Cromwell Group Annual Report 2014

Plain-text annual report

Annual Report 2014 well versed well timed well considered contents 03 About Cromwell 04 Financial Highlights 06 Chairman’s Report 09 CEO’s Report 20 Directors’ Report 43 Auditor’s Independence Declaration 44 Consolidated Statements of Comprehensive Income 45 Consolidated Statements of Financial Position 46 Consolidated Statements of Changes in Equity 47 Consolidated Statements of Cash Flows 48 Notes to the Financial Statements 99 Directors’ Declaration 100 Independent Auditor’s Report 102 Corporate Governance Statement 109 Securityholder Information 2 C ROMW ELL 20 1 4 ANNUAL REPORT Cover and this page - QANTAS Global Headquarters: Sydney, NSW Cromwell Property Group Cromwell Property Group (ASX: CMW) is an internally managed Australian Real Estate Investment Trust (A-REIT), and one of Australia’s leading property investment and funds management groups. We are part of the S&P/ASX 200, with over $3.7 billion in assets under management (including unlisted funds) and manage 33 properties. During the 2014 ﬁ nancial year, the Group delivered operating earnings of over $146.7 million, from our property portfolio and funds management business. Our core focus is on Australian commercial property, and delivering strong, consistent returns to investors. We primarily lease our buildings to Government and blue-chip tenants to reduce vacancy risk. We believe that one of our key competitive advantages is the internalised property management model that we employ to manage all our property assets in-house. Our property team oversees the strategic management of Cromwell assets to ensure that tenants are happy, space is leased, and buildings operate efﬁ ciently. By keeping these functions in-house we ensure that our assets are managed in line with the interests and expectations of our investors. We are committed to improving tenant satisfaction, increasing income from our portfolio and growing the value of our portfolio. 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 Diversiﬁ ed Property Trust ARSN 102 982 598 ABN 30 074 537 051 Level 19, 200 Mary Street, Brisbane QLD 4000 Phone: +61 7 3225 7777 Fax: +61 7 3225 7788 Web: www.cromwell.com.au Email: invest@cromwell.com.au SECURITYHOLDER ENQUIRIES All enquiries and correspondence regarding securityholdings should be directed to Cromwell’s Investor Services on 1300 276 693. CROMWELL 2014 ANNUAL RE PORT 3 ﬁ nancial highlights Consistent Strategy, Strong Business • Remained focused on delivering predictable, growing distributions • Active management strategy ensured portfolio was optimised for market • Non-core assets sold to reduce gearing and increase cash • Funds management business continued to grow strongly Another Record Result • Record operating proﬁ t of $146.7 million up 43%, or 8.5 cents per security (cps) up 12% • Distributions up 5% to 7.6cps • Statutory proﬁ t of $182.5 million, up 295% • Like-for-like property income up 1.4% • Funds management operating proﬁ t up 30% $8.3 million FINANCIAL RESULTS SUMMARY FY14 FY13 Change Statutory proﬁ t ($’000) 182,471 46,156 295% Statutory proﬁ t (cents per security) 10.6 3.4 208% Property Investment ($’000) 138,616 96,510 Funds Management External ($’000) 5,491 3,330 Funds Management Internal ($’000) 2,839 3,086 Development ($’000) (225) (515) Operating proﬁ t ($’000) 146,721 102,411 Operating proﬁ t (cents per security) 8.5 7.6 Distributions ($’000)1 131,394 97,448 Distributions (cents per security) Payout Ratio (%) 7.6 90% 7.3 95% 44% 65% (8%) 56% 43% 12% 35% 5% (5%) 1) FY13 excludes $4.2m of distributions above pro rata entitlement attributable to equity raisings. RECORD OPERATING PROFIT N O L L M $146.7 43% UP I I 4 C ROMW ELL 20 1 4 ANNUAL REPORT Financial Position Improved FY15 Guidance • Net tangible assets (NTA) increased from $0.70 to $0.73 cps • FY15 operating earnings guidance QANTAS Global Headquarters: Sydney, NSW of at least 8.3cps • FY15 distributions per security targeting 7.85 cps • Continued focus on preserving or enhancing distributions and creating value • Gearing reduced from 46% at June 2013 to 42% at June 2014 and 37% post balance date • Pro forma cash of $190 million provides ﬂ exibility to pursue new property acquisitions or funds management initiatives • Average weighted debt maturity of 3.9 years. FINANCIAL POSITION Jun-14 (Pro-Forma)1 ($’000) Jun-14 (Actual) ($’000) Jun-13 (Actual) ($’000) Total Assets 2,336,540 2,469,940 2,546,110 Total Liabilities (1,072,542) (1,205,942) (1,345,258) Net assets 1,263,998 1,263,998 1,200,852 Securities on issue (‘000) 1,727,281 1,727,281 1,713,721 NTA per security (excluding interest rate swaps) NTA per security (including interest rate swaps) Gearing2 Gearing (look-through)2 $0.74 $0.75 $0.72 $0.73 $0.73 $0.70 37% 39% 42% 43% 46% 46% 1) Pro-forma balance sheet includes impact of 321 Exhibition Street sale and purchse of interest rate cap. 2) Calculated as (total borrowings less cash)/(total tangible assets less cash). Look through gearing adjusts for the 50% interest in Northpoint Tower. CROMWELL 2014 ANNUAL RE PORT 5 chairman’sreport Geoffrey H Levy, AO 100 Waymouth Street: Adelaide, SA QANTAS Global Headquarters: Sydney, NSW IN PROPERTY EARNINGS24% I E S A E R C N Cromwell’s activities in 2013 and 2014 highlighted its ability to adapt to changing market conditions. In 2013, we took advantage of relatively weak investment demand to buy assets with long term, quality cash ﬂ ows at attractive prices. In contrast, the 2014 year saw us take advantage of improved sentiment in the investment market to generate strong returns from the sale of non-core assets. Importantly, we were able to apply the proceeds of those asset sales to reduce debt in accordance with our stated gearing strategy and to strengthen our balance sheet ahead of what we expect to be more volatile trading conditions in 2015 and beyond. We were also able to recycle capital into a new value add opportunity in North Sydney in partnership with Redeﬁ ne Properties Limited, our largest securityholder. This acquisition gave us the opportunity to participate in expected capital and earnings upside from an asset that might otherwise have been too large for our balance sheet, whilst providing 6 C ROMW ELL 20 1 4 ANNUAL REPORT us with enhanced returns from the asset and the funds management fees we will be receiving from our partner. Our activities over the last few years also highlight the ways in which Cromwell seeks to actively manage its property portfolio through the property cycle and the ways in which we adjust our investment activities ahead of changing market conditions. I am proud that we have maintained strong discipline in our acquisition and divestment processes, and I believe this discipline is a major reason that we were able to demonstrate improvement in all of our key measures of ﬁ nancial performance in 2014. Cromwell exists for the beneﬁ t of its investors, and our key objective is to provide a secure and growing distribution to security holders from our investment and funds management activities. An important part of our strategy to achieve this growth is to increase the size and proﬁ tability of our funds management business. The funds management business grew strongly in 2014, and continues to build its scale and its contribution to Group earnings. Our partnership with Phoenix Portfolios and the continued strong performance of the award-winning Cromwell Phoenix Property Securities Fund is based on a model in which Cromwell combines its established expertise, systems and capital with the investment strategies of high quality boutique fund managers to build funds under management and to provide attractive investment products for our investors. We have extended this model with the acquisition of a 50% share of New Zealand’s Oyster Group. While Cromwell’s initial investment is relatively small we believe it has the potential to grow into the future. The recent strength of the New Zealand economy has reinforced our view that the Oyster acquisition was very well timed. The further extension of this model to other managers, the expansion of partnership and co-investment opportunities with our South African investors and organic growth from our syndicates and direct property platform all offer promising signs for increasing contributions from our funds management business to future earnings. The year under review also saw a major restructuring of our debt facilities, extending our weighted average debt maturity to approximately four years, and providing us with greater ﬂ exibility and a lower cost of debt. Since balance date we have also entered into hedging arrangements capping our exposure to future interest payments on $1 billion of debt for 5 years. Our achievements reinforce to me, and I hope you our securityholders, Cromwell’s key points of difference to our peers, namely: • We are not passive accumulators of assets; we actively manage our portfolio and our assets through the property cycle; • We use gearing intelligently through the property cycle; • We are able to leverage additional earnings from our internal management model to produce value from our funds management business. I would like to take this opportunity to thank Paul Weightman, Daryl Wilson and all of the Group’s executives and staff for their efforts this year. We are proud of the fact that we don’t follow the herd and that we continue to outperform our peers. I would also like to thank my fellow Board members for their support during the year. In particular, I would like to thank David Usasz and Mike Watters, both of whom reach the end of their respective terms at the end of the 2014 Annual General Meeting. David has been an enthusiastic, independent director since he joined the Board in 2007, providing strong ﬁ nancial and risk management stewardship as Chairman of the Audit & Risk Committee and a member of the Nomination and Remuneration Committee and adding immeasurably to the collegiate atmosphere on the Board to the beneﬁ t of all stakeholders. We wish David all the very best for the future. Mike, CEO of Redeﬁ ne International PLC, joined the Board in 2011 and his ﬁ nancial and property expertise have proven to be of great advantage to the Group. At the 2014 Annual General Meeting, securityholders will be asked to elect Jane Tongs as a new independent director, replacing David and to elect Andrew Konig, CEO of Redeﬁ ne Properties Limited, to replace Mike. Further details will be included in the notice of meeting for the 2014 Annual General Meeting. Thank you also to our Securityholders for your ongoing support. I look forward to working with the whole Cromwell team over the next year. Geoffrey H Levy, AO Chairman CROMWELL 2014 ANNUAL RE PORT 7 Cromwell improved the quality of our property portfolio, selling over $459 million worth of non-core assets and purchasing the $278.7 million Northpoint Tower. 8 C ROMW ELL 20 1 4 ANNUAL REPORT QANTAS Global Headquarters: Sydney, NSW ceo’sreport Paul Weightman QANTAS Global Headquarters: Sydney, NSW The 2014 ﬁ nancial year was another year of solid performance by Cromwell, with a 43% increase in Operating Proﬁ t to a record $146.7 million. The Group’s Management team took a strong sense of satisfaction from Cromwell’s performance in the 2014 ﬁ nancial year, with the strong increase in Operating Earnings showing the beneﬁ t of FY13 acquisitions, an increase in like-for-like income from our existing portfolio, reduced interest cost and an increase in funds management earnings. During the year, we continued to improve the quality of our property portfolio, completing the sale of seven properties for $458 million and acquiring a 50% interest in Northpoint Tower in North Sydney for $278.7 million, in partnership with our shareholder Redeﬁ ne Properties Limited. We also continued to grow our funds management business. Cromwell Performance June 2014 TOTAL SECURITYHOLDER RETURNS TO JUNE 2014 (Annualised)1 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Cromwell Property Group S&P/ASX A-REIT 300 Accumulation Index Excess Returns % 9 . 2 3 % 8 . 0 3 % 4 . 2 2 % 2 . 5 1 % 2 . 7 % 5 . 4 2 % 5 . 4 1 % 2 . 0 1 % 8 . 1 2 % 1 . 1 1 % 9 . 4 2 % 9 . 5 3 year 5 years 10 years2 15 years1,2,3 Source: IRESS 1) Includes distributions 2) 10 year Cromwell return includes period prior to stapling in December 2006 3) 15 year S&P/ ASX A-REIT 300 Accumulation Index return is since inception, which is 31 March 2000 CROMWELL 2014 ANNUAL RE PORT 9 Property portfolio We aim to maintain a property portfolio that provides a solid base of dependable and defensive earnings, balanced by “opportunistic” assets that provide outperformance either because of the prices at which they are acquired or because they can be improved or repositioned with active asset management. Net earnings from the Group’s portfolio increased 24% to $214.4 million as a result of additional income from assets acquired in late FY13 combined with increased rental income from the Qantas Global Headquarters in Sydney. The increase included growth in like-for-like income of 1.4%, supported by bi-annual CPI rental reviews. This was an above average result in a national ofﬁ ce rental market that remains soft. Growth was supported by a number of properties acquired on a favourable basis in the past 18 months, including the seven assets in the NSW portfolio acquired in June 2013 for $405 million and the Health and Forestry Building in Brisbane acquired in May 2013 for $65 million. There was a modest increase in portfolio property valuations, with an increase in investment property value of $46.2 million, net of capital expenditure and incentives. The increase highlights the growing market appetite for low risk assets such as Cromwell’s ofﬁ ce properties. 26.3% 51% GOVERNMENT TENANTS 29.8% LISTED COMPANIES OR THEIR SUBSIDIES GEOGRAPHIC DIVERSIFICATION BY GROSS INCOME ACT NSW QLD VIC TAS SA Ofﬁ ce Retail 1.1% 2.4% 7.5% 19.2% 43.5% SECTOR DIVERSIFICATION BY GROSS INCOME 1.2% 98.8% TENANT CLASSIFICATION BY GROSS INCOME 19.4% 29.8% Listed Company/Subsidiary Government Authority Private Company 50.8% Nationwide, there has been an increase in valuations for assets with long leases and a decrease in valuation for some assets with vacancy or short term lease proﬁ les. We believe there is potential for further increases in value. Rents are also showing signs of bottoming although we expect the recovery to be slow. Cromwell’s portfolio has a very strong tenant proﬁ le, with Government tenants contributing 50.8% of rental income and listed companies or their subsidiaries a further 29.8% of rental income. The portfolio has a Weighted Average Lease Expiry (WALE) of 5.9 years and vacancy of just 3.2%, which compares favourably with the national CBD ofﬁ ce average of 12.2%. Cromwell has consistently maintained occupancy above national benchmark occupancy rates, which we believe is a result of our internal management model that continues to create additional value over time. We continuously seek to adjust our portfolio ahead of changing market conditions and during FY14 we sold six assets for a total of $253 million. Post balance date we also completed the sale of 321 Exhibition St in Melbourne for $205 million, resulting in total sales of $458 million. The assets we sold had delivered good historical returns. However, our assessment was that their risk/return proﬁ les were unlikely to meet our future expectations and that the capital invested in those assets should be redeployed elsewhere. 10 C ROMW ELL 20 1 4 ANNUAL REPORT 100 Waymouth Street: Adelaide, SA CROMWELL 2014 ANNUAL RE PORT 11 Cromwell’s strategy remained unchanged: to provide defensive, superior risk-adjusted returns from commercial properties we own and manage in Australia. QANTAS Global Headquarters: Sydney, NSW portfolio assets sold 12 C ROMW ELL 20 1 4 ANNUAL REPORT 321 EXHIBITION STREET MELBOURNE, VIC NQX DISTRIBUTION CENTRE PINKENBA, QLD A further enhancement to our Sydney portfolio occurred in January 2014, when the $131 million Qantas Global Headquarters refurbishment was completed on time and on budget. LATROBE STREET & HOMEBASE CENTRE N O L L $154M SOLD I I Four of the assets sold were industrial properties, which achieved a total price of $100.85 million representing a 4% premium to their book value as at June 2013. The assets were the NQX Distribution Centre at Pinkenba in Queensland, the Brooklyn Woolstore at Brooklyn in Victoria, the Gillman Woolstore at Gillman in South Australia, and 28-54 Percival Road at Smithﬁ eld in New South Wales. In November 2013, Cromwell sold an ofﬁ ce property at 380-390 La Trobe Street Melbourne and the HomeBase bulky goods centre at Prospect in NSW to separate purchasers for a total of $154 million. The La Trobe Street property was a major disposal, selling for $113.6 million, which approximated book value, while the HomeBase centre was sold for $40.45 million, which represented a premium of approximately 9.6% to book value. The disposal of 321 Exhibition Street was the largest by Cromwell in a number of years and followed an extensive refurbishment undertaken between July 2010 and August 2011. Whilst we took what some would describe as a substantial risk in acquiring and retroﬁ tting that asset in 2010, we were conﬁ dent in our assessment of the market and in our ability to reposition the building. The resulting capital gain on sale demonstrated our ability to add value in difﬁ cult markets and to effectively manage the risks associated with complex redevelopment of major ofﬁ ce buildings. Some of the capital from these sales was recycled into an investment in Northpoint Tower in North Sydney, some of the capital was applied to the reduction of debt and the balance was retained for future opportunities. Northpoint Tower, which was acquired for $278.7 million, is the foundation asset for a new unlisted wholesale investment trust, the Cromwell Partners Trust. The Trust is managed by Cromwell and is owned 50/50 by Cromwell and South African property investment group Redeﬁ ne Properties Limited, which is also a major Cromwell securityholder. We believe there is a great opportunity to improve the property by repositioning its retail offering, adding additional accommodation, and in improving car parking and commercial ofﬁ ce rentals. Northpoint is North Sydney’s tallest and most recognisable ofﬁ ce tower with a total land area of more than 5,000sqm and a net lettable area of 35,145sqm spread across 42 levels. As a result of the acquisition of the NSW Portfolio in June 2013 and Northpoint Tower in December 2013, Cromwell now has a much larger exposure to Sydney ofﬁ ce property. Our Sydney portfolio was further enhanced in January 2014, with the completion of the $131 million expansion and refurbishment of the Qantas Global Headquarters at Mascot. The project was completed on time and on budget and allowed Qantas to consolidate seven sites into one, resulting in $8.5 million in annual savings for the airline. As part of the transaction, Qantas extended its lease of the site to 2032 in a true win/win for Cromwell and Qantas. Our increased portfolio allocation to the Sydney market was no accident, and was based on our view that Sydney would beneﬁ t most strongly from the transition in the Australian economy after the fall in the Resource development sector. Our view has been vindicated by the recent decline in vacancy rates in the Sydney market and the rising expectation of effective rental growth in that market. BROOKLYN WOOLSTORE BROOKLYN, VIC GILLMAN WOOLSTORE GILLMAN, SA PERCIVAL ROAD SMITHFIELD, NSW 380 LATROBE STREET MELBOURNE, VIC HOMEBASE CENTRE PROSPECT, NSW CROMWELL 2014 ANNUAL RE PORT 13 Funds management Within FY14 the Group had a 65% increase in earnings from external funds management activities to $5.5 million. Cromwell now has external assets under management of $1.3 billion and total assets under management of more than $3.7 billion. Cromwell continued to expand and diversify its range of managed investments during the period, launching three new unlisted property trusts; the Cromwell Property Trust 12 (which has closed) and two funds that remain open for investment – the Cromwell Direct Property Fund and the Cromwell Australian Property Fund. All of the new funds have demonstrated strong short term performance. Cromwell also took its ﬁ rst step to expand overseas, with the acquisition of a 50% stake in New Zealand property and fund manager Oyster Group for NZ$7.5 million in June 2014. As part of the transaction, Cromwell’s New Zealand based Director Michelle McKellar has been appointed Chair of the Oyster Group. The structure of the investment has been based on the successful Phoenix Portfolios model, which incentivises management to build the business with the assistance of Cromwell’s expertise, systems and capital. Oyster has more than NZ$650 million in property assets under management through a combination of private property syndicates and institutional property mandates. This is comprised of 24 separate unlisted funds with a combined value of NZ$343 million and NZ$315 million of assets managed for institutional investors. The Oyster business has many similarities to Cromwell and provides a solid platform for our expansion into New Zealand. The Oyster management team is very capable and experienced and is culturally and philosophically aligned to Cromwell and has a strong track record of performance. Closer to home, the award-winning Cromwell Phoenix Property Securities Fund continued to experience large monthly inﬂ ows, with funds under management growing to $559 million at 30 June, 2014. Our reputation and track record continues to grow with each successful investment and we are experiencing growing demand from large dealer groups for our retail products due to our strong historical performance and premium ratings. We maintain our long-term goal for Funds Management to contribute 20% of Cromwell Group earnings. We continue to remain vigilant for opportunities to proﬁ t from our “opportunistic assets”. Bligh House in Sydney, acquired as part of the NSW Portfolio, has the potential for conversion to hotel or residential use when the lease expires in 2018, or for refurbishment to A-Grade ofﬁ ce accommodation. We have received offers from a number of developers to acquire the asset at a premium to our acquisition cost and to current book value. Another signiﬁ cant repositioning opportunity exists at Health and Forestry House in Brisbane, which has the potential for conversion to hotel or residential use or for refurbishment to ofﬁ ce accommodation at lease expiry. Cromwell’s funds management business is an important asset to the Group, with the potential to signiﬁ cantly enhance revenue. I O T G N W O R G FUNDS UNDER MANAGEMENT $1.3 B N O L L I I ASSETS UNDER MANAGEMENT Property Securities External Direct Internal n o i l l i B $ 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 1 0 e n u J 3 0 e n u J 5 0 e n u J 7 0 e n u J 9 0 e n u J 1 1 e n u J 3 1 e n u J 4 1 e n u J 1 a m r o F o r P 4 1 e n u J 1.) Assumes completion of property currently under construction. 14 C ROMW ELL 20 1 4 ANNUAL REPORT Investor base growing fast • Over 6,000 fund investors • Over 14,000 Cromwell securityholders • Over 27,000 potential investors City Heart Building: Ipswich, QLD CROMWELL 2014 ANNUAL RE PORT 15 Capital management NTA per security increased during the year from $0.70 to $0.73, primarily as a result of property revaluations. We reduced gearing from 46% at the end of FY13 to 42% at the end of FY14. Following the post balance date sale of Exhibition Street, gearing has been further reduced to 37%, which is at the lower end of the Group’s preferred range of 35-55%. Our gearing strategy recognises that gearing is relative to the strength of underlying cash ﬂ ows and allows for higher gearing when asset prices are low, and lower gearing when asset values rise. This consistent strategy has allowed us to proﬁ t from changing market conditions throughout the cycle. The most important capital management initiative during the year was the restructuring of our debt platform. Cromwell ﬁ nalised a new $1.02 billion debt platform to replace seven existing facilities. The platform consolidated all but two of Cromwell’s existing debt facilities. The new facility under the platform extended Cromwell’s weighted average debt maturity from 1.4 years to 3.9 years and reduced the weighted average margin across all facilities by approximately 0.16%. Under the new facility, borrowings are secured, on a limited recourse basis, by a pool of assets comprising the majority of Cromwell’s portfolio. The facility is structured as separate tranches provided by each lender. The platform provides Cromwell with greater ﬂ exibility for its future funding needs, as it allows for the issue of additional tranches to acquire new assets or reﬁ nance existing facilities. The new facility is both ﬂ exible and cost effective, and provides an innovative platform from which we can continue to improve and grow our property portfolio and recycle capital. In August 2014, Cromwell took advantage of the historically low interest rate/low volatility environment, to extend our hedging proﬁ le and substantially protect our securityholders against any future substantial increases in interest rates for the next 5 years. The Group entered into a series of interest rate caps which, when combined with existing swaps, hedges $1 billion of Cromwell’s debt until May 2019. The new arrangements CMW HEDGING PROFILE $1,200M $1,000M $800M $600M $400M $200M $M Capped at maximum 3.39%1 Fixed through existing swap proﬁ le 4 1 c e D 5 1 n u J 5 1 c e D 6 1 n u J 6 1 c e D 7 1 n u J 7 1 c e D 8 1 n u J 8 1 c e D 9 1 y a M 1. Excludes facility margins, which average 1.6% 16 C ROMW ELL 20 1 4 ANNUAL REPORT 100 Waymouth Street: Adelaide, SA 207 Kent Street: Sydney, NSW We continue to maintain our preference for commercial ofﬁ ce property, which now comprises 98.8% of our portfolio. DIRECT PROPERTY RETURNS Cromwell Property Group IPD Benchmark Excess Returns % 9 . 9 % 5 . 9 % 3 . 0 1 % 0 . 9 % 8 . 0 1 % 5 . 9 % 6 . 1 1 % 5 . 9 % 3 . 1 % 3 . 1 % 1 . 2 % 4 . 0 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 3 year 5 years 10 years 15 years Source: IPD LEASE EXPIRY PROFILE % GROSS INCOME BY FINANCIAL YEAR Outlook In the year ahead, we expect to see continued demand for property with long leases, while demand for CBD assets will expand to include near city and suburban locations. Australian ofﬁ ce yields are still high by international standards, suggesting demand from overseas investors will continue to drive yields down, and prices up. Notwithstanding, and perhaps contrary to the strength in investment markets, we expect rents to remain under pressure in the short term across all sectors. We will be partially insulated from these conditions because our assets have low vacancy levels and minimal lease expiries in FY15. Over the medium term, we have a number of larger lease expiries in FY16 and FY17. We are working hard to ensure the best outcome in each case for our securityholders. Active management and access to capital will be the keys to future performance. We will continue to adjust our portfolio ahead of changing market conditions. We will also maintain a strong balance sheet with low debt and good cash reserves that leaves us well positioned to take advantage of any opportunities that arise if there is any market correction or downturn. We have delivered consistent and growing distributions throughout the economic cycle. This continues to be our priority for the future. 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 40.9% We have forecast FY15 EPS of at least 8.3 cps and DPS of 7.85 cps, representing 3% growth over FY14. 24.1% 17.2% 8.3% FY16 FY17 FY18 Thereafter 2.4% Vacant 7.1% FY15 I would like to thank all our staff for their efforts during the year and the Board for their advice and guidance over the last 12 months. Our success is very much the result of a team effort. CROMWELL 2014 ANNUAL RE PORT 17 contents 20 Directors’ Report 43 Auditor’s Independence Declaration 44 Consolidated Statements of Comprehensive Income 45 Consolidated Statements of Financial Position 46 Consolidated Statements of Changes in Equity 47 Consolidated Statements of Cash Flows 48 Notes to the Financial Statements 99 Directors’ Declaration 100 Independent Auditor’s Report 102 Corporate Governance Statement 109 Securityholder information 18 C ROMW ELL 20 1 4 ANNUAL REPORT 0 ﬁ nancials Cromwell Property Group Annual Financial Report 30 June 2014 Cromwell Corporation Limited ABN 44 001 056 980 Level 19, 200 Mary Street Brisbane QLD 4000 Cromwell Diversiﬁ ed 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 Northpoint Tower: Sydney NSW CROMWELL 2014 ANNUAL RE PORT 19 directors’report The directors of Cromwell Corporation Limited and Cromwell Property Securities Limited as Responsible Entity for the Cromwell Diversiﬁ ed Property Trust (collectively referred to as “the Directors”) present their report together with the consolidated ﬁ nancial statements for the year ended 30 June 2014 for both: • the Cromwell Property Group (“Cromwell”) consisting of Cromwell Corporation Limited (“the Company”) and its controlled entities and Cromwell Diversiﬁ ed 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 Cromwell. 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 ﬁ nancial 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 Ofﬁ cer of Investec Bank (Australia) Ltd. He is currently Chairman of ASX listed Specialty Fashion Group Limited and Monash Private Capital. He was appointed an Ofﬁ cer in the Order of Australia in the Queen’s Birthday Honours List in June 2005. Mr Levy has extensive experience in the corporate advisory and banking environment where he is regarded as an expert in mergers and acquisitions, venture capital, capital management and general corporate commercial law. He has been a Director of a number of ASX-listed companies and has degrees in commerce and law. He is a member of Cromwell’s Nomination and Remuneration and Investments Committees. 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 ﬁ rm, 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 commercial property and portfolio management experience having spent over 30 years in senior roles throughout the Asia-Paciﬁ c. Ms McKellar was responsible for establishing the CBRE business in New Zealand and subsequently served as the Hong Kong based Managing Director and overseeing the company’s Greater China operations. She then served as the CEO of Jen Group of companies building a billion dollar portfolio of commercial and retail properties across Australia and New Zealand. Ms McKellar is also a founding Director of China-based Dash Brands. She is a senior member of the Property and Land Economy Institute, and a Fellow of the Australian Institute of Company Directors. Ms McKellar is a member of Cromwell’s Nomination & Remuneration, Audit and Risk and Investment Committees and is Chair of Oyster Group, Cromwell’s joint venture Funds Management company in New Zealand. Mr David Usasz – Non-Executive Director Mr Usasz has 31 years experience (partner 20 years) with PricewaterhouseCoopers in Australia and Hong Kong and has been involved in tax, merger and acquisition advice, corporate advisory consultancy, specialising in corporate reorganisations. He is a Non-Executive Director of Queensland Investment Corporation Ltd and a member of the QIC Audit & Risk Committee and a member of QIC’s Nomination & Remuneration Committee. He holds a Bachelor of Commerce UQ , a Fellow of the Institute of Chartered Accountants and a Fellow of the Australian Institute of Company Directors. 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 Cromwell’s investment products. Mr Foster is a member of Cromwell’s Nomination & Remuneration and Investment Committees. 20 C ROMW ELL 20 1 4 ANNUAL REPORT Geoffrey H Levy, AO NON-EXECUTIVE CHAIRMAN 7/30* Paul Weightman MANAGING DIRECTOR / CEO 16/30* Daryl Wilson DIRECTOR – FINANCE & FUNDS MANAGEMENT 15/23* Robert Pullar NON-EXECUTIVE DIRECTOR 12/28* Michelle McKellar NON-EXECUTIVE DIRECTOR 8/30* Michael Watters NON-EXECUTIVE DIRECTOR 5/28* Richard Foster NON-EXECUTIVE DIRECTOR 16/45* Marc Wainer NON-EXECUTIVE DIRECTOR 5/38* David Usasz NON-EXECUTIVE DIRECTOR 8/36* Nicole Riethmuller COMPANY SECRETARY 6/17* *Years with Cromwell/years experience 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 Ofﬁ cer and an Executive Director of listed South African property group Redeﬁ ne Properties Limited which he founded, and a director of Redeﬁ ne International P.L.C., a listed property investment company which is a substantial securityholder of Cromwell Property Group. Mr Michael J Watters – Non-Executive Director Mr Watters who was appointed in April 2011, is a qualiﬁ ed engineer with a BSc Eng. (Civil) Degree and an MBA, and has over 27 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 Redeﬁ ne International P.L.C. Mr Paul Weightman – Managing Director/ Chief Executive Ofﬁ cer 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, ﬁ nancial 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 acted as Chief Executive Ofﬁ cer 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 ﬁ nance 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. Mr Cannings is also an alternate director to Mr Marc Wainer and was appointed on 19 February 2014. All Directors of the Company are also Directors of Cromwell Property Securities Limited, the Responsible Entity of the 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 Redeﬁ ne International P.L.C., a property investment company which is listed on the London Stock Exchange and a Director of Redeﬁ ne Properties Limited, a property group which is listed on the Johannesburg Stock Exchange. Mr Watters is a Director of Redeﬁ ne International P.L.C., 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 ﬁ nancial year and up to the date of this report. CROMWELL 2014 ANNUAL RE PORT 21 (c) Company secretary Ms Nicole Riethmuller Ms Riethmuller has over 15 years experience as a corporate lawyer having worked primarily in the ﬁ nancial 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. (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 ﬁ nancial year were: Director Board Nomination & Remuneration Committee Audit & Risk Committee Investment Committee Geoffrey Levy Robert Pullar Michelle McKellar David Usasz Richard Foster Marc Wainer (1) Michael Watters (2) Paul Weightman Daryl Wilson A 10 10 11 10 12 10 12 12 12 B 12 12 12 12 12 12 12 12 12 A 1 3 2 2 2 - - - - B 1 3 3 3 3 - - - - A - 7 9 8 - - - - - B - 9 9 9 - - - - - A 1 5 6 - 6 - - 5 5 B 2 6 6 - 6 - - 6 6 B – Number of meetings eligible to attend A – Number of meetings attended (1) From February 2014, includes attendance by alternate director Geoffrey Cannings. (2) Includes attendance by alternate director Geoffrey Cannings. 2. PRINCIPAL ACTIVITIES The principal activities of Cromwell and the Trust during the ﬁ nancial year consisted of property investment. The principal activities of Cromwell also include funds management, property management and property development. There were no signiﬁ cant changes in the nature of Cromwell’s or the Trust’s principal activities during the ﬁ nancial year. 22 C ROMW ELL 20 1 4 ANNUAL REPORT 3. DIVIDENDS/DISTRIBUTIONS Cromwell 2014 Interim distribution Interim distribution Interim distribution Final distribution 2013 Interim distribution Interim distribution Interim distribution Final distribution Trust 2014 Interim distribution Interim distribution Interim distribution Final distribution 2013 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 – – – – – – – – – – 1.8750¢ 1.8750¢ 1.9375¢ 1.9375¢ 7.6250¢ 1.8125¢ 1.8125¢ 1.8125¢ 1.8125¢ 7.2500¢ 1.8750¢ 1.8750¢ 1.9375¢ 1.9375¢ 7.6250¢ 32,234 32,278 33,416 33,466 131,394 1.8125¢ 21,243 1.8125¢ 22,874 1.8125¢ 1.8125¢ 7.2500¢ 26,481(1) 31,061(2) 101,659 – – – – – – – – – – 30/09/13 13/11/13 31/12/13 12/02/14 31/03/14 14/05/14 30/06/14 14/08/14 05/10/12 31/12/12 28/03/13 28/06/13 14/11/12 13/02/13 15/05/13 15/08/13 Dividend per Security Distribution per Security Total per Security Total $’000 Franked amt per Security Record Date Payment Date – – – – – – – – – – 1.8750¢ 1.8750¢ 1.9375¢ 1.9375¢ 7.6250¢ 1.8125¢ 1.8125¢ 1.8125¢ 1.8125¢ 7.2500¢ 1.8750¢ 1.8750¢ 1.9375¢ 1.9375¢ 7.6250¢ 32,239 32,282 33,416 33,466 131,403 1.8125¢ 21,248 1.8125¢ 22,879 1.8125¢ 1.8125¢ 7.2500¢ 26,486(1) 31,066(2) 101,679 – – – – – – – – – – 30/09/13 13/11/13 31/12/13 12/02/14 31/03/14 14/05/14 30/06/14 14/08/14 05/10/12 31/12/12 28/03/13 28/06/13 14/11/12 13/02/13 15/05/13 15/08/13 (1) Includes an amount of $453,000 for both Cromwell and the 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 Cromwell and the 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. . 4. REVIEW OF OPERATIONS AND RESULTS (a) Financial performance Cromwell recorded a proﬁ t of $182,471,000 for the year ended 30 June 2014 compared with a proﬁ t of $46,156,000 for the previous year. The Trust recorded a proﬁ t of $177,950,000 for the year ended 30 June 2014 compared with a proﬁ t of $43,291,000 for the previous year. Net earnings from the property portfolio, after property outgoings costs but before interest expense was $214,387,000, an increase of 24% on the previous year. The increase was primarily as a result of additional rental income generated due to the acquisition of the Brisbane CBD properties (acquired May 2013) and the NSW Portfolio (acquired June 2013) and the increased rental income from Qantas Headquarters (due to expansion of the property). Cromwell also measures the change in like for like net property earnings, taking into account only properties held in both the current and previous ﬁ nancial years. On this basis, net property earnings increased by 1.4% in 2014 despite a very difﬁ cult leasing environment. This demonstrates the value of the strong leasing proﬁ le of the portfolio combined with the in house management which enables it to get the best out of each property. CROMWELL 2014 ANNUAL RE PORT 23 Interest expense for the year increased to $70,025,000 (2013: $67,715,000). This increase occurred as a result of the additional borrowings for properties acquired during the prior year and because interest incurred in relation to the Qantas Headquarters is no longer being capitalised into the cost of the project. The average interest cost fell during the year from 6.43% to 5.99%. This fall in average rate reﬂ ected a reduction in loan facility margins and lower variable interest rates as the Reserve Bank reduced the cash rate early in the year. External funds management earnings increased from $3,330,000 in 2013 to $5,491,000 in 2014, reﬂ ecting the continuing success of Cromwell 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 Cromwell with additional growth to complement the 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. Cromwell does not seek to undertake any material amount of speculative development. The proﬁ t 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 Cromwell and the Trust’s underlying proﬁ t from operations. The most signiﬁ cant of these items impacting the proﬁ t of Cromwell for 2014 and not considered part of the underlying proﬁ t from operations were: • An increase in the fair value of investment properties of $46,226,000 (2013: decrease $55,747,000); and • An increase in the fair value of interest rate derivatives of $5,222,000 (2013: increase of $7,326,000). The increase in fair value of investment properties had two signiﬁ cant components. The underlying valuations for investment properties increased by $40,240,000 during the year, net of property improvements, leasing incentives and lease costs. This is equivalent to an increase in value of approximately 2.3 cents per stapled security from June 2013 valuations. These increases were generally concentrated in properties with longer leases such as the Qantas Headquarters in Sydney, Exhibition Street in Melbourne and Kent Street in Sydney, where properties have increased in value as demand for assets with secure cash ﬂ ows increases. In contrast, properties with short to medium-term lease expiries or current vacancies such as Mary Street in Brisbane, Tuggeranong Ofﬁ ce Park and Keltie Street in Canberra have seen decreases in fair value. This is reﬂ ective of the current soft economic conditions and a more difﬁ cult leasing market. 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) Increase/(decrease) in fair value of investment properties Cromwell 2014 $’000 40,240 5,986 – 46,226 2013 $’000 (32,830) 3,455 (26,372) (55,747) The increase in fair value of interest rate derivatives arose as a result of Cromwell’s policy to hedge a portion of future interest expense. Cromwell has hedged future interest rates through contracts over 87% of its debt at 30 June 2014 to minimise the risk of changes in interest rates in the future. These contracts expire between October 2014 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 ﬁ nancial result included an increase in fair value of these interest rate derivatives (contracts) held by the Trust of $5,222,000 or 0.3 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 proﬁ t or loss are expected to reverse over time as the interest rate contracts expire. (b) Proﬁ t from operations Proﬁ t from operations for the year was $146,721,000 (2013: $102,411,000). Proﬁ t from operations is considered by the Directors to reﬂ ect the underlying earnings of Cromwell and the 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 Cromwell’s auditor. 24 C ROMW ELL 20 1 4 ANNUAL REPORT In the current year the calculation of proﬁ t from operations has been amended slightly to include the cost of securities issued under the performance rights plan. The impact of this change has been to reduce proﬁ t from operations in the current year by $731,000. Except for this charge, proﬁ t from operations has been calculated consistently since the stapling of Cromwell in December 2006. A reconciliation of proﬁ t from operations of Cromwell, as assessed by the Directors, to the reported proﬁ t for the year is as follows: Proﬁ t from operations(1) Reconciliation to proﬁ t 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 proﬁ t or loss Non-cash property investment income/(expense): Straight-line lease income Lease incentive amortisation Lease cost amortisation Other non-cash expenses: Amortisation of ﬁ nance costs Employee options expense Amortisation and depreciation Relating to equity accounted investments(2) Net tax losses incurred/(utilised)(3) Net proﬁ t for the year Cromwell 2014 $’000 2013 $’000 146,721 102,411 3,152 (559) – 46,226 5,222 85 5,648 (10,180) (1,454) 132 (146) (631) (55,747) 7,326 47 6,071 (8,042) (1,484) (4,025) (2,581) – (758) (7,973) 366 (669) (643) 481 (369) 182,471 46,156 (1) Segment proﬁ t for 2013 (refer note 36) differs from the above calculation of proﬁ t from operations by $669,000 which is the impact of recording the cost of securities issued under employee securities plans as a segment expense. This change in calculation has been adjusted for in the comparatives for the segment reporting. (2) Comprises fair value adjustments included in share of proﬁ t o f equity accounted entities. (3) Comprises tax expense attributable to changes in deferred tax assets recognised as a result of carried forward tax losses. The contribution to proﬁ t from operation of each of the 4 segments of Cromwell was: Property Investment Property/ Internal Funds Management External Funds Management Property Development Proﬁ t from operations 2014 % 2014 $’000 94.5% 138,616 2.0% 3.7% (0.2%) 2,839 5,491 (225) 146,721 2013 % 94.2% 3.0% 3.3% (0.5%) 2013 $’000 96,510 3,086 3,330 (515) 102,411 Property Investment contributed $138,616,000 or 94.5% of proﬁ t from operations for the year (2013: $96,510,000 or 94.2%). (c) Earnings and Distributions per stapled security Proﬁ t per security (per statutory accounts) Proﬁ t from operations per security (see section 4(b)) Distributions per security 2014 Cents 10.60 8.52 7.63 2013 Cents 3.44 7.63 7.25 CROMWELL 2014 ANNUAL RE PORT 25 Proﬁ t from operations on a per security basis is considered by the Directors to be the most important measure of underlying ﬁ nancial performance as it excludes certain volatile and non-cash items but includes the impact of changes in the number of securities on issue. Proﬁ t from operations per security was 8.52 cents (2013: 7.63 cents). This represents an increase of approximately 11.7% which is considered exceptional given the current market conditions. Distributions paid for the year were 7.63 cents (2013: 7.25 cents), including a June 2014 quarter distribution of 1.9375 cents per stapled security paid on 14 August 2014. This represents a growth in distributions per security of 5.2% in 2014. Growing distributions per security in a sustainable way remains a key priority in the future. (d) Financial Position Total assets ($’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. Cromwell Trust 2014 2013 2014 2013 2,469,940 2,546,110 2,403,658 2,487,254 1,263,998 1,200,852 1,203,631 1,145,462 1,261,606 1,199,018 1,203,631 1,145,462 983,894 1,106,787 1,034,263 1,157,594 42% 46% 44% 48% 1,727,281 1,713,721 1,727,281 1,713,996 $0.73 $0.75 $0.70 $0.72 $0.70 $0.71 $0.67 $0.69 A total of 15 property assets were externally revalued at June 2014, representing approximately 49% 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 8.08% across the portfolio, compared with 8.51% at June 2013. Net debt has decreased by $122,893,000 due to the proceeds of the disposal of several buildings being used to repay borrowings. Gearing also decreased from 46% to 42% during the year as a result of buildings acquired in the prior year having a lower loan to value ratio than those disposed of during the current year. During the year the majority of debt facilities were reﬁ nanced and extended. This resulted in the weighted average debt term increasing to 4.2 years at 30 June 2014. An additional 13,559,000 stapled securities were issued during the year, at an average issue price of $0.88, comprising the continuing operation of the distribution reinvestment plan which resulted in the issue of 11,188,000 securities during the year, whilst a further 2,372,000 were issued due to the exercise of performance rights. NTA per security has increased during the year from $0.70 to $0.73, primarily as a result of the increase in value of investment properties. NTA per security excluding the value of interest rate contracts increased to $0.75 per security. 5. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS Changes in the state of affairs of Cromwell during the ﬁ nancial year are set out within the ﬁ nancial report. There were no signiﬁ cant changes in the state of affairs of Cromwell during the ﬁ nancial year other than as disclosed in this report and the accompanying ﬁ nancial report. 26 C ROMW ELL 20 1 4 ANNUAL REPORT 6. SUBSEQUENT EVENTS Other than as set out in note 41, no matter or circumstance has arisen since 30 June 2014 that has signiﬁ cantly affected or may signiﬁ cantly affect: • Cromwell’s operations in future ﬁ nancial years; or • the results of those operations in future ﬁ nancial years; or • Cromwell’s state of affairs in future ﬁ nancial years. 7. LIKELY DEVELOPMENTS The outlook remains positive for Cromwell despite the continuing sluggish pace of economic growth in Australia. The property portfolio was 98% leased at year-end, with a 6.1 year weighted average lease term. Importantly, tenant quality is strong, with 45.8% of rental income at balance date underpinned by Government or Government owned/funded entities and a further 37.1% by listed companies or their subsidiaries. Cromwell’s property portfolio is expected to continue to deliver consistent operating earnings in coming years, although this will to some degree be dependent upon the impact of future economic conditions on portfolio occupancy. Cromwell will also continue to focus on increasing operating earnings from funds management activities over the medium term. Cromwell has reduced gearing over the past 2 years and expects to reduce gearing further over time. Cromwell also aims to grow net tangible assets per security 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 signiﬁ cant environmental regulation under a law of the Commonwealth, State or Territory relevant to Cromwell. 9. DIRECTORS’ INTERESTS The interests of current Directors in stapled securities of Cromwell 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 Performance Rights Options over Securities 2,777,630 6,500,000 792,211 2,405,000 3,311,765 – – 80,000 – – – – – – – – 16,921,500 4,198,321 1,350,775 1,670,551 33,884,916 5,868,872 – – – – – – – – – – – CROMWELL 2014 ANNUAL RE PORT 27 10. OPTIONS AND PERFORMANCE RIGHTS (a) Securities under option through the Performance Rights Plan Cromwell 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 Exercise date Exercise price Expiry date 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 18/12/13 18/12/13 18/12/13 18/12/13 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 01/07/14 – 01/08/14 01/07/15 – 01/08/15 01/07/14 – 01/08/14 01/07/15 – 01/08/15 01/09/16 – 01/10/16 01/09/16 – 01/10/16 01/09/16 – 01/10/16 01/12/16 – 01/01/17 Performance rights on issue $0.50 $0.50 $0.20 $0.00 $0.10 $0.00 $0.20 $0.00 $0.20 $0.00 $0.00 $0.20 $0.20 $0.00 $0.10 $0.50 $0.50 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 01/08/14 01/08/15 01/08/14 01/08/15 01/10/16 01/10/16 01/10/16 01/01/17 Number 1,913,333 1,913,334 393,679 590,622 52,851 81,581 82,142 150,018 229,110 55,563 55,563 60,292 60,292 789,955 46,303 893,465 2,042,205 9,410,308 Performance rights on issue at 30 June 2014 represent 0.54% 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 rights holders effectively have a matching in-substance option for units in Cromwell Diversiﬁ ed Property Trust as a result of Cromwell’s stapling arrangement. No other form of option is on issue at the date of this report. Securities issued on the exercise of performance rights through the Performance Rights Plan (b) The following stapled securities were issued during the year ended 30 June 2014 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 Issue Price of Securities No. of Securities Issued 23 August 2010 23 August 2010 23 August 2010 7 March 2011 26 May 2011 19 October 2012 19 October 2012 $0.00 $0.10 $0.20 $0.00 $0.50 $0.00 $0.20 101,378 47,433 95,894 97,633 1,913,333 55,561 60,292 2,371,524 11. REMUNERATION REPORT The remuneration report is presented for the ﬁ nancial year ending 30 June 2014. 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) Performance assessment 28 C ROMW ELL 20 1 4 ANNUAL REPORT (c) Details of remuneration (d) Equity based compensation (e) Employment contracts and termination provisions (f) Details of equity instrument holdings, loans, etc. (a) Remuneration principles (i) Governance Cromwell 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 setting and achieving objectives that best serve the interests of Cromwell’s securityholders. Cromwell’s remuneration strategy is designed to align behaviours with the Group’s objectives. Board sets Strategic Objectives for Cromwell > Objectives Consistent returns that exceed benchmarks through each market cycle Portfolio that balances defensive assets with “value add” assets Active asset management Prudent risk management and mitigation Good capital management • Accretive capital raisings • WADE proﬁ le appropriate to market conditions • Gearing – 35% at market peak to 55% at market trough • Hedging proﬁ le assists in ensuring consistent income Maintain articulated investment allocation policy for Group portfolio, unlisted funds & co-investments Grow earnings from opportunistic / value add activities and expansion of funds management platform Corporate values are known and lived by all staff > KMP’s role, qualiﬁ cations and experience Develop speciﬁ c KMP Key Performance Indicators > • Financial • Customer focussed • Business Processes • Learning & Growing Balanced scorecard assessment Market Competitive Remuneration > KMP Remuneration Packages • Fixed Pay • Short term incentives (“STI”)– • Long term incentives (“LTI”) Speciﬁ c to each KMP Merit Based Remuneration Attract, retain and motivate > > > > > Alignment between Objectives and KMP Behaviours CROMWELL 2014 ANNUAL RE PORT 29 Objectives Fundamentally, the Cromwell Property Group aims to support or enhance its operating earnings per security in any given ﬁ nancial year in a way that does not unduly increase the risk proﬁ le of Cromwell. Cromwell also seeks to operate within a framework that facilitates both sustainable growth and Cromwell outperforming its peers in the medium - long term. Cromwell believes its past performance supports its view that the best way to achieve its objectives, and thus serve the interests of securityholders, is to provide a remuneration package to its employees, and particularly KMPs, that is designed to incentivise them to outperform by speciﬁ cally linking their remuneration to their particular role and responsibilities. Cromwell’s key ﬁ nancial measures for the last ﬁ ve years are set out below: Operating earnings per security (as assessed by the Directors) 8.5 cents 7.6 cents 7.5 cents 7.1 cents 8.5 cents 2014 2013 2012 2011 2010 Change over previous year Distributions per security Change over previous year NTA per security (excl. interest rate swaps) Change over previous year Gearing Change over previous year 12% 1% 6% (16%) (12%) 7.6 cents 7.3 cents 7.0 cents 7.0 cents 8.0 cents 4% 4% 0% $0.75 $0.72 $0.71 4% 42% (4%) 1% 46% (5%) (3%) 51% 2% (13%) $0.73 3% 49% 1% (11%) $0.71 (8%) 48% (5%) Cromwell’s Total Securityholder Return (“TSR”) over the last 1, 3 and 5 years relative to benchmark indices is shown below. Given Cromwell’s focus on medium – longer term returns relative to its peers, emphasis is given to performance over 3 and 5 year periods against the S&P/ASX 300 A-REIT Accumulation Index: Total Securityholder Returns (annualised) TSR – Cromwell 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 3 Year 5 Year 7.9% 11.1% (3.2%) 17.6% (9.7%) 22.4% 15.2% 7.2% 9.7% 12.7% 24.5% 14.3% 10.2% 11.0% 13.5% Performance Assessment The key performance indicators (KPIs) for each KMP take into account their role within Cromwell generally as well as their expected contribution to the achievement of Cromwell’s objectives. The KPIs are designed to best incentivise each KMP to meet Cromwell’s objectives and therefore best serve the interests of securityholders. Although the speciﬁ c KPIs are different for each of the KMP, the overriding principles in accordance with which they are determined are the same. The principles involve the assessment of each KMP’s performance according to a traditional balanced scorecard methodology. The balanced scorecard methodology assigns performance and responsibility criteria across four broad categories. These categories are: Financial Measures: Includes both the performance of Cromwell and the employees’ business unit. Cromwell focuses on maintaining individual securityholder alignment by using operating earnings per security as the major short term ﬁ nancial metric. Other short term ﬁ nancial metrics include distributions per security, changes in NTA per security (excluding interest rate swaps) and gearing. The key long term ﬁ nancial metric is TSR over rolling 3 and 5 year periods relative to the S&P/ASX 300-A-REIT Accumulation Index. Internal Business Measures: Concentrate on improvement of people, systems and processes to create efﬁ ciency and accuracy to support long term business growth. The processes emphasise adherence to governance requirements. Customer Focussed Measures: Cromwell surveys securityholders, tenants, fund investors and other stakeholders to ascertain customer relationship trends and set KPIs for employees to meet the needs identiﬁ ed 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 Cromwell. 30 C ROMW ELL 20 1 4 ANNUAL REPORT The weightings of these categories for any individual are set and assessed in consideration of their role, qualiﬁ cations and experience. However, generally the weightings will be within the bands set out below: Financial Measures: 40 – 70% Customer Measures: 10 – 30% Internal Business Measures: 10 – 30% Innovation & Learning Measures: 10 – 30% For all KMP except the Chief Executive Ofﬁ cer and Non-Executive Directors, the Chief Executive Ofﬁ cer is responsible for setting KPI targets and assessing annually whether those targets have been met. The KPI targets for the Chief Executive Ofﬁ cer are set, revised and reviewed annually by the Committee or the Board. Remuneration Packages Fixed Pay All employees, including all KMP (other than Non-Executive Directors) receive a remuneration package that includes a ﬁ xed pay component. KMP are remunerated at the market median level of their ﬁ xed pay, adjusted for factors such as the external market environment and the employee’s position, qualiﬁ cations, period of service and responsibility within Cromwell. In assessing the level of ﬁ xed pay relative to the market, 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 ﬁ nancial 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. In the 2014 ﬁ nancial year, 21 employees received short term incentives (2013: 21), 5 of whom were KMP (including the Chief Executive Ofﬁ cer and Finance Director). Cromwell does not generally take into account non-ﬁ nancial performance indicators in assessing whether or not relevant employees are entitled to short term incentives. In the 2014 ﬁ nancial year no non-ﬁ nancial performance indicators were used when assessing whether short term incentives were payable. All short term incentive payments related to ﬁ nancial performance indicators occurring within the ﬁ nancial year. Short term incentives are generally paid as cash bonuses. Long term incentives The granting of long term incentives is considered to be both a retention tool for employees who are considered key to the longer term success of Cromwell and a reward for achieving performance targets in a ﬁ nancial year. No employee has an automatic entitlement to a particular percentage or value of long term incentives in any year. The executive directors and all employees are eligible to participate in Cromwell’s long term incentive arrangements. Participating employees are offered a choice of long term incentives in the form of either performance rights, issued under Cromwell’s performance rights plan (PRP), or access to a limited recourse interest free loan facility, under Cromwell’s security loan plan (SLP), to fund the acquisition of stapled securities in Cromwell. If performance rights issued under the PRP vest, employees will be issued one stapled security per performance right exercised. Performance rights do not give a participating employee the right to vote at securityholder meetings nor the right to receive a distribution from Cromwell. Any stapled securities acquired by virtue of a loan under the SLP will give the participating employee the right to vote at security holder meetings, and the right to receive distributions from Cromwell, on the same terms as other stapled securities on issue. However, the relevant stapled securities will be security for the participating employee’s obligations under the SLP and any distributions received must be used to repay or reduce the loan amount. Every three years, the maximum value of the executive directors’ participation in Cromwell’s long term incentive arrangements is discussed and agreed by the Board (using the allocation method discussed below) and put to securityholders for approval. At the 2013 AGM securityholders approved a maximum value of $450,000 per annum for the Chief Executive Ofﬁ cer, and $150,000 per annum for the Finance Director. Each year the Board (on recommendation from the Committee) considers whether to grant long term incentives to the executive directors and, if so, to what value. In December 2013, 2,042,205 performance rights were granted to the executive directors, vesting in December 2016. CROMWELL 2014 ANNUAL RE PORT 31 Each year the Committee delegates authority to the Chief Executive Ofﬁ cer to determine which employees other than executive directors will receive long term incentives and, if so, to what value. The Committee considers and, if appropriate, ratiﬁ es the Chief Executive Ofﬁ cer’s determination. Allocations for participating employees, other than the executive directors, are determined annually after the end of each ﬁ nancial year. In determining the total value of long term incentives to be granted in any one year the performance of Cromwell as a whole is considered. This involves an assessment of whether Cromwell has met its objectives, including a review of Cromwell’s key ﬁ nancial measures. For more information see section (a)(ii) above. The actual value awarded to a participating employee is determined by taking into account the following: • the employee’s performance during the previous ﬁ nancial year as assessed against their KPI’s. An employee must have achieved at least 70% of their KPIs in the previous ﬁ nancial year; and • the employee’s level of ﬁ xed pay. The maximum value of performance rights to be allocated to any employee other than an executive director is generally limited to 25% of their ﬁ xed pay. The Board takes the same factors into account when determining the value of long term incentives that may be granted to the executive directors each year. By determining allocations in this way, Cromwell seeks to ensure that the performance of both the employee and Cromwell is taken into account before long term incentives are issued. Aggregate, and employee, allocation limits are also in place to ensure a balance between the cost of long term incentives and the beneﬁ t of retaining valuable employees. The employee limits also serve to mitigate the risk to Cromwell of non- payment by an employee under the SLP. Once a value has been allocated, the participating employee is given the option of participation in either the PRP, the SLP or a combination of the two. If participation in the PRP is selected, the actual number of performance rights that are then granted to the participating employee is determined by dividing the total value awarded to that employee by the fair value of each performance right at grant date. The fair value at grant date for performance rights is determined using a Black-Scholes option pricing model that takes into account the exercise price (including the discount to market value at grant date), 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. The valuation of performance rights is discussed in more detail in section (d) below. Under the PRP, if performance rights vest they allow eligible employees to obtain stapled securities at a discount to market value. The use of the discount is intended to reduce or avoid the need for employees to obtain signiﬁ cant funding or to sell a substantial number of securities to fund the exercise of performance rights on vesting. The discount is taken into account when determining the value to be issued to a participating employee. Since grants under the PRP are made in value terms, the lower the exercise price the lower the number of performance rights granted and, therefore, the lower the number of securities that may be issued. Once performance rights are granted, the participating employees will need to meet performance hurdles before they vest. Although the Committee (or the Chief Executive Ofﬁ cer under delegated authority) may impose other conditions, generally performance rights will vest if an employee achieves 70% or greater of their KPIs in two out of the three years comprising the vesting period and are still employed by Cromwell at the end of that three year vesting period. Performance hurdles are assessed at the end of the vesting period. If the performance hurdles are not met, the performance rights will be forfeited. Forfeited performance rights are not re-tested. Performance rights will also lapse if not exercised within the exercise period. To determine the maximum loan amount, where participation in the SLP is selected, the value of the long term incentive is treated as an interest rate reduction beneﬁ t during the loan period (usually expected to be three years). The loan is then used to acquire stapled securities at their “current market value”, being the average of the daily volume weighted average price for all sales of CMW stapled securities on ASX, including special crossings, during the previous 10 trading days. During the loan period the participating employee cannot deal with the stapled securities acquired under the SLP. At the end of the loan period, provided performance hurdles are met and the outstanding loan balance is less than the market value of stapled securities, the loan balance is immediately repayable. Upon repayment the participating employee will be able to deal with the stapled securities. If the participating employee does not repay the outstanding loan balance, or if the outstanding loan balance is greater than the market value of the stapled securities, the stapled securities will be forfeited. 32 C ROMW ELL 20 1 4 ANNUAL REPORT The performance hurdles under the PRP and the SLP are the same, being, generally, that the participating employee achieved 70% or greater of their KPI’s in two out of the three years comprising the vesting/loan period and remained employed by Cromwell. Performance hurdles are assessed at the end of the vesting/loan period. In addition to the above, performance rights and stapled securities issued under the SLP will also be forfeited if an employee resigns, has their employment terminated or commits an act which brings Cromwell into disrepute. Cromwell believes its approach allows employees to align themselves with securityholders by having a ﬁ nancial interest in the long term value of Cromwell’s security price, which acts to maximise TSR. Below is a table showing the extent to which performance rights have been issued to KMPs (including the executive directors) and to participating employees (including KMPs) over the last three years. To date, no employee has participated in the SLP, which was introduced in 2013. Total Cromwell employees eligible to participate Participating employees Participating employees (by number & by percentage of total employees) Participating KMPs by number Participating KMPs as percentage of total employees Total employment expenses ($‘000) Value of performance rights granted ($‘000) Value of performance rights granted as a percentage of total employment costs Value of performance rights granted to KMPs ($‘000) Value of performance rights granted to KMPs as a percentage of total employment costs Total stapled securities on issue (‘000) Performance rights on issue (‘000) Performance rights on issue as a percentage of issued securities Performance rights on issue to KMPs (‘000) Performance rights on issue to KMPs as a percentage of issued securities FY14 FY13 77 22 29% 8 10% 17,569 1,494 9% 939 5% 70 18 25% 7 10% 14,859 473 3% 293 2% 1,727,281 1,713,721 9,410 0.5% 7,668 0.4% 8,009 0.5% 7,058 0.4% Remuneration package – CEO & Finance Director The remuneration packages of the Chief Executive Ofﬁ cer and the Finance Director for the last three years comprised the following components: Paul Weightman Daryl Wilson Financial Year Fixed Pay $ Short term incentives paid $ Long Term Incentives $ 2014 1,050,000 250,000 (71%) (17%) 2013 950,000 250,000 2012 2014 2013 2012 (69%) 950,000 (71.5%) 500,000 (70%) 450,000 (66%) 450,000 (69.5%) (18%) 200,000 (15%) 150,000 (21%) 150,000 (22%) 120,000 (18.5%) 171,953 (12%) 179,699 (13%) 180,210 (13.5%) 66,604 (9%) 78,169 (12%) 78,391 (12%) CROMWELL 2014 ANNUAL RE PORT 33 (iii) External environment 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 ﬁ nancial services sectors, remains high. (iv) Non-executive directors remuneration Fees and payments to Non-Executive Directors reﬂ ect 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 to be divided among the Non-Executive Directors in such a proportion and manner as they agree. Non-Executive Directors are paid a ﬁ xed 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 beneﬁ ts 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 2014 $ 2013 $ 185,000 185,000 85,000 18,000 12,000 7,500 5,000 – 85,000 18,000 12,000 7,500 5,000 – The Non-Executive Directors’ fees were unchanged in the 2014 ﬁ nancial year and were last increased in November 2011. The current and previous year rates are shown above. Voting and comments made at the company’s 2013 Annual General Meeting (v) The Group and Trust’s remuneration report for the 2013 ﬁ nancial year was passed on a ‘show of hands’. Proxies received before the meeting were approximately 95% in favour of the remuneration report. (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 WR Foster Mr M Wainer 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 Chairman Director Director Director Director Director Director Director (Alternate to Mr Watters; Alternate to Mr Wainer) Managing Director/Chief Executive Ofﬁ cer Director – Finance & Funds Management National Leasing Manager National Head of Sales, Director of controlled entity Chief Operations Ofﬁ cer, Property Licensee, Director of controlled entity Associate Director Transactions, Director of controlled entity Group Treasurer, Director of controlled entity Ms NE Riethmuller General Counsel/Company Secretary 34 C ROMW ELL 20 1 4 ANNUAL REPORT Short-term beneﬁ ts Short-term beneﬁ ts Short-term beneﬁ ts Short-term beneﬁ ts Post- employment Long-term beneﬁ ts Cash salary and fees $ Accrued leave (1) $ Cash bonus $ Non-cash beneﬁ ts $ Super- annuation $ Long service leave (1) $ Share- based payments Total Remunera- tion % of Remun. that is performance based Options $ $ 2014 Non-Executive Directors GH Levy RJ Pullar 169,336 95,652 MA McKellar 102,000 DE Usasz WR Foster M Wainer MJ Watters G Cannings Executive Directors 98,856 82,380 85,000 65,000 18,307 – – – – – – – – – – – – – – – – – – – – – – – – 15,664 8,848 – 9,144 7,620 – – 1,693 – – – – – – – – – – – – – – – – 185,000 104,500 102,000 108,000 90,000 85,000 65,000 20,000 – – – – – – – – PL Weightman 874,326 (81,118) 250,000 157,900 DJ Wilson 482,224 34,269 150,000 Other key management personnel B Binning M Blake JA Clark P Cowling D Gippel 312,000 281,726 238,364 320,648 294,580 3,309 80,000 (5,529) 129,613 1,872 (9,769) – – 830 200,000 N Riethmuller 297,440 (10,628) – – – – – – 26,669 11,234 17,775 17,775 37,999 17,618 171,953 1,428,835 66,604 768,490 30% 28% 17,775 17,775 17,775 17,775 17,775 17,775 10,945 8,152 26,603 14,044 8,308 6,971 61,788 46,705 9,868 60,894 48,475 31,555 485,817 478,442 294,482 403,592 596,637 354,347 29% 37% 3% 15% 42% 9% 3,817,839 (66,764) 809,613 195,803 185,169 130,640 497,842 5,570,142 (1) Annual and long service leave are accounted for on an accruals basis. The amounts represent the change in accrued leave during the year. CROMWELL 2014 ANNUAL RE PORT 35 Short-term beneﬁ ts Short-term beneﬁ ts Short-term beneﬁ ts Short-term beneﬁ ts Post- employment Long-term beneﬁ ts Cash salary and fees $ Accrued leave (1) $ Cash bonus $ Non-cash beneﬁ ts $ Super- annuation $ Long service leave (1) $ Share- based payments Total Remunera- tion % of Remun. that is performance based Options $ $ 2013 Non- Executive Directors GH Levy RJ Pullar MA McKellar DE Usasz WR Foster MJ Wainer M Watters G Cannings Executive Directors 169,725 95,872 102,000 99,083 82,569 85,000 65,000 18,349 – – – – – – – – – – – – – – – – PL Weightman 775,630 10,456 DJ Wilson 433,530 (17,779) 250,000 150,000 Other key management personnel B Binning MJ Blake JA Clark P Cowling DA Gippel 300,000 270,890 192,324 308,700 283,250 N Riethmuller 283,250 1,893 1,935 892 4,052 (4,108) (9,066) 100,000 166,546 25,500 50,000 100,000 50,000 – – – – – – – – 157,900 - – – 6,665 – 25,551 8,232 15,275 8,628 - 8,917 7,431 - - 1,789 16,470 16,470 16,470 16,470 16,470 16,470 16,470 16,470 – – – – – – – – – – – – – – – – 185,000 104,500 102,000 108,000 90,000 85,000 65,000 20,138 23,511 179,699 1,413,666 8,264 78,169 668,654 8,154 9,823 5,461 9,483 4,809 4,386 72,742 38,473 – 69,761 56,411 18,849 499,259 504,137 247,312 458,466 482,383 372,121 – – – – – – – – 30% 34% 35% 41% 10% 26% 32% 19% 3,565,172 (11,725) 892,046 198,348 173,800 73,891 514,104 5,405,636 (1) Annual and long service leave are accounted for on an accruals basis. The amounts represent the change in accrued leave during the year. Details of remuneration: cash bonuses and performance rights (c) 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. In addition to existing short-term incentive arrangements, a discretionary bonus of $100,000 in total was also paid to a KMP for the successful reﬁ nancing of 92% of Cromwell’s borrowings out to May 2018 and May 2019. The performance rights are subject to vesting conditions as outlined above. No performance rights will vest if the conditions are not satisﬁ ed, 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. 36 C ROMW ELL 20 1 4 ANNUAL REPORT Cash Bonus Paid % Cash Bonus Forfeited % Financial Year Options Granted Options Vested in 2014 % Options Forfeited in 2014 % 100% 100% 80% 100% – – 200% – – – 2011/14 2011/14 20% 2012/13/14 – – – – – 2011/12/13/14 2014 2012/13/14 2012/13 2012/13/14 100%(1) 100%(1) 100%(2) 100%(1) – 100%(2) 100%(2) – – – – – – – – – Financial Years Options may vest Maximum value of grant to vest $ 2015/16/17 2015/16/17 2015/16/17 2015/16/17 2017 2015/16/17 2015/16 2015/16/17 403,435 138,299 74,958 79,733 40,182 74,324 10,583 72,549 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. (2) Relates to performance rights issued in 2013. (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 Cromwell 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 Expiry Date Exercise Price No of Performance Rights Granted Assessed Value per Right at Grant Date 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 19/10/2012 18/12/2013 18/12/2013 18/12/2013 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 01/10/2016 01/10/2016 01/01/2017 $0.20 $0.50 $0.50 $0.50 $0.20 $0.10 – – $0.20 – – – $0.20 $0.20 $0.20 – $0.50 $0.50 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 60,292 296,804 395,677 2,042,205 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¢ 75.7¢ 30.2¢ 29.1¢ CROMWELL 2014 ANNUAL RE PORT 37 Details of changes during the 2014 year in performance rights on issue to Key Management Personnel under the PRP are set out below. Name 2014 PL Weightman DJ Wilson DA Gippel B Binning MJ Blake JA Clark P Cowling N Reithmuller Opening balance Granted during year Exercised during the year Forfeited during the year Lapsed during year Closing balance 4,000,000 1,740,000 1,531,654 510,551 (1,333,333) (580,000) 277,920 288,262 353,410 – 296,180 102,857 – 100,725 229,748 165,929 100,054 96,025 (13,890) (60,292) (95,894) – (41,671) – 7,058,629 2,734,686 (2,125,080) – – – – – – – – – – – – – – – – – – 4,198,321 1,670,551 264,030 328,695 487,264 165,929 354,563 198,882 7,668,235 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 3,771,928 performance rights were granted during 2014 (2013: 890,414) of which 2,734,686 (2013: 518,153) were issued to Key Management Personnel. The model inputs for performance rights granted during the 2014 year are disclosed in note 32. 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 2014 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) $ 12% 7% 13% 10% 3% 15% 8% 9% 446,468 148,823 76,284 69,301 50,051 75,776 – 72,724 185,200 80,562 34,933 35,442 – 32,331 10,777 – – – – – – – – – (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 satisﬁ ed. 38 C ROMW ELL 20 1 4 ANNUAL REPORT (e) Employment contracts and termination provisions (i) Employment contracts PL Weightman Remuneration and other terms of employment for the Chief Executive Ofﬁ cer 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 ﬁ xed termination date. • Base salary, inclusive of superannuation, for the 2014 year of $1,050,000, to be reviewed annually by the remuneration committee. • 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 2014 year depended on performance criteria being met. The criteria were assessed as being met in full during the ﬁ nancial 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 ﬁ xed termination date. • Base salary, inclusive of superannuation, for the 2014 year of $500,000, to be reviewed annually by the remuneration committee. • 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 2014 year depended on certain criteria being met. The criteria were assessed as being met in full during the ﬁ nancial 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 ﬁ xed 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 Notice Period Group 6 months 3 months 6 months 6 months 1-2 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 beneﬁ ts. CROMWELL 2014 ANNUAL RE PORT 39 Share holdings/unit holdings (f) Details of equity instrument holdings, loans, etc (i) The numbers of shares in the Company and units in the CDPT held during the ﬁ nancial year by Key Management Personnel of Cromwell Corporation Limited, including their personally related parties, are set out below. Name Non-Executive Directors: GH Levy RJ Pullar MA McKellar DE Usasz WR Foster M Wainer(1) MJ Watters(2) G Cannings Executive Directors: PL Weightman DJ Wilson Other key management personnel of Cromwell: B Binning MJ Blake JA Clark PJ Cowling DA Gippel NE Riethmuller Balance at 1 July On exercise of options Net purchases (sales) Balance at 30 June 2,777,630 6,500,000 768,611 2,405,000 3,811,765 – – 80,000 – – – – – – – – – – 23,600 – (500,000) – – – 2,777,630 6,500,000 792,211 2,405,000 3,311,765 – – 80,000 15,921,167 1,622,200 1,333,333 580,000 (333,000) (851,425) 16,921,500 1,350,775 154,672 1,704,098 71,032 1,675,801 1,206,864 123,459 60,292 95,894 – 41,671 13,890 – 2,664 (100,000) – – (573,490) 554 217,628 1,699,992 71,032 1,717,472 647,264 124,013 38,568,334 2,125,080 (2,331,097) 38,616,282 (1) M Wainer is a director of Redeﬁ ne International P.L.C. which indirectly owns Redeﬁ ne Australia Investments Limited, which at 30 June 2014 owned 227,076,125 (2013: 235,536,192) stapled securities in Cromwell. M Wainer is also CEO and a director of Redeﬁ ne Properties Limited which at 30 June 2014 owned 218,547,808 (2013: 212,336,234) stapled securities in Cromwell. (2) M Watters is a director of Redeﬁ ne International P.L.C. which indirectly owns Redeﬁ ne Australia Investments Limited, which owns 227,076,125 (2013: 235,535,192) stapled securities in Cromwell. No shares or units were received by the above persons as compensation during the 2014 year. Loans to key management personnel (ii) No loans were made during the 2014 or 2013 years to key management personnel and no loans were outstanding at the reporting date. (iii) Other transactions with key management personnel Cromwell 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 2014 was $88,400 (2013: $88,400). The payment of rent is on normal commercial terms and conditions and at market rates. 40 C ROMW ELL 20 1 4 ANNUAL REPORT 12. TRUST DISCLOSURES Fees to Responsible Entity Total amounts paid/payable to the Responsible Entity or its associates during the year were $21,436,421 (2013: $18,594,286). Units held by Responsible Entity Cromwell Corporation Limited, the parent company of the Responsible Entity, held no units (2013: 275,106) in the Trust at the end of the ﬁ nancial the year, having had these bought back by the Trust. Pursuant to Australian Securities & Investments Commission relief, the units were not stapled to shares in Cromwell Corporation Limited. The Responsible Entity held no units (2013: 1,517,000) in the Cromwell Mary Street Planned Investment, a subsidiary of the Trust, at the end of the ﬁ nancial year, having transferred them to the Company. When held the holding represented approximately 8% (2013: 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 24 in the accompanying ﬁ nancial report. There were 1,727,280,850 (2013: 1,713,996,562) 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 $2,403,658,000 (2013: $2,487,254,000). Net assets attributable to unitholders of the Trust were $1,197,318,000 (2013: $1,140,730,000) equating to $0.70 per unit (2013: $0.67 per unit). The Trust’s assets are valued in accordance with policies stated in notes 1 and 3 of the ﬁ nancial statements. 13. INDEMNIFYING OFFICERS OR AUDITOR Subject to the following, no indemnity or insurance premium was paid during the ﬁ nancial year for a person who is or has been an ofﬁ cer of the Group. The constitution of the Company provides that to the extent permitted by law, a person who is or has been an ofﬁ cer of the Company is indemniﬁ ed against certain liabilities and costs incurred by them in their capacity as an ofﬁ cer 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 ofﬁ cer to the extent permitted by law against certain liabilities and legal costs incurred by the ofﬁ cer as an ofﬁ cer of the Company and its subsidiaries; • maintain and pay the premium on an insurance policy in respect of the ofﬁ cer; and • provide the ofﬁ cer with access to board papers and other documents provided or available to the ofﬁ cer as an ofﬁ cer of the Company and its subsidiaries. The Group has paid premiums for Directors and ofﬁ cers’ 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 ﬁ nancial 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 ﬁ nancial report. Amounts in the Directors’ report and ﬁ nancial report have been rounded off to the nearest thousand dollars, or in certain cases to the nearest dollar, in accordance with that Class Order. CROMWELL 2014 ANNUAL RE PORT 41 15. AUDITOR Pitcher Partners continues in ofﬁ ce 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 satisﬁ ed 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 satisﬁ ed 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 2014 $ – – 2013 $ 131,200 131,200 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 ﬁ nancial reports and totalled $105,000 (2013: $68,500). 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 27th day of August 2014 42 C ROMW ELL 20 1 4 ANNUAL REPORT The Directors Cromwell Corporation Limited and Cromwell Property Securities Limited as Responsible Entity for Cromwell Diversiﬁ ed Property Trust Level 19 200 Mary Street BRISBANE QLD 4000 Dear Sirs, Auditor’s Independence Declaration As lead auditor for the audit of the ﬁ nancial reports of Cromwell Corporation Limited and Cromwell Diversiﬁ ed Property Trust for the year ended 30 June 2014, 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 Diversiﬁ ed Property Trust and the entities it controlled during the year. PITCHER PARTNERS N Batters Partner Brisbane, Queensland 27 August 2014 CROMWELL 2014 ANNUAL RE PORT 43 Consolidated Statements of Comprehensive Income for the year ended 30 June 2014 Notes Cromwell Trust 2014 $’000 2013 $’000 2014 $’000 2013 $’000 Revenue and other income Rental income and recoverable outgoings Funds management fees Interest Distributions Gain on sale of investment property Other revenue Share of proﬁ ts of equity accounted entities Increase in recoverable amount: Property development inventories/provision Fair value net gain from: Interest rate derivatives Investments properties Investments at fair value through proﬁ t or loss Total revenue and other income Expenses Property expenses and outgoings Funds management costs Property development costs Finance costs Employee beneﬁ ts expense Administration and overhead costs Responsible entity fees Amortisation and depreciation Net share of losses of equity accounted entities Loss on disposal of other assets Fair value net loss from: Investment properties Merger transaction costs Total expenses Proﬁ t before income tax Income tax expense Proﬁ t 6 14(b) 12 6 6 6 14 (b) 6 12 38(ii) 7 Other comprehensive income, net of tax Total comprehensive income Proﬁ t and Total comprehensive income/(loss) is attributable to Company shareholders Trust unitholders Non-controlling interests 259,419 11,892 4,613 903 3,152 1,543 – – 5,222 46,226 85 206,665 258,683 206,478 9,797 5,262 222 132 418 646 – 7,326 – 47 – 3,056 903 3,152 1,317 – – 5,222 46,226 85 – 4,604 222 132 192 593 225 7,326 – 47 333,055 230,515 318,644 219,819 34,005 50,304 38,753 45,032 1,209 167 74,050 17,569 7,326 – 758 2,942 559 – – 149,612 183,443 972 182,471 – 592 359 70,296 14,859 6,398 – 643 – 146 55,747 631 183,676 46,839 683 46,156 – – – 74,050 – 1,139 12,121 – 3,248 – – – 140,862 177,782 – 177,782 – 182,471 46,156 177,782 4,521 177,950 – 2,865 43,291 – – 177,950 (168) – – 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¢ Proﬁ t and Total comprehensive income 182,471 46,156 177,782 Basic earnings per company share/trust unit (cents) Diluted earnings per company share/trust unit (cents) Basic earnings per stapled security (cents) Diluted earnings per stapled security (cents) 29 29 29 29 0.26¢ 0.26¢ 10.60¢ 10.57¢ 0.21¢ 0.21¢ 3.44¢ 3.44¢ 10.34¢ 10.31¢ The above consolidated statements of comprehensive income should be read in conjunction with the accompanying notes. 44 C ROMW ELL 20 1 4 ANNUAL REPORT Consolidated Statements of Financial Position as at 30 June 2014 Cromwell Trust Notes 2014 $’000 2013 $’000 117,820 125,933 4,702 2,714 7,940 2,527 125,236 136,400 2014 $’000 67,451 1,981 1,686 71,118 2013 $’000 75,126 6,816 1,844 83,786 Current Assets Cash and cash equivalents Trade and other receivables Other current assets Total current assets Non-Current Assets Inventories Investment properties Investments at fair value through proﬁ t or loss Equity accounted investments Property, plant and equipment Deferred tax assets Intangible assets Total non-current assets Total assets Current Liabilities Trade and other payables Dividends/distributions payable Borrowings Derivative ﬁ nancial instruments Provisions Current tax liability Other current liabilities Total current liabilities Non-Current Liabilities Borrowings Derivative ﬁ nancial 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 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 20 21 22 24 25 26 27 27 3,000 3,000 – – 2,249,470 2,396,000 2,249,470 2,396,000 10,546 77,526 1,770 1,272 1,120 7,468 100 1,308 804 1,030 10,546 72,524 – – – 7,468 – – – – 2,344,704 2,409,710 2,332,540 2,403,468 2,469,940 2,546,110 2,403,658 2,487,254 25,714 33,466 90,500 15,332 1,211 1,127 11,240 178,590 28,014 31,061 – 17,638 1,215 329 15,468 93,725 23,322 33,466 90,500 15,332 – – 11,240 173,860 27,030 31,066 – 17,638 – – 15,468 91,202 1,011,214 1,232,720 1,011,214 1,232,720 14,953 1,185 17,870 943 14,953 17,870 – – 1,027,352 1,251,533 1,026,167 1,250,590 1,205,942 1,345,258 1,200,027 1,341,792 1,263,998 1,200,852 1,203,631 1,145,462 104,370 103,323 1,267,748 1,257,707 5,929 (44,176) 66,123 5,198 – – (48,697) (70,430) (116,977) 59,824 1,197,318 1,140,730 1,197,875 1,141,028 – – – 6,313 – 4,732 1,263,998 1,200,852 1,203,631 1,145,462 The above consolidated statements of ﬁ nancial position should be read in conjunction with the accompanying notes. CROMWELL 2014 ANNUAL RE PORT 45 Consolidated Statements of Changes in Equity for the year ended 30 June 2014 Cromwell Attributable to Equity Holders of the Company Notes Contributed Equity Accumu- lated Losses Available- for-Sale Reserve $’000 $’000 $’000 Share Based Payments Reserve $’000 Total $’000 Non- controlling Interest (Trust) $’000 Total Equity $’000 Balance at 1 July 2013 103,323 (48,697) 2,340 2,858 59,824 1,141,028 1,200,852 Total comprehensive income – 4,521 Transactions with equity holders in their capacity as equity holders: Contributions of equity, net of transaction costs Distributions paid/payable Employee share options Total transactions with equity holders 24 28 25 1,047 – – 1,047 – – – – Balance at 30 June 2014 104,370 (44,176) Balance at 1 July 2012 Total comprehensive income Transactions with equity holders in their capacity as equity holders: Contributions of equity, net of transaction costs Distributions paid/payable Employee share options Total transactions with equity holders 66,344 (51,562) – 2,865 24 28 25 36,979 – – 36,979 – – – – – – – – – 2,340 2,340 – – – – – Balance at 30 June 2013 103,323 (48,697) 2,340 – – – 4,521 177,950 182,471 1,047 10,291 11,338 – (131,394) (131,394) 731 731 – 731 731 3,589 2,189 – – – 669 669 2,858 1,778 (121,103) (119,325) 66,123 1,197,875 1,263,998 19,311 769,678 788,989 2,865 43,291 46,156 36,979 429,718 466,697 – 669 (101,659) (101,659) – 669 37,648 328,059 365,707 59,824 1,141,028 1,200,852 Trust Balance at 1 July 2013 Total comprehensive income/(loss) Transactions with equity holders in their capacity as equity holders: Contributions of equity, net of transaction costs Redemptions Distributions paid/payable Total transactions with equity holders Balance at 30 June 2014 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 Distributions paid/payable Attributable to Equity Holders of CDPT Notes Contributed Equity $’000 Accumu- lated Losses $’000 Total (CDPT) $’000 Non- controlling Interest $’000 Total Equity $’000 1,257,707 (116,977) 1,140,730 4,732 1,145,462 – 177,950 177,950 (168) 177,782 24 24 28 24 28 10,291 (250) – – 10,291 2,113 12,404 (250) – (250) – (131,403) (131,403) (364) (131,767) 10,041 (131,403) (121,362) 1,749 (119,613) 1,267,748 (70,430) 1,197,318 6,313 1,203,631 827,989 (58,589) 769,400 5,320 774,720 – 43,291 43,291 (19) 43,272 429,718 – 429,718 – 429,718 – (101,679) (101,679) (569) (569) (102,248) 327,470 Total transactions with equity holders 429,718 (101,679) 328,039 Balance at 30 June 2013 1,257,707 (116,977) 1,140,730 4,732 1,145,462 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 46 C ROMW ELL 20 1 4 ANNUAL REPORT Consolidated Statements of Cash Flows for the year ended 30 June 2014 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 Notes Cromwell Trust 2014 $’000 2013 $’000 2014 $’000 2013 $’000 305,414 (92,377) 2,763 4,496 245,581 (78,461) 204 7,110 290,742 (83,299) 2,763 2,986 231,798 (71,371) 204 6,448 (72,032) (68,715) (72,032) (68,773) (640) (184) – – Net cash provided by operating activities 30 147,624 105,535 141,160 98,306 Cash Flows From Investing Activities Payments for investment properties Proceeds from sale of investment properties Payments for property, plant and equipment Net inﬂ ow of cash on acquisition of controlled entity 38 Payments for investments at fair value through proﬁ t or loss Proceeds from sale of investments at fair value through proﬁ t or loss Payments for equity accounted investments Payments for software and other intangible assets Loans to related entities Repayment of loans by related entities Payment of merger transaction costs (69,126) (591,962) (69,126) (591,962) 253,161 (1,368) – 42,571 253,161 (304) 2,560 – – 42,571 – 2,560 (7,310) (7,720) (7,310) (7,720) 4,318 (82,228) (502) (39,189) 39,189 – 565 – (863) (19,606) 32,391 (631) 4,318 (77,632) – (39,189) 39,189 – 565 – – (23,668) 35,580 (631) Net cash provided by/(used in) investing activities 96,945 (542,999) 103,411 (542,705) Cash Flows From Financing Activities Proceeds from borrowings Repayment of borrowings Payment of loan transaction costs Proceeds from issue of stapled securities/units Proceeds from issue of units by subsidiary Equity issue transaction costs Redemption of units Payment of dividends/distributions Payment for derivative ﬁ nancial instruments 1,044,965 240,921 1,044,965 240,921 (1,173,043) (84,144) (1,173,043) (6,953) 993 – (550) – (2,661) 443,731 – (11,590) – (6,953) 900 2,113 (518) (250) (118,094) (80,780) (119,460) – (1,233) – (84,144) (2,661) 408,723 – (10,939) – (82,163) (1,233) Net cash (used in)/provided by ﬁ nancing activities (252,682) 504,244 (252,246) 468,504 Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at 1 July Cash and cash equivalents at 30 June 8 (8,113) 125,933 117,820 66,780 59,153 125,933 (7,675) 75,126 67,451 24,105 51,021 75,126 The above consolidated statements of cash ﬂ ows should be read in conjunction with the accompanying notes. CROMWELL 2014 ANNUAL RE PORT 47 Notes to the Financial Statements for the year ended 30 June 2014 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cromwell Property Group (“Cromwell”) was formed by the stapling of Cromwell Corporation Limited (“the Company”) and its controlled entities, and Cromwell Diversiﬁ ed Property Trust (“CDPT”) and its controlled entities (“the Trust”). The Financial Reports of Cromwell and the Trust have been presented jointly in accordance with ASIC Class Order 13/1050 relating to combining accounts under stapling and for the purpose of fulﬁ lling the requirements of the Australian Securities Exchange. Cromwell 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 Cromwell. To account for the stapling, Australian Accounting Standards require an acquirer (Cromwell Corporation Limited) to be identiﬁ ed and an acquisition to be recognised. The net assets and net proﬁ t 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 ﬁ nancial report are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. (a) Basis of preparation The ﬁ nancial report is a general purpose ﬁ nancial 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. Cromwell and the Trust are for-proﬁ t entities for the purpose of preparing the ﬁ nancial statements. Compliance with IFRS The ﬁ nancial report complies with the International Financial Reporting Standards (IFRS) and interpretations adopted by the International Accounting Standards Board. Historical cost convention The ﬁ nancial report is prepared on the historical cost basis except for the following: • investment properties are measured at fair value; • derivative ﬁ nancial instruments are measured at fair value; and • investments at fair value through proﬁ t or loss are measured at fair value. The methods used to measure fair values are discussed further below. Functional and presentation currency The ﬁ nancial report is presented in Australian dollars, which is the functional currency of Cromwell and the Trust. Application of new accounting standards The accounting policies and methods of computation adopted are consistent with those of the previous ﬁ nancial year and corresponding interim reporting period with the exception of new and amended standards and interpretations mandatory for annual reporting periods beginning on or after 1 January 2013, which include: • AASB 10 Consolidated Financial Statements, AASB 11 Joint Arrangements, AASB 12 Disclosure of Interests in Other Entities, AASB 128 Investments in Associates and Joint Ventures, AASB 127 Separate Financial Statements and AASB 2011-7 Amendments to Australian Accounting Standards arising from the Consolidation and Joint Arrangements Standards; • AASB 13 Fair Value Measurement and AASB 2011-8 Amendments to Australian Accounting Standards arising from AASB 13; and, • AASB 119 Employee Beneﬁ ts (September 2011) and AASB 2011-10 Amendments to Australian Accounting Standards arising from AASB 119 (September 2011). 48 C ROMW ELL 20 1 4 ANNUAL REPORT Other revised standards that are applicable for the ﬁ rst time for reporting periods beginning on or before 1 January 2013 include: • AASB 2012-2 Amendments to Australian Accounting Standards – Disclosures – Offsetting Financial Assets and Financial Liabilities; and, • AASB 2012-5 Amendments to Australian Accounting Standards arising from Annual Improvements 2009-2011 Cycle. The adoption of AASB 10, AASB 11, AASB 13 and AASB 119 and related amendments resulted in changes to accounting policies but no adjustments to the amounts recognised in the ﬁ nancial statements. The changes to relevant accounting policies are explained and summarised below. The other standards only affected the disclosures in the notes to the ﬁ nancial statements. Change in accounting policy: consolidated ﬁ nancial statements and joint arrangements AASB 10 Consolidated Financial Statements replaces the guidance on control and consolidation in AASB 127 Consolidated and Separate Financial Statements and in Interpretation 112 Consolidation – Special Purpose Entities. Cromwell has reviewed the nature of its investments in other entities to assess whether the conclusion to consolidate is affected by the application of AASB 10 as compared with AASB 127. No differences were found and therefore no adjustments to any of the carrying amounts in the ﬁ nancial statements are required as a result of the adoption of AASB 10. Under AASB 11 investments in joint arrangements are classiﬁ ed as either joint operations or joint ventures depending on the contractual rights and obligations each investor has, rather than the legal structure of the joint arrangement. Cromwell and the Trust have assessed the nature of their joint arrangements and determined to have interests in three joint ventures, Phoenix Portfolios Pty Ltd (“Phoenix”), Cromwell Partners Trust (“CPA”) and Oyster Property Funds Limited (“Oyster”), but no interests in joints operations. Phoenix was previously classiﬁ ed as an investment in an associate and accounted for using the equity method. It has been determined it falls within the meaning of a joint venture under AASB 11. CPA and Oyster are new investments during the year and they have also been determined to be joint ventures under the new standard. As required under AASB 11, the change in policy has been applied retrospectively as of 1 July 2012. From this date interests in joint ventures have been accounted for using the equity method. Hence, Cromwell’s accounting for its interests in joint ventures was not affected by the adoption of the new standard since Cromwell had previously applied the equity method in accounting for the interest in Phoenix. Change in disclosures: disclosure of interests in entities to which AASB 10 and 11 pertain AASB 12 Disclosure of Interests in Other Entities (and AASB 2011-7 Amendments to Australian Accounting Standards arising from the consolidation and Joint Arrangements standards) is the new disclosure standard and is applicable to entities that have interests in subsidiaries, joint arrangements, associates and/or unconsolidated structured entities, setting out the required disclosures for entities reporting under AASB 10 and AASB 11. It replaces the disclosure requirements previously found in AASB 127, AASB 128 and AASB 131. In general, the application of AASB 12 has resulted in more extensive disclosures in the consolidated ﬁ nancial statements (please see note 14 for details). Change in accounting policy: employee beneﬁ ts The relevant section of the revised standard has changed the accounting for Cromwell’s annual leave obligations. As Cromwell does not expect all annual leave to be taken within 12 months of the respective service being provided, annual leave obligations are now classiﬁ ed as long-term employee beneﬁ ts in their entirety. This has resulted in a change to the measurement of the provision for annual leave obligations. The provision is now measured on a discounted cash ﬂ ow basis. The impact of this change was immaterial. Change in accounting policy: fair value measurement AASB 13 Fair Value Measurement aims to improve consistency and reduce complexity by providing a deﬁ nition of fair value and a single source of fair value measurement and disclosure requirements for use across Australian Accounting Standards. The standard does not extend the use of fair value accounting but provides guidance on how it should be applied where its use is already required or permitted by other Australian Accounting Standards. There has been no material change to the valuation of ﬁ nancial assets, ﬁ nancial liabilities or investment properties as a result of the transition to AASB 13. CROMWELL 2014 ANNUAL RE PORT 49 (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 identiﬁ ed and an in-substance acquisition to be recognised. In relation to the stapling of the Company and CDPT, the Company is identiﬁ ed as having acquired control over the assets of CDPT. To recognise the in-substance acquisition, the following accounting principles have been applied: (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 Cromwell 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 proﬁ t/(loss) arising from these net assets have been separately identiﬁ ed in the statement of comprehensive income and statement of ﬁ nancial 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 identiﬁ ed 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 ﬁ nancial statements incorporate the assets and liabilities of all subsidiaries as at 30 June 2014 and the results of all subsidiaries for the year then ended. Subsidiaries are entities controlled by Cromwell. Control exists when Cromwell is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. The ﬁ nancial statements of subsidiaries are included in the consolidated ﬁ nancial 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 Cromwell (refer to note 1(m)). Inter-entity transactions, balances and unrealised gains on transactions between Cromwell 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 Cromwell. Non-controlling interests in the results and equity of subsidiaries are shown separately in the statement of comprehensive income and statement of ﬁ nancial position respectively. Investments in subsidiaries are accounted for at cost in the individual ﬁ nancial statements of the Company. A list of subsidiaries appears in note 35 to the consolidated ﬁ nancial statements. Associates Associates are all entities over which Cromwell has signiﬁ cant inﬂ uence but not control, generally accompanying a holding of between 20% and 50% of the voting rights. Investments in associates are accounted for in Cromwell’s ﬁ nancial statements using the equity method of accounting, after initially being recognised at cost. Cromwell’s investment in associates includes goodwill (net of any accumulated impairment loss) identiﬁ ed on acquisition. Cromwell’s share of its associates’ post-acquisition proﬁ ts or losses is recognised in proﬁ t 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 Cromwell’s ﬁ nancial statements as a reduction of the carrying amount of the investment. 50 C ROMW ELL 20 1 4 ANNUAL REPORT When Cromwell’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, Cromwell does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. Unrealised gains on transactions between Cromwell and its associates are eliminated to the extent of Cromwell’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 Cromwell. Joint arrangements Investments in joint arrangements investments are classiﬁ ed as either joint operations or joint ventures. The classiﬁ cation depends on the contractual rights and obligations of each investor, rather than the legal structure of the joint arrangement. Interests in joint venture entities are accounted for in Cromwell’s ﬁ nancial statements using the equity method. Under the equity method, the share of the proﬁ ts or losses of the joint venture entity is recognised in proﬁ t or loss, and the share of movements in reserves is recognised in reserves. Proﬁ ts or losses on transactions establishing the joint venture entity and transactions with the joint venture are eliminated to the extent of Cromwell’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. Where relevant, Cromwell recognises its direct right to the assets, liabilities, revenues and expenses of joint operations and its share of any jointly held or incurred assets, liabilities, revenues and expenses, and these are incorporated in the ﬁ nancial statements under the appropriate headings. (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 reﬂ ected in the statement of ﬁ nancial 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 Funds management revenue includes equity raising fees, loan establishment fees, project management fees and acquisition fees, each of which are recognised proportionally to the rendering of the respective service provided. 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. Cromwell’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 ﬁ nancial 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 proﬁ t or taxable proﬁ t 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. CROMWELL 2014 ANNUAL RE PORT 51 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 ﬁ nancial 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 ﬁ nancial 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 proﬁ ts 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. 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 reﬂ ect 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 ﬁ nancial 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 ﬁ nancial 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 insigniﬁ cant risk of changes in value. (f) Trade and other receivables 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 ﬁ rst 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 Cromwell 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 ﬂ ows, discounted at the original effective interest rate. Cash ﬂ ows 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 proﬁ t or loss. Inventories (g) Land held for development and resale is stated at the lower of cost and net realisable value. Cost is assigned by speciﬁ c identiﬁ cation 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. 52 C ROMW ELL 20 1 4 ANNUAL REPORT Investment properties (h) Investment property is property which is held either to earn rental income or for capital appreciation or both and includes property that is being constructed or developed for future use as investment property. Initially, investment property is measured at cost including transaction costs. Investment property is subsequently measured at fair value, with any change therein recognised in the statement of comprehensive income. Fair value is based upon active market prices, given the assets highest and best use, adjusted if necessary, for any difference in the nature, location or condition of the relevant asset. If this information is not available, Cromwell uses alternative valuation methods such as discounted cash ﬂ ow projections or the capitalised earnings approach. The highest and best use of an investment property refers to the use of the investment property by market participants that would maximise the value of that investment property. The carrying value of the investment property includes components relating to lease incentives and other items relating to the maintenance of, or increases in, lease rentals in future periods. For further information in relation to fair value measurement as it pertains to the investment property refer to note 3(d). Investments and other ﬁ nancial assets (i) Cromwell classiﬁ es its investments as either ﬁ nancial assets at fair value through proﬁ t or loss or available for sale ﬁ nancial assets. The classiﬁ cation depends on the purpose for which the investments were acquired. Management determines the classiﬁ cation of its investments at initial recognition. Financial assets at fair value through proﬁ t or loss Financial assets at fair value through proﬁ t or loss are ﬁ nancial assets held for trading which are acquired principally for the purpose of selling in the short term with the intention of making a proﬁ t. Derivatives are also categorised as held for trading unless they are designated as hedges. Financial assets at fair value through proﬁ t or loss also includes ﬁ nancial assets which upon initial recognition are designated as such. Available-for-sale ﬁ nancial assets Available-for-sale ﬁ nancial assets are non-derivatives that are either designated in this category or not classiﬁ ed 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 Cromwell commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all ﬁ nancial assets not carried at fair value through proﬁ t or loss. Financial assets carried at fair value through proﬁ t or loss are initially recognised at fair value and transaction costs are expensed in proﬁ t or loss. Financial assets are derecognised when the rights to receive cash ﬂ ows from the ﬁ nancial assets have expired or have been transferred and Cromwell has transferred substantially all the risks and rewards of ownership. Available-for-sale ﬁ nancial assets and ﬁ nancial assets at fair value through proﬁ t or loss are subsequently carried at fair value. Gains or losses arising from changes in the fair value of the ‘ﬁ nancial assets at fair value through proﬁ t or loss’ category, including interest and dividend income, are presented in proﬁ t or loss in the period in which they arise. Changes in the fair value of securities classiﬁ ed as available-for-sale are recognised in other comprehensive income. When securities classiﬁ ed as available-for-sale are sold or impaired, the accumulated fair value adjustments recognised in other comprehensive income are reclassiﬁ ed to proﬁ t or loss as gains or losses from investment securities. Cromwell assesses at each balance date whether there is objective evidence that a ﬁ nancial asset or group of ﬁ nancial assets is impaired. In the case of equity securities classiﬁ ed as available-for-sale, a signiﬁ cant 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 ﬁ nancial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that ﬁ nancial asset previously recognised in proﬁ t and loss – is reclassiﬁ ed from equity and recognised in proﬁ t or loss as a reclassiﬁ cation adjustment. Impairment losses recognised in proﬁ t or loss on equity instruments classiﬁ ed as available for sale are not reversed through proﬁ t or loss. CROMWELL 2014 ANNUAL RE PORT 53 (j) Property, plant and equipment Property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. 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 beneﬁ ts associated with the item will ﬂ ow to Cromwell and the cost of the item can be measured reliably. All other repairs and maintenance are charged to proﬁ t or loss during the ﬁ nancial 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 ﬁ ttings 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 proﬁ t or loss. Intangible assets (k) Software assets have a ﬁ nite 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 indeﬁ nite 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, Cromwell assesses whether there is any indication that any other asset may be impaired. Where an indicator of impairment exists, Cromwell 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 identiﬁ able cash inﬂ ows which are largely independent of the cash inﬂ ows 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) 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 Cromwell. 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. Identiﬁ able 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, Cromwell 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 identiﬁ able 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 Cromwell’s share of the net identiﬁ able assets acquired are recorded as goodwill. If those amounts are less than the fair value of the net identiﬁ able assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the difference is recognised directly in proﬁ t or loss as a bargain purchase. 54 C ROMW ELL 20 1 4 ANNUAL REPORT 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 ﬁ nancier under comparable terms and conditions. Contingent consideration is classiﬁ ed either as equity or a ﬁ nancial liability. Amounts classiﬁ ed as a ﬁ nancial liability are subsequently remeasured to fair value with changes in fair value recognised in proﬁ t or loss. (n) 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 ﬁ t out costs or relocation costs. They are recognised as an asset in the statement of ﬁ nancial 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 (o) Initial direct leasing costs incurred by Cromwell in negotiating and arranging operating leases are recognised as an asset in the statement of ﬁ nancial 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. (p) Repairs and maintenance Repairs and maintenance costs and minor renewals are charged as expenses when incurred. (q) Derivative ﬁ nancial instruments Cromwell is exposed to changes in interest rates and uses interest rate derivatives to hedge these risks. Such derivative ﬁ nancial 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. Cromwell enters into interest rate swap agreements that are used to convert certain variable interest rate borrowings to ﬁ xed interest rates. The derivatives are entered into with the objective of hedging the risk of adverse interest rate ﬂ uctuations. While Cromwell has determined that these arrangements are economically effective, they have not satisﬁ ed 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 proﬁ t or loss. For further information in relation to fair value measurement as it pertains to derivative ﬁ nancial instruments refer to note 3(c). (r) 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 Cromwell prior to the end of the year and which are unpaid. The amounts are usually unsecured and paid within 30-60 days of recognition. (s) 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 ﬁ nancial liability are spread over its expected life. Borrowings are classiﬁ ed as current liabilities unless Cromwell 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 speciﬁ cally 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 Cromwell’s outstanding borrowings during the year. (t) Financial guarantee contracts Financial guarantee contracts are recognised as a ﬁ nancial 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. CROMWELL 2014 ANNUAL RE PORT 55 The fair value of ﬁ nancial guarantees is determined as the present value of the difference in net cash ﬂ ows 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. (u) Provisions Provisions are recognised when Cromwell has a present legal or constructive obligation as a result of past events, it is probable that an outﬂ ow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are not recognised for future operating losses. (v) Employee beneﬁ ts Wages and salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary beneﬁ ts, that are expected to be settled wholly within 12 months after the end of the period in which the employees render the related service are recognised in respect of employee’s services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. All other short-term employee beneﬁ t obligations are presented as payables. Long service leave The liabilities for long service leave and annual leave are not expected to be settled wholly within 12 months after the end of the period in which the employees render the related service. They are therefore recognised in the provision for employee beneﬁ ts and measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using relevant discount rates at the end of the reporting period that match, as closely as possible, the estimated future cash outﬂ ows. Remeasurements as a result of experience adjustments and changes in actuarial assumptions are recognised in proﬁ t or loss. Superannuation Contributions are made by Cromwell to deﬁ ned 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 beneﬁ t 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 reﬂ ect the probability of market vesting conditions being met, but excludes the impact of any non market vesting conditions (for example, proﬁ tability 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 beneﬁ t expense recognised each period takes into account the most recent estimate. The impact of the revision to original estimates, if any, is recognised in proﬁ t or loss with a corresponding adjustment to equity. Bonus plans Cromwell recognises a liability and an expense for bonuses where contractually obliged or where there is a past practice that has created a constructive obligation. 56 C ROMW ELL 20 1 4 ANNUAL REPORT (w) Leases (as lessee) Leases of assets where Cromwell has substantially all the risks and rewards of ownership are classiﬁ ed as ﬁ nance 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 ﬁ nance charges, are included in liabilities. Each lease payment is allocated between the liability and ﬁ nance cost. The ﬁ nance cost is charged to proﬁ t 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 ﬁ nance 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 signiﬁ cant portion of the risks and rewards of ownership are retained by the lessor are classiﬁ ed as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to proﬁ t or loss on a straight-line basis over the period of the lease. (x) Contributed equity Ordinary shares and units are classiﬁ ed 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. (y) Dividends/distributions Provision is made for the amount of any dividend/distribution declared, being appropriately authorised and no longer at the discretion of Cromwell, on or before the end of the ﬁ nancial year but not distributed at balance date. (z) Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing proﬁ t/(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 ﬁ nancial year, adjusted for bonus elements in ordinary shares issued during the year. Diluted earnings per share Diluted earnings per share adjusts the ﬁ gures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other ﬁ nancing 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. (aa) 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. (ab) Comparatives Where necessary, comparative ﬁ gures have been adjusted to conform with changes in presentation in the current year. (ac) 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 ﬁ nancial report. Amounts in the ﬁ nancial report have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, to the nearest dollar. CROMWELL 2014 ANNUAL RE PORT 57 (ad) 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: Standard/Interpretation Application date of standard Application date for Cromwell AASB 9 Financial Instruments – revised and consequential amendments to other accounting standards resulting from its issue 1 Jan 2018 1 Jul 2018 AASB 2012-3 Amendments to Australian Accounting Standards – Offsetting Financial Assets and Financial Liabilities 1 Jan 2014 1 Jul 2014 AASB 2013-3 Amendments to AASB 136 – Recoverable Amount Disclosures for Non-Financial Assets 1 Jan 2014 1 Jul 2014 AASB 2013-4 Amendments to Australian Accounting Standards – Novation of Derivatives and Continuation of Hedge Accounting AASB 2013-5 Amendments to Australian Accounting Standards – Investment Entities AASB 2014-1 Part A Amendments to Australian Accounting Standards – Annual Improvements 2010-2012 and 2011-2013 AASB 1031 Materiality – revised and consequential amendments to other accounting standards resulting from its planned withdrawal IFRS 15(1) Revenue from Contracts with Customers 1 Jan 2014 1 Jul 2014 1 Jan 2014 1 Jul 2014 1 Jul 2014 1 Jul 2014 1 Jan 2014 1 Jul 2014 1 Jan 2017 1 Jul 2017 (1) This IASB Standard was also issued but not yet effective, although an Australian equivalent standard has not yet been issued. 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 classiﬁ cation and measurement of ﬁ nancial assets, which is the ﬁ rst phase of a multi-phase project to replace AASB 139 Financial Instruments: Recognition and Measurement. Under the new guidance, a ﬁ nancial asset is to be measured at amortised cost only if it is held within a business model whose objective is to collect contractual cash ﬂ ows and the contractual terms of the asset give rise on speciﬁ ed dates to cash ﬂ ows that are payments solely of principal and interest (on the principal amount outstanding). All other ﬁ nancial 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 proﬁ t or loss. Changes in the fair value of all other ﬁ nancial assets carried at fair value are reported in proﬁ t or loss. The Directors do not expect the new standard to have a signiﬁ cant impact on the ﬁ nancial statements and related disclosures. In the second phase of the replacement project, the revised standard incorporates amended requirements for the classiﬁ cation and measurement of ﬁ nancial liabilities. The new requirements pertain to liabilities at fair value through proﬁ t 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 proﬁ t or loss. The Directors believe there will be no material impact on Cromwell’s accounting for ﬁ nancial liabilities. Cromwell intends to adopt the new standard from 1 July 2018. AASB 2012-3 – The amendments to AASB 132 clarify when an entity has a legally enforceable right to set-off ﬁ nancial assets and ﬁ nancial 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 Cromwell’s ﬁ nancial 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 Cromwell’s ﬁ nancial 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 Cromwell’s ﬁ nancial statements as Cromwell and the Trust currently do not engage in hedge accounting. 58 C ROMW ELL 20 1 4 ANNUAL REPORT AASB 2013-5 – These amendments to AASB10 (and others) deﬁ ne an investment entity and require that, with limited exceptions, an investment entity not consolidate its subsidiaries or apply AASB 3 when it obtains control of another entity. Instead, an investment entity is to measure unconsolidated subsidiaries at fair value through proﬁ t or loss in accordance with AASB 9. At this time the Directors believe the adoption of the amendments will not result in any impact on Cromwell as it does not meet the deﬁ nition of an investment entity itself, nor has any subsidiaries that currently do. AASB 2014-1 Part A – These amendments introduce various changes to currently applicable AASBs. The Directors believe the adoption of the amendments will not result in any material changes to Cromwell and the Trust’s ﬁ nancial statements. AASB 1031 – This standard is being withdrawn and consequential amendments made to other standards and interpretations in light of the guidance on materiality available in existing Australian Accounting Standards; the revised IASB Conceptual Framework for Financial Reporting; and the AASB’s policy of not providing unnecessary local guidance on matters covered by IFRSs. The Directors believe the withdrawal of the standard and adoption of the amendments to others will not result in any material changes to Cromwell and the Trust’s ﬁ nancial statements. IFRS 15 – This new standard contains a single model that applies to contracts with customers and two approaches to recognising revenue. The model features a contract-based ﬁ ve step analysis of transactions to determine whether, how much and when revenue is recognised. The Group is yet to assess the impact of the new standard. 2. CRITICAL ACCOUNTING ESTIMATES The preparation of ﬁ nancial 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 signiﬁ cant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most signiﬁ cant effect on the amounts recognised in the ﬁ nancial statements are: Fair value of investment properties The investment properties are valued every year by external valuers. Values are based upon active market prices, adjusted if necessary for conditions speciﬁ c to the investment property. If this information is not available, Cromwell uses alternative valuation methods such as discounted cash ﬂ ow projections and the capitalisation of income approach. Refer to note 3(d) for more information in relation to the inputs and techniques used to derive the fair values of investment properties. Financial instruments A variety of methods are used to calculate the value of ﬁ nancial instruments and make assumptions that are based upon market conditions existing at balance date. Valuation of derivative ﬁ nancial instruments involves assumptions based upon quoted market rates adjusted for the speciﬁ c features of the relevant instrument. The valuations of any ﬁ nancial instrument may change in the event of market volatility. Refer to notes 3 (b) and (c) for more information in relation to the inputs and techniques used to derive the fair value of ﬁ nancial instruments. CROMWELL 2014 ANNUAL RE PORT 59 3. FAIR VALUE ESTIMATION Cromwell measures and recognises the following assets and liabilities at fair value on a recurring basis: • Investment properties; • Investments at fair value through proﬁ t or loss; and • Derivative ﬁ nancial instruments. (a) Fair value hierarchy Recognised fair value measurements The different levels of fair value hierarchy have been deﬁ ned 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). inputs for the asset or liability that are not based on observable market data (unobservable inputs). Level 3: The table below presents Cromwell’s assets and liabilities measured and carried at fair value at 30 June 2014: Notes Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000 Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000 2014 2013 Assets Investment properties Investments at fair value through proﬁ t or loss: Listed equity securities Unlisted equity securities Total assets at fair value 12 13 13 Liabilities Derivative ﬁ nancial instruments: – 601 – 601 – – 9,945 9,945 2,249,470 2,249,470 – – – 601 9,945 2,249,470 2,260,016 315 – 315 – – 7,153 7,153 2,396,000 2,396,000 – – 315 7,153 2,396,000 2,403,468 Interest rate swaps 21 Total liabilities at fair value – – 30,285 30,285 – – 30,285 30,285 – – 35,508 35,508 – – 35,508 35,508 There were no transfers between the levels of the fair value hierarchy during the ﬁ nancial year. The only level 3 asset is investment property. Refer to note 12 for a roll forward of this asset. Disclosed fair values The fair values of investment property (Level 3) and derivative ﬁ nancial instruments (Level 2) are disclosed in the statement of ﬁ nancial position. The carrying amounts of trade and other receivables, other current assets, trade and other payables and distributions payable are assumed to approximate their fair values due to their short-term nature. The fair value of non-current borrowings is estimated by discounting the future contractual cash ﬂ ows at the current market interest rates that are available to Cromwell for similar ﬁ nancial instruments. The fair value of these borrowings is not materially different from the carrying value due to their relatively short-term nature. (b) Valuation techniques used to derive Level 1 fair values Fair value of investments at fair value through proﬁ t or loss Level 1 assets held by Cromwell include listed equity securities. The fair value of ﬁ nancial assets and liabilities traded in active markets is based on their quoted market prices at the end of the reporting period without any deduction for estimated future selling costs. Cromwell values its investments in accordance with the accounting policies set out in note 1 to the ﬁ nancial statements. Owing to the current composition of its portfolio, Cromwell relies on publicly available market information for the valuation of its investments. The quoted market price used for ﬁ nancial assets and liabilities held by Cromwell is the current ﬁ nal closing price. A ﬁ nancial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. 60 C ROMW ELL 20 1 4 ANNUAL REPORT (c) Valuation techniques used to derive Level 2 fair values The fair value of ﬁ nancial instruments that are not traded in an active market is determined using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity speciﬁ c estimates. If all signiﬁ cant inputs required to fair value an instrument are observable, the instrument is included in Level 2. At initial recognition, Cromwell measures a ﬁ nancial asset or liability at its fair value. Transaction costs in relation to ﬁ nancial assets and ﬁ nancial liabilities carried at fair value through proﬁ t or loss are expensed in proﬁ t or loss. Fair value of investments at fair value through proﬁ t or loss Level 2 assets held by Cromwell include unlisted equity securities. The fair value of these ﬁ nancial instruments is based upon the net tangible assets as reported by the underlying unlisted entity, adjusted for inherent risk where appropriate. Fair value of derivative ﬁ nancial instruments Level 2 assets held by Cromwell include “Vanilla” ﬁ xed to ﬂ oating interest rate swap derivatives (over-the-counter derivatives). The fair value of interest rate derivatives has been determined using a pricing model based on discounted cash ﬂ ow analysis which incorporates assumptions supported by observable market data at balance date including market expectations of future interest rates and discount rates adjusted for any speciﬁ c features of the derivatives and counterparty or own credit risk. All counterparties to interest rate derivatives are Australian ﬁ nancial institutions. (d) Valuation techniques used to derive Level 3 fair values Fair value of investment property If one or more of the signiﬁ cant inputs is not based upon observable market data the asset or liability is included in Level 3. Cromwell holds no Level 3 ﬁ nancial instruments. However, Cromwell has investment properties with an aggregate carrying amount of approximately $2,249,470,000 that are valued using techniques whereby at least one signiﬁ cant input is not observable market data, and hence they are considered to be Level 3 assets for the purposes of fair value measurement. The highest and best use of each investment property is taken into consideration when determining their fair values. The highest and best use of an investment property refers to the use of the investment property by a market participant that would maximise the value of that property. With respect to Cromwell’s investment properties, the current use is considered to be the highest and best use. Within this construct, fair value is determined within a range of reasonable estimates utilising both capitalisation of net market income and discounted future cash ﬂ ow methodologies and comparing the results to market sales evidence. The most appropriate evidence of fair value is given by current prices in an active market for similar property in the same location and condition and subject to similar leases. Where sufﬁ cient 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 reﬂ ect those differences; • Recent prices of similar properties in a less active market, with adjustments to reﬂ ect changes in economic conditions or other factors; • 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 adjustments 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 ﬂ ow forecasts including estimates of future cash ﬂ ows 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 reﬂ ect the degree of uncertainty and timing inherent in current and future cash ﬂ ows. The fair value adopted for each investment property has been supported by an independent external valuation of that property undertaken within the past 12 months. As part of this process, an external, independent valuer, having an appropriate recognised professional qualiﬁ cation and recent experience in the location and category of property, values each investment property at least every year or on a more regular basis if considered appropriate and as determined by management in accordance with the valuation policy of Cromwell. CROMWELL 2014 ANNUAL RE PORT 61 The signiﬁ cant unobservable inputs associated with the valuation of Cromwell’s investment properties are as follows: Inputs Annual Net Property Income ($’000) Capitalisation rate (%) Weighted average lease term (years) Discount rate (%) Occupancy (%) Range Weighted Average 1,203 – 25,438 6.50% - 12.25% 1.0 – 17.1 8.25% - 11.50% 80.3% - 100.0% 12,780 8.08% 6.1 9.04% 98.1% Sensitivity Information The relationships between the signiﬁ cant unobservable inputs and the fair value are as follows: Inputs Annual Net Property Income Capitalisation rate Weighted average lease term Discount rate Occupancy Impact on Fair Value from increase in input Impact on Fair Value from decrease in input Increase Decrease Increase Decrease Increase Decrease Increase Decrease Increase Decrease 4. CAPITAL RISK MANAGEMENT Cromwell’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. Cromwell’s capital management objectives are to: • ensure that Cromwell entities comply with capital and dividend/distribution requirements of their constitutions and/or trust deeds; • ensure sufﬁ cient capital resources to support Cromwell’s operational requirements; • continue to support Cromwell’s creditworthiness; • comply with capital requirements of relevant regulatory authorities; and • safeguard Cromwell’s ability to continue as a going concern. Cromwell monitors the adequacy of its capital requirements, cost of capital and gearing (i.e. debt/equity mix) as part of its overall strategic plan. Cromwell’s capital structure is continuously reviewed to ensure: • sufﬁ cient funds and ﬁ nancing facilities are available, on a cost effective basis, to implement Cromwell’s strategies; and • dividends/distributions to members are made within the stated policy. Cromwell 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. Cromwell also protects its equity in assets by taking out insurance cover with creditworthy insurers. 62 C ROMW ELL 20 1 4 ANNUAL REPORT One of the key ways Cromwell 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 Cromwell and the Trust at each balance date were as follows: Total borrowings Less: cash and cash equivalents Net debt Total assets Cromwell 2014 $’000 2013 $’000 Trust 2014 $’000 2013 $’000 1,101,714 1,232,720 1,101,714 1,232,720 117,820 983,894 125,933 67,451 75,126 1,106,787 1,034,263 1,157,594 2,469,940 2,546,110 2,403,658 2,487,254 Less: intangible assets and deferred tax assets 2,392 1,834 – – Less: cash and cash equivalents Adjusted assets Gearing ratio 117,820 125,933 67,451 75,126 2,349,728 2,418,343 2,336,207 2,412,128 42% 46% 44% 48% 5. FINANCIAL RISK MANAGEMENT Cromwell’s activities expose it to a variety of ﬁ nancial 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 ﬁ nancial performance of Cromwell. Cromwell uses derivative ﬁ nancial instruments such as interest rate derivatives to hedge certain risk exposures. Cromwell seeks to deal only with creditworthy counterparties. Liquidity risk is monitored through the use of future rolling cash ﬂ ow forecasts. Cromwell’s management of treasury activities is centralised and governed by policies approved by the Directors who monitor the operating compliance and performance as required. Cromwell has policies for overall risk management as well as policies covering speciﬁ c 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. Cromwell and the Trust hold the following ﬁ nancial instruments: Financial Assets Cash and cash equivalents (1) Trade and other receivables (1) Investments at fair value through proﬁ t and loss (2) Total ﬁ nancial assets Financial Liabilities Trade and other payables (4) Derivative ﬁ nancial instruments (3) Borrowings (4) Dividends/distributions payable (4) Total ﬁ nancial liabilities (1) Loans and receivables (2) At fair value – designated (3) At fair value – held for trading (4) At amortised cost Cromwell 2014 $’000 2013 $’000 117,820 125,933 4,702 10,546 7,940 7,468 133,068 141,341 25,714 30,285 28,014 35,508 Trust 2014 $’000 67,451 1,981 10,546 79,978 23,322 30,285 2013 $’000 75,126 6,816 7,468 89,410 27,030 35,508 1,101,714 1,232,720 1,101,714 1,232,720 33,466 31,061 33,466 31,066 1,191,179 1,327,303 1,188,787 1,326,324 CROMWELL 2014 ANNUAL RE PORT 63 (a) Credit Risk Credit risk is the risk that a counterparty will default on its contractual obligations under a ﬁ nancial instrument and result in a ﬁ nancial loss to Cromwell. Cromwell has exposure to credit risk on all ﬁ nancial assets included in the statement of ﬁ nancial position except investments at fair value through proﬁ t or loss. Cromwell manages this risk by: • establishing credit limits for customers and managing exposure to individual entities; • monitoring the credit quality of all ﬁ nancial 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 ﬁ nancial institutions; • providing loans to associates where Cromwell 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 ﬁ nancial assets recognised in the statement of ﬁ nancial position of Cromwell. Cromwell holds no signiﬁ cant collateral as security. There are no signiﬁ cant ﬁ nancial assets that have had renegotiated terms that would otherwise have been past due or impaired. Cash is held with Australian ﬁ nancial institutions. Interest rate derivative counterparties are all Australian ﬁ nancial 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 Cromwell Trust 2014 $’000 1,060 – – 1,060 2013 $’000 3,269 223 345 3,837 2014 $’000 1,060 – – 1,060 2013 $’000 3,269 223 345 3,837 (b) Liquidity Risk Prudent liquidity risk management implies maintaining sufﬁ cient cash reserves and ﬁ nance facilities to meet the ongoing operational requirements of the business. It is Cromwell’s policy to maintain sufﬁ cient funds in cash and cash equivalents to meet expected near term operational requirements. Cromwell prepares and monitors rolling forecasts of liquidity requirements on the basis of expected cash ﬂ ow. Cromwell monitors the maturity proﬁ le of borrowings and puts in place strategies designed to ensure that all maturing borrowings are reﬁ nanced in the required timeframes. The current weighted average debt maturity of Cromwell and the Trust is 4.3 years (2013: 2.2 years). Contractual maturity of ﬁ nancial liabilities (borrowings and payables) of Cromwell and the Trust, including interest thereon, are as follows: Due within one year Due between one and ﬁ ve years Cromwell Trust 2014 $’000 2013 $’000 2014 $’000 2013 $’000 122,122 133,850 119,732 132,869 1,294,682 1,342,138 1,294,682 1,342,138 1,416,804 1,475,988 1,414,414 1,475,007 64 C ROMW ELL 20 1 4 ANNUAL REPORT Price risk – Listed equity securities (c) Market Risk (i) Cromwell and the Trust are exposed to equity securities price risk. This arises from investments held by Cromwell and the Trust classiﬁ ed on the balance sheet as investments at fair value through proﬁ t and loss (refer note 13). Cromwell and the Trust are not exposed to commodity price risk. A small proportion of Cromwell and the Trust’s equity investments are publicly traded and are included in the ASX All Ordinaries index. Cromwell and Trust sensitivity The table below details Cromwell and the Trust’s sensitivity to movements in the ASX All Ordinaries, based on the ﬁ nancial instruments held at balance date with all other variables held constant and assuming all Cromwell and the Trust’s equity instruments moved in correlation with the index. Cromwell and the Trust ASX All Ordinaries increased by 20% ASX All Ordinaries decreased by 20% Proﬁ t/(loss) Equity 2014 $’000 120 (120) 2013 $’000 63 (63) 2014 $’000 120 (120) 2013 $’000 63 (63) Price risk – Unlisted equity securities (ii) Cromwell and the Trust are exposed to price risk in relation to its unlisted equity securities (refer note 13) acquired during the year. Cromwell and the Trust use 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 Cromwell and the Trust’s investment. Cromwell and Trust sensitivity The table below details Cromwell and the Trust’s sensitivity to movements in the market values of investment properties held by unlisted equity investments, based on the unlisted equity investments held at balance date with all other variables held constant and assuming all Cromwell and the Trust’s unlisted equity instruments moved in correlation with the market values of the underlying investment properties. Cromwell and the Trust Investment properties increased by 5% Investment properties decreased by 5% Proﬁ t/(loss) Equity 2014 $’000 715 (715) 2013 $’000 612 (612) 2014 $’000 715 (715) 2013 $’000 612 (612) Interest rate risk (iii) Cromwell’s interest-rate risk primarily arises from borrowings. Borrowings issued at variable rates expose Cromwell to cash ﬂ ow interest-rate risk. Borrowings issued at ﬁ xed rates expose Cromwell to fair value interest-rate risk. Cromwell’s policy is to effectively maintain hedging arrangements on not less than 50% of its borrowings. At balance date 87% (2013: 86%) of Cromwell’s borrowings were effectively hedged. Cromwell manages its cash ﬂ ow interest-rate risk by using interest rate derivatives. Such interest rate derivatives have the economic effect of converting borrowings from ﬂ oating rates to ﬁ xed or a limited range of rates. Generally, Cromwell raises long term borrowings at ﬂ oating rates and hedges a portion of them into ﬁ xed or capped rates. Under the interest- rate derivatives, Cromwell agrees with other counterparties to exchange, at speciﬁ ed intervals (usually 30 days), the difference between contract rates and ﬂ oating-rate interest amounts calculated by reference to the agreed notional principal amounts. The ﬁ xed or limited interest rates range between 2.98% and 5.95% (2013: 2.98% and 5.95%) and the variable rates are generally based on the 30 day bank bill swap bid rate which at balance date was 2.66% (2013: 2.87%). At balance date, the notional principal amounts and periods of expiry of the interest rate swap contracts are detailed as follows: Cromwell and the Trust Less than 1 year 1-2 years 2-3 years 3-4 years 4-5 years 2014 $’000 379,100 31,730 270,000 286,450 – 967,280 2013 $’000 262,400 216,700 31,730 270,000 286,450 1,067,280 CROMWELL 2014 ANNUAL RE PORT 65 Because Cromwell’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 reﬂ ected in the proﬁ t or loss. Information on borrowings and the maturity proﬁ le of borrowings including interest thereon is set out in Note 20. Information on additional interest rate derivative transactions undertaken since balance date is set out in Note 41. Cromwell sensitivity The table below details Cromwell’s sensitivity to movements in the year end interest rates, based on the borrowings and interest rate derivatives held at balance date with all other variables held constant and assuming all Cromwell’s borrowings and interest rate derivatives moved in correlation with the movement in year end interest rates. Cromwell Interest rates increased by 100 basis points Interest rates decreased by 100 basis points Proﬁ t/(loss) Equity 2014 $’000 20,514 (20,514) 2013 $’000 33,281 (33,281) 2014 $’000 20,514 (20,514) 2013 $’000 33,291 (33,291) Trust sensitivity The table below details Cromwell’s sensitivity to movements in the year end interest rates, based on the borrowings and interest rate derivatives held at balance date with all other variables held constant and assuming all Cromwell’s borrowings and interest rate derivatives moved in correlation with the movement in year end interest rates. Trust Interest rates increased by 100 basis points Interest rates decreased by 100 basis points 6. EXPENSES Premises rental – minimum lease payments Finance Costs: Total interest Amortisation of borrowing costs Finance costs Employee Beneﬁ ts Expense: Wages and salaries including on costs Contributions to deﬁ ned contribution superannuation plans Equity settled share-based payments Increase in liability for long service and annual leave Less: employee beneﬁ ts capitalised Employee beneﬁ ts 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 Proﬁ t/(loss) Equity 2014 $’000 20,116 (20,116) 2013 $’000 32,773 (32,773) 2014 $’000 20,116 (20,116) 2013 $’000 32,773 (32,773) Cromwell Trust 2014 $’000 488 70,025 4,025 74,050 15,676 1,031 731 238 17,676 (107) 17,569 346 412 758 559 – 559 2013 $’000 456 67,715 2,581 70,296 13,279 833 669 256 15,037 (178) 14,859 320 323 643 3 143 146 2014 $’000 – 70,025 4,025 74,050 2013 $’000 – 67,774 2,581 70,355 – – – – – – – – – – – – – – – – – – – – – – – – – – 66 C ROMW ELL 20 1 4 ANNUAL REPORT 7. INCOME TAX Income tax expense (a) Current tax Deferred tax Change in tax losses recognised Adjustment in relation to prior periods Income tax expense Cromwell 2014 $’000 2013 $’000 Trust 2014 $’000 2013 $’000 1,428 (455) – (1) 972 1,519 137 (933) (40) 683 (b) Numerical reconciliation of income tax expense to prima facie tax Proﬁ t before income tax Tax at the Australian tax rate of 30% (2013: 30%) Tax effect of amounts which are not deductible/ (taxable) in calculating taxable income: Trust income Non-deductible expenses Non-deductible property development costs/impairment Assessable for income tax Change in tax losses recognised Adjustment in relation to prior periods Income tax expense 183,443 55,033 46,839 14,052 (53,128) (12,987) (18) – – (914) (1) 972 215 278 98 (933) (40) 683 (c) Unrecognised deferred tax assets Deferred tax assets have not been recognised in respect of the following items: Tax losses 20,998 17,792 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 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 proﬁ t will be available against which the consolidated entity can utilise the beneﬁ ts from the deferred tax assets. All unused tax losses were incurred by Australian entities. (d) Tax consolidation Refer note 1(d) 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 (2013: $nil) as tax consolidation contributions by, or distributions to, equity participants. 8. CASH AND CASH EQUIVALENTS Cash at bank Cash and cash equivalents Cromwell Trust 2014 $’000 117,820 117,820 2013 $’000 125,933 125,933 2014 $’000 67,451 67,451 2013 $’000 75,126 75,126 CROMWELL 2014 ANNUAL RE PORT 67 9. TRADE AND OTHER RECEIVABLES Current Assets Trade debtors Provision for impairment of trade debtors Trade and other receivables – current Cromwell Trust 2014 $’000 5,057 (355) 4,702 2013 $’000 7,940 – 7,940 2014 $’000 2,336 (355) 1,981 2013 $’000 6,816 – 6,816 Trade debtors mainly comprises of amounts owing by tenants of Cromwell and the Trust’s investment properties and recoverable costs owed 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 – related parties Cromwell Property Trust 12 The Cromwell Property Trust 12 (“C12”), ARSN 166 216 995, an unlisted multi-property trust was constituted on 20 June 2013 and registered on 22 October 2013. Cromwell Funds Management Limited (“CFM”), a subsidiary of the Company, has acted as responsible entity since C12’s inception. C12 was established to acquire and hold three properties and has a ﬁ xed term until 2020. CFM issued a PDS on 29 October 2013 in order to raise up to $76,000,000 from investors in C12. Cromwell and the Trust have provided a loan facility of $50,000,000 to C12, which is unsecured, to enable the acquisition of the buildings and provide funding for initial construction. The facility was drawn to a maximum $37,189,000 during the ﬁ nancial year, but repaid in full prior to balance date. While the loan was drawn down Cromwell and the Trust earned a return equivalent to the C12 distribution rate of 7.75%. Cromwell Box Hill Trust During the year the Cromwell Box Hill Trust ARSN 161 394 243 (“BHT”), an unlisted single property trust, for which Cromwell Funds Management Limited (“CFM”), a subsidiary of the Company, acts as responsible entity, was advanced a short term loan of $2,000,000. The loan facility was unsecured and the funds were utilised to settle ﬁ nal construction costs for which BHT was liable. The loan was repaid in full as soon as BHT had external funding arrangements in place. While the loan was drawn down, Cromwell and the Trust earned a return equivalent to the BHT distribution rate of 7.75%. (b) Past due but not impaired receivables At balance date, Cromwell and the Trust had $1,060,000 (2013: $3,837,000) of trade and other receivables which were past due but not impaired which relate to a number of tenants for whom there is no recent history of default. Impaired receivables (c) As at 30 June 2014 $355,000 trade receivables of Cromwell and the Trust were impaired (2013: $nil). The ageing analysis of impaired receivables is as follows: 1 to 3 months 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 2014 $’000 355 355 – 355 – 355 2013 $’000 – – 127 – (127) – The creation of the provision has been included in property expenses and outgoings in the statement of comprehensive income. 68 C ROMW ELL 20 1 4 ANNUAL REPORT 10. OTHER CURRENT ASSETS Cromwell 2014 $’000 2013 $’000 Trust 2014 $’000 2013 $’000 Prepayments 2,714 2,527 1,686 1,844 11. INVENTORIES Non-current Land held for development and resale (net realisable value) Inventories 12. INVESTMENT PROPERTIES Cromwell 2014 $’000 2013 $’000 Trust 2014 $’000 2013 $’000 3,000 3,000 3,000 3,000 – – – – Cromwell 2014 $’000 2013 $’000 Trust 2014 $’000 2013 $’000 Investment properties at fair value 2,249,470 2,396,000 2,249,470 2,396,000 (a) Movement in investment properties Balance at 1 July Additions at cost Cromwell Property Fund – properties acquired Purchase price of other investment properties 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 gain/(loss) from fair value adjustments Balance at 30 June 2,396,000 1,724,400 2,396,000 1,724,400 – – – 44,484 6,828 171,372 463,602 26,372 76,319 6,301 – – – 44,484 6,828 171,372 463,602 26,372 76,319 6,301 (250,009) (42,439) (250,009) (42,439) 5,648 11,927 (11,634) 46,226 6,071 29,275 (9,526) (55,747) 5,648 11,927 (11,634) 46,226 6,071 29,275 (9,526) (55,747) 2,249,470 2,396,000 2,249,470 2,396,000 (b) Amounts recognised in proﬁ t and loss for investment properties Rental and outgoings from investment properties 259,419 206,665 258,683 206,478 Direct operating expense from properties that generated rental income (45,032) (34,005) (50,304) (38,753) 214,387 172,660 208,379 167,725 (c) Assets pledged as security Borrowings (refer Note 20) are secured by ﬁ xed and ﬂ oating 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. CROMWELL 2014 ANNUAL RE PORT 69 (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 ﬁ nancial statements are receivable as follows: Within one year Later than one year but not later than ﬁ ve years Later than ﬁ ve years (e) Valuation basis For further information refer to note 3(d). Cromwell Trust 2014 $’000 213,371 556,713 673,260 2013 $’000 217,749 624,900 741,200 2014 $’000 213,371 556,713 673,260 2013 $’000 217,869 624,900 741,200 1,443,344 1,583,849 1,443,344 1,583,969 70 C ROMW ELL 20 1 4 ANNUAL REPORT (f) Details of investment properties 200 Mary Street, QLD Terrace Ofﬁ ce Park, QLD Oracle Building, ACT Title Indepen- dent valuation date Freehold Jun 2014 Freehold Dec 2013 Leasehold Jun 2014 NQX Distribution Centre, QLD Freehold SOLD 74,500 23,500 29,400 – Henry Waymouth Centre, SA Freehold Jun 2014 47,500 Independent valuation Carrying amount Fair value adjustment 2014 $’000 2013 $’000 2014 $’000 2013 $’000 2014 $’000 2013 $’000 81,000 26,500 29,100 25,375 40,000 35,450 12,800 15,000 13,500 16,200 74,500 23,500 29,400 – 47,500 – 14,500 14,000 13,600 – 81,000 26,500 29,100 25,375 42,300 36,100 13,900 15,000 13,500 16,700 (7,918) (3,017) 136 – 4,885 – 590 (893) 8 – Freehold SOLD Freehold Dec 2013 Freehold Dec 2013 Freehold Dec 2013 Freehold SOLD – 14,500 14,000 13,600 – Freehold Dec 2013 171,000 172,000 171,000 172,000 (617) Leasehold Jun 2014 31,000 31,000 31,000 31,000 1,405 Freehold Freehold SOLD SOLD – – 114,500 – – – 114,500 – – – 475 Victoria Avenue, NSW Freehold Jun 2014 132,000 135,000 132,000 135,000 (2,297) Synergy, QLD Freehold Dec 2013 72,000 73,500 72,000 73,500 (95) Tuggeranong Ofﬁ ce Park, ACT Leasehold Jun 2013 140,000 155,000 140,000 155,000 (15,303) (18,130) Leasehold Jun 2014 64,000 69,000 64,000 69,000 (4,956) (1,109) Bundall Corporate Centre, QLD Freehold Dec 2013 70,000 Leasehold Dec 2013 205,920 175,000 205,920 180,500 Leasehold Dec 2013 335,000 232,000 335,000 275,000 Freehold Jun 2014 197,500 200,000 197,500 200,000 Freehold SOLD Freehold Dec 2013 Leasehold Jun 2014 Freehold SOLD Freehold Dec 2013 Freehold Jun 2014 Freehold Jun 2014 Freehold Dec 2013 Freehold Jun 2014 Freehold Jun 2014 – 31,600 43,500 – 2,100 28,500 36,000 59,000 16,700 23,900 68,000 36,800 31,750 62,500 19,000 2,475 29,000 36,000 53,000 13,800 22,600 70,000 – 31,600 43,500 – 2,100 28,500 36,000 59,000 16,700 23,900 25,065 16,140 (3,564) (1,802) – (283) 8,836 8,901 3,673 577 (2,377) (3,349) 68,500 36,800 31,750 62,500 (19,202) (11,831) 19,000 2,475 30,000 35,000 53,000 13,800 22,600 – (375) (501) (6) 5,307 1,996 1,294 Freehold Jun 2014 174,000 133,000 174,000 133,000 34,307 Freehold Jun 2014 26,500 23,900 26,500 23,900 2,586 Freehold Dec 2013 141,000 130,000 141,000 130,000 10,833 Freehold Jun 2014 31,250 28,700 31,250 28,700 2,503 2,249,470 2,342,450 2,249,470 2,396,000 46,226 (55,747) Brooklyn Woolstore, VIC Village Cinemas, VIC Vodafone Call Centre, TAS Regent Cinema Centre, NSW Elders Woolstore, SA 700 Collins Street, VIC 19 National Circuit, ACT 380 La Trobe Street, VIC 101 Grenfell Street, SA TGA Complex, ACT 321 Exhibition Street, VIC 203 Coward Street, NSW HQ North, QLD HomeBase, NSW(1) 43 Bridge Street, NSW(1) 13 Keltie Street, ACT(1) 28-54 Percival Road, NSW(1) Sturton Road, SA(1) 147-163 Charlotte Street, QLD 146-160 Mary Street, QLD 4-6 Bligh Street, NSW 117 Bull Street, NSW 11 Farrer Street, NSW 207 Kent Street, NSW 84 Crown Street, NSW 2-24 Rawson Place, NSW 2-6 Station Street, NSW Total investment properties (7,139) (314) (934) (1,078) (6,735) 1,718 465 (244) 87 656 (613) (918) 27 (701) 1,638 1,618 (2,538) (225) (1,743) (2,164) (2,941) (766) (1,254) (6,707) (1,326) (7,214) (1,593) (1) Buildings acquired in a business combination transaction, through the acquisition of the Cromwell Property Fund (see notes 14 and 38). CROMWELL 2014 ANNUAL RE PORT 71 13. INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS Unlisted equity securities at fair value Listed equity securities at fair value Investments at fair value through proﬁ t or loss Cromwell Trust 2014 $’000 9,945 601 10,546 2013 $’000 7,153 315 7,468 2014 $’000 9,945 601 10,546 2013 $’000 7,153 315 7,468 These investments are designated at fair value through proﬁ t or loss. Gains and losses are shown in proﬁ t or loss. 14. EQUITY ACCOUNTED INVESTMENTS At balance date Cromwell had investments in three joint ventures, Phoenix Portfolios Pty Ltd (“Phoenix”), Cromwell Partners Trust (“CPA”) and Oyster Property Funds Limited (“Oyster”). Phoenix This entity was formed in Australia and its principal activity is investment management. The reporting date for Phoenix is the same as for Cromwell. During the prior year additional non-voting equity was issued to a third party which reduced Cromwell’s ownership interest from 50% to 45% whilst preserving the Cromwell’s 50% ownership of issued capital to which voting rights attach. The remaining 50% of issued capital to which voting rights attach is held by one other investor. CPA During the year Cromwell acquired a 50% ownership interest in the CPA. CPA is the parent of Cromwell Northpoint Trust, which itself owns the Northpoint Building in the North Sydney CBD. The reporting date for CPA is the same as for Cromwell. Cromwell acts as the trustee for the Trust. The remaining 50% of the units in the CPA are held by a single investor. A unit holder agreement between Cromwell and the other investor limits the power of the trustee such that Cromwell’s investment in CPA has been determined to be a jointly controlled entity. Oyster During the year Cromwell acquired a 50% ownership interest in Oyster. This entity was formed in New Zealand and its principal activity is investment and property management. The reporting date for Oyster is the same as for Cromwell. The remaining 50% ownership of Oyster is held by six investors. The board of Oyster comprises three representatives appointed by the six investors and three representatives from Cromwell with no deciding or “chairman’s” vote. A shareholder agreement between Cromwell and the six investors outlines how Oyster will be managed. By virtue of the board arrangement and the shareholder agreement, Cromwell’s investment in Oyster has been determined to be a jointly controlled entity. CPF Cromwell and the Trust previously held an investment in an associate, Cromwell Property Fund (“CPF”). The remaining units of CPF not previously owned by Cromwell and the Trust were acquired during the prior year (refer note 38). Investments (a) The investments are accounted for using the equity method of accounting. Information relating to the investments is detailed below: Cromwell Investments accounted for using the equity method: CPF – associate CPA – joint venture Oyster – joint venture Phoenix – joint venture Trust Investments accounted for using the equity method: CPF – associate CPA – joint venture Ownership Interest 2013 2014 % % 2014 $’000 2013 $’000 – 50 50 45 – – – – – 45 – – – 72,524 4,596 406 77,526 – 72,524 – – – 100 100 – – 72 C ROMW ELL 20 1 4 ANNUAL REPORT (b) Movement in carrying amount of equity accounted investments Cromwell 2014 Balance at 1 July 2013 Cost of initial investment Share of proﬁ t/(loss) (1) (2) Distributions received Balance at 30 June 2014 2013 Balance at 1 July 2012 Share of proﬁ t (1) Carrying value consolidated (3) Balance at 30 June 2013 Trust 2014 Balance at 1 July 2013 Cost of initial investment Share of proﬁ t/(loss) (1) Distributions received Balance at 30 June 2014 2013 Balance at 1 July 2012 Share of of proﬁ t/(loss) (1) Carrying value consolidated (3) Balance at 30 June 2013 CPF $’000 Total $’000 Phoenix $’000 Oyster $’000 100 – 306 – 406 47 53 – 100 – 4,596 – – 4,596 – – – – CPA $’000 – 77,632 (3,248) (1,860) 72,524 – – – – CPA $’000 – 77,632 (3,248) (1,860) 77,524 – – – – – 4,705 593 (5,298) – CPF $’000 – – – – – – – – – 4,705 593 (5,298) – 100 82,228 (2,942) (1,860) 77,526 4,752 646 (5,298) 100 Total $’000 – 77,632 (3,248) (1,860) 72,524 4,705 593 (5,298) – (1) Share of proﬁ t/(loss) includes fair value gain/(loss) on investment properties and interest rate derivatives where applicable. (2) Cromwell received no share of proﬁ t from Oyster due to the investment being transacted close to the end of the ﬁ nancial year. (3) 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 Cromwell and the Trust. CROMWELL 2014 ANNUAL RE PORT 73 (c) Share of assets and liabilities of equity accounted investments 2014 Phoenix $’000 Oyster $’000 CPA $’000 Total $’000 Phoenix $’000 2013 CPF $’000 Total $’000 Current Assets Cash Other current assets Total current assets Non-current assets Investment properties Other non-current assets Total non-current assets Total assets Current liabilities Financial liabilities Other current liabilities Total current liabilities Non-current liabilities Financial liabilities Other non-current liabilities Total non-current liabilities Total liabilities Net assets 228 185 413 – 94 94 507 87 14 101 – – – 101 406 358 393 751 5,380 358 5,738 5,966 936 6,902 – 139,350 139,350 – 5,318 139,350 144,668 239 – 239 – 3 3 145,088 151,570 242 3,002 298 3,300 3,768 994 4,780 69,264 69,264 – 69,264 72,564 72,524 – 69,264 74,044 77,526 – – – – (142) (142) (142) 100 5,224 5,224 5,975 1,325 54 1,379 – – – 1,379 4,596 – – – – – – – – – – – – – – – 239 – 239 – 3 3 242 – – – – (142) (142) (142) 100 (d) Share of revenues, expenses and results of equity accounted investments Revenue (1) Interest income Other revenue Total revenue Expenses (1) Interest expense Depreciation and amortisation Other expenses Total expenses Total comprehensive income Share of proﬁ t/(loss) 3 709 712 – – (406) (406) 306 306 – – – – – – – – – 69 7,291 7,360 72 8,000 8,072 (1,535) (1,535) (86) (86) (8,987) (9,393) (10,608) (11,014) (3,248) (3,248) (2,942) (2,942) – 437 437 – – (384) (384) 53 53 – 1,409 1,409 – – (816) (816) 593 593 – 1,846 1,846 – – (1,200) (1,200) 646 646 (1) Cromwell received no share of proﬁ t from Oyster due to the investment being transacted extremely close to the end of the ﬁ nancial year. 74 C ROMW ELL 20 1 4 ANNUAL REPORT 15. PROPERTY, PLANT AND EQUIPMENT Furniture and ﬁ ttings at cost Accumulated depreciation Plant and equipment at cost Accumulated depreciation Property, plant and equipment Cromwell 2014 $’000 1,351 (141) 1,210 2,292 (1,732) 560 1,770 2013 $’000 1,612 (871) 741 2,033 (1,466) 567 1,308 – – – – – – – Trust 2014 $’000 2013 $’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. Cromwell Balance at 1 July 2013 Additions Disposals Depreciation Balance at 30 June 2014 Balance at 1 July 2012 Additions Disposals Depreciation Balance at 30 June 2013 Furniture and Fittings $’000 Plant and Equipment Owned $’000 741 1,068 (534) (65) 1,210 796 25 – (80) 741 567 299 (25) (281) 560 531 279 (3) (240) 567 – – – – – – – Total $’000 1,308 1,367 (559) (346) 1,770 1,327 304 (3) (320) 1,308 16. DEFERRED TAX ASSETS Deferred tax assets Deferred tax assets and liabilities are attributable to the following: Cromwell 2014 $’000 1,272 2013 $’000 804 Interests in managed investment schemes (1,900) (1,918) Employee beneﬁ ts Provisions Transaction costs 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 proﬁ t or loss Change in tax losses recognised Adjustments in relation to prior periods Balance at 30 June 907 30 285 1,952 1,272 804 – (23) 492 (1) 1,272 718 17 527 1,460 804 914 (1,189) (137) 933 283 804 Trust 2014 $’000 2013 $’000 – – – – – – – – – – – – – – – – – – – – – – – – – – The beneﬁ t 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 signiﬁ cant amount of tax losses that have not been recognised as a deferred tax asset (refer note 7). CROMWELL 2014 ANNUAL RE PORT 75 17. INTANGIBLE ASSETS Software – at cost Accumulated amortisation Intangible assets Cromwell 2014 $’000 3,239 (2,119) 1,120 2013 $’000 2,737 (1,707) 1,030 Amortisation of software is included in amortisation expense in proﬁ t or loss. Reconciliations of the carrying amounts of software are set out below: Balance at 1 July Additions Disposals Amortisation Balance at 30 June 18. TRADE AND OTHER PAYABLES 1,030 502 – (412) 1,120 633 863 (143) (323) 1,030 Trust 2014 $’000 2013 $’000 – – – – – – – – – – – – – – – – Trade payables and accruals Lease incentives payable Tenant security deposits Other payables Trade and other payables Cromwell Trust 2014 $’000 16,703 6,897 954 1,158 25,712 2013 $’000 11,662 12,782 1,020 2,550 28,014 2014 $’000 15,285 6,897 954 186 23,322 2013 $’000 11,818 12,782 1,020 1,410 27,030 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. 19. DISTRIBUTIONS PAYABLE Distributions payable Cromwell Trust 2014 $’000 33,466 2013 $’000 31,061 2014 $’000 33,466 2013 $’000 31,066 Distributions payable relate to June quarter distributions declared in June and payable in August of each year. 76 C ROMW ELL 20 1 4 ANNUAL REPORT 20. BORROWINGS Current Secured Loans – ﬁ nancial institutions Borrowings – current Non-Current Secured Loans – ﬁ nancial institutions Unamortised transaction costs Borrowings – non-current Total Secured Loans – ﬁ nancial institutions Unamortised transaction costs Total borrowings Cromwell Trust 2014 $’000 2013 $’000 2014 $’000 2013 $’000 90,500 90,500 – – 90,500 90,500 – – 1,019,000 1,237,578 1,019,000 1,237,578 (7,786) (4,858) (7,786) (4,858) 1,011,214 1,232,720 1,011,214 1,232,720 1,109,500 1,237,578 1,109,500 1,237,578 (7,786) (4,858) (7,786) (4,858) 1,101,714 1,232,720 1,101,714 1,232,720 Loans shown above are net of transaction costs which are amortised over the term of the loan. (a) Borrowing details Borrowings of Cromwell and the Trust are the same and details at balance date are set out below: Facility Note Secured Syndicated Facility – new (Tranche 1) Syndicated Facility – new (Tranche 2) Syndicated Facility – former facility Tuggeranong Multi Property (Tranche 1) Multi Property (Tranche 2) Mascot (Tranche 1) Mascot (Tranche 2) Mascot (Tranche 3) HQ North (Tranche 1) Bundall Corporate Centre Cromwell Property Fund NSW Portfolio Total facilities (i) (i) (ii) (iii) (iv) (iv) (v) (v) (v) (vi) (vii) (viii) (ix) Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Maturity Date May 2018 May 2019 Jan 2016 Facility 2014 $’000 422,000 597,000 Utilised 2014 $’000 422,000 597,000 – – June 2015 90,500 90,500 July 2015 July 2015 Dec 2014 Dec 2014 Dec 2014 Dec 2014 Jan 2015 June 2015 June 2016 – – – – – – – – – – – – – – – – – – Facility 2013 $’000 Utilised 2013 $’000 – – 352,467 100,595 132,719 100,000 62,400 83,750 47,720 – – 352,467 100,595 132,719 98,653 62,400 58,762 – 106,506 106,506 34,916 90,560 34,916 90,560 200,000 200,000 1,109,500 1,109,500 1,311,633 1,237,578 (i) Syndicated Facility – new - Tranches 1 and 2 During the year a new Syndicated ﬁ nance facility was established. The Syndicated ﬁ nance facility is secured by ﬁ rst registered mortgages over a pool of the investment properties held by the Trust and is split into two tranches, one of $422,000,000 which expires in May 2018 and one of $597,000,000 which expires in May 2019. Interest is payable monthly in arrears at variable rates based on the 30 day BBSY rate which was 2.66% at balance date plus a loan margin. The facility was fully drawn and the proceeds used to repay all debt facilities other than Tuggeranong (Tranche 1). (ii) Syndicated Facility – former facility The Syndicated ﬁ nance facility was retired and fully repaid during the 2014 ﬁ nancial year. The Syndicated ﬁ nance facility was secured by ﬁ rst registered mortgages over a pool of the investment properties held by Cromwell and a registered ﬂ oating charge over the assets of the Trust. Interest was payable monthly in arrears at variable rates based on the 30 day BBSY rate plus a loan margin. Repayments of $352,467,000 (2013: $23,705,000) were made during the year from proceeds of the new Syndicated facility. CROMWELL 2014 ANNUAL RE PORT 77 (iii) Tuggeranong The loan is secured by a ﬁ rst registered mortgage over Tuggeranong Ofﬁ ce Park. The loan matures in June 2015. The loan bears interest at a variable rate based on the 30 day BBSY rate plus a loan margin. Repayments of $10,095,000 (2013: $10,643,000) were made during the year. (iv) Multi Property The loan was secured by ﬁ rst registered mortgage over the Synergy, Mary Street, TGA and Exhibition Street investment properties. The facility limit was $232,719,000 in aggregate and had 2 remaining tranches. Tranche 1 related to the TGA Complex in Canberra and the 200 Mary Street and Synergy properties in Brisbane and was fully drawn. Tranche 2 related to the Exhibition Street property and $98,653,000 had been drawn of the limit of $100,000,000. Both tranches bore interest at a variable rate based on the 30 day BBSY rate plus a loan margin. Both tranches were repaid and replaced by the new Syndicated facility during the year. (v) Mascot The loan was secured by a ﬁ rst registered mortgage over the 203 Coward Street, Mascot property. The loan consisted of 2 remaining tranches. Tranche 1 had been fully drawn to $62,400,000. Tranche 2 was drawn to $83,379,000 during the period (June 2013: $58,762,000). The loan bore interest at a variable rate based on a margin over the 30 day BBSY rate. Both tranches were repaid and replaced by the new Syndicated facility during the year. (vi) HQ North The loan was secured by a ﬁ rst registered mortgage over the HQ North investment property and bore interest at a variable rate based on the 30 day BBSY rate plus a margin. The loan was repaid and replaced by the new Syndicated facility during the year. (vii) Bundall Corporate Centre The loan was secured by a ﬁ rst registered mortgage over the Bundall Corporate Centre investment property and bore interest at a variable rate based on the 30 day BBSY rate plus a margin. The loan was repaid and replaced by the new Syndicated facility during the year. (viii) Cromwell Property Fund CPF became a consolidated entity of Cromwell during the period (see notes 14 and 38) and as a result Cromwell and the Trust assumed a $112,250,000 loan. The loan was secured by ﬁ rst registered mortgages over the investment properties of CPF (refer note 14) and a registered ﬂ oating charge over the assets of CPF. The loan bore interest at a variable rate based on a margin over the 30 day BBSY. The loan was repaid and replaced by the new Syndicated facility during the year. (ix) NSW Portfolio The facility was $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 bore interest at a variable rate based on a margin over the 30 day BBSY rate. The loan was repaid and replaced by the new Syndicated facility during the year. (b) Maturity Proﬁ le Maturity proﬁ le of the principal amounts of current and non-current borrowings together with estimated interest thereon: Due within one year Due between one and ﬁ ve years Cromwell Trust 2014 $’000 139,357 2013 $’000 60,209 2014 $’000 139,357 2013 $’000 60,209 1,183,663 1,312,065 1,183,663 1,312,065 1,323,020 1,372,274 1,323,020 1,372,274 (c) Unused Finance Facilities At balance date Cromwell had no unused ﬁ nance facilities (2013: $74,055,000). 78 C ROMW ELL 20 1 4 ANNUAL REPORT Interest Rate Risk (d) Interest rate derivatives Cromwell manages its cash ﬂ ow interest-rate risk by using ﬂ oating-to-ﬁ xed interest rate derivatives. Such interest rate derivatives have the economic effect of converting borrowings from ﬂ oating rates to ﬁ xed rates. Generally, Cromwell raises long term borrowings at ﬂ oating rates and a portion of them into ﬁ xed or limited range of rates. Information regarding Cromwell’s exposure to interest rates is provided in note 5. 21. DERIVATIVE FINANCIAL INSTRUMENTS Cromwell Trust 2014 $’000 2013 $’000 2014 $’000 2013 $’000 Current liabilities Interest rate derivatives – at fair value 15,332 17,638 15,332 17,638 Non-current liabilities Interest rate derivatives – at fair value 14,953 17,870 14,953 17,870 Details of principal amounts, expiry dates and interest ranges of interest rate derivative (hedging) contracts are set out in note 5(c)(iii). Valuation basis For further information refer to note 3(c). 22. PROVISIONS Current Employee beneﬁ ts Non-Current Employee beneﬁ ts Make good Provisions Movement in provisions Balance at 1 July Provision increased Balance at 30 June Cromwell 2014 $’000 1,211 1,211 1,085 100 1,185 2013 $’000 1,215 1,215 843 100 943 Trust 2014 $’000 2013 $’000 – – – – – – – – – – Make Good 2014 $’000 100 – 100 2013 $’000 100 – 100 23. OTHER CURRENT LIABILITIES Unearned income Cromwell Trust 2014 $’000 11,240 2013 $’000 15,468 2014 $’000 11,240 2013 $’000 15,468 Unearned income primarily comprises rent paid in advance by tenants. CROMWELL 2014 ANNUAL RE PORT 79 24. CONTRIBUTED EQUITY (a) Equity attributable to shareholders/unitholders Contributed equity 1,372,093 1,360,755 104,370 103,323 1,267,748 1,257,707 Cromwell Company CDPT 2014 $’000 2013 $’000 2014 $’000 2013 $’000 2014 $’000 2013 $’000 Movements in ordinary shares/ordinary units Date Details Number of Securities Cromwell Issue Price 1 Jul 12 Opening balance 1,169,688,943 Company CDPT $’000 894,058 Issue Price $’000 66,344 Issue Price 16 Aug 12 Dividend reinvestment plan 2,880,765 69.9¢ 2,013 20 Sep 12 Exercise of performance rights 20 Sep 12 Exercise of performance rights 4 Oct 12 CPF acquisition 8 Oct 12 Placement 170,287 123,459 32,339,260 16,911,765 14 Nov 12 Dividend reinvestment plan 3,424,554 14 Dec 12 Placement 182,165,605 13 Feb 13 Dividend reinvestment plan 3,317,803 14 Feb 13 Security purchase plan 49,959,701 – 10.0¢ 75.0¢ 68.0¢ 80.0¢ 78.5¢ 83.5¢ 78.5¢ 15 May 13 Dividend reinvestment plan 2,739,314 101.4¢ – 12 24,255 11,500 2,741 143,000 2,771 39,218 2,777 11 Jun 13 Placement 128,023,212 100.0¢ 128,023 64,570,891 100.0¢ 2,424,768 100.0¢ 54,981,129 100.0¢ 11 Jun 13 Entitlement offer 11 Jun 13 Entitlement offer 24 Jun 13 Entitlement offer Transaction costs 1 Aug 13 Exercise of performance rights 1 Aug 13 Exercise of performance rights – 1,713,721,456 153,194 60,292 15 Aug 13 Dividend reinvestment plan 3,064,282 4 Sep 13 Exercise of performance rights 580,000 4 Sep 13 Exercise of performance rights 4 Sep 13 Exercise of performance rights 95,894 47,433 4 Sep 13 Exercise of performance rights 101,378 19 Sep 13 Exercise of performance rights 1,333,333 13 Sep 13 Dividend reinvestment plan 12 Feb 14 Dividend reinvestment plan 25 Mar 14 Redemption of units 2,325,881 3,214,013 – 64,571 2,425 54,981 (11,590) 1,360,755 – 12 2,999 290 19 5 – 666 2,237 3,161 – – – 20.0¢ 97.7¢ 50.0¢ 20.0¢ 10.0¢ – 50.0¢ 96.2¢ 98.3¢ – 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¢ – – 1.6¢ 8.0¢ 4.7¢ 1.9¢ 0.9¢ – 4.7¢ 9.0¢ 9.1¢ – 14 May 14 Dividend reinvestment plan 2,583,694 96.7¢ 2,499 9.0¢ Transaction costs – – (550) – 152 64.6¢ – 1 1,829 867 207 10,782 209 2,957 227 10,446 5,269 198 4,486 (651) 103,323 – 1 245 27 2 1 – 62 209 295 – 237 (32) – 9.2¢ 69.3¢ 62.9¢ 74.0¢ 72.6¢ 77.2¢ 72.6¢ 93.1¢ 91.8¢ 91.8¢ 91.8¢ 91.8¢ – – 18.4 89.7¢ 45.3¢ 18.1¢ 9.1¢ – 45.3¢ 87.2¢ 89.2¢ 91.0¢ 87.7¢ – $’000 827,989 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 – 11 2,754 263 17 4 – 604 2,028 2,866 (250) 2,262 (518) 1,727,280,850 1,372,093 104,370 1,267,748 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 satisﬁ ed 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 2014 and 2013 all securities were issued at market price, with no discount. 80 C ROMW ELL 20 1 4 ANNUAL REPORT (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) 25. RESERVES Share based payments Available-for-sale ﬁ nancial assets revaluation reserve Reserves Movements in reserves Share based payments Balance at 1 July Options expensed Balance at 30 June 2014 Company Number 2014 CDPT Number 2013 Company Number 2013 CDPT Number 1,727,280,850 1,727,280,850 1,713,721,456 1,713,996,562 – – – (275,106) 1,727,280,850 1,727,280,850 1,713,721,456 1,713,721,456 Trust 2014 $’000 2013 $’000 Cromwell 2014 $’000 3,589 2,340 5,929 2,858 731 3,589 2013 $’000 2,858 2,340 5,198 2,189 669 2,858 – – – – – – – – – – – – – – The share based payments reserve is used to recognise the fair value of options issued for employee services. Available-for-sale ﬁ nancial 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 classiﬁ ed as available-for-sale are taken to the available-for-sale ﬁ nancial assets revaluation reserve. Amounts are recognised in proﬁ t or loss when the associated assets are disposed/sold or impaired. For Cromwell 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 Cromwell there was no movement in the available-for-sale ﬁ nancial assets revaluation reserve over the last two ﬁ nancial years. 26. RETAINED EARNINGS/(ACCUMULATED LOSSES) Cromwell Trust 2014 $’000 2013 $’000 2014 $’000 2013 $’000 Retained Earnings/(Accumulated Losses) (43,244) (48,697) (70,430) (116,977) Movements in retained earnings/(accumulated losses) Balance at 1 July Proﬁ t for the year Distributions Balance at 30 June (48,697) 4,521 – (51,562) 2,865 – (44,176) (48,697) (116,977) 177,950 (131,403) (70,430) (58,589) 43,291 (101,679) (116,977) CROMWELL 2014 ANNUAL RE PORT 81 27. NON-CONTROLLING INTERESTS Non-controlling interests Movements in non-controlling interests Balance at 1 July Units issued by CDPT Units issued by subsidiary Proﬁ t/(loss) for the year Distributions paid/payable Balance at 30 June 28. DIVIDENDS/DISTRIBUTIONS Franking credits Cromwell 2014 $’000 2013 $’000 1,197,875 1,141,028 Trust 2014 $’000 6,313 1,141,028 10,291 – 177,950 769,678 429,718 – 43,291 (131,394) (101,659) 1,197,875 1,141,028 4,732 – 2,113 (168) (364) 6,313 2013 $’000 4,732 5,320 – – (19) (569) 4,732 Franking credits available for subsequent years based on a tax rate of 30% (2013 – 30%) Cromwell 2014 $’000 1,945 2013 $’000 1,315 The above amounts represent the balance of the franking account as at the end of the ﬁ nancial 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 2014 and 2013 ﬁ nancial years. Distributions paid/payable by Cromwell 2014 Date Paid 2013 Date Paid 13 November 2013 12 February 2014 14 May 2014 14 August 2014 14 November 2012 13 February 2013 15 May 2013 15 August 2013 (1) Cents per stapled security. Distributions paid/payable by the Trust 2014 Date Paid 2013 Date Paid 13 November 2013 12 February 2014 14 May 2014 14 August 2014 (1) Cents per unit. 14 November 2012 13 February 2013 15 May 2013 15 August 2013 2014 Cents (1) 1.8750¢ 1.8750¢ 1.9375¢ 1.9375¢ 7.6250¢ 2014 Cents (1) 1.8750¢ 1.8750¢ 1.9375¢ 1.9375¢ 7.6250¢ 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¢ 2014 $’000 32,234 32,278 33,416 33,466 2013 $’000 21,243 22,874 26,481 31,061 131,394 101,659 2014 $’000 32,239 32,282 33,416 33,466 2013 $’000 21,248 22,879 26,486 31,066 131,403 101,679 All distributions from Cromwell and the 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. 82 C ROMW ELL 20 1 4 ANNUAL REPORT 29. EARNINGS PER SHARE Basic earnings/(loss) per share/unit Diluted earnings/(loss) per share/unit Cromwell Trust 2014 0.26¢ 0.26¢ 2013 0.21¢ 0.21¢ 2014 10.34¢ 10.31¢ 2013 3.23¢ 3.23¢ $’000 $’000 $’000 $’000 Earnings used to calculate basic and diluted earnings per share/unit: Proﬁ t for the year Proﬁ t/loss attributable to non-controlling interests Proﬁ t attributable to ordinary equity holders of the company/ trust used in calculating basic/diluted earnings per share/unit 182,471 177,950 46,156 43,291 177,782 43,272 (168) (19) 4,521 2,865 177,950 43,291 Weighted average number of ordinary shares/units used in calculating basic earnings per share/unit Effect of dilutive securities: Number of Shares Number of Shares Number of Units Number of Units 1,721,314,454 1,341,491,052 1,721,516,450 1,341,766,158 – Director and employee performance rights 4,845,641 4,481,124 4,845,641 4,481,124 Weighted average number of ordinary shares/units and potential ordinary shares/units used in calculating diluted earnings per share/unit 1,726,160,095 1,345,972,176 1,726,362,091 1,346,247,284 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 per share/unit to the extent to which they are dilutive. The performance rights have not been included in the determination of basic earnings per share/unit. Details relating to the performance rights are set out in note 32. Earnings per stapled security Basic earnings per stapled security Diluted earnings per stapled security Earnings used to calculate basic and diluted earnings per stapled security: Proﬁ t for the year attributable to company shareholders Proﬁ t for the year attributable to trust unitholders Proﬁ t attributable to stapled security holders of Cromwell used in calculating basic/diluted earnings per stapled security Weighted average number of stapled securities used in calculating basic earnings 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 per stapled security Cromwell 2014 10.60¢ 10.57¢ 2013 3.44¢ 3.44¢ $’000 $’000 4,521 177,950 2,865 43,291 182,471 46,156 Number of Securities Number of Securities 1,721,314,454 1,341,491,052 4,845,641 4,481,124 1,726,160,095 1,345,972,176 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 per stapled security to the extent to which they are dilutive. The performance rights have not been included in the determination of basic earnings per stapled security. Details relating to the performance rights are set out in note 32. CROMWELL 2014 ANNUAL RE PORT 83 30. CASH FLOW INFORMATION (a) Reconciliation of proﬁ t/(loss) to net cash provided by operating activities Cromwell Trust 2014 $’000 2013 $’000 2014 $’000 2013 $’000 182,471 46,156 177,782 43,272 Net proﬁ t Amortisation and depreciation Amortisation of loan transaction costs Amortisation of lease costs and incentives Share of (proﬁ ts)/losses of associates (net of distributions) Gain on sale of investment properties Share based payments Fair value net (gain)/loss from: Investment properties Interest rate derivatives Investments at fair value through proﬁ t or loss 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 beneﬁ ts/make good) Unearned revenue 758 4,025 11,634 4,802 (3,152) 731 (46,226) (5,222) (85) (5,648) 559 – 3,238 (187) 330 3,585 238 (4,227) 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 – 4,025 11,634 5,108 (3,152) – (46,226) (5,222) (85) (5,648) – – 4,835 157 – 2,179 – (4,227) Net cash provided by operating activities 147,624 105,535 141,160 – 2,581 9,526 (593) (132) – 55,747 (7,326) (47) (6,071) – 631 (3,251) (410) – (2,914) (225) 7,518 98,306 (b) Finance facilities Refer to note 20 for details of unused ﬁ nance facilities. (c) Cash held as part of minimum net tangible assets At balance date cash held by controlled entities of the Company of $9,525,000 (2013: $9,548,000) 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 Cromwell 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 10,896 – 10,302 24,255 9,910 – 9,508 24,255 84 C ROMW ELL 20 1 4 ANNUAL REPORT 31. KEY MANAGEMENT PERSONNEL DISCLOSURES (a) Key management personnel compensation Cromwell & Trust Short-term employee beneﬁ ts Post-employment beneﬁ ts Other long-term beneﬁ ts Share-based payments 2014 $ 2013 $ 4,756,491 4,643,841 185,169 130,640 497,842 173,800 73,891 514,104 5,570,142 5,405,636 Loans to key management personnel (b) No loans were made during the 2014 or 2013 years to key management personnel and no loans were outstanding at the reporting date. (c) Other transactions with key management personnel Cromwell 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 2014 was $88,400 (2013: $88,400). The payment of rent is on normal commercial terms and conditions and at market rates. 32. 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 Cromwell, 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. The amount of performance rights that will vest under the PRP depends on a combination of factors which may include Cromwell’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 Cromwell 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. CROMWELL 2014 ANNUAL RE PORT 85 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 2014 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 18/12/2013 18/12/2013 18/12/2013 18/12/2013 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 01/10/2016 01/10/2016 01/10/2016 01/01/2017 $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 $0.00 $0.10 $0.50 $0.50 101,378 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 – – – – – – – – – – – – – – – – – – – – 789,955 46,303 893,465 2,042,205 3,771,928 Weighted average exercise price $0.38 $0.39 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 $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 $0.20 170,287 123,459 101,378 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 – – – – – – – – – – – – 81,581 82,142 150,018 229,110 55,561 55,563 55,563 60,292 60,292 60,292 890,414 $0.11 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – (101,378) (47,433) (95,894) (97,633) (1,913,333) – – – – – – – – – (55,561) – – (60,292) – – – – – – (2,371,524) – – – – – 1,913,333 1,913,334 393,679 590,622 52,851 81,581 82,142 150,018 229,110 – 55,563 55,563 – 60,292 60,292 789,955 46,303 893,465 2,042,205 9,410,308 $0.42 $0.38 (170,287) (123,459) – – – – – – – – – – – – – – – – – – – – (293,746) $0.04 – – 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 At balance date nil Performance Rights (2013: nil) were vested and exercisable. The weighted average remaining contractual life of performance rights outstanding at the end of the year was 1.4 years (2013: 1.3 years). 86 C ROMW ELL 20 1 4 ANNUAL REPORT The assessed fair value of performance rights granted is as follows: Grant Date 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 18/12/2013 18/12/2013 18/12/2013 18/12/2013 Expiry Date Exercise price Non-market based Market based Fair value (cents) 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 01/10/2016 01/10/2016 01/10/2016 01/01/2017 $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 $0.00 $0.10 $0.50 $0.50 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¢ 75.7¢ 66.5¢ 30.2¢ 29.1¢ – – – – – – – – – – – – – – – – – – – – – – – – 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 2014 included: Exercise price Grant date Share price at grant date Expected price volatility Expected dividend yield Risk free interest rate Expiry date $0.00 $0.10 $0.50 $0.50 18/12/13 18/12/13 18/12/13 18/12/13 $0.945 $0.945 $0.945 $0.945 19% 7.94% 2.96% 19% 7.94% 2.96% 19% 7.94% 2.96% 19% 7.94% 2.96% 01/10/16 01/10/16 01/10/16 01/01/17 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. The model inputs for Performance Rights granted during the year ended 30 June 2013 included: Exercise price Grant date $0.00 $0.20 $0.00 $0.20 $0.00 $0.00 $0.00 $0.20 $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 Share price at grant date Expected price volatility Expected dividend yield $0.74 19% 9.8% $0.74 19% 9.8% Risk free interest rate 2.35% 2.35% $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% $0.79 17% 9.18% 2.55% Expiry date 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 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. CROMWELL 2014 ANNUAL RE PORT 87 (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 beneﬁ ts 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 beneﬁ ts expense were as follows: Performance rights issued under PRP Expenses arising from share based payments Cromwell Trust 2014 $’000 731 731 2013 $’000 669 669 2014 $’000 – – 2013 $’000 – – 33. OTHER RELATED PARTY TRANSACTIONS (a) Parent entity and subsidiaries Cromwell Corporation Limited is the ultimate parent entity in Cromwell. Cromwell Diversiﬁ ed Property Trust is the ultimate parent entity in the Trust. Details of subsidiaries for both parent entities are set out in note 35. (b) Transactions with jointly controlled entity and associates Transactions between Cromwell and its associates and jointly controlled entities included: Cromwell Partners Trust During the year Cromwell acquired 50% of the issued units of Cromwell Partners Trust for $77,632,000. Cromwell received distributions of $1,860,000 during the year. Cromwell also earned property management fees and project management fees of $483,007 during the year. Oyster Property Group Limited During the year Cromwell acquired 50% of the issued capital of Oyster Property Group Limited for $4,596,000. Cromwell Property Fund During the prior year Cromwell received interest from Cromwell Property Fund of $361,895. During the prior year Cromwell charged the Cromwell Property Fund for registry services, accounting services, property, facility management and project management and leasing services totalling $339,563. During the prior year, Cromwell and the Trust acquired the remaining units they did not already own of Cromwell Property Fund (refer notes 14 and 38). (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. Cromwell derives a range of beneﬁ ts from schemes managed by CFM including management and acquisition fees. Transactions between Cromwell and the schemes managed by CFM also included: Cromwell Ipswich City Heart Trust (“ICH”) During the current year Cromwell acquired 80,000 units in ICH at $1 each and received distributions of $298,645. During the prior year Cromwell acquired 3,890,122 units in ICH at $1 each and sold 325,000 units in ICH at $1 each and received distributions of $164,606. During the prior year ICH repaid its loan from Cromwell. Cromwell received interest from ICH of $178,440. Cromwell Box Hill Trust (“BHT”) Cromwell has provided a loan facility of $25,000,000 to BHT, which is unsecured and earns Cromwell a return equivalent to the BHT distribution rate of 7.75% whilst drawn down. During the year this facility was drawn to $2,000,000 ($19,606,000), and fully repaid by balance date (2013: loan fully repaid). During the current year Cromwell earned $3,397 (2013: $383,115) in interest from BHT under the loan facility. During the current year Cromwell disposed of its 14,505 units in BHT for $1 each and received $975 in distributions. All units were sold to Cromwell Direct Property Fund, a managed scheme for which CFM also acts as responsible entity. During the prior year Cromwell acquired 14,505 units in BHT at $1 each and received $1,780 in distributions. 88 C ROMW ELL 20 1 4 ANNUAL REPORT Cromwell Riverpark Trust (“CRT”) During the current year Cromwell acquired 1,827,948 units at $1.04 each and disposed of 3,989,437 units at an average of $1.05 per unit and received distributions of $238,067. All units were sold to Cromwell Direct Property Fund, a managed scheme for which CFM also acts as responsible entity. During the prior year Cromwell acquired 3,436,334 units in CRT at $1.04 each and received distributions of $25,362. Cromwell Property Trust 12 (“C12”) On 22 October 2013 the Cromwell Property Trust 12 ARSN 166 216 995 (“C12”) an unlisted multi-property trust, for which CFM acts as responsible entity, was registered with the Australian Securities and Investments Commission. CFM issued a PDS on 29 October 2013 to raise $76,000,000 from investors for C12. Cromwell has provided a loan facility of $50,000,000 to C12, which is unsecured, to enable the initial operations of the Trust. During the year the facility was drawn to $37,189,000 and this amount has been fully repaid by balance date. While the loan was drawn down Cromwell earned a return equivalent to the C12 distribution rate of 7.75%. Cromwell earned $1,393,182 in interest from C12 under the loan facility during the year. Cromwell acquired 5,000,000 units in C12 at $1 each and received distributions of $346,875. d) Transactions between the Trust and Cromwell Corporation Limited and its subsidiaries (including the Responsible Entity) (i) Amounts paid/payable Expense Funds management fees Property management fees Accounting fees Investment properties Project management fees Leasing commissions Distributions Interest (ii) Amounts received/receivable 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) Trust 2014 $ 2013 $ 12,120,607 9,963,069 6,809,128 5,739,700 438,600 385,785 1,656,561 855,872 411,525 375,245 5,853,514 1,649,860 588,555 – – 62,804 4,654,128 4,545,063 796,452 1,196,529 5,652 1,207 The Responsible Entity no longer holds any units in a subsidiary of CDPT, Cromwell Mary Street Planned Investment (2013: 1,517,000). These were acquired by the Company at the end of the ﬁ nancial year. (iii) Loan to the Trust During the year a subsidiary of the Company became the primary external borrower for Cromwell and the Trust. As a result new borrowings of $1,019,000,000 were received from external lenders by the subsidiary and immediately on-lent to the Trust, with the Trust paying the subsidiary interest at a rate equal to that paid by the subsidiary to the external lenders. Interest rate swaps with a total notional value of $949,100,000 were also transferred from the Trust to the subsidiary. These swaps are matched against swaps held between the Trust and the subsidiary so that any amount payable or receivable by the subsidiary to external counterparties of the swap is payable or receivable by the Trust to/from the subsidiary. CROMWELL 2014 ANNUAL RE PORT 89 34. PARENT ENTITY DISCLOSURES As at and throughout the ﬁ nancial year ending 30 June 2014 the parent entity of Cromwell was Cromwell Corporation Limited and the parent entity of the Trust was Cromwell Diversiﬁ ed Property Trust. (a) Summary ﬁ nancial information The individual ﬁ nancial statements for the parent entities show the following aggregations. Results (Loss)/proﬁ t for the year Cromwell Corporation Limited 2013 2014 $’000 $’000 Cromwell Diversiﬁ ed Property Trust 2014 $’000 2013 $’000 (299) 572 102,869 14,686 Total comprehensive income/(loss) (299) 572 102,869 14,686 Financial position Current assets Total assets Current liabilities Total liabilities Net assets Total equity Contributed equity Share based payments reserve Available for sale ﬁ nancial assets revaluation reserve Retained earnings/(accumulated losses) Total equity 30,119 54,708 1,127 1,127 53,581 47,857 52,458 45,631 65,144 1,838,772 1,704,894 325 325 140,307 811,219 57,349 658,848 52,133 1,027,553 1,046,046 104,370 103,323 1,267,748 1,257,707 3,589 (31) (54,347) 53,581 2,858 – – – – – (54,048) (240,195) (211,661) 52,133 1,027,553 1,046,046 (b) Commitments for capital expenditure As at balance date, Cromwell Corporation Limited had commitments of $2,657,00 0 (2013: no commitments) in relation to capital expenditure contracted for but not recognised as liabilities. As at balance date, Cromwell Diversiﬁ ed Property Trust had commitments of $nil (2013: $40,437,000) in relation to capital expenditure contracted for but not recognised as liabilities. (c) Guarantees provided During the years ended 2014 and 2013 neither parent had provided any guarantees to entities it controlled. (d) Contingent liabilities Neither parent entity had contingent liabilities at year end (2013: $nil) . 90 C ROMW ELL 20 1 4 ANNUAL REPORT 35. INVESTMENTS IN CONTROLLED ENTITIES The Company’s and CDPT’s investment in controlled entities are shown below, all of which are domiciled in Australia. Company and its controlled entities 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 CDPT Finance Pty Ltd Cromwell BT Pty Ltd (3) 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 Ofﬁ ce 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 Diversiﬁ ed Property Trust No 2 Cromwell Diversiﬁ ed 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 Equity Holding 2014 % 2013 % 100 100 100 100 100 100 100 50 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 92 100 100 – 100 100 100 75 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 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 (1) The Trust and its controlled entities listed above are consolidated as part of Cromwell 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 Corporation Limited. (3) Incorporated during the year. CROMWELL 2014 ANNUAL RE PORT 91 36. SEGMENT INFORMATION (a) Description of segments Reportable Group segments Cromwell has identiﬁ ed its operating segments based on its internal reports which are regularly reviewed and used by the Chief Executive Ofﬁ cer in order to make decisions about resource allocation and to assess the performance of Cromwell. The chief operating decision maker has been identiﬁ ed as the Chief Executive Ofﬁ cer. The segments offer different products and services and are managed separately. Property Investment The ownership of properties located throughout Australia. Property/Internal Funds Management Property management includes property and facility management, leasing and project management for the Trust and all Cromwell managed investment schemes. Internal funds management includes the management of the Trust. External Funds Management The establishment and management of external funds. Property Development Property development, including development management, development ﬁ nance and joint venture activities. Trust The Trust has one reportable segment, being property investment. 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, ﬁ xed and/or market reviews. Accounting policies (b) Other segment information (i) Segment information is prepared in conformity with the accounting policies of Cromwell 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 beneﬁ ts 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. (iii) Equity-accounted investments Cromwell has two Australian jointly controlled entities (Phoenix Portfolios Pty Ltd and Cromwell Partners Trust) and one New Zealand jointly controlled entity (Oyster Property Funds Limited). All jointly controlled entities are accounted for using the equity method. Phoenix Portfolios Pty Ltd and Oyster Property Funds Limited are included in the external funds management segment. Cromwell Partners Trust is included in the property investment segment. In 2013, Cromwell also had an investment in an Australian associate, Cromwell Property Fund, until its full acquisition on 4 October 2012 – see notes 14 and 38. Cromwell Property Fund was accounted for up to the date of its acquisition using the equity method and included in the property investment segment. (iv) Major customers Revenue from major customers is outlined below and all form part of the property investment segment. Major Customer Commonwealth of Australia New South Wales State Government 92 C ROMW ELL 20 1 4 ANNUAL REPORT Revenue 2014 $’000 43,822 35,722 Revenue 2013 $’000 41,316 5,249 (c) Operating segments 2014 Segment results Segment revenue and other income Sales - external customers Sales - intersegmental Proﬁ t of equity accounted entity (before adjustments) Distributions Interest Other income Property Investment $’000 263,951 1,073 4,725 – 1,659 1,317 Total segment revenue and other income 272,725 Segment expenses Property expenses and outgoings Funds management costs Property development costs Finance costs Intersegmental costs Employee beneﬁ ts expense Administration and overhead costs Total segment expenses Income tax expense/(beneﬁ t) Segment proﬁ t/(loss) (1) Reconciliation to reported proﬁ t/(loss) Gain 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 proﬁ t and loss Equity accounted investments Other property investment income/(expense): Straight-line lease income Lease incentive and lease cost amortisation Other expenses: Amortisation of ﬁ nance costs Amortisation and depreciation Net tax losses utilised Total adjustments Proﬁ t/(loss) 43,578 – – 70,025 19,368 – 1,138 134,109 – 138,616 3,152 – 46,226 5,222 – (7,973) 5,648 (11,634) (4,025) – – 36,616 175,232 Property / Internal Funds Management $’000 External Funds Management Property Development Consolidated $’000 $’000 $’000 1,592 21,436 – – 1,373 226 24,627 – – – – 2,977 12,826 5,545 21,348 440 2,839 – (501) – – – – – – – (679) 121 (1,059) 1,780 8,232 – 306 903 1,581 – 11,022 – 1,209 – – 105 2,675 644 4,633 898 5,491 – (58) – – 85 – – – – (79) 245 193 – – – – – – – – – 166 – 59 – – 225 – 273,775 22,509 5,031 903 4,613 1,543 308,374 43,578 1,209 166 70,025 22,509 15,501 7,327 160,315 1,338 (225) 146,721 – – – – – – – – – – – – 3,152 (559) 46,226 5,222 85 (7,973) 5,648 (11,634) (4,025) (758) 366 35,750 182,471 5,684 (225) (1) Segment proﬁ t/(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. CROMWELL 2014 ANNUAL RE PORT 93 2014 Segment assets and liabilities Total assets Total liabilities Other segment information Investments in associates Acquisitions of non-current segment assets Investment in associates Investments at fair value through proﬁ t or loss Property, plant and equipment Intangibles Property Investment $’000 2,393,112 1,200,028 Property / Internal Funds Management $’000 52,979 5,257 72,524 77,632 – – – 77,632 – – – 1,225 450 1,675 External Funds Management Property Development Consolidated $’000 20,849 610 5,002 4,596 7,310 142 52 12,100 $’000 $’000 3,000 2,469,940 47 1,205,942 – – – – – – 77,526 82,228 7,310 1,367 502 91,407 94 C ROMW ELL 20 1 4 ANNUAL REPORT Property / Internal Funds Management $’000 External Funds Management Property Development Consolidated $’000 $’000 $’000 2013 Segment results Segment revenue and other income Sales - external customers Sales - intersegmental Proﬁ t of equity accounted entity (before adjustments) Distributions Interest Other income Property Investment $’000 208,635 953 111 – 4,043 193 1,341 18,634 – – 572 225 5,911 – 54 222 647 – Total segment revenue and other income 213,935 20,772 6,834 Segment expenses Property expenses and outgoings Funds management costs Property development costs Finance costs Intersegmental costs Employee beneﬁ ts expense Administration and overhead costs Total segment expenses Income tax expense/(beneﬁ t) Segment proﬁ t/(loss) (1) Reconciliation to reported proﬁ t/(loss) Gain 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 proﬁ t and loss Equity accounted investments Other property investment income/(expense): Straight-line lease income Lease incentive and lease cost amortisation Other expenses: Amortisation of ﬁ nance costs Amortisation and depreciation Net tax losses utilised Business combination transaction costs Total adjustments Proﬁ t/(loss) 32,521 – – 67,715 16,089 – 1,100 117,425 – 96,510 132 – (55,747) 7,326 – 481 6,071 (9,526) (2,581) – – (631) (54,475) 42,035 – – – – 3,255 10,175 4,716 18,146 136 2,490 – (130) – – – – – – – (573) (160) – (863) 1,627 – 592 – – 87 2,138 582 3,399 178 3,257 – (16) – – 47 – – – – (70) (209) – (248) 3,009 – – – – – – – – – 359 – 156 – – 515 – (515) – – – – – – – – – – – – – (515) 215,887 19,587 165 222 5,262 418 241,541 32,521 592 359 67,715 19,587 12,313 6,398 139,485 314 101,742 132 (146) (55,747) 7,326 47 481 6,071 (9,526) (2,581) (643) (369) (631) (55,586) 46,156 (1) Segment proﬁ t/(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. CROMWELL 2014 ANNUAL RE PORT 95 2013 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 proﬁ t or loss Property, plant and equipment Intangibles Property Investment $’000 2,479,785 1,341,785 Property / Internal Funds Management $’000 45,944 3,050 External Funds Management Property Development Consolidated $’000 17,372 376 $’000 $’000 3,009 2,546,110 47 1,345,258 – 743,966 – – – 743,966 – – – 271 768 1,039 100 – 7,720 33 95 7,848 – – – – – – 100 743,966 7,720 304 863 752,853 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 investment properties Fair value net gain from investments at fair value through proﬁ t or loss Share of operating proﬁ t of equity accounted entities Intersegmental sales Other Total revenue and other income 2014 $’000 2013 $’000 308,374 241,541 5,648 (10,180) 3,152 5,222 46,226 85 (5,031) (22,509) 2,068 333,055 6,071 (8,042) 132 7,326 – 47 482 (19,587) 2,545 230,515 37. COMMITMENTS FOR EXPENDITURE (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 ﬁ ve years Cromwell 2014 $’000 713 552 1,265 2013 $’000 548 1,032 1,580 Trust 2014 $’000 2013 $’000 – – – – – – Operating leases primarily comprise the lease of Cromwell’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 ﬁ ve years 2,657 – 2,657 40,437 – 40,437 – – – 40,437 – 40,437 96 C ROMW ELL 20 1 4 ANNUAL REPORT (c) Loan commitments Cromwell and the Trust have provided Cromwell Property Trust 12 with a $50,000,000 loan facility until September 2015. This facility was undrawn at 30 June 2014. 38. BUSINESS COMBINATION Acquisition of Cromwell Property Fund On 4 October 2012 Cromwell and the Trust acquired the remaining units they did not already own of Cromwell Property Fund (“CPF”). As a result, Cromwell and the Trust’s equity interest in CPF increased from 18% to 100% (refer note 14). The acquisition complemented Cromwell and the Trust’s existing property portfolio and beneﬁ ts are expected to be generated from operational synergies and economies of scale. Following the acquisition, Cromwell and the Trust consolidated the assets and liabilities and performance of CPF, including the property portfolio which was valued at $171,372,000 (refer note 12). Prior to the acquisition, CPF was accounted for as an associate of Cromwell (refer note 14). Cromwell and the Trust have recognised the fair values of the identiﬁ able assets and liabilities based upon the best available information at the acquisition date. The business combination accounting is as follows: Investment in associate/controlled entity Cash and cash equivalents Trade and other receivables Other current assets Investment properties Trade and other payables Derivative ﬁ nancial instruments Other current liabilities Borrowings Recognised on Acquisition $’000 24,837 Already Held $’000 5,298 Balance on Consolidation $’000 – 3,142 508 387 171,372 (4,897) (3,440) (1,230) – – – – – – – – (135,707) – – – – – – – – Fair value of net identiﬁ able assets acquired 24,837 5,298 30,135 The carrying value of the assets and liabilities acquired was equivalent to their fair value in accordance with Cromwell policies. Fair value of investment already held Purchase consideration: Cash consideration paid Fair value of equity instruments issued Total purchase consideration Total recognised on consolidation The cash ﬂ ows on acquisition were as follows: Cash consideration paid Cash acquired from business combination Net inﬂ ow of cash – investing activities Balance on Consolidation $’000 5,298 582 24,255 24,837 30,135 (582) 3,142 2,560 (i) Equity instruments issued The fair value of the stapled securities issued was based upon the adjusted share price of Cromwell at 4 October 2012 of $0.75 per stapled security. (ii) Acquisition-related costs Cromwell 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 Cromwell’s consolidated statements of comprehensive income and in investing cash ﬂ ows in the statement of cash ﬂ ows. CROMWELL 2014 ANNUAL RE PORT 97 (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 proﬁ t contribution The acquired business contributed revenues of $14,831,000 and net loss of $14,614,000 to Cromwell 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 proﬁ t for the year ended 30 June 2013 would have been $247,641,000 and $33,720,000 respectively for Cromwell and $238,874,000 and $30,836,000 respectively for the Trust. These amounts have been calculated using Cromwell’s accounting policies. 39. CONTINGENT LIABILITIES The Directors are not aware of any material contingent liabilities of Cromwell or the Trust (2013: nil). 40. AUDITOR’S REMUNERATION During the year the following fees were paid or payable for services provided by the auditor of Cromwell (Pitcher Partners) and its related entities: Audit Services Pitcher Partners Auditing or reviewing ﬁ nancial reports Auditing of controlled entities’ AFS licences Auditing the Trust’s compliance plan Other Services Pitcher Partners Other – review of pro forma balance sheets and forecasts Cromwell 2014 $ 2013 $ Trust 2014 $ 2013 $ 282,000 261,000 200,000 180,000 5,000 28,000 5,000 28,000 315,000 294,000 – 28,000 228,000 – 28,000 208,000 – – 131,200 131,200 – – – – The auditor receives remuneration for audit and other services relating to other entities for which Cromwell Property Securities Limited, Cromwell Funds Management Limited and Cromwell Real Estate Partners Pty Ltd, all controlled entities, act as responsible entity. The remuneration is disclosed in the relevant entity’s ﬁ nancial reports and totalled $105,000 (2013: $68,500). 41. SUBSEQUENT EVENTS Interest Rate Cap On 12 August 2014, Cromwell entered into a new interest rate cap at a cost of $16,900,000. The interest rate cap has been structured as an accreting interest rate cap, starting with a notional principal amount of $32,700,000 and increasing to $1,000,000,000 by December 2017 then continuing at this level until May 2019. The notional principal amount increases as each of the existing interest rate swaps expire. The new interest rate cap ensures a maximum base interest rate of 3.39% (excluding loan facility margins) is payable on previously variable rate borrowings. Sale of 321 Exhibition Street Investment Property On 22 August 2014, Cromwell and the Trust sold the investment property located at 321 Exhibition Street, VIC for net proceeds of $205,920,000. $116,500,000 of the net proceeds was used to repay borrowings. 98 C ROMW ELL 20 1 4 ANNUAL REPORT Directors’ Declaration In the opinion of the Directors of Cromwell Corporation Limited and Cromwell Property Securities Limited as Responsible Entity for the Cromwell Diversiﬁ ed Property Trust (collectively referred to as “the Directors”): (a) the attached ﬁ nancial 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 Cromwell’s and the Trust’s ﬁ nancial position as at 30 June 2014 and of their performance, for the ﬁ nancial year ended on that date; and (b) the ﬁ nancial report also complies with International Financial Reporting Standards as disclosed in note (1)(a); and (c) there are reasonable grounds to believe that Cromwell 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 ofﬁ cer and chief ﬁ nancial ofﬁ cer for the ﬁ nancial year ended 30 June 2014 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 27th day of August 2014 CROMWELL 2014 ANNUAL RE PORT 99 Independent Auditor’s Report To the Security holders of Cromwell Property Group To the Unit holders of Cromwell Diversiﬁ ed Property Trust Report on the Financial Report Cromwell Property Group (“Cromwell”) 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 Diversiﬁ ed 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 ﬁ nancial reports of Cromwell and the Trust, which comprises the consolidated statement of ﬁ nancial position as at 30 June 2014, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash ﬂ ows for the year then ended, notes comprising a summary of signiﬁ cant 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 Diversiﬁ ed 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 Diversiﬁ ed Property Trust (collectively referred to as “the directors”) are responsible for the preparation of the ﬁ nancial 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 ﬁ nancial 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 ﬁ nancial statements comply with International Financial Reporting Standards. Auditor’s Responsibility Our responsibility is to express an opinion on the ﬁ nancial 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 ﬁ nancial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the ﬁ nancial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the ﬁ nancial 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 ﬁ nancial 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 ﬁ nancial report. We believe that the audit evidence we have obtained is sufﬁ cient and appropriate to provide a basis for our audit opinion. 100 C ROMW ELL 20 1 4 ANNUAL REPORT Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Opinion In our opinion: (a) the ﬁ nancial reports of Cromwell and the Trust are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of Cromwell’s and the Trust’s ﬁ nancial position as at 30 June 2014 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 ﬁ nancial 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 2014. 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 2014 complies with Section 300A of the Corporations Act 2001. PITCHER PARTNERS N Batters Partner Brisbane, Queensland 27 August 2014 CROMWELL 2014 ANNUAL RE PORT 101 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 ﬁ nancial 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 relates to edition 2 of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations, and sets out the extent to which the Group has followed those ASX recommendations during this ﬁ nancial year, identiﬁ es 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 ﬁ nancial 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 Diversiﬁ ed 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 ﬁ ndings 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 ﬁ nd on our website: • Corporate Governance Statement • Board Charter • Compliance Committee Charter 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). Proﬁ les of each director, including details of their skills, expertise and experience can be found in the directors’ report. 102 C ROMW ELL 20 1 4 ANNUAL REPORT The Group recognises that independent directors are important in reassuring securityholders that the Board properly fulﬁ ls 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 conﬁ rm 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 qualiﬁ cations, 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 efﬁ ciently. 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 ﬁ nancial 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 ﬁ rstly 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 identiﬁ ed using both established professional networks and professional intermediaries. The extent to which each candidate would address any identiﬁ ed gaps or weaknesses and provide an appropriate cultural and values ﬁ t 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, conﬂ icts 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 ﬁ nd on our website: • Remuneration and Nomination Committee Charter • Board Charter CROMWELL 2014 ANNUAL RE PORT 103 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 conﬁ dence 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 gender diversity objectives set for the 2014 ﬁ nancial year were: 1. At least one female director and at least one female senior executive team member. 2. If existing staff are promoted, at least 50% of those promoted will be female. 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. 6. 7. 8. 9. Remuneration continues to be benchmarked against market data taking into consideration experience, qualiﬁ cation and performance and without regard to age, gender and race. 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. At least one corporate event is held to which staff can bring partners and children. Parents (or carers) are offered ﬂ exible work arrangements. 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 Group met all of the above objectives except for the third; although three management positions were advertised, females were only interviewed for two. No suitably qualiﬁ ed females applied for the position. For the 2015 ﬁ nancial year, the Group has the following diversity objectives: 1. The Group has at least 2 female directors 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, qualiﬁ cation 104 C ROMW ELL 20 1 4 ANNUAL REPORT 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 ﬂ exible work arrangements. 9. All staff undergo “equal employment opportunity” training at least once a year. 10. At least 80% of females taking parental leave return to work. 11. Training hours undertaken by females are at least equivalent to those undertaken by male counterparts. The Board currently has 1 female director (out of 9 directors). As at 30 June 2014, executive management comprised 11 people, including 2 females, and the Group employed a total of 121 people, of which 57 were female. What you can ﬁ nd on our website: • Code of Conduct • Securities Trading Policy • Breach Reporting Policy • Whistleblowing Policy • Diversity Policy • FY2015 Gender Diversity Objectives PRINCIPLE 4 – SAFEGUARD INTEGRITY IN FINANCIAL REPORTING The Board has responsibility for the integrity of the Group’s ﬁ nancial 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, ﬁ nancial reporting and compliance and risk management practices of the Group. The Audit and Risk Committee is comprised of three independent directors. The names, qualiﬁ cations 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. The external auditor has declared its independence to the Board and the Committee. The Board is satisﬁ ed 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 ﬁ nancial reports present a true and fair view, in all material respects, of the Group’s ﬁ nancial 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 ﬁ nd 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 inﬂ uence 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 ﬁ nd on our website: • Market Disclosure Protocol CROMWELL 2014 ANNUAL RE PORT 105 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 ﬁ nancial 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 identiﬁ cation with the Group’s strategies and goals. Notices of meeting 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 identiﬁ ed 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. The Legal & Compliance team monitors the adequacy of the risk management system and fulﬁ ls 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) conﬁ rm that the assessment of identiﬁ ed 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 efﬁ ciency and effectiveness of those systems; (b) regularly reviewing and updating the risk proﬁ le; 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 Ofﬁ cer and Chief Financial Ofﬁ cer Declaration The CEO and the Director – Finance and Funds Management (Cromwell’s Chief Financial Ofﬁ cer) have provided the Board with written conﬁ rmation that: 106 C ROMW ELL 20 1 4 ANNUAL REPORT (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 ﬁ nd 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 ofﬁ cers’ remuneration to the Group’s ﬁ nancial and operational performance. The Group provides for long term incentives by way of a Performance Rights Plan and a Security Loan Plan and has issued performance rights (effectively options over Group securities) to a number of executive and other senior employees. 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 beneﬁ t 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 long term incentive plans discussed above. Participation is approved by securityholders at an Annual General Meeting, in accordance with the ASX Listing Rules. CROMWELL 2014 ANNUAL RE PORT 107 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 deﬁ ned 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 ﬁ nd on our website: • Nomination and Remuneration Committee Charter 108 C ROMW ELL 20 1 4 ANNUAL REPORT Securityholder Information The securityholder information set out below was applicable as at 30 September 2014, unless stated otherwise. SPREAD OF STAPLED SECURITYHOLDERS Category (size of holding) 100,001 and Over 50,001 to 100,000 1,001 to 10,000 1 to 1,000 Total Number of Securities Number of Holders 1,417,937,889 295,368,364 19,588,072 237,838 1,184 8,785 3,590 784 1,733,132,163 14,343 UNMARKETABLE PARCELS The number of stapled securityholdings held in a less than marketable parcel was 557. SUBSTANTIAL SECURITYHOLDERS Holder Macquarie Group Limited Redeﬁ ne Properties Limited VOTING RIGHTS Stapled Securities Date of Notice 234,045,626 24 December 2013 447,872,426 9 October 2013 On a show of hands every securityholder present at a meeting in person or by proxy shall have one vote and, upon a poll, every securityholder shall have effectively one vote for every security held. CROMWELL 2014 ANNUAL RE PORT 109 20 LARGEST SECURITYHOLDERS Rank Investor Number of Stapled % Held of Issued Securities Held Stapled Securities 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 J P Morgan Nominees Australia Limited Redeﬁ ne Australian Investments Limited HSBC Custody Nominees (Australia) Limited Buttonwood Nominees Pty Ltd National Nominees Limited Citicorp Nominees Pty Limited Buttonwood Nominees Pty Ltd Redeﬁ ne Global (Pty) Limited RBC Investor Service Australia Nominees Pty Limited BNP Paribas Noms Pty Ltd Citicorp Nominees Pty Limited Stara Investments Pty Ltd UBS Wealth Management Australia Nominees Pty Ltd Humgoda Investments Pty Ltd RJP Family Pty Ltd Kovron Pty Ltd Panmax Pty Ltd 18 Mr Philip John Wallace & Mrs Bernadette Mary Wallace 19 20 RBC Investor Services Australia Nominees Pty Limited Ecapital Nominees Pty Limited 208,948,611 172,833,576 168,884,566 162,715,616 91,914,991 57,457,352 55,000,000 54,242,549 35,492,345 23,171,744 12,157,245 16,221,167 8,111,394 7,282,126 6,500,000 5,972,000 5,718,993 4,898,736 4,229,436 4,149,820 1,105,902,267 12.06% 9.97% 9.74% 9.39% 5.30% 3.32% 3.17% 3.13% 2.05% 1.34% 0.70% 0.94% 0.47% 0.42% 0.38% 0.34% 0.33% 0.28% 0.24% 0.24% 63.81% PROVISION OF INFORMATION FOR SECURITYHOLDERS Cromwell is committed to ensuring its securityholders are fully informed on the ﬁ nancial and operational status of the Group as well as its future prospects, in accordance with the rules and guidelines of the Australian Securities 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 Securityholders can change or update details relating to their address, bank account and Tax File Number (TFN), Australian Business Number (ABN) or exemption in a number of ways: • Send 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. 110 C ROMW ELL 20 1 4 ANNUAL REPORT Securityholders are not obliged to quote their TFN, ABN or exemption 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 Record Date Payment Date 30 June 2014 31 March 2014 31 December 2013 30 September 2013 1.9375 cents 1.9375 cents 1.8750 cents 1.8750 cents 24 June 2014 30 June 2014 14 August 2014 25 March 2014 31 March 2014 14 May 2014 23 December 2013 31 December 2013 12 February 2014 24 September 2013 30 September 2013 13 November 2013 FURTHER INFORMATION The Cromwell website provides a comprehensive range of information on the Group, 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 Tel: (07) 3225 7777 Fax: (07) 3225 7788 Email: invest@cromwell.com.au 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 CROMWELL 2014 ANNUAL RE PORT 111

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