Annual Report
For the year ended 30 June 2020
Tweed Mall Shopping Centre, Tweed Heads, NSW
3
Contents
04 — Highlights
06 — Message from the Chairman
07 — CEO’s Message
09 — Financial Report
10 — Directors’ Report
22 — Auditor’s Independence Declaration
23 — Financial Statements
29 — Notes to the Financial Statements
59 — Directors’ Declaration
60 — Independent Auditor’s Report
64 — Corporate Governance
65 — Securityholder Analysis
67 — Corporate Directory
Financial Calendar
DEC
December 2020
Estimated interim distribution announcement and
securities trade ex-distribution
FEB
February 2021
Interim results announcement
MAR
March 2021
Interim distribution payment
JUN
June 2021
Estimated final distribution announcement and
securities trade ex-distribution
AUG
August 2021
Full-year results announcement
SEP
September 2021
Final distribution payment
SEP
September 2021
Annual tax statements
Responsible Entity
Elanor Funds Management Limited ABN 39 125 903 031. AFSL 398196.
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4
Highlights
WA
Perth
Retail Assets
Elanor Retail
Property Fund’s
assets are located
in metropolitan
and prime regional
locations across
Australia
Darwin
NT
SA
QLD
Brisbane
NSW
Sydney
Canberra
Adelaide
VIC
Melbourne
TAS
Hobart
Portfolio
Value
as at 30 June 2020
$321.2m
> 4.0%
Portfolio
Weighted Average
Capitalisation
Rate
as at 30 June 2020
Portfolio
WALE
(by income)
as at 30 June 2020
6.94%
4 years
Elanor Retail Property Fund | Annual Report 2020
Elanor Retail Property Fund | Annual Report 2020 5
5
TAS
6%
Woolworths
14%
Other
Tenants
59%
Coles 13%
Target
5%
BIG W
5%
Supa IGA 3%
ALDI
1%
QLD
23%
Geographic
Diversification1
Key
Tenants2
NSW
71%
Tenant Mix
by Type3
Supermarket
40%
DDS
25%
Other 3%
Mini Major 2%
Specialty
30%
1. By asset value
2. By base rent, excluding Auburn Central BIG W tenancy
3. By lettable area
Core
Earnings
for the financial
year 2020
$11.1m
> 8.8%
Distributions
(per security)
for the financial
year 2020
5.24c
Net Asset Value
(per security)
as at 30 June 2020
Gearing
as at 30 June 2020
$1.34
> 12.4%
43.7%
> from 38.8%
6
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 2020.
Elanor Retail Property Fund (ERF or
Fund) is an externally managed real
estate investment trust focused on
investing in neighbourhood and
sub-regional shopping centres with a
high proportion of non-discretionary
focused retailers. The Fund’s
objective is to provide investors with
strong, stable and growing income
returns and capital growth.
The Fund delivered Core
Earnings of $11.1 million for
the year. Notwithstanding the
Fund’s resilience to the impact of
COVID-19, the distribution for the
six months to 30 June 2020 was
suspended given the uncertain
and unpredictable economic
environment. As such, distributions
for the full year were $6.75 million,
or 5.24 cents per security, reflecting
a 95% payout ratio of Core
Earnings for the six months to
31 December 2019 only.
Achievements
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, triple supermarket,
neighbourhood shopping centre.
An Agreement for Lease has been
executed with ALDI to anchor
the new retail precinct. The
repositioning strategy of Auburn
Central is scheduled for completion
in November this year.
The Fund completed the first stage
of its retail repositioning strategy
for Tweed Mall in August 2019,
introducing ALDI to the centre as
its third major supermarket and
completing the tenancy remix in
the northern mall. The strategic
value-add project to reposition the
property into a significant mixed-use
asset is progressing well.
As at 30 June 2020, the Fund’s
Net Tangible Assets per security
was $1.34.
Capital Management
As at 30 June 2020, ERF’s gearing
level was 43.7% - temporarily
above the Fund’s target gearing
range of 30% to 40% due to the
repositioning projects in progress at
the Fund’s Value-Add assets. The
Fund’s gearing will be reduced
upon divestment of the Income
Assets in the short to medium term.
The weighted average cost of debt
has reduced from 4% p.a. to 3% p.a.
and the average debt maturity
decreased to 2.3 years from
3.2 years.
COVID-19
There has been a significant
change to operating and financial
conditions across the Australian
economy due to the disruption
caused by the COVID-19
pandemic. These changes have
impacted the Fund but have
been well managed by ERF’s
management team. Social
distancing requirements and
other health related regulatory
measures in response to the
COVID-19 pandemic have been
monitored closely and implemented
at each of the Fund’s properties,
in accordance with the various
Federal and State Government
regulations and recommendations.
Operational procedures have been
modified as required, to ensure the
health, safety and wellbeing of our
staff, tenants and visitors to the
Fund’s properties.
Outlook
The Fund’s key strategic objective
will remain focused on actively
managing and growing earnings
from its investment portfolio and
acquiring additional high investment
quality, non-discretionary, retail
properties with value-add potential.
The Fund is well positioned to
enhance value for securityholders
in the short term, following the
execution of current initiatives
that are targeted to realise the
operational and strategic value-add
opportunities within the portfolio.
Thank you to my fellow Board
members, the executive leadership
team and in particular to the Fund
team, led by Michael Baliva, for
their hard work, dedication and
enthusiasm in an abnormal and
challenging year.
Finally, to all Elanor Retail Property
Fund securityholders, thank you for
your continued support.
Yours sincerely,
Paul Bedbrook
Chairman
Elanor Retail Property Fund | Annual Report 2020
7
CEO’s
Message
I am pleased to present Elanor Retail Property Fund’s
(ERF or Fund) Annual Report for financial year
ended 30 June 2020.
We continued to deliver on the
Fund’s strategy during the year.
Core Earnings for the year ended
30 June 2020 were $11.1 million.
We remain firmly of the view that
the Fund is a low risk retail REIT
with significant income and capital
growth potential. Furthermore, we
are confident that the Fund will
deliver high risk-adjusted returns.
We are pleased with the
performance of the Fund’s Income
Assets and the progress of the
repositioning strategies at the
Fund’s Value-Add assets.
The defensive nature of our
non-discretionary focused portfolio
is highlighted by the strong rental
collections achieved over the
COVID-19 impacted quarter to 30
June 2020 (having collected in
excess of 78% of gross rent) and
the strength of the Fund’s property
valuations in these challenging
times. We remain confident that
the Fund is well positioned to grow
value for securityholders.
Strategy
The Fund’s objective is to provide
investors with strong and growing
income returns and capital growth.
To achieve this objective, the
Fund’s strategy is to:
•
•
Invest in non-discretionary
focused retail properties
that provide quality earnings
from rental income across a
diversified retail tenant mix
Implement leasing and other
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
Key Results
• Core Earnings for the period of
$11.1 million, or 8.63 cents
per security
• Distributions for the period of
$6.75 million, or 5.24 cents
per security (representing 95%
of 1HFY20 Core Earnings).
2HFY20 distribution suspended
due to prevailing operating and
market conditions as a result of
the COVID-19 pandemic
• Net Tangible Assets per security
of $1.34 as at 30 June 2020
Investment Portfolio
As at 30 June 2020, ERF had
a total investment portfolio of
$321.2 million, down 4.8% from
31 December 2019. The portfolio’s
overall value remained largely
unchanged, with the exception
of Tweed Mall, which reduced by
$18.1 million as a result of the
ongoing repositioning of the centre
to a triple supermarket anchored,
non-discretionary focused retail
asset. The balance of the portfolio
increased 0.8% from the December
2019 valuations.
Highlights include:
• Within six months of the
opening of ALDI in Tweed Mall
on 21 August 2019, the asset
experienced a 15.4% increase
in sales and a 13.8% increase in
footfall traffic. These significant
increases surpassed earlier
forecasts and support Tweed
Mall’s continued repositioning
towards a retail offering
which is increasingly
non-discretionary focused
• The Fund’s repositioning of
Auburn Central into a triple
supermarket neighbourhood
shopping centre is on schedule
for completion in November
2020. Construction commenced
in March 2020 following the
closure of BIG W’s store in
February 2020, in accordance
with the agreed early lease
surrender. The project is forecast
to generate an incremental yield
of 10% on its estimated $20.0
million development cost, which
is fully debt funded
On completion, the project will
introduce an ALDI supermarket
(1,755m2 secured by a 15-year
lease and two five-year options),
a Tong Li Asian supermarket
(900m2 secured by a 10-year
lease), a mini-major discounter,
a new food-court and an
expanded range of medical,
health and well-being services
• The Fund has successfully
renewed a $41.7 million debt
tranche which was due to
expire in May 2020, to May
2022. This reduces the Fund’s
weighted average cost of debt to
8
“We continue to focus on executing initiatives to add value,
consistent with our highly active approach to asset management.”
approximately 3.25% per annum
and increases the weighted
average term to maturity to
approximately 2.6 years
• Continued focus on the
divestment of the Income
Assets, particularly given their
strong performance during the
challenging market conditions
presented by the COVID-19
pandemic
•
In June 2020, the Fund
exchanged contracts for the sale
of Auburn Ambulance Station for
$4.0 million. This asset has been
classified as Assets held for sale
as at 30 June 2020. Settlement
occurred on 7 August 2020
Capital Management
Gearing of the Fund at 30 June
2020 was 43.7% - temporarily above
the Fund’s target gearing range of
between 30% and 40% due to the
repositioning projects in progress at
the Fund’s Value-Add assets. The
Fund’s gearing will be reduced upon
divestment of the Income Assets in
the short to medium term.
During the year ahead, we
will continue to explore capital
management opportunities to
deliver value to securityholders.
COVID-19
The Group’s ‘defensive’ shopping
centre portfolio has performed well
during the COVID-19 pandemic.
Following the outbreak of the
COVID-19 pandemic, both Federal
and State Governments imposed
operating restrictions on certain
shopping centre retailers.
Only those retailers deemed to be
providers of ‘essential services’
were able to trade for the three
months to 30 June 2020. The level
of trading activity across ERF’s
assets continues to improve as
Government imposed restrictions
are relaxed. As at 31 July 2020,
78% of rental billings across
April, May and June 2020 had
been collected.
Outlook
The Fund’s core strategy will
remain focused 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.
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
Manning Mall, Taree, NSW
Elanor Retail Property Fund | Annual Report 2020
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9
Financial
Report
for the year ended
30 June 2020
10
22
23
24
25
26
28
29
59
60
— Directors’ Report
— Auditor’s Independence Declaration
— Consolidated Statements of Profit or Loss
— Consolidated Statements of Comprehensive Income
— Consolidated Statements of Financial Position
— Consolidated Statements of Changes in Equity
— Consolidated Statements of Cash Flows
— Notes to the Consolidated Financial Statements
— Directors’ Declaration to Stapled Securityholders
— Independent Auditor’s Report
10
Directors’
Report
Directors’ Report
ELANOR RETAIL PROPERTY FUND
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 2020.
The financial report of the Consolidated Group comprises Elanor Retail Property Fund II (ERPF II) and 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
•
Lim Kin Song
• Anthony Fehon (appointed 20 August 2019)
• William (Bill) Moss AO (resigned 17 September 2019)
2. Principal activities
The principal activities of the Fund are the investment in non-discretionary focused neighbourhood and sub-regional
shopping centres that have strong value-add potential.
3. Distributions
Distributions relating to the year ended 30 June 2020 comprise:
The Group achieved Core Earnings of $11.1 million for the financial year ended 30 June 2020 and $4.0 million for the six
months ended 30 June 2020. In light of the COVID-19 pandemic, the Directors have determined to suspend the Fund’s
distribution for the six months ended 30 June 2020. Therefore, total distributions in respect of the year ended 30 June 2020
is 5.24 cents per stapled security being the interim distribution made in February 2020.
3
Elanor Retail Property Fund | Annual Report 2020
ELANOR RETAIL PROPERTY FUND
11
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, with strong value-add potential.
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.
The Fund will focus on retail assets that provide opportunities for high, risk-adjusted total returns from realising the highest
and best use via a repositioning of the centres’ retail tenant mix, repositioning existing retail for higher and better use,
and/or unlocking the assets’ development potential.
The Fund’s portfolio of non-discretionary focused retail properties:
• Comprises of two ‘Value-Add’ properties currently undergoing repositioning projects - Auburn Central and
Tweed Mall, valued at $192.5 million;
• Comprises of five ‘Income Assets’, being sub-regional and neighbourhood shopping centres located across
NSW, Tasmania and Queensland, with a combined value of $124.7 million;
• Has occupancy of 96.2% at balance date; and
• Generates approximately 40% of its income from major retailers and 53% from specialty retailers.
Impact of the COVID-19 Pandemic on the Fund
There has been a significant change to operating and financial conditions across the Australian economy due to the
COVID-19 pandemic. The Australian Government has taken steps to support jobs, incomes and businesses by providing
multiple economic stimulus packages, including wage subsidies, income support to households and cash flow support
to businesses. The recovery of the Australian economy is dependent on the successful and ongoing management of
the COVID-19 related health outcomes. Given the prevailing market conditions, active communication is being
maintained with all tenants across the Fund’s portfolio.
Social distancing requirements and other related measures implemented by government in response to the COVID-19
pandemic have been monitored closely and implemented at each of the Fund’s properties in accordance with the various
state government regulations and recommendations, and also in accordance with various industry body
recommendations. Operational procedures have been modified as required, to ensure the health, safety and wellbeing
of our staff, tenants and visitors to the Fund’s properties.
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. These retailers primarily provide ‘essential goods and services’, and include
supermarkets, discount department stores, pharmacies, fresh food, liquor medical and other services. Importantly,
approximately 77% of the Fund’s gross rental is generated by retailers in these categories. These tenants have been
less impacted by the challenging trading conditions resulting from the COVID-19 pandemic than more discretionary
focused retailers.
The Group’s ‘defensive’ shopping centre portfolio has performed well during the COVID-19 pandemic. Following the
outbreak of the COVID-19 pandemic both Federal and State Governments imposed operating restrictions on certain
shopping centre retailers. Only those retailers deemed to be providers of ‘essential services’ were able to trade for the
three months to 30 June 2020. The level of trading activity across ENN’s retail Managed Funds continues to improve as
Government imposed restrictions are relaxed. As at 31 July 2020, 78% of rental billings across April, May and June 2020
had been collected.
4
12
Directors' Report
ELANOR RETAIL PROPERTY FUND
DIRECTORS’ REPORT
4.
Operating and financial review (continued)
OVERVIEW AND STRATEGY (CONTINUED)
The National Cabinet announced the Mandatory Code of Conduct (National Code) for COVID-19 impacted small and
medium sized retail tenants in early April 2020. Subsequently, States and Territories have been preparing legislation to
implement the National Code within their own jurisdictions. As the Fund owns properties in multiple states, the legislation
will be referred to generically as the ‘Code of Conduct’.
The Fund has adhered to the Leasing Principles of the Code of Conduct when negotiating rent concessions with tenants.
The code requires that the COVID-19 rent concessions must include proportionate reductions in rent payable in the form
of waivers and deferrals based on the reduction in the tenant’s trade during the COVID-19 pandemic period and a
subsequent reasonable recovery period. Rental waivers must constitute no less than 50% of the total reduction in rent
payable (unless tenants waive the requirement by agreement). Payment of rental deferrals by the tenant must be
amortised over the balance of the lease term for a period of not less than 24 months, whichever is greater, unless
otherwise agreed by the parties (please see Note 3 to the financial statements for further information).
Rental relief arrangements continue to be negotiated in accordance with the Code of Conduct, to support occupancy
levels in conjunction with pursuing opportunities to improve the tenancy mix and extend lease tenure at each centre. At
balance date, 23 agreements for COVID-19 related rent relief under the Code of Conduct have been executed across
the Fund’s portfolio (further information in this regard is provided in the Financial Results section of the Directors’
Report).
INVESTMENT PORTFOLIO
The following table shows the Group's investment portfolio as at balance date:
In June 2020, the Fund exchanged contracts for the sale of Auburn Ambulance Station for $4.0 million. This asset has
been classified as Assets held for sale as at 30 June 2020. Settlement occurred on 7 August 2020.
At 30 June 2020, the value of the Fund’s investment portfolio was $321.2 million, including the Auburn Ambulance
Station valued at the contracted sale price of $4 million. The valuation of the Fund’s portfolio of investment properties
at 30 June 2020 has declined by only 4.8% compared to the portfolio valuation at 31 December 2019 of $337.4 million
(or 4.0% compared to 30 June 2019).
Independent valuers of the Fund’s properties have included a statement within their valuation reports noting that in their
view, significant valuation uncertainty exists in the current market environment. The significant uncertainty declaration is
to serve as a precaution and does not invalidate the valuation. Rather, the statement is to ensure transparency of the fact
that in the current extraordinary market circumstances as a result of the COVID-19 pandemic, less certainty can be
attached to the valuations and continued periodic assessment should be performed subsequent to the date of the valuation
assessment. The Fund will manage this increased uncertainty through active management of the investment portfolio,
including ongoing detailed engagement with tenants across the portfolio in respect of their business operations and future
leasing transactions.
5
Elanor Retail Property Fund | Annual Report 2020
ELANOR RETAIL PROPERTY FUND
DIRECTORS’ REPORT
13
4.
Operating and financial review (continued)
INVESTMENT PORTFOLIO (CONTINUED)
The portfolio valuation decline was largely due to the $18.1 million reduction in value of the Tweed Mall property, to
$84.5 million at balance date. The valuation of the Tweed Mall property reflects the current development impacted nature
of the property with the assets’ re-positioning project in progress. Whilst the transformation of the property into a triple
supermarket neighbourhood centre, anchoring a significant mixed use precinct, is progressing well, it was insufficiently
de-risked to be incorporated into the independent valuation prepared as at 30 June 2020. The value-add potential of
the property, given its favourable location and existing planning controls, will be reflected in its valuation as key
components of the repositioning project are de-risked/delivered.
The valuation of the Fund’s Auburn Central property increased to $108 million at 30 June 2020, an increase of $5.7
million from the December 2019 valuation of $102.3 million (or an increase of $6.5 million from 30 June 2019 of $101.5
million). The increased valuation of the property reflects the progress in de-risking the repositioning of Auburn Central
into a triple supermarket neighbourhood shopping centre. This repositioning is on schedule for completion in November
2020.
On completion, the project will introduce an Aldi supermarket (1,755m2 secured by a 15-year lease and two five-year
options), a Tong Li Asian supermarket (900m2 secured by a 10-year lease), a mini-major discounter, a new food-court,
and an expanded range of medical, health and well-being services.
Excluding the valuation reduction for the Tweed Mall property, the value of the Fund’s portfolio has increased by 0.8%
from the 31 December 2019 valuations (or an increase of 1.5% from 30 June 2019).
Further detailed discussion in respect of the increased uncertainty in future asset performance and valuation of
investment properties is disclosed in both the Critical accounting judgments and key sources of estimation uncertainty
(Page 29) and Note 6 Investment Properties in the consolidated financial statements.
FINANCIAL RESULTS
The Group recorded a statutory loss of $11.96 million for the year ended 30 June 2020, including movements in the Fund’s
valuation of the Fund’s investment portfolio.
Core Earnings for the year were $11.1 million or 8.63 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.
As discussed above, at balance date, 23 agreements for COVID-19 related rent relief under the relevant state government
Codes of Conduct have been executed. These agreements are in respect of approximately $0.3 million of rental income,
representing only 1.2% of Net Operating Income (NOI) for the financial year ended 30 June 2020. Negotiations are in
progress with certain other tenants in respect of COVID-19 related rental relief requests. Discussions with tenants in
respect of requested rental relief are being conducted in accordance with the Code of Conduct principles, incorporating a
component of rent abatement and rent deferment, with the rent deferment to be typically repaid over a 24-month period.
In many circumstances, rental relief negotiations also include discussions with the tenant in respect of an increased lease
term in consideration of any relief granted.
At balance date, the Fund has recognised a total provision for COVID-19 related rental relief requests of $1.3 million,
representing 4.8% of NOI for the twelve months to 30 June 2020. This reflects both rent waived for the year ended 30 June
2020 and the provision for doubtful debts as at 30 June 2020. The provision for doubtful debts reflects the amount of tenant
rental arrears at balance date that is likely to be waived in respect of past occupancy and also includes any additional
amount relating to arrears at balance date that has been assessed to have credit risk in respect of the financial position of
the tenant. As at 31 July 2020, the weighted average percentage of rent collected across the Fund’s portfolio for the months
of April, May and June 2020 was 78%. The percentage of rent collected at the Auburn Central property is lower than the
other properties in the portfolio substantially due to the impact of the ongoing development works over the period, relating
to the repositions of the property.
6
14
Directors' Report
ELANOR RETAIL PROPERTY FUND
DIRECTORS’ REPORT
4.
Operating and financial review (continued)
FINANCIAL RESULTS (CONTINUED)
Property
Auburn Central
Tweed Mall
Manning Mall
Gladstone Square
Moranbah Fair
Glenorchy Plaza
Northway Plaza
ERF Weighted Average
Percentage of Rent Collected
(as at 31 July 2020)
April - June 2020
Consolidated Group
58%
74%
84%
83%
96%
83%
100%
78%
The Fund has received certain immaterial Government support during the COVID-19 pandemic, including deferral and
abatement of certain land tax obligations across the portfolio.
The Fund’s balance sheet at 30 June 2020 reflects Net Assets of $172.7 million, and cash on hand of approximately $4.0
million. The Fund also has access to $2.0 million in undrawn working capital facilities.
A summary of the Group and ERPF I Group's results for the year to 30 June 2020 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 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.
SUMMARY AND OUTLOOK
The Fund's core strategy remains focused on actively managing and growing earnings from its defensive investment
portfolio, realising value-add opportunities across the portfolio from development and repositioning strategies, and
acquiring additional high investment quality retail properties.
7
Elanor Retail Property Fund | Annual Report 2020
ELANOR RETAIL PROPERTY FUND
DIRECTORS’ REPORT
15
4.
Operating and financial review (continued)
SUMMARY AND OUTLOOK (CONTINUED)
During the year ended 30 June 2020, the Fund has undertaken the following activities:
• Within six months of the opening of Aldi in Tweed Mall on 21 August 2019, the asset experienced a 15.4%
increase sales and a 13.8% increase in footfall traffic. These significant increases surpassed earlier forecasts
and support Tweed Mall’s continued repositioning towards a retail offering which is increasingly non-
discretionary focused.
•
•
The Fund’s repositioning of Auburn Central into a triple supermarket neighbourhood shopping centre is on
schedule for completion in November 2020. Construction commenced in March 2020 following the closure of
BigW’s store in February 2020, in accordance with the agreed early lease surrender. The project is forecast to
generate an incremental yield of 10% on its estimated $20.0 million development cost, which is fully debt funded.
On completion, the project will introduce an Aldi supermarket (1,755m2 secured by a 15-year lease and two five-
year options), a Tong Li Asian supermarket (900m2 secured by a 10-year lease), a mini-major discounter, a new
of food-court and an expanded range of medical, health and well-being services.
The Fund has successfully renewed a $41.7 million debt tranche which was due to expire in May 2020, to May
2022. This reduces the Fund’s weighted average cost of debt to approximately 3.25% per annum and increases
the weighted average term to maturity to approximately 2.6 years.
• Continued focus on the divestment of the Income Assets, particularly given their strong performance during the
challenging market conditions presented by the COVID-19 pandemic.
•
In June 2020, the Fund exchanged contracts for the sale of Auburn Ambulance Station for $4.0 million. Settlement
completed on 7 August 2020.
The risks to the Fund in the coming year primarily comprise potential earnings variability associated with uncertain
economic and market conditions related to the COVID-19 pandemic. These risks may result in reduced retailer demand
and domestic retail spending, softening of rental growth and increases in required incentives. While general market
uncertainty may impact the availability of capital for acquisition opportunities, investment demand for quality assets is
expected to remain positive. Other risks include potential related movements in property valuations and possible weather-
related events.
These risks to the Fund are primarily mitigated through the active management of the Fund’s portfolio, including ongoing
detailed engagement with tenants across the portfolio in respect of their business operations and any potential rental
arrears risks. This tenant level risk assessment, including relevant scenario analyses, is ongoing. Risk mitigation includes
the broadening the Fund's tenant mix, ensuring that appropriate insurance arrangements are in place and actively
managing the Fund's cash position and 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
8
16
Directors' Report
6.
Directors
ELANOR RETAIL PROPERTY FUND
DIRECTORS’ REPORT
The following persons have held office as Directors of the Responsible Entity during the period and up to the date of
this report:
Name
Particulars
Paul
Bedbrook
Independent Non-Executive Chairman
Chairman, Remuneration and Nominations Committee
Paul was appointed a Director of both the Company and the Responsible Entity (also the Responsible
Entity of ERF) in June 2014. Paul has had a career of over 30 years in financial services, originally as
an analyst, fund manager and then the GM & Chief Investment Officer for Mercantile Mutual Investment
Management Ltd (ING owned) from 1987 to 1995.
Paul was an executive for 26 years with the Dutch global banking, insurance and investment group,
ING, retiring in 2010. Paul’s career included the roles of: President and CEO of ING Direct Bank,
Canada (2000 – 2003), CEO of the ING Australia/ANZ Bank Wealth JV (2003-2008) and Regional
CEO, ING Asia Pacific, Hong Kong (2008 – 2010). Paul is currently the Chairman of Zurich Financial
Services Australia and its Life, General and Investment Companies, and a non-executive director of
Credit Union Australia and the National Blood Authority.
Former listed directorships in the last three years: None
Interest in stapled securities: None
Qualifications: B.Sc, F FIN, FAICD
Glenn Willis Managing Director and Chief Executive Officer
Glenn has over 30 years' experience in the Australian and international capital markets. Glenn was the
co-founder and Chief Executive Officer of Moss Capital, prior to its ASX listing as Elanor Investors
Group in July 2014. Prior to Elanor, Glenn co-founded Grange Securities and led the team in his role
as Managing Director and CEO.
After 12 years of growth, Grange Securities was acquired by Lehman Brothers International in 2007
as the platform for Lehman's Australian investment banking and funds management operations. Glenn
was appointed Managing Director and Country Head in March 2007. In 2008, Glenn was appointed
executive Vice Chairman of Lehman Brothers Australia.
Glenn is a Director of FSHD Global Research Foundation.
Former listed directorships in the last three years: None
Interest in stapled securities: 278,775
Qualifications: B.Bus (Econ & Fin)
9
Elanor Retail Property Fund | Annual Report 2020
ELANOR RETAIL PROPERTY FUND
DIRECTORS’ REPORT
17
6.
Directors (continued)
Name
Particulars
Nigel
Ampherlaw
Independent Non-Executive Director
Chairman, Audit and Risk Committee
Nigel was appointed a Director of the Responsible Entity and Elanor Investors Limited in June
2014. Nigel was a Partner of PricewaterhouseCoopers for 22 years where he held a number of
leadership positions, including heading the financial services audit, business advisory services
and consulting businesses.
He also held a number of senior client Lead Partner roles. Nigel has extensive experience in
risk management, technology, consulting and auditing in Australia and the Asia-Pacific region.
Nigel’s current Directorships include Chairman of Credit Union Australia and non-executive
Director of the Australia Red Cross Blood Service, where he is a member of the Finance and
Audit Committee and a member of the Risk Committee.
Former listed directorships in the last three years: Quickstep Holdings Ltd
Interest in stapled securities: 109,630
Qualifications: B.Com, FCA, MAICD
Lim Kin Song Non-Executive Director
Kin Song was appointed as a Director of both the Company and the Responsible Entity (also
the Responsible Entity of ERF) in May 2019. Kin Song is the CEO of Rockworth Capital Partners
(which holds a 15% ownership interest in the Group) and is responsible for all aspects of
Rockworth’s business with a focus on strategy, transactions, business development and
investor relations.
With over 20 years of experience in the real estate sector, Kin Song specialises in acquisitions,
asset management, business development and leasing. He has extensive experience across
multi-core real estate sectors in Australia and South East Asia.
Kin Song has been the key driver of Rockworth’s rapid growth in its assets under management
since its inception in 2011, and provided leadership and strategic direction in transactions,
corporate development, capital allocation and asset management. Prior to founding Rockworth
in 2011, Kin Song held various positions in leading property groups in Asia, including Frasers
Centrepoint Ltd, Ascendas-MGM Funds Management and the CapitaLand Group.
Former listed directorships in the last three years: None
Interest in stapled securities: None
Qualifications: MBA, B.Sci, SISV, RICS
10
18
Directors' Report
ELANOR RETAIL PROPERTY FUND
DIRECTORS’ REPORT
6.
Directors (continued)
Name
Particulars
Anthony
(Tony) Fehon
Independent Non-Executive Director
Tony was appointed as a Director of both the Company and the Responsible Entity (also the
Responsible Entity of ERF and ECF) in August 2019. Tony has more than 30 years’ experience
working in senior roles with some of Australia’s leading financial services and funds management
businesses. He has broad experience in operational and leadership roles across many industries.
Tony is an Executive Director of Volt Bank Limited and has primary responsibility for capital
management. He is also director of enLighten Australia Pty Limited, Global Bioprotect Pty Limited,
Maker Films and Team Mates Pty Limited. Previously Tony was an Executive Director of
Macquarie Bank Limited where he was involved in the formation and listing of several of
Macquarie’s listed property trusts including being a director of the listed leisure trust.
Tony continues to be involved in developing and completing investment structures for real estate
investment and development, financial assets and leisure assets.
William (Bill)
Moss AO
Former listed directorships in the last three years: None
Interest in stapled securities: 60,000
Qualifications: B. Com, FCA
Appointed: 20 August 2019
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: 803,100
Qualifications: B.Ec
Resigned: 17 September 2019
11
Elanor Retail Property Fund | Annual Report 2020
ELANOR RETAIL PROPERTY FUND
DIRECTORS’ REPORT
19
7.
Directors’ relevant interests
Other than as disclosed in the Annual Financial Report, no contracts exist where a director is entitled to a benefit. Refer
to Note 14 for additional information.
8.
Directors’ remuneration
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.
9.
Meetings of Directors
The attendance at meetings of Directors of the Responsible Entity and the Audit and Risk Committee of the Group during
the year is set out in the following table:
10. Company Secretary
Symon Simmons held the position of Company Secretary of the Responsible Entity during the period. Symon is the Chief
Financial Officer of the Group and holds a Bachelor of Economics with majors in Economics and Accounting, has extensive
experience as a company secretary, is a Justice of the Peace in NSW and is a Responsible Manager on the Australian
Financial Services Licence held by the Responsible Entity.
11.
Indemnification and insurance of officers and auditors
During the financial year, the Responsible Entity paid a premium in respect of a contract insuring the Directors of the
Responsible Entity (as named above), the company secretary, and all executive officers of the Responsible Entity and of
any related body corporate against a liability incurred in their capacity as Directors and officers of the Responsible Entity
to the extent permitted by the Corporations Act 2001 (Cth). The contract of insurance prohibits disclosure of the nature of
the liability and the amount of the premium.
The Responsible Entity has not otherwise, during or since the end of the financial year, except to the extent permitted by
law, indemnified or agreed to indemnify an officer of the Responsible Entity or of any related body corporate against a
liability incurred in their capacity as an officer.
The auditor of the Fund is not indemnified out of the assets of the Fund.
12
20
Directors' Report
Directors' Report
ELANOR RETAIL PROPERTY FUND
DIRECTORS’ REPORT
12. Environmental regulation
To the best of their knowledge and belief after making due enquiry, the Directors have determined that the Fund has
complied with all significant environmental regulations applicable to its operations in the jurisdictions in which it operates.
13. Significant changes in state of affairs
There was no significant change in the state of affairs of the Fund during the year.
14. Auditor’s independence declaration
A copy of the auditor's independence declaration, as required under Section 307C of the Corporations Act 2001 (Cth), is
included on the page following the Directors' Report.
15. Non-audit services
Details of amounts paid or payable to the auditor for non-audit services provided during the year by the auditor are outlined
in Note 17 to the 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 18 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.
16.
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.
The ongoing economic and market impacts of the COVID-19 pandemic are difficult to forecast. The Fund will continue to
engage regularly with all tenants across the Fund’s portfolio. As at balance date, the Fund has recognised a COVID-19
related provision in respect of potential impacts to rental income as a result of tenant rent relief requests and any risk in
respect of rental arrears, following a detailed review across the portfolio.
At the date of this report and to the best of the Directors’ knowledge and belief, there are no other anticipated changes in
the operations of the Fund which would have a material impact on the future results of the Fund.
17. Going concern
The Fund has a net current asset position of $3.8 million and net assets of $172.7 million as at 30 June 2020. Despite the
challenging economic environment and increased variability created by the COVID-19 pandemic, the Fund is not expected
to be materially impacted based on the strength of the non-discretionary focus of the properties, the observed results to
date including the level of rental collections and the tenancy mix of the Fund’s portfolio. The Fund has access to $2.0
million of undrawn working capital facilities as at balance date and is wholly in compliance with all banking covenants as
at 30 June 2020. The Fund has not required any covenant waivers in response to the impacts of the COVID-19 pandemic.
13
Elanor Retail Property Fund | Annual Report 2020
ELANOR RETAIL PROPERTY FUND
DIRECTORS’ REPORT
21
17. Going concern (continued)
These consolidated financial statements have been prepared on a going concern basis.
18. Events occurring after reporting date
The Directors of the Responsible Entity are not aware of any 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.
19. Rounding of amounts to the nearest thousand dollars
In accordance with ASIC Corporations (Rounding in Financials / Directors’ Reports) Instrument 2016/191, dated 24
March 2016, issued by the Australian Securities and Investments Commission, amounts in the financial statements have
been rounded to the nearest thousand dollar, unless otherwise indicated.
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
Sydney, 19 August 2020
Glenn Willis
CEO and Managing Director
14
22
Auditor’s Independence Declaration
Elanor Retail Property Fund | Annual Report 2020 Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte Organisation. 15 Deloitte Touche Tohmatsu A.B.N. 74 490 121 060 Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1220 Australia DX 10307SSE Tel: +61 (0) 2 9322 7000 Fax: +61 (0) 2 9322 7001 www.deloitte.com.au 19 August 2020 Dear Board Members, Elanor Retail Property Fund I and Elanor Retail Property Fund II In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Elanor Funds Management Limited in its capacity as responsible entity for Elanor Retail Property Fund I and Elanor Retail Property Fund II. As lead audit partner for the audit of the financial statements of Elanor Retail Property Fund I and Elanor Retail Property Fund II for the year ended 30 June 2020, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i)the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii)any applicable code of professional conduct in relation to the audit. Yours faithfully, DELOITTE TOUCHE TOHMATSU D Nell Partner Chartered Accountants The Board of Directors Elanor Funds Management Limited (as responsible entity for Elanor Retail Property Fund I and Elanor Retail Property Fund II) Level 38, 259 George Street Sydney NSW 2000 Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte Organisation. 15 Deloitte Touche Tohmatsu A.B.N. 74 490 121 060 Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1220 Australia DX 10307SSE Tel: +61 (0) 2 9322 7000 Fax: +61 (0) 2 9322 7001 www.deloitte.com.au 19 August 2020 Dear Board Members, Elanor Retail Property Fund I and Elanor Retail Property Fund II In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Elanor Funds Management Limited in its capacity as responsible entity for Elanor Retail Property Fund I and Elanor Retail Property Fund II. As lead audit partner for the audit of the financial statements of Elanor Retail Property Fund I and Elanor Retail Property Fund II for the year ended 30 June 2020, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i)the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii)any applicable code of professional conduct in relation to the audit. Yours faithfully, DELOITTE TOUCHE TOHMATSU D Nell Partner Chartered Accountants The Board of Directors Elanor Funds Management Limited (as responsible entity for Elanor Retail Property Fund I and Elanor Retail Property Fund II) Level 38, 259 George Street Sydney NSW 2000 23
Consolidated Statements of
Profit or Loss
For the year ended 30 June 2020
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS
FOR THE YEAR ENDED 30 JUNE 2020
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
The above Consolidated Statements of Profit or Loss should be read in conjunction with the accompanying notes
16
24
ELANOR RETAIL PROPERTY FUND
Consolidated Statements of
Comprehensive Income
For the year ended 30 June 2020
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2020
Consolidated Statements of Comprehensive Income
The above Consolidated Statements of Comprehensive Income should be read in conjunction with the accompanying notes
The above Consolidated Statements of Comprehensive Income should be read in conjunction with the accompanying
notes
17
Elanor Retail Property Fund | Annual Report 2020
25
ELANOR RETAIL PROPERTY FUND
Consolidated Statements of
Financial Position
As at 30 June 2020
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
FOR THE YEAR ENDED 30 JUNE 2020
C
of Financial Position
The above Consolidated Statements of Financial Position should be read in conjunction with the accompanying notes
The above Consolidated Statements of Financial Position should be read in conjunction with the accompanying notes
18
26
Consolidated Statements of Changes in Equity
For the year ended 30 June 2020
ELANOR RETAIL PROPERTY FUND
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2020
Consolidated Statements of Changes in Equity
The above Consolidated Statements of Changes in Equity should be read in conjunction with the accompanying notes
Elanor Retail Property Fund | Annual Report 2020
The above Consolidated Statements of Changes in Equity should be read in conjunction with the accompanying notes
19
Consolidated Statements of Changes in Equity
For the year ended 30 June 2020
ELANOR RETAIL PROPERTY FUND
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2020
27
The above Consolidated Statements of Changes in Equity should be read in conjunction with the accompanying notes
The above Consolidated Statements of Changes in Equity should be read in conjunction with the accompanying notes
The above Consolidated Statements of Changes in Equity should be read in conjunction with the accompanying notes
20
28
Consolidated Statements of
Cash Flows
For the year ended 30 June 2020
ELANOR RETAIL PROPERTY FUND
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEAR ENDED 30 JUNE 2020
The above Consolidated Statements of Cash Flows should be read in conjunction with the accompanying notes
The above Consolidated Statements of Cash Flows should be read in conjunction with the accompanying notes
21
Elanor Retail Property Fund | Annual Report 2020
ELANOR RETAIL PROPERTY FUND
29
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
Notes to the Consolidated
Financial Statements
For the year ended 30 June 2020
Notes to the Consolidated Financial Statements
Consolidated
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). 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, including Elanor Retail Property Fund I and its controlled entities (ERPF I Group).
As permitted by ASIC Corporations (Stapled Group Reports) Instrument 2015/838, 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’).
The accounting policies adopted in the preparation of the financial report are consistent with those of the previous financial
year. Management has also assessed the impact of the adoption of AASB 16 Leases (mandatory for all financial years
beginning on or after 1 January 2019). Given that the Fund is not a party to any significant lease agreements as lessee,
and on the basis that this remains the same, the new standard has been assessed as not having a material impact on the
recognition, measurement and disclosure of lease-related revenues, assets or liabilities. The Fund has adopted AASB 16
in the financial year beginning 1 July 2019.
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 2020. 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 2020.
For the purpose of preparing the financial statements, the Fund is a for-profit entity. The financial report is presented in
Australian Dollars. These consolidated financial statements have been prepared on a going concern basis.
Rounding of amounts to the nearest thousand dollars
In accordance with ASIC Corporations (Rounding in Financials/Directors’ Reports) Instrument 2016/191, dated 24 March
2016, issued by the Australian Securities and Investments Commission, amounts in the financial statements have been
rounded to the nearest thousand dollar, unless otherwise indicated.
Critical accounting judgements and key sources of estimation uncertainty
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect
the application of accounting policies and the reported amount of assets, liabilities, income and expenses. Actual results
may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised prospectively.
22
30
ELANOR RETAIL PROPERTY FUND
Notes to the Consolidated Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
For the year ended 30 June 2020
Critical accounting judgments and key sources of estimation uncertainty (continued)
In preparing the consolidated financial statements for the year ended 30 June 2020, significant areas of estimation,
uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount
recognised in the financial statements are consistent with those disclosed in the financial report of the previous financial
year.
Useful and meaningful disclosure on sources of estimation uncertainty and key assumptions will enable users to
understand the basis for the estimates and judgements made.
COVID-19 Pandemic
The ongoing COVID-19 pandemic has increased the estimation uncertainty in the preparation of the financial statements.
This uncertainty is associated with the extent and duration of the economic disruption to business arising from the response
of government, businesses and consumers to the COVID-19 pandemic.
The impact of the COVID-19 pandemic has heightened uncertainty in applying accounting estimates and critical judgments
for the year ended 30 June 2020. As a result, additional external expertise and information has been utilised in reviewing
and assessing key areas of judgement, particularly in respect of the fair value measurement of investments and the
impairment testing of assets.
In response to the recent market volatility, the appropriateness of the inputs to the valuation of the Fund’s investment
properties (including vacancy allowances, lease renewal probabilities, levels of leasing incentives and market rent growth
assumptions), and the impact of any changes in these inputs have been considered in detail in both independent and
internal property valuations (including relevant sensitivity analysis) with respect to the fair value hierarchies. The Fund’s
portfolio of investment properties has been appropriately valued at balance date. Refer to Note 6 for further information.
The recoverability of the Fund’s rent receivables has been assessed in detail. This assessment has been completed by
the Fund’s asset management team in conjunction with the property manager for each asset through the review of expected
or requested waivers and deferrals of rent, assessment of tenant financial situation and the outstanding debtor ageing
balance. Regular and ongoing tenant engagement continues, with information provided by tenants in response to requests
for rental relief under the Code of Conduct (including financial information and JobKeeper eligibility information) utilised in
recoverability assessments.
Enhanced disclosures have been incorporated throughout the consolidated financial statements to enable users to
understand the basis for the estimates and judgments utilised. Refer to Note 2 Revenue, Note 6 Investment properties and
Note 11 Financial risk management.
23
Elanor Retail Property Fund | Annual Report 2020
ELANOR RETAIL PROPERTY FUND
31
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
New accounting standards and interpretations
Certain new Accounting Standards and Interpretations have been published that are mandatory for the financial year ended
30 June 2020. The Fund’s assessment of the impact of these new standards and interpretation are set out below.
Reference
Description
AASB 2018-1 Amendments to
Australian Accounting
Standards – Annual
Improvements 2015-2017 Cycle
Effective for reporting periods
after 1 January 2019
Amendments made
accounting standards:
to
the
following
• AASB 3 Business Combination to clarify
that remeasure of a previously held
interest in a joint operation is required
joint
on obtaining control of
operation;
the
Impact on the Fund’s financial
statements
The application of the amendments
does not have a material impact on
the Fund’s financial statements.
• AASB 11 Joint Arrangements to clarify
that when an entity obtains joint control
of a business that is a joint operation,
remeasure
the entity does not
previously held
that
business;
interests
in
in
• AASB 112 Income Tax to clarify the
requirements surrounding when the tax
consequence of distributions should be
recognised
tax expense
income
rather than retained earnings; and
• AASB 13 Borrowing costs to clarify that
if any specific borrowing cost remains
outstanding after the related asset is
ready for its intended use or sale that
borrowing becomes part of the funds
that any entity borrows generally when
calculating the capitalisation rate on
general borrowings.
24
32
ELANOR RETAIL PROPERTY FUND
Notes to the Consolidated Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
For the year ended 30 June 2020
New accounting standards and interpretations (continued)
Certain new Accounting Standards and Interpretations have been published that are not mandatory for the financial year
ended 30 June 2020 but are available for early adoption. They have not been applied in preparing this financial report. The
Fund’s assessment of the impact of these new standards and interpretation are set out below.
Reference
Description
Impact on the Fund’s financial
statements
AASB 2018-7 Amendments to
Australia Accounting Standards
– Definition of Material
for annual periods
Effective
beginning on or after 1 January
2020
These amendments are intended to address
concerns that the wording in the definition of
'material' was different
the Conceptual
Framework for Financial Reporting, AASB 101
Presentation of Financial Statements and AASB
108 Accounting Policies, Changes
in
Accounting Estimates and Errors.
in
The amendments address these concerns by:
•
• Replacing the term 'could influence' with
'could reasonably be expected to influence';
'obscuring
Including
the concept of
the concepts of
information' alongside
'omitting' and 'misstating ' information in the
definition of material;
• Clarifying that the users to which the
definition refers are the primary users of
general purpose
financial statements
referred to in the Conceptual Framework;
and
• Aligning the definition of material across
IFRS Standards and other publications.
AASB 2019-1 Amendments to
Australia Accounting Standards
– References to the Conceptual
Framework
Makes amendments to various Accounting
Standards and other pronouncements
to
support the issue of the revised Conceptual
Framework for Financial Reporting.
of
application
the
The
amendments is not expected to
have a material impact on the
Fund’s financial statements.
of
application
The
the
amendments is not expected to
have a material impact on the
Fund’s financial statements.
Effective
for annual periods
beginning on or after 1 January
2020
Some Accounting Standards and other
pronouncements contain references
to, or
quotations from, the previous versions of the
Conceptual Framework. This Standard updates
some of these references and quotations so
they refer to the Conceptual Framework issued
by the AASB In June 2019, and also makes
other amendments to clarify which version of the
Conceptual Framework
in
particular documents.
referred
to
is
25
Elanor Retail Property Fund | Annual Report 2020
ELANOR RETAIL PROPERTY FUND
33
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
Impact on
financial statements
the Fund’s
the Fund
The directors of
anticipate that the application
of
these amendments may
have an impact on the Fund’s
consolidated
financial
statements, as the Fund will be
able to continue to apply hedge
accounting to hedges that are
eligible for the relief in the
amendments.
of
application
The
the
amendments is not expected to
have a material impact on the
Fund’s financial statements.
of
application
The
the
amendments is not expected to
have a material impact on the
Fund’s financial statements.
The directors of the Fund have
not yet assessed the impact
this
that
the application of
Standard will have on
the
Fund’s consolidated financial
statements.
New accounting standards and interpretations (continued)
Reference
Description
AASB 2019-3 Amendments to
Australia Accounting Standards
–
Interest Rates Benchmark
Reform
for annual periods
Effective
beginning on or after 1 January
2020
Conceptual
Financial Reporting
Framework
for
Effective
for annual periods
beginning on or after 1 January
2020
The amendments affect entities that apply the
hedge accounting requirements of AASB 9
Financial Instruments to hedging relationships
directly affected by the interest rate benchmark
reform.
The amendments would mandatorily apply to all
hedging relationships that are directly affected
by the interest rate benchmark reform and
modify specific hedge accounting requirements,
so that entities would apply those hedge
accounting requirements assuming that the
interest rate benchmark is not altered as a result
of the interest rate benchmark reform.
the
Revised version of the AASB's framework for
financial reporting, based on an equivalent
pronouncement
IASB. The
issued by
Conceptual Framework replaces an earlier
version, updating a number of definitions and
guidance,
introduces new guidance on a
number of topics including the reporting entity
and presentation and disclosure, and clarifies a
number of other matters.
AASB 2019-5 Amendments to
Australian
Accounting
Standards – Disclosure of the
Effect of New IFRS Standards
Not Yet Issued in Australia
Effective
for annual periods
beginning on or after 1 January
2020
Amends AASB 1054 Australian Additional
Disclosures to add a requirement for entities that
intend to be compliant with IFRS standards to
disclose the information required by AASB 108
Accounting Policies, Changes in Accounting
Estimates and Errors (specifically paragraphs
30 and 31) for the potential effect of each IFRS
pronouncement that has not yet been issued by
the AASB.
AASB 2020-1 Amendments to
Accounting
Australian
Standards – Classification of
Liabilities as Current or Non-
Current
for annual periods
Effective
beginning on or after 1 January
2022
Amends AASB 101 Presentation of Financial
Statements to:
• Clarify
that
the classification of
liabilities as current or non-current is
based on rights that in existence at the
end of the reporting period
• Specify that classification is unaffected
by expectations about whether an
entity will exercise its right to defer
settlement of a liability
•
• Explain that rights are in existence if
covenants are complied with at the end
of the reporting period
Introduce a definition of ‘settlement’ to
make clear that settlement refers to the
transfer to the counterparty of cash,
equity instruments, other assets or
services
26
34
ELANOR RETAIL PROPERTY FUND
Notes to the Consolidated Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
For the year ended 30 June 2020
New accounting standards and interpretations (continued)
Reference
Description
AASB 2020-3 Amendments to
Australian Accounting
Standards – Annual
Improvements 2018-2020 and
Other Amendments
Effective
for annual periods
beginning on or after 1 January
2022
The annual improvements amend the following
standards:
• AASB 9 Financial Instruments to clarify the
fees included in the ‘10 per cent’ test in
paragraph B3.3.6 of AASB 9 in assessing
whether to derecognise a financial liability,
explaining that only fees paid or received
between the entity (the borrower) and the
lender, including fees paid or received by
either the entity or the lender on the other’s
behalf are included
• AASB 16 Leases to amend Illustrative
Example 13 to remove the illustration of the
reimbursement of leasehold improvements
by the lessor in order to resolve any
potential confusion regarding the treatment
of lease incentives that might arise because
of how lease incentives are illustrated in
that example.
Impact on the Fund’s
financial statements
the Fund
The directors of
anticipate that the application
of the amendments will not
have an impact on the Fund's
financial
consolidated
statements, as many of the
amendments either do not
affect
the Fund’s existing
accounting policies, or apply to
transactions and
situations,
events that the Fund does not
undertake.
27
Elanor Retail Property Fund | Annual Report 2020
35
The notes to the consolidated Financial Statements have been organised into the following sections for reduced
complexity and ease of navigation:
RESULTS ................................................................................................................................................................ 36
1. Segment information .......................................................................................................................................36
2. Revenue ...........................................................................................................................................................36
3. Distributions .....................................................................................................................................................37
4. Earnings / (losses) per stapled security ...........................................................................................................38
5. Cash flow information ......................................................................................................................................38
OPERATING ASSETS ........................................................................................................................................... 40
Investment properties ......................................................................................................................................40
6.
7. Assets held for sale..........................................................................................................................................45
FINANCE AND CAPITAL STRUCTURE .............................................................................................................. 46
8.
Interest bearing liabilities .................................................................................................................................46
9. Derivative financial instruments .......................................................................................................................47
10. Contributed equity ...........................................................................................................................................48
11. Financial risk management ..............................................................................................................................48
OTHER ITEMS ....................................................................................................................................................... 54
12. Other assets and liabilities ...............................................................................................................................54
13. Net tangible assets ..........................................................................................................................................54
14. Related parties .................................................................................................................................................55
15. Non-cancellable operating lease receivables ..................................................................................................56
16. Unrecognised items .........................................................................................................................................56
17. Parent entity disclosure ...................................................................................................................................57
18. Auditors’ remuneration ....................................................................................................................................58
19. Subsequent events ..........................................................................................................................................58
20. Accounting policies .........................................................................................................................................58
36
ELANOR RETAIL PROPERTY FUND
Notes to the Consolidated Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
For the year ended 30 June 2020
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
At balance date, 23 agreements for COVID-19 related rent relief under the relevant state government Codes of Conduct
have been executed. A total rent waiver of $0.3 million in relation to these agreements is expensed in the financial year,
representing only 1.2% of rental income for the financial year ending 30 June 2020. The Fund has recognised a total
provision (including rent waivers for the year ended 30 June 2020 and the provision for doubtful debts as at 30 June 2020)
for COVID-19 related rent relief requests, representing 4.8% of NOI for the twelve months to 30 June 2020. The provision
for doubtful debts as at 30 June 2020 reflects the rent receivable that is likely to be waived and any additional amount
relating to credit risk associated with the financial condition of the tenant. Refer Note 11 for further information.
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.
When an agreement is made with tenants impacted by the COVID-19 pandemic to waive rent, any rent waived that relates
to future occupancy is spread over the remaining lease term and recognised on a straight-line basis. Rent waived that
relates to past occupancy is expensed immediately in Other Expenses, except to the extent of a pre-existing provision for
expected credit losses relating to the unpaid rent.
29
Elanor Retail Property Fund | Annual Report 2020
ELANOR RETAIL PROPERTY FUND
37
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
2.
Revenue (continued)
Rental abatements
Rental abatements arising from operating leases are recognised as revenue on a straight-line basis over the lease term.
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.
Rental deferrals as part of COVID-19 rent concessions subsequently waived in consideration for extension of the lease
term will be treated as Lease Incentive on straight-line basis over the new lease term.
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 Directors resolved not to declare a distribution for the six months ended 30 June 2020. The following distributions
were declared by the Consolidated Group in respect of the year ended 30 June 2020:
Please refer to the Directors’ Report for the calculation of Core Earnings and the Distribution.
ERPF I Group
The Directors resolved not to declare a distribution for the six months ended 30 June 2020. The following distributions
were declared by the ERPF I Group in respect of the year ended 30 June 2020:
Please refer to the Directors’ 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.
30
38
ELANOR RETAIL PROPERTY FUND
Notes to the Consolidated Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
For the year ended 30 June 2020
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.
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.
31
Elanor Retail Property Fund | Annual Report 2020
ELANOR RETAIL PROPERTY FUND
39
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
5.
Cash flow information (continued)
(a)
Reconciliation of (loss) / profit for the year to net cash provided by operating activities
(b)
Reconciliation of liabilities arising from financing activities
Consolidated Group
ERPF I Group
32
40
ELANOR RETAIL PROPERTY FUND
Notes to the Consolidated Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
For the year ended 30 June 2020
Operating Assets
This section includes information about the assets used by the Fund to generate profits and revenue, specifically
information relating to its investment properties.
6.
Investment properties
OVERVIEW
Investment properties are held solely for the purpose of earning rental income and / or for capital appreciation. At balance
date, the Fund’s investment property portfolio comprises seven retail shopping centres in Australia.
In response to the significant uncertainty created by the COVID-19 pandemic, the Fund obtained five independent
valuations at balance sheet date covering 60% of the portfolio (by value). Internal valuations on the remaining portfolio
were completed with reference to both a discounted cash flow and income capitalisation valuation methods. The property
valuations were completed using detailed forecasts prepared by the Fund’s asset management teams. Key valuation
assumptions including capitalisation rates, terminal yields and discount rates were determined based on comparable
market evidence and valuation parameters determined in external valuations completed for comparable properties.
In June 2020, the Fund exchanged contracts for the sale of Auburn Ambulance Station for $4.0 million. This asset has
been classified as Assets held for sale as at 30 June 2020. Settlement occurred on 7 August 2020.
At 30 June 2020, the value of the Fund’s investment portfolio was $321.2 million, including the Auburn Ambulance Station
valued at the contracted sale price of $4 million (Assets held for sale). The valuation of the Fund’s investment portfolio
(including Auburn Ambulance) at 30 June 2020 has declined by only 4.8% compared to the portfolio valuation at 31
December 2019 of $337.4 million (or 4.0% compared to 30 June 2019).
The portfolio valuation decline was largely due to the $18.1 million reduction in value of the Tweed Mall property, to $84.5
million at balance date. The valuation of the Tweed Mall property reflects a broader market softening of capitalisation rates
for sub-regional shopping centres, Target’s lease expiry in September 2020 and the current development impacted nature
of the property with the repositioning project in progress. While the transformation of the property into a triple supermarket
neighbourhood centre, anchoring a significant mixed use precinct, is progressing well, it was insufficiently de-risked to be
incorporated into the independent valuation prepared as at 30 June 2020. The value-add potential of the property, given
its favourable location and existing planning controls, will be reflected in its valuation as key components of the repositioning
project are de-risked.
The valuation of the Fund’s Auburn Central property increased to $108.0 million at 30 June 2020, an increase of $5.7
million from the December 2019 valuation of $102.3 million (or an increase of $6.5 million from June 2019 of $101.5 million).
The increased valuation of the property reflects progress in the successful execution of the repositioning strategy of Auburn
Central into a triple supermarket neighbourhood shopping centre. The repositioning is on schedule for completion in
November 2020. On completion, the project will introduce an Aldi supermarket (1,755m2 secured by a 15-year lease and
two five-year options), a Tong Li Asian supermarket (900m2 secured by a 10-year lease), a mini-major discounter, a new
food-court and an expanded range of medical, health and well-being services.
Excluding the valuation reduction at the Tweed Mall property, the valuation of the Fund’s portfolio has increased by 0.8%
from the 31 December 2019 valuations (or an increase of 1.5% from 30 June 2019), including the Auburn Ambulance
Station valued at $4.0 million as at 30 June 2020.
Capitalisation rates for independently valued assets have remained unchanged from December 2019. The internal
valuations have also maintained capitalisation rates compared the last external valuations.
33
Elanor Retail Property Fund | Annual Report 2020
ELANOR RETAIL PROPERTY FUND
41
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
6.
Investment properties (continued)
(a)
Carrying values of investment properties
Note 1: The 30 June 2020 value does not include the Auburn Ambulance Station ($4 million) as it is classified as an Asset Held for Sale at balance
date. Refer to Note 7. The value of Auburn Central as at 30 June 2019 includes the Auburn Ambulance Station ($2.5 million).
(b)
Movement in investment properties
(c)
Fair value measurement
Highest and best use
For all investment properties, the current use equates to the highest and best use.
34
42
ELANOR RETAIL PROPERTY FUND
Notes to the Consolidated Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
For the year ended 30 June 2020
6.
Investment properties (continued)
ACCOUNTING POLICY
(c)
Fair value measurement (continued)
Fair value hierarchy and valuation techniques
The fair value measurement for investment properties has been categorised as Level 3 fair value based on the key inputs
to the valuation techniques used below:
Valuation Techniques
Significant
unobservable inputs
Range
Weighted average
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
Rate1
Adopted terminal
yield2
Net property income
(per sqm) 3
Adopted capitalisation
rate4
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.
7.50% - 9.00%
5.75% - 8.29%
$168 - $568
7.87%
7.05%
$380
6.00% - 8.04%
6.94%
Note 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.
Note 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.
Note 3: Net property income (per sqm): The forecast annual net rental income per sqm reflecting leased occupancy and likely to be leased
space based on commitments and estimates. Resulting WALE and occupancy rate from existing tenancies will impact the forecast cash
flow from net property income. The rate is determined with regard to existing lease terms and other market evidence.
Note 4: 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.
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.
35
Elanor Retail Property Fund | Annual Report 2020
ELANOR RETAIL PROPERTY FUND
43
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
6.
(c)
Investment properties (continued)
Fair value measurement (continued)
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.
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 and experience in the location and types of investment properties valued.
Independent valuers of the Fund’s properties have included a statement within their valuation reports noting that in their
view, significant valuation uncertainty exists in the current market environment. The significant uncertainty declaration is to
serve as a precaution and does not invalidate the valuation. Rather, the statement is to ensure transparency of the fact
that in the current extraordinary market circumstances as a result of the COVID-19 pandemic, less certainty can be
attached to the valuations and continued periodic assessment should be performed subsequent to the date of the valuation
assessment. The Fund will manage this increased uncertainty through active management of the investment portfolio,
including ongoing detailed engagement with tenants across the portfolio in respect of their business operations and future
leasing transactions.
Internal valuations use the Fund’s best estimate of the economic and financial impacts of the COVID-19 pandemic using
information available, at the time of preparation of the consolidated financial statements, in respect of existing conditions
at reporting date and in relation to forward looking assumptions. In the event the COVID-19 pandemic impacts are more
severe or prolonged than anticipated, this may have a further adverse impact on the fair value of the Fund’s investment
property portfolio.
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.
(d)
Valuation technique and inputs
The key inputs used to measure fair values of investment properties are disclosed below along with their sensitivity to an
increase or decrease.
The investment property fair values presented are based on market values, which are derived using the capitalisation and
the discounted cash flow methods. The Fund’s preferred or primary method is the capitalisation method.
36
44
ELANOR RETAIL PROPERTY FUND
Notes to the Consolidated Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
For the year ended 30 June 2020
6.
(c)
Investment properties (continued)
Valuation techniques and inputs (continued)
Capitalisation method
Capitalisation rate is an approximation of the ratio between the net operating income produced by an investment property
and its fair value. This excludes consideration of costs of acquisition or disposal. The net income is capitalised in perpetuity
from the valuation date at an appropriate investment yield. The adopted percentage rate investment yield reflects the
capitalisation rate and includes consideration of the property type, location and comparable sales.
Discounted cash flows (DCF)
Under the DCF method, a property's fair value is estimated using explicit assumptions regarding the benefits and liabilities
of ownership over the asset's life including an exit or terminal value. The DCF method involves the projection of a series
of cash flows on a real property interest. The cash flow projections reflect tenants currently in occupation or are contracted
to meet lease commitments or are likely to be in occupation based on market’s general perception and relevant available
market evidence. To this projected cash flow series, an appropriate discount rate is applied to establish the present value
of the income stream associated with the property. The discount rate is the rate of return used to convert a monetary sum,
payable or receivable in the future, into present value. The rate is determined with regard to market evidence and prior
independent valuation.
All property investments are categorised as Level 3 in the fair value hierarchy. There were no transfers between the
hierarchies during the period.
Sensitivity Information
The key unobservable inputs to measure the fair value of investment properties are disclosed below along with sensitivity
to a significant increase or decrease set out in the following table:
Discount rate (%)
Terminal yield (%)
Net property income ($m)
Capitalisation rate (%)
Sensitivity Analysis
Fair value measurement sensitivity
to increase in input
Decrease
Decrease
Increase
Decrease
Fair value measurement
sensitivity to decrease in input
Increase
Increase
Decrease
Increase
When calculating the income capitalisation approach, the net property income has a strong inter-relationship with the
adopted capitalisation rate given the methodology involves assessing the total income receivable from the property and
capitalising this in perpetuity to derive a capital value. In theory, an increase in the income and an increase (softening) in
the adopted capitalisation rate could potentially offset the impact to the fair value. The same can be said for a decrease in
the income and a decrease (tightening) in the adopted capitalisation rate. A directionally opposite change in the income
and the adopted capitalisation rate could potentially magnify the impact to the fair value.
When assessing a discounted cash flow, the adopted discount rate and adopted terminal yield have a strong
interrelationship in deriving a fair value given the discount rate will determine the rate at which the terminal value is
discounted to the present value. The impact on the fair value of an increase (softening) in the adopted discount rate could
potentially offset the impact of a decrease (tightening) in the adopted terminal yield. The same can be said for a decrease
(tightening) in the adopted discount rate and an increase (softening) in the adopted terminal yield. A directionally similar
change in the adopted discount rate and adopted terminal yield could potentially magnify the impact to the fair value.
The adopted forecast net property income in the discounted cash flow is reflective of existing lease terms and other market
data. Assets with higher WALE and occupancy rates improves net property income resulting in higher cash flow forecasts.
The increased forecasted cash flow increases the fair value of the property.
37
Elanor Retail Property Fund | Annual Report 2020
ELANOR RETAIL PROPERTY FUND
45
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
6.
Investment properties (continued)
(d)
Valuation techniques and inputs (continued)
Fair value measurement sensitivity
Increase by 0.25%
$'000
(5,818)
(6,951)
(9,220)
Decrease by 0.25%
$'000
5,977
7,414
11,413
Increase by 0.25%
%
(1.8%)
(2.2%)
(2.9%)
Decrease by 0.25%
%
1.9%
2.3%
3.6%
Discount rate (%)
Terminal yield (%)
Capitalisation rate (%)
7.
Assets held for sale
Assets held for sale are recognised separately from other assets and valued at their contractual sale price.
Prior to 30 June 2020, the Fund entered an agreement with an external third party for the sale of the Auburn Ambulance
Station. At balance date, the Fund valued the asset at the sale price of $4.0 million, therefore recognising a fair value
increment of $1.5 million. The sale completed on 7 August 2020.
38
46
Notes to the Consolidated Financial Statements
ELANOR RETAIL PROPERTY FUND
For the year ended 30 June 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
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.
8.
Interest bearing liabilities
OVERVIEW
The Fund has access to a combined $163.4 million debt facility. The drawn amount at 30 June 2020 is $145.8 million.
During the period, the Fund refinanced debt facilities of $41.7 million for a new 2-year term, and obtained new capital
expenditure debt facilities totalling $25.0 million, of which $7.4 million has been utilised at 30 June 2020. The weighted
average cost of debt is 3.03% p.a., and the weighted average debt facility maturity at year end is 2.29 years. At 30 June
2020, the interest rate risk of drawn facilities is hedged to 75.2%.
The Fund has not required any covenant support from its financier in respect of COVID-19 related impacts.
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.
39
Elanor Retail Property Fund | Annual Report 2020
ELANOR RETAIL PROPERTY FUND
47
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
9.
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). The Fund has hedged $109.4 million of its $145.8 million floating interest bearing loans
using interest rate swap agreements. These agreements are in place to swap the floating interest payable to a fixed rate
to minimise the interest rate risk, and have been assessed as effective. The Fund’s interest rate swap has remained
effective despite the continual decreases in interest rates due to COVID-19. The change in the counterparty’s credit rating
did not have a material impact on the fair value of the interest rate swap.
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. The fair value of derivatives has been
determined with reference to market observable inputs for contracts with similar maturity profiles. The valuation is a present
value calculation which incorporates fixed rate and forward interest rate curves.
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.
40
48
ELANOR RETAIL PROPERTY FUND
Notes to the Consolidated Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
For the year ended 30 June 2020
9.
Derivative financial instruments (continued)
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. The movement in the effective
portion of the hedge will be recognised in Other Comprehensive Income. 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.
10. Contributed equity
OVERVIEW
The Fund is a 'stapled' entity comprising of ERPF I and its controlled entities, and ERPF II. 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
11.
Financial risk management
OVERVIEW
The Fund's principal financial instruments comprise cash, receivables, interest bearing loans and derivatives. The Fund's
activities are exposed to a variety of financial risks: market risk (including interest rate risk); credit risk; and liquidity risk.
This note presents information about the Fund's exposure to each of the above risks, the Fund's objectives, policies and
processes for measuring and managing risk and the Fund's management of capital. Further quantitative disclosures are
included through these financial statements.
The Board of Directors (Board) of the 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.
41
Elanor Retail Property Fund | Annual Report 2020
ELANOR RETAIL PROPERTY FUND
49
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
11. Financial risk management (continued)
The Board has established Treasury Guidelines outlining principles for overall risk management and policies covering
specific areas, such as mitigating foreign exchange, interest rate and liquidity risks.
The Fund's Treasury Guidelines provide a framework for managing the financial risks of the Fund with a key philosophy of
risk mitigation. Derivatives are exclusively used for hedging purposes, not as trading or other speculative instruments. The
Fund uses derivative financial instruments such as interest rate swaps where possible to hedge certain risk exposures.
The Fund uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity
analysis in the case of interest rate risk, ageing analysis for credit risk and cash flow forecasting for liquidity risk.
There have been no other significant changes in the types of financial risks or the Fund's risk management program
(including methods used to measure the risks).
(a)
Market risk
Market risk refers to the potential for changes in the value of the Fund's financial instruments or revenue streams from
changes in market prices, being interest rate risk.
(b)
Interest rate risk
Interest rate risk refers to the potential fluctuations in the fair value or future cash flows of a financial instrument because
of changes in market interest rates.
As at reporting date, the Fund had the following undiscounted (including future interest payable) interest bearing assets
and liabilities:
42
50
ELANOR RETAIL PROPERTY FUND
Notes to the Consolidated Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
For the year ended 30 June 2020
11. Financial risk management (continued)
(b)
Interest rate risk (continued)
(c)
Interest rate sensitivity
At reporting date, if Australian interest rates had been 1% higher / lower and all other variables were held constant, the
impact on the Fund in relation to cash and cash equivalents, derivatives, interest bearing loans and the Fund’s profit and
equity would be:
Consolidated Group
30 June 2020
Cash and cash equivalents
Derivative financial instruments
Interest bearing loans
Total increase / (decrease)
Consolidated Group
30 June 2019
Cash and cash equivalents
Derivative financial instruments
Interest bearing loans
Total increase / (decrease)
Increase by 1%
Decrease by 1%
Profit
$'000
40
-
(1,458)
(1,418)
Equity
$'000
-
1,090
-
1,090
Profit
$'000
(40)
-
1,458
1,418
Equity
$'000
-
(1,090)
-
(1,090)
Increase by 1%
Decrease by 1%
Profit
$'000
42
-
(1,348)
(1,306)
Equity
$'000
-
1,090
-
1,090
Profit
$'000
(42)
-
1,348
1,306
Equity
$'000
-
(1,090)
-
(1,090)
Amount
$'000
4,003
4,325
145,620
153,948
Amount
$'000
4,171
3,671
134,523
142,365
43
Elanor Retail Property Fund | Annual Report 2020
ELANOR RETAIL PROPERTY FUND
51
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
11. Financial risk management (continued)
(c)
Interest rate sensitivity (continued)
ERPF I
30 June 2020
Cash and cash equivalents
Derivative financial instruments
Interest bearing loans
Total increase / (decrease)
ERPF I
30 June 2019
Cash and cash equivalents
Derivative financial instruments
Interest bearing loans
Total increase / (decrease)
Amount
$'000
3,071
4,145
164,426
171,642
Amount
$'000
3,134
3,390
159,577
166,101
Increase by 1%
Decrease by 1%
Profit
$'000
31
-
(930)
(899)
Equity
$'000
-
680
-
680
Profit
$'000
(31)
-
930
899
Equity
$'000
-
(680)
-
(680)
Increase by 1%
Decrease by 1%
Profit
$'000
31
-
(901)
(870)
Equity
$'000
-
680
-
680
Profit
$'000
(31)
-
901
870
Equity
$'000
-
(680)
-
(680)
Of the $145.8 million floating interest bearing loans, an amount of $109.4 million has been hedged using interest rate swap
agreements. These agreements are in place to swap the floating interest payable to a fixed rate to minimise the interest
rate risk.
(d)
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.
A detailed tenant level analysis has been completed in respect of the recoverability and credit risk of outstanding arrears
at balance date and future expected impacts of COVID-19 on leasing transactions. Recoverability risks have also been
assessed through maintaining active tenant engagement and observation of relevant market conditions. A provision to
cover the difference between contractual cash flows that are due and cash flows expected to be received following the
detailed review has been included in the Fund’s results. The provision includes both that part of the rent receivable that is
likely to be waived and any additional amount relating to credit risk associated with the financial condition of the tenant.
Probability weighted scenarios have been applied in determining expected credit losses.
At balance date, the Fund has recognised a total provision for COVID-19 related rental relief requests of $1.3 million,
representing 4.8% of Rental Income for the twelve months to 30 June 2020. This provision reflects the amount of tenant
rental arrears at balance date that is likely to be waived in respect of past occupancy and also includes any additional
amount relating to arrears at balance date that has been assessed to have credit risk in respect of the financial position of
the tenant.
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:
44
52
ELANOR RETAIL PROPERTY FUND
Notes to the Consolidated Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
For the year ended 30 June 2020
11. Financial risk management (continued)
(d)
Credit risk (continued)
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 16.
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 2020 is as follows:
(e)
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.
(f)
Liquidity risk
The Fund manages liquidity risk by maintaining sufficient cash including working capital and other reserves, as well as
through securing appropriate committed credit facilities.
As a result of the uncertain economic environment created by the COVID-19 pandemic, Fund cashflow management and
tenant related cash flows have been subject to heightened levels of review and focus to ensure the Fund maintains strong
balance sheet liquidity. At balance date, the Fund had access to a $2.0 million debt facility available to support any required
capital expenditure, lease incentives and general working capital needs of the Fund.
45
Elanor Retail Property Fund | Annual Report 2020
ELANOR RETAIL PROPERTY FUND
53
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
11. Financial risk management (continued)
(f)
Liquidity risk (continued)
The following are the undiscounted contractual cash flows of derivatives and non-derivative financial liabilities shown at
their nominal amount (including future interest payable).
46
54
ELANOR RETAIL PROPERTY FUND
Notes to the Consolidated Financial Statements
For the year ended 30 June 2020
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
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.
12. Other assets and liabilities
OVERVIEW
This note provides further information about assets and liabilities that are incidental to the Fund’s trading activities, being
trade and other payables.
(a)
Trade and other payables
ACCOUNTING POLICY
Payables represent liabilities and accrued expenses owing by the Fund at year 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.
13.
Net tangible assets
OVERVIEW
This note sets out the net tangible assets of the Fund and the ERPF I Group.
47
Elanor Retail Property Fund | Annual Report 2020
ELANOR RETAIL PROPERTY FUND
55
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
14.
Related parties
OVERVIEW
Related parties are persons or entities that are related to the Fund as defined by AASB 124 Related Party Disclosures.
This note provides information about transactions with related parties during the year.
(a)
Key management personnel
Responsible Entity
Elanor Funds Management Limited is the Responsible Entity of the Fund, and is the key management personnel (KMP) of
the Fund.
Directors of the Responsible Entity
The Directors of Elanor Funds Management Limited are:
Paul Bedbrook (Chair)
Glenn Willis (Managing Director and Chief Executive Officer)
Nigel Ampherlaw
Lim Kin Song
Anthony Fehon (appointed 20 August 2019)
William (Bill) Moss AO (resigned 17 September 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.
48
56
ELANOR RETAIL PROPERTY FUND
Notes to the Consolidated Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
For the year ended 30 June 2020
14.
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 828,641 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 2020, the outstanding loan balance payable to
ERPF II was $67.9 million.
15.
Non-cancellable operating lease receivables
OVERVIEW
This note sets out the non-cancellable operating lease receivables of the Fund and the ERPF I Group.
16.
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 2020 (30 June 2019: nil).
(b)
Commitments
The Fund, including ERPF I Group, had capital commitments of $8.95 million as at 30 June 2020 (30 June 2019: $1.2
million) in respect of capital expenditures contracted for the development works at Auburn Central.
49
Elanor Retail Property Fund | Annual Report 2020
ELANOR RETAIL PROPERTY FUND
57
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
17. 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 had no commitments as at 30 June 2020 (2019: none), while ERPF II had $8.95 million as at 30 June 2020 (2019:
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 2020 (2019: none).
(d)
Contingent liabilities
ERPF I and ERPF II has no contingent liabilities as at 30 June 2020 (2019: 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.
50
58
ELANOR RETAIL PROPERTY FUND
Notes to the Consolidated Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2020
For the year ended 30 June 2020
18.
Auditors’ remuneration
OVERVIEW
During the year the following fees were paid or payable for services provided by the auditor of the Fund:
19.
Subsequent events
Since the end of the period, the Directors are not aware of any matter or circumstance not otherwise dealt with in the
financial reports or the Directors' Report that has significantly affected or may significantly affect the operations of the Fund,
the results of those operations or the state of affairs of the Fund in financial periods subsequent to the year ended 30 June
2020.
20.
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.
51
Elanor Retail Property Fund | Annual Report 2020
Directors’ Declaration to
Stapled Securityholders
ELANOR RETAIL PROPERTY FUND
DIRECTORS’ DECLARATION TO STAPLED SECURITY HOLDERS
59
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 23 to 58 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 2020 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, 19 August 2020
52
60
60
Independent Auditor’s Report
Independent Auditor’s Report
Deloitte Touche Tohmatsu
A.B.N. 74 490 121 060
Deloitte Touche Tohmatsu
Grosvenor Place
Deloitte Touche Tohmatsu
A.B.N. 74 490 121 060
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Sydney NSW 2000
PO Box N250 Grosvenor Place
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Grosvenor Place
Grosvenor Place
225 George Street
225 George Street
Sydney NSW 2000
Sydney NSW 2000
PO Box N250 Grosvenor Place
PO Box N250 Grosvenor Place
DX 10307SSE
Sydney NSW 1220 Australia
Sydney NSW 1220 Australia
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www.deloitte.com.au
Tel: +61 (0) 2 9322 7000
Tel: +61 (0) 2 9322 7000
Fax: +61 (0) 2 9322 7001
Fax: +61 (0) 2 9322 7001
www.deloitte.com.au
www.deloitte.com.au
Independent Auditor’s Report to the Stapled Securityholders of Elanor
Retail Property Fund and the Securityholders of Elanor Retail Property
Independent Auditor’s Report to the Stapled Securityholders of Elanor
Independent Auditor’s Report to the Stapled Securityholders of Elanor
Fund I Group
Retail Property Fund and the Securityholders of Elanor Retail Property
Retail Property Fund and the Securityholders of Elanor Retail Property
Fund I Group
Fund I Group
Report on the Audit of the Financial Report
Report on the Audit of the Financial Report
Report on the Audit of the Financial Report
Opinion
Opinion
Opinion
We have audited the financial report of:
We have audited the financial report of:
We have audited the financial report of:
•
•
•
•
•
•
The consolidated statement of financial position as at 30 June 2020, the consolidated statement of
profit or loss, the consolidated statement of comprehensive income, the consolidated statement of
The consolidated statement of financial position as at 30 June 2020, the consolidated statement of
The consolidated statement of financial position as at 30 June 2020, the consolidated statement of
cash flows and the consolidated statement of changes in equity for the year ended on that date,
profit or loss, the consolidated statement of comprehensive income, the consolidated statement of
profit or loss, the consolidated statement of comprehensive income, the consolidated statement of
notes comprising a summary of significant accounting policies and other explanatory information,
cash flows and the consolidated statement of changes in equity for the year ended on that date,
cash flows and the consolidated statement of changes in equity for the year ended on that date,
and the directors’ declaration of the consolidated entity Elanor Retail Property Fund, being the
notes comprising a summary of significant accounting policies and other explanatory information,
notes comprising a summary of significant accounting policies and other explanatory information,
consolidated stapled entity (“Elanor Retail Property Fund”) as set out on pages 16 to 52. The
and the directors’ declaration of the consolidated entity Elanor Retail Property Fund, being the
and the directors’ declaration of the consolidated entity Elanor Retail Property Fund, being the
consolidated stapled entity (“Elanor Retail Property Fund”) as set out on pages 23 to 59. The
consolidated stapled entity comprises Elanor Retail Property Fund II (“ERPF II”) and the entities it
consolidated stapled entity (“Elanor Retail Property Fund”) as set out on pages 16 to 52. The
consolidated stapled entity comprises Elanor Retail Property Fund II (“ERPF II”) and the entities it
controlled at the year’s end or from time to time during the year, including Elanor Retail Property
consolidated stapled entity comprises Elanor Retail Property Fund II (“ERPF II”) and the entities it
controlled at the year’s end or from time to time during the year, including Elanor Retail Property
controlled at the year’s end or from time to time during the year, including Elanor Retail Property
Fund I (“ERPF I”) and the entities it controlled at year’s end or from time to time during the financial
Fund I (“ERPF I”) and the entities it controlled at year’s end or from time to time during the financial
Fund I (“ERPF I”) and the entities it controlled at year’s end or from time to time during the financial
year end;
year end;
year end;
The consolidated statement of financial position as at 30 June 2020, the consolidated statement of
The consolidated statement of financial position as at 30 June 2020, the consolidated statement of
The consolidated statement of financial position as at 30 June 2020, the consolidated statement of
profit or loss, the consolidated statement of comprehensive income, the consolidated statement of
profit or loss, the consolidated statement of comprehensive income, the consolidated statement of
profit or loss, the consolidated statement of comprehensive income, the consolidated statement of
cash flows and the consolidated statement of changes in equity for the year ended on that date,
cash flows and the consolidated statement of changes in equity for the year ended on that date,
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,
notes comprising a summary of significant accounting policies and other explanatory information,
notes comprising a summary of significant accounting policies and other explanatory information,
and the directors’ declaration of the consolidated entity ERPF I, being the consolidated entity (“ERPF
and the directors’ declaration of the consolidated entity ERPF I, being the consolidated entity (“ERPF
and the directors’ declaration of the consolidated entity ERPF I, being the consolidated entity (“ERPF
I Group”) as set out on pages 16 to 52. The consolidated entity comprises ERPF I and the entities
I Group”) as set out on pages 23 to 59. The consolidated entity comprises ERPF I and the
I Group”) as set out on pages 16 to 52. The consolidated entity comprises ERPF I and the entities
it controlled at the year’s end or from time to time during the year.
entities it controlled at the year’s end or from time to time during the year.
it controlled at the year’s end or from time to time during the year.
In our opinion, the accompanying financial report of Elanor Retail Property Fund and ERPF I Group is in
In our opinion, the accompanying financial report of Elanor Retail Property Fund and ERPF I Group is in
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:
accordance with the Corporations Act 2001, including:
accordance with the Corporations Act 2001, including:
(i)
(i)
(i)
giving a true and fair view of Elanor Retail Property Fund and ERPF I Group’s financial positions
giving a true and fair view of Elanor Retail Property Fund and ERPF I Group’s financial positions
giving a true and fair view of Elanor Retail Property Fund and ERPF I Group’s financial positions
as at 30 June 2020 and of their financial performance for the year then ended; and
as at 30 June 2020 and of their financial performance for the year then ended; and
as at 30 June 2020 and of their financial performance for the year then ended; and
(ii)
(ii)
(ii)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
complying with Australian Accounting Standards and the Corporations Regulations 2001.
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
Basis for Opinion
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
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
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
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
Report section of our report. We are independent of Elanor Retail Property Fund and ERPF I Group, in
Report section of our report. We are independent of Elanor Retail Property Fund and ERPF I Group, in
accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical
accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical
accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical
requirements of the Accounting Professional & Ethical Standards Board’s APES 110 Code of Ethics for
requirements of the Accounting Professional & Ethical Standards Board’s APES 110 Code of Ethics for
requirements of the Accounting Professional & Ethical Standards Board’s APES 110 Code of Ethics for
Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit
Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit
Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit
of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance
of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance
of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance
with the Code.
with the Code.
with the Code.
We confirm that the independence declaration required by the Corporations Act 2001, which has been
We confirm that the independence declaration required by the Corporations Act 2001, which has been
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
given to the directors of Elanor Funds Management Limited (the “Responsible Entity”), would be in the
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.
same terms if given to the directors as at the time of this auditor’s report.
same terms if given to the directors as at the time of this auditor’s report.
Liability limited by a scheme approved under Professional Standards Legislation
Liability limited by a scheme approved under Professional Standards Legislation
Liability limited by a scheme approved under Professional Standards Legislation
Member of Deloitte Asia Pacific Limited and the Deloitte Organisation
Member of Deloitte Asia Pacific Limited and the Deloitte Organisation
Member of Deloitte Asia Pacific Limited and the Deloitte Organisation
53
53
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Elanor Retail Property Fund | Annual Report 2020
Elanor Retail Property Fund | Annual Report 2020
61
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 2020, Elanor Retail Property Fund
recognised investment properties valued at
$317.2 million as disclosed in Note 6.
The fair value of investment property is
calculated in accordance with the valuation
policy set out in Note 6 which outline the two
valuation methodologies used by Elanor Retail
Property Fund.
The Critical accounting judgements and key
sources of estimation uncertainty Note and
Note 6 disclose the significant judgements and
estimates made by Elanor Retail Property Fund
in estimating the fair values. These include the
following assumptions:
•
•
•
forecast cash flows: including market
rental income, market growth rates,
rent relief provided and letting up
assumptions. There
in
judgement being applied as a result of
the uncertainty of future rental income
and leasing activity as a result of
COVID-19;
increase
is
capitalisation rates: since the start of
COVID-19 there has been
limited
relevant transaction evidence; and
discount rates: are subjective due to
the specific nature and characteristics
of individual investment properties.
In addition, Note 6 highlights the uncertainty
created by COVID-19 and as a result the
valuers have included a significant valuation
uncertainty statement in their valuation reports
as at 30 June 2020. This clause indicates that
less certainty, and consequently a higher
degree of caution should be attached to the
valuations as a result of COVID-19.
The sensitivity to changes associated with the
greater levels of estimation uncertainty being
applied in respect of these assumptions are
disclosed in Note 6.
Our procedures included, but were not limited
to:
• Assessing management’s process over
property valuations and the oversight
applied by the directors are consistent with
relevant accounting standards and Elanor
Retail Property Fund’s valuation policy;
•
Performing an analytical review and risk
assessment of the portfolio, analysing the
key inputs and assumptions;
• Benchmarking the capitalisation rates and
discount rates with reference to external
market
transactions and
those assumptions where
challenging
appropriate;
trends and
•
Performing procedures over the specific
assumptions and judgements made around
the impact of COVID-19 on the valuation
models including market rental income,
market growth rates, rent relief provided
and letting up assumptions;
• Holding discussions with management and
to obtain an
the external valuers
understanding of portfolio movements and
their assessment of the impact of COVID-
19 on the valuations, including the material
uncertainty statement included in their
reports;
• Assessing the independence, competence
and objectivity of the internal and external
valuers; and
•
Testing on a sample basis of externally and
internally valued properties, the following:
o
o
the integrity of the information in
the valuation models by agreeing
key inputs such as net operating
income to underlying records and
source evidence
the forecasts used in the valuation
models with reference to current
financial results such as revenues
and expenses, capital expenditure
54
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Independent Auditor’s Report
requirements, vacancy rates and
lease renewals
o
the mathematical accuracy of the
valuation models.
We also assessed the appropriateness of the
disclosures included in The Critical accounting
judgements and key sources of estimation
uncertainty Note and Note 6 to the financial
statements.
Other Information
The directors of the Responsible Entity (the “Directors”) are responsible for the other information. The
other information comprises the Directors’ Report, which we obtained prior to the date of this auditor’s
report. The other information also includes the following information which will be included in the Annual
Report (but does not include the financial report and our auditor’s report thereon): the Message from
the Chairman, Message from the CEO and other documents which are expected to be made available to
us after that date.
Our opinion on the financial report does not cover the other information and we do not express any form
of assurance conclusion thereon.
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:
55
Elanor Retail Property Fund | Annual Report 2020
63
56•Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. •Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Elanor Retail Property Fund’s and ERPF I Group’s internal control. •Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. •Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on Elanor Retail Property Fund’s and ERPF I Group’s ability to continue as going concerns. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Elanor Retail Property Fund and ERPF I Group to cease to continue as going concerns. •Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. •Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within Elanor Retail Property Fund to express an opinion on the financial report. We are responsible for the direction, supervision and performance of Elanor Retail Property Fund’s audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. DELOITTE TOUCHE TOHMATSU D Nell Partner Chartered Accountants Sydney, 19 August 2020 64
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 2020. 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.
Elanor Retail Property Fund | Annual Report 2020 Securityholder Analysis
As at 19 August 2020
65
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
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