paid during 2013 was $88,400 (2012: $88,400). The payment of rent is on normal commercial terms and conditions and at market rates. 31. Share Based Payments (a) Performance Rights Plan A Performance Rights Plan (PRP) was established in September 2007 by the Company. All full-time and part-time employees who meet minimum service, remuneration and performance requirements, including executive Directors of the Company, are eligible to participate in the PRP at the discretion of the Board. Participation in the PRP by executive Directors is subject to securityholder approval. The PRP is designed to provide long-term incentives for employees to continue employment and deliver long-term securityholder returns. Under the PRP, eligible employees are allocated performance rights. Each performance right enables the participant to acquire a stapled security in the Group, at a future date and exercise price, subject to conditions. The number of performance rights allocated to each participant is set by the Board or the Nomination & Remuneration Committee and based on individual circumstances and performance. 79 Cromwell Property Group | Annual Report 2013The amount of performance rights that will vest under the PRP depends on a combination of factors which may include the Group’s total securityholder returns (including price growth, dividends and capital returns), internal performance measures and the participant’s continued employment. Performance rights allocated under the PRP generally vest in 3 years. Until performance rights have vested, the participant cannot sell or otherwise deal with the performance rights except in certain limited circumstances. It is a condition of the PRP that a participant must remain employed by the Group in order for performance rights to vest. Any performance rights which have not yet vested on a participant leaving employment must be forfeited. Under AASB 2 “Share based Payment”, the performance rights are treated as options for accounting purposes. Set out below are summaries of the number of performance rights granted and exercised. Grant Date Expiry Date Exercise price Balance at start of the year Granted during the year Forfeited during the year Exercised during the year Balance at year end 2013 23/08/2010 23/08/2010 23/08/2010 23/08/2010 23/08/2010 07/03/2011 26/05/2011 26/05/2011 26/05/2011 05/09/2011 05/09/2011 05/09/2011 24/08/2012 24/08/2012 12/10/2012 12/10/2012 19/10/2012 19/10/2012 19/10/2012 19/10/2012 19/10/2012 19/10/2012 21/09/2012 21/09/2012 21/09/2013 21/09/2013 21/09/2013 01/08/2013 01/10/2013 01/10/2014 01/10/2015 05/10/2014 05/10/2014 05/10/2014 24/09/2015 24/09/2015 12/11/2015 12/11/2015 01/08/2013 01/08/2014 01/08/2015 01/08/2013 01/08/2014 01/08/2015 Weighted average exercise price 2012 16/12/2009 08/02/2010 23/08/2010 23/08/2010 23/08/2010 23/08/2010 23/08/2010 07/03/2011 26/05/2011 26/05/2011 26/05/2011 05/09/2011 05/09/2011 05/09/2011 15/01/2012 07/03/2012 21/09/2012 21/09/2012 21/09/2013 21/09/2013 21/09/2013 01/08/2013 01/10/2013 01/10/2014 01/10/2015 05/10/2014 05/10/2014 05/10/2014 Weighted average exercise price $0.00 $0.10 $0.00 $0.10 $0.20 $0.00 $0.50 $0.50 $0.50 $0.20 $0.00 $0.10 $0.00 $0.20 $0.00 $0.20 $0.00 $0.00 $0.00 $0.20 $0.20 $0.20 $0.20 $0.00 $0.00 $0.10 $0.00 $0.10 $0.20 $0.00 $0.50 $0.50 $0.50 $0.20 $0.00 $0.10 170,287 123,459 101,378 47,433 95,894 97,633 1,913,333 1,913,333 1,913,334 393,679 590,622 52,851 – – – – – – – – – – 7,413,236 $0.40 659,600 126,859 170,287 123,459 101,378 47,433 192,218 97,633 1,913,333 1,913,333 1,913,334 – – – 7,258,867 $0.42 – – – – – – – – – – – – 81,581 82,142 150,018 229,110 55,561 55,563 55,563 60,292 60,292 60,292 890,414 $0.11 – – – – – – – – – – – 393,679 590,622 52,851 1,037,152 $0.08 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – (96,324) – – – – – – – (96,324) $0.20 (170,287) (123,459) – – – – – – – – – – – – – – – – – – – – (293,746) $0.04 (659,600) (126,859) – – – – – – – – – – – – (786,459) $0.17 – – 101,378 47,433 95,894 97,633 1,913,333 1,913,333 1,913,334 393,679 590,622 52,851 81,581 82,142 150,018 229,110 55,561 55,563 55,563 60,292 60,292 60,292 8,009,904 $0.38 – – 170,287 123,459 101,378 47,433 95,894 97,633 1,913,333 1,913,333 1,913,334 393,679 590,622 52,851 7,413,236 $0.40 At balance date nil Performance Rights (2012: nil) were vested and exercisable. The weighted average remaining contractual life of performance rights outstanding at the end of the year was 1.3 years (2012: 2.1 years). 80 Cromwell Property Group | Annual Report 2013 The assessed fair value of performance rights granted is as follows: Grant Date 23/08/2010 23/08/2010 23/08/2010 23/08/2010 23/08/2010 07/03/2011 26/05/2011 26/05/2011 26/05/2011 05/09/2011 05/09/2011 05/09/2011 24/08/2012 24/08/2012 12/10/2012 12/10/2012 19/10/2012 19/10/2012 19/10/2012 19/10/2012 19/10/2012 19/10/2012 Expiry Date 21/09/2012 21/09/2012 21/09/2013 21/09/2013 21/09/2013 01/08/2013 01/10/2013 01/10/2014 01/10/2015 05/10/2014 05/10/2014 05/10/2014 24/09/2015 24/09/2015 12/11/2015 12/11/2015 01/08/2013 01/08/2014 01/08/2015 01/08/2013 01/08/2014 01/08/2015 Exercise price Non-market based Market based Fair value (cents) $0.00 $0.10 $0.00 $0.10 $0.20 $0.00 $0.50 $0.50 $0.50 $0.00 $0.10 $0.20 $0.00 $0.20 $0.00 $0.20 $0.00 $0.00 $0.00 $0.20 $0.20 $0.20 59.8¢ 50.6¢ 54.2¢ 45.5¢ 37.0¢ 61.5¢ 13.9¢ 12.6¢ 11.5¢ 50.0¢ 41.1¢ 32.3¢ 55.3¢ 36.5¢ 60.0¢ 41.5¢ 77.6¢ 71.1¢ 65.1¢ 57.9¢ 51.9¢ 46.4¢ – – – – – – – – – – – – – – – – – – – – – – Fair Value of Performance Rights Granted Performance rights do not have any market-based vesting conditions. The fair values at grant date for performance rights determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the security price at grant date and expected price volatility of the underlying security, the expected dividend/distribution yield and the risk-free interest rate for the term of the option. The model inputs for performance rights granted during the year ended 30 June 2013 included: Exercise price Grant date Share price at grant date Expected price volatility Expected dividend yield Risk free interest rate Expiry date $0.00 $0.20 $0.00 $0.00 $0.00 $0.20 $0.20 24/08/12 24/08/12 12/10/12 12/10/12 19/10/12 19/10/12 19/10/12 19/10/12 19/10/12 19/10/12 $0.79 17% 9.18% 2.55% 24/09/15 24/09/15 12/11/15 12/11/15 01/08/13 01/08/14 01/08/15 01/08/13 01/08/14 01/08/15 $0.79 17% 9.18% 2.55% $0.79 17% 9.18% 2.55% $0.79 17% 9.18% 2.55% $0.79 17% 9.18% 2.55% $0.79 17% 9.18% 2.55% $0.79 17% 9.18% 2.55% $0.79 17% 9.18% 2.55% $0.74 19% 9.8% 2.35% $0.74 19% 9.8% 2.35% $0.00 $0.20 $0.20 The expected price volatility is based on the historic volatility (based on the remaining life of the options), adjusted for any expected changes to future volatility due to publicly available information. 81 Cromwell Property Group | Annual Report 2013 The model inputs for Performance Rights granted during the year ended 30 June 2012 included: Exercise price Grant date Share price at grant date Expected price volatility Expected dividend yield Risk free interest rate Expiry date $0.00 05/09/11 $0.69 27% 10.22% 3.82% 05/10/14 $0.10 05/09/11 $0.69 27% 10.22% 3.82% 05/10/14 $0.20 05/09/11 $0.69 27% 10.22% 3.82% 05/10/14 The expected price volatility is based on the historic volatility (based on the remaining life of the options), adjusted for any expected changes to future volatility due to publicly available information. (b) tax exempt Plan The Tax Exempt Plan enables eligible employees to acquire up to $1,000 of stapled securities on-market in a tax effective manner within a 12 month period. Eligibility for the Tax Exempt Plan is approved by the Board having regard to individual circumstances and performance. No Directors or KMP are eligible for the Tax Exempt Plan. Expenses relating to the plan are recorded in employee benefits expense and all securities are purchased on-market. (c) expenses arising from share based payment transactions Total expenses arising from share based transactions recognised during the year as part of employee benefits expense were as follows: Performance rights issued under PRP Expenses arising from share based payments Group Trust 2013 $’000 669 669 2012 $’000 601 601 2013 $’000 – – 2012 $’000 – – 82 Cromwell Property Group | Annual Report 2013 32. Other Related Party Transactions (a) Parent entity and subsidiaries Cromwell Corporation Limited is the ultimate parent entity in the Group. Cromwell Diversified Property Trust is the ultimate parent entity in the Trust. Details of subsidiaries for both parent entities are set out in Note 34. (b) transactions with associates Transactions between the Group and its associates included: • Loans between the Group and its associates (refer note 8). The Group received interest of $361,895 (2012: $1,622,879) from Cromwell Property Fund; • The Group received $nil (2012: $600,401) in distributions from its jointly controlled entity and associate during the year (refer note 13); • The Group charged Cromwell Property Fund $339,563 (2012: $1,184,581) acquisition, registry services, accounting services, property, facility management and project management fees and leasing commissions during the year; • The Group charged its associates $nil (2012: $241,150) management fees during the year; and • During the year the Group and Trust acquired the remaining units they did not already own of Cromwell Property Fund (refer notes 13 and 37). (c) transactions with managed investment schemes (managed by the consolidated entity) Cromwell Funds Management Limited (“CFM”) acts as responsible entity for a number of managed investment schemes. The Group derives a range of benefits from schemes managed by CFM including management and acquisition fees. Transactions between the Group and schemes managed by CFM also included: • • • During the 2012 year the Group provided Cromwell Ipswich City Heart Trust (“ICH”), a scheme for which CFM acts as responsible entity, with a loan facility (refer note 8). The loan was fully repaid in September 2012. The group earned $178,440 in interest from ICH under the loan facility during the year (2012: $622,959); During the 2013 year the Group acquired 3,890,122 units in ICH at $1 each and sold 325,000 units in ICH at $1 each. The Group received $164,606 in distributions; On 5 December 2012 the Cromwell Box Hill Trust ARSN 161 394 243 (“BHT”) an unlisted single property trust, for which CFM acts as responsible entity, settled the acquisition of land at 913 Whitehorse Road, Box Hill, Victoria upon which a commercial building is to be constructed to house a long term tenant. CFM issued a PDS on 18 December 2012 to raise $66,500,000 from investors for BHT. The Group has provided a loan facility of $25,000,000 to BHT, which is unsecured, to enable settlement of the land and funding of initial construction. During the year the facility was drawn to $19,606,000 and this amount had been fully repaid by balance date. While the loan was drawn down the Group earned a return equivalent to the BHT distribution rate of 7.75%. The Group earned $383,115 in interest from BHT under the loan facility during the year; • During the 2013 year the Group acquired 14,505 units in BHT at $1 each and received $1,780 in distributions; and, • During the 2013 year the Group acquired 3,436,334 units in the Cromwell Riverpark Trust (“CRT”) at $1.04 each and received distributions of $25,362. 83 Cromwell Property Group | Annual Report 2013(d) transactions between the trust and Cromwell Corporation Limited and its subsidiaries (including the Responsible entity) Amounts paid/payable (i) Expense Funds management fees Property management fees Accounting fees Investment properties Project management fees Leasing commissions Distributions (1) Amounts received/receivable (ii) Revenue Interest income Rental income and recoverable outgoings Aggregate amount payable to responsible entity and associates at balance date (included in trade and other payables) Aggregate amount receivable from the responsible entity and associates at balance date (included in trade and other receivables) (1) Distributions paid/payable mostly relate to the Responsible Entity’s 8% holding in Cromwell Mary Street Planned Investment. Trust 2013 $ 2012 $ 9,963,069 5,739,700 385,785 855,872 1,649,860 588,555 8,496,578 4,373,277 280,980 369,864 1,592,943 576,835 62,804 4,545,063 460,910 4,249,096 1,196,529 540,371 1,207 3,203,132 The Responsible Entity holds 1,517,000 (2012: 1,517,000) units in a subsidiary of CDPT, Cromwell Mary Street Planned Investment. Loan to the Company (iii) During the year the Trust received repayments of $3,188,000 (2012: $7,000,000) from the Company. The loan was unsecured, repayable on 1 July 2014 and earned interest at variable rates being the 30 day BBSW rate plus a margin of 2.20% (2012: 2.20%). 84 Cromwell Property Group | Annual Report 201333. Parent Entity Disclosures As at and throughout the financial year ending 30 June 2013 the parent entity of the Group was Cromwell Corporation Limited and the parent entity of the Trust was Cromwell Diversified Property Trust. (a) Summary financial information The individual financial statements for the parent entities show the following aggregations. Results Profit/(loss) for the year Total comprehensive income/(loss) Financial position Current assets Total assets Current liabilities Total liabilities Net Assets Total equity Contributed equity Share based payments reserve Retained earnings/(accumulated losses) Total equity Cromwell Corporation Limited Cromwell Diversified Property Trust 2013 $’000 2012 $’000 2013 $’000 2012 $’000 572 572 47,857 52,458 325 325 52,133 (68) (68) 14,686 32,022 14,686 32,022 12,495 17,160 59 3,247 13,913 65,144 1,704,894 61,898 1,400,803 57,349 658,848 1,046,046 68,979 697,482 703,321 103,323 2,858 (54,048) 52,133 66,344 2,189 (54,620) 13,913 1,257,707 - (211,661) 1,046,046 827,989 - (124,668) 703,321 (b) Commitments for capital expenditure As at balance date, Cromwell Corporation Limited had no commitments (2012: no commitments) in relation to capital expenditure contracted for but not recognised as liabilities. As at balance date, Cromwell Diversified Property Trust had commitments of $40,437,000 (2012: $116,712,000) in relation to capital expenditure contracted for but not recognised as liabilities. (c) Guarantees provided During the years ended 2013 and 2012 neither parent had provided any guarantees to entities it controlled. (d) Contingent liabilities Neither parent entity had contingent liabilities at year end (2012: $nil). 85 Cromwell Property Group | Annual Report 201334. Investments in Controlled Entities The Company’s and CDPT’s investment in controlled entities are shown below, all of which are domiciled in Australia. Equity Holding Name Cromwell Property Securities Limited Cromwell Property Services Pty Ltd Marcoola Developments Pty Ltd Votraint No. 662 Pty Ltd Cromwell Capital Limited Cromwell Finance Limited Cromwell Operations Pty Ltd Cromwell Paclib Nominees Pty Ltd Cromwell Funds Management Limited Cromwell Seven Hills Pty Ltd Cromwell Holding Trust No 1 Pty Ltd Cromwell Holding Trust No 2 Pty Ltd Cromwell Altona Trust Cromwell Real Estate Partners Pty Ltd Cromwell Project & Technical Solutions Pty Ltd Trust and its controlled entities (1) Name Cromwell CMBS Pty Ltd Cromwell Loan Note Pty Ltd Cromwell Holding Trust No 1 Cromwell Holding Trust No 2 Cromwell Holding Trust No 4 Terrace Office Park Property Trust/Planned Investment Cromwell Mary Street Property Trust/Planned Investment (2) Cromwell Northbourne Planned Investment Tuggeranong Head Trust/Tuggeranong Trust CDPT Finance Pty Ltd CDPT Finance 2 Pty Ltd EXM Head Trust/EXM Trust Mascot Head Trust/ Mascot Trust Cromwell Phoenix Opportunities Fund Cromwell Property Fund Trust No 2 Cromwell Property Fund Trust No 3 Cromwell Diversified Property Trust No 2 Cromwell Diversified Property Trust No 3 Cromwell TGA Planned Investment Cromwell HQ North Head Trust/ Cromwell HQ North Trust Cromwell Bundall Corporate Centre Head Trust/Cromwell Bundall Corporate Centre Trust Cromwell Property Fund CPF Loan Note Issuer Pty Ltd Cromwell Accumulation Fund Cromwell CPF No. 1 Fund Cromwell Health and Forestry House Trust Cromwell NSW Portfolio Trust Cromwell Bligh House Trust Cromwell Newcastle Trust Cromwell Queanbeyan Trust Cromwell Symantec Trust Cromwell Wollongong Trust Cromwell McKell House Trust Cromwell Penrith Trust 2013 % 100 100 100 100 100 100 100 50 100 100 100 100 100 100 100 100 100 100 100 100 100 92 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 2012 % 100 100 100 100 100 100 100 50 100 100 100 100 100 100 100 100 100 100 100 100 100 92 100 100 100 100 100 100 100 100 100 100 100 100 100 100 – – – – – – – – – – – – – (1) The Trust and its controlled entities listed above are consolidated as part of the Group as required under accounting standards (refer note 1(b)). (2) The remaining 8% interest in Cromwell Mary Street Property Trust/Planned investment is held by Cromwell Property Securities Limited. 86 Cromwell Property Group | Annual Report 2013 35. Segment Information (a) Description of segments Reportable Group segments The Group has identified its operating segments based on its internal reports which are regularly reviewed and used by the chief executive officer in order to make decisions about resource allocation and to assess the performance of the Group. The chief operating decision maker has been identified as the chief executive officer. The segments offer different products and services and are managed separately. Property Investment The ownership of properties located throughout Australia. Funds Management The establishment and management of external funds and the Trust, including property management. Property Development Property development, including development management, development finance and joint venture activities. Trust The Trust has one reportable segment. It holds properties in Australia. Revenue is derived from rentals and associated recoverable outgoings. The Trust’s properties are leased on a commercial basis incorporating varying lease terms and conditions. These include the lease period, renewal options, periodic rent and, where applicable, indexation based on CPI, fixed and/or market reviews. (b) other segment information Accounting policies (i) Segment information is prepared in conformity with the accounting policies of the Group as disclosed in note 1 and Accounting Standard AASB 8 Operating Segments. Segment revenues, expenses, assets and liabilities are those that are directly attributable to a segment and the relevant portion that can be allocated to the segment on a reasonable basis. Segment assets include all assets used by a segment and consist primarily of operating cash, receivables, inventories, investment properties, plant and equipment and other intangible assets, net of related provisions. While most of these assets can be directly attributable to individual segments, the carrying amounts of certain assets used jointly by segments are allocated based on reasonable estimates of usage. Segment liabilities consist primarily of trade and other payables, employee benefits and provisions. Inter-segment transactions (ii) Segment revenues, expenses and results include transfers between segments. Such transfers are priced on an “arms- length” basis and are eliminated on consolidation. Equity-accounted investments (iii) The Group had investments in two Australian associates (Cromwell Property Fund until its full acquisition on 4 October 2012 – see notes 13 and 37, and Phoenix Portfolios Pty Ltd for the full year). Cromwell Property Fund was accounted for up to the date of its acquisition using the equity method and included in the property investment segment. Phoenix Portfolios Pty Ltd is accounted for using the equity method and included in the funds management segment. (iv) Major customers Revenue of approximately $41,316,000 (2012: $54,115,000) is derived from a single external customer (Commonwealth of Australia) and is part of the property investment segment. 87 Cromwell Property Group | Annual Report 2013(c) operating segments 2013 Segment results Segment revenue and other income Sales - external customers Sales - intersegmental Profit of equity accounted entity (before adjustments) Distributions Interest Other income Total segment revenue and other income Segment expenses Property expenses and outgoings Funds management costs Property development costs Finance costs Intersegmental costs Employee benefits expense Administration and overhead costs Total segment expenses Income tax expense/(benefit) Segment profit/(loss) (1) Reconciliation to reported profit/(loss) Loss on sale of investment properties Loss on sale of other assets Fair value adjustments/write downs: Investment properties Interest rate derivatives Investments at fair value through profit and loss Equity accounted investments Other property investment income/(expense): Straight-line lease income Lease incentive and lease cost amortisation Other expenses: Amortisation of finance costs Employee options expense Amortisation and depreciation Net tax losses utilised Business combination transaction costs Total adjustments Profit/(loss) Segment assets and liabilities Total assets Total liabilities Other segment information Investments in associates Acquisitions of non-current segment assets Investment properties Investments at fair value through profit or loss Property, plant and equipment Intangibles Property Investment Funds Management Property Development Consolidated $’000 $’000 $’000 $’000 208,635 953 111 222 4,483 193 214,597 32,521 – – 67,715 16,089 – 1,100 117,425 – 97,172 132 – (55,747) 7,326 47 481 6,071 (9,526) (2,581) – – – (631) (54,428) 42,744 2,479,785 1,341,785 – 743,966 7,720 – – 751,686 9,797 16,089 54 – 779 225 26,944 – 592 – – 797 14,189 5,298 20,876 314 5,754 – (146) – – – – – – – (669) (643) (369) – (1,827) 3,927 63,316 3,426 100 – – 304 863 1,167 – – – – – – – – – 359 – 156 – – 515 – (515) – – – – – – – – – – – – – – (515) 3,009 47 – – – – – – 218,432 17,042 165 222 5,262 418 241,541 32,521 592 359 67,715 17,042 14,189 6,398 138,816 314 102,411 132 (146) (55,747) 7,326 47 481 6,071 (9,526) (2,581) (669) (643) (369) (631) (56,255) 46,156 2,546,110 1,345,258 100 743,966 7,720 304 863 752,853 (1) Segment profit/(loss) is based on income and expenses excluding adjustments for unrealised fair value adjustments and write downs, gains or losses on sale of investments, non-cash income and expenses. 88 Cromwell Property Group | Annual Report 20132012 Segment results Segment revenue and other income Sales – external customers Sales – intersegmental Profit of equity accounted entities (before adjustments) Distributions Interest Other income Total segment revenue and other income Segment expenses Property expenses and outgoings Funds management costs Property development costs Finance costs Intersegmental costs Employee benefits expense Loss of equity accounted entity (before adjustments) Administration and overhead costs Total segment expenses Income tax expense/(benefit) Segment profit/(loss) (1) Reconciliation to reported profit/(loss) Loss on sale of investment properties Loss on sale of other assets Fair value adjustments/write downs: Investment properties Interest rate derivatives Investments at fair value through profit and loss Property development inventories/provision Equity accounted investments Other property investment income/(expense): Straight-line lease income Lease incentive and lease cost amortisation Other expenses: Amortisation of finance costs Employee options expense Amortisation and depreciation Net tax losses utilised Total adjustments Profit/(loss) Segment assets and liabilities Total assets Total liabilities Other segment information Investments in associates Acquisitions of non-current segment assets Investment properties Investments at fair value through profit or loss Property, plant and equipment Intangibles Property Investment Funds Management Property Development Consolidated $’000 $’000 $’000 $’000 176,686 772 863 37 3,991 18 182,367 25,715 – – 61,963 13,151 – – 1,113 101,942 – 80,425 (331) – (12,353) (38,483) (173) – (993) 6,892 (7,705) (2,560) – – – (55,706) 24,719 4,567 13,151 – – 722 122 18,562 – 487 – – 772 12,746 9 4,383 18,397 (58) 223 – (44) – – – – – – – – (601) (604) (178) (1,427) (1,204) – – – – – – – – – 638 – – – – – 638 – (638) – – – – – 200 – – – – – – – 200 (438) 181,253 13,923 863 37 4,713 140 200,929 25,715 487 638 61,963 13,923 12,746 9 5,496 120,977 (58) 80,010 (331) (44) (12,353) (38,483) (173) 200 (993) 6,892 (7,705) (2,560) (601) (604) (178) 56,933 23,077 1,816,591 1,045,322 18,006 3,042 3,004 249 1,837,601 1,048,613 4,705 316,235 266 – – 316,501 47 – – 464 408 872 – – – – – – 4,752 316,235 266 464 408 317,373 (1) Segment profit/(loss) is based on income and expenses excluding adjustments for unrealised fair value adjustments and write downs, gains or losses on sale of investments, non-cash income and expenses. 89 Cromwell Property Group | Annual Report 2013Segment revenue and other income reconciles to total revenue and other income as follows: Total segment revenue and other income Reconciliation to reported revenue and other income Straight-line lease income Lease incentive amortisation Gain on sale of investment property Fair value net gain from interest rate derivatives Fair value net gain from investments at fair value through profit or loss Increase in recoverable amount of loans receivable Share of operating profit of equity accounted entities Intersegmental sales Total revenue and other income 36. Commitments for Expenditure 2013 $’000 2012 $’000 241,541 200,929 6,071 (8,042) 132 7,326 47 – 482 (17,042) 230,515 6,892 (6,332) – – – 200 (863) (13,923) 186,903 Group 2013 $’000 2012 $’000 Trust 2013 $’000 2012 $’000 (a) operating leases Commitments for minimum lease payments in relation to non-cancellable operating leases in existence at the reporting date but not recognised as liabilities are payable as follows: Within one year Later than one year but not later than five years 548 1,032 1,580 410 1,172 1,582 – – – – – – Operating leases primarily comprise the lease of the Group’s premises. The Company has entered into a number of leases with the Trust and its subsidiaries and as such the commitment is not recognised on consolidation. Operating lease commitments of the Company are paid for and recognised as expenses by a controlled entity. (b) Capital expenditure commitments Commitments in relation to capital expenditure contracted for at reporting date but not recognised as a liability are payable as follows: Within one year Later than one year but not later than five years 40,437 – 40,437 73,848 42,864 116,712 40,437 – 40,437 73,848 42,864 116,712 37. Business Combination Acquisition of Cromwell Property Fund On 4 October 2012 the Group and Trust acquired the remaining units they did not already own of Cromwell Property Fund (“CPF”). As a result, the Group and Trust’s equity interest in CPF increased from 18% to 100% (refer note 13). The acquisition complemented the Group and Trust’s existing property portfolio and benefits are expected to be generated from operational synergies and economies of scale. Following the acquisition, the Group and Trust consolidated the assets and liabilities and performance of CPF, including the property portfolio which was valued at $171,372,000 (refer note 11). Prior to the acquisition, CPF was accounted for as an associate of the Group (refer note 13). The Group and Trust have recognised the fair values of the identifiable assets and liabilities based upon the best available information at the acquisition date. The business combination accounting is as follows: 90 Cromwell Property Group | Annual Report 2013 Investment in associate/controlled entity Cash and cash equivalents Trade and other receivables Other current assets Investment properties Trade and other payables Derivative financial instruments Other current liabilities Borrowings Fair value of net identifiable assets acquired Recognised on Acquisition $’000 24,837 – – – – – – – – 24,837 Already Held $’000 5,298 – – – – – – – – 5,298 Balance on Consolidation $’000 – 3,142 508 387 171,372 (4,897) (3,440) (1,230) (135,707) 30,135 The carrying value of the assets and liabilities acquired was equivalent to their fair value in accordance with Group policies. Fair value of investment already held Purchase consideration: Cash consideration paid Fair value of equity instruments issued(i) Total purchase consideration Total recognised on consolidation The cash flows on acquisition were as follows: Cash consideration paid Cash acquired from business combination Net inflow of cash – investing activities 5,298 582 24,255 24,837 30,135 (582) 3,142 2,560 equity instruments issued (i) The fair value of the stapled securities issued was based upon the adjusted share price of the Group at 4 October 2012 of $0.75 per stapled security. (ii) Acquisition-related costs The Group incurred acquisition-related costs of $631,000 including legal and other professional fees and other transaction execution costs. These have been included as Merger Transaction costs in the Group’s consolidated statements of comprehensive income and in investing cash flows in the statement of cash flows. (iii) Acquired receivables The fair value of acquired trade receivables is $508,000. The gross contractual amount for trade receivables due is $508,000, all of which has been recovered. (iv) Revenue and profit contribution The acquired business contributed revenues of $14,831,000 and net loss of $14,614,000 to the Group for the period from 4 October 2012 to 30 June 2013 and contributed revenues of $15,056,000 and net loss of $14,904,000 for the Trust for the same period. If the acquisition had occurred on 1 July 2012, consolidated revenue and profit for the year ended 30 June 2013 would have been $247,641,000 and $33,720,000 respectively for the Group and $238,874,000 and $30,836,000 respectively for the Trust. These amounts have been calculated using the Group’s accounting policies. 91 Cromwell Property Group | Annual Report 2013 38. Contingent Liabilities The Directors are not aware of any material contingent liabilities of the Group or the Trust (2012: nil). 39. Auditor’s Remuneration During the year the following fees were paid or payable for services provided by the auditor of the Group (Pitcher Partners) and its related entities: Audit Services Pitcher Partners Auditing or reviewing financial reports Auditing of controlled entities’ AFS licences Auditing of controlled entities’ compliance plans Other Services Pitcher Partners Other – review of pro forma balance sheets and forecasts Group Trust 2013 $ 2012 $ 2013 $ 2012 $ 261,000 5,000 28,000 294,000 235,000 6,000 30,000 271,000 180,000 – 28,000 208,000 155,000 – 30,000 185,000 131,200 131,200 70,000 70,000 – – – – The auditor receives remuneration for audit and other services relating to other entities for which Cromwell Property Securities Limited and Cromwell Funds Management Limited, both controlled entities, act as responsible entity. The remuneration is disclosed in the relevant entity’s financial reports and totalled $68,500 (2012: $112,500). 40. Subsequent Events On 7 August 2013, the Group created a new unlisted property trust, the Cromwell Property Trust 12 (“C12”). C12 is a 100% owned subsidiary of the Trust. On 9 August 2013, C12 acquired an investment property located on Dorcas Street, South Melbourne for $25,543,000. The investment property was acquired for cash. C12 has also contracted to acquire two other investment properties which are currently being constructed. The combined value of the additional properties, once built, is expected to be $103,140,000. The Group intends to offer 100% of the units in C12 to external investors under a product disclosure statement to be issued later this year. 92 Cromwell Property Group | Annual Report 2013 Directors’ Declaration In the opinion of the Directors of Cromwell Corporation Limited and Cromwell Property Securities Limited as Responsible Entity for the Cromwell Diversified Property Trust (collectively referred to as “the Directors”): (a) the attached financial statements and notes are in accordance with the Corporations Act 2001, including: (i) complying with Australian Accounting Standards (including the Australian Accounting Interpretations), the Corporations Regulations 2001; and (ii) giving a true and fair view of the Group’s and the Trust’s financial position as at 30 June 2013 and of their performance, for the financial year ended on that date; and (b) the financial report also complies with International Financial Reporting Standards as disclosed in note (1)(a); and (c) there are reasonable grounds to believe that the Group and the Trust will be able to pay its debts as and when they become due and payable. The Directors have been given the declarations by the chief executive officer and chief financial officer for the financial year ended 30 June 2013 required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the Directors. P.L. Weightman director Dated this 23rd day of August 2013 93 Cromwell Property Group | Annual Report 2013 Independent Auditor’s Report to the Securityholders of Cromwell Property Group to the Unit holders of Cromwell Diversified Property trust Report on the Financial Report Cromwell Property Group (“the Group”) comprises Cromwell Corporation Limited and the entities it controlled at the end of the year or from time to time during the year and Cromwell Diversified Property Trust and the entities it controlled (“the Trust”) at the end of the year or from time to time during the year. We have audited the accompanying financial reports of the Group and the Trust, which comprises the consolidated statement of financial position as at 30 June 2013, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration for both Cromwell Corporation Limited and Cromwell Property Securities Limited as responsible entity for the Cromwell Diversified Property Trust. Directors’ Responsibility for the Financial Report The directors of Cromwell Corporation Limited and Cromwell Property Securities Limited as responsible entity for the Cromwell Diversified Property Trust (collectively referred to as “the directors”) are responsible for the preparation of the financial reports that give a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial reports that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In Note 1(a), the directors also state, in accordance with Accounting Standard AASB101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 94 Cromwell Property Group | Annual Report 2013Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. opinion In our opinion: (a) the financial reports of the Group and the Trust are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s and Trust’s financial position as at 30 June 2013 and of their performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) the consolidated financial reports also comply with International Financial Reporting Standards as disclosed in Note 1(a). Report on the Remuneration Report We have audited the Remuneration Report included in part 11 of the directors’ report for the year ended 30 June 2013. The directors of Cromwell Corporation Limited are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. opinion In our opinion the Remuneration Report of Cromwell Corporation Limited for the year ended 30 June 2013 complies with Section 300A of the Corporations Act 2001. PITCHER PARTNERS RCN WALKER Partner Brisbane, Queensland 23 August 2013 95 Cromwell Property Group | Annual Report 2013 Corporate Governance Statement Cromwell Property Group through its Board, Board Committees and management is committed to meeting stakeholders’ expectations of sound corporate governance, while seeking to achieve superior financial performance and long term prosperity. The ASX Corporate Governance Council has Corporate Governance Principles and Recommendations which are designed to optimise corporate performance and accountability in the interests of shareholders and the broader economy. The recommendations are not prescriptive. However listed entities are required to disclose the extent of their compliance and, if any ASX recommendations have not been followed, must give reasons for not following them. This statement sets out the extent to which the Group has followed the ASX recommendations during this financial year, identifies any of the ASX recommendations which were not followed and provides reasons. Principle 1 – Lay solid foundations for management and oversight The Boards of Cromwell Corporation Limited and Cromwell Property Securities Limited each have common membership. Responsibility for corporate governance and the internal working of each Group entity rests with the relevant Board. The Board has adopted a formal charter which details the composition, values and functions of the Board. The Board generally holds a scheduled meeting each month and additional meetings are convened as required. Board papers are designed to focus Board attention on key issues and standing items include major strategic initiatives, corporate governance, compliance, reports from each functional division and financial performance. Day-to-day management of the Group’s affairs and implementation of corporate strategy and policy initiatives are delegated by the Board to management under the direction of the CEO . This has been formalised in the Board Charter and a Delegations of Authority policy. The effectiveness of both these documents is reviewed by the Board annually. Each director has received a letter of appointment which details the key terms of their appointment. The CEO and Director – Finance and Funds Management (both of whom are executive directors) have formal job descriptions and letters of appointment outlining the terms of their employment. A formal induction program allows new senior executives to participate fully and actively in decision-making as soon as possible. The Group has an established process for the performance review of all staff. The performance of senior executives is evaluated at least annually, in addition to regular feedback during the performance period. At the time of the reviews, the professional development of the executive is also discussed, along with any training which could enhance their performance. Both qualitative and quantitative measures are used in the evaluation. A performance evaluation for each senior executive has taken place during the reporting period and was subject to the review process explained in this report. Cromwell Property Securities Limited acts as responsible entity for the Cromwell Diversified Property Trust. Cromwell Funds Management Limited acts as responsible entity for the Group’s unlisted managed investment schemes. Both companies are wholly owned subsidiaries of Cromwell Corporation Limited. The roles and responsibilities of a responsible entity are set out in the relevant scheme’s constitution and, if registered, its compliance plan. Day-to-day management of the schemes has been delegated to management, under the direction of the CEO. This has been formalised in the Delegations of Authority policy mentioned above. A compliance committee comprised of a majority of external independent members monitors the extent to which the responsible entity complies with each registered managed investment scheme’s compliance plan and reports findings to the responsible entity. The roles and responsibilities of the compliance committee are outlined in a formal charter which is reviewed annually by the committee and the Board. What you can find on our website: • Corporate Governance Statement • Board Charter • Compliance Committee Charter 96 Cromwell Property Group | Annual Report 2013Principle 2 – Structure the board to add value The Board is comprised of an independent Chairman (Geoff Levy), four other independent directors (David Usasz, Michelle McKellar, Richard Foster and Robert Pullar) and four non-independent directors (Paul Weightman, Daryl Wilson, Marc Wainer and Mike Watters). Profiles of each director, including details of their skills, expertise and experience can be found in the directors’ report. The Group recognises that independent directors are important in reassuring securityholders that the Board properly fulfils its role. The Board comprises a majority of independent directors. The independent directors (including the Chairman) are considered to meet the test of independence under the ASX Guidelines. Each year, their independence is assessed and the independent directors also confirm to the Board, in writing, their continuing status as an independent director. They have each undertaken to inform the Board as soon as practical if they think that their status as an independent director has or may have changed. In assessing a director’s independent status, the Board has adopted a materiality threshold of 5% of the Group’s net operating income or 5% of the Group’s net tangible assets (as appropriate). Each director’s qualifications, experience, special responsibilities and attendances at Board meetings are detailed in the directors’ report. The Board considers that its members comprise directors with an appropriate mix of skills, personal attributes and experience that allow the directors individually, and the Board collectively, to discharge their duties effectively and efficiently. The Board comprises individuals who understand the business of the Group and the environment in which it operates and who can effectively assess management’s performance in meeting agreed objectives and goals. On an ongoing basis directors are provided with updates on legal and corporate developments relevant to the Group. Independent professional advice If warranted, the Board may resolve to obtain professional advice about the execution of the Board’s responsibilities at the Group’s expense. Directors also have the right to seek independent professional advice. Subject to the Chairman’s approval, which will not be unreasonably withheld, it will be at the Group’s expense. Where appropriate, such advice is shared with the other directors. Board Committees Three Board Committees have been established to assist in the execution of the Boards’ responsibilities. The membership of each Committee and attendance at Board and Committee meetings during the financial year is set out in the directors’ report. It is the policy of the Board that the Investment Committee, Nomination and Remuneration Committee and the Audit and Risk Committee consist of a majority of independent directors (other than the Chairman). Each committee has a charter which includes a description of its duties and responsibilities. The Board Charter has a description of the Board’s policies and procedures for the selection, appointment and re-election of directors. Performance of the Board The Board has undertaken its annual formal performance assessment, which includes an assessment of the Board, Board Committees and individual directors. Directors completed a questionnaire and were able to make comments or raise any issues they had regarding the Board or a Board Committee’s operations. The results were compiled by the Company Secretary and discussed at a subsequent Board meeting. The CEO and Director – Finance and Funds Management also participated in an annual performance review with the Chairman (who had consulted with the other directors). The review process was the same as for senior executives. As necessary, directors are provided with training sessions on key issues relevant to the Group’s operations. Directors also have access to the internal training sessions provided by the Group’s General Counsel and/or Compliance Manager. If the appointment of another independent director was being considered, or should a director vacancy occur, the Board, through the Nomination and Remuneration Committee, would firstly identify any gaps or weaknesses in the skills and experience of the existing directors and then identify the particular skills, experience and expertise that would best complement Board effectiveness. Candidates would be identified using both established professional networks and professional intermediaries. The extent to which each candidate would address any identified gaps or weaknesses and provide an appropriate cultural and values fit for the Group would be the main factors taken into account in the selection process. Any relevant gender diversity objectives set by the Board would also be taken into account when identifying appropriate candidates. However, selection and appointment would occur on the basis of merit. Appointment of directors is documented by way of a formal agreement between the Group and each director, dealing with such issues as performance expectations, conflicts of interest, disclosure obligations, remuneration and Group policies. The Board’s policy and procedure for the selection, appointment and re-election of Directors are set out in the Board Charter. What you can find on our website: • Remuneration and Nomination Committee Charter • Board Charter 97 Cromwell Property Group | Annual Report 2013Principle 3 – Promote ethical and responsible decision making The Group’s directors and staff are required to maintain high ethical standards of conduct. The various practices and policies of the Group reinforce this. All directors and staff are expected to act with integrity, striving at all times to enhance the reputation and performance of the Group. To reinforce this culture the Group has established a Code of Conduct to provide guidance about the attitudes and behaviour necessary to maintain stakeholder confidence in the integrity of the Group and comply with the Group’s legal obligations. The Code of Conduct is made available to all staff and they are reminded of the importance of the Code of Conduct on a regular basis. Appropriate standards are also communicated and reinforced to all staff at induction programs and staff meetings. The Board has approved a Breach Reporting Policy and a Whistleblowing Policy. The policies are on the Group’s intranet site and all staff received training with regard to the policies. These policies actively encourage and support reporting to appropriate management of any actual or potential breaches of the Group’s legal obligations and / or of the Code of Conduct. The Board has also approved a Securities Trading Policy under which directors and staff are restricted in their ability to deal in the Group’s securities. Appropriate black out periods are in place during which directors and staff are not permitted to trade. All staff are aware of the policy and receive training annually. The policy is reviewed annually. Compliance with Board policies is monitored via monthly checklists completed by key management and by investigation following any report of a breach by an employee. Compliance monitoring is undertaken by the Legal & Compliance team under the direction of the Company Secretary / General Counsel who reports directly to the Board. The Board has approved a Diversity Policy which sets out the framework the Group has in place to achieve appropriate diversity in its Board, senior executive and broader workforce. The table below shows the gender diversity objectives set for the 2013 financial year and the Group’s performance against those objectives as at 30 June 2013. 1. At least one female director and at least one female senior executive team member. The Group has one female director and two female senior executive team members. 2. If existing staff are promoted, at least 50% of those promoted will be female. During FY13 four existing staff members were promoted, three of them were female. 3. At least one female will be interviewed for all No management positions were advertised during the period. advertised management positions. 4. All employees regardless of gender, age and race are consulted annually via an engagement survey and are given the opportunity to provide feedback on issues and potential barriers to diversity. 5. Remuneration continues to be benchmarked against market data taking into consideration experience, qualification and performance and without regard to age, gender and race. An employee satisfaction survey was undertaken during the period and it provided an opportunity to give feedback on diversity issues. All remuneration is benchmarked and reviewed without regard to gender, age or race. 6. Succession plans and leadership programs are designed to assist in the development of a diverse pool of future senior executives and managers and are regularly reviewed. Diversity was considered when reviewing, or designing, succession plans and leadership programs. For example 46% of key staff identified for the purposes of retention and succession planning are female. 7. At least one corporate event is held to which Three events were held where families were encouraged to attend. staff can bring partners and children. 8. Parents (or carers) are offered flexible work arrangements. 10% of employees work part time. However, many flexible work arrangements are informal, such as starting early/finishing early. Further, from this year, new parents are able to use any personal leave accrued on top of their unpaid entitlements; an employee has requested required and had approved a compressed working week arrangement and Flexible Working Guidelines for Parents have been developed. 9. All staff undergo annual “equal employment opportunity” training. Annual “equal employment opportunity’ training was provided to all staff during the period. 98 Cromwell Property Group | Annual Report 201310. At least 80% of females taking parental leave return to work. One female was on parental leave during the period and she returned to part time work. 11. At least 50% of staff undertaking Cromwell supported tertiary education and other professional development programs are female. 60% of staff being supported through further study are female. For the 2014 financial year, the Group has the following diversity objectives: 1. The Group has at least 1 female director and at least 2 female senior executives. 2. If existing staff are promoted, at least 50% of those promoted will be females. 3. At least one female will be interviewed for all advertised management positions. 4. All employees regardless of gender, age and race are consulted annually via an engagement survey and are given the opportunity to provide feedback on issues and potential barriers to diversity. 5. Remuneration continues to be benchmarked against market data taking into consideration experience, qualification and performance and without regard to age, gender and race. 6. Succession plans and leadership programs are designed to assist in the development of a diverse pool of future senior executives and managers and are regularly reviewed. 7. At least one corporate event is held to which staff can bring partners and children. 8. Parents (or carers) are offered flexible work arrangements. 9. All staff undergo annual “equal employment opportunity” training. 10. At least 80% of females taking parental leave return to work. 11. At least 50% of staff undertaking Cromwell supported tertiary education and other professional development programs are female. The Board currently has 1 female director (out of 9 directors), executive management comprised 7 people, including 2 females and management comprises 14 people, 5 of which are female. The Group employs a total of 96 people, 44 of which are female. What you can find on our website: • Code of Conduct • Securities Trading Policy • Breach Reporting Policy • Whistleblowing Policy • Diversity Policy • FY2014 Gender Diversity Objectives Principle 4 – Safeguard integrity in financial reporting The Board has responsibility for the integrity of the Group’s financial reporting. To assist the Board in discharging this function the following process has been adopted. Audit and Risk Committee An Audit and Risk Committee has been appointed by the Board and has responsibility for overseeing the quality and integrity of the accounting, auditing, financial reporting and compliance and risk management practices of the Group. The Audit and Risk Committee is comprised of three independent directors. The names, qualifications and attendance at meetings of the members of the Audit and Risk Committee is detailed in the directors’ report. The responsibilities, roles, composition and structure of the Audit and Risk Committee are set out in its charter. The charter includes information on the procedures for selection and appointment of the external auditor and for the rotation of external audit engagement partners. Minutes are kept of all Committee meetings, including meetings of the Audit and Risk Committee, and presented at the next Board meeting. The Committee reports to the Board on all matters relevant to its role and responsibilities. 99 Cromwell Property Group | Annual Report 2013The external auditor has declared its independence to the Board and the Committee. The Board is satisfied that the standards for auditor independence and associated issues have been complied with. The auditor attends the Group’s Annual General Meeting and is available to answer securityholder questions on the conduct of the audit and the content and preparation of the auditor’s report. The CEO and the Director – Finance and Funds Management state in writing to the Board that the Group’s financial reports present a true and fair view, in all material respects, of the Group’s financial position and operational results and are in accordance with relevant accounting standards. Details of the risk monitoring duties of the Audit and Risk Committee are set out in principle 7 below. What you can find on our website: • Audit and Risk Committee Charter Principle 5 – Make timely and balanced disclosure The Group believes that all stakeholders should be informed of all the major business events and risks that influence the Group in a timely and widely available manner. In particular, the Group strives to ensure that any price-sensitive material for public announcement is lodged with the ASX before external disclosure elsewhere and posted on the Group’s website as soon as practical after lodgement with the ASX. The Group has a market disclosure protocol which includes polices and procedures designed to ensure compliance with the disclosure requirements in the ASX Listing Rules. The ASX liaison person is the Group’s Company Secretary. What you can find on our website: • Market Disclosure Protocol Principle 6 – Respect the rights of shareholders The Group has an investor relations strategy, approved by the Board, which has been designed to generate and foster a long term close association with securityholders and investors in the Group’s financial products. The Group aims to keep securityholders informed of the Group’s performance and all major developments in an ongoing manner. In this regard, securityholders receive regular reports, and all documents that are released publicly are made available on the Group’s website. The Group uses its website as a means of providing information to securityholders and the broader investment community. Securityholders are also encouraged to participate in the Annual General Meeting to ensure a high level of accountability and identification with the Group’s strategies and goals. Notices of meetings are accompanied by explanatory notes on the items of business and together seek to accurately and clearly explain the nature of the business of the meeting. A copy of the Annual General Meeting’s notice of meeting is sent to the Company’s external auditor as required by law. The current audit partner attends the Annual General Meeting and is available to answer questions from securityholders about the audit. The Chairman reminds securityholders of this opportunity at each Annual General Meeting. Principle 7 – Recognise and manage risks The Group is exposed to various risks across its business operations and recognises the importance of effectively identifying and managing those risks. To this end, the Group has adopted an Enterprise Risk Management Policy, which is a general statement of the Group’s philosophy with respect to risk management practices. There are also a wide range of underlying policies and procedures which are designed to mitigate the Group’s material business risks. Risks are identified and assessed so that informed decisions on risk issues can be made. The objective of the Group’s approach to risk management is to manage the level of risk within acceptable parameters rather than seeking to eliminate risk. Under the direction of the CEO, management is responsible for identifying relevant business risks, designing controls to manage those risks and ensuring those controls are appropriately implemented. The risk management system operates in accordance with Australian / New Zealand Standard for Risk Management (AS/NZS 4360 Risk Management). Although management is expected to identify new or emerging risks and put appropriate controls in place on an ongoing basis, at least annually the Legal & Compliance team will co-ordinate a formal review by all business divisions of their business risks and mitigating controls. 100 Cromwell Property Group | Annual Report 2013The Legal & Compliance team monitors the adequacy of the risk management system and fulfils the internal audit function within Cromwell Property Group. The Company Secretary reports on the risk management system (including internal audit) to the Audit and Risk Committee throughout the year. The internal audit function involves both active testing of the adequacy of controls for those risks which are inherently extreme or high as well as having management (monthly, quarterly or annually as appropriate) confirm that the assessment of identified risks and their controls remain appropriate and identify any new controls or risks. Under the direction of the Company Secretary, the Legal & Compliance team also implement and monitor compliance arrangements which have been designed to ensure that the Group meets its legal obligations. Those compliance arrangements include key management staff completing a compliance checklist each month and independent compliance testing. The Audit and Risk Committee is responsible for oversight of the risk management and internal control systems. Responsibilities include: (a) overseeing the establishment and implementation of risk management and internal compliance and control systems and ensuring there is a mechanism for assessing the efficiency and effectiveness of those systems; (b) regularly reviewing and updating the risk profile; and (c) monitoring the effectiveness of the internal risk control system. Although the Board has delegated operational oversight of the compliance framework to the Committee, the Board will satisfy itself annually, or more frequently if required, that the risk management system is sound. A compliance committee assists the Board of Cromwell Property Securities Limited, and Cromwell Funds Management Limited, in overseeing the risk management framework of the registered managed investment schemes for which they act as the responsible entity. The compliance committee monitors compliance with the compliance plans and the underlying compliance framework. The Board receives regular reports from the compliance committee. Chief Executive Officer and Chief Financial Officer Declaration The CEO and the Director – Finance and Funds Management (Cromwell’s Chief Financial Officer) have provided the Board with written confirmation that: (a) in their view, the Group is effectively managing its material business risks; (b) their statement given to the Board on the integrity of the Group’s statements (pursuant to section 295A of the Corporations Act) is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board; and (c) the Group’s risk management and internal compliance and control system is operating effectively in all material respects in relation to the Group’s material business risks. It should be noted that the declarations from the CEO and Director – Finance and Funds Management are reasonable rather than absolute assurances that the risk management and internal compliance and control system is operating effectively because it is impossible for all weaknesses to be detected. Their conclusions are based on their own observations and judgement and the outcome of the compliance and controls testing and reviews undertaken by the Legal & Compliance team. What you can find on our website: • Audit and Risk Committee Charter • Enterprise Risk Management Policy Principle 8 – Remunerate fairly and responsibly The Group’s remuneration policy is determined by the Nomination and Remuneration Committee which makes recommendations to the Board: (a) in the case of non-executive directors, for consideration of any increase by securityholders at the Annual General Meeting; and (b) in the case of executives, for decision. External professional advice is sought from experienced consultants, where appropriate, to assist in the Committee’s and the Board’s deliberations. The Group’s remuneration policy links the nature and amount of executive directors’ and officers’ remuneration to the Group’s financial and operational performance. 101 Cromwell Property Group | Annual Report 2013The Group operates a Performance Rights Plan and has issued performance rights (or options over Group securities) to a number of executives. The Group does not currently pay any other form of security-based remuneration. Nomination and Remuneration Committee The Board has established a Nomination and Remuneration Committee operating under an approved written charter that incorporates various responsibilities, including reviewing and recommending compensation arrangements for the directors, the CEO and key executives and setting remuneration policy. Meetings of the Committee are attended, by invitation, by appropriate professional advisers from time to time. Minutes of all Committee meetings are available to the Board and the Chairman of the Committee reports to the Board after each Committee meeting. The Committee has 4 members, all of which are independent directors. Details of the number of Committee meetings and attendances by directors are included in the directors’ report. Non-executive director remuneration The structure of non-executive directors’ remuneration, and that of executive directors, is set out in the relevant section of the directors’ report. Details of the nature and amount of each element of the remuneration of each director of the Group and other key management personnel of the Group are disclosed in the relevant section of the directors’ report. There is no retirement benefit scheme for non-executive directors other than payment of statutory superannuation. The Boards undertake an annual review of their performance together with an assessment of the Group’s executive management. executive directors and senior executive remuneration The Group’s remuneration policies and practices in relation to executive directors and senior executives are disclosed in the directors’ report. Further, details of the nature and amount of remuneration paid to those executives is set out in the directors’ report. For executive directors and key staff, formal performance objectives are set annually with discussion on their performance taking place at assessment time. The CEO and the Director – Finance and Funds Management participate in the Performance Rights Plan discussed above. Previous participation was approved by securityholders at an Annual General Meeting. Pursuant to the ASX Listing Rules, any further participation would also need to be approved by securityholders. Managed funds Cromwell Property Securities Limited and Cromwell Funds Management Limited are entitled to various fees for acting as responsible entity of Cromwell managed funds. Further, various other Group entities are entitled to fees for providing services to managed funds such as property and asset management, accounting, registry and transactional management. All related party transactions are tested by reference to whether they meet market standards. Fees are calculated in accordance with a defined formula under the Constitution for the relevant schemes or agreements which have been assessed as being on arm’s length or better terms. Fees are fully disclosed to investors at inception and continue to be disclosed to investors in regular reporting. Cromwell Property Securities Limited and Cromwell Funds Management Limited are also entitled to be reimbursed from the relevant schemes for expenses incurred in the proper performance of their duties. What you can find on our website: • Nomination and Remuneration Committee Charter 102 Cromwell Property Group | Annual Report 2013Securityholder Information The securityholder information set out below was applicable as at 30 September 2013, unless stated otherwise. Spread of Stapled Securityholders Category (size of Holding) Number of Holders Number of Securities 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – 9,999,999,999 723 1,592 1,628 8,397 1,227 13,567 216,722 5,062,851 12,547,395 285,699,889 1,415,630,405 1,719,157,262 Unmarketable Parcels The number of stapled securityholdings held in less than marketable parcels was 509. Substantial Securityholders Holder Stapled Securities Redefine Properties Limited 447,872,426 Date of Notice 9 October 2013 Voting Rights On a show of hands every member present at a meeting in person or by show of proxy shall have one vote and upon a poll every member shall have effectively one vote for every security held. 103 Cromwell Property Group | Annual Report 201320 Largest Securityholders Rank Investor Number of Stapled Securities Held % Held of Issued Stapled Securities 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Citicorp Nominees Pty Limited Redefine Australian Investments Limited JP Morgan Nominees Australia Ltd HSBC Custody Nominees (Australia) Limited National Nominees Limited RBC Investor Services Aust Executor Trustees SA Ltd BNP Paribas Moms Pty Ltd AMP Life Limited Stara Investments Pty Ltd JP Morgan Nominees Australia Ltd Citicorp Nominees Pty Limited Redefine Australian Investments Limited Humgoda investments Pty Ltd RJP Family Pty Ltd Kovron Pty Ltd Panmax Pty Ltd The Australian National University UBS Wealth Management Australia Nominees Pty Ltd Mr Philip John Wallace & Mrs Bernadette Mary Wallace 247,559,017 227,076,125 161,253,264 160,675,224 103,346,106 42,442,624 22,387,277 18,048,799 16,772,665 16,221,167 10,423,174 10,357,446 8,460,067 7,282,126 6,500,000 6,394,825 5,718,993 5,085,528 4,990,541 4,883,450 14.40% 13.21% 9.38% 9.35% 6.01% 2.47% 1.30% 1.05% 0.98% 0.94% 0.61% 0.60% 0.49% 0.42% 0.38% 0.37% 0.33% 0.30% 0.29% 0.28% 1,085,893,704 63.16% Provision of Information for Securityholders Cromwell is committed to ensuring its securityholders are fully informed on the financial and operational status of the Group as well as its future prospects, in accordance with the rules and guidelines of the Australian Securitied Exchange (ASX) and other regulatory bodies. The following information can also be found on the Cromwell website at www.cromwell.com.au. ASX Listing Cromwell Property Group is listed as a Stapled Security on the ASX (Code: CMW). Securityholding Details Securityholders can access information on their holdings and update their details through Cromwell’s share registry provider: Link Market Services Limited Level 15, 324 Queen Street Brisbane Qld 4000 Telephone: 1300 550 841 Outside Australia: +61 2 8280 7124 Fax: (02) 9287 0309 Web: www.linkmarketservices.com.au Email: info@linkmarketservices.com.au 104 Cromwell Property Group | Annual Report 2013Securityholders can change of update details relating to their address, bank account and Tax File Number (TFN), Australian Business Number (ABN) or exemption in a number of ways: • Sent written authorisation to the registry quoting your SRN / HIN and signing the request; • Log on to www.linkmarketservices.com.au; or • Call the Registry You will have to verify your identity by providing your personal details. Bank detail changes must be requested in writing or electronically and cannot be made over the phone. Securityholders are not obliged to quote their TFN, ABN or exception. However, if these details are not lodged with the registry, Cromwell is obliged to deduct tax from unfranked portions of dividend payments and distribution payments and up to the highest marginal tax rate, depending on residency. Distributions/Dividends cromwell Property group Dividends/Distributions During the year the following distributions/dividends have been paid: Quarter Ending Amount per Security Ex Date 30 June 2013 31 March 2013 31 December 2012 30 September 2012 1.8125 cents 1.8125 cents 1.8125 cents 1.8125 cents 24 June 2013 22 March 2013 Record Date 28 June 2013 28 March 2013 Payment Date 15 August 2013 15 May 2013 21 December 2012 31 December 2012 13 February 2013 28 October 2012 5 October 2012 14 November 2012 Further information The Cromwell website provides a comprehensive range of information on the company, past performance and products. The website address is www.cromwell.com.au. Requests for further information about the Group, its dealings and key securityholder communications should be directed to: Investor relations Manager Cromwell Property Group GPO Box 1093 Brisbane QLD 4001 Australia Telephone: (07) 3225 7777 Facsimile: (07) 3225 7788 Email: invest@cromwell.com.au 105 Cromwell Property Group | Annual Report 2013Board of Directors: Geoffrey Levy (AO) Robert Pullar Michelle McKellar David Usasz Richard Foster Marc Wainer Michael J Watters Paul Weightman Daryl Wilson Geoffrey Cannings (Alternate for Michael J Watters) Registered office: Level 19 200 Mary Street BRISBANE QLD 4000 Tel: +61 7 3225 7777 Fax: +61 7 3225 7788 Web: www.cromwell.com.au Company Secretary: Nicole Riethmuller Listing: The Cromwell Property Group is listed on the Australian Securities Exchange (ASX code: CMW). Share Registry: Link Market Services Limited Level 15, 324 Queen Street BRISBANE QLD 4000 Tel: 1300 550 841 (+61 2 8280 7124) Fax: +61 2 9287 0309 Web: www.linkmarketservices.com.au Auditor: Pitcher Partners Level 30, Central Plaza One 345 Queen Street Brisbane QLD 4000 Tel: +61 7 3222 8444 Fax: +61 7 3221 7779 Web: www.pitcher.com.au 106 Cromwell Property Group | Annual Report 2013107 Cromwell Property Group | Annual Report 2013

Continue reading text version or see original annual report in PDF format above