RETAIL PROPERTY FUND
ANNUAL REPORT 2018
ELANOR RETAIL
PROPERTY FUND
ANNUAL REPORT
FOR THE YEAR ENDED
30 JUNE 2018
2 | Elanor Retail Property Fund Annual Report 2018
Tweed Mall, Tweed Heads, NSW Contents
Highlights
Message from the Chairman
CEO’s Message
Financial Report
Directors’ Report
Auditor’s Independence Declaration
Financial Statements
Notes to the Financial Statements
Directors’ Declaration
Independent Auditor’s Report
Corporate Governance
Security Holder Analysis
Corporate Directory
4
6
7
8
9
18
19
25
47
48
52
53
55
Financial Calendar
December 2018 Estimated interim distribution
announcement and securities
trade ex-distribution
February 2019
Interim results announcement
March 2019
Interim distribution payment
June 2019
Estimated final distribution
announcement and securities
trade ex-distribution
August 2019
Full-year results announcement
September 2019 Final distribution payment
September 2019 Annual tax statements
Responsible Entity
Elanor Funds Management Limited ABN 39 125 903 031.
AFSL 398196
Highlights
Darwin
NORTHERN
TERRITORY
QUEENSLAND
WESTERN
AUSTRALIA
SOUTH
AUSTRALIA
Brisbane
Perth
NEW SOUTH
WALES
Sydney
Canberra
VICTORIA
Adelaide
Melbourne
TAS
Hobart
Auckland
NZ
Wellington
CORE EARNINGS
for the financial year 2018
$14.0m
DISTRIBUTIONS (per security)
for the financial year 2018
10.31c
SECURITY PRICE
as at 30 June 2018
$1.29
PORTFOLIO VALUE
as at 30 June 2018
$317.7m
NET ASSET VALUE (per security)
as at 30 June 2018
$1.50
GEARING
as at 30 June 2018
38.2%
61.1%
listed 9 November 2016
61.1%
listed 9 November 2016
5.8%
21.8%
5.6%
from 29.3%
4 | Elanor Retail Property Fund Annual Report 2018
Perth
Darwin
Elanor Retail Property Fund’s assets
are located in urban and regional
areas across Australia
NORTHERN
TERRITORY
QUEENSLAND
WESTERN
AUSTRALIA
SOUTH
AUSTRALIA
Brisbane
NEW SOUTH
WALES
Sydney
Canberra
VICTORIA
Adelaide
Melbourne
TAS
Hobart
Auckland
NZ
Wellington
Geographic Diversification1
Key Tenants2
TAS
6%
QLD
24%
70%
NSW
Other
Specialties
58%
Woolworths
13%
Coles
12%
8%
Big W
6%
Target
Supa IGA
(3%)
1. By asset value
2. By base rent
Message from the Chairman
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 2018.
As at 30 June 2018, the Fund’s Net
Tangible Assets per security was $1.50,
reflecting the ongoing execution of
initiatives to deliver the operational and
strategic upside across the investment
portfolio.
Outlook
The Fund’s strategy will remain focused
on actively managing and growing
earnings from its investment portfolio
and acquiring additional high investment
quality retail properties. With this
focus, 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 hard work, dedication
and enthusiasm.
Finally, thank you to all Elanor Retail
Property Fund security holders for their
continued support and confidence.
Yours sincerely,
Paul Bedbrook
Chairman
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.
It has been another successful year
for the Fund in terms of achieving our
financial objectives and executing the
Fund’s strategy. The Fund has delivered
Core Earnings of $14.0 million for the
year and has distributed $13.3 million, or
10.31 cents per security.
Achievements
During the year, the value of the
portfolio grew from $260.8 million to
$317.7 million, an increase of 21.8%.
The portfolio value as at 30 June
2018 represents a weighted average
capitalisation rate of 6.8%.
In July 2017, the Fund acquired the
Gladstone Square Shopping Centre
for $31.5 million and in January 2018 it
acquired the Moranbah Fair Shopping
Centre for $25.0 million. These
acquisitions increased the Fund’s
distribution yield, and improved the
geographic diversification, portfolio
WALE, occupancy and debt maturity of
the Fund.
The Fund has maintained its
conservative capital structure. As at 30
June 2018, ERF’s gearing level was 38.2%,
within the Fund’s stated target range of
30% to 40%.
6 | Elanor Retail Property Fund Annual Report 2018
CEO’s Message
We have continued to deliver on the
Fund’s strategy over the year.
I am pleased to present Elanor Retail
Property Fund’s Annual Report for
financial year ended 30 June 2018.
We have continued to deliver on the
Fund’s strategy over the year. Core
Earnings for the year ended 30 June
2018 were $14.0 million, or 10.86 cents
per security. Furthermore, by the
ongoing execution of initiatives to deliver
the operational and strategic upside
across the portfolio, NTA per security
increased to $1.50 per security as at 30
June 2018. We remain firmly of the view
that the Fund is a low risk retail REIT that
represents strong value and provides a
sector leading yield to security holders
with significant upside potential in NTA
per security.
Strategy
The Fund’s objective is to provide
investors with strong and growing
income returns, and capital growth.
To achieve this objective, the Fund’s
strategy is to:
•
•
Invest in non-discretionary focused
retail properties that provide quality
earnings from rental income across a
diversified retail tenant mix;
Implement leasing and other 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 within the
Portfolio; and to
• Optimise the capital structure of
the Fund based on a conservative
approach to gearing.
The successful execution of the Fund’s
strategy over the course of the year has
delivered strong results for the Fund.
Key Results
Capital Management
• Core Earnings for the period of $14.0
million, or 10.86 cents per security
• Distributions for the Period were $13.3
million, or 10.31 cents per security,
reflecting a payout ratio of 95% of
Core Earnings
• Net Tangible Assets per security of
$1.50 as at 30 June 2018, reflecting a
20% increase since listing
The Fund is focused on maintaining a
conservative capital structure with a
target gearing range of between 30%
and 40%. At 30 June 2018, the Funds
gearing was 38.2%.
During the year ending 30 June 2019,
we will continue to explore capital
management opportunities to deliver
value to security holders.
Investment Portfolio
Outlook
The Fund has delivered on its strategy
to grow and enhance the value of the
portfolio. In particular, our active asset
management approach has grown
both the income and the value of the
portfolio. Some of the key initiatives
included:
• Completing the accretive acquisitions
of the Gladstone Square and
Moranbah Fair assets;
• Substantially completing the
divestment of the non-core podium
strata tenancies at Auburn Central,
with sales reflecting an average
capitalisation rate of 6.05%;
• Executing an Agreement for Lease
with ALDI at Tweed Mall, for a 15 year
term with 2 five year options (ALDI is
scheduled to open in mid-2019); and
• Execution of various energy and other
operating cost efficiency initiatives.
This has resulted in:
• Strong revaluation gains for Auburn
Central and Tweed Mall;
• An increase in portfolio valuation
to $317.7 million at 30 June 2018,
reflecting a weighted average
capitalisation rate of 6.8%;
• NTA per security increasing by 20%
since listing from $1.25 to $1.50; and
• Portfolio occupancy remaining strong
at 98.5%.
The Fund’s core strategy will remain
focused on actively managing and
growing Core Earnings and capital
value from its investment portfolio.
Furthermore, we will continue to focus
on acquiring additional high investment
quality retail properties.
The Fund’s properties present strong
operational and strategic opportunities
to further increase value. We are
focused on executing initiatives to
extract value, consistent with our highly
active and results orientated approach
to asset management.
I wish to thank my fellow Board
members, my executive leadership
team and the Fund’s management
team, led by Michael Baliva, for their
hard work, dedication and successful
execution of the Fund’s strategy.
Yours sincerely,
Glenn Willis
Managing Director and Chief Executive
Officer
Elanor Retail Property Fund Annual Report 2018 | 7
ELANOR RETAIL PROPERTY FUND
TABLE OF CONTENTS
Financial Report
for the year ended 30 June 2018
Directors’ Report..........................................................................................................................3
Contents
Auditor’s Independence Declaration ..........................................................................................12
Directors’ Report
Consolidated Statements of Profit or Loss .................................................................................13
Auditor’s Independence Declaration
Consolidated Statements of Comprehensive Income ................................................................. 14
Consolidated Statements of Profit or Loss
Consolidated Statements of Financial Position ..........................................................................15
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Equity .........................................................................16
Consolidated Statements of Financial Position
Consolidated Statements of Cash Flows ....................................................................................18
Consolidated Statements of Changes in Equity
Notes to the Consolidated Financial Statements ........................................................................19
Consolidated Statements of Cash Flows
Directors’ Declaration to Stapled Security Holders .....................................................................41
Notes to the Consolidated Financial Statements
Independent Auditor’s Report ....................................................................................................42
Directors’ Declaration
Independent Auditor’s Report
9
18
19
20
21
22
24
25
47
48
8 | Elanor Retail Property Fund Annual Report 2018
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 2018.
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 2018 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.
Elanor Retail Property Fund Annual Report 2018 | 9
3
Directors’ Report
ELANOR RETAIL PROPERTY FUND
continued
DIRECTORS’ REPORT
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 and growing income returns, and capital growth. To achieve this
objective, the Fund’s strategy is to:
Invest in non-discretionary focused retail properties that provide quality earnings from rental income across a
diversified retail tenant mix;
Implement leasing and other 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 of the Fund based on a conservative approach to gearing.
INVESTMENT PORTFOLIO
The following table shows the Group's investment portfolio as at balance date:
Note 1: The Auburn Central Podium asset comprised 19 podium strata lots. The Fund commenced disposal of these non-core strata lots in August
2017. As at 30 June 2018, 17 strata lots have been sold for total net proceeds of $15.8 million.
On 19 January 2018, the Fund completed the acquisition of the Moranbah Fair Shopping Centre at a purchase price of
$25.0 million.
Moranbah Fair is located within the regional township of Moranbah, Queensland, anchored by a strong performing 3,921
square metre Coles supermarket leased to 2028 with further renewal options.
The acquisition of Moranbah Fair has improved the Fund’s geographic diversification, Portfolio weighted average lease
expiry and occupancy.
The acquisition of Moranbah Fair is consistent with the Fund’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.
10 | Elanor Retail Property Fund Annual Report 2018
4
Directors’ Report
ELANOR RETAIL PROPERTY FUND
continued
DIRECTORS’ REPORT
4.
Operating and financial review (continued)
FINANCIAL RESULTS
The Fund recorded a statutory profit of $23.0 million for the year ended 30 June 2018.
Core Earnings for the year ended 30 June 2018 were $14.0 million or 10.86 cents per stapled security. A Final
Distribution of 5.16 cents per stapled security has been declared for the six month period ended 30 June 2018 (95% pay-
out ratio on Core Earnings). 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 year ended 30 June 2018 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: Straight lining of rental income is a non-cash accounting adjustment recognised in rental income in the Statement of Profit or Loss.
Note 3: Amortisation expense includes the amortisation of capitalised leasing costs and debt establishment costs, recognised in rates, taxes
and other outgoings, other expenses and borrowing costs in the Statement of Profit or Loss.
Elanor Retail Property Fund Annual Report 2018 | 11
5
Directors’ Report
ELANOR RETAIL PROPERTY FUND
continued
DIRECTORS’ REPORT
4.
Operating and financial review (continued)
SUMMARY AND OUTLOOK
The Fund's core strategy will remain focused on actively managing and growing earnings from its investment portfolio,
realising value-add opportunities across the 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, movement in property valuations and possible weather related events. These risks are
mitigated through actively managing the investment portfolio, continuing to focus on broadening the Fund's tenant mix,
insurance arrangements and active management of the Fund's capital structure.
During the coming months, the Fund anticipates completing the disposal of the remaining non-core podium strata lots
at Auburn Central as well as introducing Aldi as a tenant at Tweed Mall. Other asset recycling opportunities in the
investment portfolio are currently being considered.
The Fund is committed to growing its investment portfolio and continues to evaluate 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 portfolio is
generating improved operational performance and returns. Furthermore, targeted strategic initiatives to increase the
capital value of the Fund are in progress.
5.
Value of assets
12 | Elanor Retail Property Fund Annual Report 2018
6
Directors’ Report
ELANOR RETAIL PROPERTY FUND
continued
DIRECTORS’ REPORT
6.
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: 278,775
Qualifications: B.Bus (Econ & Fin)
Elanor Retail Property Fund Annual Report 2018 | 13
7
Directors’ Report
ELANOR RETAIL PROPERTY FUND
continued
DIRECTORS’ REPORT
6.
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 Chairman of Credit Union Australia and non-executive
Director of the Australia Red Cross Blood Service, where he is a member of the Finance and
Audit Committee and a member of the Risk Committee.
Former listed directorships in the last three years: Quickstep Holdings Ltd
Interest in stapled securities: 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, Boston Global Group, and Non-Executive Director of Northern
Territory Infrastructure Development Fund. He is also 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
14 | Elanor Retail Property Fund Annual Report 2018
8
Directors’ Report
ELANOR RETAIL PROPERTY FUND
continued
DIRECTORS’ REPORT
7.
Directors’ relevant interests
Other than as disclosed in the Annual Financial Report, no contracts exist where a director is entitled to a benefit.
8.
Meetings of Directors
The attendance at meetings of Directors of the Responsible Entity and the Audit and Risk Committee of the Group during
the year is set out in the following table:
9.
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.
10.
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.
11. 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.
12. 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 2018 | 15
9
Directors’ Report
ELANOR RETAIL PROPERTY FUND
continued
DIRECTORS’ REPORT
13.
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.
14.
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.
15.
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.
16.
Events occurring after reporting date
Subsequent to year end, a distribution of 5.16 cents per stapled security has been declared by the Board of Directors.
The Fund has agreed with its bank to extend the $10.4 million facility, originally due to expire in July 2018, for three years
to July 2021.
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.
17.
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.
16 | Elanor Retail Property Fund Annual Report 2018
10
Directors’ Report
ELANOR RETAIL PROPERTY FUND
continued
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, 17 August 2018
Elanor Retail Property Fund Annual Report 2018 | 17
11
Auditor’s Independence Declaration
18 | Elanor Retail Property Fund Annual Report 2018
ELANOR RETAIL PROPERTY FUND
Consolidated Statements of Profit or Loss
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS
FOR THE YEAR ENDED 30 JUNE 2018
ELANOR RETAIL PROPERTY FUND
for the year ended 30 June 2018
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS
FOR THE YEAR ENDED 30 JUNE 2018
Cons olidated Statements of Profit or Loss
Cons olidated Statements of Profit or Loss
The above Consolidated Statements of Profit or Loss should be read in conjunction with the accompanying notes
The above Consolidated Statements of Profit or Loss should be read in conjunction with the accompanying notes
Elanor Retail Property Fund Annual Report 2018 | 19
13
13
ELANOR RETAIL PROPERTY FUND
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2018
Consolidated Statements of Comprehensive Income
ELANOR RETAIL PROPERTY FUND
for the year ended 30 June 2018
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2018
Cons olidated Statements of Comprehensi ve I ncome
Cons olidated Statements of Comprehensi ve I ncome
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
20 | Elanor Retail Property Fund Annual Report 2018
notes
14
14
ELANOR RETAIL PROPERTY FUND
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
FOR THE YEAR ENDED 30 JUNE 2018
ELANOR RETAIL PROPERTY FUND
Consolidated Statements of Financial Position
Consoli dated Stateme nts of Fina ncial Position
as at 30 June 2018
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
FOR THE YEAR ENDED 30 JUNE 2018
Consoli dated Stateme nts of Fina ncial Position
The above Consolidated Statements of Financial Position should be read in conjunction with the accompanying notes
15
The above Consolidated Statements of Financial Position should be read in conjunction with the accompanying notes
Elanor Retail Property Fund Annual Report 2018 | 21
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22 | Elanor Retail Property Fund Annual Report 2018
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Elanor Retail Property Fund Annual Report 2018 | 23
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ELANOR RETAIL PROPERTY FUND
Consolidated Statements of Cash Flows
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2018
ELANOR RETAIL PROPERTY FUND
Consoli dated State nts of Ca sh Flows
for the year ended 30 June 2018
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2018
Consoli dated State nts of Ca sh Flows
The above Consolidated Statements of Cash Flows should be read in conjunction with the accompanying notes
24 | Elanor Retail Property Fund Annual Report 2018
The above Consolidated Statements of Cash Flows should be read in conjunction with the accompanying notes
18
18
Notes to the Consolidated Financial Statements
ELANOR RETAIL PROPERTY FUND
for the year ended 30 June 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
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.
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.
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 2018. 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 2018.
For the purpose of preparing the financial statements, the Fund is a for-profit entity. The financial report is
presented in Australian Dollars.
Going Concern
As at 30 June 2018, the Group is in a net current liability position of $48.8 million (ERPF I: $48.6 million), due to the
maturity of ERPF I’s debt facility of $10.4m in July 2018 and $42.9 million in December 2018. The Group has
$326.2 million (ERPF I: $238.0 million) of total assets and a net asset position of $193.2 million (ERPF I: $78.1
million) at balance date.
Subsequent to year end, the Fund has agreed with its bank to extend the $10.4 million facility, originally due to
expire in July 2018, for three years to July 2021.
Given the conservative gearing level below 40% of asset value and strong cash flow for servicing of financing
facilities, Management are confident that the refinancing of the $42.9 million debt facility will be completed prior to
its maturity, and that the Group will be able to pay its liabilities in the next 12 months as and when they fall due.
Elanor Retail Property Fund Annual Report 2018 | 25
19
Notes to the Consolidated Financial Statements
ELANOR RETAIL PROPERTY FUND
for the year ended 30 June 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
The notes to the consolidated financial statements have been organised into the following sections:
RESU LTS .............................................................................................................................. 27
1.
2.
3.
4.
5.
Segment information .........................................................................................................................27
Revenue ............................................................................................................................................27
Distributions ......................................................................................................................................28
Earnings / (losses) per stapled security ............................................................................................28
Cash flow information ........................................................................................................................29
OPERATING ASSETS ............................................................................................................ 31
6.
Investment properties ........................................................................................................................31
FIN ANCE AND CAPI TAL STRUCTU RE .................................................................................... 34
7.
8.
9.
10.
Interest bearing liabilities...................................................................................................................34
Derivative financial instruments ........................................................................................................35
Contributed equity .............................................................................................................................36
Financial risk management ...............................................................................................................36
OTHER ITEMS ....................................................................................................................... 40
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
Other assets and liabilities ................................................................................................................40
Net tangible assets ............................................................................................................................40
Related parties ..................................................................................................................................40
Non-cancellable operating lease receivables. ..................................................................................42
Unrecognised items. .........................................................................................................................42
Parent entity disclosure.....................................................................................................................43
Auditors’ remuneration ......................................................................................................................44
Subsequent events ...........................................................................................................................44
Accounting policies ...........................................................................................................................44
Business Combinations.....................................................................................................................46
26 | Elanor Retail Property Fund Annual Report 2018
20
Notes to the Consolidated Financial Statements
ELANOR RETAIL PROPERTY FUND
for the year ended 30 June 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
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 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 2018 | 27
21
Notes to the Consolidated Financial Statements
ELANOR RETAIL PROPERTY FUND
for the year ended 30 June 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
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 5.16 cents per stapled security for the half-year ended 30 June 2018 was not declared prior to 30 June 2018. The
distribution was declared on 17 August 2018. 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 3.05 cents per unit for the half-year ended 30 June 2018 was not declared prior to 30 June 2018. The distribution was
declared on 17 August 2018. 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.
28 | Elanor Retail Property Fund Annual Report 2018
22
Notes to the Consolidated Financial Statements
ELANOR RETAIL PROPERTY FUND
for the year ended 30 June 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
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, reconciles liabilities arising from financing activities and provides 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 2018 | 29
23
Notes to the Consolidated Financial Statements
ELANOR RETAIL PROPERTY FUND
for the year ended 30 June 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
5.
Cash flow information (continued)
(b)
Reconciliation of liabilities arising from financing activities
Consolidated Group
ERPF I Group
30 | Elanor Retail Property Fund Annual Report 2018
24
Notes to the Consolidated Financial Statements
ELANOR RETAIL PROPERTY FUND
for the year ended 30 June 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
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 7 retail shopping centres in Australia.
(a)
Carrying values of investment properties
Note 1: The Auburn Central podium asset comprised of 19 podium strata lots. The Fund commenced disposal of these non-core strata lots in
August 2017. As at 30 June 2018, 2 strata lots remained.
(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:
Elanor Retail Property Fund Annual Report 2018 | 31
25
Notes to the Consolidated Financial Statements
ELANOR RETAIL PROPERTY FUND
for the year ended 30 June 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
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)
7.25% - 8.75%
Adopted terminal
yield(2)
6.25% - 8.75%
Adopted capitalisation
rate(3)
6.50% - 7.75%
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 measurement
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.
32 | Elanor Retail Property Fund Annual Report 2018
26
Notes to the Consolidated Financial Statements
ELANOR RETAIL PROPERTY FUND
for the year ended 30 June 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
6.
(c)
Investment properties (continued)
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.
Elanor Retail Property Fund Annual Report 2018 | 33
27
Notes to the Consolidated Financial Statements
ELANOR RETAIL PROPERTY FUND
for the year ended 30 June 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
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 $134.5 million facility. The drawn amount at 30 June 2018 is $129.5 million, and the
interest rate risk of drawn facilities is hedged to 83.8%.
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.
34 | Elanor Retail Property Fund Annual Report 2018
28
ELANOR RETAIL PROPERTY FUND
Notes to the Consolidated Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
for the year ended 30 June 2018
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.
(a)
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.
29
Elanor Retail Property Fund Annual Report 2018 | 35
ELANOR RETAIL PROPERTY FUND
Notes to the Consolidated Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
for the year ended 30 June 2018
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
(b)
ERPF I Group
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 Responsible Entity 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).
36 | Elanor Retail Property Fund Annual Report 2018
30
ELANOR RETAIL PROPERTY FUND
Notes to the Consolidated Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
for the year ended 30 June 2018
10. Financial risk management (continued)
(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:
31
Elanor Retail Property Fund Annual Report 2018 | 37
ELANOR RETAIL PROPERTY FUND
Notes to the Consolidated Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
for the year ended 30 June 2018
10.
(b)
Financial risk management (continued)
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 Notes 15 and 16.
38 | Elanor Retail Property Fund Annual Report 2018
32
ELANOR RETAIL PROPERTY FUND
Notes to the Consolidated Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
for the year ended 30 June 2018
10.
(c)
Financial risk management (continued)
Credit risk (continued)
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.
The ageing profile of the trade and other receivables balance as at 30 June 2018 is as follows:
(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.
33
Elanor Retail Property Fund Annual Report 2018 | 39
Notes to the Consolidated Financial Statements
ELANOR RETAIL PROPERTY FUND
for the year ended 30 June 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
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, related parties, events after the end of the
reporting period, remuneration of auditors and changes in accounting policies and disclosures.
11. 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.
12.
Net tangible assets
OVERVIEW
This note sets out the net tangible assets of the Fund and the ERPF I Group.
13.
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.
40 | Elanor Retail Property Fund Annual Report 2018
34
Notes to the Consolidated Financial Statements
ELANOR RETAIL PROPERTY FUND
for the year ended 30 June 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
13.
(a)
Related parties (continued)
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.
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 and cost recoveries.
Elanor Retail Property Fund Annual Report 2018 | 41
35
Notes to the Consolidated Financial Statements
ELANOR RETAIL PROPERTY FUND
for the year ended 30 June 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
13. Related parties (continued)
(a)
Key management personnel (continued)
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 2018, the outstanding loan balance
payable to ERPF II was $69.2 million.
14.
Non-cancellable operating lease receivables
OVERVIEW
This note sets out the non-cancellable operating lease receivables of the Fund and the ERPF I Group.
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 (2017: nil).
(b)
Commitments
The Fund has no capital commitments (2017: 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 (2017: nil) in respect of capital
expenditures contracted for at the date of the statement of financial position.
42 | Elanor Retail Property Fund Annual Report 2018
36
Notes to the Consolidated Financial Statements
ELANOR RETAIL PROPERTY FUND
for the year ended 30 June 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
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 2018, ERPF II is in a net current asset deficiency of $0.3 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 (2017: 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 (2017: none).
(d)
Contingent liabilities
At balance date ERPF I and ERPF II has no contingent liabilities (2017: none).
ACCOUNTING POLICY
With the exception of consolidation, 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 2018 | 43
37
Notes to the Consolidated Financial Statements
ELANOR RETAIL PROPERTY FUND
for the year ended 30 June 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
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 5.16 cents per stapled security has been declared by the Board of Directors.
The Fund has agreed with its bank to extend the $10.4 million facility, originally due to expire in July 2018, for three years
to July 2021.
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 2018.
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 the 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.
44 | Elanor Retail Property Fund Annual Report 2018
38
Notes to the Consolidated Financial Statements
ELANOR RETAIL PROPERTY FUND
for the year ended 30 June 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
19.
(d)
Accounting policies (continued)
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 2018 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 (Applicable 1
January 2018)
AASB 16 Leases (Applicable 1
January 2019 – early adoption
allowed if AASB 15 is adopted at
the same time)
AASB 15 introduces a 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 new standard is based on the
principle that revenue is
recognised when control of a good
or service transfers to a customer –
so the notion of control replaces
the existing notion of risks and
rewards. It applies to all contracts
with customers except leases,
financial instruments and insurance
contracts.
AASB 16 introduces new
requirements in relation to lease
classification and recognition,
measurement and presentation
and disclosure of leases for
lessees and lessors. For lessees a
(right-of-use) asset and a lease
liability will be recognised on the
balance sheet in respect of all
leases subject to limited
exceptions. The accounting for
lessors will not significantly
change.
Impact on the Fund’s financial
statements
The Fund’s main sources of
income are rental income, fair
value gains on investment
properties and fair value gains on
financial instruments. These
sources of income are outside the
scope of the new revenue
standard.
An assessment has been
performed on the Fund’s lease
contracts. It was noted that there
are no non-lease services included
in these contracts that would
otherwise be in scope of AASB 15.
Based upon the assessment, it is
expected that AASB 15 will not
have a material impact to the
Funds financial statements.
The Fund will adopt the standard in
the financial year beginning 1 July
2018.
Given that the Fund is not a party
to any significant lease agreements
as lessee, and on the basis that
this remains the same, the new
standard is not expected to have a
material impact on the recognition
and measurement of lease-related
revenues, assets or liabilities.
The Fund will adopt the standard in
the financial year beginning 1 July
2019.
Several other amendments to standards and interpretations will apply on or after 1 July 2018, 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 2018 | 45
39
Notes to the Consolidated Financial Statements
ELANOR RETAIL PROPERTY FUND
for the year ended 30 June 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2018
19.
(e)
Accounting policies (continued)
Critical accounting judgments and key sources of estimation uncertainty
The preparation of financial statements requires management to make judgements, estimates and assumptions that
affect the application of accounting policies and the reported amount of assets, liabilities, income and expenses. Actual
results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised prospectively.
In particular, information about significant areas of estimation, uncertainty and critical judgements in applying accounting
policies that have the most significant effect on the amount recognised in the financial statements is provided in:
-
-
Note 6 Investment properties; and
Note 10 Financial risk management (Financial Instruments)
20.
Business Combinations
Refer to the Fund’s Consolidated Financial Statements for the year ended 30 June 2017 for further information on the
business combination that occurred in the prior year.
46 | Elanor Retail Property Fund Annual Report 2018
40
Directors’ Declaration
to Stapled Security Holders
ELANOR RETAIL PROPERTY FUND
DIRECTORS’ DECLARATION TO STAPLED SECURITY HOLDERS
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 19 to 46 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 2018 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, 17 August 2018
Elanor Retail Property Fund Annual Report 2018 | 47
41
Independent Auditor’s Report
48 | Elanor Retail Property Fund Annual Report 2018
Independent Auditor’s Report
continued
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our
audit of the financial report 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 2018, Elanor Retail Property Fund recognised
investment properties valued at $317.7 million as
disclosed in Note 6.
Note 6 outlines 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 flow forecast and
terminal value calculation discounted to present value.
The valuation process requires significant judgment in
the following key areas:
forecast cash flows,
capitalisation rates, and
discount rates.
Accordingly,
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
objectivity of the external and internal valuers;
independence,
the
competence and
Performing an analytical review and risk assessment of
the portfolio, analysing the key inputs and assumptions;
Assessing the assumptions used in the portfolio,
focusing on the capitalisation rate and discount rate
with
trends and
transactions and challenging those assumptions where
appropriate;
to external market
reference
Holding discussions with management to obtain an
understanding of portfolio movements and their
identification of any additional property specific
matters; and
Testing on a risk basis of properties, both externally and
internally valued, the following:
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
lease
requirements, vacancy
renewals; and
rates and
The mathematical accuracy of the models.
o
o
o
We also assessed the appropriateness of the disclosures
included in Note 6 to the financial statements.
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 information which will be included in the Annual Report (but
does not include the financial report and our auditor’s report thereon): the Message from the Chairman,
Message from the CEO and other documents which are expected to be made available to us after that date.
Our opinion on the financial report does not cover the other information and we do not express any form of
assurance conclusion thereon.
43
Elanor Retail Property Fund Annual Report 2018 | 49
Independent Auditor’s Report
continued
50 | Elanor Retail Property Fund Annual Report 2018
Independent Auditor’s Report
continued
Elanor Retail Property Fund Annual Report 2018 | 51
Corporate Governance
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 2018. 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 securityholder 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.
52 | Elanor Retail Property Fund Annual Report 2018
Security Holder Analysis
(as at 24 August 2018)
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 are not stapled to equivalent securities in the other entity.
Top 20 Security Holders
Number Security Holder
No. of Securities
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
Elanor Investment Nominees Pty Limited
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