Annual Report
For the year ended 30 June 2019
Tweed Mall, Tweed Heads NSW
Contents
04 Highlights
06 Message from the Chairman
07 CEO’s Message
09 Financial Report
10 Directors’ Report
19 Auditor’s Independence Declaration
20 Financial Statements
26 Notes to the Financial Statements
47 Directors’ Declaration
48
52 Corporate Governance
53 Securityholder Analysis
55 Corporate Directory
Independent Auditor’s Report
Financial Calendar
December 2019
Estimated interim
distribution
announcement and
securities trade
ex-distribution
February 2020
Interim results
announcement
March 2020
June 2020
August 2020
September 2020
Interim distribution
payment
Estimated final
distribution
announcement and
securities trade
ex-distribution
Full-year results
announcement
Final distribution
payment
September 2020
Annual tax statements
Responsible Entity
Elanor Funds Management Limited (ABN 39 125 903 031).
AFSL 398196.
3
Highlights
Darwin
WESTERN
AUSTRALIA
Perth
NORTHERN
TERRITORY
SOUTH
AUSTRALIA
QUEENSLAND
Brisbane
NEW SOUTH
WALES
Sydney
Canberra
Adelaide
VICTORIA
Melbourne
TAS
Hobart
Portfolio Value
as at 30 June 2019
$334.5m
> 5.3%
Core Earnings
for the financial year 2019
$12.2m
> 12.9%
Net Asset Value
(per security)
as at 30 June 2019
Distributions
(per security)
for the financial year 2019
$1.53
> 2%
8.98c
> 12.9%
Gearing
as at 30 June 2019
38.8%
> from 38.2%
4 Elanor Retail Property Fund | Annual Report 2019
Darwin
WESTERN
AUSTRALIA
Perth
NORTHERN
TERRITORY
SOUTH
AUSTRALIA
QUEENSLAND
Elanor Retail Property
Fund’s assets are located
in metropolitan and prime
regional locations across
Australia
Brisbane
NEW SOUTH
WALES
Sydney
Canberra
Adelaide
VICTORIA
Melbourne
Assets
TAS
Hobart
Geographic Diversification 1
Key Tenants 2
TAS
6%
QLD
22%
Other
Tenants
73%
NSW
57%
1. By asset value
2. By base rent
Woolworths
13%
Coles
12%
8%
BIG W
5%
Target
Supa IGA (3%)
ALDI
(1%)
5
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 2019.
Elanor Retail Property Fund (ERF)
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.
It has been another successful
year for the Fund, both in terms of
achieving our financial objectives
and executing the Fund’s strategy.
The Fund has delivered Core
Earnings of $12.2 million for the year
and has distributed $11.6 million,
or 8.98 cents per security.
Achievements
During the year, the value of the
portfolio grew from $317.7 million to
$334.5 million, an increase of 5.3%.
The portfolio value, as at 30 June
2019, represents a weighted average
capitalisation rate of 6.8%.
The Fund has successfully
negotiated the early surrender
of Auburn Central’s BIG W lease
to facilitate the transformation
of the property into a Sydney
metropolitan, dual supermarket,
neighbourhood shopping centre.
A Heads of Agreement has been
executed with a non-discretionary
retailer to anchor the new retail
precinct.
The Fund has completed a new
15-year lease with ALDI at Tweed Mall.
ALDI commenced trading on
21 August 2019 which has facilitated
the execution of the remix strategy at
the northern precinct of the centre.
The Fund has maintained its
conservative capital structure.
As at 30 June 2019, ERF’s gearing
level was 38.8%, within the Fund’s
stated target range of 30% to 40%.
The weighted average cost of debt
has been reduced to 3.91% and
the average debt maturity was
increased to 3.2 years.
As at 30 June 2019, the Fund’s Net
Tangible Assets per security was
$1.53, reflecting the successful
execution of operational and value-
add initiatives across the portfolio.
Outlook
The Fund’s strategy will remain
focussed on actively managing
and growing earnings from its
investment portfolio and acquiring
additional high investment quality,
value-add retail properties. With
this focus, the Fund is strongly
positioned to enhance value for
securityholders.
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 securityholders
for their continued support and
confidence.
Yours sincerely,
Paul Bedbrook
Chairman
6 Elanor Retail Property Fund Annual Report 2019
CEO’s
Message
I am pleased to present
Elanor Retail Property
Fund’s Annual Report
for financial year ended
30 June 2019.
We continued to deliver on the
Fund’s strategy over the year.
Core Earnings for the year ended
30 June 2019 were $12.2 million,
or 9.46 cents per security. As a
result of the ongoing execution
of the repositioning and strategic
initiatives across the portfolio,
NTA per security increased to
$1.53 as at 30 June 2019. We
remain firmly of the view that the
Fund is a low risk retail REIT with
significant income and capital
growth potential. Furthermore, we
remain confident that the Fund
will continue to deliver high risk-
adjusted returns and significant
growth 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
focussed retail properties
that provide quality earnings
from rental income across a
diversified retail tenant mix
Implement leasing and other
operational initiatives to grow
the income and value of the
retail properties
Implement development and
repositioning strategies within
the Portfolio
• Acquire additional high
investment quality retail
properties with a significant
value-add potential
• Optimise the capital structure
of the Fund based on a
conservative approach
to gearing
Strategy Review
A strategic review of the Fund
has been undertaken to identify
transaction options and capital
management alternatives aimed
at reducing the prevailing gap
between the NTA per security
and the security’s trading price.
In that regard, since February 2019,
the following actions have been
undertaken:
• Evaluation of the potential
realisation strategy for the
Value-Add assets
• Evaluation of the potential
realisation strategy for the Core
Assets, being the balance of
the Fund’s assets, all of which
are non-discretionary focussed
retail properties with strong
cashflows secured by long
leases to anchor retailers
• Evaluation of the potential
realisation strategy for the
Core Assets and the Value-
Add assets to discrete sources
of capital as a result of an
integrated capital management
transaction
The strategic review has identified
specific transaction options that
are now being developed with a
view to executing the preferred
option in the short term. We look
forward to updating securityholders
in due course.
The successful execution of the
Fund’s strategy over the course
of the year has delivered strong
results for the Fund.
7
I wish to thank my fellow Board
members, my executive leadership
team and the Fund’s management
team led by Michael Baliva for
their dedication, enthusiasm and
successful execution of the Fund’s
strategy.
Yours sincerely,
Glenn Willis
Managing Director and
Chief Executive Officer
CEO’s Message
Key Results
This has resulted in:
• Core Earnings for the period
of $12.2 million, or 9.46 cents
per security
• Distributions for the period of
$11.6 million, or 8.98 cents per
security, reflecting a payout
ratio of 95% of Core Earnings
• Net Tangible Assets per
security of $1.53 as at
30 June 2019, reflecting a
22% increase since listing
• Strong revaluation gains for
Auburn Central and Tweed Mall
• An increase in portfolio
valuation to $334.5 million at
30 June 2019, reflecting a
weighted average capitalisation
rate of 6.8%
• NTA per security increasing
by 22% since listing from
$1.25 to $1.53
• Portfolio occupancy remaining
Investment Portfolio
strong at 97.2%
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 during the period.
Some of the key achievements
included:
• Execution of the Early Surrender
Agreement of Auburn Central’s
BIG W lease
Capital Management
The Fund is focussed on
maintaining a conservative capital
structure with a target gearing
range of between 30% and 40%.
At 30 June 2019, the Fund’s gearing
was 38.8%.
During the year ending 30 June
2020, we will continue to explore
capital management opportunities
to deliver value to securityholders.
• Execution of a Heads of
Outlook
Agreement with a key non-
discretionary, mini-major retailer
to transform Auburn Central
into a Sydney metropolitan, dual
supermarket, neighbourhood
shopping centre
• Execution of an Agreement
for Lease with ALDI at Tweed
Mall, for a 15-year term with
two five-year options (the ALDI
store commenced trading on
21 August 2019)
• Completion of a mixed-use
master plan for Tweed Mall
The Fund’s core strategy will remain
focussed on actively managing the
portfolio to grow Core Earnings
and capital value. Furthermore, we
will continue to focus on acquiring
additional high investment quality,
value-add, retail properties.
The Fund’s properties present
strong operational and strategic
opportunities to further increase
value. We continue to focus on
executing initiatives to add value,
consistent with our highly active
approach to asset management.
8 Elanor Retail Property Fund | Annual Report 2019
Financial Report
for the year ended 30 June 2019
10 Directors’ Report
19 Auditor’s Independence Declaration
20 Consolidated Statements of Profit or Loss
21 Consolidated Statements of Comprehensive Income
22 Consolidated Statements of Financial Position
23 Consolidated Statements of Changes in Equity
25 Consolidated Statements of Cash Flows
26 Notes to the Consolidated Financial Statements
47 Directors’ Declaration to Stapled Securityholders
48
Independent Auditor’s Report
9
ELANOR RETAIL PROPERTY FUND
DIRECTORS’ REPORT
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 Group (ERPF I Group) for the year ended 30 June 2019.
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
•
Lim Kin Song (appointed 30 May 2019)
2. Principal activities
The principal activities of the Fund are the investment in Australian retail properties, with the focus predominantly on quality,
high yielding non-discretionary neighbourhood and sub-regional shopping centres.
3. Distributions
Distributions relating to the year ended 30 June 2019 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.
10 Elanor Retail Property Fund | Annual Report 2019
3
ELANOR RETAIL PROPERTY FUND
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.
During the year ended 30 June 2019, the Fund has undertaken the following activities:
•
•
•
•
In June 2019, the Fund executed an early surrender of the BIG W lease at Auburn Central, including a $2
million surrender fee, of which a 10% non-refundable deposit was received and unconditionally released as at
30 June 2019. The balance of the surrender fee will be payable upon closure of the BIG W store in early 2020.
The closure of BIG W is a positive catalyst for the transformation of Auburn Central into a Sydney metropolitan,
dual supermarket, neighbourhood shopping centre. An independent valuation was obtained for the Auburn
Central property as at 30 June 2019, following the BIG W surrender. This valuation increased the asset
valuation by $18.1 million to $101.5 million at balance date. The centre repositioning project is forecast to be
completed by late 2020 to further establish Auburn Central as a strongly performing retail investment focussed
on non-discretionary goods and services, catering to the increasingly densifying trade area. The repositioning
will also extend customer dwell time whilst improving the amenity of the centre.
The Fund acquired a vacant building adjacent to the Auburn Central shopping centre for $2.5 million on 21
January 2019. This strategic initiative will significantly improve access to the secondary loading bays in the
anticipation of the reposition of the DDS space. In addition, the building is expected to be repurposed and
leased in the short to medium term.
The Fund commenced landlord works for the introduction of Aldi to Tweed Mall during the period, which were
completed on 31 May 2019. Following its fit-out, Aldi will open, and its new 15 year lease will commence, on
21 August 2019. The net operating income of Tweed Mall was impacted by tenant vacancies during capital
works for the Aldi tenancy. The impact of this downtime for the 12 months to 30 June 2019 is approximately
$0.7 million. The introduction of Aldi to Tweed Mall has resulted in the Fund securing new speciality retailers
at the centre’s northern mall as part of the repositioning project.
• A renewal for a 5-year lease term was signed with Target at Manning Mall in November 2018, providing security
over future cash flows at the centre.
•
•
The Fund refinanced debt facilities of $43.8 million for a new 5-year term, extending the weighted average debt
maturity to 3.2 years, with the weighted average cost of debt maintained at 3.91% per annum. The Fund is
currently negotiating with its bank in respect of a renewal of the $41.7 million facility, due to expire in May 2020.
In December 2018, the Fund completed the disposal of the last non-core podium strata lot at Auburn Central.
4
11
ELANOR RETAIL PROPERTY FUND
Directors' Report
DIRECTORS’ REPORT
4.
Operating and financial review (continued)
INVESTMENT PORTFOLIO
The following table shows the Group's investment portfolio as at balance date:
Note 1: This includes the Ambulance Station ($2.5m) adjacent to the Auburn Central Shopping Centre and a revaluation increase of $18.1 million
following the BIG W surrender and commencement of the repositioning strategy at the centre.
FINANCIAL RESULTS
The Group recorded a statutory profit of $20.0 million for the year ended 30 June 2019.
Core Earnings for the year were $12.2 million or 9.46 cents per stapled security. Core Earnings is considered more relevant
than statutory profit as it represents an estimate of the underlying recurring cash earnings of the 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 to 30 June 2019 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 Consolidated 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 Consolidated Statement of Profit or Loss.
12 Elanor Retail Property Fund | Annual Report 2019
5
ELANOR RETAIL PROPERTY FUND
DIRECTORS’ REPORT
4.
Operating and financial review (continued)
SUMMARY AND OUTLOOK
The Fund's core strategy remains focused on actively managing and growing earnings from its investment portfolio,
realising value-add opportunities across the portfolio from development and repositioning strategies, and acquiring
additional high investment quality retail properties.
The Fund is committed to growing the value of its investment portfolio.
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.
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
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
Bedbrock
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
6
13
ELANOR RETAIL PROPERTY FUND
Directors' Report
DIRECTORS’ REPORT
6.
Directors (continued)
Name
Particulars
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 30 years’ experience in the Australian
and international capital markets. Glenn was the 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.
After 12 years of growth, Grange Securities, was acquired by Lehman Brothers International in
2007, as the platform for Lehman’s Australian investment banking and funds management
operations. Glenn was appointed Managing Director and Country Head in March 2007. In 2008,
Glenn was appointed executive Vice Chairman of Lehman Brothers Australia.
Glenn is a Director of Big Brothers Big Sisters Australia and the FSHD Global Research
Foundation.
Former listed directorships in the last three years: None
Interest in stapled securities: 278,775
Qualifications: B.Bus (Econ & Fin)
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
14 Elanor Retail Property Fund | Annual Report 2019
7
ELANOR RETAIL PROPERTY FUND
DIRECTORS’ REPORT
6.
Directors (continued)
Name
Particulars
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
Lim Kin Song Non-Executive Director
Kin Song was appointed a Director of the Responsible Entity and Elanor Investors Limited in
May 2019. Kin Song is the CEO of Rockworth Capital Partners (who holds 18% in Elanor
Investors Group) and is responsible for all aspects of Rockworth’s business with a focus on
strategy, transactions, business development and investor relations.
With over 20 years of experience in the real estate sector, Kin Song specialises in acquisitions,
asset management, business development and leasing. He has extensive experience across
multi-core real estate sectors in Australia and South East Asia.
Kin Song has been the key driver of Rockworth’s rapid growth in its assets under management
since its inception in 2011, and provided leadership and strategic direction in transactions,
corporate development, capital allocation and asset management. Prior to founding Rockworth
in 2011, Kin Song held various positions in leading property groups in Asia, including Frasers
Centrepoint Ltd, Ascendas-MGM Funds Management and the CapitaLand Group.
Former listed directorships in the last three years: None
Interest in stapled securities: Nil
Qualifications: MBA, B.Sci, SISV, CCPS, RICS
8
15
ELANOR RETAIL PROPERTY FUND
Directors' Report
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.
16 Elanor Retail Property Fund | Annual Report 2019
9
ELANOR RETAIL PROPERTY FUND
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 consolidated financial statements.
The Directors are satisfied that the provision of non-audit services, during the year, by the auditor (or by another person or
firm on the auditor’s behalf) is compatible with the general standard of independence for auditors imposed by the
Corporations Act 2001 (Cth).
The Directors are of the opinion that the services as disclosed in Note 17 to the consolidated financial statements do not
compromise the external auditor’s independence, based on advice received from the Audit and Risk Committee, for the
following reasons:
•
•
all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and
objectivity of the auditor; and
none of the services undermine the general principles relating to auditor independence as set out in APES 110
‘Code of Ethics for Professional Accountants’ issued by the Accounting Professional & Ethical Standards Board,
including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for
the Fund, acting as advocate for the Fund or jointly sharing economic risks and rewards.
15.
Likely developments and expected results of operations
The consolidated 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 4.33 cents per stapled security has been declared by the Board of Directors.
The Board approved the appointment of Mr Anthony Fehon as a director of the Elanor Investors Group and the
Responsible Entity, with an effective date of 20 August 2019.
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.
10
17
Directors' Report
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 made pursuant to section 298(2) of the Corporations Act 2001
(Cth).
Paul Bedbrook
Chairman
Glenn Willis
CEO and Managing Director
Sydney, 16 August 2019
18 Elanor Retail Property Fund | Annual Report 2019
11
Auditor’s Independence Declaration
Deloitte Touche Tohmatsu
A.B.N. 74 490 121 060
Grosvenor Place
225 George Street
Deloitte Touche Tohmatsu
Sydney NSW 2000
A.B.N. 74 490 121 060
PO Box N250 Grosvenor Place
Sydney NSW 1220 Australia
Grosvenor Place
225 George Street
DX 10307SSE
Sydney NSW 2000
Tel: +61 (0) 2 9322 7000
PO Box N250 Grosvenor Place
Fax: +61 (0) 2 9322 7001
Sydney NSW 1220 Australia
www.deloitte.com.au
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)
The Directors
Level 38, 259 George Street
Elanor Funds Management Limited
Sydney NSW 2000
(as responsible entity for Elanor Retail Property
Fund I and Elanor Retail Property Fund II)
Level 38, 259 George Street
Sydney NSW 2000
16 August 2019
Dear Directors
16 August 2019
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.
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
As lead audit partner for the audit of the consolidated financial statements of Elanor Retail Property Fund I and
of independence to the directors of Elanor Funds Management Limited in its capacity as responsible entity for
Elanor Retail Property Fund II for the year ended 30 June 2019, I declare that to the best of my knowledge and
Elanor Retail Property Fund I and Elanor Retail Property Fund II.
belief, there have been no contraventions of:
(i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
As lead audit partner for the audit of the consolidated financial statements of Elanor Retail Property Fund I and
Elanor Retail Property Fund II for the year ended 30 June 2019, I declare that to the best of my knowledge and
belief, there have been no contraventions of:
(ii) any applicable code of professional conduct in relation to the audit.
(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,
Yours faithfully,
DELOITTE TOUCHE TOHMATSU
DELOITTE TOUCHE TOHMATSU
AG Collinson
Partner
Chartered Accountants
AG Collinson
Partner
Chartered Accountants
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Asia Pacific Limited and the Deloitte Network.
12
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Asia Pacific Limited and the Deloitte Network.
12
19
ELANOR RETAIL PROPERTY FUND
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS
FOR THE YEAR ENDED 30 JUNE 2019
Consolidated Statements of Profit or
Consolidated Statements of
Profit or Loss
For the year ended 30 June 2019
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS
FOR THE YEAR ENDED 30 JUNE 2019
ELANOR RETAIL PROPERTY FUND
Consolidated Statements of Profit or
The above Consolidated Statements of Profit or Loss should be read in conjunction with the accompanying notes
20 Elanor Retail Property Fund | Annual Report 2019
13
The above Consolidated Statements of Profit or Loss should be read in conjunction with the accompanying notes
13
ELANOR RETAIL PROPERTY FUND
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2019
Consolidated Statements of Comprehensive Income
Consolidated Statements of
Comprehensive Income
For the year ended 30 June 2019
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2019
ELANOR RETAIL PROPERTY FUND
Consolidated Statements of Comprehensive Income
The above Consolidated Statements of Comprehensive Income should be read in conjunction with the accompanying
notes
14
21
The above Consolidated Statements of Comprehensive Income should be read in conjunction with the accompanying
notes
14
ELANOR RETAIL PROPERTY FUND
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
FOR THE YEAR ENDED 30 JUNE 2019
C
ELANOR RETAIL PROPERTY FUND
Consolidated Statements of
Financial Position
As at 30 June 2019
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
FOR THE YEAR ENDED 30 JUNE 2019
C
of Financial Position
of Financial Position
The above Consolidated Statements of Financial Position should be read in conjunction with the accompanying notes
22 Elanor Retail Property Fund | Annual Report 2019
15
The above Consolidated Statements of Financial Position should be read in conjunction with the accompanying notes
15
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24 Elanor Retail Property Fund | Annual Report 2019
ELANOR RETAIL PROPERTY FUND
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2019
Consolidated Statements of Cash Flows
Consolidated Statements of
Cash Flows
For the year ended 30 June 2019
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2019
ELANOR RETAIL PROPERTY FUND
Consolidated Statements of Cash Flows
The above Consolidated Statements of Cash Flows should be read in conjunction with the accompanying notes
18
25
The above Consolidated Statements of Cash Flows should be read in conjunction with the accompanying notes
18
ELANOR RETAIL PROPERTY FUND
Notes to the Consolidated
Financial Statements
For the year ended 30 June 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2019
Notes to the Consolidated Financial Statements
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 2019. 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 2019.
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 2019, the Group is in a net current liability position of $41.9 million (ERPF I: $0.5 million), due to the
maturity of ERPF II’s debt facility of $41.7 million in May 2020. The Group has $340.1 million (ERPF I: $234.5 million)
of total assets and a net asset position of $197.5 million (ERPF I: $68.1 million) at balance date.
The Fund is currently negotiating with its bank in respect of a renewal of the $41.7 million facility, due to expire in
May 2020. The Fund is in compliance with all bank covenants as at 30 June 2019.
Given the conservative gearing level below 39% of asset value and strong cash flow for servicing of financing facilities,
Management are confident that the refinancing of the $41.7 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.
26 Elanor Retail Property Fund | Annual Report 2019
19
The notes to the consolidated financial statements have been organised into the following four sections:
RESULTS ................................................................................................................................................... 28
1.
2.
3.
4.
5.
Segment information ..................................................................................................................28
Revenue .....................................................................................................................................28
Distributions ...............................................................................................................................29
Earnings / (losses) per stapled security ......................................................................................29
Cash flow information .................................................................................................................30
OPERATING ASSETS .............................................................................................................................. 32
6.
Investment properties .................................................................................................................32
FINANCE STRUCTURE ........................................................................................................................... 35
7.
8.
9.
10.
Interest bearing liabilities ............................................................................................................35
Derivative financial instruments ..................................................................................................36
Contributed equity ......................................................................................................................37
Financial risk management .........................................................................................................37
OTHER ITEMS .......................................................................................................................................... 41
11. Other assets and liabilities ..........................................................................................................41
12. Net tangible assets .....................................................................................................................41
13. Related parties ...........................................................................................................................42
14. Non-cancellable operating lease receivables .............................................................................43
15. Unrecognised items. ...................................................................................................................43
16. Parent entity disclosure ..............................................................................................................44
17. Auditors’ remuneration ...............................................................................................................45
18. Subsequent events .....................................................................................................................45
19. Accounting policies ....................................................................................................................45
27
ELANOR RETAIL PROPERTY FUND
Notes to the Consolidated Financial Statements
For the year ended 30 June 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2019
Results
This section focuses on the operating results and financial performance of the Fund. It includes disclosures of revenue
and distributions.
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 consolidated 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.
28 Elanor Retail Property Fund | Annual Report 2019
21
ELANOR RETAIL PROPERTY FUND
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2019
3.
Distributions
OVERVIEW
In accordance with the Fund’s Constitutions, the Responsible Entity determines Core Earnings attributable to 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 in respect of the year ended 30 June 2019:
(1) The distribution of 4.33 cents per stapled security for the six months ended 30 June 2019 was not declared prior to 30 June 2019. The distribution
was declared on 16 August 2019. 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 2.22 cents per unit for the six months ended 30 June 2019 was not declared prior to 30 June 2019. The distribution was
declared on 16 August 2019. 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 consolidated 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
29
ELANOR RETAIL PROPERTY FUND
Notes to the Consolidated Financial Statements
For the year ended 30 June 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2019
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
30 Elanor Retail Property Fund | Annual Report 2019
23
ELANOR RETAIL PROPERTY FUND
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2019
5.
Cash flow information (continued)
(b)
Reconciliation of liabilities arising from financing activities
Consolidated Group
ERPF I Group
24
31
ELANOR RETAIL PROPERTY FUND
ELANOR RETAIL PROPERTY FUND
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2019
FOR THE YEAR ENDED 30 JUNE 2019
Notes to the Consolidated Financial Statements
For the year ended 30 June 2019
Operating Assets
Operating Assets
This section includes information about the assets used by the Fund to generate profits and revenue, specifically
This section includes information about the assets used by the Fund to generate profits and revenue, specifically
information relating to its investment properties.
information relating to its investment properties.
Investment properties
Investment properties
6.
6.
OVERVIEW
OVERVIEW
Investment properties are held solely for the purpose of earning rental income and / or for capital appreciation. At balance
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.
date, the Fund’s investment property portfolio comprises 7 retail shopping centres in Australia.
(a)
(a)
Carrying values of investment properties
Carrying values of investment properties
Note 1: The Auburn Central podium assets comprised 19 podium strata lots at acquisition. The Fund commenced disposal of these non-core strata
lots in August 2017. As at 30 June 2019, all strata lots have been sold.
Note 1: The Auburn Central podium assets comprised 19 podium strata lots at acquisition. The Fund commenced disposal of these non-core strata
lots in August 2017. As at 30 June 2019, all strata lots have been sold.
Note 2: This includes the Ambulance Station ($2.5m) adjacent to the Auburn Central Shopping Centre and a revaluation increase of $18.1 million
Note 2: This includes the Ambulance Station ($2.5m) adjacent to the Auburn Central Shopping Centre and a revaluation increase of $18.1 million
following the BIG W surrender and commencement of the repositioning strategy at the centre.
following the BIG W surrender and commencement of the repositioning strategy at the centre.
(b)
(b)
Movement in investment properties
Movement in investment properties
Fair value measurement
Fair value measurement
(c)
(c)
Highest and best use
Highest and best use
For all investment properties, the current use equates to the highest and best use.
For all investment properties, the current use equates to the highest and best use.
Fair value hierarchy and valuation techniques
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
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:
to the valuation techniques used below:
32 Elanor Retail Property Fund | Annual Report 2019
25
25
ELANOR RETAIL PROPERTY FUND
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2019
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.
Adopted discount
Rate(1)
7.50% - 9.25%
Adopted terminal
yield(2)
6.25% - 8.25%
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 capitalisation
rate(3)
6.00% - 8.00%
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 consolidated 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 consolidated 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.
26
33
ELANOR RETAIL PROPERTY FUND
Notes to the Consolidated Financial Statements
For the year ended 30 June 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2019
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.
34 Elanor Retail Property Fund | Annual Report 2019
27
ELANOR RETAIL PROPERTY FUND
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2019
Finance and Capital Structure
This section provides further information on the Fund’s 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 $138.4 million debt facility. The drawn amount at 30 June 2019 is $134.5 million.
During the period, the Fund refinanced debt facilities of $43.8 million for a new 5-year term. The weighted average debt
facility maturity at year end is 3.2 years. At 30 June 2019, the interest rate risk of drawn facilities is hedged to 82.5%.
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 consolidated 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.
28
35
ELANOR RETAIL PROPERTY FUND
Notes to the Consolidated Financial Statements
For the year ended 30 June 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2019
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
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.
36 Elanor Retail Property Fund | Annual Report 2019
29
ELANOR RETAIL PROPERTY FUND
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2019
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).
30
37
ELANOR RETAIL PROPERTY FUND
Notes to the Consolidated Financial Statements
For the year ended 30 June 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2019
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:
38 Elanor Retail Property Fund | Annual Report 2019
31
ELANOR RETAIL PROPERTY FUND
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2019
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 Notes 15 and 16.
32
39
ELANOR RETAIL PROPERTY FUND
Notes to the Consolidated Financial Statements
For the year ended 30 June 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2019
10. Financial risk management (continued)
(c)
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 2019 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.
40 Elanor Retail Property Fund | Annual Report 2019
33
ELANOR RETAIL PROPERTY FUND
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2019
Other Items
This section provides information that is not directly related to the specific line items in the consolidated 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.
34
41
ELANOR RETAIL PROPERTY FUND
Notes to the Consolidated Financial Statements
For the year ended 30 June 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2019
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.
(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
Lim Kin Song (appointed 30 May 2019)
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. Payments
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 incurred by the Fund to Elanor Investors Group and its controlled entities, in accordance with
the Constitution of each Scheme, including management fees, accrued performance fee and cost recoveries.
42 Elanor Retail Property Fund | Annual Report 2019
35
ELANOR RETAIL PROPERTY FUND
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2019
13.
Related parties (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 2019, the outstanding loan balance payable to
ERPF II was $69.7 million.
Sale of Auburn Central podium lot
On 21 December 2018, the Fund sold the last podium lot asset at Auburn Central to the Auburn Office Syndicate, a fund
managed by Elanor Funds Management Limited, at fair value, for $5 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, including contractual commitments for future expenditure
and contingent liabilities which are not sufficiently certain to qualify for recognition as a liability on the balance sheet, are
defined as unrecognised items. This note provides details of any such items.
(a)
Contingent liabilities
The Directors are not aware of any material contingent liabilities of the Fund as at 30 June 2019 (30 June 2018: nil).
(b)
Commitments
The Fund, including ERPF I Group, has capital commitments of $1.2 million as at 30 June 2019 (30 June 2018: nil) in
respect of capital expenditures contracted for the works at Tweed Mall in relation to the Aldi tenancy at the date of the
statement of financial position.
36
43
ELANOR RETAIL PROPERTY FUND
Notes to the Consolidated Financial Statements
For the year ended 30 June 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2019
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
(b)
Commitments
ERPF I and ERPF II had no commitments as at 30 June 2019 (2018: none) in relation to capital expenditure contracted for
but not recognised as liabilities.
(c)
Guarantees provided
ERPF I and ERPF II had no outstanding guarantees as at 30 June 2019 (2018: none).
(d)
Contingent liabilities
ERPF I and ERPF II has no contingent liabilities as at 30 June 2019 (2018: 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.
44 Elanor Retail Property Fund | Annual Report 2019
37
ELANOR RETAIL PROPERTY FUND
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2019
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 4.33 cents per stapled security has been declared by the Board of Directors.
The Board approved the appointment of Mr Anthony Fehon as a director of the Elanor Investors Group and the Responsible
Entity, with an effective date of 20 August 2019.
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 2019.
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.
38
45
ELANOR RETAIL PROPERTY FUND
ELANOR RETAIL PROPERTY FUND
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2019
Notes to the Consolidated Financial Statements
For the year ended 30 June 2019
19.
19.
(d)
Accounting policies (continued)
Accounting policies (continued)
New accounting standards and interpretations
(d)
New standards and interpretations
New accounting standards and interpretations
New standards and interpretations
AASB 9 Financial Instruments addresses the classification, measurement and de-recognition of financial assets and
liabilities and introduces new rules for hedge accounting and impairment of financial assets. AASB 9 is applicable from 1
AASB 9 Financial Instruments addresses the classification, measurement and de-recognition of financial assets and
January 2018. The Fund early adopted the standard in 2016. The adoption of AASB 15 did not result in a change in the
liabilities and introduces new rules for hedge accounting and impairment of financial assets. AASB 9 is applicable from 1
revenue recognised in the prior period. Management has also assessed the impact of the adoption of AASB 16 Leases
January 2018. The Fund early adopted the standard in 2016. The adoption of AASB 15 did not result in a change in the
(mandatory for the financial year ending 30 June 2020). Given that the Fund is not a party to any significant lease
revenue recognised in the prior period. Management has also assessed the impact of the adoption of AASB 16 Leases
agreements as lessee, and on the basis that this remains the same, the new standard is not expected to have a material
(mandatory for the financial year ending 30 June 2020). Given that the Fund is not a party to any significant lease
impact on the recognition, measurement and disclosure of lease-related revenues, assets or liabilities. The estimated non-
agreements as lessee, and on the basis that this remains the same, the new standard is not expected to have a material
lease component in the year ending 30 June 2019 was $2.5 million.
impact on the recognition, measurement and disclosure of lease-related revenues, assets or liabilities. The estimated non-
lease component in the year ending 30 June 2019 was $2.5 million.
Certain new Accounting Standards and Interpretations have been published that are not mandatory for the financial year
ended 30 June 2019 but are available for early adoption. They have not been applied in preparing this financial report. The
Certain new Accounting Standards and Interpretations have been published that are not mandatory for the financial year
Responsible Entity’s assessment of the impact of these new standards and interpretations is set out below.
ended 30 June 2019 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
Reference
Description
Description
AASB 16 Leases (Applicable 1
January 2019 – early adoption
AASB 16 Leases (Applicable 1
allowed if AASB 15 is adopted at
January 2019 – early adoption
the same time)
allowed if AASB 15 is adopted at
the same time)
AASB 2018-1 Amendments
to
Australian Accounting Standards –
to
AASB 2018-1 Amendments
Annual Improvements 2015 – 2017
Australian Accounting Standards –
Cycle
reporting
Annual Improvements 2015 – 2017
periods after 1 January 2019).
Cycle
reporting
periods after 1 January 2019).
(Effective
(Effective
for
for
16
introduces
AASB
new
requirements in relation to lease
new
introduces
16
AASB
classification
recognition,
and
requirements in relation to lease
measurement and presentation and
recognition,
and
classification
disclosure of leases for lessees and
measurement and presentation and
lessors. For lessees a (right-of-use)
disclosure of leases for lessees and
asset and a lease liability will be
lessors. For lessees a (right-of-use)
recognised on the balance sheet in
asset and a lease liability will be
respect of all leases subject to
recognised on the balance sheet in
limited exceptions. The accounting
respect of all leases subject to
lessors will not significantly
for
limited exceptions. The accounting
change.
lessors will not significantly
for
change.
Amendments made to the following
accounting
Amendments made to the following
AASB 3 Business Combination;
accounting
AASB 11 Joint Arrangements;
AASB 3 Business Combination;
AASB 112 Income Tax; and AASB
AASB 11 Joint Arrangements;
13 Borrowing costs.
AASB 112 Income Tax; and AASB
13 Borrowing costs.
Impact on the Fund’s financial
statements
Impact on the Fund’s financial
statements
Given that the Fund is not a party to
any significant lease agreements as
Given that the Fund is not a party to
lessee, and on the basis that this
any significant lease agreements as
remains
the new
the same,
lessee, and on the basis that this
standard is not expected to have a
the new
the same,
remains
material impact on the recognition
standard is not expected to have a
and measurement of lease-related
material impact on the recognition
revenues, assets or liabilities.
and measurement of lease-related
revenues, assets or liabilities.
The Fund has adopted the standard
financial year
the current
in
The Fund has adopted the standard
beginning 1 July 2019.
financial year
the current
in
beginning 1 July 2019.
The Fund does not anticipate that
the application of the amendments
The Fund does not anticipate that
will have a material impact on the
the application of the amendments
Fund’s financial statement.
will have a material impact on the
Fund’s financial statement.
standards:
standards:
Several other amendments to standards and interpretations will apply on or after 1 July 2019, and have not yet been
applied, however, they are not expected to impact the Fund’s consolidated financial statements.
Several other amendments to standards and interpretations will apply on or after 1 July 2019, and have not yet been
applied, however, they are not expected to impact the Fund’s consolidated financial statements.
(e)
Critical accounting judgments and key sources of estimation uncertainty
Critical accounting judgments and key sources of estimation uncertainty
(e)
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
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect
may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to
the application of accounting policies and the reported amount of assets, liabilities, income and expenses. Actual results
accounting estimates are recognised prospectively.
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:
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:
-
-
-
-
46 Elanor Retail Property Fund | Annual Report 2019
Note 6 Investment properties; and
Note 10 Financial risk management (Financial Instruments)
Note 6 Investment properties; and
Note 10 Financial risk management (Financial Instruments)
39
39
Directors’ Declaration to
Stapled Securityholders
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 20 to 46 are in accordance with the Corporations Act
2001 (Cth), including:
i.
complying with Australian Accounting Standards, the Corporations Regulations 2001 and other
mandatory professional reporting requirements; and
ii. giving a true and fair view of the Consolidated Group's and ERPF I Group's financial position as at
30 June 2019 and of their performance, for the financial year ended on that date; and
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).
(b)
(c)
(d)
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, 16 August 2019
47
40
Independent Auditor’s Report
Deloitte Touche Tohmatsu
A.B.N. 74 490 121 060
Grosvenor Place
225 George Street
Sydney NSW 2000
Deloitte Touche Tohmatsu
PO Box N250 Grosvenor Place
A.B.N. 74 490 121 060
Sydney NSW 1220 Australia
Grosvenor Place
DX 10307SSE
225 George Street
Tel: +61 (0) 2 9322 7000
Sydney NSW 2000
Fax: +61 (0) 2 9322 7001
PO Box N250 Grosvenor Place
www.deloitte.com.au
Sydney NSW 1220 Australia
Independent Auditor’s Report to the Stapled Security Holders of Elanor Retail
Property Fund and the Unitholders of ERPF I Group
DX 10307SSE
Tel: +61 (0) 2 9322 7000
Fax: +61 (0) 2 9322 7001
www.deloitte.com.au
Opinion
Independent Auditor’s Report to the Stapled Security Holders of Elanor Retail
Property Fund and the Unitholders of ERPF I Group
We have audited the accompanying financial report of:
Opinion
We have audited the accompanying financial report of:
The consolidated balance sheet as at 30 June 2019, the consolidated statement of profit or loss and
other comprehensive income, the consolidated statement of cash flows and the consolidated statement
of changes in equity for the year ended on that date, notes comprising a summary of significant
accounting policies and other explanatory information, and the directors’ declaration of the consolidated
entity Elanor Retail Property Fund, being the consolidated stapled entity (“Elanor Retail Property Fund”)
The consolidated balance sheet as at 30 June 2019, the consolidated statement of profit or loss and
as set out on pages 20 to 47. The consolidated stapled entity comprises Elanor Retail Property Fund II
other comprehensive income, the consolidated statement of cash flows and the consolidated statement
(“ERPF II”) and the entities it controlled at the year’s end or from time to time during the year, including
of changes in equity for the year ended on that date, notes comprising a summary of significant
Elanor Retail Property Fund I (“ERPF I”) and the entities it controlled at year’s end or from time to time
accounting policies and other explanatory information, and the directors’ declaration of the consolidated
during the financial year end;
entity Elanor Retail Property Fund, being the consolidated stapled entity (“Elanor Retail Property Fund”)
as set out on pages 20 to 47. The consolidated stapled entity comprises Elanor Retail Property Fund II
The consolidated balance sheet as at 30 June 2019, the consolidated statement of profit or loss and
(“ERPF II”) and the entities it controlled at the year’s end or from time to time during the year, including
other comprehensive income, the consolidated statement of cash flows and the consolidated statement
Elanor Retail Property Fund I (“ERPF I”) and the entities it controlled at year’s end or from time to time
of changes in equity for the year ended on that date, notes comprising a summary of significant
during the financial year end;
accounting policies and other explanatory information, and the directors’ declaration of the consolidated
entity ERPF I, being the consolidated entity (“ERPF I Group”) as set out on pages 13 to 40. The
The consolidated balance sheet as at 30 June 2019, the consolidated statement of profit or loss and
consolidated entity comprises ERPF I and the entities it controlled at the year’s end or from time to time
other comprehensive income, the consolidated statement of cash flows and the consolidated statement
during the year.
of changes in equity for the year ended on that date, notes comprising a summary of significant
accounting policies and other explanatory information, and the directors’ declaration of the consolidated
In our opinion, the accompanying financial report of Elanor Retail Property Fund and ERPF I Group is in
entity ERPF I, being the consolidated entity (“ERPF I Group”) as set out on pages 13 to 40. The
accordance with the Corporations Act 2001, including:
consolidated entity comprises ERPF I and the entities it controlled at the year’s end or from time to time
during the year.
giving a true and fair view of Elanor Retail Property Fund and ERPF I Group’s financial positions as
at 30 June 2019 and of their financial performance for the year then ended; and
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:
(ii)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
(i)
(i)
Basis for Opinion
giving a true and fair view of Elanor Retail Property Fund and ERPF I Group’s financial positions as
at 30 June 2019 and of their financial performance for the year then ended; and
complying with Australian Accounting Standards and the Corporations Regulations 2001.
(ii)
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
Basis for Opinion
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
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those
(the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other
standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section
ethical responsibilities in accordance with the Code.
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.
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Asia Pacific Limited and the Deloitte Network.
41
48 Elanor Retail Property Fund | Annual Report 2019
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Asia Pacific Limited and the Deloitte Network.
41
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.
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 2019, Elanor Retail Property Fund recognised
investment properties valued at $334.5 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:
Discount Rate
Capitalisation Rate
Terminal Value
NOI
Capital Expenditures
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 reference
trends and
transactions and challenging those assumptions where
appropriate;
to external market
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:
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, vacancy
lease
renewals; and
rates and
The mathematical accuracy of the models.
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.
49
42
Independent Auditor’s Report
Our opinion on the financial report does not cover the other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information and,
in doing so, consider whether the other information is materially inconsistent with the financial report or our
knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed on the other information that we obtained prior to the date of this
auditor’s report, we conclude that there is a material misstatement of this other information, we are required
to report that fact. We have nothing to report in this regard.
When we read the Message from the Chairman, Message from the CEO and other documents in the annual
report, if we conclude that there is a material misstatement therein, we are required to communicate the
matter to the directors and use our professional judgement to determine the appropriate action.
Responsibilities of the Directors for the Financial Report
The directors are responsible for the preparation of the financial report that gives a true and fair view in
accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control
as the directors determine is necessary to enable the preparation of the financial report that gives a true
and fair view and is free from material misstatement, whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing Elanor Retail Property Fund and
ERPF I Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the directors either intend to liquidate the
fund/s 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.
50 Elanor Retail Property Fund | Annual Report 2019
43
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.
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, 16 August 2019
51
44
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 2019. 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 2019
Securityholder Analysis
As at 19 August 2019
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 Securityholders
Number Securityholder
No. of Securities
%
Elanor Investment Nominees Pty Limited
23,026,082
17.89
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
J P Morgan Nominees Australia Pty Limited
The Trust Company (Australia) Limited
HSBC Custody Nominees (Australia) Limited
HSBC Custody Nominees (Australia) Limited - A/C 2
Citicorp Nominees Pty Limited
Kenxue Pty Ltd
HSBC Custody Nominees (Australia) Limited-Gsi Eda
BNP Paribas Noms Pty Ltd
Armada Investments Pty Ltd
Berg Family Foundation Pty Ltd
Pinwillow Pty Ltd
Kindol Pty Ltd
Sargon Ct Pty Ltd
Kenxue Pty Ltd
Yarramalong Management Services Pty Limited
Oksar Pty Ltd
Basapa Pty Ltd
Bond Street Custodians Limited
20
Carwoola Pty Ltd
Total
Balance of Register
Grand Total
11,564,834
10,984,465
8,699,052
6,882,553
5,971,403
4,848,518
2,957,447
2,153,747
1,822,222
1,366,667
1,366,667
1,308,960
1,269,943
1,057,961
940,119
827,779
825,927
822,223
755,408
8.98
8.53
6.76
5.35
4.64
3.77
2.30
1.67
1.42
1.06
1.06
1.02
0.99
0.82
0.73
0.64
0.64
0.64
0.59
89,451,977
69.49
39,277,778
30.51
128,729,755
100.00
53
Securityholder Analysis
As at 19 August 2019
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
%
No. of Holders
114,352,466
13,775,906
444,967
149,354
7,062
88.83
10.70
0.35
0.12
0.01
128,729,755
100.00
125
369
55
47
31
627
The total number of securityholders with an unmarketable parcel of securities was 22.
Substantial Securityholders
Securityholder
Elanor Investment Nominees Pty Ltd ATF Elanor Investment Trust
Moelis Australia Asset Management Limited
Ellerston Capital
Voting rights
No. of Securities
23,026,082
20,395,087
9,925,087
%
19.94
58.85
8.77
7.50
4.94
100.00
%
17.89
15.84
7.71
On a poll, each securityholder 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.
54 Elanor Retail Property Fund | Annual Report 2019
Corporate Directory
Elanor Investors Group (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 (Chairman)
Glenn Willis (Managing Director and CEO)
Nigel Ampherlaw
Kin Song Lim
Anthony (Tony) Fehon
Company Secretary of the Responsible Entity
Symon Simmons
Security Registry
Computershare Investor Services Pty Limited
Level 3
60 Carrington Street
Sydney NSW 2000
Auditors
Deloitte Touche Tohmatsu Grosvenor Place
225 George Street
Sydney NSW 2000
Custodian
The Trust Company (Australia) Limited
Level 18
123 Pitt Street
Sydney NSW 2000
Website
www.elanorinvestors.com/ERF
55
Level 38, 259 George Street
Sydney NSW 2000
T: +61 2 9239 8400
elanorinvestors.com/ERF