GARDA Property Group
Annual Report 2021

Plain-text annual report

GARDA PROPERTY GROUP (ASX: GDF) Annual Financial Report 2021 GARDA PROPERTY GROUP Comprising the consolidated financial reports of GARDA Diversified Property Fund (ABN 17 982 396 608, ARSN 104 391 273) and GARDA Holdings Limited (ACN 636 329 774) CONTENTS CHAIRMAN’S REPORT .................................................................................................................... 1 FY21 HIGHLIGHTS ........................................................................................................................... 2 OPERATIONAL REVIEW .................................................................................................................. 3 FINANCIAL SUMMARY .................................................................................................................... 8 BOARD OF DIRECTORS ............................................................................................................... 10 DIRECTORS’ REPORT .................................................................................................................. 12 REMUNERATION REPORT (AUDITED) ........................................................................................ 16 AUDITOR’S INDEPENDENCE DECLARATION ............................................................................. 23 FINANCIAL REPORT ...................................................................................................................... 24 NOTES TO FINANCIAL REPORT .................................................................................................. 28 DIRECTORS’ DECLARATION ........................................................................................................ 63 INDEPENDENT AUDITOR’S REPORT .......................................................................................... 64 CORPORATE GOVERNANCE STATEMENT ................................................................................ 69 SECURITYHOLDER INFORMATION ............................................................................................. 70 CORPORATE DIRECTORY ........................................................................................................... 72 GARDA Property Group Annual Financial Report 30 June 2021 Comprising the combined consolidated financial reports of GARDA Diversified Property Fund ARSN 104 391 273 and GARDA Holdings Limited ABN 92 636 329 774 Level 21, 12 Creek Street Brisbane QLD 4000 GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT CHAIRMAN’S REPORT Dear GARDA Securityholders, On behalf of the board, I am pleased to present our annual report for FY21, being the first full year of operations for the recently formed GARDA Property Group. Objective and strategy GARDA’s objective is to deliver enduring value to our securityholders through our expertise in real estate. Our strategy is to behave as a long-term owner of real estate, being market cycle aware and seeking out only those risks we wish to take. Strategic discipline I am pleased to report that our strategy delivered a total securityholder return of 35% in FY21 and a return on equity of 29%. GARDA did not conduct any equity issuance during FY21 as to do so would have been dilutive to NTA per security. Through prudent capital management and recycling of non-core assets at premiums to book value we were able to acquire attractive industrial development sites and continue to develop high quality new assets that we are proud to own. Industrial focus In the six years since the IPO of GARDA Diversified Property Fund, our portfolio of investment properties has more than trebled in value to $496 million. Over this period, and notwithstanding our Botanicca 9 office development, the focus of our growth activities has been on the industrial sector. At 30 June 2021 approximately half of GARDA’s investment portfolio (by value) was represented by industrial properties, up from only 6% at the time of the GDF IPO in 2015. Our industrial focus is currently bearing fruit with yields in the sector reaching record lows as investors chase assets with strong covenants and long WALEs. We expect this dynamic to continue and our established and recently acquired industrial development assets are well positioned to satisfy expected demand for quality buildings. Development Activities Approximately 11% by value of GARDA’s investment property portfolio comprises sites earmarked for industrial development. This is consistent with GARDA’s strategy of “building to own” in times, like the present, when it is cheaper to build than it is to buy, i.e., established property acquisitions are more expensive than the land and replacement cost of the same asset. Guidance – FY22 We expect to make distributions of 7.2 cents per security in FY22, representing a payout ratio of between 85% and 90%. Acknowledgements Let me conclude by thanking you, our investors, for your continuing support throughout FY21. I would also like to thank the board and management team who have been instrumental in GARDA’s success in FY21. We have started FY22 in a strong position and with confidence in our business and general market conditions. The board and management team remain committed to building on GARDA’s real estate platform and delivering enduring value for our securityholders. Matthew Madsen Executive Chairman 12 August 2021 GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 1 FY21 HIGHLIGHTS RETURN TO INVESTORS TSR1 ROE2 Distributions Distribution Yield3 35.0% 29.0% 7.2 cps 7.2% PORTFOLIO OUTCOMES Property portfolio value 4 $496m Occupancy5 91% WACR4 5.78% WALE4 5.5 years FINANCIAL METRICS NTA per security $1.45 Gearing6 38.4% WACD 2.2% Significant changes since 30 June 2020:  18.9% increase in portfolio value  Two industrial development properties acquired  10.9% increase in portfolio occupancy  82 basis point compression in cap rate Significant changes since 30 June 2020:  22.9% increase in NTA per security  1.7% increase in gearing6  Cost of debt down from 2.4% to 2.2% 1 2 3 4 5 6 Total securityholder return is calculated as (sum of security price movement in FY21 and distributions) divided by opening GARDA security price of $1.005 on 1 July 2020. Return on equity is calculated as (growth in net tangible assets per security plus distributions) divided by opening net tangible assets. Distribution yield is calculated as total FY21 distributions of 7.2 cps divided by opening GARDA security price of $1.005 on 1 July 2020. Property portfolio value includes all investment properties, value accretive additions and assets held for sale as at 30 June 2021. It excludes investment properties under contract but which settle(d) after year end. Occupancy, WACR and WALE are calculated on a pro-forma basis excluding Lytton, an asset held for sale with settlement due in September 2021. Gearing is calculated as (total interest-bearing debt less cash) / (total assets less cash). The 1.9% increase in FY21 is primarily due to goodwill of $33.6 million being impaired. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 2 OPERATIONAL REVIEW GROUP STRATEGY GARDA’s objective is to deliver enduring value to securityholders through our expertise in real estate. In pursuing this objective, GARDA acts as a long- term owner of real estate, being market cycle aware and seeking out only those risks we wish to take. GARDA’s strategic focus is equity investment into the industrial and commercial office sectors and debt investment into residential developments. GARDA’s size provides it with the scale necessary to compete in its target markets but also the agility to adjust its investment focus in anticipation of, or in response to, changing market conditions. Considered positions taken by the Group in support of its objective include: INVESTMENT PORTFOLIO     acquiring well-located Industrial focus: industrial properties and development sites such that industrial properties now comprise more than half of the GARDA portfolio; Building to own: developing and holding new assets rather than acquiring established assets at an expensive time in the real estate cycle; Capital management: recycling non-core assets and utilising debt facilities to fund growth rather than undertaking dilutive equity issues; and Residential lending: providing debt capital to third party residential developers to augment Group returns and value. Overview Number of properties8 Valuation ($m) Occupancy (%) WALE (years) WACR (%) Industrial Established 7 192.8 100 6.6 5.56 To Develop 5 52.2 N/A N/A N/A Office 4 236.5 84 4.6 5.96 Other7 1 14.7 - - - Total 17 496.2 91 5.5 5.78 As at 30 June 2021, GARDA’s investment property portfolio was valued at $496.2 million. GARDA seeks to acquire properties located in precincts supported by significant existing or planned infrastructure and where demand for industrial or office buildings is expected to be strong. The Group’s industrial properties are primarily located in Brisbane’s south west industrial corridor, in proximity to Brisbane airport and port or in high growth regions such as North Lakes, Brisbane. GARDA has three office buildings located in fringe CBD locations in Melbourne and owns the premier office building in Cairns, the Cairns Corporate Tower. 7 Comprises a property at Lytton held for sale at $10.7 million, a block of land in Townsville valued at $1.2 million and value accretive additions of $2.8 million. 8 GARDA’s industrial property at 498 Progress Road, Wacol is approximately 36% developed. Its value has been apportioned between ‘Established’ and ‘To Develop’ in the ‘Valuation’ line of the table but the entire property is included as a “To Develop” asset in the ‘Number of properties’ line. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 3 Transaction activity During FY21 GARDA announced the acquisition of three industrial development properties in Brisbane for a total cost of $30.0 million (plus costs). The acquisitions are consistent with GARDA’s strategy of building to own quality industrial assets in prime locations. Address Purchase price ($m) External valuation ($m) Settlement date Land size (m2) Anticipated built form GFA9 (m2) North Lakes Richlands Wacol 109-135 Boundary Rd 56-72 Bandara St 372 Progress Rd 16.0 20.0 6.8 - 7.2 7.2 June 2021 September 2021 May - July 2021 323,800 98,000 30,351 13,000 41,250 13,000 These acquisitions are funded by $19.6 million released from the disposals of two non-core properties in Brisbane and on the Gold Coast at premiums to their carrying values: Address Book value 30 June 2020 ($m) Contract sale price ($m) Archerfield Varsity Lakes 839 Beaudesert Road 154 Varsity Parade 6.0 7.0 12.0 12.6 In addition, GARDA’s industrial property at Lytton, valued at $8.7 million at 30 June 2020, is under contract for sale at a price of $11.0 million. Once vendor remediation works of an estimated $325,000 are completed, the sale is expected to settle in September 2021. The Archerfield asset formed part of a portfolio of four assets acquired by GARDA in July 2019. The other three assets acquired in July 2019 are located in Peterkin Street, Acacia Ridge adjacent to the Acacia Ridge Intermodal Rail Terminal and, following their redevelopment, will be core assets in GARDA’s portfolio. The assets at Lytton and Varsity Lakes have been held by GARDA since 2007 and, due to adverse changes in their business environment or local government regulations, were no longer considered core. Development activity GARDA achieved practical completion on two industrial development projects during FY21:  Berrinba – a 5,683m2 industrial building that has been leased to USG Boral and TLC Warehouse Solutions; and  Wacol – a 6,000m2 industrial building (Building C) at 498 Progress Road that has been leased to YHI Corporation. Development activity will continue in FY22 with GARDA’s industrial development pipeline almost quadrupling in FY21 to approximately 160,000m2 of possible built form gross floor area: 9 GFA – gross floor area. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 4 North Lakes Wacol (new) Richlands Wacol Building A GARDA Industrial Development Pipeline 98,000 13,000 13,000 3,000 Acacia Ridge Stage 2 15,265 Wacol Building B 7,830 Acacia Ridge Stage 1B 6,000 Acacia Ridge Stage 1A 6,214 0 20,000 40,000 60,000 80,000 Gross Floor Area (m2) 100,000 120,000 140,000 160,000 Under Construction Existing Pipeline New Pipeline Acquisitions Leasing activity In the 12 months to 30 June 2021, 26,160m2 of space has been leased. As at the date of this report, only 5,109m2 of space remains vacant in our established industrial and office buildings resulting in an occupancy rate of 90.9%. Since July 2020, GARDA has completed the following leasing transactions: Signed Lease Address Tenant Space taken (m2) Term Industrial Berrinba Berrinba10 1-9 Kellar Street Boral USG 1-9 Kellar Street TLC Warehouse Solutions Wacol (Bldg C) 498 Progress Rd YHI Corporation Industrial to be developed Acacia Ridge 69 Peterkin Street Austrans Office Cairns Cairns Cairns Cairns11 Richmond Richmond Richmond 7-19 Lake Street 7-19 Lake Street 7-19 Lake Street 7-19 Lake Street 588A Swan Street 588A Swan Street 588A Swan Street Qld DTMR Qld Gov - HPW Qld Gov - DYJ CASA Fujifilm NuVasive Bunnings 2,947 2,736 6,000 6,214 3,456 868 617 548 2,401 362 150 car parks 5 years 3 years 10 years 7 years 10 years 5 years 3 years 10 years 5 years 5 years Various In the next 12 months, an additional 5,587m2 of space, or 5% of portfolio gross income, will expire. 4,465m² of this expiry is Austrans’ current tenancy at 38 Peterkin St, Acacia Ridge which will be placed into redevelopment at that time. Completion of Austran’s new 6,214m2 building at 69 Peterkin Street, Acacia Ridge, and the associated commencement date of its new lease, is anticipated by November 2021. Austrans has pre-committed to this new space for seven years, as shown in the table above. 10 TLC Warehouse Solutions lease commenced on 1 August 2021. 11 CASA lease commences on 1 April 2022. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 5   60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 57% 9% 5% 9% 8% 12% Vacant FY22 FY23 FY24 FY25 FY26+ Tenant profile GARDA has a diversified base of tenants by ownership structure and industry. The high proportion of tenants being government, listed or multinational, with none being heavily exposed to the retail and consumer discretionary sectors, meant that COVID-19 has had minimal impact on GARDA to date. Top 10 Tenants J Blackwood & Son Planet Innovation Volvo Group Komatsu Golder Associates Pinkenba Resources Queensland Government (DTMR) Fujifilm Business Innovation Fulton Hogan McLardy McShane Valuations Type Industrial Office Industrial Industrial Office Industrial Office Office Office Office % of Portfolio Gross Income 9.9% 9.9% 9.4% 6.8% 6.5% 5.7% 5.3% 5.1% 3.7% 3.5% 65.8% Expiry Nov 27 Jan 29 Jul 28 Jul 23 Jan 25 Aug 33 Nov 28 Jun 26 Jun 22 Jan 23 Nine of GARDA’s properties were externally valued for the FY21 annual report, with the balance of the portfolio being carried at directors’ valuation. The valuations of GARDA’s investment properties, including value accretive additions and assets held for sale, as at 30 June 2021 are shown in the following table. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 6 2020 $000 Movement $000 As at 30 June Industrial - Established Acacia Ridge 38 Peterkin Street Berrinba Heathwood Lytton Mackay Morningside Pinkenba Wacol Wacol13 1-9 Kellar Street 67 Noosa Street 142-150 Benjamin Place 69-79 Diesel Drive 326 & 340 Thynne Road 70-82 Main Beach Road 41 Bivouac Place 498 Progress Road – Bldg C Industrial –Development Acacia Ridge Acacia Ridge North Lakes Wacol Wacol Total industrial Office Box Hill Cairns Richmond Richmond Total office 56 Peterkin Street 69 Peterkin Street 109 – 135 Boundary Road 372 Progress Road 498 Progress Road 436 Elgar Road 9-19 Lake Street 572-576 Swan Street (Bot 7) 588A Swan Street (Botanicca 9) Value Accretive Additions Acacia Ridge 69 Peterkin Street Cairns Box Hill Richmond 9-19 Lake Street 436 Elgar Road 588A Swan Street (Botanicca 9) Total value accretive additions Property held by Company Townsville 30 Palmer Street Properties sold Archerfield 839 Beaudesert Road Varsity Lakes 154 Varsity Parade Total sales Type12 D D D E E E E E D E E D E E E D D D D D D D 2021 $000 6,200 11,975 11,800 - 35,000 43,725 26,200 45,400 12,500 6,000 7,346 11,250 8,725 30,100 41,625 20,500 39,000 - 192,800 164,546 7,000 11,000 20,000 4,410 9,826 52,236 6,808 11,079 - - 9,221 27,108 245,036 191,654 39,000 86,500 54,000 57,000 33,250 60,563 53,688 59,042 236,500 206,543 1,722 247 593 222 2,784 - - - - - - - - 6,000 12,000 18,000 TOTAL INVESTMENT PROPERTIES (non-current assets) 485,570 417,447 PROPERTIES HELD FOR SALE (current asset) Lytton 142-150 Benjamin Place14 10,675 - TOTAL INVESTMENT PROPERTIES (including assets held for sale) 496,245 417,447 200 4,629 550 (8,725) 4,900 2,100 5,700 6,400 12,500 28,254 192 (79) 20,000 4,410 605 25,128 53,382 5,750 25,937 312 (2,042) 29,957 1,722 247 593 222 2,784 (6,000) (12,000) (18,000) 68,123 10,675 78,798 1,250 1,250 - 12 D = Directors’ valuation. E = external, independent valuation. 13 Building C at 498 Progress Road, Wacol was completed in May 2021. The remaining undeveloped land at 498 Progress Road continues to be shown in the table as industrial land for development. 14 Fair value of the Lytton property has been determined as the contract sale price of $11,000,000 less vendor works of $325,000. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 7 FINANCIAL SUMMARY FINANCIAL PERFORMANCE Key metrics Year ended 30 June FFO15 ($000) Distributions ($000) Payout ratio Funds from operations 2021 16,167 15,017 92.9% 2020 Change 15,680 16,430 104.8% 487 (1,413) GARDA recorded statutory net profit after tax for the year of $35,689,000 (2020: $5,567,000). This includes items which are non-cash in nature, incur infrequently and/or relate to realised or unrealised changes in the values of assets and liabilities. Accordingly, in the opinion of the Directors, statutory profit should be adjusted to allow securityholders to gain a better understanding of GARDA’s operating profit or FFO. Year ended 30 June Net profit after tax Adjustments for non-cash items included in net profit after tax: Valuations – (deduct increases) / add back decreases: Investment properties Derivatives Goodwill impairment Asset disposals – (deduct gains) / add back losses: Investment properties Other accounting reversals – (deduct income) / add back expenses: Security based payments Net lease contract and rental items Other Adjustments for one-off items: Add rental guarantee income16 Add back internalisation expenses Add back capitalised interest relating to development properties Deduct COVID-19 government grants 2021 $000 35,689 (50,671) (3,593) 33,586 (881) 740 (644) 60 2,000 - - (119) 2020 $000 5,567 6,996 1,425 - - 444 (730) (14) - 1,268 724 - FFO17 16,167 15,680 15 FFO (Funds from Operations) is the Group’s underlying and recurring earnings from its operations. It is determined by adjusting statutory net profit (under AIFRS) for certain non-cash and other one-off items. FFO is not recognised or covered by Australian Accounting Standards and has not been audited or reviewed by the auditor of the Group. 16 GARDA’s purchases of 56 and 69 Peterkin Street, Acacia Ridge on 5 July 2019 included provision for the receipt by GARDA of $2,000,000 in rental guarantees at any time in the subsequent two years. In accordance with Australian Accounting Standards, this amount was recorded as an asset in GARDA’s FY20 financial statements. In July 2020, GARDA released the rental guarantee into general funds. The Directors consider the rental guarantee to be part of underlying FY21 earnings warranting inclusion in reported FFO. 17 Pursuant to Australian Accounting Standards, treasury securities and employee share plan securities and the distributions attaching thereto are not included in statutory accounts. The same approach has been adopted in FY21 by GARDA for the purposes of calculating FFO, requiring an adjustment to FFO reported in FY20. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 8 COVID-19 COVID-19 did not have a material impact on GARDA’s revenue in the financial year. Total rent deferrals of $329,000 at 30 June 2020 decreased to $162,000 at 31 December 2020 following payments by the affected tenants. Since the end of the financial year, this favourable rental collection experience has continued. FINANCIAL POSITION Key Metrics NTA per stapled security Gearing18 WACD Net tangible assets 2021 $1.45 38.4% 2.2% 2020 $1.18 36.7% 2.4% completion of development works at Berrinba and Wacol; GARDA experienced a 22.9% increase in NTA per security in FY21 driven by:    sales of non-core properties at premiums to their carrying values; and increases in independent valuations driven by leasing outcomes and declining cap rates. Borrowings On 15 June 2021, GARDA secured a $28,000,000 increase in its existing debt facilities with ANZ Banking Group and St. George Bank to $228,000,000. At 30 June 2021, GARDA had $18,000,000 of borrowing capacity available, a weighted average cost of debt (fully drawn) of approximately 2.2% (2020: 2.4%) and gearing 19 of 38.6% (2020: 36.7%). Derivatives GARDA has in place a $100,000,000 hedge comprising: • • a $70,000,000 interest rate swap for a term of seven years at a rate of 0.81%; and a $30,000,000 interest rate swap for a term of 10 years at a rate of 0.98%. Issued Capital Total GARDA issued stapled securities at 30 June 2021 Less: GARDA stapled securities held as treasury stock GARDA stapled securities issued or transferred under the GARDA ESP GARDA stapled securities in accordance with Australian Accounting Standards 227,644,361 (4,233,693) (14,840,000) 208,570,668 18 Calculated as (total debt less cash) / (total assets less cash). 19 Calculated as (total debt less cash) / (total assets less cash) GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 9 BOARD OF DIRECTORS Matthew Madsen Executive Chairman Mark Hallett Executive Director Philip Lee Non-Executive Director Appointed September 2011 Appointed January 2011 Executive Director from Feb 2020 Appointed May 2015 Member of the Audit and Risk Committee Member of the Nomination and Remuneration Committee Professional experience Professional experience Professional experience Matthew has more than 20 years’ experience in the funds management industry, predominantly in director and management roles. He has significant property and property finance experience focused on larger construction and property investment funding. Matthew is Chair of the Advisory Board for residential land developer, Trask Development Corporation. Mark has more than 30 years’ industry and legal experience. After qualifying as a solicitor, he had a range of diverse industry experiences across all aspects of corporate litigation, restructuring and commercial property. Mark was legal practice director of Hallett Legal and is now a consultant at Macpherson Kelley. Mark has managed successful property syndicates for business associates and continues to advise participants in the industry on property investment and corporate restructuring. Qualifications Diploma in Financial Services, Diploma in Financial Markets, Affiliate member of the Securities Institute of Australia. Qualifications Bachelor of Laws Philip has over 34 years’ experience in stockbroking, equities research and corporate finance. He joined Morgans in 1986 and has served as a Director of Morgans and Joint Head of Corporate Finance. Philip currently holds the position of Executive Director Corporate Advisory, primarily focused on raising capital for growing companies, and chairs Morgans Risk and Underwriting Committees. Qualifications Bachelor of Commerce, Member of the AICD, Senior Fellow of Finsia, Master Practitioner Member of the Stockbrokers and Financial Advisers Association. Ordinary securities: 8,154,958 10,960,000 ESP securities: Ordinary securities: ESP securities: 1,902,604 1,000,000 Ordinary securities: 216,828 GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 10 Paul Leitch Independent Director Morgan Parker Independent Director Andrew Thornton Non-Executive Director Appointed March 2020 Member of the Audit and Risk Committee Chair of the Nomination and Remuneration Committee Appointed December 2018 Chair of the Audit and Risk Committee Member of the Nomination and Remuneration Committee Appointed March 2020 Member of the Audit and Risk Committee Member of the Nomination and Remuneration Committee Professional experience Professional experience Professional experience Paul is an experienced senior executive, board member and advisor with public and private sector organisations. He is the past Chief Operating Officer for QIC, the Queensland based institutional fund manager. Most recently, he was Leader of the Brisbane Office of the Nous Group, Australia’s largest privately-owned management consultancy firm. Paul is a director of The North Australian Pastoral Company and Charles Porter and Sons. He is also Chair of Pathways to Resilience, a Queensland charitable organisation. Morgan has more than 27 years’ experience as a global real estate investor, developer and banker, being involved in 60 completed projects in nine countries worth $20 billion. He is currently Chair of SunCentral, a non-executive director of Newcastle Airport and Saudi Entertainment Ventures. Morgan was a founding board member of the Asia Pacific Real Assets Association and served on the Asia board of the International Council of Shopping Centres for a decade. A former CEO, he previously worked for Morgan Stanley, Lendlease, Macquarie Group and Dubai Holding. Andrew is a director of Great Western Corporation, a private group with interests in commercial and industrial property, general manufacturing, agricultural equipment and investments. He joined Great Western Corporation in 1995 before becoming Joint Managing Director in 2010. Andrew previously served as Treasurer of both the Volvo Truck & Bus Dealer Council and the Daimler Truck Dealer Council. He is currently a director of HGT Investments Pty Ltd, GARDA Property Group’s largest securityholder. Qualifications Qualifications Qualifications Bachelor of Arts (Music), post graduate qualifications in Education, Member of the AICD, Member of Australian Human Resources Institute Bachelor of Laws, Graduate of the AICD Bachelor of Business, Member of the AICD Ordinary securities: 24,411 Ordinary securities: nil Ordinary securities: 1,126,065 GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 11 DIRECTORS’ REPORT Introduction GARDA Property Group (GARDA or the Group) is an ASX-listed stapled entity whereby shares in GARDA Holdings Limited (GHL or the Company) are stapled to units in GARDA Diversified Property Fund (GDF or the Fund) on a one-for-one basis. Shares of the Company and units of the Fund cannot be traded separately and may only be traded together as stapled securities. The Directors of the Company and of GARDA Capital Limited as responsible entity for the Fund present their report and the consolidated financial statements for the year ended 30 June 2021 for both:  the Group - comprising the Company, the Fund and their controlled entities; and  the Company - comprising only the Company and its controlled entities. The parent entity of the Group is the Fund. Directors The Directors of the Company and GARDA Capital Limited at any time during the financial year and up to the date of this report are listed below. The Directors are also directors of all Group subsidiaries. Matthew Madsen Executive Chairman Mark Hallett Executive Director Philip Lee Non-executive Director He holds a Law degree, a BSc in Biochemistry and Genetics and an MBA. He is a Justice of the Peace (Qualified) and a Graduate of the AICD Directors Course. Principal activities GARDA is an internally managed real estate investment, development and funds management group. The Fund invests in, owns, manages and develops commercial and industrial real estate in accordance with the provisions of the Fund’s constitution. The Company, through its subsidiaries, acts as the responsible entity of the Fund. Group strategy GARDA’s objective is to deliver enduring value to securityholders through its expertise in real estate. In pursuing this objective, GARDA acts as a long- term owner of real estate, being market cycle aware and seeking out only those risks it wishes to take. GARDA’s strategic focus is equity investment into the industrial and commercial office sectors and debt investment into residential developments. Review of operations A detailed review of operations, including details of GARDA’s properties, is provided in the Operational Review commencing on page 3. Paul Leitch Independent Director Financial result Morgan Parker Independent Director Andrew Thornton Non-executive Director Company Secretary GARDA’s Company Secretary and General Counsel throughout FY21 was Lachlan Davidson. He has been Company Secretary since July 2016. Lachlan has over 20 years’ experience in corporate law, fund raising and managed investments. GARDA recorded statutory net profit after tax for FY21 of $35,689,000 (FY20: $5,567,000). This includes items which are non-cash in nature, incur infrequently and/or relate to realised or unrealised changes in the values of assets and liabilities. After adjusting for these items, GARDA’s funds from operations (FFO) for FY21 were $16,167,000 (FY20: $15,680,000) and a reconciliation to statutory net profit after tax is provided in the Financial Summary commencing on page 8. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 12 Dividends and Distributions The table below provides details of distributions20 paid by GARDA in respect of the financial year: Dividend per security Distribution per security Total per security Total $000 Franked amount Record date Payment date 2021 Interim Interim Interim Final 2020 Interim Interim Interim Interim Final - - - - - - - - - - - 1.80c 1.80c 1.80c 1.80c 7.20c 2.25c 1.50c 0.75c 2.25c 1.80c 8.55c 1.80c 1.80c 1.80c 1.80c 7.20c 2.25c 1.50c 0.75c 2.25c 1.80c 8.55c 3,755 3,754 3,754 3,754 15,017 3,664 2,782 1,517 4,704 3,763 16,430 30 Sep 20 16 Oct 20 31 Dec 20 20 Jan 21 31 Mar 21 20 Apr 21 28 Jun 21 15 Jul 21 26 Sep 19 16 Oct 19 19 Nov 19 4 Dec 19 31 Dec 19 22 Jan 20 23 Mar 20 16 Apr 20 30 Jun 20 15 Jul 20 - - - - - - - - - - - Outlook Subsequent events GARDA will continue to execute its strategy in FY22 with the key objectives including:  increasing the portfolio occupancy level, particularly through the leasing of remaining space in Botanicca 9;  completing the redevelopment of 69 Peterkin Street, Acacia Ridge;  settling the acquisition of the Richlands property in September 2021;  commencing development of new industrial buildings at one or more GARDA’s development sites, including initial bulk earth and civil works at North Lakes; As disclosed in the Operational Review, GARDA has settled the acquisition of the remaining lot at 372 Progress Road, Wacol since year end and expects to settle the acquisition of the Richlands property in the first quarter of the FY22 financial year. The sale of the Lytton property is also expected to settle in the same timeframe once GARDA completes vendor remediation works. Otherwise, there are no matters or circumstances that have arisen since the end of the financial year that have significantly affected, or may significantly affect:  deploying additional capital into GARDA’s debt  GARDA’s operations in future financial years; investment activities;  managing ongoing capital requirements and gearing levels; and  being vigilant for strategically consistent, value accretive, acquisitions opportunities.   the results of those operations in future years; or the state of affairs of GARDA in future years. 20 Total distributions exclude distributions paid in respect of treasury securities and securities granted under the GARDA employee security plan. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 13 Significant changes in the state of affairs Other than as set out in this Annual Report, there were no significant changes in the operating activities of the Group (including controlled entities) during the year. Corporate governance GARDA’s Corporate Governance Statement may be found on page 66 of this Annual report. Directors’ interests in securities The Directors’ interests in GARDA securities are set out in the Remuneration Report commencing on page 16. Directors’ remuneration Directors’ remuneration is set out in the Remuneration Report commencing on page 16. Meetings of Directors Attendance at meetings of Directors during the year was as follows: Board of Directors Nomination and Remuneration Committee Audit and Risk Committee Meetings attended Meetings eligible to attend Meetings attended 11 10 11 10 11 11 11 11 11 11 11 11 4 4 4 4 4 4 Meetings eligible to attend invited invited 4 4 4 4 Meetings attended 2 2 2 2 2 2 Meetings eligible to attend invited Invited 2 2 2 2 Matthew Madsen21 Mark Hallett19 Philip Lee Paul Leitch Morgan Parker Andrew Thornton Audit and Risk Committee The Audit and Risk Committee comprising independent and non-executive directors meets regularly with the management team and auditor to consider the nature and scope of the assurance activities and the effectiveness of the risk and control systems. Auditor Pitcher Partners has been appointed as auditor of the Group. Securityholder details A summary of GARDA’s substantial securityholders and 20 largest securityholders is provided on page 67. Indemnification and insurance of Directors, officers and auditor GARDA has agreed to indemnify current and former directors and certain key officers against all liabilities to another person (other than the Group or a related entity) that may arise from their position as director or employee of the Group, except where the liability arises out of conduct involving lack of good faith. The agreement stipulates that the Group will meet the full amount of any such liabilities, including costs and expenses. The indemnities were limited as required under the Corporations Act 2001. The Group has paid insurance premiums on behalf of its officers for liability and legal expenses for the year ended 30 June 2021. 21 Matthew Madsen and Mark Hallett were not members of the Nomination and Remuneration Committee or the Audit and Risk Committee however attended meetings by invitation. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 14 The relevant insurance contracts insure against certain liability (subject to specified exclusions) for persons who are or have been directors or officers of the Group. Details of the nature of the liabilities covered or the amount of the premium paid have not been included, as such disclosure is prohibited under the terms of the relevant contracts. The Group has not indemnified its auditor. Proceedings on behalf of the Group No person has applied for leave of Court to bring proceedings on behalf of the Group or intervene in any proceedings to which the Group is a party for the purposes of taking responsibility on behalf of the Group for all or any part of those proceedings. Environmental regulation The Group’s operations were not subject to any significant environmental regulations under either Commonwealth or State legislation. However, the Directors believe GARDA has adequate systems in place for the management of its environmental requirements and are not aware of any breach of those environmental requirements. Rounding The Group is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors Reports) Instrument 2016/191 and therefore the amounts contained in this report and in the financial report have been rounded to the nearest thousand dollars, or in certain cases, to the nearest dollar. Non-audit services The Group’s auditor is Pitcher Partners. Prior to their appointment as auditors in December 2019, Pitcher Partners provided an Independent Limited Assurance Report in relation to the internalisation transaction. Non-audit services in the form of regulatory services and business advisory services were provided by the Group’s auditor, Pitcher Partners, during the year (refer to note 21 for details). The Directors are satisfied that the provision of non-audit services during the year by the auditor is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the provision of non-audit services by the auditor did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons:   all non-audit services have been reviewed by the Audit and Risk Committee to ensure they do not impact the impartiality and objectivity of the auditor; and none of the services undermines the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants (including Standards). Auditor's Independence Declaration The Auditor’s Independence Declaration as required under section 307C of the Corporations Act 2001 may be found on page 23 following the Remuneration Report. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 15 REMUNERATION REPORT (AUDITED) NOMINATION AND REMUNERATION COMMITTEE The Board has appointed a Nomination and Remuneration Committee (NRC). The NRC oversees GARDA’s remuneration framework and monitors remuneration outcomes. In doing so, it takes into account the interests of securityholders and the behaviours the Group wishes to promote. The Board approves and reviews the remuneration of GARDA’s Key Management Personnel (KMP) on the recommendation of the NRC. During the financial year the members of the NRC were: Director Paul Leitch Philip Lee Morgan Parker Andrew Thornton Role Independent Director, Chair of NRC Non-executive Director Independent Director Non-executive Director The NRC operates independently of GARDA management and may engage remuneration advisers directly. Management makes recommendations to the NRC in relation to the development and implementation of reward strategy and structure. REMUNERATION POLICY Objective The objective of the Group’s remuneration framework is to ensure rewards for performance are competitive and appropriate for the results delivered. The framework aligns individual remuneration and rewards with achievement of strategic objectives and creation of value for securityholders and conforms with market practice. The Directors ensure that executive remuneration and rewards satisfy the following key criteria:      competitive and reasonable; acceptable to securityholders; alignment of performance and compensation; transparency; and capital management. GARDA strives to create a remuneration framework that drives a performance culture, ensuring there is a strong link between executive pay and the achievement of Group strategies and value to securityholders. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 16 Relationship to Securityholder Wealth The short and long-term components, including financial and non-financial measure, of KMP remuneration are designed to create long-term, sustained securityholder value. When setting performance targets, potential quantum of remuneration and the split between fixed and variable remuneration, the Board has regard to factors including the following:      specific role and responsibilities of the KMP; execution of Group strategy; value of investment portfolio and net tangible assets (NTA); funds from operations; and total securityholder returns. Group Performance in 2021 The overall level of KMP compensation considers the performance of the Group and takes into consideration: 2021 2020 2019 2018 2017 Assets under management $000 518,847 477,269 356,334 290,609 200,644 NTA per security FFO22 Distributions23 Distributions per security24 Security price $ $’000 $’000 cents $ 1.45 16,167 15,017 7.20 1.29 1.18 15,680 16,430 8.55 1.00 1.37 13,192 13,810 9.00 1.40 1.28 11,210 11,284 9.00 1.17 1.21 10,730 10,124 9.40 1.11 For the financial year ended 30 June 2021, the NRC has also taken into consideration the following:        the resilience of the GARDA portfolio and income streams through the COVID-19 pandemic; acquisitions of the strategically attractive North Lakes and 372 Progress Road, Wacol industrial development properties; contractual close of the acquisition of the Richlands industrial property with settlement due in September 2021; completion of development and tenanting of the Berrinba industrial property and Building C at 498 Progress Road, Wacol; successful leasing outcomes at Botanicca 9 and Cairns; prudent management of capital. Rather than source expensive new equity, funds for growth were raised through the divestment, at prices above book value, of the Archerfield and Varsity Lakes properties, with Lytton due to settle in August 2021; and existing debt facilities being increased by $28.0 million to provide additional, lower cost, growth capital. Securityholders will receive total distributions of 7.2 cents per security for the financial year representing a payout ratio of 92.9% based on FFO. 22 Pursuant to Australian Accounting Standards, treasury securities and employee share plan securities and the distributions attaching thereto are not included in statutory accounts. The same approach has been adopted in FY21 by GARDA for the purposes of calculating FFO, requiring an adjustment to FFO reported in FY20. 23 Distributions exclude distributions paid in respect of treasury securities and securities granted under the GARDA employee security plan. 24 Actual distribution per security assuming holding of security for the entire financial year. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 17 ELEMENTS OF REMUNERATION – NON-EXECUTIVE DIRECTORS Fees and payments to Non-executive Directors (including Independent Directors) reflect the market in line with the demands that are made on, and the responsibilities of, the Directors. The Board determines remuneration of Non-executive Directors within the maximum amount approved by securityholders from time to time. This maximum currently stands at $600,000 per annum in total for fees to be divided among the Non-executive Directors in such a proportion and manner as they agree. Fees are set so that:    GARDA Non-executive Directors are remunerated fairly for their services, recognising the workload and levels of skills and experience required for the role; GARDA can attract and retain talented Non-executive Directors; and they are in line with market practice. Non-executive Directors are paid a fixed remuneration comprising base fees and superannuation. Non- executive Directors do not receive bonus payments or participate in security based compensation plans and are not provided with retirement benefits other than statutory superannuation. ELEMENTS OF REMUNERATION – EXECUTIVES Fixed Remuneration All employees receive a remuneration package that includes a fixed pay component. The fixed remuneration comprises, cash salary, superannuation and other salary sacrificed benefits. The fixed pay is a set amount to reflect the role complexity, responsibilities and skill levels required, with cognisance to the market. Short Term Incentives Short term incentives are cash payments, without forfeiture provisions, that may be made at the discretion of the Board. The purpose of short term incentives is to reward individuals for assisting with the achievement of GARDA’s strategic objectives. No short term incentives are based on profit measures only. Long Term Incentives The GARDA Employee Security Plan (GARDA ESP) is designed to:    assist with the attraction and retention of Executive Directors, senior managers and employees; motivate and drive performance at both the individual and Group level; and strengthen alignment between participants and securityholder interests. All Executive Directors and employees of GARDA are considered for participation in the GARDA ESP. Grants to Executive Directors are subject to securityholder approval. Participation in the GARDA ESP is at the Board’s discretion and no individual has a contractual right to participate in the plan or to receive any guaranteed benefits. The vesting of securities occurs over a two to three year period, subject to the participant remaining an employee of the Group. The KMP who participated in the grant of securities under the ESP were provided limited recourse loans on the grant date of an amount equal to the application price of the securities (market price per security on grant date). Interest on the limited recourse loans for any particular year is equal to the Australian Tax Office FBT benchmark interest rate. Interest is serviced through distributions and dividends payments with any excess applied to reduce the principal of the loan. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 18 KEY MANAGEMENT PERSONNEL - 2021 The Remuneration Report outlines remuneration for those people considered to be KMP of the Group during the year ended 30 June 2021. KMP are employees with the authority and responsibility for planning, directing and controlling the activities of GARDA and include:     Independent Directors; Non-executive Directors; Executive Directors, including the Executive Chairman; and Senior executives. Details of the KMP who held office with GARDA during the reporting period are summarised below: KMP Title Independent Directors and Non-executive Directors Philip Lee Paul Leitch Morgan Parker Andrew Thornton Non-executive Director Independent Director Independent Director Non-executive Director Executive Chairman Executive Director Executive Directors Matthew Madsen Mark Hallett25 Senior Executives26 David Addis Lachlan Davidson Appointment Date 21 May 2015 20 March 2020 13 December 2018 20 March 2020 22 September 2011 31 January 2011 Chief Operating Officer General Counsel (& Company Secretary) 18 March 2019 13 January 2014 KMP Remuneration Summary The table below outlines the total remuneration provided to KMP in the year ended 30 June 2021: GARDA ESP Total Performance Related Salary & Fees Non-Cash Benefits Short Term Incentive 70,566 72,778 72,778 70,566 Non-executive Directors P Lee P Leitch M Parker A Thornton Executive Directors M Madsen M Hallett Executives D Addis L Davidson 705,856 112,500 334,719 251,319 Total 1,691,082 - - - - 1,532 - 1,545 - 3,077 - - - - - - 20,000 40,000 60,000 Super 6,704 6,914 6,914 6,704 21,694 - 21,694 21,694 92,318 Long Service Leave - - - - - - - - 77,270 79,692 79,692 77,270 628 - 514,720 19,516 1,244,430 132,016 981 9,165 82,896 18,746 461,835 340,924 10,774 635,878 2,493,129 - - - - 41.4% 14.8% 17.9% 5.5% 25 Mr Hallett’s status changed from Non-executive Director to Executive Director in February 2020. 26 KMP in FY20 included Mark Scammells, Director Projects and Acquisitions. For FY21, the Board has determined that Mr Scammells does not satisfy the definition of KMP and should not be included in the Remuneration Report. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 19 The following table outlines the total remuneration provided to KMP in the year ended 30 June 202027: Salary & Fees Non-Cash Benefits Short Term Incentive 20,899 36,881 36,881 20,899 Non-executive Directors P Lee P Leitch M Parker A Thornton Executive Directors M Madsen M Hallett Executives D Addis L Davidson M Scammells 435,342 43,750 184,981 135,682 144,231 - - - - 3,945 - 3,945 - 3,945 Total 1,059,546 11,835 KMP Equity Interests - - - - - - 40,000 40,000 - 80,000 Long Service Leave - - - - 358 - 379 5,373 166 6,276 Super 1,985 3,504 3,504 1,985 10,501 - 14,894 12,675 14,786 63,834 GARDA ESP Total Performance Related - - - - 349,609 3,240 30,460 6,491 16,577 22,884 40,385 40,385 22,884 799,756 46,990 274,660 200,221 179,705 406,377 1,627,870 - - - - 43.7% 6.9% 25.7% 23.2% 9.2% The equity interests of each KMP in the Group, and the movement in their equity interests during the year, were as follows: Non-executive Directors P Lee P Leitch M Parker A Thornton Executive Directors M Madsen M Hallett Executives D Addis L Davidson As at 1 July 2020 216,828 24,411 - 1,013,505 14,068,755 2,302,469 800,000 773,330 Acquired ESP Grants 28 Total As at 30 June 2021 Ordinary Securities ESP Securities 29 - - - 112,560 46,203 600,135 - - - - - - 216,828 24,411 - 1,126,065 216,828 24,411 - 1,126,065 - - - - 5,000,000 - 19,114,958 2,902,604 8,154,958 1,902,604 10,960,000 1,000,000 - - 800,000 773,330 - 213,330 800,000 560,000 Total number of securities 19,199,298 758,898 5,000,000 24,958,196 11,638,196 13,320,000 Details of the ESP securities held by KMPs, together with attaching non-recourse loans, are set out in the following table: 27 Remuneration data in FY20 is for the period from 29 November 2019 (date of Internalisation) to 30 June 2020. 28 On 19 November 2020, 5,000,000 GARDA ESP securities were granted to the Executive Chairman following securityholder approval at the Annual General Meeting on 18 November 2020. All new ESP securities remain unvested. 29 Under Australian Accounting Standards, securities issued under the GARDA ESP, which are identical to other GARDA stapled securities, are required to be accounted for as options until such time as they vest and are exercised by the recipient, after repaying the attaching loans. Refer note 20 for further details. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 20 KMP Matthew Madsen Mark Hallett David Addis Lachlan Davidson Total Issue date 30 13 Nov 2017 16 Apr 2020 18 Nov 2020 16 Apr 2020 3 Jun 2019 23 Aug 2019 23 Aug 2019 13 Nov 2017 13 Nov 2017 23 Aug 2019 Securities granted 960,000 5,000,000 5,000,000 1,000,000 320,000 240,000 240,000 160,000 160,000 240,000 13,320,000 Exercise Price Fair value at grant date Loan value 30 June 2021 0.63 1.00 1.16 1.00 1.08 1.22 1.22 0.63 0.63 1.22 0.70 0.06 0.10 0.06 0.24 0.11 0.10 0.11 0.13 0.11 493,052 4,924,420 5,788,384 993,736 325,215 288,182 288,182 Vesting date 13 Nov 2020 16 Apr 2023 19 Nov 2023 16 Apr 2023 3 Jun 2021 23 Aug 2021 23 Aug 2022 82,222 13 Nov 2019 82,222 288,182 29 Nov 2019 23 Aug 2021 13,553,797 A total of 14,840,000 securities have been granted under GARDA ESP, of which 13,320,000 are held by KMP. Securities granted under GARDA ESP are subject to a service condition of up to three years and vest subject to the service condition being met. As at 30 June 2021, 1,600,000 of the 13,320,000 ESP securities held by KMP had vested. A further 480,000 will vest on 23 August 2021. The KMPs who participated in the GARDA ESP were provided with limited recourse loans on the grant date of an amount equal to the application price of the securities. In accordance with Australian Accounting Standards, all GARDA ESP securities (including vested securities) are deducted from equity and excluded from total issued securities of 227,644,361 until such time as the underlying limited recourse loans are repaid. No limited recourse loans were repaid during the year. EMPLOYMENT CONTRACTS AND TERMINATION PROVISIONS Executive Chairman The Executive Chairman, Matthew Madsen, entered into an executive services agreement effective 1 January 2020 whereby he became a full-time employee of GARDA. Prior to 1 January 2020, Mr Madsen provided services to GARDA through a contract with Madsen Advisory Pty Ltd. Mr Madsen’s executive services agreement may be terminated by the Group with one year’s notice (or immediately for fraud, gross negligence, misconduct or criminal offence), or by Mr Madsen providing one year’s notice. There is a restraint on Mr Madsen competing with the Group or interfering with the relationship between the Group and its staff, customers, suppliers or contractors for one year following termination. Other major provisions of the executive services agreement include:     term of agreement: commencing 1 January 2020 with no fixed termination date; base salary, exclusive of superannuation, of $695,000, to be reviewed annually by the NRC; entitlement to participate in short term incentives, expected to be in the form of cash bonus, and subject to achievement of strategic, operational and financial hurdles set by the Board; and entitlement to participate in the GARDA ESP, at the discretion of the Board. 30 ESP Securities issued prior to the internalisation transaction on 29 November 2019 were issued under the former GARDA Capital Group employee security plan, with the number and exercise price of such securities being adjusted for the internalisation exchange ratio of 1.6x. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 21 Directors The contracts with GARDA’s Non-executive Directors, Messrs Lee, Leitch, Parker and Thornton, provide the following key terms:    Term: ongoing with no fixed termination date; Remuneration (to be reviewed annually): • • $85,000 per annum (including superannuation) as at 30 June 2021; plus $5,000 extra for the Chairs of each Board sub-committee; and Termination: 90 days’ notice period. The contract with Mr Hallett, Executive Director, is largely identical to the contracts of the Non-executive Directors with two exceptions:   Remuneration: $150,000 per annum plus GST, reviewed annually; and Entitlement to participate in the GARDA ESP, at the discretion of the Board. Executives Remuneration and other terms of employment for other KMP executives are contained under standard employment contracts. It is Group policy that service contracts for salaried KMP are unlimited in term but capable of termination, with notice, by either party. The Group retains the right to terminate a service contract immediately and without notice if the KMP is at any time guilty of serious, willful, or persistent misconduct. On termination, salaried KMP are entitled to receive their statutory entitlements of accrued annual and long service leave, together with any superannuation benefits. Other than the Executive Chairman, the notice period for termination of a service contract by a KMP is three months. TRANSACTIONS WITH KMP AND THEIR RELATED PARTIES Other than as disclosed in this Remuneration Report, GARDA did not participate in any transactions with KMP or related parties during the financial year. AUDIT The Remuneration Report for the Group for the year ended 30 June 2021 has been audited in accordance with section 300A of the Corporations Act 2001. END OF REMUNERATION REPORT The Directors’ Report, including the Remuneration Report, is signed in accordance with a resolution of the Directors. Matthew Madsen Executive Chairman 12 August 2021 GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 22 AUDITOR’S INDEPENDENCE DECLARATION GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 23 FINANCIAL REPORT CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Year ended 30 June Notes 5 5 9 6 6 6 6 6 11 8 20 9 7 Revenue Revenue from ordinary activities Other income Net gain on sale of investment properties Net gain in fair value of financial instruments Net gain in fair value of investment properties Gain on bargain purchase on acquisition Total revenue Expenses Property expenses Corporate and trust administration expenses Finance costs Employee benefits expense Internalisation expenses Depreciation Goodwill impairment expense Credit loss expense Security based payments expense Net loss in fair value of financial instruments Net loss in fair value of investment properties Total expenses Profit/ (loss) before income tax Income tax benefit Profit/ (loss) after income tax Other comprehensive income, net of tax Total comprehensive income for the period Total profit and total comprehensive income for the period attributable to: Securityholders of GARDA Property Group Shareholders of GARDA Holdings Limited Profit and total comprehensive income Earnings per stapled security: 2021 $000 30,481 243 881 3,593 50,671 - GARDA 2020 $000 29,116 1,172 - - - - 2021 $000 4,638 163 - - - - 85,869 30,288 4,801 (6,814) (1,748) (3,753) (3,308) - (175) (33,586) (369) (740) - - (6,368) (2,836) (3,801) (1,520) (1,269) (155) - - (444) (1,425) (6,996) (50,493) (24,814) 35,376 313 35,689 - 35,689 5,474 93 5,567 - 5,567 Company 2020 $000 2,575 20 - - - 6,187 8,782 - (656) (79) - (1,095) (8) (4,364) (2,066) - (175) - (369) (740) - - (6,751) (1,950) 313 (1,637) - (1,637) - (155) - - (444) - - (3,400) 5,382 93 5,475 - 5,475 37,326 (1,637) 35,689 6,279 (712) 5,567 - (1,637) (1,637) - 5,475 5,475 Basic earnings per stapled security (cents) Diluted earnings per stapled security (cents) 15 15 17.11 16.11 2.90 2.85 (0.78) (0.78) 2.41 2.41 The Consolidated Statements of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 24 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION As at 30 June ASSETS Current assets Cash and cash equivalents Trade and other receivables Other assets – prepayments Investment properties held for sale Total current assets Non-current assets Investment properties Deposits on investment properties Property, plant and equipment Derivative financial instruments Right-of-use assets Deferred tax assets Intangible assets Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Contract liabilities Distribution payable Lease liabilities Current tax liability Total current liabilities Non-current liabilities Tenant security deposits Borrowings Derivative financial instruments Provisions Lease liabilities Deferred tax liability Total non-current liabilities Total liabilities Net assets EQUITY Contributed equity Security based payment reserve (Accumulated losses)/ retained earnings Total equity 2021 $000 GARDA 2020 $000 Company 2020 $000 2021 $000 Notes 8 9 9 13 23 7 11 10 14 24 12 13 24 7 15,534 2,629 1,094 10,675 29,932 20,488 4,594 697 - 25,779 7,267 1,036 165 - 8,468 3,952 2,226 117 - 6,295 485,570 417,447 1,250 1,250 713 41 2,057 270 264 - 488,915 518,847 3,045 472 3,754 122 - 7,393 - 54 - 403 - 33,586 451,490 477,269 3,338 605 3,763 115 2 7,823 246 350 209,030 186,653 - 78 130 - 209,484 216,877 301,970 1,536 48 252 49 188,888 196,711 280,558 354,993 354,993 1,184 (54,207) 301,970 444 (74,879) 280,558 - 41 - 270 264 - 1,825 10,293 - 54 - 403 - - 1,707 8,002 6,125 2,048 - - 122 - 6,247 - - - 78 130 - 208 6,455 3,838 - - 3,838 3,838 - - 115 2 2,165 13 - - 48 252 49 362 2,527 5,475 - - 5,475 5,475 The Consolidated Statements of Financial Position should be read in conjunction with the accompanying notes. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 25 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY a) GARDA Contributed Other Accumulated Equity Reserves $000 $000 Losses $000 Total Equity $000 30 June 2021 Balance at 1 July 2020 Profit for the financial year Transactions with owners in their capacity as owners: Distributions paid or payable Securities based payment expense Balance at 30 June 2021 30 June 2020 Balance at 1 July 2019 Profit for the financial year Transactions with owners in their capacity as owners: Securities issued in placement Securities issues in relation to investment properties Securities issued as consideration for Internalisation Transaction costs for Internalisation security issue Transaction costs for other security issues Cancellation of treasury securities on consolidation Cancellation of ESP31 securities on consolidation Securities based payment expense Distributions paid and payable Loan receivable for ESP vested securities Balance at 30 June 2020 b) Company 30 June 2021 Balance at 1 July 2020 Loss for the financial year Balance at 30 June 2021 30 June 2020 Balance at 20 September 2019 Profit for the financial year Balance at 30 June 2020 354,993 444 - - - 354,993 281,112 - 31,500 6,000 58,992 (58) (619) (15,661) (6,000) - - (273) 354,993 - - 740 1,184 - - - - - - - - - 444 - - (74,879) 35,689 280,558 35,689 (15,017) (15,017) - 740 (54,207) 301,970 (64,016) 217,096 5,567 5,567 - - - - - - - - 31,500 6,000 58,992 (58) (619) (15,661) (6,000) 444 (16,430) (16,430) - (273) 444 (74,879) 280,558 Contributed Retained Equity Earnings $000 $000 - - - - - - 5,475 (1,637) 3,838 - 5,475 5,475 Total Equity $000 5,475 (1,637) 3,838 - 5,475 5,475 The Consolidated Statements of Changes in Equity should be read in conjunction with the accompanying notes. 31 GARDA employee security plan. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 26 CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended 30 June Cash flows from operating activities Receipts from customers (incl. GST) Receipts from rental guarantee Litigation proceeds Notes 2021 $000 31,349 - 150 GARDA 2020 $000 32,128 2,000 100 2021 $000 Company 2020 $000 4,630 2,361 - - - - Payments in the course of operations (incl. GST) (15,417) (14,141) (5,137) (2,618) Interest received Finance costs Income tax refund / (payment) Net GST paid 16 40 (4,121) (5,109) 2 (290) (544) (482) Net cash from / (used in) operating activities 25 11,689 13,992 Cash flows from investing activities Payments for investment properties Payments for deposits and due diligence Commissions paid for sale of investment properties Net proceeds on sale of investment properties Payments for leasing fees Repayment loans receivable from external parties Loan advances to external parties Payments for property, plant and equipment Cash acquired at internalisation Acquisition costs relating to internalisation (44,326) (81,133) (713) (266) 19,371 (816) 11,316 (7,861) (29) - - (115) (259) - (247) 838 (1,491) (28) 4,375 (1,718) 9 (8) 2 (295) (799) - - - - - 4,814 (3,419) (29) - - Net cash (used in) / from investing activities (23,324) (79,778) 1,366 Cash flows from financing activities Proceeds from new equity issues Equity issue transaction costs Dividends paid (declared pre-internalisation) Distributions paid Drawdowns from bank debt facilities Repayment of bank debt facilities Debt facility transaction costs paid Payments for interest rate swap costs Payment of lease liabilities Loan from parent entity Repayment of loan to parent entity Repayment of loan by subsidiary of parent entity Repayment of related party loans - - - (15,026) 40,764 (18,879) (56) - (122) - - - - Net cash from / (used in) financing activities 6,681 Net increase/ (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year (4,954) 20,488 15,534 31,500 (619) (697) (16,231) 75,020 (15,418) (1,641) (2,714) (169) - - - (2,970) 66,061 275 20,213 20,488 - - - - - - - - (122) 3,875 (1,004) - - 2,749 3,315 3,952 7,267 The Consolidated Statements of Cash Flows should be read in conjunction with the accompanying notes. 20 (79) (544) (218) (1,078) - - - - - 838 - (28) 4,318 (80) 5,048 - - (697) - - - - - (169) 1,005 - 1,813 (1,970) (18) 3,952 - 3,952 GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 27 NOTES TO FINANCIAL REPORT NOTE 1 GENERAL INFORMATION Basis of preparation The consolidated annual financial statements for GARDA Property Group (GARDA or the Group), comprising GARDA Diversified Property Fund (GDF or the Fund) and GARDA Holdings Limited (GHL or the Company), have been jointly presented in accordance with ASIC Corporations (Stapled Group Reports) Instrument 2015/838 and the requirements of the Australian Securities Exchange. These financial statements have also been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001, as appropriate for for-profit oriented entities. Pursuant to Australian Accounting Standards, the Fund is the deemed parent entity of the Group. Supplementary information about the parent entity is disclosed in note 26. Compliance with IFRS The financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. Historical cost convention The financial statements have been prepared under the historical cost convention, except for, where applicable, the revaluation of investment properties and derivative financial instruments. Critical accounting estimates The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the consolidated entity's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 2. Comparative information Comparative information for the Company provided in the consolidated statements of profit or loss, consolidated statements of cashflows and the relevant notes to these statements is for the period from incorporation on 20 September 2019 to 30 June 2020. On 29 November 2019, GARDA acquired GARDA Capital Group, comprising the stapled GARDA Capital Limited and GARDA Capital Trust. Pursuant to that internalisation transaction, the Company acquired 100% of the shares in GARDA Capital Limited (the responsible entity of the Fund) and the Fund acquired 100% of the units in GARDA Capital Trust. Operations and principal activities GARDA is an internally managed real estate investment, development and funds management group. The Fund invests in, owns, manages and develops commercial and industrial real estate in accordance with the provisions of the Fund’s constitution. The Fund, through its subsidiaries, also invests into real estate via debt positions, sometimes in conjunction with third parties. The Company, through its subsidiaries, acts as the responsible entity of the Fund. Registered office The registered office and principal place of business of the Group is situated at Level 21, 12 Creek Street, Brisbane QLD 4000. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 28 Authorisation of financial report This financial report was authorised for issue on 12 August 2021 in accordance with a resolution of the Directors. The following is a summary of the material accounting policies adopted by the Group in the preparation of these financial statements. The accounting policies have been consistently applied, unless otherwise stated. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. Adoption of new or amended accounting standards and Interpretations New and amended accounting standards There are no standards, interpretations or amendments to existing standards that are effective for the first time for the financial year beginning 1 July 2020 that have a material impact on the amounts recognised in prior periods or will affect the current or future periods. New standards and interpretations not yet adopted A number of new standards, amendments to standards and interpretations are effective for annual periods beginning on or after 1 July 2021 and have not been early adopted in preparing these financial statements. None of these are expected to have a material effect on the financial statements of the Company. Principles of consolidation and business combinations The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired. The consideration transferred for an acquisition comprises the fair value of the assets transferred, the liabilities incurred and the equity interests issued by GARDA. The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. GARDA recognises any non-controlling interest in an acquired entity on an acquisition-by acquisition basis either at fair value or at the non-controlling interest’s proportionate share of the acquired entity’s net identifiable assets. Acquisition-related costs are expensed as incurred, with the exception of incremental costs incurred in relation to the issue of additional equity which are deducted against equity. The excess of the consideration transferred, the amount of any non-controlling interest in the acquired entity and the acquisition-date fair value of any previous equity interest in the acquired entity over the fair value of GARDA’s share of the net identifiable assets acquired are recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired, the difference is recognised directly in profit or loss as a bargain purchase. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss. Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the provisional amounts recognised and recognises additional assets or liabilities during the measurement period based on new information obtained about the facts and circumstances that existed at the acquisition-date. The measurement period ends on the earlier of: (i) 12 months from the date of the acquisition; or (ii) when the acquirer receives all the information possible to determine fair value. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 29 Goodwill Goodwill arising from acquisitions is included in intangible assets. Goodwill is not amortised but it is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of annual impairment testing. The allocation is made to those cash-generating units, or groups of cash-generating units, that are expected to benefit from the business combination from which the goodwill arose. The units or groups of units are identified at the lowest level at which goodwill is monitored for internal management purposes, being the operating segments. Income tax Income tax for the Fund Under the current income tax legislation, the Fund is not liable for Australian income tax, provided its taxable income and taxable realised gains are fully distributed to security holders each financial year. The Fund distributes its distributable income, calculated in accordance with its Constitution and the applicable taxation legislation, to securityholders who are presently entitled to the income under the Constitution. Income tax for the Company Income tax is payable at the applicable income tax rate on the current period’s taxable income adjusted for changes in deferred tax assets and liabilities attributable to temporary differences and for unused tax losses. The current income tax charge is calculated by reference to the tax laws enacted or substantively enacted at the end of the reporting period. Deferred income tax is provided in full, using the liability method, on temporary differences between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this situation, the tax is also recognised in other comprehensive income or directly in equity, respectively. Tax consolidation legislation for the Company GHL and its wholly owned subsidiaries have implemented the tax consolidation legislation. The head entity, GHL, and the controlled entities in the tax consolidated group account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continued to be a stand-alone taxpayer in its own right. In addition to its own current and deferred tax amounts, the Company also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. The entities have entered into a tax funding agreement under which wholly owned subsidiaries compensate the Company for any current tax liability assumed and are compensated by the Company for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly owned subsidiaries’ financial statements. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 30 The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the head entity. The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments. Revenue recognition The summary below presents information about the disaggregation of key revenue items from the Group’s revenue contracts or other activities with customers. Lease revenue The Group’s main revenue stream is property rental revenue and is derived from holding investment properties over time. Rental revenue is recognised on a straight-line basis over the lease term for leases with fixed rent review clauses. Rental revenue not received at reporting date is reflected in the Statements of Financial Position as a receivable or, if paid in advance, as contractual liabilities. Contingent rents based on the future amount of a factor that changes other than with the passage of time, including turnover rents and CPI linked rental increases, are only recognised when contractually due. Prospective tenants may be offered incentives to enter operating leases. The cost of incentives is recognised as a reduction of rental revenue on a straight-line basis from the lease commencement date to the end of the lease term. Recoverable outgoings Revenue from outgoings and other related services is recognised at an amount that reflects the consideration to which the Group is expected to be entitled in exchange for transferring goods or services to a customer. For each contract, the Group; identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price, taking into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance obligations on the basis of the relative stand-alone selling price of each distinct good or service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods or services promised. Debt advisory services revenue Contracts with customers in relation to debt advisory services are specialised in nature and the customer does not benefit from the process undertaken, but rather the outcome. The Group is only entitled to payment for services upon the successful completion of the contract. Hence, revenue is recognised upon completion of the service at a point in time. Lending business income Revenue from lending contracts with customers is recognised over-time using the effective interest method. Non-lending Interest income Interest income is recognised using the effective interest method. Investment properties Investment properties comprise properties held for long-term rental yields and/ or capital appreciation and properties being constructed or developed for future use as investment properties. Investment properties are initially recognised at cost, including transaction costs. Subsequently to initial recognition, investment properties are carried at fair value which is measured using the capitalisation approach and discounted cash flows as primary valuation methodologies. Gains and losses arising from changes in fair values of investment properties are included in profit or loss in the year in which they arise. Subsequent development and refurbishment costs (other than repairs and maintenance) are capitalised to the investment property when they result in an enhancement in the future economic benefits of the property. Investment properties under construction are carried at fair value, or at cost where fair value cannot be reliably determined and the construction is incomplete. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 31 Fair values Fair values may be used for financial and non-financial asset and liability measurement as well as sundry disclosures. Fair value is the price that would be received on sale of an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. It is based on the presumption that the transaction takes place either in the principal market for the asset or liability or, in the absence of a principal market, in the most advantageous market. The principal or most advantageous market must be accessible to, or by, the Group. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they are acting in their best economic interest. The fair value measurement of a non-financial asset takes into account the market participant's ability to generate economic benefits by using the asset at its highest and best use, or by selling it to another market participant that would use the asset at its highest and best use. In measuring fair value, the Group uses valuation techniques that maximise the use of observable inputs and minimise the use of unobservable inputs. Assets and liabilities measured at fair value are classified into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are reviewed each reporting date and transfers between levels are determined based on a reassessment of the lowest level input that is significant to the fair value measurement. For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either not available or when the valuation is deemed to be significant. External valuers are selected based on market knowledge and reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an analysis is undertaken, including verification of the major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data. Derivative financial instruments The Group used derivative financial instruments (interest rate swaps) during the year to hedge risks associated with interest rate fluctuations on its bank loans. Interest rate swaps are initially measured at fair value on the date of contract and are subsequently measured at fair value at each reporting date. The net fair value of derivative financial instruments outstanding at the reporting date is recognised in the statement of financial position as either a financial asset or liability. Changes in the fair value of the interest rate swaps are recognised immediately in profit or loss. Impairment of non-financial assets At each reporting date, the Group reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets may have been impaired. If such indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and its value in use, is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to profit or loss. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Cash and cash equivalents Cash and cash equivalents include cash on hand, deposits held at call with financial institutions and other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. Trade receivables Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any allowance for expected credit losses. Trade receivables are generally due for settlement within 30 days. The Group has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 32 Right-of-use assets A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset and restoring the site or asset. Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Where the consolidated entity expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of-use assets are subject to impairment or adjusted for any remeasurement of lease liabilities. Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year which remain unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Trade and other payables are presented as current liabilities unless payment is due more than 12 months after the reporting date. Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any differences between the proceeds (net of transaction costs) and the redemption amounts are recognised in profit or loss over the period of the loans and borrowings using the effective interest method. Fees paid for establishing loan facilities are recognised as transaction costs and amortised over the period to which the facility relates. Lease liabilities A lease liability is recognised at the commencement of a lease. The lease liability is initially recognised as the present value of lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the consolidated entity's incremental borrowing rate. Lease payments comprise fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts expected to be paid under residual value guarantees, exercise prices of purchase options when the exercise of the option is reasonably certain to occur, and any anticipated termination penalties. Variable lease payments that do not depend on an index or a rate are expensed in the period in which they are incurred. Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured if there is a change in the following: future lease payments arising from a change in an index or a rate used; residual guarantee; lease term; or certainty of a purchase option and termination penalties. When a lease liability is remeasured, an adjustment is made to the corresponding right-of use asset, or to profit or loss if the carrying amount of the right-of-use asset is fully written down. Finance costs Finance costs attributable to qualifying assets are capitalised as part of the asset. All other finance costs are expensed in the period in which they are incurred. A qualifying asset is an asset under development or construction where such development or construction takes a substantial period of time. To the extent that funds are borrowed generally to fund development, the amount of borrowing costs to be capitalised to qualifying assets is determined by using an appropriate capitalisation rate. Interest payments in respect of financial instruments classified as liabilities are included in finance costs. Employee benefits Short-term employee benefits Liabilities for wages and salaries, including non-monetary benefits, annual leave and long service leave expected to be settled wholly within 12 months of reporting date are measured at the amounts expected to be paid when the liabilities are settled. At 30 June 2021, all Group annual leave liabilities are expected to settled wholly within 12 months and therefore were recognised as current liabilities. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 33 Long-term employee benefits Liabilities for annual leave and long service leave not expected to be settled within 12 months of reporting date are measured at the present value of expected future payments using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. At 30 June 2021, all long service leave liabilities were recognised as non-current liabilities. Defined contribution superannuation expense Contributions to defined contribution superannuation plans are expensed in the period in which they are incurred. Security based payments expense The costs of equity-settled transactions, including loan funded security issues, are determined by their fair values at grant date using the Black Scholes option pricing model and are recognised as security based payment expenses proportionately over the vesting period with a corresponding increase in security based payments reserve. No expense is recognised for securities that do not ultimately vest other than for equity-settled transactions for which vesting is conditional upon a market or non-vesting condition. Such securities are treated as vesting irrespective of whether the market or non-vesting conditions are satisfied, provided that all other performance and/or service conditions are satisfied. Should the terms of equity-settled securities be modified, the minimum expense recognised is the expense that would have been recognised had the terms not been modified. An additional expense is recognised for any modification that increases the total fair value of the security based payment transaction or is otherwise beneficial to the employee as measured at the date of modification. When an equity-settled security is cancelled, it is treated as if it vested on the date of cancellation and any unrecognised expense recognised immediately. This includes any security where non-vesting conditions within the control of either the entity or the employee are not met. Dividends and distributions to securityholders Provision is made for any dividend or distribution declared, being appropriately authorised and no longer at the discretion of the Board of Directors, on or before the end of the financial year but not distributed as at balance date. Earnings per security Basic earnings per security is calculated by dividing the profit attributable to securityholders, by the weighted average number of ordinary securities outstanding during the financial year, adjusted for bonus elements in ordinary securities issued during the year. Diluted earnings per security adjusts the figures used in the determination of basic earnings per unit to take into account the weighted average number of additional ordinary securities that would have been outstanding assuming the conversion of all dilutive potential ordinary securities. Treasury Securities Treasury securities are deducted against equity or eliminated on consolidation. Any distributions related to treasury securities are also eliminated on consolidation. Goods and Services Tax (GST) Revenues and expenses are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the Australian Taxation Office. If it is not recoverable, it is recognised in the cost of acquisition of the asset or as an expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the Australian Taxation Office is included in other receivables or other payables in the Statement of Financial Position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the Australian Taxation Office, are presented as operating cash flows. Net GST paid or refunded to/from Australian Tax Office is shown separately in the operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the Australian Taxation Office. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 34 Rounding of amounts GARDA is an entity of the kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191. Accordingly, amounts contained in this report and in the interim financial statements have been rounded to the nearest thousand dollars, or in certain cases, to the nearest dollar. Critical accounting judgements, estimates and assumptions The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect reported amounts. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events that management believes to be reasonable in the circumstances. The resulting accounting judgements and estimates will seldom equal actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below. Coronavirus (COVID-19) pandemic Judgement has been exercised in considering the impacts that the Coronavirus (COVID-19) pandemic has had, or may have, on the Group based on known information. Other than as addressed in specific notes, there does not currently appear to be either any significant impact upon the financial statements or any significant uncertainties with respect to events or conditions which may unfavourably impact the consolidated entity as at the reporting date or subsequently as a result of the Coronavirus (COVID-19) pandemic. Goodwill The Group tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill has suffered any impairment (refer note 11). The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of assumptions, including estimated discount rates based on the current cost of capital and growth rates of the estimated future cash flows. Refer to note 11 for further information. Investment property valuation The Group makes key assumptions in determining the fair value of its investment property portfolio as at reporting date. In the current financial year, these assumptions have been made in the context of considerable uncertainty regarding the likely ultimate impact of COVID-19 on investment property valuations. The independent valuation reports received as at 30 June 2021 included caveats that the valuations were reported on the basis of “material valuation uncertainty” and, consequently, less certainty and a higher degree of caution should be attached to the valuations than would normally be the case. The assumptions thought to bear the most significant impact on the adopted fair value of each of the Group’s investment properties are disclosed in notes 9 and 17, together with the carrying amount of each investment property asset measured at fair value. Security based payment transactions The consolidated entity measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using Black-Scholes model taking into account the terms and conditions upon which the instruments were granted. The accounting estimates and assumptions relating to the equity-settled security based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit or loss and equity, as disclosed in note 20. Lease term The lease term is a significant component in the measurement of both the right-of-use asset and lease liability. Judgement is exercised in determining whether there is reasonable certainty that an option to extend the lease or purchase the underlying asset will be exercised, or an option to terminate the lease will not be exercised, when ascertaining the periods to be included in the lease term. In determining the lease term, all facts and circumstances that create an economical incentive to exercise an extension option, or not to exercise a termination option, are considered at the lease commencement date. Factors considered may include the importance of the asset to the consolidated entity’s operations; comparison of terms and conditions to prevailing market rates; incurrence of significant penalties; existence of significant lease hold improvements; and the costs and disruption to replace the asset. The consolidated entity reassesses whether it is reasonably certain to exercise and extension option, or not exercise a termination option, if there is a significant event or significant change in circumstances. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 35 NOTE 3 OPERATING SEGMENTS The Group has identified three core operating segments. These segments are regularly reviewed by the Executive Chairman, who is the Chief Operating Decision Maker, to support decisions about resource allocation and to assess performance. The three operating segments are: direct property investment, debt investments and funds management. The business activities of each of these operating segments are as follows: Core Operating Segments Business Activity Direct investment Debt investment Investment in Australian commercial and industrial property Investment in mortgages and loans into residential real estate Funds management Establishment and management of investment funds for external investors The external revenue and net profit contribution of the debt investment and funds management operating segment did not meet the necessary quantitative threshold to be considered separate reportable segments and therefore have been combined and disclosed in the “other segments” category. Segment results Year ended 30 June 2021 Segment revenue: Lease revenue Recoverable outgoings Fund and real estate management Lending business income Debt advisory services Sundry income Total segment revenue Total segment expense Segment profit Year ended 30 June 2020 Segment revenue: Lease revenue Recoverable outgoings Fund and real estate management Lending business income Debt advisory services Litigation proceeds Other revenue Total segment revenue Total segment expense Segment profit Direct investment $000 Other segments $000 23,556 4,895 - - - 73 28,524 (11,180) 17,344 23,103 4,762 - - - 475 657 28,997 (12,161) 16,836 - - 5 860 521 - 1,386 (718) 668 - - 7 228 287 - - 522 (183) 339 Total $000 23,556 4,895 5 860 521 73 29,910 (11,898) 18,012 23,103 4,762 7 228 287 475 657 29,519 (12,344) 17,175 Segment results include items directly attributable to the segment as well as those that may be allocated on a reasonable basis. They exclude non-segment specific non-cash expenses including fair value adjustments, security based payments expense and depreciation. Corporate expenses pertaining to Group level functions such as finance and tax, legal, risk and compliance, company secretarial, marketing and other corporate services are also not allocated to core operation segments. These expenses form part of unallocated revenue and expenses in the reconciliation of segment profit to profit before income tax. Segment results are also net of all internal revenue and expenses incurred post-internalisation. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 36 Reconciliation of segment revenues to Group revenue Year ended 30 June Total revenue for segments Unallocated amounts: Lease straight-lining revenue Lease costs and incentive amortisation Rent free income Sundry income Non-operating interest income Net gain on sale of investment properties Net gain in fair value of financial instruments Net gain in fair value of investment properties Total Group revenue Reconciliation of segment profit to Group profit before tax Year ended 30 June Segment profit Unallocated amounts: Revenue: Lease straight-lining revenue Lease costs and incentive amortisation Rent free income Sundry income Non-operating interest income Net gain on sale of investment properties Net gain in fair value of financial instruments Net gain in fair value of investment properties Expenses: Finance costs Employee benefit expense Corporate and trust administration expenses Depreciation Internalisation expense Security based payments expense Net loss on financial instrument held at fair value through profit and loss Net fair value loss of investment properties Goodwill impairment expense Group profit before income tax 2021 $000 2020 $000 29,910 29,519 1,302 (795) 137 154 16 881 3,593 50,671 85,869 1,372 (865) 222 - 40 - - - 30,288 2021 $000 2020 $000 18,012 17,175 1,302 (795) 137 154 16 881 3,593 50,671 (8) (3,083) (1,003) (175) - (740) - - (33,586) 35,376 1,372 (864) 222 - 40 - - - (84) (1,403) (695) (155) (1,269) (444) (1,425) (6,996) - 5,474 GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 37 Segment assets and liabilities As at 30 June 2021 Segment Assets Segment Liabilities Net Assets As at 30 June 2020 Segment Assets Segment Liabilities Net Assets Segment assets and liabilities are net of all internal loan balances. Reconciliation of segment assets to Group assets Direct Investment $000 Other Segments $000 Total $000 505,223 (215,780) 289,443 9,498 514,721 (70) (215,850) 9,428 298,871 468,732 (194,071) 274,661 6,584 475,316 - (194,071) 6,584 281,245 As at 30 June Reportable segment assets Unallocated amounts: Other receivables Investment properties32 Corporate fixed assets Derivative financial instrument Right-of-use assets Deferred tax assets Total Group assets Reconciliation of segment liabilities to Group liabilities As at 30 June Reportable segment liabilities Unallocated amounts: Trade and other payables Tenant security deposits Provisions Derivative financial instrument Lease liability Deferred tax liabilities Total Group liabilities 2021 $000 2020 $000 514,721 475,316 244 1,250 41 2,057 270 264 246 1,250 54 - 403 - 518,847 477,269 2021 $000 2020 $000 215,850 194,071 697 - 78 - 252 - 627 14 48 1,536 367 49 216,877 196,712 32 Represents the value of land held by a subsidiary of the Company. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 38 NOTE 4 DISTRIBUTIONS Distributions provided for and/or paid during the financial year were as follows: Year ended 30 June September: 1.80 cents per security (2020: 2.25 cents) November: nil cents per security (2020: 1.50 cents) December: 1.80 cents per security (2020: 0.75 cents) March: 1.80 cents per security (2020: 2.25 cents) June: 1.80 cents per security (2020: 1.80 cents) Distribution on treasury securities Net distributions33 GARDA Company 2021 $000 3,919 - 3,831 3,831 3,831 15,412 (395) 15,017 2020 $000 3,664 2,782 1,682 5,046 3,929 17,103 (673) 16,430 2021 $000 - 2020 $000 - - - - - - - - - - - - - - - Distributions declared for the quarter ended 30 June 2021 of $3,754,000 (net of treasury security distribution) were not paid until after year end but have been provided for in the financial statements. 33 Net distributions exclude distributions paid in respect of treasury securities and securities granted under the GARDA employee security plan. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 39 NOTE 5 REVENUE Year ended 30 June Revenue recognised under AASB 16 Leases Lease revenue Lease costs and incentive amortisation 2021 $000 24,995 (795) 24,200 GARDA 2020 $000 24,696 (864) 23,832 Revenue recognised under AASB 15 Revenue from contracts with customers Recoverable outgoings – non-lease component 4,895 4,762 Fund and real estate management Recoveries and other fees Debt advisory services Lending business income Revenue from ordinary activities Other income Non-operating interest income Litigation proceeds Sundry income Other income 5 - 521 860 7 - 287 228 6,281 30,481 5,284 29,116 16 - 227 243 243 40 475 657 1,172 1,172 2021 $000 Company 2020 $000 - - - - 2,697 1,057 521 363 4,638 4,638 9 - 154 163 163 25 - 25 - 1,532 568 287 163 2,550 2,575 20 - - 20 20 Disaggregation of revenue from contracts with customers GARDA Recoverable outgoings – non-lease component Fund and real estate management Lending business income Debt advisory services Total Company Recoveries and other fees Fund and real estate management Lending business income Debt advisory services Total Point in Time $000 2021 Over Time $000 Total $000 Point in Time $000 2020 Over Time $000 Total $000 - - - 521 521 - - - 521 521 4,895 4,895 5 860 - 5 860 521 5,760 6,281 1,057 2,697 363 - 1,057 2,697 363 521 4,117 4,638 - - - 287 287 - - - 287 287 4,762 4,762 7 228 - 7 228 287 4,997 5,284 568 1,532 163 - 568 1,532 163 287 2,263 2,550 GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 40 NOTE 6 EXPENSES Year ended 30 June Property expenses Recoverable expenses Direct expenses Non-recoverable expenses Corporate and trust administration expenses Management fees Professional fees and other administration expenses Finance costs Interest on borrowings Amortisation of borrowing transaction costs Interest expense on lease liabilities Interest capitalised to properties under construction34 Employee benefits expense Superannuation expense Other employee benefits Depreciation IT equipment and fittings Buildings right-of-use assets 2021 $000 5,918 545 351 6,814 - 1,748 1,748 4,113 548 8 (916) 3,753 215 3,093 3,308 42 133 175 GARDA 2020 $000 2021 $000 Company 2020 $000 5,513 581 274 6,368 1,099 1,737 2,836 5,074 414 12 (1,699) 3,801 124 1,396 1,520 22 133 155 - - - - - 1,095 1,095 - - 8 - 8 255 4,109 4,364 42 133 175 - - - - - 656 656 67 - 12 - 79 147 1,919 2,066 22 133 155 34 The capitalisation rate used to determine the amount of borrowing costs capitalised during the financial year was the weighted average interest rate applicable to the Group’s general borrowings. The weighted average rate during the year ranged from 2.2% - 2.4% (2020: 2.4% - 3.2%) GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 41 NOTE 7 INCOME TAX Year ended 30 June The components of income tax benefit comprise: Current income tax benefit Deferred income tax benefit Income tax benefit Deferred income tax expense included in income tax benefit: Increase in deferred tax assets (Increase)/decrease in deferred tax liabilities Total deferred tax benefit 2021 $000 - 313 313 74 239 313 GARDA 2020 $000 - 93 93 243 (150) 93 The prima facie tax on profit before income tax is reconciled to income tax as follows: Profit/(loss) before income tax Less profit attributed to Trusts not subject to tax Profit/(loss) subject to income tax Prima facie tax at 26.0% (2020: 27.5%) 35,376 (37,326) (1,950) (507) 5,475 (6,279) (804) (221) Tax effect of amounts which are not deductible/(assessable): Security based payment expense Bargain purchase on acquisition Other (income)/expenses Restate deferred income tax benefit to 25% Income tax benefit Composition of deferred tax assets Provision for employee benefits Accrued expenses Lease incentive liability Capital raising and transaction costs Tax losses Lease liabilities Other Deferred tax asset Movements: Opening balance Balance acquired at business combination Movement in deferred tax asset - temporary differences: Credited to profit and loss Closing balance at the end of the year cont’d 193 - (12) 13 (313) 71 129 - 81 236 62 127 706 467 - 239 706 122 - 1 5 (93) 55 57 10 115 86 95 49 467 - 225 242 467 2021 $000 - 313 313 74 239 313 (1,950) - (1,950) (507) 193 - (12) 13 (313) 71 129 - 81 236 62 127 706 467 - 239 706 Company 2020 $000 - 93 93 243 (150) 93 5,382 - 5,382 1,480 122 (1,701) 1 5 (93) 55 57 10 115 86 95 49 467 - 225 242 467 GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 42 Year ended 30 June Composition of deferred tax liabilities Right of use asset Investment property Other Deferred tax liabilities Movements: Opening balance Balance acquired at business combination Movement in deferred tax liabilities - temporary differences: (Charged)/credited to profit and loss Closing balance at the end of the year Net deferred tax asset/ (liabilities) Deferred tax assets Deferred tax liabilities Net deferred tax asset/(liabilities) Franking credits Franking credits available 2021 $000 68 313 61 442 516 - (74) 442 706 (442) 264 GARDA 2020 $000 105 325 86 516 - 367 149 516 467 (516) (49) 2021 $000 68 313 61 442 516 - (74) 442 706 (442) 264 Company 2020 $000 105 325 86 516 - 367 149 516 467 (516) (49) 4,204 4,208 4,204 4,208 The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for: a) b) c) d) franking credits that will arise from the payment of the amount of the provision for income tax; franking credits that will arise from the payment of the amount of the income tax refunds; franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; and franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 43 NOTE 8 TRADE AND OTHER RECEIVABLES Year ended 30 June Current Fund management fees receivable Rent and outgoings receivable Litigation proceed receivable Other receivables GST receivable Commercial loans to external third parties Expected credit losses Closing balance Analysis of expected credit loss Opening balance Expected credit losses Reversal of expected credit losses Closing balance 2021 $000 - 193 225 82 1,667 831 (369) 2,629 - 369 - 369 GARDA 2020 $000 - 756 375 129 - 3,334 - 4,594 382 - (382) - 2021 $000 275 - - 299 - 831 (369) 1,036 - 369 - 369 Company 2020 $000 245 - - 205 - 1,776 - 2,226 - - - - The loans to external parties are each secured by a first registered mortgage and a general security agreement. All other receivables are non-interest bearing. Refer to note 16 for details on credit risk exposure. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 44 NOTE 9 INVESTMENT PROPERTIES Investment properties (non-current assets) Year ended 30 June GARDA Investment properties at independent valuation Investment properties acquired at Directors’ valuation Investment properties at Directors’ valuation Investment properties under construction at Directors’ valuation Investment properties under construction at independent valuation Movements during the year: Opening balance Transfer to investment properties held for sale (current assets) Sale of investment properties Acquisition of investment properties at internalisation Acquisition of tenanted investment properties Purchase price adjustment for rental guarantee Capital expenditure on tenanted investment properties Acquisition and capital expenditure of properties under construction Straight-lining of rental income Net movement in leasing costs and incentives Net gain/ (loss) in fair value of investment properties Balance at the end of the year Company Land at 30 Palmer Street, Townsville Investment properties held for sale (current assets) Year ended 30 June GARDA Property at 142-150 Benjamin Place, Lytton Movements during the year: Opening balance Transfer from investment properties at fair value (non-current assets) Balance at the end of the year 2021 $000 2020 $000 288,325 116,100 - 145,009 11,410 40,826 1,250 265,643 34,454 - 485,570 417,447 417,447 332,806 (10,675) (18,224) - - - 5,810 39,080 1,302 159 50,671 - - 1,250 56,591 (2,000) 5,155 29,643 1,372 (374) (6,996) 485,570 417,447 1,250 1,250 2021 $000 10,675 - 10,675 10,675 2020 $000 - - - - The registered titles to all assets of the Fund and GARDA Capital Trust are held by The Trust Company (Australia) Limited, as custodian. This is an ASIC regulatory requirement. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 45 Valuations GARDA’s policy is to undertake independent valuations on a rotational basis to ensure that each property is valued at least once every 12 months by an independent external valuer. Where a property is not due for an independent valuation, it will be carried at Directors’ valuation. Directors’ valuations are based on the most recent independent valuation of a property and take into account capital accretive expenditure and comparable sales evidence since that last independent valuation. Nine of GARDA’s properties have been externally valued for the FY21 annual report, with the balance of the portfolio being carried at Directors’ valuation. 2020 $000 Movement $000 As at 30 June Industrial - Established Acacia Ridge 38 Peterkin Street Berrinba Heathwood Lytton Mackay Morningside Pinkenba Wacol Wacol37 1-9 Kellar Street 67 Noosa Street 142-150 Benjamin Place36 69-79 Diesel Drive 326 & 340 Thynne Road 70-82 Main Beach Road 41 Bivouac Place 498 Progress Road – Bldg C Industrial - Development Acacia Ridge Acacia Ridge North Lakes Wacol Wacol Total industrial Office Box Hill Cairns Richmond Richmond Total office 56 Peterkin Street 69 Peterkin Street 109 – 135 Boundary Road 372 Progress Road 498 Progress Road 436 Elgar Road 9-19 Lake Street 572-576 Swan Street (Bot. 7) 588A Swan Street (Botanicca 9) Value Accretive Additions Acacia Ridge 69 Peterkin Street Cairns Box Hill Richmond 9-19 Lake Street 436 Elgar Road 588A Swan Street (Botanicca 9) Total value accretive additions cont’d Type35 D D D E E E E E E D E E D E E E D D D D D D 2021 $000 6,200 11,975 11,800 - 35,000 43,725 26,200 45,400 12,500 6,000 7,346 11,250 8,725 30,100 41,625 20,500 39,000 - 192,800 164,546 7,000 11,000 20,000 4,410 9,826 52,236 6,808 11,079 - - 9,221 27,108 245,036 191,654 39,000 86,500 54,000 57,000 33,250 60,563 53,688 59,042 236,500 206,543 1,722 247 593 222 2,784 - - - - - 200 4,629 550 (8,725) 4,900 2,100 5,700 6,400 12,500 28,254 192 (79) 20,000 4,410 605 25,128 53,382 5,750 25,937 312 (2,042) 29,957 1,722 247 593 222 2,784 35 D = Directors’ valuation. E = external, independent valuation. 36 Fair value of the Lytton property has been determined as the contract sale price of $11,000,000 less vendor remediation works of $325,000. 37 Building C at 498 Progress Road, Wacol was completed in May 2021. The remaining undeveloped land at 498 Progress Road continues to be shown in the table as industrial land for development. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 46 As at 30 June Property held by Company Type38 2021 $000 2020 $000 Movement $000 Townsville 30 Palmer Street D 1,250 1,250 - Properties sold Archerfield 839 Beaudesert Road Varsity Lakes 154 Varsity Parade Total sales - - - 6,000 12,000 18,000 (6,000) (12,000) (18,000) Total investment properties (non-current assets) 485,570 417,447 68,123 Properties held for sale (current asset) Lytton 142-150 Benjamin Place39 Total investment properties (current and non-current assets) 10,675 - 496,245 417,447 10,675 78,798 GARDA has executed a contract to sell its Lytton industrial property for a price of $11,000,000 (plus costs). Settlement, which is conditional upon remediation works totaling $325,000 being undertaken by GARDA, is expected to occur in August 2021. Contractual obligations Contractual obligations with respect to investment properties at 30 June 2021 were as follows: Properties Acacia Ridge, 69 Peterkin Street Northlakes, 109-135 Boundary Road Richlands, 72 Bandara Street Richlands, 56 and 64 Bandara Street Wacol, 372 Progress Road 40 Total contractual obligations Leasing arrangements Nature of Obligation Development Development Settlement Settlement Settlement $000 5,442 115 2,163 4,325 2,645 14,690 Investment properties listed above (excluding land at 26-30 Grafton Street, Cairns, land at 30 Palmer Street, Townsville and properties under construction) are typically leased to tenants under long-term operating leases with rentals payable monthly. Minimum lease payments receivable on leases of investment properties are disclosed in note 22. Any impacts on tenant credit risk due to COVID-19 have been disclosed in note 16. Amount recognised in profit or loss for investment properties Revenue and direct expenses relating to investment properties are disclosed in notes 5 and 6. 38 D = Directors’ valuation. E = external, independent valuation. 39 Fair value of the Lytton property has been determined as the contract sale price of $11,000,000 less vendor remediation works of $325,000. 40 Relates to settlement of the third tranche of 372 Progress Road, Wacol property which completed after year end. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 47 NOTE 10 TRADE AND OTHER PAYABLES Year ended 30 June Current Trade creditors Other payables Loan payable to parent entity NOTE 11 INTANGIBLE ASSETS Year ended 30 June Goodwill Accumulated impairment loss expense 2021 $000 26 3,019 - 3,045 GARDA 2020 $000 1,853 1,485 - 3,338 2021 $000 25 1,056 5,044 6,125 Company 2020 $000 615 - 1,433 2,048 2021 $000 33,586 (33,586) GARDA 2020 $000 33,586 - - 33,586 2021 $000 - - - Company 2020 $000 - - - Goodwill was recognised on the acquisition by GARDA of GARDA Capital Group in FY20. Goodwill has an indefinite useful life and is tested annually for impairment. It is considered to be impaired if its recoverable amount is less than its carrying amount. The recoverable amount of GARDA’s goodwill has been determined using the value in use approach and was calculated by discounting estimated future cash flows. Cash flow projections were based on financial projections, including the board approved budget for the year ending 30 June 2022. The range of discount rates adopted in the valuation of the Investment Properties in FY21 has reduced to 6.00% to 7.25%. In the absence of material increases to forecast cash inflows, to avoid impairment, GARDA’s overall discount rate would need to reduce (FY20: 6.75%) to a level the Directors do not believe can be supported over the longer term. Accordingly, the total goodwill of $33,586,000 has been impaired. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 48 NOTE 12 BORROWINGS Non-current Bank loans (secured) Less: unamortised transaction costs Syndicated Debt Facility Amount and Tenor 2021 $000 GARDA 2020 $000 210,000 188,115 (970) (1,462) 209,030 186,653 Company 2020 $000 - - - 2021 $000 - - - On 15 June 2021, GARDA secured a $28,000,000 increase in its existing debt facility, taking the total facility to $228,000,000. At 30 June 2021, GARDA had $18,000,000 of borrowing capacity available: Facility Facility Limit Amount Drawn Amount Available $000 $000 $000 Total facilities 228,000 200,000 210,000 188,114 2021 2020 2021 2020 2021 18,000 2020 11,886 GARDA’s syndicated bank debt facility with its banks expires on 3 March 2023. Loan repayments are interest only with a lump sum payment of all amounts outstanding due at maturity. There is a fixed line fee on the facilities and interest is based on the applicable BBSY rate plus margin. At 30 June 2021, GARDA’s gearing was 38.6%41 (2020: 36.7%). Security The syndicated bank debt facility is secured by: a) b) c) a first registered general security deed in respect of all assets and undertakings of GARDA; a first registered real property mortgage in respect of each property in the Fund portfolio; a first registered general security deed in respect of all assets and undertakings of the Company and its secured subsidiaries; and d) a specific security agreement over restricted cash accounts of GARDA. Notwithstanding the terms of the facility, the registered title to all the assets of the Fund, including the properties, are held by The Trust Company (Australia) Limited, as custodian, who holds title for the relevant fund. This is an ASIC regulatory requirement. 41 Gearing ratio is calculated as (total interest-bearing debt less cash) divided by (total assets less cash). Gearing has increased in FY21 primarily due to goodwill of $33,586,000 being impaired. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 49 Covenants Key financial covenants and other metrics under the syndicated bank debt facility include: a) b) c) interest cover ratio is to remain above 2.50 times; loan to value ratio (LVR) must remain under 50%; and adjusted gearing ratio42 is to remain under 1.20 times. The Group complied with these financial covenants at all times during the financial year. Financial undertakings Financial undertakings under the syndicated bank facility include the following: a) the aggregate earnings before interest, taxes, depreciation and amortisation (EBITDA) of the obligors represents at least 90% of the aggregate EBITDA of the Group; and b) the aggregate total assets of the obligors represent at least 90% of the aggregate total assets of the Group. NOTE 13 DERIVATIVE FINANCIAL INSTRUMENTS Year ended 30 June Non-Current Interest rate swap contract asset Interest rate swap contract liability Total interest rate swap asset/(liability) 2021 $000 2,057 - 2,057 GARDA 2020 $000 - (1,536) (1,536) Company 2020 $000 2021 $000 - - - - - - GARDA executed interest rate swap agreements on 4 March 2020 totaling $100,000,000, including $70,000,000 for a term of 7 years at a rate of 0.81% and $30,000,000 for a term of 10 years at a rate of 0.98%. NOTE 14 DISTRIBUTIONS PAYABLE Year ended 30 June Current Distribution payable Movement in provisions: Opening balance at beginning of year Distributions provided for Distributions paid Closing balance 2021 $000 GARDA 2020 $000 2021 $000 Company 2020 $000 3,754 3,763 3,763 15,017 3,565 16,430 (15,026) (16,232) 3,754 3,763 - - - - - - - - - - 42 Adjusted gearing ratio is calculated as adjusted total liabilities divided by adjusted total assets. Adjustments made to the total liabilities and total assets include certain non-cash items and goodwill in accordance with GARDA’s syndicated facility agreement. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 50 NOTE 15 EARNINGS PER STAPLED SECURITY Year ended 30 June Net profit/ (loss) after tax attributable to securityholders Basic earnings per stapled security (cents) Diluted earnings per stapled security (cents) Basic earnings per stapled security 43 (securities) WANOS44 - diluted earnings per stapled security (securities) 2021 $000 35,689 17.11 16.11 GARDA 2020 $000 5,567 2.90 2.85 2021 $000 (1,637) (0.78) (0.78) Company 2020 $000 5,475 2.41 2.41 208,570,668 191,658,317 208,570,668 191,658,317 221,479,161 195,142,591 221,479,161 195,142,591 NOTE 16 FINANCIAL RISK MANAGEMENT Financial Risk Management Policies The Directors’ overall risk management strategy seeks to assist the Group in meeting its financial targets, while minimising potential adverse effects on financial performance. Risk management policies are approved and reviewed by the Board on a regular basis. Specific Financial Risk Exposures and Management The Group’s activities expose it to a variety of financial risks: credit risk, liquidity risk and market risk relating to interest rate risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses different methods to measure the different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate risk and maturity analysis for liquidity risk. The Board has overall responsibility for the determination of the Group’s risk management objectives and policies. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group’s competitiveness and flexibility. There have been no substantive changes in the types of risks to which the Group is exposed, how these risks arise, or the Board’s objectives, policies and processes for managing or measuring the risks from the previous period. Further details regarding these policies are set out below: Credit Risk Credit risk is the risk that the counterparty to a financial instrument will fail to discharge its obligations, resulting in the Group incurring a financial loss. The maximum exposure to credit risk, excluding the value of any collateral or other security, is recognised as financial assets net of provisions for impairment in the Statement of Financial Position and notes to the financial statements. The Group holds security deposits of $246,000 (2020: $349,000) and also has bank guarantees in the Group’s favour of $11,228,000 (2020: $9,695,000) not recorded in the statement of financial position, which may be drawn upon in the event of default (subject to federal government guidelines due to COVID-19 pandemic). Credit risk is managed through procedures designed to ensure, to the extent possible, customers and counterparties to transactions are of sound credit worthiness and includes monitoring of the financial stability of significant customers and counterparties. Such monitoring is used in assessing receivables for impairment. Credit risk is also minimised by investing surplus funds in financial institutions that maintain a high credit rating. Where the Group is unable to ascertain a satisfactory credit risk profile in relation to a customer or counterparty, the risk may be further managed through obtaining security by way of personal or commercial guarantees over assets of sufficient value. 43 Refer note 18. 44 Weighted average number of securities. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 51 The credit quality of cash and cash equivalents held by the Group is considered strong. Credit risk related to balances with banks is managed in accordance with approved Board policy. Such policy requires that surplus funds are only invested with counterparties which are large financial institutions with strong credit ratings. Credit risk exposures The Group applies the AASB 9 simplified approach to measuring expected credit losses. This approach uses a lifetime expected loss allowance in estimating expected credit losses to trade receivables through the use of a provisions matrix with fixed rates of credit loss provisioning. These provisions are considered representative across all customers of the consolidated entity based on recent sales experience, historical collection rates and available forward-looking information. To measure the expected credit losses, trade receivables and contract assets are grouped based on shared credit risk characteristics and the days past due. Amounts are considered as ‘past due’ when the debt has not been settled within the terms and conditions agreed between the Group and the customer or counterparty to the transaction. Receivables that are past due are assessed for impairment by ascertaining solvency of the debtors and are provided for where there are specific circumstances indicating that the debt may not be fully repaid to the Group. Additionally, at each reporting date, the Group assesses whether financial assets carried at amortised cost are “credit- impaired”. A financial asset is “credit-impaired” when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Due to the COVID-19 pandemic, the Group has a tenant credit risk exposure of $162,000 as at 30 June 2021. The balance owed is within pre-agreed rental deferral terms. Management closely monitors the receivable balance on a monthly basis and is in regular contact with the tenant. At the date of report, there were no loss recognised as result of tenants not paying as per pre-agreed rental deferral terms. All of the Group’s fully secured debt investments are considered to have low credit risk. Financial assets are considered to be low credit risk when they have a low risk of default and the customer has a strong capacity to meet its contractual cash flow obligations in the near term. Generally, receivables are written off by management when there is no reasonable expectation of recovery. Indicators include the failure of a debtor to engage in a repayment plan, no active enforcement activity and a failure to make contractual payments for a period greater than one year. Liquidity risk Liquidity risk arises from the possibility that the Group might encounter difficulty in settling its debts or otherwise meeting its obligations related to financial liabilities. The Group manages this risk through the following mechanisms:       preparing forward-looking cash flow analyses in relation to its operational, investing and financing activities; monitoring undrawn credit facilities; maintaining a reputable credit profile; managing credit risk related to financial assets; only investing surplus cash with major financial institutions; and comparing the maturity profile of financial liabilities with the realisation profile of financial assets. The table below reflects the contractual maturity of fixed and floating rate financial liabilities. Cash flows for financial liabilities without fixed amount or timing are based on the conditions existing at 30 June 2021. The amounts disclosed represent undiscounted cash flows. The remaining contractual maturities of the financial liabilities are set out in the following table. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 52 Less than one year Trade and other payables45 Loan to parent entity Distribution payable Interest on loans Between one and five years Bank loans Interest on loans Derivative financial instruments Note 10 10 14 12 13 2021 $000 3,045 - 3,754 4,739 GARDA 2020 $000 3,338 - 3,763 4,524 Company 2020 $000 615 1,433 - - 2021 $000 1,081 5,043 - - 11,538 11,625 6,124 2,048 210,000 188,115 3,207 - 7,557 1,536 213,207 197,208 - - - - - - - - Market (or Interest Rate) Risk Interest rate risk is the risk that the fair value of the cash flows of a financial instrument will fluctuate due to changes in market interest rates. The Group’s main interest rate risk arises from borrowings with variable interest rates. The Group manages interest rate risk by using interest rate swaps which have the effect of converting a portion of borrowings from variable to fixed rates. Interest rate risk sensitivity The net interest rate exposure of the Group is $128,000,000 (FY20: $100,000,000) being the Group debt facility of $228,000,000 (FY20: $200,000,000) less the notional principal of amount of the interest rate swap of $100,000,000 (FY20: $100,000,000). The impact of 0.5% increase/decrease in market interest rates at balance date would be result in a $640,000 (FY20: $500,000) decrease/increase in profit or loss per annum. NOTE 17 FAIR VALUE MOVEMENT The following assets and liabilities are recognised and measured at fair value on a recurring basis:    Financial assets: Derivative financial instruments at fair value through profit and loss Non-financial assets: Investment properties Financial liabilities: Derivative financial instruments at fair value through profit and loss There are various methods used in estimating the fair value of a financial instrument: Level 1: fair value is calculated using quoted prices in active markets. Level 2: fair value is estimated using inputs that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices). Level 3: fair value is estimated using inputs for the asset or liability that are not based on observable market data. The following table sets out GARDA’s assets and liabilities that are measured and recognised at fair value in the financial statements. 45 These amounts exclude GST payable balances at year end in accordance with AASB 132. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 53 Level 1 Level 2 Notes $000 $000 Level 3 $000 Total $000 30 June 2021 Assets Investment properties (non-current) Investment properties held for sale (current) Derivative financial instruments Liabilities Derivative financial instruments 30 June 2020 Assets Investment properties Liabilities Derivative financial instruments 9 9 13 13 9 13 - - - - - - - - - - - - 2,057 2,057 485,570 10,675 - 485,570 10,675 2,057 496,245 498,302 - - - - - - - - 417,447 417,447 417,447 417,447 1,536 1,536 - - 1,536 1,536 There were no transfers during the year between Level 1 and Level 2 for recurring fair value measurements. GARDA’s policy is to recognise transfers into and out of the different fair value hierarchy levels at the date the event or change in circumstances that caused the transfer occurred. Disclosed fair values The carrying amounts of financial assets and liabilities approximate their net fair value, unless otherwise stated. The carrying amounts of financial assets and liabilities are disclosed in the Statements of Financial Position and in the notes to the financial statements. The following table sets out the valuation techniques used to measure fair value within Level 3, including details of the significant unobservable inputs used and the relationship between unobservable inputs and fair value. Investment properties The Directors consider the valuations of each investment property every six months and either ensure an external independent valuer is instructed or adopt a Directors’ valuation. Industrial and office assets are usually valued using the capitalisation approach (market approach) and the discounted cash flow approach (income approach). These valuations are typically compared to, and supported by, direct comparison to recent market transactions. The fair values of development properties under construction are usually based on the market values of the properties assuming they had already been completed at valuation date, provided such market values may be reliably ascertained. In relation to vacant land, or where there are no commitments for construction, fair values are assessed through direct comparison with third party sales for similar assets in a comparable location. Discount rates, terminal yields, expected vacancy rates and rental growth rates are estimated by an external valuer (or in the case of Directors’ valuations, Directors) based on comparable transactions and industry data. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 54 Unobservable inputs Range of inputs 2021 2020 Discount rate 6.00% - 7.50% 6.75% - 9.00% Relationship between unobservable inputs and fair value Capitalisation rate 5.00% - 7.25% 5.75% - 8.50% Terminal yield 5.25% - 7.00% 6.00% - 8.50% The higher the discount rate, terminal yield and expected vacancy rate, the lower the fair value. Expected vacancy rate 0% 0 - 5% Rental growth rate 2.60% - 3.29% 2.26% - 3.04% The higher the rental growth, the higher the fair value. Based on Gross Face Rental growth 10 year CAGR46. Financial assets and liabilities For derivative financial instruments (interest rate swap), fair value is determined by GARDA’s banks. The valuation models used by the banks are industry standard and adopt a Black-Scholes framework to calculate the expected future value of derivative payments, which are then discounted back to present value. Interest rate inputs into the bank models are benchmark rates and are deemed observable, resulting in the derivatives being categorised as Level 2 instruments. There were no significant inter-relationships with unobservable inputs that materially affected fair values. Reconciliation of Level 3 fair value movements Refer to note 9 for the reconciliation of movements in investment properties. There have been no transfers to or from Level 1 or 2. There were no unrecognised gains/(losses) recognised in profit or loss for investment properties. NOTE 18 CONTRIBUTED EQUITY Year ended 30 June 2021 GARDA 2020 2021 Company 2020 Securities Securities Shares Shares Ordinary securities/ shares 227,644,361 227,644,361 227,644,361 227,644,361 Movements during the year Balance at beginning of year Acquisition consideration for investment properties Placement Securities issued on incorporation Securities issued for internalisation 227,644,361 158,444,594 227,644,361 - - - - 4,411,765 22,500,000 - 42,288,002 - - - - - - - 185,356,359 42,288,002 Total issued securities as per ASX 227,644,361 227,644,361 227,644,361 227,644,361 Treasury Securities (4,233,693) (9,233,693) (4,233,693) (9,233,693) Securities on issue under GARDA ESP (14,840,000) (9,840,000) (14,840,000) (9,840,000) Total issued securities for financial statements 208,570,668 208,570,668 208,570,668 208,570,668 46 CAGR is the compound annual growth rate. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 55 Treasury securities The Fund owns 100% of GARDA Capital Trust which, in turn, owned 4,233,693 stapled securities in GARDA at 30 June 2021. In accordance with Australian Accounting Standards, these securities are designated as treasury securities and have been deducted from equity and excluded from total issued securities of 227,644,361. During the year, 5,000,000 treasury securities were transferred pursuant to the GARDA Employee Security Plan (GARDA ESP), leaving the balance of 4,233,693 treasury securities at 30 June 2021. Employee security plan securities At 30 June 2021, 14,840,000 securities had been issued under the GARDA ESP of which 1,920,000 have vested, including 1,440,000 which vested during FY21. 5,000,000 securities were issued under the GARDA ESP during the year after being transferred from treasury securities. In accordance with Australian Accounting Standards, all GARDA ESP securities (including vested securities) are deducted from equity and excluded from total issued securities of 227,644,361 until such time as the underlying limited recourse loans are repaid. Refer to note 20 for further details. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 56 NOTE 19 RELATED PARTIES AND KEY MANAGEMENT PERSONNEL Transactions between related parties occurred on standard commercial terms and conditions, unless otherwise stated. KMP compensation KMP receive compensation in the form of short-term benefits, post-employment benefits, long-term benefits, termination benefits and security based payments. The aggregate remuneration paid to KMP47 is set out below: Year ended 30 June Short-term benefits Post-employment benefits Long-term benefits Security based payments Total remuneration paid 2021 $ GARDA 2020 $ 2021 $ Company 2020 $ 1,754,159 1,151,383 1,754,159 1,151,383 92,318 10,774 63,834 6,276 92,318 10,774 63,834 6,276 635,878 406,377 635,878 406,377 2,493,129 1,627,870 2,493,129 1,627,870 Transactions with KMP and their related parties There have been no transactions with KMP and their related parties during the year. Employee security plan Details of the current KMP participants in the GARDA ESP are set out in the following table: KMP Matthew Madsen Mark Hallett David Addis Lachlan Davidson Issue date 48 Securities granted Exercise Price Fair value at grant date Loan value 30 June 2021 Vesting date 13 Nov 2017 960,000 16 Apr 2020 5,000,000 18 Nov 2020 5,000,000 16 Apr 2020 1,000,000 3 Jun 2019 23 Aug 2019 23 Aug 2019 13 Nov 2017 13 Nov 2017 23 Aug 2019 320,000 240,000 240,000 160,000 160,000 240,000 0.63 1.00 1.16 1.00 1.08 1.22 1.22 0.63 0.63 1.22 0.70 0.06 0.10 0.06 0.24 0.11 0.10 0.11 0.13 0.11 493,052 13 Nov 2020 4,924,420 16 Apr 2023 5,788,384 19 Nov 2023 993,736 16 Apr 2023 325,215 3 Jun 2021 288,182 23 Aug 2021 288,182 23 Aug 2022 82,222 13 Nov 2019 82,222 29 Nov 2019 288,182 23 Aug 2021 Total 13,320,000 13,553,797 The GARDA ESP limited recourse loans are not accounted for in the statement of financial position. 47 KMP in FY20 included Mark Scammells, Director Projects and Acquisitions. For FY21, the Board has determined that Mr Scammells does not satisfy the definition of KMP and should not be included in the Remuneration Report. 48 ESP Securities issued prior to the internalisation transaction on 29 November 2019 were issued under the former GARDA Capital Group employee security plan, with the number and exercise price of such securities being adjusted for the internalisation exchange ratio of 1.6x. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 57 NOTE 20 SECURITY BASED PAYMENTS EXPENSE The GARDA ESP is designed to: • • • • incentivise employees to deliver long-term securityholder value; align the interests of employees and securityholders; recognise individual performance; and ensure the Group has a competitive remuneration structure. Participation in the GARDA ESP is at the Board’s discretion and no individual has a contractual right to participate in the plan or to receive any guaranteed benefits. The vesting of securities occurs over a two to three-year period, and subject to the participant remaining an employee of the Group. The employees who participated in the issue of securities under the GARDA ESP were provided limited recourse loans on the grant date of an amount equal to the application price of the securities (market price per security on grant date). Interest on the limited recourse loan for any particular year is equal to the Australian Tax Office fringe benefits tax benchmark interest rate. The limited recourse loan for the participants has a term of eight years. The securities issued under the GARDA ESP are subject to employee tenure conditions, however the overall ESP terms and conditions are at the discretion of the Board. The total non-cash expense arising from security based payment transactions for the period was as follows: Year ended 30 June Securities granted under GARDA ESP Fair value of securities granted 2021 740 GARDA 2020 444 2021 740 Company 2020 444 The fair value at grant date is determined using the Black and Scholes option pricing model, taking into account the exercise price, term of the security, security price at grant date and expected price volatility of the underlying security, expected dividend yield, risk-free interest rate for the term of the security and certain probability assumptions. The expected price volatility is based on the historic average volatility of peer group entities or similar entities compared to GARDA Property Group, adjusted for any expected changes to future volatility due to publicly available information. Details of securities under the limited recourse loan funded GARDA ESP including securities issues during the post- internalisation period and the Black and Scholes option pricing model input for securities granted are set out below: Grant date Vesting date Share price at effective grant date Exercise price 13 Nov 2017 13 Nov 2020 $1.395 3 Jun 2019 3 Jun 2021 $1.395 23 Aug 2019 23 Aug 2021 $1.395 23 Aug 2019 23 Aug 2022 $1.395 16 Apr 2020 16 Apr 2023 $0.87 18 Nov 20 49 19 Nov 2023 $1.22 $0.63 $1.08 $1.22 $1.22 $1.00 $1.16 Fair value at grant date $0.70 $0.24 $0.11 $0.10 $0.06 $0.10 Number of securities 960,000 480,000 Limited recourse loan $493,052 $487,895 1,520,000 $1,535,375 400,000 $768,485 6,000,000 $5,918,156 5,000,000 $5,788,384 14,360,000 $14,991,347 Expected volatility Dist’n yield Risk free rate 10% 10% 10% 10% 30% 18% 6% 6% 6% 6% 9% 6% 2% 2% 2% 2% 1% 1% The weighted average exercise price of securities granted during the year was $1.22 (FY20: $1.01). The weighted average remaining contractual life of options outstanding at the end of period was 1.80 years (FY20: 2.50 years). The expected price volatility is based on the historic average volatility of GDF adjusted for any expected changes for future volatility due to publicly available information. No securities were bought back and cancelled during the year or the prior year. 49 As per AASB requirements, grant date is the AGM approval date. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 58 NOTE 21 AUDITOR’S REMUNERATION Year ended 30 June 2021 $ GARDA 2020 $ 2021 $ Company 2020 $ Remuneration of the auditor for: Audit and review of the group financial report Audit of stand-alone financial reports of the group entities Total remuneration for audit services 140,000 11,600 151,600 115,000 10,000 125,000 Remuneration of the auditor for: Independent Limited Assurance Report – internalisation - 109,560 AFSL audit of the group entities Review and audit of compliance plan IT consulting services Tax services Total remuneration for non-audit services NOTE 22 COMMITMENTS Year ended 30 June Future minimum lease payments receivable: Within 1 year Between 1 and 5 years Later than 5 years NOTE 23 RIGHT-OF-USE ASSETS Year ended 30 June Non-current Right-of-use assets Reconciliation Opening balance Additions Depreciation Closing balance 10,500 19,000 10,000 3,850 43,350 6,000 19,000 - - 134,560 2021 $000 23,077 88,237 29,828 GARDA 2020 $000 18,410 55,149 42,079 141,142 115,638 2021 $000 270 270 403 - (133) 270 GARDA 2020 $000 403 403 - 536 (133) 403 70,000 11,600 81,600 - 10,500 19,000 10,000 3,850 43,350 57,500 10,000 67,500 - 6,000 19,000 - - 25,000 2021 $000 Company 2020 $000 - - - - 2021 $000 270 270 403 - (133) 270 - - - - Company 2020 $000 403 403 - 536 (133) 403 GARDA leases its head office under an agreement which commenced in July 2020 and expires in July 2023. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 59 NOTE 24 LEASE LIABILITY Year ended 30 June Current Non-current GARDA Company 2021 $000 122 130 252 2020 $000 115 252 367 2021 $000 122 130 252 2020 $000 115 252 367 NOTE 25 CASH FLOW INFORMATION Year ended 30 June 2021 $000 GARDA 2020 $000 2021 $000 Company 2020 $000 Reconciliation of cash flow from operations with profit/ (loss) Profit/ (loss) after income tax 35,689 5,567 (1,637) 5,474 Adjustments for items in profit or loss: Security based payment expense Bargain purchase on acquisition Depreciation Credit loss expense Goodwill impairment expense Capitalisation of interest and fees on commercial loans Net gain/(loss) in fair value of investment properties Net gain/(loss) in fair value of derivative instruments Amortisation of borrowing costs Net gain on sale of investment properties Interest expense on lease liabilities Capitalised interest expense on investment properties Movements in assets and liabilities: Trade and other receivables Prepayments Contract liabilities Trade and other payables Tenant security deposits Provisions Current tax liability Deferred tax balances Lease incentives 740 - 175 369 33,586 (952) (50,671) (3,593) 548 (881) 8 (916) (906) (397) (133) (293) (104) 30 (2) (313) (295) 444 - 155 - - (328) 6,996 1,425 414 - 12 (1,699) 2,064 (117) (142) 473 - 17 (544) (101) (644) Cash flow from/(used in) operations 11,689 13,992 Non-cash movements There were no non-cash financing and investing activities during the year and prior year. 740 - 175 369 - 444 (6,187) 155 - - (450) (264) - - - - 8 - (124) (48) - 466 (13) 30 (2) (313) - (799) - - - - 12 - - (117) - 33 - 17 (544) (101) - (1,078) Reconciliation of liabilities arising from financing activities Liabilities arising from financing activities are liabilities for which cash flows are, or will be, classified as ‘cash flows from financing activities’ in the Statement of Cash Flows. Changes in the carrying amount of such liabilities, which comprise bank borrowings and loan payable to parent entities, are summarised below. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 60 Year ended 30 June Bank borrowings Balance at the beginning of the year Cashflows Non-cash changes - amortisation of borrowing costs Loan from parent entity Balance at the beginning of the year Cashflows Non-cash changes – Security based payment expense 2021 $000 GARDA 2020 $000 186,653 21,829 548 128,289 57,961 403 - - - - - - Balance at the end of the year 209,030 186,653 2021 $000 - - - 1,433 2,871 740 5,044 Company 2020 $000 - - - - 989 444 1,433 NOTE 26 PARENT ENTITY INFORMATION Parent Entity The Parent Entity of the Group is GARDA Diversified Property Fund. 30 June ASSETS Current assets Non-current assets50 Total assets LIABILITIES Current liabilities Non-current liabilities Total liabilities NET ASSETS EQUITY Contributed equity Reserve Retained earnings Total equity PROFIT Other comprehensive income TOTAL PROFIT AND COMPREHENSIVE INCOME 2021 $000 27,783 497,586 525,369 12,522 209,275 221,797 303,572 2020 $000 20,532 475,189 495,721 7,853 188,525 196,378 299,343 365,145 370,945 1,184 444 (62,757) (72,046) 303,572 299,343 24,702 - 24,702 9,073 - 9,073 The financial information for the Fund has been prepared on the same basis as the consolidated financial statements. 50 As disclosed in Note 11, in FY21 GARDA has impaired $33,586,000 goodwill resulting from the internalisation transaction. As a result of that impairment decision, internalisation goodwill of $39,773,000 on the Parent Entity’s Statement of Financial Position has also been impaired in FY21. The difference between the two goodwill amounts is the bargain purchase recognised by the Company in the internalisation transaction. In addition, the remaining investment of the Parent Entity was impaired by a further $8,722,000, reflecting the underlying net asset value of the investee entity. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 61 Controlled entities of the Parent Entity As at 30 June GARDA Capital Trust GARDA Holdings Limited GARDA Capital Limited GARDA Real Estate Services Pty Ltd GARDA Facilities Management Pty Ltd GARDA Services Pty Ltd GARDA Funds Management Limited ATF GARDA Capital Trust GARDA Finance Pty Ltd GARDA TSV Pty Ltd ATF GARDA TSV Unit Trust GARDA TSV Unit Trust GARDA Property Finance Pty Ltd GARDA Capital RE Limited Dormant entities wound up during the year: GARDA SUBCO Pty Ltd GARDA Property Services Pty Ltd GARDA REIT Holdings Pty Ltd ATF GARDA REIT Holdings Unit Trust GARDA REIT Holdings Unit Trust GARDA Property Funds Limited Ownership Interest 2021 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% - - - - - 2020 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Country of Incorporation Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia NOTE 27 CONTINGENT ASSETS AND LIABILITIES Contingent assets GARDA Capital Limited as responsible entity for the Fund is continuing its claim under warranties and indemnities given by various parties involved in the construction of the building Botanicca 7, at 572-576 Swan St, Richmond with respect to defects in the building. The Builder (formerly known as Cockram Construction Limited) has declared insolvency, and the responsible entity is dealing with the liquidator. Leave to proceed has been sought in the primary matter, which will be heard on 15 September 2021. As at 30 June 2021, it is not practicable to estimate the financial effect of the matter therefore no amount has been disclosed. Contingent liabilities The Group did not have any material contingent liabilities as at 30 June 2021 or 30 June 2020. NOTE 28 EVENTS SUBSEQUENT TO THE END OF THE PERIOD As disclosed in the Operational Review and in note 9, GARDA has settled, or expects to settle, the acquisitions of the remaining lot at 372 Progress Road, Wacol and the Richlands property in the first quarter of the FY22 financial year. The sale of the Lytton property is also expected to settle in the same timeframe once GARDA completes remediation works. Otherwise, there are no matters or circumstances that have arisen since the end of the financial year that have significantly affected, or may significantly affect:  GARDA’s operations in future financial years;   the state of affairs of GARDA in future years. the results of those operations in future years; or GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 62 DIRECTORS’ DECLARATION In the opinion of the Directors of GARDA Property Group: (a) the attached financial statements and notes are in accordance with the Corporations Act 2001, including: (i) (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations), the Corporations Regulations 2001; and giving a true and fair view of GARDA Property Group’s financial position as at 30 June 2021 and of its performance for the financial year ended on that date, and (b) the financial report also complies with International Financial Reporting Standards as disclosed in note 1; (c) there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable, and The Directors have been given the declarations by the Chief Executive Officer and Chief Operating Officer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the Directors. Matthew Madsen Executive Chairman 12 August 2021 GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 63 INDEPENDENT AUDITOR’S REPORT GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 64 GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 65 GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 66 GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 67 GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 68 CORPORATE GOVERNANCE STATEMENT The Board and management of GARDA consider it is crucial for the long term performance and sustainability of the Group, and to protect and enhance the interests of its securityholders and other stakeholders, that it adopts an appropriate corporate governance framework pursuant to which it will conduct its operations with integrity, accountability and in a transparent and open manner. GARDA regularly reviews its governance arrangements as well as developments in market practice, expectations and regulation. The governance arrangements were reviewed in June 2021. The Corporate Governance Statement has been approved by the Boards of the Company and GARDA Capital Limited (as responsible entity) and explain how the GARDA addresses the requirements of the Corporations Act 2001, the ASX Listing Rules and the ASX Corporate Governance Council’s ‘Corporate Governance Principles and Recommendations – 4th Edition’ (the ‘ASX Principles and Recommendations’). It is current as at 30 June 2021. GARDA’s ASX Appendix 4G, which is a checklist cross-referencing the ASX Principles and Recommendations to the relevant disclosures in this statement, the 2021 Annual Report of the GARDA Property Group and other relevance governance documents and materials on the GARDA website (together the ‘ASX Appendix 4G’), is provided in the corporate governance section of our website at: https://gardaproperty.com.au/who-we-are/corporate-governance/ The Corporate Governance Statement together with the ASX Appendix 4G and this Annual Report, were lodged with the ASX on the same date. The Board strives to meet the highest standards of corporate governance but recognises that it is also crucial that the governance framework of GARDA reflects the current size, operations and industry in which GDF and its related entities operate. GARDA has complied with the majority of recommendations of the ASX Principles and Recommendations. The Board believes the areas of non-conformance, which are explained in the Corporate Governance Statement and the ASX Appendix 4G, will not materially impact the ability of the Group to achieve the highest standards of corporate governance nor its ability to meet the expectations of its securityholders and other stakeholders. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 69 SECURITYHOLDER INFORMATION The securityholder information set out below was applicable as at 30 June 2021. Distribution of equity securities Range 100,001 and Over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Total Securities No. of holders 171,055,870 48,170,603 5,058,699 3,230,177 129,012 227,644,361 177 1,545 665 1,126 245 3,758 % 75.14 21.16 2.22 1.42 0.06 100.00 There are 80 unmarketable parcels of less than $500 worth of securities. These unmarketable parcels comprise a total of 5,187 securities. Top 20 securityholders The names of the twenty largest holders of quoted equity securities are listed below: Name HGT Investments Pty Ltd J P Morgan Nominees Australia Pty Ltd Longhurst Management Services Pty Ltd Madsen Nominees Pty Ltd Madsen Nominees Pty Ltd Australian Executor Trustees Limited Mr Peter Zinn Glenelg Park Nominees Pty Ltd JJG Equities Pty Ltd The Trust Company (Australia) Limited Extra Large Pty Ltd Mr Peter John Zinn Asia Union Investments Pty Limited HSBC Custody Nominees (Australia) Limited Pine Factory SF Pty Ltd Ardnaw Pty Ltd Mr Richard Eaton-Wells & Mrs Frances Catherine Economidis Perrins RAP Pty Ltd Citicorp Nominees Pty Limited First Samuel Ltd Number Held 36,185,787 11,789,268 11,742,833 10,960,000 7,354,958 6,681,056 4,989,674 4,741,734 4,514,831 4,233,693 3,052,074 3,000,000 3,000,000 2,304,353 2,100,152 2,053,525 2,015,438 1,889,592 1,658,021 1,433,710 Percentage of issued securities (%) 15.90 5.18 5.16 4.81 3.23 2.93 2.19 2.08 1.98 1.86 1.34 1.32 1.32 1.01 0.92 0.90 0.89 0.83 0.73 0.63 125,700,699 55.21 GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 70 Substantial holders The names of the substantial securityholders listed in the holding register are: Name51 HGT Investments Pty Ltd Madsen Nominees Pty Ltd J P Morgan Nominees Australia Pty Limited Longhurst Management Services Pty Ltd Number Held 36,185,787 19,114,958 11,789,268 11,742,833 78,832,846 Percentage of issued securities (%) 15.90 8.40 5.18 5.16 34.64 Voting rights Each securityholder confers the right to vote at meeting of Securityholders, subject to any voting restrictions imposed on a Securityholder under the Corporations Act and the ASX Listing Rules. On a show of hands, each Securityholder has one vote. On a poll, each Securityholder has one vote for each dollar value of securities held. The Group will follow the ASX recommendation that all significant resolutions will be conducted by poll. 51 Substantial holders may include all associates, as required by ASX Listing Rules. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 71 CORPORATE DIRECTORY DIRECTORS Matthew Madsen Executive Chairman and Managing Director Mark Hallett Executive Director Philip Lee Non-executive Director Paul Leitch Independent Director Morgan Parker Independent Director Andrew Thornton Non-executive Director COMPANY SECRETARY Lachlan Davidson General Counsel and Company Secretary REGISTERED OFFICE Level 21, 12 Creek Street Brisbane QLD 4000 Ph: +61 7 3002 5300 Fax: +61 7 3002 5311 Web: www.gardaproperty.com.au AUDITOR Pitcher Partners Level 38, 345 Queen St Brisbane QLD 4000 Ph: +61 7 3222 8444 SHARE REGISTRY Link Market Services Level 12, 680 George Street Sydney NSW 2000 Ph: +61 1300 554 474 F: +61 2 9287 0303 STOCK EXCHANGE LISTING GARDA Property Group is listed as a stapled security on the Australian Securities Exchange Limited (ASX: GDF) GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 72 This page has been left blank intentionally. GARDA PROPERTY GROUP | 2021 ANNUAL FINANCIAL REPORT Page 73 GARDA PROPERTY GROUP (ASX: GDF) Annual Financial Report 2021 

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