Elanor Investors Group
Annual Report 2020

Plain-text annual report

Investors Group Annual Report For the year ended 30 June 2020 200 Adelaide St, Brisbane, QLD 3 Meeting of Securityholders 21 October 2020 10:30am (Sydney time) Computershare Level 3, 60 Carrington Street, Sydney NSW 2000 Contents 04 — Highlights 06 — Message from the Chairman 08 — CEO’s Message 11 — Financial Report 12 — Directors’ Report 43 — Auditor’s Independence Declaration 44 — Financial Statements 51 — Notes to the Financial Statements 129 — Directors’ Declaration 130 — Independent Auditor’s Report 136 — Corporate Governance 137 — Securityholder Analysis 139 — Corporate Directory Financial Calendar OCT 21 October 2020 Meeting of Securityholders DEC 3 December 2020 Estimated interim distribution announcement and securities trade ex-distribution FEB February 2021 Interim results announcement MAR March 2021 Interim distribution payment JUN June 2021 Estimated final distribution announcement and securities trade ex-distribution AUG August 2021 Full-year results announcement SEP SEP September 2021 Final distribution payment September 2021 Annual tax statements Responsible Entity Elanor Funds Management Limited (ABN 39 125 903 031). AFSL 398196. Elanor Investors Group comprises Elanor Investors Limited (ABN 33 169 308 187) and Elanor Investment Fund (ARSN 169 450 926). 4 4 Highlights The Group’s assets are located in metropolitan and prime regional locations across Australia and New Zealand Darwin NT SA WA QLD Brisbane Perth NSW Auckland Sydney Canberra Wellington Adelaide VIC Melbourne TAS Hobart Assets: Hotels, Tourism & Leisure Commercial Retail Healthcare Funds Under Management as at 30 June 2020 ASX listed Funds Under Management as at 30 June 2020 Funds Management Income for the financial year 2020 Core Earnings for the financial year 2020 $1,692m $709m $21.5m $15.4m > 22% > 108% > 43% > 12% Elanor Investors Group | Annual Report 2020 Elanor Investors Group | Annual Report 202055 Diversified FUM Across Elanor’s Investment Sectors of Focus Commercial $415m Healthcare $128m $382m ASX: Elanor Commercial Property Fund $128m Elanor Healthcare Real Estate Fund $33m Stirling Street Syndicate 2019 $300m 2019 $Nil Hotels, Tourism and Leisure $384m Retail $765m $169m Elanor Luxury Hotel Fund $163m Elanor Metro and Prime Regional Hotel Fund 5 $52m Elanor Wildlife Park Fund 2019 $318m $328m ASX: Elanor Retail Property Fund $175m Waverley Gardens Syndicate $94m Fairfield Centre Syndicate $60m Hunters Plaza Syndicate $56m $52m Belconnen Markets Syndicate Bluewater Square Syndicate 2019 $769m Distributions (per security) for the financial year 2020 9.51c 40.8% decrease on FY19 (1HFY20 distribution 50.5% increase on 1HFY19) Securities on Issue as at 30 June 2020 Net Asset Value (per security) as at 30 June 2020 Gearing as at 30 June 2020 $119.6m $1.30 29.7% > 19.8% > 18.2% > from 28.4% 6 Message from the Chairman On behalf of the Board, I am pleased to present Elanor Investors Group’s Annual Report, including its Financial Statements for the year ended 30 June 2020. The year ended 30 June 2020 was clearly one of two distinct periods, created as a result of the unforeseen and uncontrollable impacts of the COVID-19 pandemic. The Group’s business has been adversely affected by the pandemic. Pleasingly, the impact of the pandemic on the Group and its managed funds has been well managed, with the performance of the Group’s assets showing resilience in what were challenging market and operating conditions. The safety of our staff and customers has been of paramount importance during this period. My compliments go to management for the seamless and safe management of these risks across the business. Despite the impacts of the pandemic during the second half of the financial year, the Group achieved Core Earnings of $15.4m for the year (down 12% on FY19) – Core Earnings of $3 million in the second half of 2020 was well down on the previous year due to the pandemic. Positively, funds under management (FUM) grew 22% over the year to $1.69 billion. Elanor’s strong growth in FUM has been driven by a clear focus on our strategy to grow funds under management by identifying and originating investments that deliver strong performance for both Elanor’s funds management capital and investment partners and Elanor’s securityholders. From a strategic perspective, the Group’s managed funds platform remains well positioned to grow in its core sectors of focus, being; commercial office real estate, healthcare real estate, hotels, tourism and leisure, and retail real estate. Results and Achievements The results for the year ended 30 June 2020 demonstrate the continued enhancement of our funds management platform. Funds management earnings grew 43%, with revenue for the year of $21.5 million. Furthermore, recurring funds management fees grew 54.4% to $15.5 million over the year. Growing Elanor’s recurring management fees is a major focus of the business. The key achievement of the Group over the year was the increase in funds under management to $1.69 billion as at 30 June 2020. This has been achieved in a year where market conditions were unpredictably impacted by the COVID-19 pandemic. The growth in Elanor’s funds under management has been primarily achieved as a result of the execution of the following initiatives: • The Group listed the Elanor Commercial Property Fund (ECF) in December 2019. ECF then acquired the Garema Court property in Canberra, ACT for $71.5 million, in February 2020. The Fund’s portfolio of office properties was valued at $374 million at 30 June 2020 • Elanor Healthcare Real Estate Fund was established in March 2020, seeded with two high investment quality healthcare properties with a combined asset value of $123.3 million • Elanor Wildlife Park Fund was established in November 2019. The fund acquired the Mogo Zoo in Mogo, NSW and Featherdale Wildlife Park in Sydney, NSW (Featherdale Wildlife Park was previously owned by the Group). The fund had a gross asset value of $52.2 million as at 30 June 2020 Further details and commentary in regard to the 2020 annual result, the Group’s achievements and strategies, can be found in the CEO’s Message that follows. COVID-19 The COVID-19 pandemic has and continues to present challenging operating and market conditions. While the Group has been impacted by the effects of the COVID-19 pandemic, we are pleased with the resilient performance of the Group’s assets over the period, with valuations in aggregate across all funds at 30 June 2020 being stable compared to 31 December 2019. Elanor Investors Group | Annual Report 20207 “The key achievement of the Group over the year was the increase in funds under management to $1.69 billion as at 30 June 2020.” Governance The Board continues to strengthen the Group’s corporate governance structure and processes consistent with Elanor’s strategic intent and operating activities. This includes the further development of the Group’s Risk Management Framework and Work, Health and Safety regimes, which have become even more important in these COVID-19 impacted times. Acknowledgements Thank you to my fellow Board members, the executive management team led by the CEO and all the hard-working staff across the Group, for their dedicated contributions in this challenging year. Most importantly, thank you to our securityholders and the Group’s investors in our managed funds for your continuing support and confidence in these times. I look forward to discussing the business further at our Annual General Meeting in Sydney on 21 October 2020. Yours sincerely, Paul Bedbrook Chairman 34 Corporate Drive, Cannon Hill, QLD 7 Peppers Cradle Mountain Lodge, Cradle Mountain, TAS Mayfair Hotel, Adelaide, SA 8 CEO’s Message I am pleased to present Elanor Investors Group’s Annual Report for the year ended 30 June 2020. Despite the impacts of the COVID-19 pandemic on financial and market conditions across the Australian economy during the year, Elanor increased its assets under management from $1,550.1 million to $1,895.2 million and its co-investments and balance sheet investments from $163.1 million to $203.2 million. Furthermore, the Group listed the Elanor Commercial Property Fund (ASX: ECF) on the Australian Securities Exchange on 6 December 2019, and established two multi-asset unlisted managed funds during the year. We are pleased with the 22% growth in our funds under management and the 43% growth in our funds management income over the year. Annualised recurring funds management revenue grew by over 27.4% during the year as a result of an increase in funds under management to $1.69 billion as at 30 June 2020. While the COVID-19 pandemic continues to present challenging operating and market conditions, we are pleased with the resilient performance of the Group’s assets over the period, with valuations in aggregate across all funds at 30 June 2020 being stable compared to 31 December 2019. From a strategic perspective, much was achieved during the year. We continued our focus on growing our global institutional capital partners and strengthening our asset management teams. Combined with the Group’s growth capital and strong investment pipeline, Elanor is well positioned for further significant growth in funds under management. We remain confident that our funds management platform will continue to deliver strong performance for both Elanor securityholders and the Group’s capital partners. The Group has a strong pipeline of opportunities across all of our investment sectors; commercial office and healthcare real estate, hotels, tourism & leisure, and retail real estate. Furthermore, we are actively pursuing opportunities in new real estate sectors in addition to exploring strategic opportunities to realise our growth objectives. Elanor is well positioned to grow its funds under management. Strategy and Investment Approach The key strategic objective of the Group is to grow funds under management and deliver strong investment returns for both the Group’s funds management capital partners and Elanor securityholders. Elanor’s investment focus is on acquiring and unlocking value in real estate assets that provide strong, stable income and significant capital growth potential. We evaluate acquisition opportunities through a ‘risk-first investment lens’. Our highly active approach to asset management is underpinned by an acute focus on delivering investment performance. The Group will continue to execute on its key strategic objective of growing funds under management in an increasingly capital efficient manner. Key Results • Core Earnings for the period of $15.4 million, 13.1 cents per stapled security • Growth in funds under management of $305 million to $1.69 billion • Funds management income of $21.5 million for the year, an increase of 43%; annualised recurring management fees increased 27.4% to $14.4 million • Listing of the Elanor Commercial Property Fund (ASX: ECF) with a portfolio of office properties valued at $374 million at 30 June 2020 • Establishment of the Elanor Healthcare Real Estate Fund seeded with two high investment quality healthcare properties with a combined asset value of $123.3 million • The valuations of the Group’s managed funds asset portfolio at 30 June 2020 reflected an increase of 0.2% from 31 December 2019 (Managed Fund asset values as at 31 December 2019 and the acquisition value for assets acquired since 31 December 2019) • Net Asset Value per security of $1.30 • Gearing of 29.7% Elanor Investors Group | Annual Report 2020“Annualised recurring funds management revenue grew by over 27.4% during the year as a result of an increase in funds under management to $1.69 billion as at 30 June 2020.” Funds Management The Group completed the following funds management initiatives during the year: • The listing of the Elanor Commercial Property Fund on the Australian Securities Exchange on 6 December 2019 with a Gross Asset Value of $310.7 million. In conjunction with the listing, the fund acquired the residual 48.5% equity interest in the WorkZone West property in Perth, WA for $66.0 million, and the commercial property at 200 Adelaide Street in Brisbane, QLD for $44.2 million • The acquisition by the Elanor Commercial Property Fund of the Garema Court property in Canberra, ACT for $71.5 million, in February 2020 • The establishment of the Elanor Healthcare Real Estate Fund, with the acquisition of two high investment quality healthcare properties, with a combined asset value of $123.3 million - both of the properties being multi-tenanted medical office and day surgeries, located at 55 Little Edward Street, Spring Hill, Brisbane, and Pacific Private, Southport, Gold Coast. Settlement was completed in March 2020 • The establishment of the Elanor Wildlife Park Fund in November 2019. The fund acquired the Mogo Zoo in Mogo, NSW and Featherdale Wildlife Park in Sydney, NSW (Featherdale Wildlife Park was previously owned by the Group). The fund had a gross asset value of $52.2 million as at 30 June 2020 The increasing demand from capital partners for newly established funds reflects the Group’s strong track record of investment performance; the Group has significantly increased its investment origination and capital raising capability during the year. 9 Investment Portfolio The value of the Group’s investment portfolio totalled $203.2 million as at 30 June 2020. Elanor’s investment portfolio consists of the Group’s co-investments in funds managed by Elanor and wholly owned assets that provide opportunities for future co-investment by external capital partners. In keeping with our strategy of co-investing alongside our capital partners, co-investments totalling $69.0 million were made in new managed funds during the year, including Elanor Wildlife Park Fund, Elanor Healthcare Real Estate Fund and Elanor Luxury Hotel Fund. 9 9 WorkZone West, Perth, WA 10 CEO’s Message Featherdale is a major social contributor to the Western Sydney community and across the State of NSW in the areas of animal preservation and animal rescue. Featherdale is committed to maintaining its significant social contribution into the future. Outlook The Group’s key strategic objective is to grow funds under management. Elanor is committed to growing its funds management business by acquiring high investment quality assets that satisfy the Group’s ‘risk-first’ investment approach. Despite the prevailing uncertain market conditions, the Group has a strong pipeline of funds management opportunities across its real estate sectors of focus. Furthermore, the Group is actively pursuing opportunities in new real estate sectors and continues to explore strategic opportunities to deliver its growth objectives. I wish to thank my fellow Board members, my executive leadership team and all our staff, both at the Group level and at each of our investments, for their dedication, enthusiasm, and commendable efforts over the year. Yours sincerely, Glenn Willis Managing Director and Chief Executive Officer 55 Little Edward Street, Brisbane, QLD Capital Management The Group’s gearing at 30 June 2020 was 29.7%, which primarily comprises the $60 million of unsecured 5-year Corporate Notes. The Group’s secured debt gearing ratio is 4.7%. The average tenure of the Group’s debt is 2.4 years with the first maturity in April 2022. Our intention remains for the Group’s balance sheet to be conservatively geared, while maintaining capital capacity to take advantage of the growing level of investment opportunities originated by the Group. COVID-19 There has been a significant change to operating and financial conditions across the Australian economy due to the economic disruption caused by the COVID-19 pandemic. The Group was well positioned for the challenges created by the COVID-19 pandemic, with a portfolio of high investment quality assets and a highly capable funds management and asset management team. The Group responded swiftly to these challenging market conditions to minimise the impact on Elanor’s managed funds and Investments. The COVID-19 pandemic has created challenging trading conditions for some of the Group’s Managed Fund assets, specifically its hotel, tourism and leisure and retail real estate assets. Community Involvement At Elanor, we are acutely aware of our responsibility to the communities in which we operate, and to society more generally. During the year the Group supported a number of causes and organisations including the Facioscapulohumeral Muscular Dystrophy (FSHD) Foundation, Big Brothers Big Sisters, Life Education Australia and The One Foundation Australia. In addition to these organisations, across the Group, Elanor supports a number of community focused social initiatives. Elanor, as owner of Featherdale Wildlife Park and Mogo Wildlife Park, is committed to animal welfare and native animal preservation. Featherdale is a pre-eminent contributor to numerous endangered species preservation programs for Australian native animals. Elanor Investors Group | Annual Report 2020 1111 11 Financial Report for the year ended 30 June 2020 12 43 44 45 46 48 50 51 129 130 — Directors’ Report — Auditor’s Independence Declaration — Consolidated Statements of Profit or Loss — Consolidated Statements of Comprehensive Income — Consolidated Statements of Financial Position — Consolidated Statements of Changes in Equity — Consolidated Statements of Cash Flows — Notes to the Consolidated Financial Statements — Directors’ Declaration to Stapled Securityholders — Independent Auditor’s Report 12 Directors’ Report Directors’ Report ELANOR INVESTORS GROUP DIRECTORS’ REPORT The Directors of Elanor Investors Limited (Company), and the Directors of Elanor Funds Management Limited (Responsible Entity or Manager), as responsible entity of the Elanor Investment Fund, present their report together with the consolidated financial report of Elanor Investors Group (Group, Consolidated Group or Elanor) and the consolidated financial report of the Elanor Investment Fund (EIF Group) for the full year ended 30 June 2020 (period). The annual financial report of Elanor Investors Group comprises the Company and its controlled entities, including Elanor Investment Fund (Trust) and its controlled entities. The annual financial report of the EIF Group comprises Elanor Investment Fund and its controlled entities. Elanor Investors Limited is a company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is Level 38, 259 George Street, Sydney NSW 2000. The Trust was registered as a managed investment scheme on 21 May 2014 and the Company was incorporated on 1 May 2014. The units of the Trust and the shares of the Company are combined and issued as stapled securities in the Group. The Group's securities are traded on the Australian Securities Exchange (ASX: ENN). The units of the Trust and shares of the Company cannot be traded separately and can only be traded as stapled securities. Although there is no ownership interest between the Trust and the Company, the Company is deemed to be the parent entity of the Group under Australian Accounting Standards. The Directors' report is a combined Directors' report that covers both the Company and the Trust. The financial information for the Group is taken from the consolidated financial reports and notes. 1. Directors The following persons have held office as Directors of the Responsible Entity and Company during the period and up to the date of this report: • Paul Bedbrook (Chairman) • Glenn Willis (Managing Director and Chief Executive Officer) • Nigel Ampherlaw Lim Kin Song • • Anthony (Tony) Fehon (Appointed 20 August 2019) • William (Bill) Moss AO (Resigned 17 September 2019) 2. Principal activities The principal activities of the Group are the management of investment funds and syndicates and the investment in, and operation of, a portfolio of investment assets and businesses. 3. Distributions Distributions relating to the year ended 30 June 2020 comprise: The Group achieved Core Earnings of $15.4 million for the financial year ended 30 June 2020, including Core Earnings of $3.0 million for the six months ended 30 June 2020. In light of the COVID-19 pandemic, the Directors have determined to suspend the Group’s distribution for the six months ended 30 June 2020. Therefore, total distributions in respect of the year ended 30 June 2020 were 9.51 cents per stapled security being the interim distribution made in February 2020. 3 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP DIRECTORS’ REPORT 13 4. Operating and financial review OVERVIEW AND STRATEGY The key strategic objective of Elanor is to invest in real estate backed assets that deliver strong returns for both Elanor's funds management capital partners and Elanor’s security holders. Elanor is a real estate funds manager with an investment focus on acquiring and unlocking value in assets that provide high quality income and strong capital growth potential. Elanor's active approach to asset management is underpinned by an acute focus on delivering investment performance. The Group also originates and holds investments on balance sheet as required to seed funds management opportunities for future co-investment by Elanor’s capital partners. Elanor’s key investment sector focuses are the commercial office and healthcare real estate, retail real estate and the accommodation hotels, tourism and leisure sectors. Despite the impacts of the COVID-19 pandemic on financial conditions across the Australian economy, during the year, Elanor increased its assets under management from $1,550.1 million to $1,895.2 million and its co- investments and balance sheet investments from $163.1 million to $203.2 million. Furthermore, the Group listed the Elanor Commercial Property Fund (ASX:ECF) on the Australian Securities Exchange on 6 December 2019. The Group’s Managed Funds now include two listed REITS. The growth in assets under management has been assisted by the introduction of a number of global and domestic institutional capital partners, directly reflecting the Group’s increased focus and resourcing in this area. The Group completed the following funds management initiatives during the year: • The establishment of the Elanor Wildlife Park Fund in November 2019 which acquired the Mogo Zoo in Mogo, NSW and Featherdale Wildlife Park in Sydney, NSW. Featherdale Wildlife Park was previously owned by the Group. The fund had a gross asset value of $52.2 million as at 30 June 2020. • The listing of the Elanor Commercial Property Fund on the Australian Securities Exchange on 6 December 2019 with a Gross Asset Value of $310.7 million. In conjunction with the listing, the fund acquired the residual 48.5% equity interest in the WorkZone West property in Perth, WA for $66.0 million, and the commercial property at 200 Adelaide Street in Brisbane, QLD for $44.2 million. • The acquisition by the Elanor Commercial Property Fund of the Garema Court property in Canberra, ACT for $71.5 million, in December 2019. • The divestment of the Auburn Office Syndicate on 18 December 2019 for $4.7 million. • The establishment of the Elanor Healthcare Real Estate Fund, with the acquisition of two high investment quality healthcare properties, with a combined asset value of $123.3 million - both of the properties are multi-tenanted medical office and day surgeries and are located at 55 Little Edward Street, Spring Hill, Brisbane, and Pacific Private, Southport, Gold Coast. Settlement was completed in March 2020. ENN’s strong investment track record continues to be evidenced by the demand from wholesale and institutional investors for ENN’s funds. Elanor has a well-resourced and scalable funds management platform with substantial capacity for growth. Further investment has been made in the platform during the year, including in relation to the office healthcare real estate sector. Elanor is well positioned to grow its funds management business. 4 14 Directors' Report ELANOR INVESTORS GROUP DIRECTORS’ REPORT 4. Operating and financial review (continued) MANAGED FUNDS AND INVESTMENT PORTFOLIO The following tables show the Group's Managed Funds and investment portfolio: 5 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP DIRECTORS’ REPORT 15 4. Operating and financial review (continued) MANAGED FUNDS AND INVESTMENT PORTFOLIO (CONTINUED) Investment Portfolio Note 1: All owner-occupied properties in the Hotel, Tourism and Leisure business are held for use by the Group for the supply of services and are classified as land and buildings and stated at fair value. Note 2: Managed Fund co-investments are associates and accounted for using the equity method. Note 3: The co-investments in Elanor Metro and Prime Regional Hotel Fund (EMPR), Elanor Luxury Hotel Fund (ELHF) and the Bluewater Square Syndicate (Bluewater) have been consolidated in the financial statements. The amount shown assumes that the investments were accounted for using the equity method. Impact of COVID-19 on the Group’s Operations There has been a significant change to operating and financial conditions across the Australian economy due to the economic disruption caused by the COVID-19 pandemic. As a result, the Australian Government has taken steps to support jobs, incomes and businesses by providing multiple economic stimulus packages, including wage subsidies, income support to households and cash flow support to businesses. The recovery of the Australian economy is dependent on the successful and ongoing management of the COVID-19 related health outcomes. 6 16 Directors' Report ELANOR INVESTORS GROUP DIRECTORS’ REPORT 4. Operating and financial review (continued) MANAGED FUNDS AND INVESTMENT PORTFOLIO (CONTINUED) The Group was well positioned for the challenges created by the COVID-19 pandemic, with a portfolio of high investment quality assets and a highly capable funds management and asset management team. The Group responded swiftly to these challenging market conditions to minimise the impact on Elanor’s Managed Funds and Investments. Furthermore, the Group implemented a range of initiatives to reduce its cost base and preserve cash – with the clear objective of ensuring the operational fitness of all Managed Fund assets and investments in these challenging market conditions. The health and well-being of our employees and customers are our priorities. Active communication is being maintained with all employees, tenants, and property managers across the Group’s portfolio of properties as the impacts of the COVID-19 pandemic continue to unfold. Social distancing requirements and other related measures mandated by the government, in response to the COVID-19 pandemic, have been monitored closely and implemented at each of the Group’s properties, as required, in accordance with the various state government regulations and recommendations, and in accordance with various industry body recommendations. Operational procedures have also been modified, as required, to ensure the health, safety and wellbeing of our staff, tenants and visitors to the Group’s properties. The COVID-19 pandemic has created challenging trading conditions for some of the Group’s Managed Fund assets, specifically its hotel, tourism and leisure and retail real estate assets. The Government enforced closures of international and domestic borders has impacted the wildlife park assets, and the Government health-related initiatives and restrictions have impacted both hotel and wildlife park assets as well as retail shopping centres. The Group’s asset management teams have been acutely focused on operational management of the Managed Fund assets, and positioning the assets for strong performance as market conditions improve. Notwithstanding the challenging market conditions presented by the COVID-19 pandemic, the Group’s Managed Funds asset portfolio has proven to be resilient, with many properties now experiencing improved trading activity post 30 June 2020. The Group and the Managed Funds are well positioned to perform strongly in the post COVID-19 environment. The resilience of the Group’s Managed Funds asset portfolio is evidenced by the table set out below. This table shows the movement in the valuations of the Group’s Managed Funds property assets from 31 December 2019 to 30 June 2020. Independent valuers of the Group’s properties have included a statement within their valuation reports noting that in their view, significant valuation uncertainty exists in the current market environment. The significant uncertainty declaration is to serve as a precaution and does not invalidate the valuation. Rather, the statement is to ensure transparency of the fact that in the current extraordinary market circumstances, as a result of the COVID-19 pandemic, less certainty can be attached to the valuations and continued periodic assessment should be performed subsequent to the date of the valuation. Elanor will manage this increased uncertainty by actively managing the Group’s Managed Funds and Investments. Commercial Office and Healthcare Real Estate The Group’s Commercial Office Managed Funds performed strongly during the period. The underlying real estate assets in the Group’s Commercial Office Managed Funds generate approximately 88% of their income from Government, Multinational and ASX Listed tenants. 7 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP DIRECTORS’ REPORT 17 4. Operating and financial review (continued) MANAGED FUNDS AND INVESTMENT PORTFOLIO (CONTINUED) Commercial Office and Healthcare Real Estate (continued) On 24 June 2020 the Elanor Commercial Property Fund (ASX: ECF) announced its Forecast Funds from Operations (FFO) for the period ending 30 June 2020 of $13.4 million, 9.1% above the PDS forecast for the same period as stated in the PDS for ECF dated 6 November 2019. This is a strong result in the current market environment and highlights the quality of the assets and tenant mix across ECF’s property portfolio. The impact of the COVID-19 pandemic has had a minimal impact on the Fund’s earnings (please refer to ECF’s Annual Financial Report and financial results presentation for the year ended 30 June 2020 released on the ASX on 20 August 2020 for further information). The Group’s healthcare office real estate assets in the newly established Elanor Healthcare Real Estate Fund (EHREF) performed to expectations following establishment of the fund in March 2020, with the COVID-19 pandemic having a minimal impact on the fund’s earnings. The Group is pleased with the growing pipeline of opportunities in the commercial office and healthcare real estate sectors. Retail Real Estate The Group’s retail Managed Funds ‘defensive’ shopping centre portfolio has performed well during the COVID- 19 pandemic. Following the outbreak of the COVID-19 pandemic both Federal and State Governments imposed operating restrictions on certain shopping centre retailers. Only those retailers deemed to be providers of ‘essential services’ were able to trade for the three months to 30 June 2020. The level of trading activity across ENN’s retail Managed Funds continues to improve as Government imposed restrictions are relaxed. In its ASX announcement on 24 June 2020, Elanor Retail Property Fund (ASX: ERF) confirmed that its shopping centre portfolio performed well during the COVID-19 pandemic. As at 31 July 2020, the percentage of rent collected across ERF’s portfolio for the months of April, May and June 2020 was 78%. This is expected to improve as rental relief arrangements continue to be negotiated in accordance with the Code of Conduct. Furthermore, these negotiations have provided opportunities to improve tenancy mix and extend retailers’ lease tenures at each centre. Rental waivers and provisions, as at 30 June 2020, for the impact of the COVID- 19 pandemic, reduced ERF’s net operating income (NOI) by approximately 4.8% for the year (please refer to ERF’s Annual Financial Report and financial results presentation for the year ended 30 June 2020 released on the ASX on 20 August 2020 for further information). The resilience of the Group’s Managed Funds retail real estate portfolio reaffirms the Group’s strategic focus on shopping centre investments anchored by strongly performing supermarkets and non-discretionary focused speciality retailers. The Group is evaluating several retail shopping centre acquisitions that present significant value-add opportunities, consistent with the Group’s ‘retail repositioning’ strategy. Hotels, Tourism and Leisure The COVID-19 pandemic has created difficult trading conditions across the accommodation hotels sector and the broader tourism industry. Elanor Metro and Prime Regional Hotel Fund (EMPR) owns ten regional NSW, ACT and SA hotels. While occupancy levels and room rates declined significantly during the peak impacts of the COVID-19 pandemic in March and April 2020, the cost bases of all properties were significantly restructured to ensure that the hotels are well positioned for significantly improved profitability as market demand returns. Recent relaxations of certain Government health-related initiatives and restrictions have resulted in improved trading conditions, with the hotels benefitting from the resultant increase in regional domestic tourism activity. 8 18 Directors' Report ELANOR INVESTORS GROUP DIRECTORS’ REPORT 4. Operating and financial review (continued) MANAGED FUNDS AND INVESTMENT PORTFOLIO (CONTINUED) Hotels, Tourism and Leisure (continued) Cradle Mountain Lodge, an Elanor Luxury Hotel Fund (ELHF) property, was re-opened to the public on 12 June 2020 (having been forcibly closed on 30 March 2020) following the Tasmanian Government’s relaxation of trading restrictions for hotels. Intrastate demand at the property has been strong since the re-opening, and early indications of near-term interstate tourism demand from forward bookings have also been strong. The Mayfair and Adabco Hotels in Adelaide, also ELHF properties, are seeing improving levels of occupancy following the recent relaxation of social distancing rules in South Australia. The Group’s hotels have received Government support during the COVID-19 pandemic, including the JobKeeper scheme and deferral and abatement of certain land tax obligations across the portfolio. Total payments received from the JobKeeper scheme by the Group’s accommodation hotel portfolio, consisting of 14 properties, amounted to $1.6 million in the financial year. The JobKeeper receipts commenced in April 2020, and are expected to continue for the six months to September 2020 (inclusive). The Group’s Managed Funds hotel portfolio reflects the Group’s investment strategy to acquire hotels with strong trading fundamentals, located in prime regional or metropolitan areas. Following the restructuring of the accommodation hotels’ cost bases, all hotel properties are well positioned to trade profitably as economic conditions improve. The Group anticipates that, post COVID-19, there will be opportunities to acquire further high investment quality hotels. Elanor Wildlife Park Fund During the Government imposed shutdown of non-essential services in April 2020, Elanor’s wildlife park assets, Featherdale Wildlife Park and Mogo Wildlife Park, were required to be closed to the public. During this time, the primary concern of the management team was to ensure the ongoing safety and welfare of the animals at both wildlife parks. Elanor ensured that staff responsible for animal care remained employed and supported throughout the duration of the shutdown period. Featherdale Wildlife Park and Mogo Wildlife Park re-opened to the public on Monday 1 June 2020. While Featherdale’s international inbound visitation has been impacted by the closure of Australia’s borders, domestic visitation following the re-opening of the Park has been in line with expectations. Mogo Wildlife Park has performed particularly strongly since re-opening, reflecting the management team’s success in integrating the wildlife park into the Fund and driving significant additional revenue and cost efficiencies. 9 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP DIRECTORS’ REPORT 19 4. Operating and financial review (continued) REVIEW OF FINANCIAL RESULTS The Consolidated Group recorded a statutory loss after tax from continuing operations of $23.4 million for the year ended 30 June 2020. At the balance date, Elanor held a 42.63% interest in the Elanor Metro and Prime Regional Hotel Fund (EMPR), a 100% interest in the Elanor Luxury Hotel Fund (ELHF) and a 42.27% interest in the Bluewater Square Syndicate (Bluewater). For accounting purposes, Elanor is deemed to have a controlling interest in EMPR, ELHF and Bluewater given its level of ownership and role as manager of the funds. This means that the financial results and financial position of EMPR, ELHF and Bluewater are consolidated into the financial statements of the Group for the year ended 30 June 2020. Elanor held a 100% interest in Auburn Office Syndicate (Auburn Office) for the period to 18 December 2019, and hence the financial results of the fund have been consolidated into the financial results of the Group up until that date. All other managed fund co-investments are accounted for using the equity method in the Group’s consolidated financial statements. Presenting the summary consolidated financial results of the Group on the basis that EMPR, ELHF and Bluewater are accounted for using the equity method is important because Elanor considers that this gives the most appropriate presentation consistent with management and reporting of the Group, and to provide a comparable basis to the presentation of the results for prior periods. The impact of the COVID-19 pandemic on financial conditions across the Australian economy has reduced the Group’s transactional funds management activity in the second half of the financial year. Pleasingly, the Group was able to successfully complete the establishment of the Elanor Healthcare Real Estate Fund in March 2020. Notwithstanding the impact of COVID-19 on the Group’s transactional funds management activity in the period, the Group continues to grow recurring funds management income. The Group’s funds under management of $1,692.0 million at 30 June 2020 generates annualised recurring funds management fees of $14.4 million, an increase of 27.4% on annualised recurring funds management fees as at 30 June 2019 of $11.3 million. As a result of the impact of the COVID-19 pandemic in some of the Group’s Managed Funds, quarterly investor distributions were suspended by those funds, to preserve capital and assist in managing the funds through these challenging market conditions. This has resulted in a reduction in the Group’s income from co-investment distributions during the year. Total co-investment distributions received or receivable during the year amounted to $5.8 million, with $4.4 million attributed to the first half of FY20, compared to $1.4 million received or receivable during the second half of FY20. The co-investment distributions received in the second half FY20 were attributed to the Group’s co-investment in the commercial office and healthcare real estate funds ECF and EHREF. The Group has received certain limited Government support during the COVID-19 pandemic, including through the JobKeeper scheme, and the deferral and abatement of certain land tax obligations across the Group’s asset portfolio. The Group received a total of $0.24 million from the JobKeeper scheme in the financial year (in addition to amounts received by the Group’s Hotels, Tourism and Leisure Managed Funds). The Group’s balance sheet as at 30 June 2020 reflects Net Assets of $155 million and cash on hand of $17.3 million. Core or Distributable Earnings for the period were $15.4 million or 13.09 cents per stapled security. Core Earnings is considered more relevant than statutory profit as it represents an estimate of the underlying recurring cash earnings of the Group and has been determined in accordance with ASIC Regulatory Guide 230. 10 20 Directors' Report ELANOR INVESTORS GROUP DIRECTORS’ REPORT 4. Operating and financial review (continued) REVIEW OF FINANCIAL RESULTS (CONTINUED) A summary of the Group and EIF Group's results for the period is set out below: 11 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP DIRECTORS’ REPORT 21 4. Operating and financial review (continued) REVIEW OF FINANCIAL RESULTS (CONTINUED) The table below provides a reconciliation from statutory profit / (loss) after tax to distributable Core Earnings: Note 1: Core Earnings has been determined in accordance with ASIC RG 230 and represents the Directors view of underlying earnings from ongoing operating activities for the period, being net profit / (loss) after tax, adjusting for one-off realised items (being formation or other transaction costs that occur infrequently or are outside the course of ongoing business activities), non-cash items (being fair value movements, depreciation charges on the buildings held by the Trust, amortisation of intangibles, straight lining of rental expense, and amortisation of equity settled STI and LTI amounts), and restating share of profit from equity accounted investments to reflect distributions received / receivable in respect of those investments. Note 2: Share of profit from equity accounted investments includes depreciation and amortisation and fair value adjustments on investment property that were added back in the determination of distributable earnings for those managed funds. The Group’s share of those adjustments to distributable earnings in the relevant managed funds have been added back for the purposes of calculating Core Earnings so that the Group’s Core Earnings reflects the distribution received / receivable by the Group from those investments in Elanor managed funds. Note 3: Net (gain) / loss on disposals of equity accounted investments includes adjustments for realised non-cash accounting (gains) / losses on the sale of equity accounted investments during the period, so as to only include net cash profit for the purposes of calculating Core Earnings. 12 22 Directors' Report ELANOR INVESTORS GROUP DIRECTORS’ REPORT 4. Operating and financial review (continued) REVIEW OF FINANCIAL RESULTS (CONTINUED) Note 4: During the period the Group sold Featherdale Wildlife Park to the Elanor Wildlife Park Fund for $39.0 million. This asset was accounted for by the Group on a fair value basis whereby revaluation increases arising from changes in the fair value of land and buildings are recognised in other comprehensive income and accumulated within equity as opposed to being reflected in the consolidated profit and loss of the Group. Consequently, and consistent with the Group’s policy, the profit on divestment of Featherdale Wildlife Park ($26.0 million) has been included in Core Earnings for the period. Furthermore, an amount of $20.0 million of this profit has been retained to assist in achieving the future growth plans of the Group. Note 5: During the period the Group sold the Cradle Mountain Lodge asset from the Elanor Metro and Prime Regional Hotel Fund (EMPR) to the recently established Elanor Luxury Hotel Fund (ELHF) for $55.0 million. Following the divestment, the EMPR Fund declared and paid a return of capital to its investors, incorporating the net proceeds from the sale. The Group has recognised its 42.63% share of profit on the sale and has included this amount in Core Earnings. Note 6: As a result of the Group’s adoption of the new Revenue accounting standard, AASB 15 Revenue from Contracts with Customers on 1 July 2018, the net profit on sale of the Merrylands Property, that was appropriately recognised in the Group’s profit and loss for the period ended 30 June 2018, has also been recognised in the period ended 30 June 2019. This profit on the sale of the Merrylands Property was removed from Core Earnings. The net profit after tax on the sale of the Merrylands property of $10.45 million was included in the statutory net profit after tax for the prior year as a result of the Group’s adoption of AASB 15. Note 7: In August 2018, ENN completed the sale of the Merrylands Property, generating a total net profit after tax of $10.45 million. An amount of $4.5 million of this total net profit after tax was included in Core Earnings for the six months ended 30 June 2018. The remaining net profit after tax of $5.9 million has been included in Core Earnings for the six months ended 30 June 2019. Note 8: During the period, the Group incurred total depreciation charges of $1.33 million, however only the depreciation expense on buildings of $0.03 million has been added back for the purposes of calculating Core Earnings. Note 9: During the period, the Group incurred non-cash profit and loss charges in respect of the amortisation of certain amounts including the equity component of the Group’s Short Term Incentive (STI), Long Term Incentive (LTI) amounts, intangibles and borrowing costs. These amounts have been added back for the purposes of calculating Core Earnings. REVIEW OF OPERATIONAL RESULTS The Group is organised into three divisions by business type. Funds Management manages third party owned investment funds and syndicates. The Hotels, Tourism and Leisure division has extensive and proven investment management expertise in acquiring and operating real estate backed accommodation hotel and leisure investments. The current investment portfolio includes Ibis Styles Albany Hotel and 1834 Hospitality, along with co-investments in Elanor Metro and Prime Regional Hotel Fund (EMPR), Elanor Luxury Hotel Fund (ELHF), and Elanor Wildlife Park Fund (EWPF). The Real Estate division has extensive and proven investment management expertise in the commercial and healthcare office and retail real estate sectors. The division’s focus is to identify and originate investments that provide superior risk adjusted investment returns through active asset management and the realisation of ‘value-add’ operational and strategic opportunities. The current investment portfolio comprises investments in Elanor Retail Property Fund (ASX: ERF), Elanor Commercial Property Fund (ASX: ECF), Elanor Healthcare Real Estate Fund, Hunters Plaza Syndicate, Bluewater Square Syndicate, Stirling Street Syndicate, Fairfield Centre Syndicate, Waverley Gardens Fund and the Belconnen Markets Syndicate. Set out below is an adjusted presentation of the statutory financial results, by segment, on the basis that the Group’s interest in EMPR, ELHF and Bluewater are accounted for using the equity method rather than on a consolidated basis. Elanor considers that presenting the operating performance of the Group on this adjusted basis gives the most appropriate presentation of the Group, consistent with the management and reporting of the Group, and to provide a comparable basis to the presentation of prior period results. The results provided on this basis are presented as the ‘ENN Group’. 13 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP DIRECTORS’ REPORT 23 4. Operating and financial review (continued) REVIEW OF OPERATIONAL RESULTS (CONTINUED) The performance of the ENN Group for the period ended 30 June 2020, as represented by the aggregate results of its operations for the period, was as follows: Group EBITDA shown above includes the equity accounted result of the Group’s co-investments in funds managed by Elanor, including EMPR, ELHF, Bluewater and Auburn Office. The Group measures the performance of its co-investments based on distributions received / receivable from these co-investments, consistent with the treatment within Core Earnings. Group EBITDA, adjusted to show distributions received / receivable from co-investments rather than the equity accounted result is as follows: 14 24 Directors' Report ELANOR INVESTORS GROUP DIRECTORS’ REPORT 4. Operating and financial review (continued) REVIEW OF OPERATIONAL RESULTS (CONTINUED) Funds Management The performance of the Funds Management division for the period is summarised as follows: The Group’s funds management revenue comprises: Based on the 30 June 2020 funds under management of $1,692.0 million, annualised management fees total $14.4 million, an increase of 27.4% on the 30 June 2019 annualised management fees of $11.3 million. Elanor has added significant new funds under management since July 2019, with the Group establishing two new managed funds, being the Elanor Wildlife Park Fund and the Elanor Healthcare Real Estate Fund. During the period, the Group continued to strengthen its internal asset management and investment management capabilities, along with its asset origination resources, (including in relation to the healthcare office real estate sector). Elanor continued to broaden its offshore and domestic institutional capital partner base to support the Group’s strategic focus to deliver growth in funds under management and the performance of assets under management. The Group established its second listed REIT, Elanor Commercial Property Fund, during the year. Hotels, Tourism and Leisure The performance of the Hotels, Tourism and Leisure division for the period is summarised as follows: Note 1: Revenue has been adjusted to show distributions received / receivable from co-investments rather than the equity accounted result. 15 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP DIRECTORS’ REPORT 25 4. Operating and financial review (continued) REVIEW OF OPERATIONAL RESULTS (CONTINUED) The Hotels, Tourism and Leisure division’s EBITDA contribution to Core Earnings includes the results of Featherdale Wildlife Park (until 29 November 2019 when it was sold into EWPF), and Ibis Styles Albany Hotel. The Hotels, Tourism and Leisure division’s EBITDA contribution to Core Earnings also includes distributions received / receivable from the Group’s co-investment in funds managed by the Group of $1.5 million for the period ended 30 June 2020 ($2.6 million for the comparative period). This result reflects impacts of the COVID- 19 pandemic on the distributions received / receivable from the Group’s co-investments in the ELHF, EMPR and EWPF during the period, where distributions from these funds were suspended for the six months ended 30 June 2020. The table below sets out the assessed value of each investment portfolio asset as at 30 June 2020. The carrying value of the Group’s Hotels, Tourism and Leisure co-investments as at 30 June 2020, using the equity method, is as follows: Real Estate The Real Estate division comprises distributions received / receivable from co-investments in funds managed by the Group as follows: Note 1: Revenue has been adjusted to show distributions received / receivable from co-investments rather than the equity accounted result. The Real Estate division’s EBITDA contribution to Core Earnings comprises distributions received / receivable from the Group’s co-investment in funds managed by the Group of $4.3 million for the period ended 30 June 2020 ($4.8 million for the comparative period). This result reflects impacts of the COVID-19 pandemic on the distributions received / receivable from the Group’s co-investments in the Real Estate sector during the period, where distributions were only received from ECF and the Elanor Healthcare Real Estate Fund for the six months ended 30 June 2020. 16 26 Directors' Report ELANOR INVESTORS GROUP DIRECTORS’ REPORT 4. Operating and financial review (continued) REVIEW OF OPERATIONAL RESULTS (CONTINUED) The carrying value of these investments as at 30 June 2020, using the equity method, is as follows: Summary and Outlook The Group's key strategic objective will remains unchanged: to grow funds under management and deliver strong investment returns for Elanor’s capital partners and security holders. The Group will look to grow income from managed funds, recycle co-investment capital to facilitate future growth in a ‘capital-lite’ manner, and seed new managed funds with Group owned investments. Risks to the Group in the coming year primarily comprise the potential earnings variability associated with general economic and market conditions related to the COVID-19 pandemic, including inbound tourism and domestic spending, the availability of capital for funds management opportunities, movement in property valuations, tightening debt capital markets, the general increase in cyber security risks and possible weather related events. The Group manages these risks through its active asset management approach, its continued focus on broadening the Group's institutional and wholesale capital partner base, insurance arrangements and through the active management of its cash position and capital structure. The Group is committed to growing funds under management through the acquisition of further high investment quality assets based on the Group’s investment philosophy and criteria. The Group has an active pipeline of potential funds management opportunities across all sectors of focus. Furthermore, the Group is actively pursuing opportunities in new real estate sectors and continues to explore strategic opportunities to deliver its growth objectives. 5. Interests in the Group The movement in stapled securities of the Group during the period is set out below: 17 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP DIRECTORS’ REPORT 27 6. Directors Name Particulars Paul Bedbrook Independent Non-Executive Chairman Chairman, Remuneration and Nominations Committee Paul was appointed a Director of both the Company and the Responsible Entity (also the Responsible Entity of ERF and ECF) in June 2014. Paul has had a career of over 30 years in financial services, originally as an analyst, fund manager and then the GM & Chief Investment Officer for Mercantile Mutual Investment Management Ltd (ING owned) from 1987 to 1995. Paul was an executive for 26 years with the Dutch global banking, insurance and investment group, ING, retiring in 2010. Paul’s career included the roles of: President and CEO of ING Direct Bank, Canada (2000 – 2003), CEO of the ING Australia/ANZ Bank Wealth JV (2003 - 2008) and Regional CEO, ING Asia Pacific, Hong Kong (2008 – 2010). Paul is currently the Chairman of Zurich Financial Services Australia and its Life, General and Investment Companies, and a non-executive director of Credit Union Australia and the National Blood Authority. Former listed directorships in the last three years: None Interest in stapled securities: 306,137 Qualifications: B.Sc, F FIN, FAICD Glenn Willis Managing Director and Chief Executive Officer Glenn has over 30 years' experience in the Australian and international capital markets. Glenn was the co-founder and Chief Executive Officer of Moss Capital, prior to its ASX listing as Elanor Investors Group in July 2014. Prior to Elanor, Glenn co-founded Grange Securities and led the team in his role as Managing Director and CEO. After 12 years of growth, Grange Securities was acquired by Lehman Brothers International in 2007 as the platform for Lehman's Australian investment banking and funds management operations. Glenn was appointed Managing Director and Country Head in March 2007. In 2008, Glenn was appointed executive Vice Chairman of Lehman Brothers Australia. Glenn is a Director of FSHD Global Research Foundation. Former listed directorships in the last three years: None Interest in stapled securities: 9,358,447 Qualifications: B.Bus (Econ & Fin) 18 28 Directors' Report ELANOR INVESTORS GROUP DIRECTORS’ REPORT 6. Directors (continued) Nigel Ampherlaw Independent Non-Executive Director Chairman, Audit and Risk Committee Nigel was appointed a Director of both the Company and the Responsible Entity (also the Responsible Entity of ERF and ECF) in June 2014. Nigel was a Partner of PricewaterhouseCoopers for 22 years where he held a number of leadership positions, including heading the financial services audit, business advisory services and consulting businesses. He also held a number of senior client Lead Partner roles. Nigel has extensive experience in risk management, technology, consulting and auditing in Australia and the Asia-Pacific region. Nigel’s current Directorships include as Chairman of Credit Union Australia and non-executive Director of the Australia Red Cross Blood Service, where he is a member of the Finance and Audit Committee and a member of the Risk Committee. Former listed directorships in the last three years: Quickstep Holdings Ltd Interest in stapled securities: 200,000 Qualifications: B.Com, FCA, MAICD William (Bill) Moss AO Non-Executive Director Chairman, Remuneration and Nominations Committee Bill was appointed a Director of both the Company and the Responsible Entity (also the Responsible Entity of ERF and ECF) in June 2014. Bill is an Australian businessman and philanthropist with expertise in real estate, banking, funds and asset management. Bill spent 23 years as a senior executive and Executive Director with Macquarie Group, the pre-eminent Australian investment bank, where Bill managed the Global Banking and Real Estate businesses. Bill founded, grew and led Macquarie Real Estate Group to a point where it managed over $23 billion worth of investments around the world. Bill is Chairman of Moss Capital and Chairman and Founder of The FSHD Global Research Foundation. Bill is a commentator on the Australian finance and banking sectors, the global economy and the ongoing need for Australia to do more to advance the interests of the country’s disabled and disadvantaged. In 2015, Bill was awarded one of Australia’s highest honours, Office of the Order of Australia (AO), for services to the banking, charity, and finance sectors. Former listed directorships in the last three years: None Interest in stapled securities: 2,340,064 Qualifications: B.Ec (Resigned 17 September 2019) 19 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP DIRECTORS’ REPORT 29 6. Directors (continued) Lim Kin Song Non-Executive Director Kin Song was appointed as a Director of both the Company and the Responsible Entity (also the Responsible Entity of ERF and ECF) in May 2019. Kin Song is the CEO of Rockworth Capital Partners (which holds a 15% ownership interest in the Group) and is responsible for all aspects of Rockworth’s business with a focus on strategy, transactions, business development and investor relations. With over 20 years of experience in the real estate sector, Kin Song specialises in acquisitions, asset management, business development and leasing. He has extensive experience across multi-core real estate sectors in Australia and South East Asia. Kin Song has been the key driver of Rockworth’s rapid growth in its assets under management since its inception in 2011, and provided leadership and strategic direction in transactions, corporate development, capital allocation and asset management. Prior to founding Rockworth in 2011, Kin Song held various positions in leading property groups in Asia, including Frasers Centrepoint Ltd, Ascendas-MGM Funds Management and the CapitaLand Group. Former listed directorships in the last three years: None Interest in stapled securities: Nil Qualifications: MBA, B.Sci, SISV, RICS Anthony (Tony) Fehon Independent Non-Executive Director Tony was appointed as a Director of both the Company and the Responsible Entity (also the Responsible Entity of ERF and ECF) in August 2019. Tony has more than 30 years’ experience working in senior roles with some of Australia’s leading financial services and funds management businesses. He has broad experience in operational and leadership roles across many industries. Tony is an Executive Director of Volt Bank Limited and has primary responsibility for capital management. He is also director of enLighten Australia Pty Limited, Global Bioprotect Pty Limited, Maker Films and Team Mates Pty Limited. Previously Tony was an Executive Director of Macquarie Bank Limited where he was involved in the formation and listing of several of Macquarie’s listed property trusts including being a director of the listed leisure trust. Tony continues to be involved in developing and completing investment structures for real estate investment and development, financial assets and leisure assets. Former listed directorships in the last three years: None Interest in stapled securities: 6,666 Qualifications: B. Com, FCA Appointed: 20 August 2019 20 30 Directors' Report ELANOR INVESTORS GROUP DIRECTORS’ REPORT 7. Directors’ relevant interests Note 1: Glenn Willis has an entitlement to an additional 4,250,000 securities under equity based executive incentive plans. Note 2: Mr W. Moss AO resigned as director on 17 September 2019. Other than as disclosed in the Annual Financial Report, no contracts exist where a director is entitled to a benefit. 8. Meetings of Directors The attendance at meetings of Directors of the Responsible Entity and the Company during the year is set out in the following table: 9. Remuneration Report (Audited) The remuneration report for the year ended 30 June 2020 outlines the remuneration arrangements, philosophy and framework of the Elanor Investors Group (Group) in accordance with the requirements of the Corporations Act 2001 (Cth) and its regulations. The remuneration report is set out under the following main headings: a) b) c) d) e) f) g) h) Remuneration Policy and Approach Key Management Personnel Executive Remuneration Arrangements Executive Remuneration Outcomes Non-Executive Director Remuneration Arrangements and Outcomes Additional Disclosures Relating to Long Term Incentive Plans and Securities Loans to Key Management Personnel Other Transactions and Balances with Key Management Personnel and their Related Parties The information provided in the Remuneration Report has been audited as required by section 308 (3C) of the Corporations Act 2001 (Cth). a) Remuneration Policy and Approach The Elanor Investors Group aims to attract, retain and motivate highly skilled people and therefore ensures its remuneration is competitive with prevailing employment market conditions and also provides sufficient motivation by ensuring that remuneration is aligned to the Group’s results. 21 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP DIRECTORS’ REPORT 31 9. Remuneration Report (Audited) (continued) a) Remuneration Policy and Approach (continued) The Group’s remuneration framework seeks to align executive reward with the achievement of strategic objectives and in particular, the creation of sustainable value and earnings growth for investors. In addition, the Board seeks to have reference to market best practice to ensure that executive remuneration remains competitive, fair and reasonable. The Group has a formally constituted Remuneration and Nomination Committee which comprises three Non- Executive Director (NED) members, Mr Paul Bedbrook (Chair), Mr Nigel Ampherlaw and Mr Anthony Fehon, who was appointed as a member of the Committee during the year. The Remuneration and Nomination Committee meets at least annually for the purposes of reviewing and making recommendations to the Elanor Investors Group Board on the level of remuneration of the senior executives and the Directors. The Remuneration and Nomination Committee met 3 times during the year. Specifically, the Board approves the remuneration arrangements of the Managing Director and other executives and all aggregate and individual awards made under the short term (STI) and long-term incentive (LTI) plans, following recommendations from the Remuneration and Nomination Committee. The Board also sets the aggregate remuneration of NED's, which is then subject to security holder approval. When the Remuneration and Nomination Committee meets, the Managing Director is not present during any discussions related to his own remuneration arrangements. The Remuneration and Nomination Committee endeavours to ensure that the remuneration outcomes strike an appropriate balance between the interests of the Group’s security holders and rewarding, retaining and motivating the Group's executives and the Directors. Further information on the Remuneration and Nomination Committee’s role and responsibilities can be viewed at www.elanorinvestors.com. b) Key Management Personnel The remuneration report details the remuneration arrangements for Key Management Personnel (KMP), who are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Group, directly or indirectly, including the directors (whether executive or otherwise). The KMP of the Elanor Investors Group for the year ended 30 June 2020 were: Executive Mr Glenn Willis Mr Paul Siviour Mr Symon Simmons Position Managing Director and Chief Executive Officer Chief Operating Officer Chief Financial Officer and Company Secretary Non-Executive Mr Paul Bedbrook Mr Nigel Ampherlaw Mr Lim Kin Song Mr Anthony Fehon Mr William (Bill) Moss AO Position Independent Chairman and Non-Executive Director Independent Non-Executive Director Non-Executive Director Independent Non-Executive Director (Appointed 20 August 2019) Non-Executive Director (Resigned 17 September 2019) 22 32 Directors' Report ELANOR INVESTORS GROUP DIRECTORS’ REPORT 9. Remuneration Report (Audited) (continued) c) Executive Remuneration Arrangements The Group's executive remuneration framework has three components: • Base pay, including superannuation; • Short term incentives; and Long term incentives. • Remuneration levels are considered annually through an assessment of each executive based on the individual's performance and achievements during the financial year and taking into account the overall performance of the Elanor Investors Group and prevailing remuneration rates of executives in similar positions. Remuneration Structure - Base pay, including superannuation Base pay is determined by reference to appropriate benchmark information, taking into account an individual's responsibilities, performance, qualifications and experience. There are no guaranteed base pay increases in any executive's contracts. - Short term incentive The Group has implemented an STI scheme (the STI Scheme), based on an annual profit share, which is available to all staff. The STI Scheme is based on a profit share pool, to be calculated each year based on the Group's financial performance for the relevant year. The purpose of the STI Scheme is to provide an annual bonus arrangement that incentivises and rewards management for achieving annual pre-tax ROE for security holders in excess of 10% per annum. The profit share pool is based on 20% of ROE above 10%, 22.5% of the ROE above 15%, 25% of the ROE above 17.5% and 30% of the ROE above 20%. The STI Scheme provides that 50% of any awards to individuals from the profit share pool may be delivered in deferred securities, which vest two years after award, provided that the employee remains with the Group and maintains minimum performance standards. The Elanor Investors Group Board monitors the appropriateness of the profit share scheme and any distribution of the profit share pool will be at the Board's discretion, taking into consideration the forecast and actual financial performance and position of the Group. - Long term incentive The Group has implemented an LTI scheme (the LTI Scheme), based on an executive loan security plan and an executive options plan. Under the executive loan security plan, awards (comprising the loan of funds to eligible Elanor employees to acquire Securities which are subject to vesting conditions) have been issued to certain employees. Awards totalling 11.8 million Securities were on issue at 30 June 2020. The limited recourse loan provided by the Group under the loan security plan carries interest of an amount equal to any cash dividend or distribution but not including any dividend or distribution of capital, or an abnormal distribution. In addition to the loan security plan, the Group has implemented an executive option plan comprising rights to acquire Securities at a specified exercise price, subject to the achievement of vesting conditions, which may be offered to certain eligible employees (including the Chief Executive Officer, direct reports to the Chief Executive Officer and other selected key executives) as determined by the Board. Options have been issued to the Chief Executive Officer only, over 2.0 million Securities. 23 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP DIRECTORS’ REPORT 33 9. Remuneration Report (Audited) (continued) c) Executive Remuneration Arrangements (continued) The purpose of the LTI Scheme is to assist in attracting, motivating and retaining key management and employees. The LTI Scheme operates by providing key management and employees with the opportunity to participate in the future performance of Group securities. The vesting conditions of LTI plans and related awards include both a service based hurdle and an absolute total security holder return (TSR) performance hurdle. The service based hurdle is 2, 3 and 4 years in the case of the loan security plan. The TSR is 10% per annum in the case of the loan security plan and 15% per annum in the case of the options plan. The 2017 loan security plan reflects loan amounts of $2.13 per security. The 2017 option plan has an exercise price of $3.05 per security (43% premium to the $2.13 offer price). TSR was selected as the LTI performance measure to ensure an alignment between the security holder return and reward for executives. d) Executive Remuneration Outcomes The table below sets out summary information about the Group's earnings and movements in security holder wealth for the year ended 30 June 2020: The financial performance measure driving STI payment outcomes is pre-tax return on equity (ROE). For the year ended 30 June 2020 the Group achieved Core Earnings of $15.4 million. Total distributions per security in respect of the period were 9.51 cents. The required pre-tax return hurdle under the STI plan rules was achieved for the financial year, following the sale of the Featherdale Wildlife Park for $39 million, generating a $26 million profit during the year. For the year ended 30 June 2020, the bonus pool calculated in accordance with the STI plan rules was $4.7 million. On 26 June 2020, the Board approved an STI bonus for the year ended 30 June 2020 of $2.8 million, representing 60% of the total bonus pool calculated under the STI plan rules. The Board may consider approval of the balance of the bonus pool during the year ending 30 June 2021, based on the market and economic environment, at its discretion. 24 34 Directors' Report ELANOR INVESTORS GROUP DIRECTORS’ REPORT 9. Remuneration Report (Audited) (continued) d) Executive Remuneration Outcomes (continued) Table 1: Remuneration of Key Management Personnel Note 1: Includes other short-term employee benefits including annual leave and other short-term compensated absences. Note 2: The value of the loan securities and options granted to key management personnel as part of their remuneration is calculated as at the grant date using a binomial pricing model. The amounts disclosed as part of remuneration for the financial year have been determined by allocating the grant date value on a straight-line basis over the period from grant date to vesting date. Note 3: In response to the COVID-19 pandemic, the Executive Officers agreed to a 20% salary reduction for the 3 months ended 30 June 2020. Elanor Investors Group | Annual Report 2020 25 ELANOR INVESTORS GROUP DIRECTORS’ REPORT 35 9. Remuneration Report (Audited) (continued) d) Executive Remuneration Outcomes (continued) Table 2: Remuneration components as a proportion of total remuneration on an annualised basis No key management personnel appointed during the period received a payment as part of his or her consideration for agreeing to hold the position. Remuneration and other terms of employment for the key management personnel are formalised in employment contracts. The key provisions of the employment contracts for key management personal are set out below. The Remuneration and Nomination Committee undertook a review of executive remuneration in June 2019 and resolved to increase the remuneration to the amounts shown in the tables below, with effect from 1 July 2019. Table 3: Employment contracts of key management personnel Executive G. Willis P. Siviour S. Simmons Position Managing Director and Chief Executive Officer Chief Operating Officer Chief Financial Officer and Company Secretary Term No fixed term No fixed term No fixed term Salary Superannuation) (including Incentive remuneration $630,000 $538,125 $525,000 Eligible for an award of short term and long term incentive remuneration (if any) as described above Eligible for an award of short term and long term incentive remuneration (if any) as described above Eligible for an award of short term and long term incentive remuneration (if any) as described above 26 36 Directors' Report ELANOR INVESTORS GROUP DIRECTORS’ REPORT 9. Remuneration Report (Audited) (continued) d) Executive Remuneration Outcomes (continued) Benefits Termination Entitled to participate in Elanor Investors Group benefit plans that are made available Entitled to participate in Elanor Investors Group benefit plans that are made available Entitled to participate in Elanor Investors Group benefit plans that are made available shall Employment continue with the Group unless either party gives 12 months’ notice in writing Employment shall continue with the Group unless either party gives 9 months’ notice in writing Employment shall continue with the Group unless either party gives 4 weeks’ notice in writing Restraint 12 months from the time of Termination N/A N/A e) Non-Executive Director Remuneration Arrangements and Outcomes The Elanor Board determines the remuneration structure for NED's based on recommendations from the Remuneration and Nomination Committee. The NED's individual fees are annually reviewed by the Remuneration and Nomination Committee taking into consideration the level of fees paid to NED's by companies of similar size and stature. The Remuneration and Nomination Committee undertook a review of the remuneration of NEDs in June 2020 and resolved not to change the amount of fees paid. The maximum aggregate amount of fees that can be paid to NEDs is subject to approval by security holders at the Annual General Meeting (currently $750,000, as approved by security holders in October 2019). The NEDs receive a fixed remuneration amount, in respect of their services provided to the Responsible Entity and Elanor Investors Limited. They do not receive any performance based remuneration or any retirement benefits other than statutory superannuation. Table 4: Remuneration of Non-Executive Directors Note 1: In response to the COVID-19 pandemic, the NEDs agreed to a 20% salary reduction for the 3 months ended 30 June 2020. Note 2: Mr W. Moss AO resigned as director on 17 September 2019. 27 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP DIRECTORS’ REPORT 37 9. Remuneration Report (Audited) (continued) e) Non-Executive Director Remuneration Arrangements and Outcomes (continued) During the year no options were issued to the NEDs. The following options were issued to the NEDs under the FY17 Fee Sacrifice Offer, approved by security holders on 10 November 2016: Note 1: Mr W. Moss AO resigned as director on 17 September 2019. The fair value at grant date of each Option was $0.04. The NED option vesting period ended on 30 June 2017. The options issued under the FY17 Fee Sacrifice Offer have an exercise price of $3.08 per security (43% premium to the $2.15 offer price). The NED options are available for exercise until 10 November 2020. Remuneration and other items of appointment of the NEDs are formalised in contracts. The NEDs are employed on employment contracts with no fixed term. The NEDs employment is subject to the Constitution of the Group, the Corporations Act, and the 3 year cycle of the rotation and election of Directors. 28 38 Directors' Report ELANOR INVESTORS GROUP DIRECTORS’ REPORT 9. Remuneration Report (Audited) (continued) f) Additional Disclosures Relating to Long Term Incentive Plans and Securities Details of Long Term Incentive Plan payments granted or vested as Loan Security compensation to Key Management Personnel during the current financial year: The Loan Security plan has been accounted for as 'in-substance' options. The fair value at grant date of each Loan Security was $0.10. Details of Long Term Incentive Plan payments granted or vested as Option compensation to key management personnel during the current financial year: The fair value at grant date of each Option was $0.03. The following table summarises the value of options granted during the financial year, in relation to options granted to Key Management Personnel as part of the remuneration: Note 1: The value of options granted during the financial year is calculated as at the grant date using a binomial pricing model. This grant date value is allocated to remuneration of key management personnel on a straight-line basis over the period from grant date to vesting date. Note 2: The value of options exercised during the financial year is calculated as at the exercise date using a binomial pricing model. No options were exercised in the period to 30 June 2020. 29 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP DIRECTORS’ REPORT 39 9. Remuneration Report (Audited) (continued) f) Additional Disclosures Relating to Long Term Incentive Plans and Securities (continued) Key Management Personnel equity holdings Changes to the interests of Key Management Personnel in the Group's Securities are set out below: Elanor Investors Group – Stapled Securities Note 1: The number of stapled securities acquired during the year includes issues of securities under the Group’s short term and long term incentive schemes, and securities acquired on market. Note 2: Mr W. Moss AO resigned as director on 17 September 2019. Options over Elanor Investors Group – Stapled Securities All options issued to Key Management Personnel were made in accordance with the provisions of the employee share option plan. Note 1: Mr W. Moss AO resigned as director on 17 September 2019. All options issued to NEDs were made under the FY17 Fee Sacrifice offer, approved by security holders on 10 November 2016. 30 40 Directors' Report ELANOR INVESTORS GROUP DIRECTORS’ REPORT 9. Remuneration Report (Audited) (continued) g) Loans to Key Management Personnel No loans have been provided to Key Management Personnel of the Group during the year. h) Other Transactions and Balances with Key Management Personnel and their Related Parties There were no transactions with Key Management Personnel and their Related Parties during the financial year that are not otherwise referred to in the consolidated financial statements. 10. Company Secretary Symon Simmons held the position of Company Secretary of the Responsible Entity during the period. Symon is the Chief Financial Officer of the Group, and holds a Bachelor of Economics with majors in Economics and Accounting, and has extensive experience as a company secretary, is a Justice of the Peace in NSW and is a Responsible Manager on the Australian Financial Services Licence held by the Responsible Entity. 11. Indemnification and insurance of officers and auditors During the financial year, the Group paid a premium in respect of a contract insuring the Directors of the Group (as named above), the company secretary, and all executive officers of the Company and of any related body corporate against a liability incurred in their capacity as Directors and officers of the Company to the extent permitted by the Corporations Act 2001 (Cth). The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. The Company has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified or agreed to indemnify an officer of the Company or of any related body corporate against a liability incurred in their capacity as an officer. The auditor of the Group is not indemnified out of the assets of the Group. 12. Environmental regulation To the best of their knowledge and belief after making due enquiry, the Directors have determined that the Group has complied with all significant environmental regulations applicable to its operations in the jurisdictions in which it operates. 13. Significant changes in state of affairs Other than as described in this report, there was no significant change in the state of affairs of the Group during the year. 14. Auditor's independence declaration A copy of the auditor's independence declaration, as required under section 307C of the Corporations Act 2001 (Cth), is included on the page following the Directors' Report. 31 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP DIRECTORS’ REPORT 41 15. Non audit services Details of amounts paid or payable to the auditor for non-audit services provided during the year by the auditor are outlined in Note 27 to the consolidated financial statements. The Directors are satisfied that the provision of non-audit services, during the year, by the auditor (or by another person or firm on the auditor’s behalf) is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001 (Cth). The Directors are of the opinion that the services as disclosed in Note 27 to the consolidated financial statements do not compromise the external auditor’s independence, based on advice received from the Audit and Risk Committee, for the following reasons: • All non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and • None of the services undermine the general principles relating to auditor independence as set out in APES 110 ‘Code of Ethics for Professional Accountants’ issued by the Accounting Professional & Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the Group, acting as advocate for the group or jointly sharing economic risks and rewards. 16. Likely developments and expected results of operations The financial statements have been prepared on the basis of the current known market conditions. The extent of any potential deterioration in either the capital or physical property markets on the future results of the Group is unknown. Such results could include property market valuations, the ability of borrowers, including the Group, to raise or refinance debt, and the cost of such debt and the ability to raise equity. The Group will continue to monitor the potential impact of Government announcements and market conditions in relation to the COVID-19 pandemic on the Group and its Managed Funds. The ongoing impact of these unprecedented events on the Group will be a function of the extent and duration of the prevailing health and economic crisis. Potential financial impacts of the COVID-19 pandemic are currently extremely difficult to forecast. At the date of this report and to the best of the Directors’ knowledge and belief, there are no other anticipated changes in the operations of the Group which would have a material impact on the future results of the Group. 17. Fees paid to and interests held in the Trust by the Manager or its associates The interest in the Trust held by the Manager or its related entities as at 30 June 2020 and fees paid to and expenses reimbursed by its related entities during the financial year are disclosed in Note 24 to the consolidated financial statements. 18. Going concern As at 30 June 2020, the Group’s current liabilities exceeded its current assets by $28.0 million and EIF Group’s current liabilities exceeded its current assets by $46.8 million due primarily to the maturity of debt facilities of $63.3 million in October 2020. These facilities relate to two Elanor Managed Funds (consolidated into the Group’s financial statements) with both debt facilities being wholly non-recourse. The Group is currently negotiating with the relevant banks in respect of a renewal of the maturing facilities, and is confident the facilities will be renewed before the maturity date. The Group and EIF have access to sufficient facilities and cash reserves to enable the Group and EIF Group to continue as a going concern and meet their ongoing obligations which arise from the ordinary course of business as and when they fall due, for at least 12 months from the date of signing of the Group’s financial statements for the year ended 30 June 2020. 32 42 Directors' Report ELANOR INVESTORS GROUP DIRECTORS’ REPORT 19. Events occurring after reporting date The directors are not aware of any matter or circumstance not otherwise dealt with in the financial reports or the Directors' Report that has significantly affected or may significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in the financial period subsequent to the year ended 30 June 2020. 20. Rounding of amounts to the nearest thousand dollars In accordance with Legislative Instrument 2016/191 issued by the Australian Securities and Investments Commission relating to the rounding off of amounts in the financial statements, amounts in the financial statements have been rounded to the nearest thousand dollars in accordance with that Legislative Instrument, unless otherwise indicated. This report is made in accordance with a resolution of the Boards of Directors of Elanor Funds Management Limited and Elanor Investors Limited. Signed in accordance with a resolution of the Directors pursuant to section 298(2) of the Corporations Act 2001 (Cth). Paul Bedbrook Chairman Sydney, 19 August 2020 Glenn Willis CEO and Managing Director 33 Elanor Investors Group | Annual Report 2020 Auditor’s Independence Declaration 43 Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte Organisation. 34 Deloitte Touche Tohmatsu A.B.N. 74 490 121 060 Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1220 Australia DX 10307SSE Tel: +61 (0) 2 9322 7000 Fax: +61 (0) 2 9322 7001 www.deloitte.com.au 19 August 2020 Dear Board Members Auditor’s Independence Declaration to Elanor Investors Limited and Elanor Investment Fund In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Elanor Investors Limited and Elanor Funds Management Limited in its capacity as responsible entity for Elanor Investment Fund. As lead audit partner for the audit of the consolidated financial statements of Elanor Investors Limited and Elanor Investment Fund for the year ended 30 June 2020, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i)the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii)any applicable code of professional conduct in relation to the audit. Yours faithfully DELOITTE TOUCHE TOHMATSU D Nell Partner Chartered Accountants The Board of Directors Elanor Investors Limited and Elanor Funds Management Limited (as responsible entity for Elanor Investment Fund) Level 38, 259 George Street Sydney NSW 2000 Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte Organisation. 34 Deloitte Touche Tohmatsu A.B.N. 74 490 121 060 Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1220 Australia DX 10307SSE Tel: +61 (0) 2 9322 7000 Fax: +61 (0) 2 9322 7001 www.deloitte.com.au 19 August 2020 Dear Board Members Auditor’s Independence Declaration to Elanor Investors Limited and Elanor Investment Fund In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Elanor Investors Limited and Elanor Funds Management Limited in its capacity as responsible entity for Elanor Investment Fund. As lead audit partner for the audit of the consolidated financial statements of Elanor Investors Limited and Elanor Investment Fund for the year ended 30 June 2020, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i)the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii)any applicable code of professional conduct in relation to the audit. Yours faithfully DELOITTE TOUCHE TOHMATSU D Nell Partner Chartered Accountants The Board of Directors Elanor Investors Limited and Elanor Funds Management Limited (as responsible entity for Elanor Investment Fund) Level 38, 259 George Street Sydney NSW 2000 44 ELANOR INVESTORS GROUP CONSOLIDATED STATEMENTS OF PROFIT OR LOSS FOR THE YEAR ENDED 30 JUNE 2020 Consolidated Statements of Profit or Loss Consolidated Statements of Profit or Loss For the year ended 30 June 2020 The above Consolidated Statements of Profit or Loss should be read in conjunction with the accompanying notes The above Consolidated Statements of Profit or Loss should be read in conjunction with the accompanying notes 35 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP Consolidated Statements of Comprehensive Income For the year ended 30 June 2020 Consolidated Statements of Comprehensive Income CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2020 45 The above Consolidated Statements of Comprehensive Income should be read in conjunction with the accompanying notes The above Consolidated Statements of Comprehensive Income should be read in conjunction with the accompanying notes 36 46 ELANOR INVESTORS GROUP Consolidated Statements of Financial Position As at 30 June 2020 Consolidated Statements of Financial Position CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS AT 30 JUNE 2020 The above Consolidated Statements of Financial Position should be read in conjunction with the accompanying notes The above Consolidated Statements of Financial Position should be read in conjunction with the accompanying notes 37 Elanor Investors Group | Annual Report 2020 Consolidated Statements of ELANOR INVESTORS GROUP Financial Position As at 30 June 2020 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS AT 30 JUNE 2020 47 The above Consolidated Statements of Financial Position should be read in conjunction with the accompanying notes The above Consolidated Statements of Financial Position should be read in conjunction with the accompanying notes 38 48 Consolidated Statements of Changes in Equity For the year ended 30 June 2020 ELANOR INVESTORS GROUP CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2020 Consolidated Statements of Changes in Equity The above Consolidated Statements of Changes in Equity should be read in conjunction with the accompanying notes The above Consolidated Statements of Changes in Equity should be read in conjunction with the accompanying notes Elanor Investors Group | Annual Report 2020 39 Consolidated Statements of Changes in Equity For the year ended 30 June 2020 ELANOR INVESTORS GROUP CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2020 49 The above Consolidated Statements of Changes in Equity should be read in conjunction with the accompanying notes The above Consolidated Statements of Changes in Equity should be read in conjunction with the accompanying notes 40 50 ELANOR INVESTORS GROUP Consolidated Statements of Cash Flows For the year ended 30 June 2020 Consolidated Statements of Cash Flows CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2020 The above Consolidated Statements of Cash Flows should be read in conjunction with the accompanying notes The above Consolidated Statements of Cash Flows should be read in conjunction with the accompanying notes 41 Elanor Investors Group | Annual Report 2020 51 Notes to the Consolidated Financial Statements For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 ELANOR INVESTORS GROUP Notes to the Consolidated Financial Statements About this Report Elanor Investors Group (Group, Consolidated Group or Elanor) is a ‘stapled’ entity comprising Elanor Investors Limited (EIL or Company) and its controlled entities (EIL Group) and Elanor Investment Fund (Trust) and its controlled entities (EIF Group). The units in the Trust are stapled to shares in the Company. The stapled securities cannot be traded or dealt with separately. The stapled securities of the Group are listed on the Australian Securities Exchange (ASX: ENN). As permitted by ASIC Corporations Instrument 2015/838 issued by the Australian Securities and Investments Commission (ASIC), this report is a combined report that presents the consolidated financial statements and accompanying notes of both Elanor Investors Group and the Elanor Investment Fund (EIF Group). The financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards, Australian Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board (the Board or AASB) and the Corporations Act 2001. The financial report complies with Australian Accounting Standards as issued by the Australian Accounting Standards Board and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. For the purposes of preparing the financial statements, the Group is a for-profit entity. The financial report has been presented in Australian dollars unless otherwise stated. The amounts in the consolidated financial statements have been rounded off to the nearest one thousand dollars, unless otherwise indicated, in accordance with ASIC Corporations (Rounding in Financial/Director’s Reports) Instrument 2016/191. Going concern As at 30 June 2020, the Group’s current liabilities exceeded its current assets by $28.0 million and EIF Group’s current liabilities exceeded its current assets by $46.8 million due primarily to the maturity of debt facilities of $63.3 million in October 2020. These facilities relate to two Elanor Managed Funds (consolidated into the Group’s financial statements) with both debt facilities being wholly non-recourse. The Group is currently negotiating with the relevant banks in respect of a renewal of the maturing facilities, and is confident the facilities will be renewed before the maturity date. The Group and EIF have access to sufficient facilities and cash reserves to enable the Group and EIF Group to continue as a going concern and meet their ongoing obligations which arise from the ordinary course of business as and when they fall due, for at least 12 months from the date of signing of the Group’s financial statements for the year ended 30 June 2020. Critical accounting judgments and key sources of estimation uncertainty The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amount 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 prospectively. In preparing the consolidated financial statements for the year ended 30 June 2020, significant areas of estimation, uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are consistent with those disclosed in the financial report of the previous financial year. 42 52 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 About this Report (continued) Critical accounting judgments and key sources of estimation uncertainty (continued) Where the impact of the COVID-19 pandemic has heightened uncertainty in applying these accounting estimates and critical judgments for the year ended 30 June 2020, enhanced disclosures have been incorporated throughout the consolidated financial statements to enable users to understand the basis for the estimates and judgments utilised. COVID-19 Pandemic The ongoing COVID-19 pandemic has increased the estimation uncertainty in the preparation of the financial statements. This uncertainty is associated with the extent and duration of the economic disruption to business arising from the response of government, businesses and consumers in response to the COVID-19 pandemic. In response to the recent market volatility, the appropriateness of the inputs to the valuation of the Group’s property, plant and equipment (including average daily rate assumptions and occupancy levels) and investment properties (including vacancy allowances, lease renewal probabilities, levels of leasing incentives and market rent growth assumptions), and the impact of any changes in these inputs have been considered in detail in both independent and internal property valuations (including relevant sensitivity analysis) with respect to the fair value hierarchies. The fair value assessments as at the balance date include the best estimate of the impacts of the COVID-19 pandemic using information available at the time of preparation of the financial statements and includes forward looking assumptions. In the event the COVID-19 pandemic impacts are more severe or prolonged than anticipated, this may impact the fair value of the Group’s portfolio. Refer to Note 7 and 8 for further information. The recoverability of the Group’s receivables from Elanor’s Managed Funds has been assessed. This assessment has been completed with reference to each of the Managed Funds’ cash flow forecasts prepared by each fund’s asset management team in conjunction with the property manager for each asset. Refer to Note 15 Financial Risk Management for further discussion on the Group’s management of credit risk. Enhanced disclosures have been incorporated throughout the consolidated financial statements to enable users to understand the basis for the estimates and judgments utilised. Refer to Note 2 Revenue, Note 7 Property, Plant and Equipment, Note 8 Investment Properties, Note 9 Equity Accounted Investments and Note 15 Financial Risk Management. The Group received Government support during the COVID-19 pandemic through the JobKeeper scheme. The receipts from the JobKeeper scheme has been recognised in the Consolidated Statements of Profit or Loss as a reduction in the salary and employee benefits expense. 43 Elanor Investors Group | Annual Report 2020 53 ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 Basis of Consolidation The consolidated Financial Statements of the Group incorporate the assets and liabilities of Elanor Investors Limited (the Parent) and all of its subsidiaries, including Elanor Investment Fund and its subsidiaries as at 30 June 2020. Elanor Investors Limited is the parent entity in relation to the stapling. The results and equity of Elanor Investment Fund (which is not directly owned by Elanor Investors Limited) have been treated and disclosed as a non-controlling interest. Whilst the results and equity of Elanor Investment Fund are disclosed as a non-controlling interest, the stapled security holders of Elanor Investment Fund are the same as the stapled security holders of Elanor Investors Limited. These consolidated Financial Statements also include a separate column representing the consolidated Financial Statements of EIF Group, incorporating the assets and liabilities of Elanor Investment Fund and all of its subsidiaries, as at 30 June 2020. Control of Elanor Metro and Prime Regional Hotel Fund (EMPR), Elanor Luxury Hotel Fund (ELHF), and Bluewater Square Syndicate (Bluewater) EMPR EMPR comprises stapled securities in Elanor Metro and Prime Regional Hotel Fund, EMPR Management Pty Limited, Elanor Metro and Prime Regional Hotel Fund II (formerly known as Elanor Hospitality and Accommodation Fund) and EMPR II Management Pty Limited (formerly known as EHAF Management Pty Limited). The Group holds 42.63% of the equity in EMPR. The Group's ownership interest in EMPR gives the Group the same percentage of the voting rights in EMPR. EMPR is an unregistered trust for which Elanor Funds Management Limited acts as the Manager of the asset and Trustee of the trust. ELHF ELHF comprises stapled securities in Elanor Luxury Hotel Fund and Elanor Luxury Hotel Fund Pty Limited. The Group holds 100% of the equity in ELHF. The Group's 100% ownership interest in ELHF gives the Group the same percentage of the voting rights in ELHF. ELHF is an unregistered trust for which Elanor Funds Management Limited acts as the Manager of the asset and Trustee of the trust. Bluewater The Group holds 42.27% of the equity in Bluewater Square Syndicate (Bluewater). The Group's ownership interest in Bluewater gives the Group the same percentage of the voting rights in Bluewater. Bluewater is an unregistered trust for which Elanor Funds Management Limited acts as the Manager of the asset and Trustee of the trust. The responsible entity of EMPR, ELHF, and Bluewater is owned wholly by the Group and governed by the licencing and legal obligations of a professional asset manager. The powers of the Trustee are governed by the constitution of EMPR, ELHF, and Bluewater respectively which sets out the basis of fees that the relevant Trustee can receive. These fees include management fees, performance fees, and acquisition fees. Based on the assessment above, at the current level of equity investment in EMPR, ELHF, and Bluewater the AASB 10 definition of control for these investments is met, and therefore each of these investments are consolidated into Elanor Investors Group Financial Statements. 44 54 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 Impact of the application of AASB 16 Leases on Comparatives of Consolidated Statements of Financial Position for Consolidated Group AASB 16 introduced new requirements in relation to lease classification and recognition, measurement and presentation and disclosure of leases for lessees and lessors. The Group has adopted AASB 16 from 1 July 2019, which has resulted in changes in accounting policy and adjustments to the amounts recognised in the consolidated financial statements. In accordance with transitional provisions in AASB 16, the Group has adopted a modified retrospective approach and has not restated comparatives, as permitted by the standard. The impact as a result of the new standard is recognised in the opening balance sheet on 1 July 2019. Lessee accounting A reconciliation of the adjustment to the consolidated statements of Financial Position due to the application of AASB 16 is presented below: The right of use asset has been included as part of Property, Plant and Equipment and the Lease Liability as part of Other Liabilities. The only operating lease that the Group holds as lessee relates to that of the corporate office space expiring next financial year. Lessor accounting The Group has deemed there not to be a material impact on lessor accounting. 45 Elanor Investors Group | Annual Report 2020 55 ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 New accounting standards and interpretations Certain new Accounting Standards and Interpretations have been published that are mandatory for the financial year ended 30 June 2020. The Group’s assessment of the impact of these new standards and interpretation are set out below. Impact on the Group’s financial statements The application of the amendments does not have a material impact on the Group’s financial statements. Reference Description AASB 2018-1 Amendments to Australian Accounting Standards – Annual Improvements 2015- 2017 Cycle Effective for reporting periods after 1 January 2019 Amendments made standards: to the following accounting • AASB 3 Business Combination to clarify that remeasure of a previously held interest in a joint operation is required on obtaining control of the joint operation; • AASB 11 Joint Arrangements to clarify that when an entity obtains joint control of a business that is a joint operation, the entity does not remeasure previously held interests in that business; • AASB 112 Income Tax to clarify the requirements surrounding when tax consequence of the distributions should be recognised in income tax expense rather than retained earnings; and • AASB 13 Borrowing Costs to clarify that if any specific borrowing cost remains outstanding after the related asset is ready for its intended use or sale that borrowing becomes part of the funds that any entity borrows generally when calculating the capitalisation rate on general borrowings. Certain new Accounting Standards and Interpretations have been published that are not mandatory for the financial year ended 30 June 2020 but are available for early adoption. They have not been applied in preparing this financial report. The Group’s assessment of the impact of these new standards and interpretation are set out below. Reference Description Impact on the Group’s financial statements AASB 2018-7 Amendments to Australia Accounting Standards – Definition of Material Effective for annual periods beginning on or after 1 January 2020 These amendments are intended to address concerns that the wording in the definition of 'material' was different in the Conceptual Framework for Financial Reporting, AASB 101 Presentation of Financial Statements and AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors. The application of the is not amendments expected to have a material impact on the financial Group’s statements. 46 56 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 New accounting standards and interpretations (continued) Reference Description Impact on the Group’s financial statements AASB 2018-7 Amendments to Australia Accounting Standards – Definition of Material (continued) AASB 2019-1 Amendments to Australia Accounting Standards – References to the Conceptual Framework Effective for annual periods beginning on or after 1 January 2020 The amendments address these concerns by: • Replacing the term 'could influence' with 'could • reasonably be expected to influence'; Including the concept of 'obscuring information' alongside the concepts of 'omitting' and 'misstating' information in the definition of material; • Clarifying that the users to which the definition refers are the primary users of general purpose financial statements referred to in the Conceptual Framework; and Aligning Standards and other publications. the definition of material across IFRS Makes amendments to various Accounting Standards and other pronouncements to support the issue of the revised Conceptual Framework for Financial Reporting. and Standards Accounting the previous versions of other Some pronouncements contain references to, or quotations from, the Conceptual Framework. This Standard updates some of these the references and quotations so Conceptual Framework issued by the AASB In June 2019, and also makes other amendments to clarify which version of the Conceptual Framework is referred to in particular documents. they refer to The application of the is not amendments expected to have a material impact on the Group’s financial statements. AASB 2019-3 Amendments to Australia Accounting Standards – Interest Rates Benchmark Reform Effective for annual periods beginning on or after 1 January 2020 The amendments affect entities that apply the hedge accounting requirements of AASB 9 Financial Instruments to hedging relationships directly affected by the interest rate benchmark reform. The amendments would mandatorily apply to all hedging relationships that are directly affected by the interest rate benchmark reform and modify specific hedge accounting requirements, so that entities would apply those hedge accounting requirements assuming that the interest rate benchmark is not altered as a result of the interest rate benchmark reform. The application of the amendments is not to have a expected material impact on the Group’s financial statements. Conceptual Framework for Financial Reporting Effective for annual periods beginning on or after 1 January 2020 Revised version of the AASB's framework for financial reporting. The Conceptual Framework replaces an earlier version, updating a number of definitions and guidance, introduces new guidance on a number of topics including the reporting entity and presentation and disclosure, and clarifies a number of other matters. The application of the is not amendments expected to have a material impact on the Group’s financial statements. 47 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 57 New accounting standards and interpretations (continued) Reference Description AASB 2019-5 Amendments to Australian Accounting Standards – Disclosure of the Effect of New IFRS Standards Not Yet Issued in Australia Amends AASB 1054 Australian Additional Disclosures to add a requirement for entities that intend to be compliant with the IFRS standards required by AASB 108 Accounting information Policies, Changes in Accounting Estimates and Errors (specifically paragraphs 30 and 31) for the potential effect of each IFRS pronouncement that has not yet been issued by the AASB. to disclose Effective for annual periods beginning on or after 1 January 2020 AASB 2020-1 Amendments to Australian Accounting Standards – Classification of Liabilities as Current or Non-Current Effective for annual periods beginning on or after 1 January 2022 AASB 2020-3 Amendments to Australian Accounting Standards – Annual Improvements 2018- 2020 and Other Amendments Effective for annual periods beginning on or after 1 January 2022 Amends AASB 101 Presentation of Financial Statements to: • Clarify that the classification of liabilities as current or non-current is based on rights that in existence at the end of the reporting period • Specify that classification is unaffected by expectations about whether an entity will exercise its right to defer settlement of a liability • Explain that rights are in existence if covenants are complied with at the end of the reporting period Introduce a definition of ‘settlement’ to make clear that settlement refers to the transfer to the counterparty of cash, equity instruments, other assets or services. The annual improvements amend standards: following the • AASB 9 Financial Instruments to clarify the fees included in the ‘10 per cent’ test in paragraph B3.3.6 of AASB 9 in assessing whether to derecognise a financial liability, explaining that only fees paid or received between the entity (the borrower) and the lender, including fees paid or received by either the entity or the lender on the other’s behalf are included AASB 16 Leases to amend Illustrative Example 13 to remove the illustration of the reimbursement of leasehold improvements by the lessor in order to resolve any potential confusion the treatment of lease incentives that might arise because of how lease incentives are illustrated in that example. regarding 48 Impact on the Group’s financial statements The application of the is not amendments expected to have a material impact on the Group’s financial statements. The directors of the Company have not yet assessed the impact that the application of this Standard will have Group’s on consolidated financial statements. the The directors of the Group anticipate that the application of the amendments will not have an impact on the Group's consolidated statements, financial as many the amendments either do not affect the Group’s accounting existing policies, or apply to situations, transactions the and events not Group undertake. does that of 58 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 New accounting standards and interpretations (continued) The application of the is not amendments to have a expected material impact on the Group’s financial statements. AASB 2020-4 Amendments to Australian Accounting Standards – COVID-19 - Related Rent Concessions Effective for annual periods beginning on or after 1 June 2020 Amends AASB 16 Leases to provide practical relief to lessees in accounting for rent concessions arising as a result of COVID-19, by including an additional practical expedient in the standard. The practical expedient permits a lessee to elect not rent to assess whether a COVID-19-related concession is a lease modification. A lessee that makes this election shall account for any change in lease payments resulting from the COVID-19-related rent concession the same way it would account for the change applying AASB 16 if the change were not a lease modification. rent The practical expedient applies only concessions occurring as a direct consequence of COVID-19 and only if all of the following conditions are met: to • The change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change • Any reduction in lease payments affects only payments originally due on or before 30 June 2021 (a rent concession would meet this condition if it results in reduced lease payments on or before 30 June 2021 and increased lease payments that extend beyond 30 June 2021) There is no substantive change to other terms and conditions of the lease. 49 Elanor Investors Group | Annual Report 2020 59 The notes to the consolidated Financial Statements have been organised into the following sections for reduced complexity and ease of navigation: RESULTS ................................................................................................................................................................ 60 1. Segment information .......................................................................................................................................60 2. Revenue ...........................................................................................................................................................62 3. Distributions .....................................................................................................................................................63 4. Earnings / (losses) per stapled security ...........................................................................................................63 5. Income tax .......................................................................................................................................................66 6. Cash flow information ......................................................................................................................................69 OPERATING ASSETS ........................................................................................................................................... 70 7. Property, plant and equipment ........................................................................................................................70 Investment properties ......................................................................................................................................77 8. Equity accounted investments ........................................................................................................................81 9. FINANCE AND CAPITAL STRUCTURE .............................................................................................................. 86 10. Interest bearing liabilities .................................................................................................................................86 11. Derivative financial instruments .......................................................................................................................89 12. Financial assets ...............................................................................................................................................91 13. Contributed equity ...........................................................................................................................................92 14. Reserves ..........................................................................................................................................................93 15. Financial risk management ..............................................................................................................................94 GROUP STRUCTURE ......................................................................................................................................... 100 16. Parent entity ...................................................................................................................................................100 17. Subsidiaries and controlled entities ...............................................................................................................101 OTHER ITEMS ..................................................................................................................................................... 103 18. Receivables....................................................................................................................................................103 19. Payables ........................................................................................................................................................103 20. Intangible assets ............................................................................................................................................105 21. Net tangible assets ........................................................................................................................................106 22. Commitments ................................................................................................................................................106 23. Share-based payment ...................................................................................................................................107 24. Related parties ...............................................................................................................................................109 25. Significant events...........................................................................................................................................111 26. Events occurring after reporting date ............................................................................................................111 27. Auditor’s remuneration ...................................................................................................................................112 28. Discontinued operations ................................................................................................................................113 29. Non-parent disclosure ...................................................................................................................................115 60 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 Results This section focuses on the operating results and financial performance of the Group. It includes disclosures of segmental information, revenue, distributions and cash flow including the relevant accounting policies adopted in each area. 1. Segment information OVERVIEW Segment information is presented on the same basis as that used for internal reporting purposes. The segments are reported in a manner that is consistent with internal reporting provided to the chief operating decision maker. The chief operating decision maker has been identified as the Board of Directors of Elanor Investors Limited and the Responsible Entity. The main income statement items used by management to assess each of the divisions are divisional revenue and divisional EBITDA. In addition, depreciation and amortisation are analysed by division. Each of these income statement items is reviewed after adjusting for transaction and establishment costs, amortisation of intangible assets and impairment of goodwill. BUSINESS SEGMENTS The Group is organised into the following divisions by business type: Funds Management The Funds Management division manages third party owned investment funds and syndicates. As at 30 June 2020, the Funds Management division has approximately $1,692.0 million of external investments under management, being the managed investments. Hotels, Tourism and Leisure Hotels, Tourism and Leisure originates and manages investment and fund management assets. The current investment portfolio includes Ibis Styles Albany Hotel and 1834 Hospitality, along with a co-investment in Elanor Metro and Prime Regional Fund (EMPR), Elanor Luxury Hotel Fund (ELHF) and Elanor Wildlife Park Fund (EWPF). EMPR and ELHF are consolidated in the Financial Statements. Real Estate Real Estate originates and manages investment and fund management assets. The current investment portfolio comprises co-investments in Elanor Commercial Property Fund, Elanor Retail Property Fund, Elanor Healthcare Real Estate Fund, Fairfield Centre Syndicate, Hunters Plaza Syndicate, Waverley Gardens Fund and the Belconnen Markets Syndicate. The Bluewater Square Syndicate is consolidated in the Financial Statements. 51 Elanor Investors Group | Annual Report 2020 61 ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 1. Segment information (continued) The table below shows segment results from continuing operations: Consolidated Group – 30 June 2020 Consolidated Group – 30 June 2019 52 62 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 2. Revenue OVERVIEW This note provides a breakdown of revenue from operating activities by activity type. Revenue from operating activities ACCOUNTING POLICY Revenue recognition Revenue is measured based on the consideration specified in a contract with a customer. The Group recognises revenue when it can be readily measured and when it transfers control over a product or services for each of Elanor’s activities as described below. Funds management fee revenue Funds management fee revenue is recognised when the performance obligation is completed, in accordance with the Fund’s constitution. The funds management and transaction related services are utilised when the Group has provided the services, and revenue is calculated and recognised in accordance with the Fund’s constitution over time. Where fees are subject to meeting certain performance hurdles, they are recognised as income at the point in time when those conditions have been met. Hotel and wildlife park revenue Revenue from contracts with customers is recognised when control of the good or service is transferred to the customer. If not received at balance date, revenue is reflected in the balance sheet as a receivable and carried at its recoverable value. Rental income The Group is the lessor in a number of operating leases. Rental income arising from operating leases is recognised as revenue on a straight-line basis over the lease term. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the lease asset and recognised as an expense over the term of the lease on the same basis as the lease income. When an agreement is made with tenants impacted by the COVID-19 pandemic to waive rent, any rent waived that relates to future occupancy is spread over the remaining lease term and recognised on a straight-line basis. Rent waived that relates to past occupancy is expensed immediately in Other Expenses, except to the extent of a pre-existing provision for expected credit losses relating to the unpaid rent. 53 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 63 2. Revenue (continued) Rental income (continued) Rental deferrals as part of COVID-19 rent concessions subsequently waived in consideration for extension of the lease term will be treated as Lease Incentive on straight-line basis over the new lease term. The Group’s rental income represents only 5.5% of the total income for the financial year to 30 June 2020, derived from its sole investment property Bluewater Square. The impact of COVID-19 on Bluewater Square has been minimal. At balance date, the Group has recognised a total provision for COVID-19 related rental relief requests of $0.2 million which is 4.1% of total rental income for the financial year. 3. Distributions OVERVIEW The Group’s aim is to provide investors with superior risk adjusted returns. When determining distributions, the Group’s Board considers a number of factors, including forecast earnings and expected economic conditions. Elanor Investors Group aims to distribute 90% of Core Earnings, reflecting the Director’s view of underlying earnings from ongoing operating activities for the period. The following distribution was declared by the ENN Group either during the period or post balance date: ENN Group 1. The interim distribution of 9.51 cents per stapled security was declared on 17 February 2020 and paid on 28 February 2020. 2. The final distribution for the period ended 30 June 2020 has been suspended. Please refer to the Director's Report for further information. 4. Earnings / (losses) per stapled security OVERVIEW This note provides information about Elanor Investor Group’s earnings on a per security basis. Earnings per security (EPS) is a measure that makes it easier for users of Elanor’s financial report to compare Elanor’s performance between different reporting periods. Accounting standards require the disclosure of two EPS measures, basic EPS and diluted EPS. EPS information provides a measure of interests of each ordinary issued security of the parent entity in the performance of the entity over the reporting period while diluted EPS information provides the same information but takes into account the effect of all potential dilutive, ordinary securities outstanding during the period, such as Elanor’s options. The tables below show the earnings per share of the Company, the parent entity of the Group and its controlled entities as required by accounting standards. 54 64 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 4. Earnings / (losses) per stapled security (continued) The earning / (losses) per stapled security measure shown below is based upon the profit / (loss) attributable to security holders: The weighted average number of stapled securities and options granted used as the denominator in calculating basic and diluted earnings / (losses) per stapled securities shown above is based on the number of stapled security on issue and options granted during the period. 55 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 65 4. Earnings / (losses) per stapled security (continued) The earnings / (losses) per stapled security measures shown below are based upon the profit / (loss) attributable to security holders of the ENN Group: The weighted average number of stapled securities and options granted used as the denominator in calculating basic and diluted earnings / (losses) per stapled securities shown above is based on the number of stapled securities on issue and options granted during the period. ACCOUNTING POLICY Basic earnings per stapled security is calculated as profit after tax attributable to security holders divided by the weighted average number of ordinary stapled securities issued. Diluted earnings per stapled security is calculated as profit after tax attributable to security holders adjusted for any profit recognised in the period in relation to potential dilutive, stapled securities divided by the weighted average number of stapled securities and dilutive stapled securities. 56 66 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 5. Income tax OVERVIEW This note provides detailed information about the Group’s income tax items including a reconciliation of income tax expense if Australia’s company income tax rate of 30% was applied to the Group’s (loss) / profit before income tax as shown in the income statement to the actual income tax expense / benefit. (a) Income Tax Expense (b) Reconciliation of income tax expense to prima facie tax expense ACCOUNTING POLICY Accounting standards require the application of the “balance sheet method” to account for Elanor’s income tax. Accounting profit does not always equal taxable income. There are a number of timing differences between the recognition of accounting expenses and the availability of tax deductions or when revenue is recognised for accounting purpose and tax purposes. These timing differences reverse over time, but they are recognised as deferred tax assets and deferred tax liabilities in the balance sheet until they are fully reversed. This is referred to as the “balance sheet method”. 57 Elanor Investors Group | Annual Report 2020 67 ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 5. Income tax (continued) Income tax expense comprises current and deferred tax and is recognised in the statement of profit or loss and other comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date and any adjustment to tax payable in respect of previous years. EIL and its wholly-owned Australian resident entities are part of a tax-consolidated group, formed on 11 July 2014, and are therefore taxed as a single entity, with any deferred tax assets and liabilities of these entities set off in the consolidated financial statements. The head entity within the tax-consolidated group is Elanor Investors Limited. EMPR II Management Pty Limited and its wholly-owned Australian resident entities are part of a tax- consolidated group, formed on 21 March 2016, and are therefore taxed as a single entity, with any deferred tax assets and liabilities of these entities set off in the consolidated financial statements. The head entity within the tax-consolidated group is EMPR II Management Pty Limited. EMPR Management Pty Limited and its wholly-owned Australian resident entities are part of a tax-consolidated group, formed on 6 November 2017, and are therefore taxed as a single entity, with any deferred tax assets and liabilities of these entities set off in the consolidated financial statements. The head entity within the tax- consolidated group is EMPR Management Pty Limited. Elanor Luxury Hotel Fund Pty Limited and its wholly-owned Australian resident entities are part of a tax- consolidated group, formed on 2 December 2019, and are therefore taxed as a single entity, with any deferred tax assets and liabilities of these entities set off in the consolidated financial statements. The head entity within the tax-consolidated group is Elanor Luxury Hotel Fund Pty Limited. (c) Deferred taxes OVERVIEW Management judgement is required in reviewing the recoverability of deferred tax assets carried by the Group, which involves estimates of key assumptions including cash flow projection, growth rates and discount rates. 58 68 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 5. Income tax (continued) ACCOUNTING POLICY Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following differences are not provided for: initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit; and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the reporting date. 59 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 69 6. Cash flow information OVERVIEW This note provides further information on the consolidated cash flow statements of the Group. It reconciles (loss) / profit for the year to cash flows from operating activities, reconciles liabilities arising from financing activities and provides information about non-cash transactions. (a) Reconciliation of profit after income tax to net cash flows from operating activities (b) Reconciliation of liabilities arising from financing activities 60 70 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 Operating Assets This section includes information about the assets used by the Group to generate revenue and profits, specifically relating to its property, plant and equipment, and investments. 7. Property, plant and equipment OVERVIEW All owner-occupied investment properties held by the Group are deemed to be held for use by the Group for the supply of services, and are therefore classified as property, plant and equipment under Australian Accounting Standards. At balance date, the Group’s owner-occupied investment property portfolio comprised 14 accommodation hotels in Australia. A range of independent and internal valuations were performed as at 30 June 2020. All hotels experienced operating challenges during the lock down period resulting from the COVID-19 pandemic. The cash flow forecasts adopted in the valuations assume a gradual return to pre-COVID-19 levels of trading performance for the Group’s accommodation hotels in 18-24 months. In response to the COVID-19 pandemic, the Group’s hotel management teams implemented a review of the operational structures at each hotel which has resulted in a significant reduction of both payroll and operating costs. In particular, the Group’s hotel management team performed a detailed review and restructure of operations at the Mayfair and Adabco Hotels. Notwithstanding the operational review continuing, the operational restructure has resulted in a material reduction in wages and other costs across a number of departments which were deemed surplus to required hotel operations, without impacting the hotel guest experience. Given the significant restructuring of the business operations at both the Mayfair and Adabco properties, an internal valuation approach was deemed appropriate. The valuations of these properties at 30 June 2020 are consistent with their acquisition values in December 2019. The assumptions adopted in the internal valuation for the Mayfair Hotel were reviewed and supported by the independent valuer of the property at acquisition in December 2019. The independent valuer noted that their current approach to valuation assessments, as a result of the COVID-19 pandemic, is to apply a stabilised yield approach (based on a year 5 trading forecast) as opposed to an initial yield approach widely used in the pre-COVID-19 period. This approach has been adopted across the Group’s internal and independent hotel valuations. Refer to section (c) of this Note for further discussion on valuation techniques and inputs. 61 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 71 7. Property, plant and equipment (continued) (a) Movement in property, plant and equipment The carrying amount of property, plant and equipment at the beginning and end of the current period is set out below: A reconciliation of the carrying amount of property, plant and equipment at the beginning and end of the 30 June 2019 year is set out below: 62 72 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 7. Property, plant and equipment (continued) (b) Carrying value of property, plant and equipment The following table represents the total fair value of property, plant and equipment at 30 June 2020: As at 30 June 2020, the Directors assessed the fair value of the properties above, supported by independent or internal valuation reports. Had the Consolidated Group’s property, plant and equipment been measured on a historical cost less accumulated depreciation basis, their carrying amount would have been as follows: 63 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 73 7. Property, plant and equipment (continued) ACCOUNTING POLICY Fair value of Property, Plant and Equipment Land and Buildings are carried at fair value with changes in fair value recognised in other comprehensive income in the statement of comprehensive income. Fair value is defined as the price at which an asset or liability could be exchanged in an arm's length transaction between knowledgeable, willing parties, other than in a forced or liquidation sale. In reaching estimates of fair value, management judgement needs to be exercised. The level of management judgement required in establishing fair value of the land and buildings for which there is no quoted price in an active market is reduced through the use of external valuations. Land and Buildings All owner occupied properties in the Hotel, Tourism and Leisure class are held for use by the Group for the supply of services and are classified as land and buildings and stated at their revalued amounts under the revaluation model, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Fair value is the amount for which the land and buildings could be exchanged between knowledgeable, willing parties in an arm's length transaction. Revaluation increases arising from changes in the fair value of land and buildings are recognised in other comprehensive income and accumulated within equity, except to the extent that it reverses a revaluation decrease for the same asset previously recognised in profit or loss, in which case the increase is credited to profit or loss to the extent of the decrease previously expensed. A decrease in the carrying amount arising on the revaluation of such land and buildings is recognised in profit or loss to the extent that it exceeds the balance, if any, held in the properties revaluation reserve relating to a previous revaluation of that asset. Furniture, fittings and equipment Furniture, fittings and equipment are stated at cost less accumulated depreciation. Right-of-use assets The Group recognises right-of-use assets at commencement of a lease which is considered to be the date at which the underlying asset is available for use. The initial measurement of right-of-use asset includes the amount of lease liabilities recognised, initial direct cost incurred, lease payments made at or before the commencement date, less any lease incentives received. Right-of-use assets are subsequently measured at cost less accumulated depreciation and impairment losses and is adjusted for any remeasurement of lease liabilities. The right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term unless the Group is reasonably certain that they will obtain ownership of the asset at the end of the lease term. 64 74 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 7. Property, plant and equipment (continued) Depreciation Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives or, in the case of leasehold improvements and certain leased plant and equipment, the shorter lease term as follows: Buildings Plant and equipment: Computer Equipment Vehicles Furniture, fittings and equipment 40 years 3 - 5 years 8 years 3 - 10 years (c) Valuation technique and inputs The key inputs used to measure fair values of property, plant and equipment are disclosed below along with their sensitivity to an increase or decrease. The property assets fair values presented are based on market values, which are derived using the capitalisation and the discounted cash flow methods. The Group's preferred or primary method is the capitalisation method. Property Assets The aim of the valuation process is to ensure that assets are held at fair value and the Group is compliant with applicable Australian Accounting Standards, regulations, and the Trust’s Constitution and Compliance Plan. All properties are required to be internally valued every six months with the exception of those independently valued during that six month period. The internal valuations are performed by utilising the information from a combination of asset plans and forecasting tools prepared by the asset management team. Appropriate capitalisation rate, terminal yield and discount rates based on comparable market evidence and recent external valuation parameters are used to produce a capitalisation based valuation and a discounted cash flow valuation. The internal valuations are reviewed by the Chief Operating Officer who recommends each property's valuation to the Audit, Risk & Compliance Committee and the Board in accordance with the Group's internal valuation protocol. The Group's valuation policy requires that each property in the portfolio is valued by an independent valuer at least every three years. In practice, properties may be valued more frequently than every three years primarily where there may have been a material movement in the market and where there is a significant variation between the carrying value and the internal valuation. Independent valuations are performed by independent and external valuers who hold a recognised relevant professional qualification and have specialised expertise in the types of property assets valued. Independent valuers of the Group’s properties have included a statement within their valuation reports noting that in their view, significant valuation uncertainty exists in the current market environment. The significant uncertainty declaration is to serve as a precaution and does not invalidate the valuation. Rather, the statement is to ensure transparency of the fact that in the current extraordinary market circumstances as a result of the COVID-19 pandemic, less certainty can be attached to the valuations and continued periodic assessment should be performed subsequent to the date of the valuation assessment. The Group will manage this increased uncertainty through active management of the investment portfolio. 65 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 75 7. Property, plant and equipment (continued) (c) Valuation technique and inputs (continued) Property Assets (continued) Internal valuations use the Group’s best estimate of the economic and financial impacts of the COVID-19 pandemic using information available, at the time of preparation of the consolidated financial statements, in respect of existing conditions at reporting date and in relation to forward looking assumptions. In the event the COVID-19 pandemic impacts are more severe or prolonged than anticipated, this may have a further adverse impact on the fair value of the Group’s property, plant and equipment portfolio. Capitalisation method Capitalisation rate is an approximation of the ratio between the net operating income produced by a property asset and its fair value. This excludes consideration of costs of acquisition or disposal. The net income is capitalised in perpetuity from the valuation date at an appropriate investment yield. The adopted percentage rate investment yield reflects the capitalisation rate and includes consideration of the property type, location, comparable sales and whether the property is subject to vacant possession (in the case of hotel properties). Discounted cash flows (DCF) Under the DCF method, a property's fair value is estimated using explicit assumptions regarding the benefits and liabilities of ownership over the asset's life including an exit or terminal value. The DCF method involves the projection of a series of cash flows on a real property interest. To this projected cash flow series, an appropriate discount rate is applied to establish the present value of the income stream associated with the property. The discount rate is the rate of return used to convert a monetary sum, payable or receivable in the future, into present value. The rate is determined with regard to market evidence and prior independent valuation. All property investments are categorised as level 3 in the fair value hierarchy. There were no transfers between the hierarchies during the period. Assets measured at fair value The significant unobservable inputs associated with the valuation of the Group's property, plant and equipment are as follows: 66 76 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 7. Property, plant and equipment (continued) (c) Valuation technique and inputs (continued) Sensitivity Information The key unobservable inputs to measure the fair value of property, plant and equipment are disclosed below along with sensitivity to a significant increase or decrease set out in the following table: Sensitivity Analysis When calculating the income capitalisation approach, the net property income has a strong inter-relationship with the adopted capitalisation rate given the methodology involves assessing the total income receivable from the property and capitalising this in perpetuity to derive a capital value. In theory, an increase in the income and an increase (softening) in the adopted capitalisation rate could potentially offset the impact to the fair value. The same can be said for a decrease in the income and a decrease (tightening) in the adopted capitalisation rate. A directionally opposite change in the income and the adopted capitalisation rate could potentially magnify the impact to the fair value. When assessing a discounted cash flow, the adopted discount rate and adopted terminal yield have a strong interrelationship in deriving a fair value given the discount rate will determine the rate at which the terminal value is discounted to the present value. The impact on the fair value of an increase (softening) in the adopted discount rate could potentially offset the impact of a decrease (tightening) in the adopted terminal yield. The same can be said for a decrease (tightening) in the adopted discount rate and an increase (softening) in the adopted terminal yield. A directionally similar change in the adopted discount rate and adopted terminal yield could potentially magnify the impact to the fair value. The average daily rate and occupancy percentage assumptions drive the forecast hotel revenue for the accommodation hotel assets. The average daily rate reflects the average rate for a room sold over a period of time, while the occupancy percentage reflects the number of rooms occupied by guests over a period of time. An increase in these assumptions will increase the forecast hotel revenue and valuation of the hotels, whilst a decrease in these assumptions will have the opposite effect on forecast hotel revenue and valuations. 67 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 8. Investment properties The carrying amount of investment properties at the beginning and end of the current period is set out below: 77 The following table represents the total fair value of investment properties at 30 June 2020. As at 30 June 2020, the Directors assessed the fair value of the investment property above, supported by an independent or internal valuation report. The internal valuations were completed with reference to both a discounted cash flow and income capitalisation valuation methods. The property valuations were completed using detailed forecasts prepared by the Group’s asset management team. Key valuation assumptions including capitalisation rates, terminal yields and discount rates were determined based on comparable market evidence and valuation parameters determined in external valuations completed for comparable properties. The value of Bluewater Square increased by 5.5% from $48.2 million as at 31 December 2019, whilst down from its 30 June 2019 value of $58.9 million. This increase from December 2019 is mainly attributable to the success of the asset management team’s significant focus on leasing activity at the property. The strong leasing performance in the 6 months has supported the investment metrics used in the external valuation performed for Bluewater Square at 31 December 2019, which has been held and adopted in the internal valuation performed at 30 June 2020. The asset’s Net Operating Income has not been significantly impacted by COVID-19 due to the strong tenant mix in the portfolio, with approximately 56% of rental income derived from non-discretionary retail tenants. Only 8 tenants have had rental relief arrangements agreed with the Group at 30 June 2020, with waivers agreed representing 1.9% of the total rental income of the asset. The internal valuation used the Group’s best estimate of the economic and financial impacts of the COVID-19 pandemic using information available, at the time of preparation of the consolidated financial statements, in respect of existing conditions at reporting date and in relation to forward looking assumptions. In the event the COVID-19 pandemic impacts are more severe or prolonged than anticipated, this may have a further adverse impact on the fair value of the Bluewater Square asset. 68 78 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 FOR THE YEAR ENDED 30 JUNE 2020 For the year ended 30 June 2020 Investment properties (continued) Investment properties (continued) 8. 8. ACCOUNTING POLICY ACCOUNTING POLICY Fair value of Investment Properties Fair value of Investment Properties Land and Buildings are carried at fair value with changes in fair value recognised through profit or loss in the Land and Buildings are carried at fair value with changes in fair value recognised through profit or loss in the consolidated statement of profit and loss. Fair value is defined as the price at which an asset or liability could consolidated statement of profit and loss. Fair value is defined as the price at which an asset or liability could be exchanged in an arm's length transaction between knowledgeable, willing parties, other than in a forced or be exchanged in an arm's length transaction between knowledgeable, willing parties, other than in a forced or liquidation sale. liquidation sale. In reaching estimates of fair value, management judgment needs to be exercised. The level of management In reaching estimates of fair value, management judgment needs to be exercised. The level of management judgement required in establishing fair value of the land and buildings for which there is no quoted price in an judgement required in establishing fair value of the land and buildings for which there is no quoted price in an active market is reduced through the use of external valuations. active market is reduced through the use of external valuations. Investment properties are properties held to earn rentals and / or for capital appreciation (including property Investment properties are properties held to earn rentals and / or for capital appreciation (including property under construction for such purposes). Investment properties are measured initially at its cost, including under construction for such purposes). Investment properties are measured initially at its cost, including transaction costs. Subsequent to initial recognition, investment properties are measured at fair value. Gains transaction costs. Subsequent to initial recognition, investment properties are measured at fair value. Gains and losses arising from changes in the fair value of investment properties are included in profit or loss in the and losses arising from changes in the fair value of investment properties are included in profit or loss in the period in which they arise. period in which they arise. At each reporting date, the carrying values of the investment properties are assessed by the Directors and At each reporting date, the carrying values of the investment properties are assessed by the Directors and where the carrying value differs materially from the Directors' assessment of fair value, an adjustment to the where the carrying value differs materially from the Directors' assessment of fair value, an adjustment to the carrying value is recorded as appropriate. carrying value is recorded as appropriate. The Directors' assessment of fair value of each investment property takes into account latest independent The Directors' assessment of fair value of each investment property takes into account latest independent valuations, with updates taking into account any changes in estimated yield, underlying income and valuations valuations, with updates taking into account any changes in estimated yield, underlying income and valuations of comparable properties. In determining the fair value, the capitalisation of net income method and / or the of comparable properties. In determining the fair value, the capitalisation of net income method and / or the discounting of future net cash flows to their present value have been used, which are based upon assumptions discounting of future net cash flows to their present value have been used, which are based upon assumptions and judgements in relation to future rental income, property capitalisation rate or estimated yield and make and judgements in relation to future rental income, property capitalisation rate or estimated yield and make reference to market evidence of transaction prices for similar properties. reference to market evidence of transaction prices for similar properties. An investment property is derecognised upon disposal or when the investment property is permanently An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from the disposal. Any gain or loss arising withdrawn from use and no future economic benefits are expected from the disposal. Any gain or loss arising on de-recognition of the property (calculated as the difference between the net disposal proceeds and the on de-recognition of the property (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the period in which the property is derecognised. carrying amount of the asset) is included in profit or loss in the period in which the property is derecognised. Fair value measurement Fair value measurement The fair value measurement for investment properties has been categorised as Level 3 fair value based on The fair value measurement for investment properties has been categorised as Level 3 fair value based on the key inputs to the valuation techniques used below: the key inputs to the valuation techniques used below: Valuation Techniques Valuation Techniques Significant unobservable inputs Significant unobservable inputs Discounted cash flows – involves the projection Discounted cash flows – involves the projection of a series of inflows and outflows to which a of a series of inflows and outflows to which a market-derived discount rate is applied to market-derived discount rate is applied to establish an indication of the present value of establish an indication of the present value of the income stream associated with the property. the income stream associated with the property. Capitalisation method – involves determining the Capitalisation method – involves determining the net market income of the investment property. net market income of the investment property. This net market income is then capitalised at the This net market income is then capitalised at the adopted capitalisation rate to derive a core adopted capitalisation rate to derive a core value. value. Adopted discount rate(1) Adopted discount rate(1) Adopted terminal yield(2) Adopted terminal yield(2) Net property income (per sqm) (3) Net property income (per sqm) (3) Adopted capitalisation rate(4) Adopted capitalisation rate(4) Value Value 7.75% 7.75% 7.25% 7.25% $368 $368 7.00% 7.00% (1) Adopted discount rate: The rate of return used to convert cash flows, payable or receivable in the future, into present value. It reflects (1) Adopted discount rate: The rate of return used to convert cash flows, payable or receivable in the future, into present value. It reflects the opportunity cost of capital, that is the rate of return the cash can earn if put to other uses having similar risk. The rate is determined the opportunity cost of capital, that is the rate of return the cash can earn if put to other uses having similar risk. The rate is determined with regard to market evidence. with regard to market evidence. (2) Adopted terminal yield: The capitalisation rate used to convert the future net market rental revenue into an indication of the anticipated (2) Adopted terminal yield: The capitalisation rate used to convert the future net market rental revenue into an indication of the anticipated value of the property at the end of the holding period when carrying out a discounted cash flow calculation. The rate is determined with value of the property at the end of the holding period when carrying out a discounted cash flow calculation. The rate is determined with regard to market evidence. regard to market evidence. 69 69 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 79 8. Investment properties (continued) ACCOUNTING POLICY (continued) (3) Net property income (per sqm): The forecast annual net rental income per sqm reflecting leased occupancy and likely to be leased space based on commitments and estimates. The rate is determined with regard to existing lease terms and other market evidence. (3) Adopted capitalisation rate: The rate at which net market rental revenue is capitalised to determine the value of a property. The rate is determined with regard to market evidence. Valuation technique Capitalisation method Capitalisation rate is an approximation of the ratio between the net operating income produced by an investment property and its fair value. This excludes consideration of costs of acquisition or disposal. The net income is capitalised in perpetuity from the valuation date at an appropriate investment yield. The adopted percentage rate investment yield reflects the capitalisation rate and includes consideration of the property type, location and comparable sales. Discounted cash flows (DCF) Under the DCF method, a property's fair value is estimated using explicit assumptions regarding the benefits and liabilities of ownership over the asset's life including an exit or terminal value. The DCF method involves the projection of a series of cash flows on a real property interest. The cash flow projections reflect tenants currently in occupation or are contracted to meet lease commitments or are likely to be in occupation based on market’s general perception and relevant available market evidence. To this projected cash flow series, an appropriate discount rate is applied to establish the present value of the income stream associated with the property. The discount rate is the rate of return used to convert a monetary sum, payable or receivable in the future, into present value. The rate is determined with regard to market evidence and prior independent valuation. Sensitivity information The key unobservable inputs to measure the fair value of investment properties are disclosed below along with sensitivity to a significant increase or decrease set out in the following table: 70 80 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 8. Investment properties (continued) ACCOUNTING POLICY (continued) Sensitivity Analysis When calculating the income capitalisation approach, the net property income has a strong inter-relationship with the adopted capitalisation rate given the methodology involves assessing the total income receivable from the property and capitalising this in perpetuity to derive a capital value. In theory, an increase in the income and an increase (softening) in the adopted capitalisation rate could potentially offset the impact to the fair value. The same can be said for a decrease in the income and a decrease (tightening) in the adopted capitalisation rate. A directionally opposite change in the income and the adopted capitalisation rate could potentially magnify the impact to the fair value. When assessing a discounted cash flow, the adopted discount rate and adopted terminal yield have a strong interrelationship in deriving a fair value given the discount rate will determine the rate at which the terminal value is discounted to the present value. The impact on the fair value of an increase (softening) in the adopted discount rate could potentially offset the impact of a decrease (tightening) in the adopted terminal yield. The same can be said for a decrease (tightening) in the adopted discount rate and an increase (softening) in the adopted terminal yield. A directionally similar change in the adopted discount rate and adopted terminal yield could potentially magnify the impact to the fair value. 71 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 81 9. Equity accounted investments OVERVIEW This note provides an overview and detailed financial information of the Group’s investments that are accounted for using the equity method of accounting. These include joint ventures where the Group has joint control over an investee together with one or more joint venture partners and investments in associates, which are entities over which the Group is presumed to have significant influence but not control or joint control. The Group’s equity accounted investments are as follows: 30 June 2020 30 June 2019 Details of Material Associates Summarised financial information in respect of each of the Group's material associates is set out below. Materiality is assessed on the investments’ contribution to Group income and net assets. The summarised financial information below represents amounts shown in the associate's financial statements prepared in accordance with accounting standards, adjusted by the Group for equity accounting purposes. 72 82 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 9. Equity accounted investments (continued) Details of Material Associates (continued) The following information represents the aggregated financial position and financial performance of the Elanor Retail Property Fund, Elanor Commercial Property Fund and the Waverley Gardens Fund. This summarised financial information represents amounts shown in the associate's financial statements prepared in accordance with AASBs, adjusted by the Group for equity accounting purposes. Reconciliation of the above summarised financial information to the carrying amount of the interest in each of the material associates recognised in the consolidated financial statements: 73 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 83 9. Equity accounted investments (continued) Details of Material Associates (continued) 30 June 2019 Reconciliation of the above summarised financial information to the carrying amount of the interest in each of the material associates recognised in the consolidated financial statements: 74 84 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 9. Equity accounted investments (continued) Aggregate information of associates that are not individually material ACCOUNTING POLICY Investment in associates and joint ventures An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policy decisions. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. Under the equity method, investments in associates are carried in the statement of financial position at cost as adjusted for post-acquisition charges in the Group's share of profit or loss and other comprehensive income of the associate, less any impairment in the value of individual investments. Management of the Group reviewed and assessed the classification of the Group's investment in the associated entities in accordance with AASB 128 on the basis that the Group has significant influence over the financial and operating policy decisions of the investee. The results and assets and liabilities of associates or joint ventures are incorporated in these financial statements using the equity method of accounting, except when the investment, or a portion thereof, is classified as held for sale, in which case it is accounted for in accordance with AASB 5. Under the equity method, an investment in an associate or a joint venture is initially recognised in the statement of financial position at cost and adjusted thereafter to recognise the Group's share of the profit or loss and other comprehensive income of the associate or joint venture. When the Group's share of losses of an associate or a joint venture exceeds the Group's interest in that associate or joint venture (which includes any long-term interests that, in substance, form part of the Group's net investment in the associate or joint venture), the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture. The requirements of AASB 9 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s investment in an associate or a joint venture. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with AASB 136 'Impairment of Assets' as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with AASB 136 to the extent that the recoverable amount of the investment subsequently increases. 75 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 85 9. Equity accounted investments (continued) ACCOUNTING POLICY (continued) Investment in associates and joint ventures (continued) In response to the impact of the COVID-19 pandemic on the Group’s Managed Funds, an assessment has been performed for each of the Managed Funds to ensure the underlying property assets of these Funds have been recognised at fair value, in accordance with the Group’s accounting policy and methodology for fair value measurement of Property, Plant and Equipment and Investment Properties as described in Note 7 and 8 above. Furthermore, the forecast cash flows of the underlying assets of the Group’s Managed Funds have been assessed. For the Group’s retail and commercial office Managed Funds, recoverability risks have been assessed through detailed tenant specific reviews of the financial position of certain tenants in addition to maintaining active tenant engagement and observation of relevant market conditions and factored into the cash flow forecast of these funds. For the Group’s accommodation hotel Managed Funds, the cash flow forecasts include the hotel management team’s best estimate of future operating revenue generated by the assets within these funds, with detailed assumptions in respect of future hotel guest stays in the context of the COVID-19 environment and expected recovery of future trading performance. At balance date, no impairment loss has been recognised with respect to the Group’s equity accounted investments. When an entity transacts with an associate or a joint venture of the Group, profits and losses resulting from the transactions with the associate or joint venture are recognised in the Group's financial statements only to the extent of interests in the associate or joint venture that are not related to the Group. 76 86 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 ance and Capital Structure Finance and Capital Structure This section provides further information on the Group’s debt finance, financial assets and contributed equity. 10. Interest bearing liabilities OVERVIEW The Group borrows funds from financial institutions to partly fund the acquisition of income producing assets, such as investment properties, securities or the acquisition of businesses. The Group’s borrowings are generally fixed, either directly or through the use of interest rate swaps and have a fixed term. This note provides information about the Group’s debt facilities, including the facilities of EMPR, ELHF and Bluewater Square Syndicate. The EMPR, ELHF and Bluewater Square Syndicate facilities are non-recourse. The term debt is secured by registered mortgages over all freehold property and registered security interests over all present and after acquired property of key Group entities and companies. The terms of the debt also impose certain covenants on the Group including Loan to Value ratio and Interest Cover covenants. The Group is currently meeting all its covenants. Unsecured Fixed Rate Notes On 17 October 2017 and 18 December 2017, the Group issued $40 million and $20 million 7.1% unsecured 5-year fixed rate notes respectively. The total $60 million unsecured fixed rate notes are due for repayment on 17 October 2022. The unsecured notes include Loan to Value Ratio and Interest Cover Covenants. The Group is currently meeting all of its covenants. 77 Elanor Investors Group | Annual Report 2020 87 ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 10. Interest bearing liabilities (continued) CREDIT FACILITIES As at 30 June 2020, the Group had unrestricted access to the following credit facilities: The ENN Group has access to a $30.0 million revolver facility, with a maturity date of 29 April 2022. The drawn amount at 30 June 2020 is $29.5 million. At 30 June 2020 the amount of drawn facilities was not hedged. The EMPR Group has access to a $70.61 million facility, upon which both the company and trust can draw. The drawn amount at 30 June 2020 is $70.61 million. Of the EMPR Group facility, $36.6 million will mature on 31 October 2020, with the remaining $46.7 million maturing on 31 October 2021. A renewal of the $36.6 million facility is currently undergoing negotiation and is expected to be renewed before the maturity date. At 30 June 2020, the amount of drawn facilities is hedged to 100%. At 30 June 2020, the ELHF Group has access to a $107.8 million facility. The drawn amount at 30 June 2020 was $107.8 million which will mature on 3 December 2022. As a result of the impacts of the COVID-19 pandemic, the Group sought and received certain covenant waivers and relief from the financiers of the Elanor Luxury Hotel Fund, including a waiver of the ICR covenant at 30 June 2020 for 12 months and a deferral of interest payments for 3 months from 30 June 2020. This has supported the cash flows of the fund. The Bluewater Square Syndicate has access to a $26.7 million facility. The drawn amount at 30 June 2020 is $26.7 million which will mature on 30 October 2020. A renewal of the $26.7 million facility is currently undergoing negotiation and is expected to be renewed before the maturity date. At 30 June 2020, the drawn amount is unhedged. As a result of the impacts of the COVID-19 pandemic, the Group sought and received certain covenant waivers from the financier of the Bluewater Square property, including a waiver of the ICR covenant at 30 June 2020. 78 88 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 10. Interest bearing liabilities (continued) CREDIT FACILITIES (CONTINUED) All of the facilities have a variable interest rate. The interest rates on the loans are partially fixed using interest rate swaps. The weighted average annual interest rates payable of the loans at 30 June 2020, including the impact of the interest rate swaps, is 4.58% per annum. ACCOUNTING POLICY Interest bearing liabilities Interest bearing liabilities are recognised initially at fair value, being the consideration received net of transaction costs associated with the borrowing. After initial recognition, interest bearing liabilities are stated at amortised cost using the effective interest method. Under the effective interest method, any transaction fees, costs, discounts, and premiums directly related to the borrowings are recognised in the statement of profit or loss and other comprehensive income over the expected life of the borrowings. Interest bearing liabilities are classified as current liabilities where the liability has been drawn under a financing facility which expires within 12 months. Amounts drawn under financial facilities which expire after 12 months are classified as non-current. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. To the extent that variable rate borrowings are used to finance a qualifying asset and are hedged in an effective cash flow hedge of interest rate risk, the effective portion of the derivative is recognised in other comprehensive income and reclassified to profit or loss when the qualifying asset impacts profit or loss. To the extent that fixed rate borrowings are used to finance a qualifying asset and are hedged in an effective fair value hedge of interest rate risk, the capitalised borrowing costs reflect the hedged interest rate. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. 79 Elanor Investors Group | Annual Report 2020 89 ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 11. Derivative financial instruments OVERVIEW The Group’s derivative financial instruments consist of interest rate swap contracts to hedge its exposure to movements in variable interest rates. The interest rate swap agreements allow the Group to raise long term borrowings at a floating rate and effectively swap them into a fixed rate. ACCOUNTING POLICY The Group is party to underwrite arrangements with third parties, including a put and call option to acquire an investment in Elanor Wildlife Park Fund at fair value. The call option is held by Elanor and the put option is held by the third party. As at balance date, the total value of the underwrite arrangements was $1.5 million. Interest rate swaps EMPR and ELHF have entered into interest rate swap agreements with a notional principal amount totalling $178.4 million that entitles it to receive interest, at quarterly intervals, at a floating rate on the notional principal and oblige it to pay interest at a fixed rate. The interest rate swap agreements allow the raising of long term borrowings at a floating rate and effectively swap them into a fixed rate. Derivatives Derivatives are initially recognised at fair value at the date the derivative contract is entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. Hedge accounting The Group designates its hedging instruments, which include derivatives, as cash flow hedges. At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument is highly effective in offsetting changes in fair values or cash flows of the hedged item attributable to the hedged risk. 80 90 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 11. Derivative financial instruments (continued) ACCOUNTING POLICY (CONTINUED) Cash flow hedges The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income and accumulated under the heading of cash flow hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss and is included in the ‘other gains and losses’ line item. Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss, in the same line as the recognised hedged item. However, when the forecast transaction that is hedged results in the recognition of a non- financial asset or a non-financial liability, the gains and losses previously recognised in other comprehensive income and accumulated in equity are transferred from equity and included in the initial measurement of the cost of the non-financial asset or non-financial liability. Hedge accounting is discontinued when the Group revokes the hedging relationship, when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting. Any gain or loss recognised in other comprehensive income and accumulated in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is recognised immediately in profit or loss. Valuation, techniques and inputs Financial Instruments The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. This is not applicable for the Group or the EIF Group. Specific valuation techniques used to value financial instruments include: • The use of quoted market prices or dealer quotes for similar instruments; and • The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves. All of the resulting fair value estimates of financial instruments are included in level 2. There are no level 3 financial instruments in either the Group or the EIF Group. 81 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 91 12. Financial assets OVERVIEW The Group’s financial assets consist of short term financing provided by the Group. The Group’s financial assets as at 30 June 2020 are detailed below: ACCOUNTING POLICY The Group measures its financial assets at amortised cost. At initial recognition, the Group measures its financial assets at fair value and subsequently at amortised cost. The Group assessed that the credit risk of its financial asset has not significantly increased since initial recognition. Hence, the Group applies the simplified approach permitted by AASB 9 which requires expected lifetime losses to be recognised from initial recognition of receivables. The expected credit losses in these financial assets are estimated using a provision matrix based on the Group’s historical credit loss experience, adjusted for factors that are specific to the debtors and general economic conditions, including the impacts of the COVID-19 pandemic, where appropriate at reporting date. Refer to Note 15(b) for further discussion on the Group’s management of credit risk, including that for its financial assets. 82 92 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 13. Contributed equity OVERVIEW The shares of Elanor Investors Limited (Company) and the units of Elanor Investment Fund (EIF) are combined and issued as stapled securities. The shares of the Company and units of EIF cannot be traded separately and can only be traded as stapled securities. Below is a summary of contributed equity of the Company and EIF separately and for Elanor’s combined stapled securities. The basis of allocation of the issue price of stapled securities to Company shares and EIF units post stapling is determined by agreement between the Company and EIF as set out in the Stapling Deed. Contributed equity for the period ended 30 June 2020 A reconciliation of treasury securities on issue at the beginning and end of the period is set out below: Contributed equity for the period ended 30 June 2019 83 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 13. Contributed equity (continued) A reconciliation of treasury securities on issue at the beginning and end of the prior period is set out below: 93 ACCOUNTING POLICY Equity-settled security-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. The fair value determined at the grant date of the equity-settled security-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of equity instruments that will eventually vest, with a corresponding increase in equity. At the end of each reporting period, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equity-settled employee benefits reserve. 14. Reserves OVERVIEW Reserves are balances that form part of equity that record other comprehensive income amounts that are retained in the business and not distributed until such time the underlying balance sheet item is realised. This note provides information about movements in the other reserves line item of the balance sheet and a description of the nature and purpose of each reserve. 84 94 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 14. Reserves (continued) The asset revaluation reserve is used to record increments and decrements on the revaluation of property, plant and equipment. The cash flow hedge reserve is used to recognise increments and decrements in the fair value of cash flow hedges. The stapled security-based payment reserve is used to recognise the fair value of loan, restricted securities and options issued to employees but not yet exercised under the Group's DSTI and LTIP. 15. Financial risk management OVERVIEW The Group's principal financial instruments comprise cash, receivables, financial assets carried at fair value through profit and loss, interest bearing loans, derivatives, payables and distributions payable. The Group's activities are exposed to a variety of financial risks: market risk (including interest rate risk and equity price risk), credit risk and liquidity risk. This note presents information about the Group's exposure to each of the above risks, the Group's objectives, policies and processes for measuring and managing risk and the Group's management of capital. Further quantitative disclosures are included through these consolidated financial statements. The Group's Board of Directors (Board) has overall responsibility for the establishment and oversight of the Group's risk management framework. The Board has established an Audit & Risk Committee (ARC), which is responsible for monitoring the identification and management of key risks to the business. The ARC meets regularly and reports to the Board on its activities. The Board has established Treasury Guidelines outlining principles for overall risk management and policies covering specific areas, such as mitigating foreign exchange, interest rate and liquidity risks. The Group's Treasury Guidelines provide a framework for managing the financial risks of the Group with a key philosophy of risk mitigation. Derivatives are exclusively used for hedging purposes, not as trading or other speculative instruments. The Group uses derivative financial instruments such as interest rate swaps where possible to hedge certain risk exposures. The Group uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate risk, ageing analysis for credit risk and cash flow forecasting for liquidity risk. There have been no other significant changes in the types of financial risks or the Group's risk management program (including methods used to measure the risks). 85 Elanor Investors Group | Annual Report 2020 95 ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 15. Financial risk management (continued) (a) Market risk Market risk refers to the potential for changes in the value of the Group's financial instruments or revenue streams from changes in market prices. There are various types of market risks to which the Group is exposed including those associated with interest rates, currency rates and equity market price. (i) Interest rate risk Interest rate risk refers to the potential fluctuations in the fair value or future cash flows of a financial instrument because of changes in market interest rates As at reporting date, the Consolidated Group had the following interest bearing assets and liabilities: Of the $291.3 million floating interest bearing loans, $178.4 million have been hedged using interest rate swap agreements. These agreements are in place to swap the variable / floating interest payable to a fixed rate to minimise the interest rate risk. 86 96 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 15. Financial risk management (continued) (ii) Interest Rate Sensitivity At reporting date if Australian interest rates had been 1% higher / lower and all other variables were held constant, the impact on the Group in relation to cash and cash equivalents, derivatives, interest bearing loans and the Group's profit and equity would be: (b) Credit risk Credit risk represents the loss that would be recognised if counterparties failed to perform as contracted. The Group manages credit risk on receivables by performing credit reviews of prospective debtors, obtaining collateral where appropriate and performing detailed reviews on any debtor arrears. Credit risk on derivatives is managed through limiting transactions to investment grade counterparties. At balance date, the Group’s outstanding debtors consists primarily of loans to Elanor’s Managed Funds and accrued funds management fees payable by these Managed Funds, rental arrears from its investment property Bluewater Square, and outstanding payments receivable from hotel guests across its hotel portfolio. In respect of outstanding loans and trade debtors receivable from its Managed Funds, the Group has performed a detailed analysis of the recoverability of these amounts with reference to the cash flow forecasts of each of these funds. For each of the Group’s Managed Funds, the Group’s management teams have performed a detailed asset level analysis of the recoverability of the outstanding arrears at balance date for these assets, and future expected impacts of the COVID-19 pandemic on the funds’ cash flows. For the Group’s retail investment property Bluewater Square, recoverability risks have been assessed through detailed tenant specific reviews of the financial position of certain tenants in addition to maintaining active tenant engagement and observation of relevant market conditions and factored into the cash flow forecast of this asset. For the Group’s accommodation hotels, the cash flow forecasts include the hotel management team’s best estimate of future operating revenue generated by the assets within these funds, with detailed assumptions in respect of future hotel guest stays in the context of the COVID-19 environment and expected recovery of future trading performance. At balance date, no provisions have been recognised in respect of loans and funds management fees receivable from the Group’s Managed Funds. At balance date, the Group has recognised a provision in respect of COVID-19 rental income of $0.2 million. 87 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP 97 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 15. Financial risk management (continued) (b) Credit risk (continued) Exposure to credit risk The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was as detailed below: Where entities have a right of set-off and intend to settle on a net basis under netting arrangements, this set- off has been recognised in the consolidated financial statements on a net basis. Details of the Group's commitments are disclosed in Note 22. Trade and other receivables consist of GST, trade debtors and other receivables. At balance date there were no other significant concentrations of credit risk. No allowance has been recognised for the GST and trade debtors from the taxation authorities and related parties respectively. Based on historical experience, there is no evidence of default from these counterparties which would indicate that an allowance was necessary. Impairment losses The ageing of trade and other receivables at reporting date is detailed below: 88 98 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 15. Financial risk management (continued) (c) Liquidity risk The Group manages liquidity risk by maintaining sufficient cash including working capital and other reserves, as well as through securing appropriate committed credit facilities. As a result of the uncertain economic environment created by the COVID-19 pandemic, Group cashflow management and Managed Funds related cash flows have been subject to heightened levels of review and focus to ensure the Group maintains strong balance sheet liquidity. The following are the undiscounted contractual cash flows of derivatives and non-derivative financial liabilities shown at their nominal amount (including future interest payable). 89 Elanor Investors Group | Annual Report 2020 99 ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 15. Financial risk management (continued) (d) Capital risk management The Group maintains its capital structure with the objective to safeguard its ability to continue as a going concern, to increase the returns for security holders and to maintain an optimal capital structure. The capital structure of the Group consists of equity as listed in Note 13. The Group assesses its capital management approach as a key part of the Group's overall strategy and it is continuously reviewed by management and the Directors. To achieve the optimal capital structure, the Board may use the following strategies: amend the distribution policy of the Group; issue new securities through a private or public placement; activate the Distribution Reinvestment Plan (DRP); issue securities under a Security Purchase Plan (SPP); conduct an on-market buyback of securities; acquire debt; or dispose of investment properties. Australian Financial Services License The Responsible Entity is licensed as an Australian Financial Services Licensee. Under licence condition 9, the Responsible Entity must: (a) (b) (c) be able to pay its debts as and when they become due and payable; and show in its most recent statement of financial position lodged with ASIC that its total (adjusted) assets exceed total (adjusted) liabilities; and have no reason to suspect that its total (adjusted) assets would not exceed total (adjusted) liabilities on a current statement of financial position; and (d) meet the cash needs requirements by complying with Option 1. Under licence condition 10, the Responsible Entity must maintain net tangible assets (NTA) of not less than the greater of: (a) (b) (c) $150,000; or 0.5% of the value of Scheme Assets; or 10% of Average Responsible Entity revenue. The Responsible Entity must also maintain Cash or Cash Equivalents of the greater of $150,000 or 50% of the required NTA as well as Liquid Assets of greater than the required NTA. The Responsible Entity had at all times a cash flow projection of at least 15 months, with assumptions, showing its ability to meet debts as and when they fall due. The Responsible Entity has not reported to ASIC any breaches of its financial requirements under its Australian Financial Services License. 90 100 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 Group Structure This section provides information about the Group’s structure including parent entity information, information about controlled entities (subsidiaries) and business combination information relating to the acquisition of controlled entities. 16. Parent entity OVERVIEW The financial information below on Elanor Investor Group’s parent entity Elanor Investors Limited (the Company) and the Trust’s parent entity Elanor Investment Fund (EIF) as stand-alone entities has been provided in accordance with the requirements of the Corporations Act 2001. (a) Summarised financial information 1. Elanor Investors Limited is the parent entity of the Consolidated Group. 2. Elanor Investment Fund is the parent entity of the EIF Group. (b) Commitments At balance date Elanor Investors Limited and Elanor Investment Fund had no commitments (2019: none) in relation to capital expenditure contracted for but not recognised as liabilities. (c) Guarantees provided At balance date Elanor Investors Limited and Elanor Investment Fund had no outstanding guarantees (2019: none). (d) Contingent liabilities At balance date Elanor Investors Limited and Elanor Investment Fund had no contingent liabilities (2019: none). 91 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 101 16. Parent entity (continued) ACCOUNTING POLICY The financial information of the parent entities of the Group and the EIF Group have been prepared on the same basis as the consolidated financial statements. 17. Subsidiaries and Controlled entities OVERVIEW This note provides information about the Group’s subsidiaries and controlled entities. Details of the Group's material subsidiaries at the end of the reporting period are as follows: 1. Elanor Investors Limited (“EIL”) is the head entity within the EIL tax-consolidated group. The companies in which EIL has 100% ownership are members of the EIL tax-consolidated group. 92 102 ELANOR INVESTORS GROUP Notes to the Consolidated Financial Statements For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 17. Subsidiaries and Controlled entities (continued) 2. EMPR II Management Pty Limited is the head entity of the EMPR II tax-consolidated group. 3. EMPR Management Pty Limited is the head entity of the EMPR tax-consolidated group. 4. Elanor Luxury Hotel Fund Pty Limited is the head entity of the ELHF tax-consolidated group. 93 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 103 Other Items This section includes information that is not directly related to the specific line items in the consolidated financial statements, including information about related parties, events after the end of the reporting period and certain EIF Group disclosures. 18. Receivables OVERVIEW This note provides further information about assets that are incidental to the Group’s trading activities, being trade and other receivables. Refer to Note 15(b) for discussion on the Group’s management of credit risk, including that of the Group’s trade and other receivables. Receivables 19. Payables OVERVIEW This note provides further information about liabilities that are incidental to the Group’s trading activities, being trade and other payables. Payables 94 104 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 19. Payables (continued) Provisions Other liabilities ACCOUNTING POLICY Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (where the effect of the time value of money is material). When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received, and the amount of the receivable can be measured reliably. 95 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 105 19. Payables (continued) ACCOUNTING POLICY (continued) Employee benefits A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and long service leave when it is probable that settlement will be required, and they are capable of being measured reliably. Liabilities recognised in respect of short-term employee benefits, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement. Liabilities recognised in respect of long term employee benefits are measured as the present value of the estimated future cash outflows, using a high quality Corporate Bond rate as the discount rate, to be made in respect of services provided by employees up to reporting date. Lease liabilities The Group recognises lease liability measured at the present value of lease payments to be made over the lease term at commencement of the lease. The lease payments include fixed payments less any lease incentives. Lease payments also include renewal periods where the Group is reasonably certain to exercise the renewal option under the lease agreement. Outgoings are recognised as incurred. To determine the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date should the implicit rate of the lease not be readily available. After commencement, the lease liabilities are increased to reflect the accretion of interest and reduced for lease payments made. If changes are made to the lease term, fixed payments or the assessment to purchase the underlying asset, the carrying amount of the lease liability is remeasured. 20. Intangible assets OVERVIEW Management Rights Management Rights represent the acquisition of funds management rights and associated licences from Moss Capital Pty Limited at IPO for $1.5 million. At IPO, the estimated useful life of the acquired funds management rights was 10 years. ACCOUNTING POLICY Funds management rights Funds management rights have a finite useful life and are carried at cost less accumulated amortisation and impairment losses. Amortisation is calculated using the straight-line method to allocate the cost of licenses over their estimated useful lives of 10 years. 96 106 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 FOR THE YEAR ENDED 30 JUNE 2020 For the year ended 30 June 2020 21. Net tangible assets 21. Net tangible assets OVERVIEW OVERVIEW This note sets out the net tangible assets of the Group. This note sets out the net tangible assets of the Group. 22. Commitments 22. Commitments OVERVIEW OVERVIEW This note sets out the material commitments of the Group. This note sets out the material commitments of the Group. Contingent liabilities and commitments Contingent liabilities and commitments Unless otherwise disclosed in the financial statements, there are no material contingent liabilities and Unless otherwise disclosed in the financial statements, there are no material contingent liabilities and commitments. commitments. Lease commitments: the Group as lessee Lease commitments: the Group as lessee The Group has non-cancellable leases in respect of premises. The leases are for a duration of between 1 to 5 The Group has non-cancellable leases in respect of premises. The leases are for a duration of between 1 to 5 years and are classified as operating leases. The minimum lease payments are as follows: years and are classified as operating leases. The minimum lease payments are as follows: Lease commitments: the Group as lessor Lease commitments: the Group as lessor The Group has non-cancellable leases in respect of premises. The leases are for a duration of between 1 to The Group has non-cancellable leases in respect of premises. The leases are for a duration of between 1 to 10 years and are classified as operating leases. The minimum lease commitments receivable are as follows: 10 years and are classified as operating leases. The minimum lease commitments receivable are as follows: In the opinion of the Directors, there were no other commitments at the end of the reporting period. In the opinion of the Directors, there were no other commitments at the end of the reporting period. 97 97 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 107 23. Share-based payments OVERVIEW The Group has short term and long term ownership-based compensation schemes for executives and senior employees. The Group has implemented an STI scheme (the STI Scheme), based on an annual profit share. The STI Scheme is based on a profit share pool, to be calculated each year based on the Group's financial performance for the relevant year. The purpose of the STI Scheme is to provide an annual bonus arrangement that incentivises and rewards management for achieving annual pre-tax ROE for security holders in excess of 10% per annum. The profit share pool is based on 20% of ROE above 10%, 22.5% of the ROE above 15%, 25% of the ROE above 17.5% and 30% of the ROE above 20%. The Scheme provides that 50% of any awards to individuals from the profit share pool may be delivered in deferred securities, which vest two years after award, provided that the employee remains with the Group and maintains minimum performance standards. The Elanor Investors Group Board monitors the appropriateness of the profit share scheme and any distribution of the profit share pool will be at the Board's discretion, taking into consideration the forecast and actual financial performance and position of the Group. The Group has implemented an LTI scheme (the LTI Scheme), based on an executive loan security plan and an executive options plan. Under the executive loan security plan awards (comprising the loan of funds to eligible Elanor employees to acquire securities which are subject to vesting conditions) have been issued to certain employees. The limited recourse loan provided by the Group under the loan security plan carries interest of an amount equal to any cash dividend or distribution but not including any dividend or distribution of capital, or an abnormal distribution. In addition to the loan security plan, the Group has implemented an executive option plan comprising rights to acquire securities at a specified exercise price, subject to the achievement of vesting conditions, which may be offered to certain eligible employees (including the Chief Executive Officer, direct reports to the Chief Executive Officer and other selected key executives) as determined by the Board. Executive Options currently on issue are to the Chief Executive Officer only, over 2.0 million securities. The purpose of the LTI Scheme is to assist in attracting, motivating and retaining key management and employees. The LTI Scheme operates by providing key management and employees with the opportunity to participate in the future performance of Group securities. The vesting conditions LTI plans and related awards include both a service based hurdle and an absolute total security holder return (TSR) performance hurdle. The service based hurdle is 2, 3 and 4 years in the case of the loan security plan. The TSR is 10% per annum in the case of the loan security plan and 15% per annum in the case of the options plan. The 2017 option plan has an exercise price of $3.05 per security (40% premium to the $2.18 offer price) TSR was selected as the LTI performance measure to ensure an alignment between the security holder return and reward for executives. 98 108 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 23. Share-based payments (continued) The following share-based payment arrangements were in existence during the current reporting period: Employee Loan Securities 1. Service and non-market conditions include financial and non-financial targets along with a deferred vesting period. Options 1. Service and non-market conditions include financial and non-financial targets along with a deferred vesting period The Group recognises the fair value at the grant date of equity settled securities above as an employee benefit expense proportionally over the vesting period with a corresponding increase in equity. Fair value of options is measured at grant date using a Monte-Carlo Simulation and Binomial option pricing model, performed by an independent valuer, and models the future price of the Group's stapled securities. Securities issued under STI plan 1. Service conditions include a deferred vesting period. The total expense recognised during the year in relation to the Group's equity settled share-based payments was $1,840,454. 99 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 109 23. Share-based payments (continued) ACCOUNTING POLICY Security-Based Payments Equity-settled security-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. The fair value determined at the grant date of the equity-settled security-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of equity instruments that will eventually vest, with a corresponding increase in equity. At the end of each reporting period, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equity-settled employee benefits reserve. 24. Related parties OVERVIEW Related parties are persons or entities that are related to the Group as defined by AASB 124 Related Party Disclosures. This note provides information about transactions with related parties during the period. Elanor Investors Group Responsible Entity fees Elanor Funds Management Limited (EFML) is the Responsible Entity of the Elanor Investment Fund (EIF) (a wholly owned subsidiary of Elanor Investors Limited). In accordance with the Constitution of Elanor Investment Fund (EIF), EFML is entitled to receive a management fee equal to its reasonable costs in providing its services as Responsible Entity for which it is not otherwise reimbursed. For the year ended 30 June 2020, this amount is $129,996. EFML makes payments for EIF from time to time. These payments are incurred by EFML in properly performing or exercising its powers or duties in relation to EIF. EFML has a right of indemnity from EIF for any liability incurred by EFML in properly performing or exercising any of its powers or duties in relation to EIF. The amount reimbursed for the year ended 30 June 2020 was nil. EFML acted as Trustee and Manager and/or Custodian of a number of registered and unregistered managed investment schemes, including schemes where the Group also held an investment. EFML is entitled to fee income, as set out in the Constitution of each scheme, including management fees, acquisition fees, equity raise fees and performance fees. EFML is also entitled to be reimbursed from each Scheme for costs incurred in properly performing or exercising any of its powers or duties in relation to each Scheme. 100 110 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 24. Related parties (continued) A summary of the income earned during the period from these managed investment schemes is provided below: Key Management Personnel (KMP) Executive Mr. Glenn Willis Mr. Paul Siviour Mr. Symon Simmons Position Managing Director and Chief Executive Officer Chief Operating Officer Chief Financial Officer and Company Secretary Non-Executive Mr. Paul Bedbrook Mr. Nigel Ampherlaw Mr. Lim Kin Song Mr Anthony Fehon Mr. William (Bill) Moss AO Position Independent Chairman and Non-Executive Director Independent Non-Executive Director Non-Executive Director Independent Non-Executive Director (Appointed 20 August 2019) Non-Executive Director (Resigned 17 September 2019) The aggregate compensation made to the Key Management Personnel of the Group is set out below: 101 Elanor Investors Group | Annual Report 2020 111 ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 25. Significant events Establishment of Elanor Wildlife Park Fund On 28 November 2019, the Group established Elanor Wildlife Park Fund (EWPF) which acquired Mogo Zoo in Mogo, NSW for $9.7 million and Featherdale Wildlife Park in Doonside, NSW for $39 million, which was previously owned by the Group. Settlement of Elanor Luxury Hotel Fund acquisitions On 5 December 2019, the Elanor Luxury Hotel Fund (ELHF) settled on the acquisitions of Mayfair Hotel and Adabco Boutique Hotel in Adelaide, SA, for $99 million. Subsequent to balance date, the fund also settled on the acquisition of Peppers Cradle Mountain Lodge for $55 million, purchased from another Group managed fund, Elanor Metro and Prime Regional Hotel Fund. Initial Public Offering of Elanor Commercial Property Fund The Group completed the Initial Public Offering (“IPO”) of Elanor Commercial Property Fund (ASX: ECF) on 6 December 2019, offering 138.9 million securities at an offer price of $1.25, raising $173.6 million. ECF listed with an initial market capitalisation of $255.5 million. Elanor holds a 15.0% co-investment in ECF and is therefore strongly aligned with the Fund’s investors. ECF was an existing Elanor managed fund and acquired a new property, 200 Adelaide Street, at IPO. In conjunction with the listing, the fund acquired the residual 48.5% equity interest in the WorkZone West property in Perth, WA for $66.0 million. Existing investors in ECF provided overwhelming support for ECF, with 83.6% of existing investors electing to retain their investment. In addition, these investors elected to invest further significant funds in ECF. At 30 June 2020, ECF had a portfolio of 7 commercial office buildings, valued at $372.9 million. Elanor Healthcare Real Estate Fund The Group established the Elanor Healthcare Real Estate Fund in December 2019, to be seeded with medical offices in Brisbane and Gold Coast, QLD, with a combined asset value of $123.3 million. Settlement of the fund occurred in March 2020. Sale of Auburn Office On 18 December 2019, the Group disposed of its investment in the Auburn Office Syndicate when the fund sold its commercial property for $4.75 million and subsequently wound up the fund. 26. Events occurring after reporting date The directors are not aware of any matter or circumstance not otherwise dealt with in the financial reports or the Directors' Report that has significantly affected or may significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in the financial period subsequent to the year ended 30 June 2020. 102 112 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 27. Auditor's remuneration OVERVIEW The independent auditors of Elanor Investors Group (Deloitte Touche Tohmatsu) have provided a number of audit and other assurance related services as well as other non-assurance related services to Elanor Investors Group and the Trust during the year. Pitcher Partners provided audit services in respect of the Trust’s Compliance Plan. Below is a summary of fees paid for various services to Deloitte Touche Tohmatsu and Pitcher Partners during the year. 103 Elanor Investors Group | Annual Report 2020 113 ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 28. Discontinued operations The John Cootes Furniture business has continued to be classified as discontinued operations within these financial statements. Analysis of Profit or Loss for the year from Discontinued Operations The combined results of the discontinued operations included in the profit and loss for the period ended 30 June 2020 are set out below. The comparative profit and cash flows from discontinued operations have been presented to include those operations classified as discontinued in the current year. Profit or Loss for the period from Discontinued Operations Note 1: Includes the updated provision assumptions relating to the discontinued operations. Cash flows from / (used in) discontinued operations Assets held for sale Assets relating to the Ashley stores held for sale are included in the following table: 104 114 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 28. Discontinued operations Total liabilities directly associated with discontinued operations ACCOUNTING POLICY Discontinued Operations A discontinued operation is a component of the Group that represents a separate major line of business that is part of a disposal plan. The results of discontinued operations are presented separately in the Consolidated Statement of Profit or Loss. Critical Accounting Estimates The estimates and judgements of impairment of the John Cootes Furniture business assets and associated costs, that involve a high degree of complexity and have a risk of causing a material adjustment to the carrying amounts of assets and liabilities within subsequent periods, are incorporated above. Any changes to carrying values in subsequent periods due to revisions to estimates or assumptions or as a result of the final realisation of the business assets and liabilities upon exit of the business will be recognised in the Group’s profit or loss as part of discontinued operations up to the cessation of the John Cootes Furniture business. 105 Elanor Investors Group | Annual Report 2020 115 ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 29. Non-Parent disclosure OVERVIEW This note provides information relating to the non-parent EIF Group only. The accounting policies are consistent with the Group, except as otherwise disclosed. Refer to the corresponding notes in the Group section of the financials for further discussion on the Group’s response to COVID-19, which covers EIF Group as its subsidiary. Segment information Chief operating decisions are based on the segment information as reported by the consolidated Group and therefore EIF is deemed to have only one segment. Distributions The following distributions were declared by the EIF Group in respect of the period: 1. The interim distribution of 9.51 cents per stapled security was declared on 17 February 2020 and paid on 28 February 2020. 2. The final distribution for the period ended 30 June 2020 has been suspended. Please refer to the Director's Report for further information. Taxation of the Trust Under current Australian income tax legislation, the Trust and its sub-trusts are not liable for income tax on their taxable income (including assessable realised capital gains) provided that the unitholders are presently entitled to the income of the Trust. Accordingly, the Group only pays tax on Company taxable earnings and there is no separate tax disclosure for the Trust. Earnings / (losses) per stapled security The earnings / (losses) per stapled security measure shown below is based upon the profit / (loss) attributable to security holders: 106 116 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 29. Non-Parent disclosure (continued) Investment Properties Movement in investment properties The carrying value of investment properties at the beginning and end of the current period is set out below: Refer to Note 5 Property, plant and equipment and Note 6 Investment properties for further details. The following table represents the total fair value of Investment Properties at 30 June 2020: 107 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 117 29. Non-Parent disclosure (continued) ACCOUNTING POLICY Fair value of Investment Properties Investment property relates to the land and buildings owned by the EIF Group (being the Elanor Investment Fund and its controlled entities) only, in which rental income is earned from entities within the EIL Group. Valuation, technique and inputs Investment properties are categorised as level 3 in the fair value hierarchy. There were no transfers between hierarchies during the period. Fair value measurement The significant unobservable inputs associated with the valuation of the Group's investment properties are as follows 108 118 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 29. Non-Parent disclosure (continued) Equity accounted investments The Trust’s equity accounted investments are as follows: 30 June 2020 30 June 2019 The following information represents the aggregated financial position and financial performance of the Elanor Retail Property Fund, Elanor Commercial Property Fund and the Waverley Gardens Fund. This summarised financial information represents amounts shown in the associate's financial statements prepared in accordance with AASBs, adjusted by the Trust for equity accounting purposes. 109 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 119 29. Non-Parent disclosure (continued) Equity accounted investments (continued) 30 June 2020 Reconciliation of the above summarised financial information to the carrying amount of the interest in Elanor Retail Property Fund recognised in the consolidated financial statements: 110 120 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 29. Non-Parent disclosure (continued) Equity accounted investments (continued) 30 June 2019 Reconciliation of the above summarised financial information to the carrying amount of the interest in Elanor Retail Property Fund recognised in the consolidated financial statements: 111 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 29. Non-Parent disclosure (continued) Aggregate information of associates that are not individually material 121 Interest bearing liabilities As part of the internal funding of the Fund, EIF entered into a long term interest-bearing loan with EIL at arm’s length terms, maturing in July 2024. As at 30 June 2020, the outstanding payable to the Company was $60.7 million. 112 122 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 29. Non-Parent disclosure (continued) Credit facilities As at 30 June 2020, the EIF Group had unrestricted access to the following credit facilities: The ENN Group has access to a $30.0 million revolver facility, with a maturity date of 29 April 2022. The drawn amount at 30 June 2020 is $29.5 million. At 30 June 2020 the amount of drawn facilities was not hedged. 113 Elanor Investors Group | Annual Report 2020 123 ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 29. Non-Parent disclosure (continued) The EMPR Group has access to a $70.61 million facility, upon which both the company and trust can draw. The drawn amount at 30 June 2020 is $70.61 million. Of the EMPR Group facility, $36.6 million will mature on 31 October 2020, with the remaining $46.7 million maturing on 31 October 2021. A renewal of the $36.6 million facility is currently undergoing negotiation and is expected to be renewed before the maturity date. At 30 June 2020, the amount of drawn facilities is hedged to 100%. At 30 June 2020, the ELHF Group has access to a $107.8 million facility. The drawn amount at 30 June 2020 was $107.8 million which will mature on 3 December 2022. As a result of the impacts of the COVID-19 pandemic, the Group sought and received certain covenant waivers and relief from the financiers of the Elanor Luxury Hotel Fund, including a waiver of the ICR covenant at 30 June 2020 and a deferral of interest payments. The Bluewater Square Syndicate has access to a $26.7 million facility. The drawn amount at 30 June 2020 is $26.7 million which will mature on 30 October 2020. A renewal of the $26.7 million facility is currently undergoing negotiation and is expected to be renewed before the maturity date. At 30 June 2020, the drawn amount is unhedged. As a result of the impacts of the COVID-19 pandemic, the Group sought and received certain covenant waivers from the financier of the Bluewater Square property, including a waiver of the ICR covenant at 30 June 2020. All of the facilities have a variable interest rate. The interest rates on the loans are partially fixed using interest rate swaps. The weighted average annual interest rates payable of the loans at 30 June 2020, including the impact of the interest rate swaps, is 3.90% per annum. Derivative Financial instruments The EIF Group enters into derivative financial instruments to manage its exposure to interest rate risk. 114 124 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 29. Non-Parent disclosure (continued) Reserves Reserves are balances that form part of equity that record other comprehensive income amounts that are retained in the business and not distributed until such time the underlying balance sheet item is realised. This note provides information about movements in the other reserves line item of the balance sheet and a description of the nature and purpose of each reserve. The asset revaluation reserve is used to record increments and decrements on the revaluation of property, plant and equipment. The cash flow hedge reserve is used to recognise increments and decrements in the fair value of cash flow hedges. The stapled security-based payment reserve is used to recognise the fair value of loan, restricted securities and options issued to employees but not yet exercised under the Group's DSTI and LTIP. 115 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 125 29. Non-Parent disclosure (continued) Financial Risk Management (1) Market Risk Interest rate risk As at reporting date, the EIF Group had the following interest-bearing assets and liabilities: Of the $201.8 million floating interest bearing loans, $132.1 million have been hedged using interest rate swap agreements. These agreements are in place to swap the variable / floating interest payable to a fixed rate to minimise the interest rate risk. 116 126 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 29. Non-Parent disclosure (continued) Interest Rate Sensitivity Credit Risk Exposure to credit risk The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was as detailed below: Impairment losses The ageing of trade and other receivables at reporting date is detailed below: 117 Elanor Investors Group | Annual Report 2020 127 ELANOR INVESTORS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 29. Non-Parent disclosure (continued) Liquidity risk Other financial assets and liabilities This note provides further information about material financial assets and liabilities that are incidental to the EIF and the Trust’s trading activities, being receivables and trade and other payables. Trade and Other Receivables 118 128 Notes to the Consolidated Financial Statements ELANOR INVESTORS GROUP For the year ended 30 June 2020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 29. Non-Parent disclosure (continued) Payables Cash flow information This note provides further information on the consolidated cash flow statements of the Trust. It reconciles profit for the year to cash flows from operating activities and information about non-cash transactions Reconciliation of profit after income tax to net cash flows from operating activities Directors’ Declaration to Stapled Security Holders 119 Elanor Investors Group | Annual Report 2020 ELANOR INVESTORS GROUP 129 Directors’ Declaration to Stapled Securityholders DIRECTORS’ DECLARATION TO STAPLED SECURITY HOLDERS In the opinion of the Directors of Elanor Investors Limited and Elanor Funds Management Limited as responsible entity for the Elanor Investment Fund: a) the financial statements and notes set out on pages 44-128 are in accordance with the corporations Act 2001 (Cth) including: i. ii. complying with Australian Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and giving a true and fair view of the Group's and EIF's financial position as at 30 June 2020 and of their performance, for the financial year ended on that date; and b) c) there are reasonable grounds to believe that the Group and EIF will be able to pay their debts as and when they become due and payable. the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. d) The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by Section 295A of the Corporations Act 2001 (Cth). This declaration is made in accordance with a resolution of the Boards of Directors in accordance with Section 295(5) of the Corporations Act 2001 (Cth). Glenn Willis CEO and Managing Director Sydney 19 August 2020 120 130 Independent Auditor’s Report Deloitte Touche Tohmatsu A.B.N. 74 490 121 060 Grosvenor Place Deloitte Touche Tohmatsu 225 George Street A.B.N. 74 490 121 060 Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1220 Australia Grosvenor Place 225 George Street Sydney NSW 2000 DX 10307SSE PO Box N250 Grosvenor Place Tel: +61 (0) 2 9322 7000 Sydney NSW 1220 Australia Fax: +61 (0) 2 9322 7001 www.deloitte.com.au DX 10307SSE Tel: +61 (0) 2 9322 7000 Fax: +61 (0) 2 9322 7001 www.deloitte.com.au Independent Auditor’s Report to the Stapled Securityholders of Elanor Investors Group and the Securityholders of Elanor Independent Auditor’s Report to the Stapled Securityholders of Investment Fund Group Elanor Investors Group and the Securityholders of Elanor Investment Fund Group Report on the Audit of the Financial Report Opinion Report on the Audit of the Financial Report We have audited the financial report of: Opinion We have audited the financial report of: • • • • • • Elanor Investors Group (the “Group” or “Elanor”) which comprises the consolidated statement of financial position as at 30 June 2020, the consolidated statement of profit or loss, the consolidated statement of comprehensive income, the consolidated statement of Elanor Investors Group (the “Group” or “Elanor”) which comprises the consolidated cash flows and the consolidated statement of changes in equity for the year then ended, statement of financial position as at 30 June 2020, the consolidated statement of profit or notes comprising a summary of significant accounting policies and other explanatory loss, the consolidated statement of comprehensive income, the consolidated statement of information, and the directors’ declaration of the consolidated entity Elanor Investors Group, cash flows and the consolidated statement of changes in equity for the year then ended, being the consolidated stapled entity (“Elanor Investors Group”). The consolidated stapled notes comprising a summary of significant accounting policies and other explanatory entity comprises Elanor Investors Limited and the entities it controlled at the year’s end or information, and the directors’ declaration of the consolidated entity Elanor Investors Group, from time to time during the year, including Elanor Investment Fund and the entities it being the consolidated stapled entity (“Elanor Investors Group”). The consolidated stapled controlled at year’s end or from time to time during the financial year end; entity comprises Elanor Investors Limited and the entities it controlled at the year’s end or from time to time during the year, including Elanor Investment Fund and the entities it Elanor Investment Fund which comprises the consolidated statement of financial position as controlled at year’s end or from time to time during the financial year end; at 30 June 2020, the consolidated statement of profit or loss, the consolidated statement of comprehensive income, the consolidated statement of cash flows and the consolidated Elanor Investment Fund which comprises the consolidated statement of financial position as statement of changes in equity for the year then ended, notes comprising a summary of at 30 June 2020, the consolidated statement of profit or loss, the consolidated statement of significant accounting policies and other explanatory information, and the directors’ comprehensive income, the consolidated statement of cash flows and the consolidated declaration of the consolidated entity Elanor Investment Fund, being the consolidated entity statement of changes in equity for the year then ended, notes comprising a summary of (“EIF Group”). The consolidated entity comprises Elanor Investment Fund and the entities it significant accounting policies and other explanatory information, and the directors’ controlled at the year’s end or from time to time during the year; declaration of the consolidated entity Elanor Investment Fund, being the consolidated entity (“EIF Group”). The consolidated entity comprises Elanor Investment Fund and the entities it Audit the Remuneration Report of Elanor Investors Limited included in the Director’s Report controlled at the year’s end or from time to time during the year; of Elanor Investors Group for the year ended 30 June 2020; Audit the Remuneration Report of Elanor Investors Limited included in the Director’s Report of Elanor Investors Group for the year ended 30 June 2020; In our opinion, the accompanying financial report of Elanor Investors Group and EIF Group is in accordance with the Corporations Act 2001, including: In our opinion, the accompanying financial report of Elanor Investors Group and EIF Group is in (i) accordance with the Corporations Act 2001, including: giving a true and fair view of the Elanor Investors Group and EIF Group’s financial position as at 30 June 2020 and of their financial performance for the year then ended; and giving a true and fair view of the Elanor Investors Group and EIF Group’s financial position complying with Australian Accounting Standards and the Corporations Regulations 2001. as at 30 June 2020 and of their financial performance for the year then ended; and (i) (ii) (ii) Basis for Opinion complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under Report section of our report. We are independent of the Elanor Investors Group and EIF Group in those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical Report section of our report. We are independent of the Elanor Investors Group and EIF Group in requirements of the Accounting Professional & Ethical Standards Board’s APES 110 Code of Ethics accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical for Professional Accountants (including Independence Standards) (the Code) that are relevant to our requirements of the Accounting Professional & Ethical Standards Board’s APES 110 Code of Ethics audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in for Professional Accountants (including Independence Standards) (the Code) that are relevant to our accordance with the Code. audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte Organisation. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte Organisation. 121 121 Elanor Investors Group | Annual Report 2020 131 We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of Elanor Investors Limited and Elanor Funds Management Limited (the “Responsible Entity”), as responsible entity of Elanor Investment Fund, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report in respect of Elanor Investors Group for the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key Audit Matter Property, plant and equipment and investment property valuation At 30 June 2020, Elanor Investors Group recognised property, plant and equipment valued at $321.0 million as disclosed in Note 7 and investment property valued at $50.9 million as disclosed in Note 8. The fair value of property, plant and equipment and investment property is calculated in accordance with the valuation policies set out in Notes 7 and 8 which outline the two valuation methodologies used by Elanor Investors Group. The Critical accounting judgements and key sources of estimation uncertainty Note and the significant Notes 7 and 8 disclose judgements and estimates made by Elanor Investors Group in estimating the fair values. These include the following assumptions: rates, forecast cash flows: including average daily rates and occupancy rates (hotel specific) and market rental income, market growth relief provided and letting up assumptions for other properties. There is increase in judgement being applied as a result of the uncertainty of future average daily rates and occupancy of the properties as a result of COVID-19; rent How the scope of our audit responded to the Key Audit Matter Our procedures included, but were not limited to: • Assessing management’s process over property valuations and the oversight applied by the directors are consistent with relevant accounting standards and Elanor Investors Group’s valuation policy; • Performing an analytical review and risk assessment of the portfolio, analysing the key inputs and assumptions; • Benchmarking the capitalisation rates and discount rates with reference to external market transactions and challenging those assumptions where appropriate; trends and • Performing procedures over the specific assumptions and judgements made around the impact of COVID-19 on the valuation models including average daily rates, occupancy rates, market rental income, market growth rates, rent relief provided and letting up assumptions; • Holding discussions with management and the external valuers to obtain an understanding of portfolio movements and their assessment of the impact of COVID- 19 on the valuations, including the material uncertainty statement included in their reports; capitalisation rates: since the start of COVID-19 there has been limited relevant transaction evidence; and • Assessing the independence, competence and objectivity of the internal and external valuers; and discount rates: are subjective due to the specific nature and characteristics of individual assets. In addition, Note 7 highlights the uncertainty created by COVID-19 and as a result the valuers have included a significant valuation uncertainty statement in their valuation reports as at 30 June 2020. This clause indicates that less certainty, and consequently a higher • Testing on a sample basis of externally and internally valued properties, the following: o the integrity of the information in the valuation models by agreeing key inputs such as net operating income to underlying records and source evidence; o the forecasts used in the valuation models with reference to current • • • 122 132 Independent Auditor’s Report degree of caution should be attached to the valuations as a result of COVID-19. The sensitivity to changes associated with the greater levels of estimation uncertainty being applied in respect of these assumptions are disclosed in Notes 7 and 8. financial results such as revenues and expenses, average daily rates, occupancy capital expenditure requirements, vacancy rates and lease renewals; and rates, o the mathematical accuracy of the valuation models. We also assessed the appropriateness of the disclosures included in the Notes to the financial statements. Carrying value of the equity accounted investments Our procedures included, but were not limited to: At 30 June 2020, Elanor Investors Group recognised equity accounted investments valued at $97.7 million as disclosed in Note 9. These investments represent Elanor Investors Group’s shareholding in these managed funds and are accounted for in accordance with accounting policy as outlined in Note 9. The Critical accounting judgements and key sources of estimation uncertainty Note and Note 9 disclose the significant judgements and estimates made by Elanor Investors Group to ensure that the underlying property assets of these funds have been recognised at fair value, in accordance with the Group’s accounting policy and methodology fair value measurement of Property, Plant and Equipment and Investment Properties as described in Notes 7 and 8 and thereby ensuring that the investment is not impaired. for • Assessing management’s process over the determination of the carrying value of the equity accounted investment and whether or not an impairment loss is required to be recorded; • Assessing management’s process over the determination of property valuations within the managed funds and the oversight applied by the directors to ensure that the determined property consistent with accounting standards and Elanor Investors Group’s valuation policy; are relevant valuations • Performing an analytical review and risk assessment of the portfolio, analysing the key inputs and assumptions; • Benchmarking the capitalisation rates and discount rates with reference to external market transactions and challenging those assumptions where appropriate; trends and • Performing procedures over the specific assumptions and judgements made around the impact of COVID-19 on the valuation models including market rental income, market growth rates, rent relief provided and letting up assumptions; • Holding discussions with management and the external valuers to obtain an understanding of portfolio movements and their assessment of the impact of COVID- 19 on the valuations, including the material uncertainty statement included in their reports; • Assessing the independence, competence and objectivity of the internal and external valuers; and • Testing on a sample basis of externally and internally valued properties, the following: o the integrity of the information in the valuation models by agreeing key inputs such as net operating income to underlying records and source evidence; 123 Elanor Investors Group | Annual Report 2020 133 o the forecasts used in the valuation financial results such as revenues and expenses, capital expenditure requirements, vacancy rates and lease renewals; and o the mathematical accuracy of the valuation models. We also assessed the appropriateness of the disclosures included in Note 9 to the financial statements. Other Information The directors of Elanor Investors Limited and the Responsible Entity (the “Directors”) are responsible for the other information. The other information comprises the Directors’ Report, which we obtained prior to the date of this auditor’s report. The other information also includes the following information which will be included in the Annual Report (but does not include the financial report and our auditor’s report thereon): the Message from the Chairman, Message from the CEO and other documents which are expected to be made available to us after that date. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. When we read the Message from the Chairman, Message from the CEO and other documents in the annual report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors and use our professional judgement to determine the appropriate action. Responsibilities of the Directors for the Financial Report The directors are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of Elanor Investors Group and EIF Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company and/or the Fund or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: 124 134 Independent Auditor’s Report • Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit 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 Group’s internal control. • • • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company and Fund’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company or the Fund to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within Elanor Investors Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of Elanor Investors Group’s audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in 30 to 40 of the Directors’ Report for the year ended 30 June 2020. In our opinion, the Remuneration Report of Elanor Investors Group, for the year ended 30 June 2020, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of Elanor Investors Limited and Elanor Funds Management Limited, as responsible entity of Elanor Investment Fund, 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 125 Elanor Investors Group | Annual Report 2020135 126an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. DELOITTE TOUCHE TOHMATSU D Nell Partner Chartered Accountants Sydney, 19 August 2020 136 Corporate Governance The Board of Directors of Elanor Investors Group (Group) have approved the Group’s Corporate Governance Statement as at 30 June 2020. In accordance with ASX Listing Rule 4.10.3, the Group’s Corporate Governance Statement can be found on its website at: www.elanorinvestors.com The Board of Directors is responsible for the overall corporate governance of the Group, including establishing and monitoring key strategy and performance goals. The Board monitors the operational and financial position and performance of the Group, and oversees its business strategy, including approving the Group’s strategic goals. The Board seeks to ensure that the Group is properly managed to protect and enhance securityholder interests, and that the Group, its Directors, officers and personnel operate in an appropriate environment of corporate governance. Accordingly, the Board has created a framework for managing the Group, including Board and Committee Charters and various corporate governance policies designed to promote the responsible management and conduct of the Group. Elanor Investors Group | Annual Report 2020Securityholder Analysis As at 19 August 2020 137 Stapled Securities The units of the Trust and the shares of the Company are combined and issued as stapled securities in the Group. The Group’s securities are traded on the Australian Securities Exchange (ASX: ENN), having listed on 11 July 2014. The units of the Trust and shares of the Company cannot be traded separately and can only be traded as stapled securities. In accordance with the ASX’s requirements for stapled securities, the ASX reserves the right (but without limiting its absolute discretion) to remove the Company or the Trust or both from the ASX Official List if any of the units and the shares cease to be stapled together or any equity securities issued by the Company or the Trust which are not stapled to equivalent securities in the other entity. Top 20 Securityholders Number Securityholder 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 HSBC Custody Nominees (Australia) Limited Rockworth Investment Holdings Pte Ltd J P Morgan Nominees Australia Pty Limited Citicorp Nominees Pty Limited BNP Paribas Nominees Pty Ltd CPU Share Plans Pty Ltd Mr Glenn Willis Armada Investments Pty Ltd Perpetual Corporate Trust Ltd H & G Limited BNP Paribas Noms Pty Ltd Danissa Pty Ltd

Crownace Pty Ltd National Nominees Limited The Trust Company (Australia) Limited Citano Pty Ltd Citano Pty Ltd Danissa Pty Ltd J B Holdings Pty Ltd Colovine Pty Ltd Total Balance of Register Grand Total No. of Securities % 21,816,344 18.24 17,932,967 15.00 8,068,861 4,116,463 3,237,760 2,964,286 2,800,000 2,295,605 2,000,000 1,500,000 1,220,795 880,705 700,000 655,179 619,048 545,795 533,839 474,993 465,000 462,514 6.75 3.44 2.71 2.48 2.34 1.92 1.67 1.25 1.02 0.74 0.59 0.55 0.52 0.46 0.45 0.40 0.39 0.39 73,290,154 61.29 46,289,185 38.71 119,579,339 100.00 138 Securityholder Analysis As at 19 August 2020 Range Report Range No. of Securities % No. of Holders 100,001 and over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Total 83,887,837 30,093,343 3,845,663 1,614,654 137,842 70.15 25.17 3.22 1.35 0.12 84 1,065 474 498 278 % 3.50 44.39 19.76 20.76 11.59 119,579,339 100.00 2,399 100.00 The total number of securityholders with an unmarketable parcel of securities was 107. Substantial Securityholders Securityholder Rockworth Investment Holdings Pte Ltd Perpetual Limited No. of Securities 17,932,967 17,319,182 % 15.00 14.74 Voting rights On a poll, each securityholder has, in relation to resolutions of the Trust, one vote for each dollar value of their total units held in the Trust and in relation to resolutions of the Company, one vote for each share held in the Company. On-Market Buy-back There is no current on-market buy-back program in place. Elanor Investors Group | Annual Report 2020139 Corporate Directory Elanor Investors Group (ASX Code: ENN) Elanor Investors Limited (ACN 169 308 187) and Elanor Investment Fund (ARSN 169 450 926) (Elanor Funds Management Limited (ACN 125 903 031) is the Responsible Entity) Level 38 259 George Street Sydney NSW 2000 T: +61 2 9239 8400 Directors of the Responsible Entity and Elanor Investors Limited Paul Bedbrook (Chairman) Glenn Willis (Managing Director and CEO) Nigel Ampherlaw Kin Song Lim Anthony (Tony) Fehon Company Secretary of the Responsible Entity and Elanor Investors Limited Symon Simmons Security Registry Computershare Investor Services Pty Limited Level 3 60 Carrington Street Sydney NSW 2000 Auditors Deloitte Touche Tohmatsu Grosvenor Place 225 George Street Sydney NSW 2000 Custodian The Trust Company (Australia) Limited Level 18 123 Pitt Street Sydney NSW 2000 Website www.elanorinvestors.com Level 38, 259 George Street Sydney NSW 2000 T: +61 2 9239 8400 elanorinvestors.com