RETAIL
PROPERTY
FUND
Annual Report 2017
Auburn Central, Sydney, NSW
ELANOR RETAIL PROPERTY FUND
Annual Report 2017
1
CONTENTS
Highlights
Message from the Chairman
CEO’s Message
Financial Report
Directors’ Report
Auditors Independence Declaration
Financial Statements
Notes to the Financial Statements
Directors’ Declaration
Independent Auditor’s Report
Corporate Governance
Security Holder Analysis
Corporate Directory
2
3
4
7
8
17
18
24
45
46
51
52
54
FINANCIAL CALENDAR
December 2017
February 2018
March 2018
June 2018
August 2018
September 2018
September 2018
Estimated interim distribution
announcement and securities
trade ex-distribution
Interim results announcement
Interim distribution payment
Estimated final distribution
announcement and securities
trade ex-distribution
Full-year results announcement
Final distribution payment
Annual tax statements
RESPONSIBLE ENTITY
Elanor Funds Management Limited ABN 39 125 903 031. AFSL 398196.
Elanor Retail Property Fund Annual Report 2017
2
HIGHLIGHTS
CORE EARNINGS
for the financial year 2017
$8.67m
DISTRIBUTIONS
(per security)
6.40c
SECURITY PRICE
at 30 June 2017
$1.37
PORTFOLIO VALUE
at 30 June 2017
NET ASSET VALUE
(per security)
GEARING
at 30 June 2017
$260.8m
$1.42
29.3%
ELANOR RETAIL PROPERTY FUND’S
OWNED AND MANAGED INVESTMENTS
Northern Territory
Western Australia
South Australia
Queensland
New South Wales
Victoria
GEOGRAPHIC
DIVERSIFICATION1
TAS
7%
QLD
16%
KEY TENANTS2
Other
specialties
61%
Tasmania
1. By asset value
2. By base rent
77%
NSW
Woolworths
18%
8%
Coles
6%
Target
4%
3%
Big W
Supa IGA
Elanor Retail Property Fund Annual Report 2017 MESSAGE FROM THE CHAIRMAN
3
On behalf of the Board, I am pleased to
present Elanor Retail Property Fund’s
Annual Report, including its Financial
Statements for the year ended 30 June 2017.
Paul Bedbrook
Chairman
The period from listing on 9 November
2016 to 30 June 2017 represents our
inaugural reporting period. It has been
a successful period, both in terms of
achieving our financial objectives and
executing the Fund’s strategy.
The Fund is an externally managed
real estate investment fund investing
in Australian retail property, with a
focus on high investment quality
neighbourhood and sub-regional
shopping centres. The Fund’s objective
is to provide investors with strong
income returns and capital growth
from both the existing portfolio and
retail properties that may be acquired
in the future.
I am pleased to confirm that the Fund’s
strategy and performance forecasts
set out in the Product Disclosure
Statement at the IPO of the Fund in
November 2016 have been delivered.
The Fund has delivered core earnings
of $8.7 million for the period and has
distributed $8.2 million, or 6.40 cents
per security.
ACHIEVEMENTS
Since IPO, the value of the Fund’s
portfolio has grown from $243.2 million
to $260.8 million at year end, driven by
an increase of $17.5 million or 7.2% in
the value of the portfolio over the eight
month period. The portfolio value as
at 30 June 2017 represents a weighted
average capitalisation rate of 7.2%.
In July 2017, the Fund acquired the
Gladstone Square Shopping Centre
for $31.5 million, taking the value of
the portfolio to $292.3 million. This
acquisition increases the Fund’s
annualised forecast distribution
yield by 3% (or 20 basis points) in
addition to improving the geographic
diversification, portfolio WALE,
occupancy and debt maturity
of the Fund.
The Fund has maintained its
conservative capital structure with
a gearing level of 36.6% following the
acquisition of Gladstone Square
Shopping Centre. This gearing level
is within the Fund’s stated target
range of 30% to 40%.
We are of the view that these
achievements confirm the Fund’s
status as a low risk retail REIT that
represents strong value and delivers
a sector leading yield.
OUTLOOK
The Fund’s strategy will remain focused
on managing and growing earnings
from its investment portfolio and
acquiring additional high investment
quality retail properties. The Fund is
strongly positioned to enhance value
for security holders.
I wish to thank my fellow Board
members, our executive leadership
team and the Fund team led by Michael
Baliva, for their dedication, enthusiasm
and hard work.
Finally, thank you to all Elanor Retail
Property Fund security holders for your
continued support and confidence.
We look forward to growing value for
security holders into the future.
Yours sincerely,
Paul Bedbrook
Chairman, Elanor Investors Group
Elanor Retail Property Fund Annual Report 2017
4
CEO’S MESSAGE
We have delivered on
the Fund’s strategy and
performance expectations
since listing. We are firmly
of the view that the Fund
represents a low risk retail
REIT that will generate
strong value and provide
a sector leading yield to
security holders.
STRATEGY
During the period from the Fund’s IPO
on 9 November 2016 we have achieved
our PDS forecasts and all key financial
and strategic objectives. The Fund’s
strategy is to:
–
–
Invest in retail properties that
provide stable earnings from rental
income across a diversified retail
tenant mix, with a strong focus on
non-discretionary retailers;
Implement leasing and other active
asset management initiatives to
grow the income and value of the
retail properties;
– Acquire additional high investment
quality retail properties with a
significant component of non-
discretionary retailers;
Implement development and
repositioning strategies in the
Portfolio; and
–
– Optimise the capital structure for
the Fund based on a conservative
approach to gearing.
Elanor Retail Property Fund Annual Report 2017
I am pleased to present Elanor Retail
Property Fund’s Annual Report for
its first reporting period.
Glenn Willis
Managing Director and
Chief Executive Officer
–
Implementation of tenant remixing
strategies at Tweed Mall and
Northway Plaza centres; and
– Completion of the strategic plan
for the portfolio including the
significant mixed use development
strategy for Tweed Mall.
This has resulted in:
–
$17.6 million (7.2%) increase in
portfolio valuation to $260.8
million at 30 June 2017, reflecting
a weighted average capitalisation
rate of 7.2%;
– NTA per security increasing
by 13.8% since listing from
$1.25 to $1.42; and
– Portfolio occupancy strengthening
to 99.0% (including rental
guarantees) from 96.7% at IPO.
Additionally, on 31 July 2017, the
Group completed the acquisition
of the Gladstone Square Shopping
Centre at a purchase price of $31.5
million. Gladstone Square is a recently
refurbished, single level neighbourhood
shopping centre centrally located in the
Gladstone CBD. The centre is anchored
by an extensively refurbished and
expanded Woolworths supermarket
with a new 20 year lease, expiring in May
2036. As a result of this acquisition, the
Group’s investment portfolio increased
to $292.3 million.
KEY RESULTS
– Core earnings for the period
of $8.7 million or 6.7 cents per
security, in line with the PDS
forecast
– Distributions for the period were
$8.2 million or 6.40 cents per
security, reflecting a payout ratio
of 95% of core earnings, in line
with the PDS forecast
– Net Tangible Assets (NTA) per
security of $1.42 as at 30 June 2017
INVESTMENT PORTFOLIO
The Fund has delivered on its strategy
to grow and enhance the value of the
portfolio. In particular, the highly active
asset management approach through
leasing and other asset management
initiatives has grown both the income
and value of the portfolio. Some of the
key asset management achievements
include:
– Completion of a significant number
of leasing initiatives across the
portfolio, notably the successful
execution of the specialty remixing
strategy at Auburn Central (this has
increased the non-discretionary
retail component at the centre and
led to significantly improved centre
performance);
Leasing of a 900 square metre
commercial space at Auburn
Central for 10 years;
Investment of $1 million into a
car park management system at
Auburn Central, generating an ROI
of 36% (in addition to improving the
performance of the centre);
–
–
CEO’S MESSAGE
continued
5
Manning Mall, Taree, NSW
The acquisition of Gladstone Square is
consistent with the Group’s strategy of
achieving accretive growth through the
acquisition of high investment quality
neighbourhood and sub-regional
shopping centres with a significant
component of non-discretionary
retailers.
Each of the portfolio properties
present strong operational and
strategic opportunities to further
increase the Fund’s value. We are
focused on executing initiatives to
deliver this inherent value, consistent
with our urgent and highly active
approach to asset management.
CAPITAL MANAGEMENT
The Fund is focused on maintaining a
conservative capital structure with a
target gearing range of between 30%
and 40%. At 30 June 2017, the Fund’s
gearing was 29.3%, below the target
range. Following the acquisition of
Gladstone Square, the Fund’s gearing of
36.6% remains within the target range.
OUTLOOK
The Fund’s core strategy will remain
focused on actively managing and
growing earnings from its investment
portfolio, and acquiring additional high
investment quality retail properties.
During the forthcoming year, the Fund
anticipates completing the disposal of
non-core podium strata lots at Auburn
Central (this process commenced in
August 2017). The net proceeds from
the sale of these lots will be reinvested
into accretive, high investment
quality shopping centre acquisitions,
consistent with the Fund’s strategy. The
Fund is also considering further asset
recycling opportunities.
The Fund is strongly positioned to
enhance value for security holders.
The active asset management of
the existing portfolio is generating
improved operational performance
and returns. Furthermore, unlocking the
embedded value of the Fund’s assets
from the successful implementation
of strategic initiatives will increase the
capital value of the portfolio.
I wish to thank my executive leadership
team and the Fund’s management
team led by Michael Baliva for
their commendable efforts and
achievements over the period.
Yours sincerely,
Glenn Willis
Managing Director and
Chief Executive Officer,
Elanor Investors Group
Elanor Retail Property Fund Annual Report 2017
6
Tweed Mall, Tweed Heads, NSW
Elanor Retail Property Fund Annual Report 2017
FINANCIAL REPORT
for the year ended 30 June 2017
CONTENTS
Directors’ Report
Auditors 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 Financial Statements
Directors’ Declaration
Independent Auditor’s Report
7
8
17
18
19
20
21
23
24
45
46
Elanor Retail Property Fund Annual Report 2017 8
DIRECTORS’ REPORT
ELANOR RETAIL PROPERTY FUND
DIRECTORS’ REPORT
Directors’ Report
The Directors of Elanor Funds Management Limited (Responsible Entity or Manager), as responsible entity of the Elanor
Retail Property Fund I and Elanor Retail Property Fund II, present their report together with the consolidated financial
report of Elanor Retail Property Fund (Group, Consolidated Group or Fund) and the consolidated financial report of the
Elanor Retail Property Fund I (ERPF I Group) for the year ended 30 June 2017 (period).
The financial report of the Consolidated Group comprises Elanor Retail Property Fund II (ERPF II) and its controlled
entities, including Elanor Retail Property Fund I (ERPF I) and its controlled entities. The financial report of the ERPF I
Group comprises Elanor Retail Property Fund I and its controlled entities.
The Responsible Entity 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.
ERPF I and ERPF II were registered as managed investments schemes on 13 October 2016. The units of ERPF I and
the units of ERPF II are combined and issued as stapled securities in the Group. The Group's securities are traded on
the Australian Securities Exchange (ASX: ERF), having listed on 9 November 2016. The units of each scheme cannot be
traded separately and can only be traded as stapled securities. Although there is no ownership interest between ERPF I
and ERPF II, ERPF II is deemed to be the parent entity of the Group in accordance with the Australian Accounting
Standards.
The Directors' report is a combined Directors' report that covers both schemes. 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 during the period and up to the date of this
report:
Paul Bedbrook (Chair)
Glenn Willis (Managing Director and Chief Executive Officer)
Nigel Ampherlaw
William (Bill) Moss AO
2. Principal activities
The principal activities of the Fund are the investment in Australian retail properties, with the focus predominantly on
quality, high yielding neighbourhood and sub-regional shopping centres.
3. Distributions
Distributions relating to the year ended 30 June 2017 comprise:
A provision for the Final Distribution has not been recognised in the financial statements for the period as the distribution
had not been declared at the reporting date. The total Distribution for the period from listing to 30 June 2017 of 6.4 cents
is in line with the forecast Distribution of 6.4 cents per stapled security as set out in the Product Disclosure Statement
(PDS) of the Group dated 14 October 2016.
Elanor Retail Property Fund Annual Report 2017
3
DIRECTORS’ REPORT
ELANOR RETAIL PROPERTY FUND
continued
DIRECTORS’ REPORT
9
4.
Operating and financial review
OVERVIEW AND STRATEGY
The Fund is an externally managed real estate investment fund investing in Australian retail property, focusing on high
investment quality neighbourhood and sub-regional shopping centres.
The Fund’s objective is to provide investors with strong, stable and growing income returns and capital growth in the
asset portfolio, and in other retail properties that may be acquired in the future. To achieve this objective, the Fund’s
strategy is to:
Invest in retail properties that provide stable earnings from rental income across a diversified retail tenant mix,
with a strong focus on non-discretionary retailers;
Implement leasing and active asset management to grow the income and value of the retail properties;
Acquire additional high investment quality retail properties with a significant component of non-discretionary
retailers;
Implement development and repositioning strategies in the Portfolio and in additional retail properties acquired
in the future; and
Optimise the capital structure for the Fund based on a conservative approach to gearing.
INVESTMENT PORTFOLIO
The following table shows the Group's investment portfolio as at balance date:
On 31 July 2017, the Group completed the acquisition of the Gladstone Square shopping centre at a purchase price of
$31.5 million. As a result, the Group’s investment portfolio increased to $292.3 million.
Gladstone Square is a recently refurbished, single level neighbourhood shopping centre centrally located in the
Gladstone CBD. The centre is anchored by an extensively refurbished and expanded Woolworths supermarket with a
new 20 year lease, expiring in May 2036.
The acquisition of Gladstone Square has:
Extended the Portfolio weighted average lease expiry (WALE) from 4.8 years to 5.3 years;
Resulted in a Portfolio occupancy level of 98.5%;
Extended the Group’s weighted average debt facility maturity from 2.2 years to 3.0 years, being wholly funded
by a new five year finance facility; and
Extended the weighted average interest rate swap maturity from 3.1 years to 3.7 years, with the new finance
facility fully interest rate hedged for five years.
The acquisition of Gladstone Square is consistent with the Group’s strategy of achieving accretive growth through the
acquisition of high investment quality neighbourhood and sub-regional shopping centres with a significant component
of non-discretionary retailers.
4
Elanor Retail Property Fund Annual Report 2017
10
DIRECTORS’ REPORT
ELANOR RETAIL PROPERTY FUND
continued
DIRECTORS’ REPORT
4.
Operating and financial review (continued)
FINANCIAL RESULTS
The Group recorded a statutory profit of $11.7 million for the year ended 30 June 2017, including the financial results of
ERPF II prior to the IPO on 9 November 2016, and after $10.3 million of transaction and establishment costs associated
with the set up and listing of the Fund.
The consolidated profit of the Group since its IPO, from 9 November 2016 to 30 June 2017, was $13.8 million after
transaction and establishment costs.
Core Earnings post IPO were $8.7 million or 6.7 cents per stapled security. A Final Distribution of 5.0 cents per stapled
security has been declared for the six month period ended 30 June 2017 (95% pay-out ratio on Core Earnings). This is in
line with the Fund’s forecast included in the PDS. Core Earnings is considered more relevant than statutory profit as it
represents an estimate of the underlying recurring cash earnings of the Fund, and has been determined in accordance
with ASIC Regulatory Guide 230.
A summary of the Group and ERPF I Group's results for the post IPO period to 30 June 2017 is set out below:
The table below provides a reconciliation from statutory net profit / (loss) 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), adjusted for one-off realised items (being formation or other transaction costs
that occur infrequently or are outside the course of ongoing business activities), and non-cash items (being fair value movements, amortisation
and lease straight-lining).
Note 2: Transaction and establishment costs incurred by the Group through profit and loss relate to the establishment and listing of
the Group in November 2016. These costs are:
Elanor Retail Property Fund Annual Report 2017
5
DIRECTORS’ REPORT
ELANOR RETAIL PROPERTY FUND
continued
DIRECTORS’ REPORT
11
4.
Operating and financial review (continued)
SUMMARY AND OUTLOOK
The Fund's core strategy will remain focussed on actively managing and growing earnings from its investment
portfolio, and acquiring additional high investment quality retail properties.
Risks to the Fund in the coming year primarily comprise potential earnings variability associated with general
economic and market conditions, including retailer demand, domestic retail spending, the availability of capital for
acquisition opportunities, any movement in property valuations and possible weather related events. The Fund
manages these risks through its active asset management approach across its investment portfolio, continuing to
focus on broadening the Fund's tenant mix, insurance arrangements and the active management of the Fund's capital
structure.
During the coming year, the Fund anticipates completing the disposal of non-core podium strata lots at Auburn
Central, with the process commenced in August 2017. The net proceeds of the sale of these lots will be reinvested
into accretive high investment quality shopping centre acquisitions, consistent with the Fund’s strategy. The Fund is
also considering other asset recycling opportunities in its investment portfolio.
The Fund is committed to growing its investment portfolio through continued review of further high investment quality
shopping centre acquisition opportunities.
The Fund is strongly positioned to enhance value for security holders. The active asset management of the existing
portfolio is generating improved operational performance and returns and increased capital value from implementation
of strategic initiatives.
5.
Value of assets
6.
Interests in the Group
The movement in stapled securities of the Group during the year is set out below:
6
Elanor Retail Property Fund Annual Report 2017
12
DIRECTORS’ REPORT
ELANOR RETAIL PROPERTY FUND
continued
DIRECTORS’ REPORT
7.
Directors
The following persons have held office as Directors of the Responsible Entity during the period and up to the date of
this report:
Name
Particulars
Paul
Bedbrook
Independent Non-Executive Chairman
Paul was appointed a Director of the Responsible Entity and Elanor Investors Limited 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, 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: None
Qualifications: B.Sc, F FIN, FAICD
Glenn Willis
Managing Director and Chief Executive Officer
Glenn was appointed a Director of the Responsible Entity and Elanor Investors Limited in June
2014. Glenn has extensive industry knowledge with over 25 years’ experience in the Australian
and international capital markets.
Glenn was most recently co-founder and Chief Executive Officer of Moss Capital. Prior to Moss
Capital, Glenn co-founded Grange Securities and led the team in his role as Managing Director
and CEO. Grange Securities was a pre-eminent Australian owned investment bank with
businesses in fixed income, equities, corporate finance and funds management. Grange
Securities grew to be Australia’s major independent fixed income house.
After 12 years of growth, Grange Securities, a business with approximately 150 personnel, 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 previously held senior positions at Fay Richwhite and Challenge Bank.
Former listed directorships in the last three years: None
Interest in stapled securities: 224,075
Qualifications: B.Bus (Econ & Fin)
Elanor Retail Property Fund Annual Report 2017
7
DIRECTORS’ REPORT
ELANOR RETAIL PROPERTY FUND
continued
DIRECTORS’ REPORT
13
7. Directors (continued)
Name
Particulars
Nigel
Ampherlaw
Independent Non-Executive Director
Chairman, Audit and Risk Committee
Nigel was appointed a Director of the Responsible Entity and Elanor Investors Limited 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 a non-executive Director with Credit Union Australia, where
he is Chair of CCI Ltd and a member of the Strategy Committee, non-executive director of
Quickstep Holdings Ltd where he is Chair of the Audit and Risk Committee 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. Nigel has also been a member of the
Grameen Foundation Australia charity board since 2012.
Former listed directorships in the last three years: None
Interest in stapled securities: 109,630
Qualifications: B.Com, FCA, MAICD
William (Bill)
Moss AO
Non-Executive Director
Bill was appointed a Director of the Responsible Entity and Elanor Investors Limited 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: 903,704
Qualifications: B.Ec
8
Elanor Retail Property Fund Annual Report 2017
14
DIRECTORS’ REPORT
ELANOR RETAIL PROPERTY FUND
continued
DIRECTORS’ REPORT
8.
Directors’ relevant interests
Other than as disclosed in the Annual Financial Report, no contracts exist where a director is entitled to a benefit.
9.
Meetings of Directors
The attendance at meetings of Directors of the Responsible Entity and the Audit and Risk Committee of the Group during
the year is set out in the following table:
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 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 Responsible Entity paid a premium in respect of a contract insuring the Directors of the
Responsible Entity (as named above), the company secretary, and all executive officers of the Responsible Entity and of
any related body corporate against a liability incurred in their capacity as Directors and officers of the Responsible Entity
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 Responsible Entity 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 Responsible Entity or of any related body corporate against a
liability incurred in their capacity as an officer.
The auditor of the Fund is not indemnified out of the assets of the Fund.
12. Environmental regulation
To the best of their knowledge and belief after making due enquiry, the Directors have determined that the Fund 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
There was no significant change in the state of affairs of the Fund during the year.
Elanor Retail Property Fund Annual Report 2017
9
DIRECTORS’ REPORT
ELANOR RETAIL PROPERTY FUND
continued
DIRECTORS’ REPORT
15
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.
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 17 to the financial statements.
The Directors are satisfied that the provision of non-audit services, during the year, by the auditor (or by another person
or firm on the auditor’s behalf) is compatible with the general standard of independence for auditors imposed by the
Corporations Act 2001 (Cth).
The Directors are of the opinion that the services as disclosed in Note 17 to the 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 Fund, acting as advocate for the Fund 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 Fund is unknown.
Such results could include property market valuations, the ability of the Fund to raise or refinance debt, and the cost of
such debt and the ability to raise equity.
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 Fund which would have a material impact on the future results of the Fund.
17. Events occurring after reporting date
Subsequent to year end, a distribution of 5.0 cents per stapled security has been declared by the Board of Directors.
As noted previously, on 31 July 2017, the Group completed the acquisition of the Gladstone Square shopping centre at a
purchase price of $31.5 million.
Other than the above, the Directors of the Responsible Entity are not aware of any other matter since the end of the
period that has or may significantly affect the operations of the Group, the result of those operations, or the state of the
Group’s affairs in future financial periods that are not otherwise referred to in this Directors’ Report.
18. Rounding of amounts to the nearest thousand dollars
In accordance with Legislative Instrument 2016/191 issued by the Australian Securities and Investments Commission,
amounts in the financial statements have been rounded to the nearest thousand dollar, unless otherwise indicated.
10
Elanor Retail Property Fund Annual Report 2017
16
DIRECTORS’ REPORT
continued
ELANOR RETAIL PROPERTY FUND
DIRECTORS’ REPORT
This report is made in accordance with a resolution of the Board of Directors of the Responsible Entity.
Signed in accordance with a resolution of the Directors pursuant to section 298(2) of the Corporations Act
2001 (Cth).
Paul Bedbrook
Chairman
Glenn Willis
CEO and Managing Director
Sydney, 18 August 2017
Elanor Retail Property Fund Annual Report 2017
11
AUDITORS INDEPENDENCE DECLARATION
17
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
The Directors
Elanor Funds Management Limited
(as responsible entity for Elanor Retail Property
Fund I and Elanor Retail Property Fund II )
Level 38, 259 George Street
Sydney NSW 2000
18 August 2017
Dear Directors,
Elanor Retail Property Fund I and Elanor Retail Property Fund II
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 Funds Management Limited in
its capacity as responsible entity for Elanor Retail Property Fund I and Elanor Retail Property
Fund II.
As lead audit partner for the audit of the financial statements of Elanor Retail Property Fund I
and Elanor Retail Property Fund II for the year ended 30 June 2017, 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
AG Collinson
Partner
Chartered Accountants
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
12
Elanor Retail Property Fund Annual Report 2017
18
ELANOR RETAIL PROPERTY FUND
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS
FOR THE YEAR ENDED 30 JUNE 2017
for the year ended 30 June 2017
Consoli dated Stateme nts of Pr ofit or Loss
ELANOR RETAIL PROPERTY FUND
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS
FOR THE YEAR ENDED 30 JUNE 2017
Consoli dated Stateme nts of Pr ofit or Loss
The above Consolidated Statements of Profit or Loss should be read in conjunction with the accompanying notes
Elanor Retail Property Fund Annual Report 2017
13
The above Consolidated Statements of Profit or Loss should be read in conjunction with the accompanying notes
13
ELANOR RETAIL PROPERTY FUND
19
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2017
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME
ELANOR RETAIL PROPERTY FUND
Consolidat ed Statem ents of Compr eh ensive Income
for the year ended 30 June 2017
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2017
Consolidat ed Statem ents of Compr eh ensive Income
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
14
Elanor Retail Property Fund Annual Report 2017
14
20
ELANOR RETAIL PROPERTY FUND
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
FOR THE YEAR ENDED 30 JUNE 2017
ELANOR RETAIL PROPERTY FUND
as at 30 June 2017
Consoli dated Stateme nts of Fina ncial Position
Consoli dated Stateme nts of Fina ncial Position
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
FOR THE YEAR ENDED 30 JUNE 2017
The above Consolidated Statements of Financial Position should be read in conjunction with the accompanying notes
Elanor Retail Property Fund Annual Report 2017
15
The above Consolidated Statements of Financial Position should be read in conjunction with the accompanying notes
15
21
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Elanor Retail Property Fund Annual Report 2017
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Elanor Retail Property Fund Annual Report 2017
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T
ELANOR RETAIL PROPERTY FUND
23
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2017
for the year ended 30 June 2017
Consoli dated State nts of Ca sh Flows
ELANOR RETAIL PROPERTY FUND
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2017
Consoli dated State nts of Ca sh Flows
The above Consolidated Statements of Cash Flows should be read in conjunction with the accompanying notes
18
Elanor Retail Property Fund Annual Report 2017
The above Consolidated Statements of Cash Flows should be read in conjunction with the accompanying notes
18
24
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 June 2017
ELANOR RETAIL PROPERTY FUND
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
Notes to the Consolidated Financial Statements
About this Report
Elanor Retail Property Fund (the Fund, Group or Consolidated Group) is a 'stapled' entity comprising of Elanor Retail
Property Fund I (formerly Elanor Retail Property Fund) (ERPF I) and its controlled entities, and Elanor Retail Property
Fund II (formerly Auburn Central Syndicate) (ERPF II) and its controlled entities. The units in ERPF I are stapled to
units in ERPF II. The stapled securities cannot be traded or dealt with separately. The stapled securities of the Fund
were listed on the Australian Securities Exchange (ASX:ERF) on 9 November 2016 (IPO transaction).
For the purposes of the consolidated financial report, ERPF II has been deemed the parent entity of ERPF I in the
stapled structure. The Directors applied judgement in the determination of the parent entity of the Fund and
considered various factors including asset size and capital structure. The financial report of the Fund comprises the
consolidated financial report of Elanor Retail Property Fund II and its controlled entities, including Elanor Retail
Property Fund I and its controlled entities (ERPF I Group). As permitted by Class Order 05/642 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 the Fund and ERPF I Group. The comparative
period disclosed for the Group in the financial report consists of the results of ERPF II when it was operating as
Auburn Central Syndicate prior to the IPO, from 22 May 2015 to 30 June 2016, being its first reporting period.
These general purpose financial statements have been prepared in accordance with the Corporations Act 2001, the
Scheme Constitutions and Australian Accounting Standards. Compliance with Australian Accounting Standards
ensures compliance with International Financial Reporting Standards (‘IFRS’).
Basis of consolidation
The consolidated financial report of the Fund incorporates the assets and liabilities of ERPF II (the Parent) and all of
its subsidiaries, including ERPF I and its subsidiaries as at 30 June 2017. ERPF II is the parent entity in relation to
the stapling. The results and equity of ERPF I (which is not directly owned by ERPF II) have been treated and
disclosed as a non-controlling interest. Whilst the results and equity of ERPF I are disclosed as a non-controlling
interest, the stapled security holders of ERPF I are the same as the stapled security holders of ERPF II.
This consolidated financial report also includes a separate column representing the financial report of ERPF I,
incorporating the assets and liabilities of ERPF I and all of its subsidiaries, as at 30 June 2017.
For the purpose of preparing the financial statements, the Fund is a for-profit entity. The financial report is presented in
Australian Dollars.
Elanor Retail Property Fund Annual Report 2017
19
NOTES TO THE FINANCIAL STATEMENTS
continued
The notes to the consolidated financial statements have been organised into the following four sections:
RESULTS
1. Segment information
2. Revenue
3. Distributions
4. Earnings / (losses) per stapled security
5. Cash flow information
OPERATING ASSETS
6. Investment properties
FINANCE AND CAPITAL STRUCTURE
7. Interest bearing liabilities
8. Derivative financial instruments
9. Contributed equity
10. Financial risk management
OTHER ITEMS
11. Business combinations
12. Other assets and liabilities
13. Net tangible assets
14. Related parties
15. Unrecognised items
16. Parent entity disclosure
17. Auditors’ remuneration
18. Subsequent events
19. Accounting policies
25
26
26
26
27
27
28
29
29
32
32
32
33
34
38
38
39
40
40
41
42
43
43
43
Elanor Retail Property Fund Annual Report 2017
26
NOTES TO THE FINANCIAL STATEMENTS
ELANOR RETAIL PROPERTY FUND
continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
Results
This section focuses on the operating results and financial performance of the Fund. It includes disclosures of
revenue, distributions and cash flow including the relevant accounting policies adopted in each area.
1.
Segment information
OVERVIEW
The Fund only operates in one business segment, being the investment in retail shopping centres in Australia.
2.
Revenue
OVERVIEW
The Fund’s main source of revenue is rental income from its investment in retail shopping centres.
(a)
Rental income
ACCOUNTING POLICY
Rental income
The Fund is the lessor 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
leased asset and recognised as an expense over the lease term of the lease on the same basis as the lease income.
Lease incentives
Lease incentives (including rent free periods, fit out and other payments) are accounted for on a straight-line basis over
the lease term and offset against rental income in the statement of profit or loss. The lease term is the non-cancellable
period of the lease together with any further term for which the tenant has the option to continue the lease, where, at the
inception of the lease, it is reasonably certain that the tenant will exercise that option.
Elanor Retail Property Fund Annual Report 2017
21
NOTES TO THE FINANCIAL STATEMENTS
ELANOR RETAIL PROPERTY FUND
continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
27
3.
Distributions
OVERVIEW
In accordance with the Fund’s Constitutions, the Responsible Entity determines Core Earnings attributable to the security
holders as the net profit for the year, excluding certain non-recurring and non-cash items.
The Fund aims to distribute between 90% and 100% of Core Earnings each year.
(a)
Distributions during the year
Consolidated Group
The following distributions were declared by the Consolidated Group either during the year or post balance date:
(1) The distribution of 5.00 cents per stapled security for the half-year ended 30 June 2017 was not declared prior to 30
June 2017. The distribution was declared on 18 August 2017. Please refer to the Director’s Report for the calculation of
Core Earnings and the Distribution.
ERPF I Group
The following distributions were declared by the ERPF I Group either during the year or post balance date:
(1) The distribution of 2.72 cents per unit for the half-year ended 30 June 2017 was not declared prior to 30 June 2017.
The distribution was declared on 18 August 2017. Please refer to the Director’s Report for the calculation of Core
Earnings and the Distribution.
ACCOUNTING POLICY
Distributions are recognised when declared. Distributions paid and payable are recognised as distributions within equity.
A liability is recognised where distributions have been declared but not been paid. Distributions paid are included in cash
flows from financing activities in the statement of cash flows.
4.
Earnings / (losses) per stapled security
OVERVIEW
Basic earnings per stapled security is calculated as net profit or loss attributable to security holders divided by the
weighted average number of ordinary stapled securities issued.
Diluted earnings per stapled security is calculated as profit or loss attributable to security holders adjusted for any profit
or loss recognised in the period in relation to dilutive potential stapled securities divided by the weighted average number
of stapled securities and dilutive stapled securities.
22
Elanor Retail Property Fund Annual Report 2017
28
NOTES TO THE FINANCIAL STATEMENTS
ELANOR RETAIL PROPERTY FUND
continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
4.
Earnings / (losses) per stapled security (continued)
Earnings used in the calculation of basic and diluted earnings per stapled security reconciles to the net profit or loss in
the consolidated statements of comprehensive income as follows:
5.
Cash flow information
OVERVIEW
This note provides further information on the consolidated cash flow statements of the Fund. It reconciles profit for the
year to cash flows from operating activities and information about non-cash transactions.
(a)
Reconciliation of profit for the year to net cash provided by operating activities
Elanor Retail Property Fund Annual Report 2017
23
NOTES TO THE FINANCIAL STATEMENTS
ELANOR RETAIL PROPERTY FUND
continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
29
Operating Assets
This section includes information about the assets used by the Fund to generate profits and revenue, specifically
information relating to its investment properties.
6.
Investment properties
OVERVIEW
Investment properties are held solely for the purpose of earning rental income and / or for capital appreciation. At
balance date, the Fund’s investment property portfolio comprises 5 retail shopping centres in Australia.
(a)
Carrying values of investment properties
(b)
Movement in investment properties
(c)
Fair value measurement
Highest and best use
For all investment properties, the current use equates to the highest and best use.
Fair value hierarchy and valuation techniques
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:
24
Elanor Retail Property Fund Annual Report 2017
30
NOTES TO THE FINANCIAL STATEMENTS
ELANOR RETAIL PROPERTY FUND
continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
6.
Investment properties (continued)
(c)
Fair value measurement (continued)
Valuation Techniques
Significant
unobservable inputs
Range
Relationship with fair
value
Discounted cash flows – involves the projection
of a series of inflows and outflows to which a
market-derived discount rate is applied to
establish an indication of the present value of
the income stream associated with the property.
Capitalisation method – involves determining the
net market income of the investment property.
This net market income is then capitalised at the
adopted capitalisation rate to derive a core
value.
Adopted discount
Rate(1)
7.8% - 8.5%
Adopted terminal
yield(2)
6.8% - 7.8%
Adopted capitalisation
rate(3)
6.5% - 7.8%
The higher/lower the rate,
the lower/higher the fair
value.
The higher/lower the rate,
the lower/higher the fair
value.
The higher/lower the rate,
the lower/higher the fair
value.
(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
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 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.
(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.
ACCOUNTING POLICY
Recognition and meas urement
Investment properties are measured initially at cost, including 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 the statement of profit or loss in the year in which they arise.
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.
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 on derecognition of the
property (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is
included in the statement of profit or loss in the year in which the property is derecognised.
Valuation process
In reaching estimates of fair value, management judgment needs to be exercised. The level of management judgment
required in establishing fair value of the investments for which there is no quoted price in an active market is reduced
through the use of external valuations.
The aim of the valuation process is to ensure that assets are held at fair value and that the Fund is compliant with
applicable Australian Accounting Standards, regulations, and the Fund’s Constitutions.
Elanor Retail Property Fund Annual Report 2017
25
NOTES TO THE FINANCIAL STATEMENTS
ELANOR RETAIL PROPERTY FUND
continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
31
6.
Investment properties (continued)
(c)
Fair value measurement (continued)
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 Fund'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 investment properties valued.
26
Elanor Retail Property Fund Annual Report 2017
32
NOTES TO THE FINANCIAL STATEMENTS
ELANOR RETAIL PROPERTY FUND
continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
Finance and Capital Structure
This section provides further information on the Fund’s equity and debt structure, and also in relation to financial
risk management for its exposure to credit, liquidity and market risks.
7.
Interest bearing liabilities
OVERVIEW
The Fund has access to a combined $90 million facility. The drawn amount at 30 June 2017 is $82.6 million, of which the
ERPF I Group’s drawn amount of $41.5 million will mature on 22 December 2018, and the balance of $41.1 million will
mature on 12 May 2020. At 30 June 2017, the interest rate risk of drawn facilities is hedged to 91% (discussed in Note
8).
During the period, as part of the IPO transaction (discussed in Note 11), an amount of $7.7 million was drawn by the
ERPF I Group for the acquisition of Northway Plaza.
(1) Refer to Note 14 for further discussion on the cross-staple loan.
ACCOUNTING POLICY
Interest bearing liabilities are recognised initially at cost, being the fair value of the consideration received net of
transaction costs associated with the borrowing. Subsequent to initial recognition, interest bearing liabilities are
recognised 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
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 one year. Amounts drawn under financial facilities which expire after one year are classified as non-
current.
8.
Derivative financial instruments
OVERVIEW
The Fund’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 Fund to raise long term borrowings at a floating rate
and effectively swap them into a fixed rate.
Elanor Retail Property Fund Annual Report 2017
27
NOTES TO THE FINANCIAL STATEMENTS
ELANOR RETAIL PROPERTY FUND
continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
33
8.
(a)
Derivative financial instruments (continued)
Valuation
Specific valuation techniques used to value financial instruments include:
-
-
The use of quoted market prices or dealer quotes for similar instruments (level 1); 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 (level 2).
All of the resulting fair value estimates are included in Level 2. The fair value of financial instruments that are not traded
in an active market is determined using valuation techniques. These valuation techniques maximise the use of
observable market data where it is available and rely as little as possible on entity specific estimates. If all significant
inputs required to fair value an instrument are observable, the instrument is included in Level 2.
ACCOUNTING POLICY
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 Fund 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 Fund 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.
Cash flow hedges
Hedge accounting is discontinued when the Fund 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.
9.
Contributed equity
OVERVIEW
The Fund is a 'stapled' entity comprising of ERPF I and its controlled entities, and ERPF II and its controlled entities. The
units in ERPF I are stapled to units in ERPF II. The stapled securities cannot be traded or dealt with separately.
(a)
Parent entity
(1) Refer to Note 11 for discussion on the IPO transaction.
28
Elanor Retail Property Fund Annual Report 2017
34
NOTES TO THE FINANCIAL STATEMENTS
ELANOR RETAIL PROPERTY FUND
continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
9.
(b)
Contributed equity (continued)
ERPF I Group
(1) Refer to Note 11 for discussion on the IPO transaction.
10.
Financial risk management
OVERVIEW
The Fund's principal financial instruments comprise cash, receivables, interest bearing loans and derivatives.
The Fund's activities are exposed to a variety of financial risks: market risk (including interest rate risk), credit risk and
liquidity risk.
This note presents information about the Fund's exposure to each of the above risks, the Fund's objectives, policies and
processes for measuring and managing risk and the Fund's management of capital. Further quantitative disclosures are
included through these financial statements.
The Board of Directors (Board) of the Trustee of the Fund has overall responsibility for the establishment and oversight
of the Fund's risk management framework. The Board is responsible for monitoring the identification and management of
key risks to the business.
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 Fund's Treasury Guidelines provide a framework for managing the financial risks of the Fund with a key philosophy
of risk mitigation. Derivatives are exclusively used for hedging purposes, not as trading or other speculative instruments.
The Fund uses derivative financial instruments such as interest rate swaps where possible to hedge certain risk
exposures.
The Fund 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 Fund's risk management program
(including methods used to measure the risks).
(a)
Market risk
Market risk refers to the potential for changes in the value of the Fund's financial instruments or revenue streams from
changes in market prices, being interest rate risk.
(b)
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 Fund had the following undiscounted (including future interest payable) interest bearing assets
and liabilities:
Elanor Retail Property Fund Annual Report 2017
29
NOTES TO THE FINANCIAL STATEMENTS
ELANOR RETAIL PROPERTY FUND
continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
35
10. Financial risk management (continued)
(b)
Interest rate risk (continued)
30
Elanor Retail Property Fund Annual Report 2017
36
NOTES TO THE FINANCIAL STATEMENTS
ELANOR RETAIL PROPERTY FUND
continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
10. Financial risk management (continued)
(b)
Interest rate risk (continued)
(c)
Credit risk
Credit risk represents the loss that would be recognised if counterparties failed to perform as contracted.
The Fund 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.
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:
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 Fund's contingent liabilities are
disclosed in Note 15.
At balance date there were no other significant concentrations of credit risk.
No allowance has been recognised for the GST from the taxation authorities. Based on historical experience, there is no
evidence of default from these counterparties which would indicate that an allowance was necessary.
Elanor Retail Property Fund Annual Report 2017
31
NOTES TO THE FINANCIAL STATEMENTS
ELANOR RETAIL PROPERTY FUND
continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
37
10. Financial risk management (continued)
(d)
Capital risk management
The Fund 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 Fund
consists of equity as listed in Note 9.
The Fund assesses its capital management approach as a key part of the Fund's overall strategy and it is continuously
reviewed by management and the Directors of the Responsible Entity.
To achieve the optimal capital structure, the Board may use the following strategies: amend the distribution policy of the
Fund; issue new units through a private placement; conduct a buyback of units; acquire debt; or dispose of investment
properties.
32
Elanor Retail Property Fund Annual Report 2017
38
NOTES TO THE FINANCIAL STATEMENTS
ELANOR RETAIL PROPERTY FUND
continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
Other Items
This section provides information that is not directly related to the specific line items in the financial
statements, including information about contingent liabilities, events after the end of the reporting period,
remuneration of auditors and changes in accounting policies and disclosures.
11. Business combinations
OVERVIEW
The Fund listed on the Australian Securities Exchange ("ASX") on 9 November 2016. The Fund was formed with the
stapling of the units of two existing funds, ERPF I and ERPF II. This transaction represented a business combination by
contract alone under the accounting standards, with ERPF II the deemed parent and acquirer of ERPF I (i.e. no cash
consideration paid). No goodwill or bargain purchase was recognised as a result of the business combination.
Immediately after this business combination, the Fund raised total equity, before capital raise costs, of $109.3 million
through its listing on the ASX, and using a combination of new equity and new debt of $7.7m, ERPF I acquired Northway
Plaza and Tweed Mall. The classification of transaction costs between general transaction costs, debt establishment
costs and equity raise costs was assessed in the determination of the appropriate accounting treatment. The details of
the business combination and subsequent asset acquisitions are detailed below.
(a)
Balance sheet acquired on business combination
(b)
New equity raised
(c)
Assets and liabilities acquired
(d)
Net fair value decrement and transaction costs related to the IPO
Elanor Retail Property Fund Annual Report 2017
33
NOTES TO THE FINANCIAL STATEMENTS
ELANOR RETAIL PROPERTY FUND
continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
39
11. Business Combinations (continued)
ACCOUNTING POLICY
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business
combination is measured at fair value and comprises the assets transferred, the liabilities incurred and the equity
interests issued. Acquisition-related costs are recognised in profit or loss as incurred.
Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the
entity's net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling
interests' proportionate share of the recognised amounts of the acquiree's identifiable net assets. The choice of
measurement basis is made on a transaction-by-transaction basis.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the
combination occurs, the Fund reports provisional amounts for the items for which the accounting is incomplete. Those
provisional amounts are adjusted during the measurement period, or additional assets or liabilities are recognised, to
reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known,
would have affected the amounts recognised as of that date.
12. Other assets and liabilities
OVERVIEW
This note provides further information about assets and liabilities that are incidental to the Fund’s trading activities, being
trade and other payables.
(a)
Trade and other payables
ACCOUNTING POLICY
Payables represent liabilities and accrued expenses owing by the Fund at period end which are unpaid. The amounts are
unsecured and usually paid within 30 days of recognition. Payables are recognised at amortised cost and normal
commercial terms and conditions apply to payables.
All payables with maturities greater than 12 months after the reporting date are classified as non-current liabilities.
34
Elanor Retail Property Fund Annual Report 2017
40
NOTES TO THE FINANCIAL STATEMENTS
ELANOR RETAIL PROPERTY FUND
continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
13.
Net tangible assets
OVERVIEW
This note sets out the net tangible assets of the Fund and the ERPF I Group.
14.
Related parties
OVERVIEW
Related parties are persons or entities that are related to the Fund as defined by AASB 124 Related Party Disclosures.
This note provides information about transactions with related parties during the year.
(a)
Key management personnel
Responsible Entity
Elanor Funds Management Limited is the Responsible Entity of the Fund, and is the key management personnel (KMP)
of the Fund.
Directors of the Responsible Entity
The Directors of Elanor Funds Management Limited are:
Paul Bedbrook (Chair)
Glenn Willis (Managing Director and Chief Executive Officer)
Nigel Ampherlaw
William (Bill) Moss AO
Other Management Personnel
In addition to the directors, the following persons were Management Personnel of the Responsible Entity with the
authority for the strategic direction of the Fund:
Michael Baliva – Fund Manager
Symon Simmons – Chief Financial Officer
Paul Siviour – Chief Operating Officer
Remuneration of Management Personnel
Compensation is paid to the Responsible Entity in the form of fees and is disclosed below. No other amounts are paid by
the Fund directly or indirectly to the Management Personnel for services provided to the Fund.
The Directors of the Responsible Entity and other management personnel are paid by the Responsible Entity. Payment
made from the Fund to the Responsible Entity do not include any amounts attributable to the compensation of key
management personnel.
Consequently, no compensation as defined in AASB 124 Related Party Disclosures is paid by the Fund to its
Management Personnel, other than that paid to the Responsible Entity.
Michael Baliva, the Fund Manager, participates in the Fund’s executive loan security plan.
Elanor Retail Property Fund Annual Report 2017
35
NOTES TO THE FINANCIAL STATEMENTS
ELANOR RETAIL PROPERTY FUND
continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
41
14. Related parties (continued)
Related party disclosure
During the period, fees were paid by the Fund to Elanor Investors Group and its controlled entities, in accordance with
the Constitution of each Scheme, including investment management fees (management and performance fees),
acquisition fees, equity raise fees and cost recoveries. The table below details the fees paid prior to the IPO of the Fund
on 9 November 2016, and the fees paid subsequent to the IPO, including IPO transaction costs.
Related party holdings
Key Management Personnel and other Management Personnel of the Responsible Entity and of its related entities may
hold investments in the Fund. Such investments were purchased on normal commercial terms and were at arm’s length.
The number of securities held by Key Management Personnel and other Management Personnel are as follows:
Cross-Staple Loan
On 9 November 2016, as part of the internal funding structure on listing of the Fund, ERPF I entered into a 10 year
interest-bearing loan with ERPF II at arm’s length commercial terms. As at 30 June 2017, the outstanding loan balance
payable to ERPF II was $51.7 million.
15.
Unrecognised items
OVERVIEW
Items that have not been recognised on the Fund’s balance sheet include contractual commitments for future
expenditure and contingent liabilities which are not sufficiently certain to qualify for recognition as a liability on the
balance sheet. This note provides details of any such items.
(a)
Contingent liabilities
The Directors are not aware of any material contingent liabilities of the Fund (2016: nil).
(b)
Commitments
The Fund has no capital commitments (2016: nil) in respect of capital expenditures contracted for at the date of the
statement of financial position. The ERPF I Group has no capital commitments (2016: nil) in respect of capital
expenditures contracted for at the date of the statement of financial position.
36
Elanor Retail Property Fund Annual Report 2017
42
NOTES TO THE FINANCIAL STATEMENTS
ELANOR RETAIL PROPERTY FUND
continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
16. Parent entity disclosure
OVERVIEW
The financial information below on Elanor Retail Property Fund’s parent entity, ERPF II, and ERPF I Group’s parent
entity, ERPF I, as stand-alone entity has been provided in accordance with the requirements of the Corporations Act
2001.
(a)
Summarised financial information
As at 30 June 2017, ERPF I is in a net current asset deficiency of $5.2 million, as a result of the accounting treatment of intercompany
balances with its subsidiaries. The Directors believe that ERPF I will be able to pay its debts as and when they become due.
(b)
Commitments
At the balance date ERPF I and ERPF II had no commitments (2016: none) in relation to capital expenditure contracted
for but not recognised as liabilities.
(c)
Guarantees provided
At balance date ERPF I and ERPF II had no outstanding guarantees (2016: none).
(d)
Contingent liabilities
At balance date ERPF I and ERPF II has no contingent liabilities (2016: none).
ACCOUNTING POLICY
The financial information of the parent entities of Elanor Retail Property Fund and ERPF I Group have been prepared on
the same basis as the consolidated financial statements.
Elanor Retail Property Fund Annual Report 2017
37
43
NOTES TO THE FINANCIAL STATEMENTS
ELANOR RETAIL PROPERTY FUND
continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
17.
Auditors’ remuneration
OVERVIEW
During the year the following fees were paid or payable for services provided by the auditor of the Fund:
18.
Subsequent events
Subsequent to year end, a distribution of 5.0 cents per stapled security has been declared by the Board of Directors.
As noted previously, on 31 July 2017, the Group completed the acquisition of the Gladstone Square shopping centre at a
purchase price of $31.5 million.
Other than the above, since the end of the period, the Directors are not aware of any other 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 Fund, the results of those operations or the state of affairs of the Fund in financial periods
subsequent to the year ended 30 June 2017.
19.
Accounting policies
OVERVIEW
This note provides an overview of the Fund’s accounting policies that relate to the preparation of the financial report as a
whole and do not relate to specific items. Accounting policies for specific items in the balance sheet or statement of
comprehensive income have been included in the respective note.
(a)
Interest Income
Interest income is recognised as it accrues using the effective interest rate method.
(b)
Expenses
All expenses, including responsible entity’s fees and custodian fees, are recognised in profit or loss on an accruals basis.
(c)
Income Taxation
Under current legislation, the Fund is not subject to income tax as security holders are presently entitled to the income of
the Fund.
38
Elanor Retail Property Fund Annual Report 2017
44
NOTES TO THE FINANCIAL STATEMENTS
ELANOR RETAIL PROPERTY FUND
continued
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2017
19.
Accounting policies (continued)
(d)
New accounting standards and interpretations
New standards and interpretations not yet adopted
Certain new Accounting Standards and Interpretations have been published that are not mandatory for the financial year
ended 30 June 2017 but are available for early adoption. They have not been applied in preparing this financial report.
The Responsible Entity’s assessment of the impact of these new standards and interpretations is set out below.
Reference
Description
AASB 15 Revenue from Contracts
with Customers and Consequential
amendments
AASB 16 Leases
AASB 15 provides a new five step
model for recognising revenue
earned from a contract with a
customer and will replace the
existing AASB 118 Revenue and
AASB 111 Construction Contracts.
The standard becomes mandatory
for the June 2019 financial year
and will be applied retrospectively.
AASB 16 provides a new model for
accounting for leases. The
standard becomes mandatory for
the June 2020 financial year and
will be applied retrospectively.
Impact on the Fund’s financial
statements
Based on preliminary analysis
performed, the impact of adoption
is not expected to be material.
Based on preliminary analysis
performed, the impact of adoption
is not expected to be material.
Several other amendments to standards and interpretations will apply on or after 1 July 2017, and have not yet been
applied, however they are not expected to impact the Fund’s consolidated financial statements.
Elanor Retail Property Fund Annual Report 2017
39
DIRECTORS’ DECLARATION
ELANOR RETAIL PROPERTY FUND
to Stapled Security Holders
DIRECTORS’ DECLARATION TO STAPLED SECURITY HOLDERS
45
In the opinion of the Directors of Elanor Funds Management Limited as responsible entity for Elanor Retail Property Fund
I and Elanor Retail Property Fund II:
(a)
the financial statements and notes set out on pages 18 to 44 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 Consolidated Group's and ERPF I Group's financial position as at 30
June 2017 and of their performance, for the financial year ended on that date; and
(b)
(c)
(d)
there are reasonable grounds to believe that the Consolidated Group and the ERPF I Group will be able to
pay their debts as and when they become due and payable; and
the financial statements comply with International Financial Reporting Standards as issued by the
International Accounting Standards Board; and
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 Board of Directors in accordance with Section 295(5) of
the Corporations Act 2001 (Cth).
Glenn Willis
CEO and Managing Director
Sydney, 18 August 2017
Elanor Retail Property Fund Annual Report 2017
40
46
INDEPENDENT AUDITOR’S REPORT
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
Independent Auditor’s Report to the Stapled Security Holders of Elanor Retail
Property Fund and the Unitholders of ERPF I Group
Opinion
We have audited the accompanying financial report of:
Elanor Retail Property Fund II (“ERPF II”) and its controlled entities (“Elanor Retail Property Fund”)
which comprises the consolidated balance sheet as at 30 June 2017, the consolidated statement of
profit or loss, the consolidated statement of other comprehensive income, the consolidated statement
of cash flows and the consolidated statement of changes in equity for the year then ended and notes to
the financial statements, including a summary of significant accounting policies and the directors’
declaration; and
Elanor Retail Property Fund I (“ERPF I”) and its controlled entities (“ERPF I Group”) which comprises
the consolidated balance sheet as at 30 June 2017, the consolidated statement of profit or loss, the
consolidated statement of other comprehensive income, the consolidated statement of cash flows and
the consolidated statement of changes in equity for the year then ended and notes to the financial
statements, including a summary of significant accounting policies and the directors’ declaration.
In our opinion, the accompanying financial report of Elanor Retail Property Fund and ERPF I Group is in
accordance with the Corporations Act 2001, including:
(i)
giving a true and fair view of Elanor Retail Property Fund and ERPF I Group’s financial positions as
at 30 June 2017 and of their financial performance for the year then ended; and
(ii)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those
standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section
of our report. We are independent of Elanor Retail Property Fund and ERPF I Group, in accordance with the
auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants
(the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other
ethical responsibilities in accordance with the Code.
We confirm that the independence declaration required by the Corporations Act 2001, which has been given
to the directors of Elanor Funds Management Limited (the “Responsible Entity”), 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.
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
41
Elanor Retail Property Fund Annual Report 2017
INDEPENDENT AUDITOR’S REPORT
continued
47
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 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
How the scope of our audit responded to the Key Audit
Matter
Investment property valuation
At 30 June 2017, Elanor Retail Property Fund recognised
investment properties valued at $260.8m as disclosed in
Note 6.
The fair value of investment property is calculated in
accordance with the valuation policy set out in Note 6
which outline two valuation methodologies used by Elanor
Retail Property Fund.
The capitalisation of net income method applies a
capitalisation rate to normalised market net operating
income. The discounted cash flow method uses a 10 year
cash
forecast and terminal value calculation
discounted to present value.
flow
The valuation process requires significant judgment in the
following key areas:
forecast cash flows,
capitalisation rates, and
discount rates.
In addition,
internal and external valuers apply
professional judgement concerning market conditions and
factors impacting individual properties.
The internal and external valuations are reviewed by
management who recommends each property’s valuation
to the Audit and Risk Committee and the Board of the
Responsible Entity in accordance with Elanor Retail
Property Fund’s valuation protocol.
Our procedures included, but were not limited to:
Assessing management’s process over the property
valuations and the oversight applied by the directors;
Assessing the competence and objectivity of the external
valuers and competence of internal valuers;
Performing an analytical review and risk assessment of
the portfolio, analysing the key inputs and assumptions;
Assessing the assumptions used in the portfolio, with
particular focus on the capitalisation rate and discount
rate with reference to external market trends and
transactions and challenging those assumptions where
appropriate;
Holding discussions with management (and the external
valuers as needed) to obtain an understanding of
portfolio movements and their identification of any
additional property specific matters; and
Testing on a sample basis of properties, both externally
and internally valued, the following:
o
o
o
The integrity of the information in the valuation
by agreeing key inputs such as net operating
income to underlying records and source
evidence;
The forecasts used in the valuations with
reference to current financial results such as
revenues and expenses, capital expenditure
requirements,
lease
renewals; and
rates and
vacancy
The mathematical accuracy of the models.
We also assessed the appropriateness of the related
disclosures included in Note 6 to the financial statements.
42
Elanor Retail Property Fund Annual Report 2017
48
INDEPENDENT AUDITOR’S REPORT
continued
Key Audit Matter
How the scope of our audit responded to the Key Audit
Matter
Initial Public Offering (“IPO”) related areas and
Business Combination considerations
Elanor Retail Property Fund completed its listing on the
Australian Securities Exchange (“ASX”) and commenced
trading on the ASX on 9 November 2016.
As described in Note 11, Management has considered
several accounting and disclosure implications of the IPO,
including:
The stapling of the two funds which was accounted for
as a Business Combination in accordance with AASB 3
‘Business Combinations’;
The acquisition of Tweed Mall and Northway Plaza in
accordance with AASB 140 ‘Investment Property’; and
The treatment of IPO costs.
The IPO related areas and Business Combination
considerations are a key audit matter as a result of the
complexity of the steps involved in affecting these
transactions, and the judgement exercised in determining
the accounting treatment to apply to them.
Our procedures included, but were not limited to:
Assessing the accounting treatment relating to the
stapling of ERPF I and ERPF II, under AASB 3 ‘Business
Combinations’, including:
o Challenging Management’s accounting considerations
to determine ERPF II as the parent of Elanor Retail
Property Fund; and
o Performing an assessment of the fair value of ERPF I
assets and liabilities acquired at the date of stapling;
Assessing the accounting treatment of Tweed Mall and
Northway Plaza, including the testing of assets and
liabilities acquired and related acquisition costs; and
Assessing the accounting treatment of costs relating to
the IPO and testing the classification between transaction
costs and equity raise costs in accordance with AASB 132
‘Financial Instruments’; Presentation’.
Other Information
The directors of 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 documents 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.
Directors’ Responsibilities 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.
43
Elanor Retail Property Fund Annual Report 2017
INDEPENDENT AUDITOR’S REPORT
continued
49
In preparing the financial report, the directors are responsible for assessing Elanor Retail Property Fund and
ERPF I Group’s ability to continue as going concerns, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the directors either intend to liquidate Elanor
Retail Property Fund and/or ERPF I Group or to cease operations, or have no realistic alternative but to do
so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our 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:
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 Elanor Retail Property Fund’s and ERPF I 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 Elanor Retail Property Fund’s and ERPF I Group’s ability
to continue as going concerns. 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
Elanor Retail Property Fund and ERPF I Group to cease to continue as going concerns.
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.
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, related safeguards.
44
Elanor Retail Property Fund Annual Report 2017
50
INDEPENDENT AUDITOR’S REPORT
continued
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.
DELOITTE TOUCHE TOHMATSU
AG Collinson
Partner
Chartered Accountants
Sydney, 18 August 2017
45
Elanor Retail Property Fund Annual Report 2017
CORPORATE GOVERNANCE
51
The Board of Directors of Elanor Funds Management Limited as responsible entity of the Elanor Retail Property Fund I
and Elanor Retail Property Fund II (Fund) have approved the Fund’s Corporate Governance Statement as at 30 June 2017.
In accordance with ASX Listing Rule 4.10.3, the Fund’s Corporate Governance Statement can be found on its website at:
www.elanorinvestors.com/ERF
The Board of Directors is responsible for the overall corporate governance of the Fund, including establishing and monitoring
key strategy and performance goals. The Board monitors the operational and financial position and performance of the Fund,
and oversees its business strategy, including approving the Fund’s strategic goals.
The Board seeks to ensure that the Fund is properly managed to protect and enhance security holder interests, and that
the Fund, its Directors, officers and personnel operate in an appropriate environment of corporate governance.
Accordingly, the Board has created a framework for managing the Fund, including Board and Committee Charters and
various corporate governance policies designed to promote the responsible management and conduct of the Fund.
Elanor Retail Property Fund Annual Report 2017
52
SECURITY HOLDER ANALYSIS
(as at 24 August 2017)
STAPLED SECURITIES
The units of the Trusts are combined and issued as stapled securities in the Fund. The Fund’s securities are traded on
the Australian Securities Exchange (ASX: ERF), having listed on 9 November 2016. The units of the Trusts 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 a Trust from the ASX Official List if any
of the units cease to be stapled together or any equity securities issued by the Trusts which are not stapled to equivalent
securities in the other entity..
TOP 20 SECURITY HOLDERS
Number Security holder
1
2
3
4
5
6
7
8
9
Elanor Investment Nominees Pty Limited
Pershing Australia Nominees Pty Ltd
HSBC Custody Nominees (Australia) Limited - A/C 2
Citicorp Nominees Pty Limited
HSBC Custody Nominees (Australia) Limited
Kenxue Pty Ltd
The Trust Company (Australia) Limited
J P Morgan Nominees Australia Limited
Armada Investments Pty Ltd
10
B & J Investment Nominees Pty Ltd
11
12
13
14
15
16
17
18
19
Berg Family Foundation Pty Ltd
Pinwillow Pty Ltd
Kindol Pty Ltd
BNP Paribas Noms Pty Ltd
Yarramalong Management Services Pty Limited
Oksar Pty Ltd
Basapa Pty Ltd
Fasopo Pty Ltd
Carwoola Pty Ltd
20
Bejjal Pty Ltd
Total
Balance of Register
Grand Total
No. of
Securities
21,883,997
17,140,000
12,040,400
7,006,800
5,668,990
4,848,518
4,457,507
2,392,411
1,822,222
1,652,148
1,366,667
1,366,667
1,308,960
1,053,231
940,119
827,779
825,927
822,223
755,408
740,742
%
17.00
13.31
9.35
5.44
4.40
3.77
3.46
1.86
1.42
1.28
1.06
1.06
1.02
0.82
0.73
0.64
0.64
0.64
0.59
0.58
88,843,209
39,886,546
69.02
30.98
128,729,755
100.00
Elanor Retail Property Fund Annual Report 2017
SECURITY HOLDER ANALYSIS
(as at 24 August 2017) continued
53
RANGE REPORT
Range
100,001 and over
10,001 to 100,000
5,001 to 10,000
1,001 to 5,000
1 to 1,000
Total
No. of
Securities
116,058,171
12,217,328
370,546
81,367
2,343
%
90.16
9.49
0.29
0.06
0.00
No. of
Holders
132
312
47
29
12
%
24.81
58.65
8.83
5.45
2.26
128,729,755
100.00
532
100.00
The total number of security holders with an unmarketable parcel of securities was 8.
SUBSTANTIAL SECURITY HOLDERS
Security Holder
Elanor Investment Nominees Pty Limited ATF Elanor Investment Trust
Moelis Australia Asset Management Limited
HSBC Custody Nominees (Australia) Limited
No. of
Securities
21,883,997
21,698,470
11,092,589
%
17.00
16.86
8.62
VOTING RIGHTS
On a poll, each security holder has, in relation to resolutions of the Trusts, one vote for each dollar value of their total units held
in the Trust.
ON-MARKET BUY-BACK
There is no current on-market buy-back program in place.
Elanor Retail Property Fund Annual Report 2017
54
CORPORATE DIRECTORY
ELANOR RETAIL PROPERTY FUND (ASX CODE: ERF)
Elanor Funds Management Limited (ACN 125 903 031) is the Responsible Entity
of Elanor Retail Property Fund I (ARSN 615 054 129) (ERPF I) and
Elanor Retail Property Fund II (ARSN 615 054 174) (ERPF II)
each a Trust and together the Elanor Retail Property Fund
Level 38,
259 George Street
Sydney NSW 2000
T: +61 2 9239 8400
DIRECTORS OF THE RESPONSIBLE ENTITY
Paul Bedbrook (Chair)
Glenn Willis (Managing Director and CEO)
Nigel Ampherlaw
William (Bill) Moss AO
COMPANY SECRETARY OF THE RESPONSIBLE ENTITY
Symon Simmons
SECURITY REGISTRY
Computershare Investor Services Pty Limited
Level 4, 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/ERF
Elanor Retail Property Fund Annual Report 2017
RETAIL
PROPERTY
FUND
Head Office:
Level 38, 259 George Street
Sydney NSW 2000
T: +61 2 9239 8400