2017 ANNUAL FINANCIAL REPORT Contents Annual Financial Report of The GPT Group Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities Supplementary Information Corporate Directory 1 71 130 132 Corporate Governance The GPT Group (GPT or the Group) comprises GPT Management Holdings Limited (ACN 113 510 188) (GPTMHL) and General Property Trust (Trust). GPT RE Limited (ACN 107 426 504) (GPTRE) AFSL (286511) is the Responsible Entity of the Trust. GPT’s stapled securities are listed on the Australian Securities Exchange (ASX). The third edition of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (Principles) provides a framework for good corporate governance for listed entities. GPT’s Corporate Governance Statement sets out how the Group has complied with the Principles. The Group’s Corporate Governance Statement is available on GPT’s website at: www.gpt.com.au/About-GPT/Corporate-Governance/Principles-and-Policies. GPT has also lodged an Appendix 4G (Key to Disclosures – Corporate Governance Principles and Recommendations) with the ASX. Annual Financial Report of The GPT Group Year ended 31 December 2017 Contents Directors’ Report ............................................................................................................................................................................ 2 Auditor’s Independence Declaration ............................................................................................................................................ 23 Financial Statements .................................................................................................................................................................... 24 Consolidated Statement of Comprehensive Income ............................................................................................................ 24 Consolidated Statement of Financial Position .................................................................................................................... 25 Consolidated Statement of Changes in Equity ..................................................................................................................... 26 Consolidated Statement of Cash Flows ............................................................................................................................... 27 Notes to the Financial Statements ..................................................................................................................................... 28 Result for the year ....................................................................................................................................................... 28 1. Segment information .............................................................................................................................................. 28 Operating assets and liabilities .................................................................................................................................. 33 2. Investment properties ............................................................................................................................................ 33 3. Equity accounted investments ................................................................................................................................ 36 4. Loans and receivables ............................................................................................................................................ 38 5. Intangible assets ..................................................................................................................................................... 39 6. Inventories .............................................................................................................................................................. 40 7. Payables .................................................................................................................................................................. 40 8. Provisions ............................................................................................................................................................... 40 9. Taxation ................................................................................................................................................................... 41 Capital structure .......................................................................................................................................................... 43 10. Equity and reserves ................................................................................................................................................ 44 11. Earnings per stapled security ................................................................................................................................ 46 12. Distributions paid and payable ............................................................................................................................... 47 13. Borrowings ............................................................................................................................................................. 47 14. Financial risk management ................................................................................................................................... 48 Other disclosure items ................................................................................................................................................ 52 15. Cash flow information ............................................................................................................................................ 52 16 Commitments ......................................................................................................................................................... 52 17. Contingent liabilities .............................................................................................................................................. 53 18. Security based payments ....................................................................................................................................... 53 19. Related party transactions .................................................................................................................................... 55 20. Auditor’s remuneration .......................................................................................................................................... 56 21. Parent entity financial information......................................................................................................................... 56 22. Fair value disclosures ............................................................................................................................................ 57 23. Accounting policies ................................................................................................................................................. 60 24. Events subsequent to reporting date ..................................................................................................................... 62 Directors’ Declaration ................................................................................................................................................................... 63 Independent Auditor’s Report ...................................................................................................................................................... 64 The GPT Group (GPT) comprises General Property Trust (Trust) and its controlled entities and GPT Management Holdings Limited (Company) and its controlled entities. General Property Trust is a registered scheme, registered and domiciled in Australia. GPT RE Limited is the Responsible Entity of General Property Trust. GPT Management Holdings Limited is a company limited by shares, incorporated and domiciled in Australia. GPT RE Limited is a wholly owned controlled entity of GPT Management Holdings Limited. Through our internet site, we have ensured that our corporate reporting is timely, complete and available globally at minimum cost to the Trust. All press releases, financial reports and other information are available on our website: www.gpt.com.au. 1 Directors’ Report Year ended 31 December 2017 The Directors of GPT RE Limited, the Responsible Entity of General Property Trust, present their report together with the financial statements of the General Property Trust (the Trust) and its controlled entities (the consolidated entity) for the financial year ended 31 December 2017. The consolidated entity together with GPT Management Holdings Limited and its controlled entities form the stapled entity, The GPT Group (GPT). General Property Trust is a registered scheme, GPT Management Holdings Limited is a company limited by shares, and GPT RE Limited is a company limited by shares, each of which is incorporated and domiciled in Australia. The registered office and principal place of business is the MLC Centre, Level 51, 19 Martin Place, Sydney NSW 2000. 1. Operating and financial review About GPT GPT is an owner and manager of a $12.3 billion diversified portfolio of high quality Australian retail, office and logistics property assets and together with GPT’s funds management platform the Group has $21.5 billion of property assets under management (AUM). GPT owns some of Australia’s most significant real estate assets, including the MLC Centre and Australia Square in Sydney, Melbourne Central and Highpoint Shopping Centre in Melbourne and One One One Eagle Street in Brisbane. Listed on the Australian Securities Exchange (ASX) since 1971, GPT is today one of Australia’s largest diversified listed property groups with a market capitalisation of approximately $9.2 billion. GPT is one of the top 50 listed stocks on the ASX by market capitalisation as at 31 December 2017. GPT’s strategy is focussed on leveraging its extensive real estate experience to deliver strong returns through disciplined investment, asset management and development. The development capability has a focus on creating value for securityholders through the enhancement of the core investment portfolio and in the creation of new investment assets. A key performance measure for GPT is Total Return. Total Return is calculated as the change in Net Tangible Assets (NTA) per security plus distributions per security declared over the year, divided by the NTA per security at the beginning of the year. This focus on Total Return is aligned with securityholders’ long term investment aspirations. In 2017 GPT achieved a Total Return of 15.2 per cent. GPT targets a Management Expense Ratio (MER) of less than 45 basis points. MER is calculated as management expenses as a percentage of assets under management. In 2017 GPT achieved an MER of 34 basis points. GPT focuses on maintaining a strong balance sheet. GPT has moderate gearing and significant investment capacity giving it the flexibility to execute on investment opportunities as they arise. In 2017 the Weighted Average Cost of Debt was 4.2 per cent with net gearing at 24.4 per cent at year end. Retail Portfolio • 13 shopping centres Office Portfolio • 22 assets Logistics Portfolio • 28 assets • 940,000 sqm GLA* • 1,110,000 sqm NLA** • 780,000 sqm GLA • 3,200 + tenants • $5.9b portfolio • $9.6b AUM * Gross lettable area ** Net lettable area • 470 + tenants • 70 + tenants • $4.9b portfolio • $1.5b portfolio • $10.4b AUM • $1.5b AUM GPT Portfolio SOURCES OF DRAWN DEBT Retail 47% Office 40% Logistics 13% 2 Annual Financial Report of The GPT Group Review of operations Funds from Operations (FFO) represents GPT’s underlying and recurring earnings from its operations. This is determined by adjusting statutory net profit after tax under Australian Accounting Standards for certain items which are non-cash, unrealised or capital in nature. FFO has been determined in accordance with the guidelines issued by the Property Council of Australia. The reconciliation of FFO to net profit after tax is set out below: 31 Dec 17 $M 31 Dec 16 $M Change % Retail – Operations net income – Development net income Office – Operations net income – Development net income Logistics – Operations net income – Development net income Funds management net income Corporate management expenses Net finance costs Income tax expense Non-core Funds from Operations (FFO) Other non-FFO items: Valuation increase Financial instruments mark to market and net foreign exchange loss Other items1 Net profit after tax FFO per ordinary stapled security (cents) Funds from Operations (FFO) Maintenance capex Lease incentives Adjusted Funds from Operations (AFFO) Distribution paid and payable Distribution per ordinary stapled security (cents) 313.1 5.3 318.4 247.8 1.1 248.9 93.3 0.7 94.0 37.0 (30.6) (102.4) (11.1) – 554.2 717.7 (2.9) 0.1 1,269.1 30.77 554.2 (54.4) (53.5) 446.3 443.2 24.6 288.3 5.8 294.1 223.9 1.1 225.0 92.7 2.7 95.4 61.0 (29.8) (100.0) (14.0) 5.3 537.0 611.6 (23.0) 27.1 1,152.7 29.88 537.0 (45.4) (70.1) 421.5 420.7 23.4 8.6% (8.6%) 8.3% 10.7% 0.0% 10.6% 0.6% (74.1%) (1.5%) (39.3%) (2.7%) (2.4%) 20.7% (100.0%) 3.2% 17.3% 87.4% (99.6%) 10.1% 3.0% 3.2% (19.8%) 23.7% 5.9% 5.3% 5.1% 1 Other items include impairment and amortisation of intangibles, profit on disposal of assets and related tax impact. Operating result GPT delivered FFO of $554.2 million for the 2017 financial year, an increase of 3.2 per cent on the prior year. This translated into FFO per security of 30.77 cents, up 3.0 per cent. The result was driven by strong contributions from the investment portfolio of high quality Australian retail, office and logistics properties. GPT’s statutory net profit after tax is $1,269.1 million, an increase of 10.1 per cent on the prior year, driven by $717.7 million in property valuation increases and a lower negative mark to market and net foreign exchange movement of financial instruments. 3 Annual Financial Report of The GPT GroupDirectors’ Report – Year ended 31 December 2017 14.5% 11.1% 12.5% 11.2% Total Return at the direct investment portfolio level was 12.5 per cent for 2017 with the split between portfolios detailed in the chart on the left. Retail (inc GPT Wholesale Shopping Centre Fund Interest) Office (inc GPT Wholesale Office Fund Interest) Logistics Total Portfolio (inc Equity Interests) GPT has maintained strong metrics across its core portfolios: Overall Portfolios Retail Portfolio Office Portfolio Logistics Portfolio Value of Portfolio Occupancy 96.8% (2016: 97.1%) Weighted average lease expiry (WALE) 5.2 years (2016: 5.1 years) Structured rental reviews $5.85 billion portfolio including GPT’s equity interest in the GPT Wholesale Shopping Centre Fund (2016: $5.32 billion) 99.6% (2016: 99.6%) 4.1 years* (2016: 4.0 years) 74% of speciality income subject to average increases of 4.7% (2016: 74% subject to average increases of 4.7%) $4.90 billion portfolio including GPT’s equity interest in the GPT Wholesale Office Fund (2016: $4.34 billion) $1.55 billion portfolio (2016: $1.40 billion) 95.2% (2016: 97.0%) 5.6 years (2016: 5.5 years) 96.1% (2016: 95.3%) 7.6 years (2016: 7.9 years) 91% of income subject to average increases of 3.9% (2016: 90% subject to average increases of 3.9%) 91% of income subject to average increases of 3.3% (2016: 93% subject to average increases of 3.3%) Comparable income growth Weighted average capitalisation rate 4.4% (2016: 4.5%) 5.27% (2016: 5.58%) 3.8% (2016: 3.8%) 5.10% (2016: 5.39%) 5.0% (2016: 6.3%) 5.18% (2016: 5.55%) 4.0% (2016: 1.4%) 6.31% (2016: 6.54%) * The methodology to determine WALE at December 2017 has been revised to exclude holdovers. Retail Operations net income The retail portfolio achieved a net revaluation uplift of $281.4 million in 2017, including GPT’s equity interest in the GPT Wholesale Shopping Centre Fund (GWSCF). The positive revaluation is predominantly the result of favourable valuations at Melbourne Central, Highpoint Shopping Centre and Westfield Penrith, in addition to the contribution from GWSCF. The positive revaluation across the portfolio has been driven by a combination of net income growth and firming in valuation metrics. Like for like income growth of 3.8 per cent was driven by structured rental increases and continued strength in leasing metrics including a focus on active remixing. Retail sales have moderated over the 12 month period to December 2017 consistent with the broader market, with total centre sales up 1.7 per cent and specialty annual sales up 0.3 per cent. The portfolio remains well leased with occupancy at 99.6 per cent. Development net income The retail development team has focused on master planning and delivery of development opportunities within its $1.6 billion development pipeline. In 2017, this includes the delivery of the $68.0 million repositioning of Wollongong Central. The remix has introduced David Jones to the asset and was completed on schedule in October 2017. The $422.0 million (GPT share $211.0 million) Sunshine Plaza retail expansion is expected to be completed in the last quarter of 2018. During 2017, retail development contributed $5.3 million to GPT’s FFO (2016: $5.8 million) from the sale of residential land parcels at Rouse Hill. 4 Annual Financial Report of The GPT GroupDirectors’ Report – Year ended 31 December 2017 Office Operations net income Logistics Operations net income The office portfolio achieved a net revaluation uplift of $374.1 million in 2017, including GPT’s equity interest in the GPT Wholesale Office Fund (GWOF), as a result of continued high occupancy levels, market rental growth and firming investment metrics. The positive revaluation has been driven by favourable valuations at MLC Centre, Citigroup Centre, Australia Square and Farrer Place. Like for like income growth of 5.0 per cent was achieved as a result of leasing success leading to strong rental growth and continued high levels of occupancy at 95.2 per cent (including signed leases). The assets which were the main contributors to income growth were Citigroup Centre, MLC Centre and One One One Eagle Street. Development net income The team has focused on progressing a number of repositioning projects at Melbourne Central Tower, CBW and 750 Collins Street in Melbourne and MLC Centre in Sydney. Progress is also being made on the planning approval for a new tower at Darling Park. Following the successful pre-commitment lease of 9,240sqm to the Rural Fire Service, construction has commenced on a 15,680sqm campus building on the 4 Murray Rose site at Sydney Olympic Park. Completion is expected in late 2018. The acquisition of an office development site of 2,439sqm in the heart of Parramatta’s commercial district settled in March 2017. This site will provide the opportunity to develop an office building of over 26,000sqm, with the development application submitted. Funds Management As at and for the year ended 31 December 2017 Funds under Management Number of Assets GPT Interest GPT Investment One year Equity IRR (post-fees) Share of profit – FFO Funds Management fee income The logistics portfolio achieved a net revaluation uplift of $62.1 million in 2017. This uplift is attributed to continued investor interest in quality logistics assets which led to a firming of investment metrics combined with positive leasing outcomes. The weighted average lease expiry has been maintained at a long duration of 7.6 years. Development net income In 2017 the logistics development business completed construction of four new logistics facilities totalling 70,000sqm at Seven Hills, Eastern Creek and Huntingwood in Sydney and Wacol in Brisbane. 100 per cent of this space has been leased. At the Huntingwood site, construction has commenced to develop an 11,000sqm warehouse on the adjoining land parcel to the existing building recently leased to IVE Group for 10 years. Planning approval is also in place and earthworks completed on Lot 21 Old Wallgrove Road site at Eastern Creek for a 30,000sqm facility. GWOF $7.1b 17 24.95% GWSCF $4.9b 8 28.80% Total $12.0b 25 – $1,409.7m $1,008.2m $2,417.9m 13.4% $68.8m $33.4m 12.5% $46.5m $17.3m N/A $115.3m $50.7m The performance of the Wholesale Funds was strong, with GWOF achieving a one year equity IRR of 13.4 per cent and GWSCF achieving a one year equity IRR of 12.5 per cent. 5 Annual Financial Report of The GPT GroupDirectors’ Report – Year ended 31 December 2017 GWOF Management expenses Management expenses increased to $73.4 million (2016: $71.0 million) predominantly caused by lower intercompany income elimination and moderate expense increases. In 2017 GPT achieved an MER of 34 basis points (2016: 37 basis points). Non-core operations Joint venture In October 2017, GPT received a return of capital of $10.7 million in respect of its 5.3 per cent interest in BGP Holding Plc (BGP). BGP was classified as an available for sale financial asset with a carrying value of $9.3 million at 31 December 2016. In 2017, following the return of capital the asset has been revalued and derecognised in the Consolidated Statement of Financial Position and $10.7 million has been recognised in the Consolidated Statement of Comprehensive Income as profit on derecognition of available for sale financial asset. Distribution GPT’s distribution policy is a payout ratio of approximately 95-105 per cent of Adjusted Funds from Operations (AFFO) which is broadly defined as FFO less maintenance capex and lease incentives. For the financial year ended 31 December 2017, distributions paid and payable to stapled securityholders totalled $443.2 million (2016: $420.7 million), representing an annual distribution of 24.6 cents, up 5.1 per cent on 2016 (2016: 23.4 cents). This includes 12.3 cents ($221.6 million) in respect of the second half of 2017, which was declared on 20 December 2017 and is expected to be paid on 28 February 2018. The payout ratio for the year ended 31 December 2017 is 99.3 per cent (2016: 99.8 per cent). GWOF’s portfolio value increased to $7.1 billion, up $0.5 billion compared to 2016. The management fee income earned from GWOF decreased by $23.0 million as compared to 2016, primarily due to performance fee income of $28.1 million being earned in 2016 which will not be earned in future in accordance with the revised Fund Terms. This was partially offset by higher base management fee income of $5.1 million due to strong upward revaluations across the portfolio, net new asset acquisitions and a higher base management fee structure compared with 2016. In June 2017, GPT acquired a further 16.3 million securities in GWOF for $23.2 million, increasing GPT’s ownership interest from 24.53 per cent to 24.95 per cent. GWSCF GWSCF’s portfolio value increased to $4.9 billion, up $1.1 billion compared to 2016. This was primarily due to the acquisition of an additional 25 per cent interest in September 2017 in Highpoint Shopping Centre for $660.0 million and Homemaker City, Maribyrnong for $20.0 million coupled with upward revaluations across the portfolio. Management fee income earned from GWSCF of $17.3 million has remained stable as compared to 2016. In May 2017, GPT acquired a further 115.6 million securities in GWSCF for $116.6 million, increasing GPT’s ownership interest from 25.29 per cent to 28.80 per cent. Fund Terms Review On 20 February 2017, GWSCF held an Extraordinary General Meeting (EGM) in relation to changes in the terms of GWSCF. At the EGM, investors approved all seven resolutions put to the meeting. The key changes included: • removal of the performance fee structure from 1 April 2017; • introduction of an Investor Representation Committee; and • other amendments to operational policies and investor rights. Investor Liquidity Review On 31 March 2017, the first investor 10 year liquidity review concluded which allowed GWSCF securityholders to notify GPT Funds Management Limited (as Responsible Entity of GWSCF) whether they required liquidity. The outcome of the review was that binding requests for liquidity for a total of 78,474,213 securities, being 2.4 per cent of securities on issue, were submitted. This equated to $79.8 million at the 31 March 2017 current unit value of $1.0174. All requests for liquidity were met within the June 2017 quarter. 6 Annual Financial Report of The GPT GroupDirectors’ Report – Year ended 31 December 2017 Financial position Capital management Net Assets 31 Dec 17 $M Net Assets 31 Dec 16 $M 5,938.4 5,391.4 4,885.5 4,327.9 1,639.3 1,485.4 Core Retail Office Logistics Total core assets 12,463.2 11,204.7 Change % 10.1% 12.9% 10.4% 11.2% Non-core – 39.7 (100.0%) Financing and corporate assets 495.2 573.5 (13.7%) Total assets Borrowings Other liabilities Total liabilities Net assets 12,958.4 11,817.9 9.7% 3,300.6 2,996.6 10.1% 550.8 539.1 3,851.4 3,535.7 2.2% 8.9% Cost of debt Net gearing 31 Dec 17 31 Dec 16 Change 4.20% 24.4% 4.25% Down by 5bps 23.7% Up by 70bps Weighted average debt maturity 7.1 years 6.5 years Up 0.6 years Hedging S&P/Moody’s credit rating 76% 57% Up 19% A stable/A2 stable A stable/ A3 stable Upgrade GPT continues to maintain a strong focus on capital management, key highlights for the year include: • reduced weighted average cost of debt by 5 basis points due to lower fixed and floating interest rates offset by higher margins; • upgrade of GPT’s long term Moody’s rating from A3 (stable) to A2 (stable); 9,107.0 8,282.2 10.0% • net gearing1 increased to 24.4 per cent (2016: 23.7 Total number of ordinary stapled securities (million) 1,801.6 1,798.0 0.2% NTA ($) 5.04 4.59 9.8% Balance sheet • Total Return of 15.2 per cent (2016: 15.5 per cent) being the growth of NTA per stapled security of 45 cents to $5.04 plus the distribution paid/payable per stapled security of 24.6 cents, divided by the opening NTA per stapled security. • Total core assets increased by 11.2 per cent primarily due to development capital expenditure, positive property revaluations and further investment in the wholesale funds. • Total borrowings increased by $304.0 million due to net asset investments offset by fair value adjustments of $63.2 million to the carrying value of foreign currency debt. per cent), which is slightly below GPT’s target gearing range of 25 to 35 per cent. This was a result of net asset investments and development expenditure during the year; • available liquidity through cash and undrawn facilities (inclusive of forward starting facilities available to GPT) is $1,095.1 million (2016: $785.8 million); • investment capacity at 30 per cent net gearing is $1,030.0 million (2016: $1,040.0 million); • net tangible assets were impacted by a $12.5 million loss on net mark to market movements on derivatives and borrowings. This is due to a decrease in market swap rates during the period and different valuation methodologies on the fair value of foreign debt and their associated hedging contracts. 1 Calculated net of cash and excludes any fair value adjustment on foreign bonds and their associated cross currency derivative asset positions. 7 Annual Financial Report of The GPT GroupDirectors’ Report – Year ended 31 December 2017 Cash flows The cash balance as at December 2017 decreased to $49.9 million (2016: $56.3 million). Operating activities The following table shows the reconciliation from FFO to the cash flow from operating activities: For the year ended FFO (Less)/add: non-cash items included in FFO Less: interest capitalised on developments Less: net movement in inventory Timing difference in receivables and payables Net cash inflows from operating activities Add: interest capitalised on developments Add: net movement in inventory Less: dividend income from available for sale investment Less: maintenance capex Less: lease incentives (excluding rent free) Free cash flow 31 Dec 17 $M 31 Dec 16 $M 554.2 (17.2) (8.6) (19.0) 26.1 535.5 8.6 19.0 (30.4) (54.4) (27.0) 451.3 537.0 2.7 (8.5) (5.3) 0.3 526.2 8.5 5.3 – (45.4) (41.5) 453.1 Change % 3.2% (737.0%) (1.2%) (258.5%) Lge 1.8% 1.2% 258.5% 100.0% (19.8%) 34.9% (0.4%) The Non-IFRS information included above has not been audited in accordance with Australian Auditing Standards, but has been derived from note 1 and note 15 of the accompanying financial statements. Prospects Group GPT is well positioned with high quality assets and high levels of occupancy. As at 31 December 2017, the Group’s balance sheet is in a strong position, with a smooth, long debt expiry profile and net gearing slightly below the Group’s target range of 25 to 35 per cent. Retail Australian retail sales grew 2.7 per cent for the year to 31 December 2017 led by the Eastern states. This has supported the performance of the GPT portfolio with more than 85 per cent of the portfolio located in NSW and VIC. Total centre sales grew 1.7 per cent whilst specialties sales per square metre grew 2.2 per cent. Office The Sydney and Melbourne office markets continued to deliver exceptional growth in net effective rents and asset valuations. The Sydney office market is expected to continue to enjoy favourable leasing conditions as supply remains limited through until 2020. The Melbourne office market is expected to see an elevated level of supply over the next 3 years however absorption is also expected to remain strong keeping vacancy rates low and upward pressure on net effective rents. GPT’s office portfolio weighting in the Sydney and Melbourne markets should benefit from these favourable market conditions. Logistics The investment market for institutional grade product has been strong over the past 24 months, with quality assets and portfolios transacting at yields firmer than at previous market peaks. Despite a modest rental growth outlook and increasing supply, assets with long WALE, good rent review structures and secure covenants have been well sought after. The medium term outlook is for a stabilisation of yields as this investment activity tapers off, while rents are likely to remain stable. GPT’s desire to increase exposure to the sector will see a continued focus on development. Funds management GPT has a strong funds management platform which has experienced significant growth over the past five years. The funds management team will continue to actively manage the existing portfolios, with new acquisitions, divestments and developments reviewed based on meeting the relevant investment objectives of the respective funds. Guidance for 2018 In 2018 GPT expects to deliver approximately 3 per cent growth in FFO per ordinary security and approximately 3 per cent growth in distribution per ordinary security. Achieving this target is subject to risks detailed in the following section. 8 Annual Financial Report of The GPT GroupDirectors’ Report – Year ended 31 December 2017 Risks The Board is ultimately accountable for corporate governance and the appropriate management of risk. The Board determines the risk appetite and oversees the risk profile to ensure activities are consistent with GPT’s strategy and values. The Sustainability and Risk Committee and the Audit Committee support the Board and are responsible for overseeing and reviewing the effectiveness of the risk management framework. GPT has an active enterprise-wide risk management framework. Within this framework the Board has adopted a policy setting out the principles, objectives and approach established to maintain GPT’s commitment to integrated risk management. GPT recognises the requirement for effective risk management as a core capability and consequently all employees are expected to be managers of risk. GPT’s risk management approach incorporates culture, people, processes and systems to enable the organisation to realise potential opportunities whilst managing adverse effects. The approach is consistent with AS/NZS ISO 31000:2009: Risk Management. Employees, contractors, the Leadership Team, the Sustainability and Risk Committee, the Audit Committee and through them, the Board: • report on or receive reports on GPT’s risk management practices and control systems including the effectiveness of GPT’s management of its material business risks; • promote risk awareness and assess the risk management culture; • develop and maintain internal specialist risk management expertise; • identify and assess risks in a timely and consistent manner; • design, embed and assess the effectiveness of controls; • provide transparency and assurance that the risk profile is aligned with GPT’s strategy, values and risk appetite. The risk appetite considers the most significant, material risks to which GPT is exposed. The following table sets out material risks and issues, the potential strategic impact to GPT and the ways in which they may be mitigated: Risk Category Risk/Issue Potential Strategic Impact Mitigation Investment mandate Investments do not perform in line with forecast Volatility and speed of adverse changes in market conditions, including competition and digital disruption Development Leasing Developments do not perform in line with forecast Inability to lease assets in line with forecast • Investments deliver lower investment • Formal deal management process performance than target • Credit rating downgrade • Active asset management including regular forecasting and monitoring of performance • High quality property portfolio • Development program to enhance asset returns • Comprehensive asset insurance program • Investments deliver lower investment • Holistic capital management returns than target • Large multi asset portfolio • Monitoring of asset concentration • Digital strategy • Developments deliver lower returns • Formal development approval and than target management process • Investments deliver lower investment • Large and diversified tenant base performance than target Capital management, including macro- economic factors Re-financing and liquidity risk • Limits ability to meet debt maturities • Constrains future growth • Limits ability to execute strategy • May impact distributions • Failure to continue as a going concern • High quality property portfolio • Experienced leasing team • Development program to enhance asset returns • Diversity of funding sources and spreading of debt maturities with a long weighted average debt term • Maintaining a minimum liquidity buffer in cash and surplus committed credit facilities for the forward rolling twelve- month period Interest rate risk – higher interest rate cost than forecast • Detrimental impact to investment • Interest rate exposures are actively hedged performance • Adversely affect GPT’s operating results 9 Annual Financial Report of The GPT GroupDirectors’ Report – Year ended 31 December 2017 Risk Category Risk/Issue Potential Strategic Impact Mitigation Health and safety Incidents causing injury to tenants, visitors to the properties, employees and/or contractors • Criminal/civil proceedings and resultant reputation damage • Financial impact of remediation and • Formalised health and safety management system including policies and procedures for managing safety restoration • Training and education of staff and People Inability to attract, retain and develop talented people and provide an inclusive workplace Environmental and Social Sustainability Information security Inability to continue operating in a manner that does not compromise the health of ecosystems and meets accepted social norms This includes the consideration of climate change, energy (initiatives, security and cost), community and supply chain Risk of loss of data, breach of confidentiality, regulatory breach (privacy) and/or reputational impact including as a result from a cyber attack • Limits the ability to deliver the • Competitive remuneration contractors business objectives and strategy • Limits the ability to deliver the business objectives and strategy • Criminal/civil proceedings and resultant reputation damage • Financial impact of remediation and restoration • Structured development planning • Succession planning and talent management • Diversity & Inclusion Working Group • Diversity & Inclusion policies, guidelines and training • Formalised environment and sustainability management system including policies and procedures for managing environmental and social sustainability risks • Limits the ability to deliver the • Technology risk management framework business objectives and strategy • Criminal/civil proceedings and resultant reputation damage • Financial impact of remediation and restoration • Privacy policy, guidelines and procedures 3. Events subsequent to reporting date On 24 January 2018, GPT acquired 4 logistics assets in Sunshine, Victoria for a total consideration of $74.0 million. Other than the above, the Directors are not aware of any matter or circumstances occurring since 31 December 2017 that has significantly or may significantly affect the operations of GPT, the results of those operations or the state of affairs of GPT in the subsequent financial years. 2. Environmental regulation GPT has policies and procedures in place that are designed to ensure that where operations are subject to any particular and significant environmental regulation under a law of Australia (for example property development and property management), those obligations are identified and appropriately addressed. This includes obtaining and complying with conditions of relevant authority consents and approvals and obtaining necessary licences. GPT is not aware of any breaches of any environmental regulations under the laws of the Commonwealth of Australia or of a State or Territory of Australia and has not incurred any significant liabilities under any such environmental legislation. GPT is also subject to the reporting requirements of the National Greenhouse and Energy Reporting Act 2007 (“NGER Act”). The NGER Act requires GPT to report its annual greenhouse gas emissions and energy use. The measurement period for GPT is 1 July to 30 June each year. GPT has implemented systems and processes for the collection and calculation of the data required which enabled submission of its report to the Department of Climate Change and Energy Efficiency within the legislative deadline of 31 October each year. GPT has submitted its report to the Department of Climate Change and Energy Efficiency for the period ended 30 June 2017 within the required timeframe. More information about GPT’s participation in the NGER program is available at www.gpt.com.au. 10 Annual Financial Report of The GPT GroupDirectors’ Report – Year ended 31 December 2017 4. Directors and secretary Eileen Doyle Information on directors Rob Ferguson – Chairman Rob joined the Board in May 2009 and is also a member of the Nomination and Remuneration Committee. He brings a wealth of knowledge and experience in finance, investment management and property as well as corporate governance. Rob currently holds Non-Executive directorships in the following listed and other entities: • Primary Health Care Limited (since 2009) – Chairman • Watermark Market Neutral Fund Limited (since 2013) • Tyro Payments Limited (since 2005) • Smartward Limited (since 2012). He was also a Non-Executive Chairman of IMF Bentham Limited from 2004 to January 2015. As at the date of this report, he holds 207,628 GPT stapled securities. Robert Johnston – Chief Executive Officer and Managing Director Bob was appointed to the Board as Chief Executive Officer and Managing Director in September 2015. He has 29 years experience in the property sector including investment, development, project management and construction in Australia, Asia, the US and UK. Prior to joining GPT, Bob was the Managing Director of listed Australand Property Group which became Frasers Australand in September 2014. As at the date of this report, he holds 343,264 GPT stapled securities. Brendan Crotty Brendan was appointed to the Board in December 2009 and is also a member of the Audit Committee and the Sustainability and Risk Committee. He brings extensive property industry experience to the Board, including 17 years as Managing Director of Australand until his retirement in 2007. Brendan is currently a director of Brickworks Limited (since 2008) and Chairman of Cloud FX Pte Ltd. Brendan resigned from his role as Chairman of Western Sydney Parklands Trust on 31 December 2017. As at the date of this report, he holds 67,092 GPT stapled securities. Eileen was appointed to the Board in March 2010. She is also the Chair of the Sustainability and Risk Committee and a member of the Nomination and Remuneration and Audit Committees. She has diverse and substantial business experience having held senior executive roles and directorships in a wide range of industries, including research, financial services, building and construction, steel, mining, logistics and export. Eileen is also a Fellow of the Australian Academy of Technological Sciences and Engineering. Eileen currently holds the position of Non-Executive Director in the following listed and other entities: • Boral Limited (since 2010) • Oil Search Limited (since 2016). Eileen was also previously a director of Bradken Limited from 2011 to November 2015. As at the date of this report, she holds 45,462 GPT stapled securities. Swe Guan Lim Swe Guan was appointed to the Board in March 2015 and is also a member of the Audit Committee and the Sustainability and Risk Committee. Swe Guan brings significant Australian real estate skills and experience and capital markets knowledge to the Board, having spent most of his executive career as a Managing Director in the Government Investment Corporation (GIC) in Singapore. Swe Guan is currently Chairman of Cromwell European REIT in Singapore (since 2017), a director of Sunway Berhad in Malaysia (since 2011) and Global Logistics Properties in Singapore (since 2012). Swe Guan is also a member of the Investment Committee of CIMB Trust Cap Advisors. As at the date of this report, he holds 15,800 GPT stapled securities. Michelle Somerville Michelle was appointed to the Board in December 2015 and is also the Chair of the Audit Committee and a member of the Sustainability and Risk Committee. She was previously a partner of KPMG for nearly 14 years specialising in external audit and advising Australian and international clients both listed and unlisted primarily in the financial services market in relation to business, finance risk and governance issues. Michelle currently holds the position of Non-Executive Director in the following entities: • Bank Australia Limited (since 2014) • Challenger Retirement and Investment Services Ltd (since 2014) • Save the Children (Australia) (since 2012) • Down Syndrome Australia (since 2011). Michelle is also an independent consultant to the UniSuper Ltd Audit, Risk and Compliance Committee since 2015. As at the date of this report, she holds 16,157 GPT stapled securities. 11 Annual Financial Report of The GPT GroupDirectors’ Report – Year ended 31 December 2017 Gene Tilbrook Gene was appointed to the Board in May 2010 and is also the Chair of the Nomination and Remuneration Committee. He brings extensive experience in finance, corporate strategy, investments and capital management. Gene currently holds the position of Non-Executive Director in the following listed entities: • Orica Limited (since 2013) • Woodside Petroleum Limited (since 2014). Gene was also a Director of listed entities Transpacific Industries Group Limited from 2009 to 2013, Fletcher Building Limited from 2009 to April 2015, and Aurizon Holdings Limited from 2010 to February 2016. As at the date of this report, he holds 48,546 GPT stapled securities. James Coyne – General Counsel and Company Secretary James is responsible for the legal, compliance and company secretarial activities of GPT. He was appointed as the General Counsel and Company Secretary of GPT in 2004. His previous experience includes company secretarial and legal roles in construction, infrastructure, and the real estate funds management industry (listed and unlisted). Lisa Bau – Senior Legal Counsel and Company Secretary Lisa was appointed as a Company Secretary of GPT in September 2015. Her previous experience includes legal roles in mergers and acquisitions, capital markets, funds management and corporate advisory. Attendance of directors at meetings The number of Board meetings, including meetings of Board Committees, held during the financial year and the number of those meetings attended by each Director is set out below: Board Audit Committee Nomination and Remuneration Committee Sustainability and Risk Committee Number of meetings attended Number of meetings eligible to attend Number of meetings attended Number of meetings eligible to attend Number of meetings attended Number of meetings eligible to attend Number of meetings attended Number of meetings eligible to attend Rob Ferguson Michelle Somerville Gene Tilbrook Eileen Doyle 12 12 12 12 12 12 12 12 12 12 12 12 12 12 – – 4 3 4 4 – – – 4 3 4 4 – 6 – – 6 – – 6 6 – – 6 – – 6 – – 4 4 4 3 – – – 4 4 4 3 – Chair Rob Ferguson Robert Johnston Brendan Crotty Eileen Doyle Swe Guan Lim Michelle Somerville Gene Tilbrook 12 Annual Financial Report of The GPT GroupDirectors’ Report – Year ended 31 December 2017 5. Other disclosures Non-audit services Indemnification and insurance of directors, officers and auditor GPT provides a Deed of Indemnity and Access (Deed) in favour of each of the Directors and Officers of GPT and its subsidiary companies and each person who acts or has acted as a representative of GPT serving as an officer of another entity at the request of GPT. The Deed indemnifies these persons on a full indemnity basis to the extent permitted by law for losses, liabilities, costs and charges incurred as a Director or Officer of GPT, its subsidiaries or such other entities. Subject to specified exclusions, the liabilities insured are for costs that may be incurred in defending civil or criminal proceedings that may be brought against Directors and Officers in their capacity as Directors and Officers of GPT, its subsidiary companies or such other entities, and other payments arising from liabilities incurred by the Directors and Officers in connection with such proceedings. GPT has agreed to indemnify the auditors out of the assets of GPT if GPT has breached the agreement under which the auditors are appointed. During the financial year, GPT paid insurance premiums to insure the Directors and Officers of GPT and its subsidiary companies. The terms of the contract prohibit the disclosure of the premiums paid. During the year PricewaterhouseCoopers, GPT’s auditor, has performed other services in addition to their statutory duties. Details of the amounts paid to the auditor, which includes amounts paid for non-audit services and other assurance services, are set out in note 20 to the financial statements. The Directors have considered the non-audit services and other assurance services provided by the auditor during the financial year. In accordance with advice received from the Audit Committee, the Directors are satisfied that the provision of non-audit services by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons: • the Audit Committee reviewed the non-audit services and other assurance services at the time of appointment to ensure that they did not impact upon the integrity and objectivity of the auditor; • the Board’s own review conducted in conjunction with the Audit Committee concluded that the auditor independence was not compromised, having regard to the Board’s policy with respect to the engagement of GPT’s auditor; and • the fact that none of the non-audit services provided by PricewaterhouseCoopers during the financial year had the characteristics of management, decision-making, self-review, advocacy or joint sharing of risks. Auditor’s independence declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 23 and forms part of the Directors’ Report. Rounding of amounts The amounts contained in this report and in the financial statements have been rounded to the nearest hundred thousand dollars unless otherwise stated (where rounding is applicable) under the option available to GPT under ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191. GPT is an entity to which the Instrument applies. 13 Annual Financial Report of The GPT GroupDirectors’ Report – Year ended 31 December 2017 6. Remuneration report The Nomination & Remuneration Committee (the Committee) of the Board presents the Remuneration Report (Report) for the GPT Group. This Report has been audited in accordance with section 308(3C) of the Corporations Act 2001. The Board aims to communicate the remuneration outcomes with full transparency; demonstrate that the GPT Group’s remuneration platform is both market competitive and fair to all stakeholders; and align performance measures to the achievement of GPT’s strategic objectives. Governance Who are the members of the Committee? What is the scope of work of the Committee? The Committee consists of 3 Non-Executive Directors: • Gene Tilbrook (Committee Chairman) • Eileen Doyle • Rob Ferguson. The Committee provides advice and recommendations to the Board on: • Criteria for selection of Directors; • Nominations for appointment of Directors; • Criteria for reviewing the performance of Directors individually and the GPT Board collectively; • Remuneration policies for Directors and Committee members; • Remuneration amounts for Directors from within the overall Directors fee cap approved by securityholders; • Remuneration policy for the Chief Executive Officer (CEO) and employees; • Incentive plans for the CEO and employees, including exercising discretion where appropriate in determining short term incentive compensation (STIC) and long term incentive compensation (LTI) outcomes; and • Any other related matters regarding executives or the Board1. Who is included in the Remuneration Report? GPT’s Key Management Personnel (KMP) are the individuals responsible for planning, controlling and managing the GPT Group (being the Non-Executive Directors, CEO, Chief Financial Officer (CFO), and the Chief Operating Officer (COO)). Committee key decisions and remuneration outcomes in 2017 Platform component Key decisions and outcomes Base pay (Fixed) • Implemented the annual review of employee base pay effective 1 January 2017, with an average increase of 3.6%. • Implemented an average increase of 3.0% in Non-Executive Director base fees effective 1 January 2017. This was the first review of base fees since 1 January 2015. Short term incentive compensation (STIC) Long term incentive (LTI) compensation Other employee ownership plans • The Group achieved an EPS growth outcome of 3.0% which generated a STIC pool of $13.8 million. • The Group achieved a compound annual Total Return2 for the 2015-17 period of 14.05%, exceeding the maximum target of 9.75%, and delivered a Total Security-holder Return (TSR)3 of 44.34% which ranked 5th against the comparator group. • As a result, the vesting outcome for the 2015-17 LTI plan was 83.29% of the performance rights for each of the 23 participants in the LTI plan. • Launched the 2017-2019 LTI with two performance measures, Total Return and Relative TSR. • Strengthened the performance hurdle for vesting under the Total Return measure to commence at 8.5% and reach maximum at 10%. • Continued the General Employee Security Ownership Plan (GESOP) for 137 STIC eligible employees not in the LTI. Under GESOP each participant receives an amount equal to 10% of their STIC (less tax) delivered in GPT securities, which must be held for at least 1 year. • Continued the Broad Based Employee Security Ownership Plan (BBESOP) for 281 employees ineligible for GESOP. Under BBESOP, participants receive $1,000 worth of GPT securities that cannot be transferred or sold until the earlier of 3 years from the allocation date or cessation of employment (or $1,000 cash (less tax) at the election of the individual). Policy & governance • Utilised external advice on market compensation benchmarks and practice, prevailing regulatory and governance standards, and drafting of incentive plan documentation from Ernst & Young and Conari Partners4. Diversity • Completed an organisation wide gender pay equity audit and launched GPT’s Gender Equality Policy. • GPT’s CEO Bob Johnston is a member of the Property Male Champions of Change, and was also appointed a Gender Pay Equity Ambassador by the Workplace Gender Equality Agency (WGEA). • Increased the percentage of females in senior leadership roles from 36.7% at the end of 2016 to 41.4%. • Maintained participation of First Nations employees in the permanent workforce at 1%. • Launched GPT’s LGBTI Strategy and established an ally network. 1 Further information about the role and responsibility of the Committee is set out in its Charter which is available on GPT’s website (www.gpt.com.au). 2 Total Return is defined as the sum of the change in Net Tangible Assets (NTA) plus distributions over the performance period, divided by the NTA at the beginning of the performance period. 3 TSR represents an investor’s return, calculated as the percentage difference between an initial amount invested in stapled securities and the final value of those stapled securities at the end of the relevant period, assuming distributions were reinvested. 4 During 2017, no remuneration recommendations in relation to Key Management Personnel, as defined by Division 1 of Part 1.2 of Chapter 1 of the Corporations Act 2001, were made by these or other consultants. 14 Annual Financial Report of The GPT GroupDirectors’ Report – Year ended 31 December 2017 GPT’s vision and financial goals linked to remuneration structures GPT’s vision and financial goals To be the most respected property company in Australia in the eyes of our Investors, People, Customers and Communities Total Return > 8.5% Generate competitive Relative Total Securityholder Return Generate competitive EPS growth Base pay (Fixed) STIC (variable) LTI (variable) Total remuneration components • Base level of reward. • Discretionary, at risk, and • Set around Australian market median using external benchmark data (including AON Hewitt and the Financial Institutions Remuneration Group (FIRG)). • Reviewed based on employee’s responsibilities, experience, skill and performance. • External & internal relativities considered. with aggregate STIC funding aligned to overall Group financial outcomes. • Set around market median for target performance with potential to achieve top quartile for stretch outcomes. • Determined by GPT and individual performance against a mix of balanced scorecard measures which include financial & non- financial measures. • Financial measures include EPS growth, portfolio, fund and/or property level metrics. • Non-financial objectives focus on execution of strategy, delivery of key projects and developments, and people and culture objectives. • Delivered in cash, or (for senior executives), a combination of cash and equity with deferred vesting for 1 year. • Discretionary, at risk, and aligned to overall Group financial outcomes. • Set around market median for target performance with potential to achieve top quartile for stretch outcomes. • Vesting determined by GPT performance against Total Return and Relative TSR financial performance. • Relative TSR is measured against ASX200 AREIT Accumulation Index (including GPT). • Assessed over a 3 year performance period, no re-testing. • No value derived unless GPT meets or exceeds defined performance measures. • Delivered in GPT securities to align executive and security holder interests. Other employee ownership plans (variable) GESOP • For STIC eligible individuals who are ineligible for LTI. • Equal to 10% of their STIC (less tax) delivered in GPT securities, which must be held for at least 1 year. BBESOP • For individuals ineligible for STIC or LTI. • GPT must achieve at least Target outcome on annual EPS growth. • A grant of $1,000 worth of GPT securities which must be held until the earlier of 3 years from the allocation date or cessation of employment (or $1,000 cash (less tax) at the election of the individual). Attract, retain, motivate and reward high calibre executives to deliver superior performance by providing: Align executive rewards to GPT’s performance and security holder interests by: • Competitive rewards. • Opportunity to achieve incentives beyond base pay based on high performance. • Assessing incentives against financial and non-financial business measures that are aligned with GPT strategy. • Delivering a meaningful component of executive remuneration in the form of equity subject to performance hurdles being achieved. 15 Annual Financial Report of The GPT GroupDirectors’ Report – Year ended 31 December 2017 Employment Terms 1. Employment terms – Chief Executive Officer and Managing Director Term Contract duration Conditions Open ended. Termination by Executive 6 months’ notice. GPT may elect to make a payment in lieu of notice. Remuneration Package Bob Johnston’s 2017 remuneration arrangements were as follows: • Fixed pay: $1,435,000. • STIC: $0 to $1,793,750 (i.e. 0% to 125% of base pay) based on performance and paid in an equal mix of cash and deferred GPT securities, with the securities component vesting one year after the conclusion of the performance year. • LTI: A grant of performance rights with the face value at time of grant of $2,152,500 (i.e. 150% of base pay) with vesting outcomes dependent on performance and continued service, and delivered in restricted GPT securities. Termination by Company for cause No notice requirement or termination benefits (other than accrued entitlements). Termination by Company (other) 12 months’ notice. Treatment of unvested STIC and LTI will be at the Board’s discretion under the terms of the relevant plans and GPT policy. Post-employment restraints 6 months non-compete, and 12 months non-solicitation of GPT employees. External Directorships Clawback Policy Bob Johnston is a Director on the Boards of the Property Industry Foundation (PIF) and the Property Council of Australia (PCA). He does not receive remuneration for these roles. All GPT employees who participate in STIC and LTI are subject to remuneration being clawed back if the recipient has acted fraudulently, dishonestly, or where there has been a material misstatement or omission in the Group’s financial statements leading to the receipt of an unfair benefit. 2. Employment terms – Executive KMP Term Contract duration Conditions Open ended. Termination by Executive 3 months’ notice. GPT may elect to make a payment in lieu of notice. Remuneration Package Component Fixed pay STIC5 LTI Mark Fookes $820,000 $0 to $820,000 $0 to $820,000 Anastasia Clarke $750,000 $0 to $750,000 $0 to $750,000 Termination by Company for cause No notice requirement or termination benefits (other than accrued entitlements). Termination by Company (other) 3 months’ notice. Severance payments may be made subject to GPT policy and capped at the three year average of the executive’s annual base (fixed) pay. Treatment of unvested STIC and LTI will be at the Board’s discretion under the terms of the relevant plans and GPT policy. Post-employment restraints 12 months non-solicitation of GPT employees. 3. Compensation mix at maximum STIC and LTI outcomes Executive KMP Bob Johnston Position Chief Executive Officer and Managing Director Anastasia Clarke Chief Financial Officer Mark Fookes Chief Operating Officer Fixed remuneration Variable or “at risk” remuneration6 Base pay 26.7% 33.4% 33.4% STI 33.3% 33.3% 33.3% LTI 40.0% 33.3% 33.3% 5 The STIC is paid in an equal mix of cash and deferred GPT securities, with the securities component vesting 1 year after the conclusion of the performance year. 6 The percentage of each component of total remuneration is calculated with reference to maximum or stretch potential outcomes as set out under Remuneration Package in Tables 1 and 2 above. 16 Annual Financial Report of The GPT GroupDirectors’ Report – Year ended 31 December 2017 Group Financial Performance & Incentive Outcomes 1. Five year Group financial performance Total Securityholder Return (TSR) % Total Return % NTA (per security) $ FFO (per security)7 cents Security price at end of calendar year $ 2017 6.6 15.2 5.04 30.8 5.11 2016 10.1 15.5 4.59 29.9 5.03 2015 15.4 11.5 4.17 28.3 4.78 2014 34.5 9.6 3.94 26.8 4.35 2013 4.1 8.5 3.79 25.7 3.40 2. Summary of CEO Objectives and Performance Outcomes Performance measure Reason chosen Weighting Performance outcomes Financial Strategy Performance 70% 15% 10% Earnings per security (EPS) and EPS growth targets. Strategy objectives focussed on exploring growth opportunities for GPT group, as well as development and implementation of strategy plans for each division. Operational objectives focussed on driving performance of the investment portfolio and on fund term reviews, fund performance, key milestones in the development pipeline, and other projects. EPS is a key financial measure of GPT’s performance. Developing, communicating and implementing GPT’s strategy will underpin GPT’s medium term activities. Focus on delivery of investment and fund performance, conversion of the development pipeline and operational efficiency to optimise GPT’s performance. People People objectives centred on increasing employee engagement, driving our diversity and inclusion agenda, and leadership team performance. Maintaining a high performing executive team and achieving engagement and diversity goals is key to GPT’s performance. 5% The Group delivered EPS of 30.8 cents and EPS growth of 3.0% for 2017. This was consistent with budget but below the stretch objective set by the Board. Strategy plans have been developed and updated for each division, approved by the Board, and implementation of plans is on-track. Acquisition opportunities consistent with strategy were targeted throughout the year but the Group was unsuccessful in securing major new opportunities that met the Group’s return expectations. GWSCF performance was a 1 year equity IRR of 12.5%, and fund terms were successfully renewed. GWOF performance was a 1 year equity IRR of 13.4%, and GPT acquired a further $23.2m worth of units to take the Group’s position to 25%. The expansion of the Rouse Hill Town Centre was delayed due to changing retail market conditions and authority delays have hampered progress on the mixed- use opportunities at Sydney Olympic Park and Camellia. The Darling Park Stage 4 opportunity has been further advanced. $88.5m of Logistics development projects were completed at Seven Hills, Huntingwood and Wacol, with a further $126.5m of projects underway. The Sunshine Plaza redevelopment is expected to be completed successfully in the 4th Quarter of 2018. The Group has also successfully completed the repositioning of Wollongong Central. Employee engagement has been independently assessed and the Group’s sustainable engagement score increased 3% to 82%. Gender diversity remained a focus for 2017 with female representation in senior leadership roles increasing to 41.4%. Aboriginal and Torres Strait Islander representation in the permanent workforce has remained steady at 1%. Strategies have been implemented to ensure that GPT is an inclusive organisation for all including our LGBTI, Aboriginal and Torres Strait Islander employees. The Leadership Team and senior cohort completed Hogan Profiles as part of leadership development activities to help drive business performance. 3. 2017 STIC Framework The CEO objectives are cascaded (in full or in part) to KMP and all STIC participants where applicable. Performance measures and weightings may vary according to areas of responsibility for each STIC participant. Group and segment financial KPI’s and performance KPI’s in relation to occupancy, leasing, progress on developments, investment performance and operational efficiency are included. Performance objectives are then measured to determine performance outcomes and recommended STIC. For the Group, EPS Growth performance hurdles are set for the year. For 2017, with the Group delivering an EPS Growth outcome of 3.0 per cent, an amount of $13.8 million was derived for the STIC pool, representing 64 per cent of the aggregate of STIC participants’ maximum STIC potential (2016: 69 per cent). The proportion of the available STIC pool for each individual participant is then determined by the performance of the individual and their business unit/team against Group and individual KPI’s. 7 Represents Realised Operating Income (ROI) until 2013. 17 Annual Financial Report of The GPT GroupDirectors’ Report – Year ended 31 December 2017 Final allocation of the STIC pool for 2017 among the balance of the eligible employees8 is to occur post the issue of the 2017 Remuneration Report in March 2018. The following table shows the distribution of 2016 STIC outcomes as a percentage of the individuals’ maximum STIC opportunity. 2016 STIC Received as a % of STIC potential Percentage of STIC participants 0–50% 6.0% 50–60% 60–70% 70–80% 80-–90% 90–100% 6.9% 31.9% 44.9% 10.3% 0.0% 4. 2017 STIC outcomes by Executive KMP9 Executive KMP Position Bob Johnston Chief Executive Officer and Managing Director Actual STIC awarded Actual STIC awarded as a % of maximum STIC % of maximum STIC award forfeited Cash component Equity component (# of GPT securities)10 $1,142,000 63.67% 36.33% $571,000 119,958 Anastasia Clarke Chief Financial Officer $500,000 Mark Fookes Chief Operating Officer $540,000 66.67% 65.85% 33.33% 34.15% $250,000 $270,000 52,521 56,723 5. Group performance measures for LTI Plans LTI performance measurement period LTI 2015 2015–17 2016 2016–18 2017 2017–19 Performance measure Relative TSR versus comparator group Total Return Relative TSR versus ASX200 AREIT Accumulation Index (including GPT) Total Return Relative TSR versus ASX200 AREIT Accumulation Index (including GPT) Total Return Performance measure hurdle Weighting Results 50% of rights vest at 51st percentile, up to 100% at the 75th percentile (pro rata vesting in between) 50% TSR of 44.34%. Relative TSR of 5th out of 11 participants, placing GPT at the 58.96th percentile. Vesting % by performance measure 66.58% 25% of rights vest at 9% Total Return, up to 100% at 9.75% Total Return (pro- rata vesting in between) 10% of rights vest at Index performance, up to 100% at Index plus 10% (pro rata vesting in between) 0% of rights vest at 8% Total Return, up to 100% at 9.5% Total Return (pro-rata vesting in between) 10% of rights vest at Index performance, up to 100% at Index plus 10% (pro rata vesting in between) 0% of rights vest at 8.5% Total Return, up to 100% at 10.0% Total Return (pro- rata vesting in between) 50% Compound TR of 14.05% 100% 50% N/A 50% N/A 50% N/A 50% N/A N/A N/A N/A N/A 6. 2015-2017 LTI outcomes by Executive KMP Executive KMP Performance rights granted Performance rights vested Performance rights lapsed Bob Johnston Chief Executive Officer and Managing Director Anastasia Clarke Chief Financial Officer Mark Fookes Chief Operating Officer 430,476 104,981 194,747 358,543 87,439 162,205 71,933 17,542 32,542 i.e. excluding the KMP. 8 9 Excluding the impact of movements in the GPT security price on deferred STIC value received. 10 The number of deferred GPT securities granted are calculated by dividing 50% of the Actual STIC awarded by GPT’s Q4 2016 VWAP of $4.76. The deferred GPT securities will vest subject to service on 31 December 2018. 18 Annual Financial Report of The GPT GroupDirectors’ Report – Year ended 31 December 2017 7. LTI outcomes – fair value and maximum value recognised in future years11 Executive KMP Bob Johnston Chief Executive Officer and Managing Director Anastasia Clarke Chief Financial Officer Mark Fookes Chief Operating Officer Year 2017 2016 2017 2016 2017 2016 Grant date 22 May 17 16 May 16 21 February 17 16 May 16 21 February 17 16 May 16 Fair value per performance right Performance rights granted as at 31 Dec 17 $2.66 $2.96 $2.66 $2.96 $2.66 $2.96 452,206 450,257 157,563 139,365 172,269 171,527 Maximum value to be recognised in future years $955,709 $903,120 $293,563 $314,439 $320,962 $387,004 Vesting date 31 Dec 19 31 Dec 18 31 Dec 19 31 Dec 18 31 Dec 19 31 Dec 18 8. Reported remuneration – Executive KMP – Actual Amounts Received12 Executive KMP Bob Johnston Chief Executive Officer and Managing Director Anastasia Clarke Chief Financial Officer Mark Fookes Chief Operating Officer Total Year 2017 2016 2017 2016 2017 2016 2017 2016 Fixed pay Variable or “at risk”13 Base pay Superannuation Other14 STIC LTI Total $1,415,168 $1,300,883 $730,168 $630,538 $800,168 $780,538 $2,945,504 $2,711,959 $19,832 $19,462 $19,832 $19,462 $19,832 $19,462 $59,496 $58,386 $3,299 $1,195,801 $1,867,471 $4,501,571 $5,677 $1,143,136 – $2,469,158 $2,480 $2,334 $4,326 $6,999 $523,556 $455,426 $1,731,462 $481,107 $517,555 $1,650,996 $565,442 $844,845 $2,234,613 $571,233 $979,499 $2,357,731 $10,105 $2,284,799 $3,167,742 $8,467,646 $15,010 $2,195,476 $1,497,054 $6,477,885 9. Reported remuneration – Executive KMP – AIFRS Accounting15 Fixed pay Variable or “at risk” Executive KMP Bob Johnston Chief Executive Officer and Managing Director Anastasia Clarke Chief Financial Officer Mark Fookes Chief Operating Officer Total Year 2017 2016 2017 2016 2017 2016 2017 2016 Base pay Superannuation Other STIC (cash plus accrual)16 LTI award accrual17 Grant or vesting of non STI or LTI performance rights18 Total $1,376,680 $1,390,757 $775,348 $633,714 $840,325 $784,411 $2,992,353 $2,808,882 $19,832 $3,299 $1,219,543 $1,166,796 - $3,786,150 $19,462 $5,677 $936,837 $694,626 $64,319 $3,111,678 $19,832 $2,480 $569,961 $382,324 $19,462 $2,334 $495,523 $290,933 $19,832 $4,326 $669,971 $515,208 $19,462 $6,999 $720,099 $481,598 $59,496 $10,105 $2,459,475 $2,064,328 - - - - - $1,749,945 $1,441,966 $2,049,662 $2,012,569 $7,585,757 $58,386 $15,010 $2,152,459 $1,467,157 $64,319 $6,566,213 11 For the avoidance of doubt, the GPT incentive plans (i.e. STIC and LTI) use face value grants of performance rights based on the volume weighted average security price (VWAP) of GPT securities for specified periods; reference to fair value per performance right is included in this table to comply with accounting standards. 12 This table discloses the cash and other benefit amounts actually received by GPT’s executive KMP, as distinct from the accounting expense. As a result, it does not align to Australian Accounting Standards. 13 Gross dollar values for the equity components have been calculated by multiplying the number of securities by GPT’s fourth quarter VWAP for the applicable year; 2017: $5.2085 (2016: $4.76). 14 Other may include death & total/permanent disability insurance premiums, service awards, GPT superannuation plan administration fees, and/or other benefits. 15 This table provides a breakdown of remuneration for executive KMP in accordance with statutory requirements and Australian Accounting Standards. 16 The accrual accounting valuation of the deferred securities in Mr. Johnston’s 2015 STIC are included in the 2016 number as they were approved for issue at the 2016 AGM. 17 This column records the amount of the fair value of performance rights under the various LTI plans expensed in the relevant financial years, and does not represent actual LTI awards made to executives or the face value grant method. 18 Grant or vesting of one-off non STI or LTI performance rights includes an accounting valuation of the sign on package for Mr. Johnston. 19 Annual Financial Report of The GPT GroupDirectors’ Report – Year ended 31 December 2017 10. GPT security ownership – Executive KMP as at 31 December 2017 GPT Holdings (start of period)19 330,695 486,402 1,008,431 Executive KMP Bob Johnston Chief Executive Officer and Managing Director Anastasia Clarke Chief Financial Officer Mark Fookes Chief Operating Officer Sign on performance rights converting in 2017 Employee Security Schemes (ESS) 2017 DSTIC 2015-17 LTI TOTAL ESS for 2017 Purchase /(Sales) during period20 GPT Holdings (end of period)21 Gross Value of GPT Holdings22 MSHR Guideline23 12,569 119,958 358,543 478,501 – 821,765 $4,280,163 $2,152,500 – – 52,521 87,439 139,960 (163,777) 462,585 $2,409,374 $750,000 56,723 162,205 218,928 (109,091) 1,118,268 $5,824,499 $820,000 11. GPT performance rights – Executive KMP Executive KMP Bob Johnston Chief Executive Officer and Managing Director Anastasia Clarke Chief Financial Officer Mark Fookes Chief Operating Officer Performance rights that lapsed in 201724 (# of rights) Performance rights still on foot at 31/12/1725 (# of rights) Performance rights 140,394 43,802 61,953 902,463 296,928 343,796 19 GPT Holdings (start of period) may include GPT securities obtained as sign on grants (Mr Johnston only), DSTIC up to and including 2016, LTI plans up to and including the 2014-16 LTI plan, and private holdings. 20 Movement in GPT security holdings as a result of the sale of vested, unrestricted security holdings and/or the sale or purchase of additional private holdings on the individuals own account during the 2017 calendar year. 21 GPT Holdings (end of period) is the sum of GPT Holdings (start of the period) plus DSTIC and LTI securities obtained under ESS and adjusted for any purchases or sales during the period. 22 The GPT Holdings (end of period) multiplied by GPT’s fourth quarter 2017 VWAP of $5.2085 to derive a dollar value. 23 GPT’s MSHR guideline requires the CEO to acquire and maintain a holding equal to 150% of base salary. For Leadership Team members the holding requirement is equal to 100% of base salary. Individuals have four years from commencement of employment to achieve the MSHR before it is assessed for the first time. 24 The sum of performance rights that were awarded to a participant in the 2015 LTI that did not vest at the end of the 2015-2017 performance period, and as a result, lapsed and/or performance rights granted under the 2017 DSTIC that also lapsed. 25 The total of unvested performance rights currently on foot excluding any GPT securities or performance rights that may have lapsed up to 31 December 2017. This represents the current maximum number of additional GPT securities to which the individual may become entitled subject to satisfying the applicable performance measures in the 2016-18 and 2017-19 LTI plans on foot; as such, these performance rights represent the incentive opportunity over multiple future years, are subject to performance and hence “at risk”, and as a result may never vest. 20 Annual Financial Report of The GPT GroupDirectors’ Report – Year ended 31 December 2017 Remuneration – Non-Executive Directors What are the key elements of the Non-Executive Director Remuneration Policy? • The Board determines the remuneration structure for Non-Executive Directors based on recommendations from the Committee. • Non-Executive Directors are paid one fee for participation as a Director in all GPT related companies (principally GPT RE Limited, the Responsible Entity of General Property Trust and GPT Management Holdings Limited). • Non-Executive Director remuneration is composed of three main elements: – Main Board fees – Committee fees – Superannuation contributions at the statutory superannuation guarantee contribution rate. • Non-Executive Directors do not participate in any short or long term incentive arrangements and are not entitled to any retirement benefits other than compulsory superannuation. • Non-Executive Director remuneration is set by reference to comparable entities listed on the ASX (based on GPT’s industry sector and market capitalisation). • External independent advice on remuneration levels for Non-Executive Directors is sought on an annual basis. In the event that a review is conducted, the new Board and Committee fees are effective from the 1st of January in the applicable year and advised in the ensuing Remuneration Report. • Fees (including superannuation) paid to Non-Executive Directors are subject to an aggregate limit of $1,800,000 per annum, which was approved by GPT security holders at the Annual General Meeting on 5 May 2015. As an executive director, Mr Johnston does not receive fees from this pool as he is remunerated as one of GPT’s senior executives. 1. Board and committee fees26,27 Chairman Members Year 2017 2016 2017 2016 Board Base Fee Audit Committee $380,000 $362,500 $148,000 $145,000 $36,000 $36,000 $18,000 $18,000 Sustainability and Risk Committee Nomination and Remuneration Committee $30,000 $30,000 $15,000 $15,000 2. Reported remuneration – Non-Executive Directors – AIFRS accounting28,29 Non-Executive Director – Current Rob Ferguson Chairman Brendan Crotty Eileen Doyle Swe Guan Lim Michelle Somerville Gene Tilbrook Year 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 Non-Executive Director – Former Anne McDonald31 2017 Total 2016 2017 2016 Salary and fees Superannuation Other30 Fixed pay $380,000 $362,500 $181,000 $181,333 $203,500 $190,000 $181,000 $178,000 $192,750 $174,723 $178,000 $175,000 – $62,422 $1,316,250 $1,323,978 $19,832 $19,462 $17,195 $17,227 $19,333 $18,050 $17,195 $16,910 $18,311 $16,599 $16,910 $16,625 – $5,930 $108,776 $110,803 – – – – – – $287 $615 - - $380 $767 – $641 $667 $2,023 $30,000 $30,000 $15,000 $15,000 Total $399,832 $381,962 $198,195 $198,560 $222,833 $208,050 $198,482 $195,525 $211,061 $191,322 $195,290 $192,392 – $68,993 $1,425,693 $1,436,804 26 ‘Chairman’ used in this sense may refer to the chairperson of the board or a particular committee. 27 In addition to the fees noted in the table, all non-executive directors receive reimbursement for reasonable travel, accommodation and other expenses incurred while undertaking GPT business. 28 This table provides a breakdown of remuneration for Non-Executive Directors in accordance with statutory requirements and Australian Accounting Standards. 29 No termination benefits were paid during the financial year. 30 Other may include death & total/permanent disability insurance premiums and/or GPT superannuation plan administration fees. 31 Ms. McDonald retired from the GPT Board on 4 May 2016. 21 Annual Financial Report of The GPT GroupDirectors’ Report – Year ended 31 December 2017 3. Non-Executive Director – GPT securityholdings Non-Executive Director Balance 31/12/16 Purchase/(Sale) Balance 31/12/17 Private holdings (# of securities) Minimum securityholding requirement (MSHR) MSHR guideline33 Gross value32 Rob Ferguson Brendan Crotty Eileen Doyle Swe Guan Lim Michelle Somerville Gene Tilbrook 207,628 67,092 45,462 – 2,912 48,546 – – – 15,800 13,245 – 207,628 $1,081,430 67,092 45,462 15,800 16,157 48,546 $349,449 $236,789 $82,294 $84,154 $252,852 $380,000 $148,000 $148,000 $148,000 $148,000 $148,000 32 Non-Executive Directors holdings multiplied by GPT’s fourth quarter 2017 VWAP of $5.2085 to derive a dollar value. 33 The MSHR for Non-Executive Directors is equal to 100% of base fees. Individuals have four years from commencement of employment to achieve the MSHR before it is assessed for the first time. The Directors’ Report, including the Remuneration Report, is signed in accordance with a resolution of the Directors of the GPT Group. Rob Ferguson Chairman Sydney 13 February 2018 Bob Johnston Chief Executive Officer and Managing Director 22 Annual Financial Report of The GPT GroupDirectors’ Report – Year ended 31 December 2017 23 Annual Financial Report of The GPT Group Annual Financial Report of The GPT Group Financial Statements Consolidated Statement of Comprehensive Income Year ended 31 December 2017 Revenue Rent from investment properties Property and fund management fees Development revenue Development management fees Other income Fair value gain on investment properties Share of after tax profit of equity accounted investments Interest revenue Dividend income Derecognition of available for sale financial asset Net profit on disposal of assets Gain on financial liability at amortised cost Reversal of prior period impairment expense Total revenue and other income Expenses Property expenses and outgoings Management and other administration costs Development costs Depreciation expense Amortisation expense Impairment expense Finance costs Net loss on fair value movements of derivatives Net impact of foreign currency borrowings and associated hedging loss/(gain) Net foreign exchange loss Total expenses Profit before income tax expense Income tax expense Profit after income tax expense Profit from discontinued operations Net profit for the year Other comprehensive income Items that may be reclassified to profit or loss, net of tax Changes in the fair value of cash flow hedges Revaluation of available for sale financial asset Net foreign exchange translation adjustments Total other comprehensive income Total comprehensive income for the year Total comprehensive income for the year from continuing operations Total comprehensive income for the year from discontinued operations Net profit attributable to: – Securityholders of the Trust – Securityholders of other entities stapled to the Trust Total comprehensive income attributable to: – Securityholders of the Trust – Securityholders of other entities stapled to the Trust Note 31 Dec 17 $M 31 Dec 16 $M 610.6 70.2 15.0 10.8 706.6 481.0 443.9 1.3 – 10.7 – 2.2 – 939.1 1,645.7 158.3 71.7 14.4 1.7 6.0 5.4 103.7 5.7 0.2 – 367.1 584.1 96.7 22.4 2.0 705.2 418.1 375.4 2.6 30.4 – 12.8 1.6 0.4 841.3 1,546.5 157.3 69.1 13.1 1.9 5.4 6.0 102.6 26.6 (2.2) 0.1 379.9 1,278.6 1,166.6 9(a) 10.3 22.4 10(b) 10(b) 10(b) 1,268.3 0.8 1,269.1 1,144.2 8.5 1,152.7 (9.4) (7.1) – (16.5) 1,252.6 1,251.8 0.8 14.5 (1.5) (0.8) 12.2 1,164.9 1,157.2 7.7 1,249.3 19.8 1,048.8 103.9 1,239.9 12.7 1,061.5 103.4 Basic earnings per unit attributable to ordinary securityholders of the Trust Earnings per unit (cents per unit) – profit from continuing operations Basic earnings per stapled security attributable to ordinary stapled securityholders of the GPT Group Earnings per stapled security (cents per stapled security) – profit from continuing operations 11(a) 11(b) 69.3 57.9 70.4 63.7 The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes. 24 Consolidated Statement of Financial Position As at 31 December 2017 Note 31 Dec 17 $M 31 Dec 16 $M ASSETS Current assets Cash and cash equivalents Loans and receivables Inventories Derivative assets Prepayments Other assets Total current assets Non-current assets Investment properties Equity accounted investments Intangible assets Inventories Property, plant and equipment Derivative assets Deferred tax assets Other assets Total non-current assets Total assets LIABILITIES Current liabilities Payables Current tax liabilities Borrowings Derivative liabilities Provisions Total current liabilities Non-current liabilities Borrowings Derivative liabilities Provisions Total non-current liabilities Total liabilities Net assets EQUITY Securityholders of the Trust (parent entity) Contributed equity Reserves Retained earnings Total equity of Trust securityholders Securityholders of other entities stapled to the Trust Contributed equity Reserves Accumulated losses Total equity of other stapled securityholders Total equity 4 6 14(a) 2 3 5 6 14(a) 9 7 9 13 14(a) 8 13 14(a) 8 10(a) 10(b) 10(c) 10(a) 10(b) 10(c) 49.9 118.9 11.8 3.4 7.0 – 56.3 149.2 4.5 – 4.7 9.3 191.0 224.0 8,745.7 3,562.9 30.9 140.4 9.9 257.7 16.9 3.0 12,767.4 12,958.4 374.9 8.6 19.9 9.1 37.9 450.4 3,280.7 118.0 2.3 3,401.0 3,851.4 9,107.0 7,814.8 (40.6) 1,829.5 9,603.7 325.7 57.0 (879.4) (496.7) 9,107.0 7,944.9 3,120.2 35.3 131.4 13.5 337.2 7.5 3.9 11,593.9 11,817.9 378.3 – 48.8 – 30.5 457.6 2,947.8 128.5 1.8 3,078.1 3,535.7 8,282.2 7,804.3 (31.2) 1,022.8 8,795.9 325.5 59.5 (898.7) (513.7) 8,282.2 25 The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. Annual Financial Report of The GPT Group 2 6 Equity attributable to Securityholders At 1 January 2016 Revaluation of available for sale financial asset net of tax Foreign currency translation reserve Cash flow hedge reserve Other comprehensive income for the year Profit for the year Total comprehensive income for the year Transactions with Securityholders in their capacity as Securityholders Issue of stapled securities Reclassification of redemption deficit of exchangeable securities to retained earnings Movement in employee incentive scheme reserve net of tax Reclassification of employee incentive security scheme reserve to retained earnings/accumulated losses Distributions paid and payable At 31 December 2016 Equity attributable to Securityholders At 1 January 2017 Movement in available for sale reserve net of tax Cash flow hedge reserve Other comprehensive income for the year Profit for the year Total comprehensive income for the year Transactions with Securityholders in their capacity as Securityholders Issue of stapled securities Movement in employee incentive scheme reserve net of tax Reclassification of employee incentive security scheme reserve to retained earnings/accumulated losses Distributions paid and payable At 31 December 2017 Note 10(b) 10(b) 10(b) 10(a) 10(a) 10(b) 10(c) 12 10(b) 10(b) 10(a) 10(b) 10(c) 12 General Property Trust Other entities stapled to the General Property Trust Contributed equity $M Reserves $M Retained earnings $M Contributed equity $M Total $M Reserves $M Accumulated losses $M Total $M Total equity $M 7,709.4 (43.9) 477.8 8,143.3 325.3 – – – – – – 10.4 84.5 – – – – (1.8) 14.5 12.7 – 12.7 – – – – – – – – – – (1.8) 14.5 12.7 1,048.8 1,048.8 1,048.8 1,061.5 – – – – – – – 10.4 0.2 (84.5) – 1.4 – – 1.4 (420.7) (420.7) – – – – 59.1 (1.5) 1.0 – (0.5) – (0.5) – – 0.9 – – (1,002.6) (618.2) 7,525.1 – – – – 103.9 103.9 – – – – – (1.5) 1.0 – (0.5) 103.9 103.4 0.2 – 0.9 – – (1.5) (0.8) 14.5 12.2 1,152.7 1,164.9 10.6 – 0.9 1.4 (420.7) 7,804.3 (31.2) 1,022.8 8,795.9 325.5 59.5 (898.7) (513.7) 8,282.2 7,804.3 (31.2) 1,022.8 8,795.9 325.5 – – – – – 10.5 – – – – (9.4) (9.4) – (9.4) – – – – – – – – (9.4) (9.4) 1,249.3 1,249.3 1,249.3 1,239.9 – – 0.6 10.5 – 0.6 (443.2) (443.2) – – – – – 0.2 – – – 59.5 (7.1) – (7.1) – (7.1) – 4.6 – – (898.7) (513.7) 8,282.2 – – – 19.8 19.8 (7.1) – (7.1) 19.8 12.7 (7.1) (9.4) (16.5) 1,269.1 1,252.6 – – 0.2 4.6 (0.5) (0.5) 10.7 4.6 0.1 – – (443.2) 7,814.8 (40.6) 1,829.5 9,603.7 325.7 57.0 (879.4) (496.7) 9,107.0 The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. Y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7 C o n s o l i d a t e d S t a t e m e n t o f C h a n g e s i n E q u i t y Annual Financial Report of The GPT Group Consolidated Statement of Cash Flows Year ended 31 December 2017 Cash flows from operating activities Receipts in the course of operations (inclusive of GST) Payments in the course of operations (inclusive of GST) Proceeds from sale of inventories Payment for inventories Distributions received from equity accounted investments Dividend received from available for sale investment Interest received Income taxes paid Finance costs paid Net cash inflows from operating activities 15 Cash flows from investing activities Acquisition of investment properties Payments for operating capital expenditure on investment properties Payments for development capital expenditure on investment properties Proceeds from disposal of assets Payments for property, plant and equipment Payments for intangibles Investment in equity accounted investments Capital return from available for sale financial asset Proceeds from disposal of equity accounted investments Proceeds from loan repayments Loans advanced Net cash outflows from investing activities Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Payment for termination of derivatives Purchase of securities for the employee incentive scheme Distributions paid to securityholders Net cash outflows from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year Note 31 Dec 17 $M 31 Dec 16 $M 733.8 (267.3) 7.6 (25.1) 171.7 30.4 1.3 (6.9) (110.0) 535.5 (33.0) (84.1) (205.3) 5.5 (1.1) (4.8) (158.3) 10.7 – – – 769.2 (273.7) 12.6 (16.1) 119.1 – 23.7 – (108.6) 526.2 (70.4) (82.9) (124.6) 283.0 (0.7) (4.8) (384.0) – 48.2 156.7 (1.6) (470.4) (181.1) 1,434.1 (1,066.9) (3.1) – (435.6) (71.5) (6.4) 56.3 49.9 2,464.7 (2,407.0) (1.5) (1.2) (413.1) (358.1) (13.0) 69.3 56.3 The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. 27 Annual Financial Report of The GPT Group Result for the year 1. Segment information GPT’s operating segments are described in the table below. The chief operating decision makers monitor the performance of the business on the basis of Funds from Operations (FFO) for each segment. FFO represents GPT’s underlying and recurring earnings from its operations, and is determined by adjusting the statutory net profit after tax for items which are non-cash, unrealised or capital in nature. FFO has been determined in accordance with guidelines issued by the Property Council of Australia. Segment Retail Office Logistics Funds Management Corporate Types of products and services which generate the segment result Ownership, development (including mixed use) and management of predominantly regional and sub-regional shopping centres as well as GPT’s equity investment in GPT Wholesale Shopping Centre Fund. Ownership, development (including mixed use) and management of prime CBD office properties with some associated retail space as well as GPT’s equity investment in GPT Wholesale Office Fund. Ownership, development (including mixed use) and management of logistics and business park assets as well as GPT’s equity investment in GPT Metro Office Fund until GPT divested its interest on 1 July 2016. Management of two Australian wholesale property funds in the retail and office sectors. And management of one Australian listed property fund in the metropolitan office and business park sector until 30 September 2016. Cash and other assets and borrowings and associated hedges plus resulting net finance costs, management operating costs and income tax expense. Notes to the Financial Statements Year ended 31 December 2017 These are the consolidated financial statements of the consolidated entity, GPT Group (GPT), which consists of General Property Trust (the Trust), GPT Management Holdings Limited (the Company) and their controlled entities. The notes to these financial statements have been organised into sections to help users find and understand the information they need to know. Additional information has also been provided where it is helpful to understand GPT’s performance. The notes to the financial statements are organised into the following sections: Note 1 – Result for the year: focuses on results and performance of GPT. Notes 2 to 9 – Operating assets and liabilities: provides information on the assets and liabilities used to generate GPT’s trading performance. Notes 10 to 14 – Capital structure: outlines how GPT manages its capital structure and various financial risks. Notes 15 to 24 – Other disclosure items: provides information on other items that must be disclosed to comply with Australian Accounting Standards and other regulatory pronouncements. Key judgements, estimates and assumptions In applying GPT’s accounting policies, management has made a number of judgements, estimates and assumptions regarding future events. The following judgements and estimates have the potential to have a material impact on the financial statements: Area of judgements and estimates Assumptions underlying Note Management rights with indefinite life Impairment trigger and recoverable amounts IT development and software Inventories Impairment trigger and recoverable amounts Lower of cost and net realisable value Deferred tax assets Recoverability Security based payments Fair value 5 5 6 9 18 22 22 Fair value Fair value Assessment of control versus disclosure guidance 23(b) Investment properties Derivatives Investment in equity accounted investments 28 Annual Financial Report of The GPT Group (a) Segment financial information 31 December 2017 The segment financial information provided to the chief operating decision maker for the year ended 31 December 2017 is set out below. Retail $M Office $M Logistics $M Funds Management $M Corporate $M Total Core $M Non-Core $M Financial performance by segment Rent from investment properties Property expenses and outgoings Income from Funds Fee income Note b(ii) b(iii) b(iv) 360.1 239.2 (98.8) (57.6) 46.5 15.0 68.8 4.4 Management & administrative expenses b(v) (9.7) (7.0) Operations Net Income 313.1 247.8 Development fees Development revenue b(vi) Development costs Development management expenses Development Net Income Interest income Finance costs Net Finance Costs 9.0 10.8 (5.2) 1.6 – – b(v) (9.3) (0.5) 5.3 1.1 – – – – – – Segment Result Before Tax Income tax expense Funds from Operations (FFO) 318.4 248.9 – – 318.4 248.9 b(vii) b(i) 112.5 (17.4) – 0.1 (1.9) 93.3 0.2 10.4 (9.2) (0.7) 0.7 – – – 94.0 – 94.0 – – – 50.7 – – – – 711.8 (173.8) 115.3 70.2 (13.7) (30.6) (62.9) 37.0 (30.6) 660.6 – – – – – – – – – – – – – 1.3 10.8 21.2 (14.4) (10.5) 7.1 1.3 (103.7) (103.7) (102.4) (102.4) 37.0 (133.0) – (11.1) 37.0 (144.1) 565.3 (11.1) 554.2 Reconciliation of segment assets and liabilities to the Consolidated Statement of Financial Position Current assets Current assets Total current assets Non-current assets Investment properties – – – – 11.8 11.8 4,818.7 2,379.4 1,547.6 Equity accounted investments 1,047.1 2,505.8 Inventories Other non-current assets Total non-current assets Total assets Current and non-current liabilities Total liabilities Net assets 62.4 10.2 – 0.3 – 78.0 1.9 5,938.4 4,885.5 1,627.5 5,938.4 4,885.5 1,639.3 – – – – – – 5,938.4 4,885.5 1,639.3 – – – – – – – – – – – Total $M 711.8 (173.8) 115.3 70.2 (62.9) 660.6 10.8 21.2 (14.4) (10.5) 7.1 1.3 (103.7) (102.4) 565.3 (11.1) 554.2 191.0 191.0 8,745.7 3,562.9 140.4 318.4 – – – – – – – – – – – – – – – – – – – – – – – 179.2 179.2 191.0 191.0 – 8,745.7 10.0 3,562.9 – 306.0 140.4 318.4 316.0 12,767.4 – 12,767.4 495.2 12,958.4 – 12,958.4 3,851.4 3,851.4 3,851.4 3,851.4 (3,356.2) 9,107.0 – – – 3,851.4 3,851.4 9,107.0 29 Annual Financial Report of The GPT GroupNotes to the Financial Statements – Year ended 31 December 2017 31 December 2016 The segment financial information provided to the chief operating decision maker for the year ended 31 December 2016 is set out below. Financial performance by segment Note Retail $M Office $M Logistics $M Funds Management $M Corporate $M Total Core $M Non-Core $M Rent from investment properties b(ii) 348.9 220.4 Property expenses and outgoings b(iii) (102.2) (52.6) Income from Funds b(iv) Fee income Performance Fee income Management & administrative expenses 38.7 14.6 – 59.4 5.7 – b(v) (11.7) (9.0) Operations Net Income 288.3 223.9 Development fees Development revenue b(vi) Development costs Share of profit from associate b(iv) 0.3 8.1 (2.3) – 1.6 – – – Development management expenses b(v) (0.3) (0.5) Development Net Income 5.8 1.1 Interest income Finance costs Net Finance Costs – – – – – – Segment Result Before Tax 294.1 225.0 Income tax expense Funds from Operations (FFO) b(vii) b(i) – – 294.1 225.0 109.1 (16.0) 1.4 0.8 – (2.6) 92.7 0.1 15.8 (10.8) 0.1 (2.5) 2.7 – – – 95.4 – 95.4 – – – 47.5 28.1 (14.6) 61.0 – – – – – – – – – 61.0 – 61.0 – – – – – (29.8) (29.8) – – – – – – 2.6 (102.6) (100.0) (129.8) (14.0) (143.8) 678.4 (170.8) 99.5 68.6 28.1 (67.7) 636.1 2.0 23.9 (13.1) 0.1 (3.3) 9.6 2.6 (102.6) (100.0) 545.7 (14.0) 531.7 Total $M 678.4 (170.8) 99.5 68.6 28.1 (67.7) 636.1 2.0 23.9 (13.1) 0.1 (3.3) 9.6 7.9 – – – – – – – – – – – – – 5.3 – (102.6) 5.3 (94.7) 5.3 – 5.3 551.0 (14.0) 537.0 Reconciliation of segment assets and liabilities to the Consolidated Statement of Financial Position Current assets Current assets Total current assets Non-current assets – – – – 4.5 4.5 Investment properties 4,468.6 2,071.5 1,404.8 Equity accounted investments 855.0 2,255.2 Inventories Other non-current assets 57.4 10.4 – 1.2 – 74.0 2.1 Total non-current assets 5,391.4 4,327.9 1,480.9 Total assets 5,391.4 4,327.9 1,485.4 Current and non-current liabilities Total liabilities Net assets – – – – – – 5,391.4 4,327.9 1,485.4 – – – – – – – – – – – 179.8 179.8 – 10.0 – 383.7 393.7 573.5 184.3 184.3 39.7 39.7 224.0 224.0 7,944.9 3,120.2 131.4 397.4 – – – – 7,944.9 3,120.2 131.4 397.4 11,593.9 – 11,593.9 11,778.2 39.7 11,817.9 3,535.7 3,535.7 3,535.7 (2,962.2) 3,535.7 8,242.5 – – 3,535.7 3,535.7 39.7 8,282.2 30 Annual Financial Report of The GPT GroupNotes to the Financial Statements – Year ended 31 December 2017 (b) Reconciliation of segment result to the Consolidated Statement of Comprehensive Income (i) FFO to Net profit for the year Segment result FFO Adjustments Fair value gain on investment properties Fair value gain and other adjustments to equity accounted investments Amortisation of lease incentives and costs Straightlining of leases Valuation increase Net loss on fair value movement of derivatives Net impact of foreign currency borrowings and associated hedging loss Net foreign exchange loss Gain on financial liability at amortised cost Financial instruments mark to market and net foreign exchange loss Dividend income Net gain on disposal of assets Impairment expense Other items Total other items Consolidated Statement of Comprehensive Income Net profit for the year (ii) Rent from investment properties Segment result Rent from investment properties Less: share of rent from investment properties in equity accounted investments Adjustments Amortisation of lease incentives and costs Straightlining of leases Consolidated Statement of Comprehensive Income Rent from investment properties (iii) Property expenses and outgoings Segment result Property expenses and outgoings Less: share of property expenses and outgoings in equity accounted investments Consolidated Statement of Comprehensive Income Property expenses and outgoings (iv) Share of after tax profit of equity accounted investments Segment result Income from Funds Share of rent from investment properties in equity accounted investments Share of property expenses and outgoings in equity accounted investments Share of profit from associate Development revenue Adjustment Fair value gain and other adjustments to equity accounted investments Consolidated Statement of Comprehensive Income Share of after tax profit of equity accounted investments 31 Dec 17 $M 31 Dec 16 $M 554.2 537.0 481.0 263.9 (38.9) 11.7 717.7 (5.7) (0.2) 0.8 2.2 (2.9) – 10.7 (5.4) (5.2) 0.1 418.1 223.0 (43.1) 13.6 611.6 (26.6) 2.2 (0.2) 1.6 (23.0) 30.4 15.9 0.6 (19.8) 27.1 1,269.1 1,152.7 711.8 (74.0) (38.9) 11.7 678.4 (64.8) (43.1) 13.6 610.6 584.1 (173.8) 15.5 (170.8) 13.5 (158.3) (157.3) 115.3 74.0 (15.5) – 6.2 99.5 64.8 (13.5) 0.1 1.5 263.9 223.0 443.9 375.4 31 Annual Financial Report of The GPT GroupNotes to the Financial Statements – Year ended 31 December 2017 (v) Management and administration expenses Segment result Operations Development Less: depreciation expense Consolidated Statement of Comprehensive Income Management and administration expenses (vi) Development revenue Segment result Development revenue Share of after tax profit of equity accounted investments Consolidated Statement of Comprehensive Income Development revenue (vii) Income tax expense Segment result Income tax expense Adjustment 31 Dec 17 $M 31 Dec 16 $M (62.9) (10.5) 1.7 (67.7) (3.3) 1.9 (71.7) (69.1) 21.2 (6.2) 15.0 23.9 (1.5) 22.4 (11.1) (14.0) Tax impact of reconciling items from segment result to net profit for the year 0.8 (8.4) Consolidated Statement of Comprehensive Income Income tax expense (c) Net profit on disposal and derecognition of assets Details of disposals/capital returns during the year: Cash consideration Less: transaction costs Net consideration Carrying amount of net assets sold/derecognised Foreign exchange gain realised on disposal/derecognition Transfer from reserves Profit on sale and derecognition before income tax The carrying amounts of assets and liabilities as at the date of disposal/derecognition were: Investment properties Equity accounted investments Other assets Other liabilities Net assets Revenue (10.3) (22.4) Non-core $M 31 Dec 17 $M 31 Dec 16 $M 10.7 – 10.7 (10.7) – 10.7 10.7 – – 10.7 – 10.7 10.7 – 10.7 336.0 (4.2) 331.8 (10.7) (316.7) – 10.7 10.7 – – 10.7 – 10.7 0.8 – 15.9 270.5 39.2 8.3 (1.3) 316.7 Rental revenue from investment properties is recognised on a straightline basis over the lease term. An asset is also recognised as a component of investment properties relating to fixed increases in operating lease rentals in future periods. When GPT provides lease incentives to tenants, any costs are recognised on a straightline basis over the lease term. Contingent rental income is recognised as revenue in the period in which it is earned. Property, development and fund management fee revenue is recognised on an accruals basis, in accordance with the terms of the relevant contracts. Development revenue is recognised as and when GPT is entitled to the benefits. Revenue from dividends and distributions is recognised when they are declared. 32 Annual Financial Report of The GPT GroupNotes to the Financial Statements – Year ended 31 December 2017 Interest income is recognised on an accruals basis using the effective interest method. Profit or loss on disposal of an asset is recognised as the difference between the carrying amount and the net proceeds from disposal. Where revenue is obtained from the sale of properties or assets, it is recognised when the significant risks and rewards have transferred to the buyer. Expenses Property expenses and outgoings which include rates, taxes and other property outgoings, are recognised on an accruals basis. Finance costs Finance costs include interest, amortisation of discounts or premiums relating to borrowings and amortisation of ancillary costs incurred in connection with the arrangement of borrowings. Finance costs are expensed as incurred unless they relate to a qualifying asset. A qualifying asset is an asset under development which generally takes a substantial period of time to bring to its intended use or sale. Finance costs incurred for the acquisition and construction of a qualifying asset are capitalised to the cost of the asset for the period of time that is required to complete the asset. Where funds are borrowed specifically for a development project, finance costs associated with the development facility are capitalised. Where funds are used from group borrowings, finance costs are capitalised using an appropriate capitalisation rate. Operating assets and liabilities 2. Investment properties Retail Office Logistics Properties under development Total investment properties Note 31 Dec 17 $M 31 Dec 16 $M (a) (b) (c) (d) (e) 4,818.7 4,468.6 2,306.8 2,068.1 1,498.6 1,317.3 121.6 90.9 8,745.7 7,944.9 Ownership interest5 % Acquisition date Latest independent valuation date Valuer Fair value 31 Dec 17 $M Fair value 31 Dec 16 $M (a) Retail Casuarina Square, NT Charlestown Square, NSW 50.0 100.0 Oct 1973 Dec 1977 Pacific Highway, Charlestown, NSW 100.0 Oct 2002/Jul 2003 Jun 2017 Sep 2017 CB Richard Ellis Pty Ltd Jun 2017 Sep 2017 Sep 2017 M3 Property M3 Property Savills Australia Savills Australia Jun 2017 Knight Frank Valuations 16.7 16.7 50.0 Aug 2009 Aug 2009 Jun 1971 **50.0 Dec 1992/Sep 2004 Dec 2017 50.0 100.0 Jun 1999 Dec 2005 Dec 2017 Dec 2017 M3 Property M3 Property M3 Property 100.0 May 1999/May 2001 Dec 2017 CB Richard Ellis Pty Ltd Highpoint Shopping Centre, VIC Homemaker City, Maribyrnong, VIC Westfield Penrith, NSW Sunshine Plaza, QLD Plaza Parade, QLD Rouse Hill Town Centre, NSW Melbourne Central, VIC – retail portion1 Total Retail (b) Office Australia Square, Sydney, NSW MLC Centre, Sydney, NSW One One One Eagle Street, Brisbane, QLD Melbourne Central, VIC – office portion1 50.0 50.0 33.3 Sep 1981 Apr 1987 Apr 1984 Jun 2017 Colliers International Jun 2017 Knight Frank Valuations Dec 2017 CB Richard Ellis Pty Ltd 100.0 May 1999/May 2001 Jun 2017 Jones Lang LaSalle Corner of Bourke and William, VIC 50.0 Oct 2014 Dec 2017 Jones Lang LaSalle Total Office 322.6 924.8 6.6 434.2 11.7 669.5 449.3 10.0 606.8 313.0 885.5 7.1 373.4 9.8 636.2 380.5 10.3 578.8 1,383.2 4,818.7 1,274.0 4,468.6 444.2 662.2 293.7 546.7 360.0 402.6 531.5 284.2 513.5 336.3 2,306.8 2,068.1 1 Melbourne Central: 71.7% Retail and 28.3% Office (31 Dec 2016: 71.3% Retail and 28.7% Office). Melbourne Central – Retail Includes 100% of Melbourne Central car park and 100% of 202 Little Lonsdale Street. 33 Annual Financial Report of The GPT GroupNotes to the Financial Statements – Year ended 31 December 2017 Ownership interest5 % Acquisition date Latest independent valuation date Valuer Fair value 31 Dec 17 $M Fair value 31 Dec 16 $M (c) Logistics Citi-West Industrial Estate, Altona North, VIC 100.0 Aug 1994 Dec 2017 CB Richard Ellis Pty Ltd Quad 1, Sydney Olympic Park, NSW *100.0 Jun 2001 Jun 2017 Quad 4, Sydney Olympic Park, NSW *100.0 Jun 2004 Jun 2017 M3 Property M3 Property 6 Herb Elliott Avenue, Sydney Olympic Park, NSW *100.0 Jun 2010 Jun 2017 Knight Frank Valuations 8 Herb Elliott Avenue, Sydney Olympic Park, NSW *100.0 Aug 2004 Jun 2017 Knight Frank Valuations 3 Figtree Drive, Sydney Olympic Park, NSW *100.0 Apr 2013 Jun 2017 Knight Frank Valuations 5 Figtree Drive, Sydney Olympic Park, NSW *100.0 Jul 2005 Jun 2017 Knight Frank Valuations 7 Figtree Drive, Sydney Olympic Park, NSW *100.0 Jul 2004 Jun 2017 Knight Frank Valuations Rosehill Business Park, Camellia, NSW 100.0 May 1998 Dec 2017 CB Richard Ellis Pty Ltd 16–34 Templar Road, Erskine Park, NSW 100.0 Jun 2008 Dec 2017 Colliers International 67–75 Templar Road, Erskine Park, NSW 100.0 Jun 2008 Dec 2017 Savills Australia 81.6 24.0 51.5 12.0 11.7 24.5 26.7 15.3 81.4 58.3 24.2 70.6 23.4 49.3 11.1 11.3 24.0 26.5 15.0 79.4 54.5 23.5 Austrak Business Park, Somerton, VIC 50.0 Oct 2003 Dec 2017 Jones Lang LaSalle 170.5 165.4 4 Holker Street, Newington, NSW 100.0 Mar 2006 Dec 2017 CB Richard Ellis Pty Ltd 372–374 Victoria Street, Wetherill Park, NSW 18–24 Abbott Road, Seven Hills, NSW2 100.0 100.0 Jul 2006 Dec 2017 CB Richard Ellis Pty Ltd Oct 2006 Jun 2017 CB Richard Ellis Pty Ltd Citiport Business Park, Port Melbourne, VIC 100.0 Mar 2012 Jun 2017 Savills Australia 83 Derby Street, Silverwater, NSW 100.0 Aug 2012 Dec 2017 Jones Lang LaSalle 10 Interchange Drive, Eastern Creek, NSW 100.0 Aug 2012 Dec 2017 Jones Lang LaSalle 407 Pembroke Road, Minto, NSW 50.0 Oct 2008 Jun 2017 Jones Lang LaSalle Corner Pine Road and Loftus Road, Yennora, NSW 100.0 Nov 2013 Jun 2017 M3 Property 16-28 Quarry Road, Yatala, QLD 100.0 Nov 2013 Dec 2017 CB Richard Ellis Pty Ltd 33.0 24.8 34.6 75.8 34.8 33.2 25.5 52.9 44.3 29.0 21.8 – 71.0 31.8 32.0 26.5 52.2 43.2 Toll NQX, Karawatha, QLD 100.0 Dec 2012 Jun 2017 CB Richard Ellis Pty Ltd 108.0 102.5 TNT, 29–55 Lockwood Road, Erskine Park, NSW 100.0 Jun 2008 Jun 2017 Savills Australia RAND, 36–52 Templar Road, Erskine Park, NSW 100.0 Jun 2008 Jun 2017 Jones Lang LaSalle RRM, 54–70 Templar Road, Erskine Park, NSW 100.0 Jun 2008 Jun 2017 M3 Property 1 Huntingwood Drive, Huntingwood, NSW Loscam Metroplex, Wacol, QLD2 Lot 2012 Eastern Creek Drive, Eastern Creek, NSW2 100.0 Oct 2016 Jun 2017 CB Richard Ellis Pty Ltd 100.0 Dec 2016 Jun 2017 Jones Lang LaSalle 100.0 Apr 2016 Dec 2017 CB Richard Ellis Pty Ltd Total Logistics (d) Property under Development Erskine Park, NSW3 407 Pembroke Rd, Minto, NSW Austrak Business Park, Somerton, VIC 18–24 Abbott Road, Seven Hills, NSW2 4 Murray Rose Drive, Sydney Olympic Park, NSW Lot 2012 Eastern Creek Drive, Eastern Creek, NSW2 Lot 21 Old Wallgrove Road, Eastern Creek, NSW Loscam Metroplex, Wacol, QLD2 32 Smith, Parramatta, NSW4 Total Properties under development 100.0 Jun 2008 Jun 2015 CB Richard Ellis Pty Ltd 50.0 50.0 Oct 2008 Jun 2016 M3 Property Oct 2003 Dec 2017 Jones Lang LaSalle 100.0 Oct 2006 Jun 2017 CB Richard Ellis Pty Ltd *100.0 May 2002 Dec 2017 CB Richard Ellis Pty Ltd 100.0 Apr 2016 Dec 2017 CB Richard Ellis Pty Ltd 100.0 Jun 2016 - - 100.0 Dec 2016 Jun 2017 Jones Lang LaSalle 100.0 Mar 2017 - - 98.1 98.3 145.0 50.9 15.0 42.7 85.5 97.0 138.0 32.8 – – 1,498.6 1,317.3 – 5.6 21.7 – 33.0 – 21.7 – 39.6 121.6 5.5 5.5 19.4 14.7 3.4 18.9 17.1 6.4 – 90.9 2 Following practical completion in April, May and October 2017 respectively, 18-24 Abbott Road, Seven Hills, Loscam Metroplex, Wacol and Lot 2012 Eastern Creek Drive, Eastern Creek have been reclassified from properties under development to investment property in the Logistics portfolio. 3 On 8 February 2017 GPT sold its 100% interest in Lot 101, 16 Lockwood Road, Erskine Park for a consideration of $5.5 million. 4 On 17 March 2017 GPT acquired a 100% interest in 32 Smith, Parramatta for a total consideration for $33.0 million (including transaction costs of $1.8 million). 5 Freehold, unless otherwise marked with a * which denotes leasehold and ** denotes a combination of freehold and leasehold respectively. 34 Annual Financial Report of The GPT GroupNotes to the Financial Statements – Year ended 31 December 2017 (e) Reconciliation Retail $M Office $M Logistics $M Properties under development $M Carrying amount at the beginning of the year 4,468.6 2,068.1 1,317.3 Additions – operating capital expenditure Additions – development capital expenditure Additions – interest capitalised1 Asset acquisitions Transfers from properties under development Transfers from inventory Lease incentives Amortisation of lease incentives and costs Disposals Fair value adjustments Leasing costs Straightlining of leases 22.9 91.6 2.9 – – – 14.3 (11.4) – 223.6 3.7 2.5 19.5 27.1 – – – – 14.4 (21.4) – 197.7 0.8 0.6 8.5 23.4 1.3 – 76.1 2.8 7.6 (6.1) – 58.5 0.6 8.6 90.9 – 73.7 4.4 33.0 (76.1) – – – (5.5) 1.2 – – 31 Dec 17 $M 31 Dec 16 $M 7,944.9 7,372.8 50.9 215.8 8.6 33.0 – 2.8 36.3 (38.9) (5.5) 481.0 5.1 11.7 38.4 128.8 4.5 71.3 – (30.1) 47.3 (42.5) (82.4) 417.5 5.7 13.6 Carrying amount at the end of the year 4,818.7 2,306.8 1,498.6 121.6 8,745.7 7,944.9 1 A capitalisation interest rate of 5.4% (2016: 5.3%) has been applied when capitalising interest on qualifying assets. Land and buildings which are held to earn rental income or for capital appreciation or for both, and which are not wholly occupied by GPT, are classified as investment properties. Investment properties are initially recognised at cost and subsequently stated at fair value at each balance date. Fair value is based on the latest independent valuation adjusting for capital expenditure and capitalisation and amortisation of lease incentives since the date of the independent valuation report. Any change in fair value is recognised in the Consolidated Statement of Comprehensive Income in the period. Properties under development are stated at fair value at each balance date. Fair value is assessed with reference to reliable estimates of future cash flows, status of the development and the associated risk profile. Finance costs incurred on properties undergoing development are included in the cost of the development. Lease incentives provided by GPT to lessees are included in the measurement of fair value of investment property and are amortised over the lease term using a straightline basis. Critical judgements are made by GPT in respect of the fair values of investment properties. Fair values are reviewed regularly by management with reference to independent property valuations, recent offers and market conditions, using generally accepted market practices. The valuation process, critical assumptions underlying the valuations and information on sensitivity are disclosed in note 22. (f) Operating lease receivables Non-cancellable operating lease receivables not recognised in the financial statements at balance date are as follows: Due within one year Due between one and five years Due after five years Total operating lease receivables Consolidated entity 31 Dec 17 $M 31 Dec 16 $M 467.5 460.4 1,285.6 1,234.5 979.9 942.2 2,733.0 2,637.1 35 Annual Financial Report of The GPT GroupNotes to the Financial Statements – Year ended 31 December 2017 3. Equity accounted investments Investments in joint ventures Investments in associates Total equity accounted investments (a) Details of equity accounted investments Note (a)(i) (a)(ii) 31 Dec 17 $M 31 Dec 16 $M 1,135.0 2,427.9 3,562.9 1,004.4 2,115.8 3,120.2 Name (i) Joint ventures 2 Park Street Trust1 1 Farrer Place Trust1 Horton Trust Lendlease GPT (Rouse Hill) Pty Limited1,2 DPT Operator Pty Limited Total investment in joint venture entities (ii) Associates GPT Wholesale Office Fund1,3 GPT Wholesale Shopping Centre Fund1,4 GPT Funds Management Limited Total investments in associates 1 The entity has a 30 June balance date. Ownership Interest Principal Activity 31 Dec 17 % 31 Dec 16 % 31 Dec 17 $M 31 Dec 16 $M Investment property Investment property Investment property Property development Management Investment property Investment property Funds management 50.00 50.00 50.00 50.00 50.00 24.95 28.80 100.00 50.00 50.00 50.00 50.00 50.00 24.53 25.29 100.00 630.1 465.9 27.0 11.9 0.1 547.9 424.1 26.6 5.7 0.1 1,135.0 1,004.4 1,409.7 1,008.2 10.0 2,427.9 1,283.1 822.7 10.0 2,115.8 2 GPT has a 50% interest in Lendlease GPT (Rouse Hill) Pty Limited, a joint venture developing residential and commercial land at Rouse Hill, in partnership with Urban Growth and the NSW Department of Planning. 3 4 In June 2017, GPT acquired an additional 16.3 million units in GWOF. In May 2017, GPT acquired an additional 115.6 million units in GWSCF. 36 Annual Financial Report of The GPT GroupNotes to the Financial Statements – Year ended 31 December 2017 (b) Summarised financial information for associates and joint ventures The information disclosed reflects the amounts presented in the 31 December 2017 financial results of the relevant associates and joint ventures and not GPT’s share of those amounts. They have been amended to reflect adjustments made by GPT when using the equity method, including fair value adjustments and modifications for differences in accounting policies. (i) Joint ventures Current assets Cash and cash equivalents Other current assets Total current assets 2 Park Street Trust 1 Farrer Place Trust Others Total 31 Dec 17 $M 31 Dec 16 $M 31 Dec 17 $M 31 Dec 16 $M 31 Dec 17 $M 31 Dec 16 $M 31 Dec 17 $M 31 Dec 16 $M 9.8 1.8 11.6 5.5 1.2 6.7 10.9 7.1 18.0 12.3 4.9 17.2 Total non-current assets 1,260.0 1,109.0 953.5 870.2 Current liabilities Financial liabilities (excluding trade payables, other payables and provisions) Other current liabilities Total current liabilities Non-current liabilities Financial liabilities (excluding trade payables, other payables and provisions) Total non-current liabilities 9.4 2.0 11.4 – – 19.9 – 19.9 – – 33.0 6.7 39.7 – – 33.3 5.9 39.2 – – 17.6 8.2 25.8 63.9 2.8 0.1 2.9 8.8 8.8 17.1 1.4 18.5 38.3 17.1 55.4 34.9 7.5 42.4 67.6 2,277.4 2,046.8 13.2 – 13.2 8.1 8.1 45.2 8.8 54.0 8.8 8.8 66.4 5.9 72.3 8.1 8.1 Net assets 1,260.2 1,095.8 931.8 848.2 78.0 64.8 2,270.0 2,008.8 Reconciliation to carrying amounts: Opening net assets 1 January 1,095.8 Profit for the year Issue of equity Distributions paid/payable Closing net assets GPT’s share 197.6 24.6 (57.8) 984.9 151.7 8.9 (49.7) 1,260.2 1,095.8 630.1 547.9 Summarised statement of comprehensive income Revenue Profit for the year Total comprehensive income 73.0 197.6 197.6 60.4 151.7 151.7 848.2 109.6 11.4 (37.4) 931.8 465.9 62.4 109.6 109.6 730.8 124.3 27.4 (34.3) 848.2 424.1 76.8 124.3 124.3 64.8 16.0 – (2.8) 78.0 39.0 4.6 16.0 16.0 5.6 – 61.6 2,008.8 1,777.3 323.2 281.6 36.0 (2.4) (98.0) 36.3 (86.4) 64.8 2,270.0 2,008.8 32.4 1,135.0 1,004.4 23.2 5.6 5.6 140.0 323.2 323.2 160.4 281.6 281.6 37 Annual Financial Report of The GPT GroupNotes to the Financial Statements – Year ended 31 December 2017 (ii) Associates GPT Wholesale Office Fund GPT Wholesale Shopping Centre Fund Others Total 31 Dec 17 $M 31 Dec 16 $M 31 Dec 17 $M 31 Dec 16 $M 31 Dec 17 $M 31 Dec 16 $M 31 Dec 17 $M 31 Dec 16 $M Total current assets 72.6 137.3 51.8 44.5 10.0 10.0 134.4 191.8 Total non-current assets 7,032.8 6,461.4 4,799.6 3,714.3 Total current liabilities 156.5 163.8 129.4 Total non-current liabilities 1,299.1 1,204.2 1,221.5 326.9 178.9 – – – – – – 11,832.4 10,175.7 285.9 490.7 2,520.6 1,383.1 Net assets 5,649.8 5,230.7 3,500.5 3,253.0 10.0 10.0 9,160.3 8,493.7 Reconciliation to carrying amounts: Opening net assets 1 January 5,230.7 4,797.8 3,253.0 3,082.5 10.0 287.0 8,493.7 8,167.3 Profit for the year Issue/(sale) of equity 688.6 685.7 400.6 348.6 – – 7.2 – Distributions paid/payable (269.5) (252.8) (160.3) (178.1) Closing net assets GPT’s share 5,649.8 5,230.7 3,500.5 3,253.0 1,409.7 1,283.1 1,008.2 822.7 Summarised statement of comprehensive income Revenue Profit for the year Total comprehensive income 500.3 688.6 688.6 507.9 685.7 685.7 294.9 400.6 400.6 304.3 348.6 348.6 Distributions received/receivable from their associates 39.5 44.8 – – – – – 10.0 10.0 – – – – 33.0 1,089.2 1,067.3 (287.0) 7.2 (23.0) (429.8) (287.0) (453.9) 10.0 9,160.3 8,493.7 10.0 2,427.9 2,115.8 18.1 795.2 830.3 33.0 1,089.2 1,067.3 33.0 1,089.2 1,067.3 – 39.5 44.8 4. Loans and receivables Current assets Trade receivables Less: impairment of trade receivables Distributions receivable from joint ventures Distributions receivable from associates Dividends receivable from investments Related party receivables1 Levies asset Other receivables Total current loans and receivables 31 Dec 17 $M 31 Dec 16 $M 10.6 (0.9) 9.7 12.9 26.3 – 21.3 15.1 33.6 8.5 (1.0) 7.5 22.5 29.4 30.4 17.8 13.9 27.7 118.9 149.2 1 The related party receivables are on commercial terms and conditions. The table below shows the ageing analysis of GPT’s loans and receivables. 31 Dec 17 31 Dec 16 0-30 days $M 116.3 – 116.3 31-60 days $M 61-90 days $M 90+ days $M Total $M 0-30 days $M 31-60 days $M 61-90 days $M 90+ days $M Total $M 0.8 – 0.8 0.1 2.6 119.8 146.3 – (0.9) (0.9) – 0.1 1.7 118.9 146.3 0.5 – 0.5 0.1 3.3 150.2 – (1.0) (1.0) 0.1 2.3 149.2 Current receivables Impairment of current receivables Total loans and receivables 38 Annual Financial Report of The GPT GroupNotes to the Financial Statements – Year ended 31 December 2017 Loans and receivables are initially recognised at fair value and subsequently at amortised cost using the effective interest rate method less any allowance for impairment. All loans and receivables with maturities greater than 12 months after balance date are classified as non-current assets. Recoverability of trade receivables Recoverability of trade receivables is assessed on an ongoing basis. Impairment is recognised in the Consolidated Statement of Comprehensive Income when there is objective evidence that GPT will not be able to collect the debts. Financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial re-organisation and default or delinquency in payments are considered objective evidence of impairment. See note 14(e) for more information on management of credit risk relating to trade receivables. The amount of the impairment loss is the receivable carrying amount compared to the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. Debts that are known to be uncollectable are written off when identified. 5. Intangible assets Costs Balance as at 31 December 2015 Additions Balance as at 31 December 2016 Additions Disposals Transfers Balance as at 31 December 2017 Accumulated amortisation and impairment Balance as at 31 December 2015 Amortisation Balance as at 31 December 2016 Amortisation Impairment Disposals Balance as at 31 December 2017 Carrying amounts Balance as at 31 December 2016 Balance as at 31 December 2017 Management rights $M IT development and software $M 55.8 – 55.8 – – – 55.8 (44.8) (0.3) (45.1) (0.3) – – 61.9 5.2 67.1 4.7 (11.4) 2.8 63.2 (37.4) (5.1) (42.5) (5.7) (5.9) 11.4 Total $M 117.7 5.2 122.9 4.7 (11.4) 2.8 119.0 (82.2) (5.4) (87.6) (6.0) (5.9) 11.4 (45.4) (42.7) (88.1) 10.7 10.4 24.6 20.5 35.3 30.9 Management rights Management rights include property management and development management rights. Rights are initially measured at cost and subsequently amortised over their useful life, which ranges from 5 to 10 years. For the management rights of Highpoint Shopping Centre, management considers the useful life as indefinite as there is no fixed term included in the management agreement. Therefore, GPT tests for impairment at balance date. Assets are impaired if the carrying value exceeds their recoverable amount. The recoverable amount is determined using a multiples approach. A range of multiples from 10-15x have been used in the calculation. IT development and software Costs incurred in developing systems and acquiring software and licenses that will contribute future financial benefits are capitalised. These include external direct costs of materials and services and direct payroll and payroll related costs of employees’ time spent on the project. Amortisation is calculated on a straightline basis over the length of time over which the benefits are expected to be received, generally ranging from 3 to 10 years. IT development and software are assessed for impairment at each reporting date by evaluating if any impairment triggers exist. Where impairment triggers exist, management calculate the recoverable amount. The asset will be impaired if the carrying value exceeds the recoverable amount. Critical judgements are made by GPT in setting appropriate impairment triggers and assumptions used to determine the recoverable amount. 39 Annual Financial Report of The GPT GroupNotes to the Financial Statements – Year ended 31 December 2017 6. Inventories Development properties Current inventories Development properties Non-current inventories Total inventories 31 Dec 17 $M 31 Dec 16 $M 11.8 11.8 140.4 140.4 152.2 4.5 4.5 131.4 131.4 135.9 Development properties held as inventory to be sold are stated at the lower of cost and net realisable value. Cost Cost includes the cost of acquisition, development, finance costs and all other costs directly related to specific projects including an allocation of direct overhead expenses. Post completion of the development, finance costs and other holding charges are expensed as incurred. Net realisable value (NRV) The NRV is the estimated selling price in the ordinary course of business less estimated costs to sell. At each reporting date, management reviews these estimates by taking into consideration: • the most reliable evidence; and • any events which confirm conditions existing at the year end and cause any fluctuations of selling price and costs to sell. The amount of any write down is recognised as an impairment expense in the Consolidated Statement of Comprehensive Income. An impairment expense reversal of $0.4 million has been recognised for the year ended 31 December 2017 (2016: Impairment expense of $6.0 million). 7. Payables Trade payables and accruals GST payables Distribution payable to stapled securityholders Interest payable Other payables Total payables 31 Dec 17 $M 31 Dec 16 $M 124.5 1.1 221.6 17.6 10.1 374.9 133.1 1.1 214.0 18.0 12.1 378.3 Trade payables and accruals represent liabilities for goods and services provided to GPT prior to the end of the financial year which are unpaid. They are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method. 8. Provisions Current provisions Employee benefits Provision for levies Other Total current provisions Non-current provisions Employee benefits Total non-current provisions 31 Dec 17 $M 31 Dec 16 $M 10.1 15.1 12.7 37.9 2.3 2.3 9.0 13.9 7.6 30.5 1.8 1.8 Provisions are recognised when: • GPT has a present obligation (legal or constructive) as a result of a past event; it is probable that resources will be expended to settle the obligation; and • • a reliable estimate can be made of the amount of the obligation. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the obligation. 40 Annual Financial Report of The GPT GroupNotes to the Financial Statements – Year ended 31 December 2017 Provision for employee benefits The provision for employee benefits represents annual leave and long service leave entitlements accrued for employees. The employee benefit liability expected to be settled within twelve months after the end of the reporting period is recognised in current liabilities. Employee benefits expenses in the Consolidated Statement of Comprehensive Income Employee benefits expenses 9. Taxation (a) Income tax expense Current income tax expense Deferred income tax (credit)/expense Income tax expense in the Statement of Comprehensive Income Income tax expense attributable to: Profit from continuing operations Profit from discontinued operations Aggregate income tax expense (b) Reconciliation of accounting profit to income tax expense and current tax liability Net profit for the year excluding income tax expense Less: Trust profit not subject to tax Profit which is subject to taxation Prima facie income tax at 30% tax rate (2016: 30%) Tax effect of amounts not deductible/assessable in calculating income tax expense: Adjustments for income tax for prior years Previously unrecognised tax losses Revaluation and amortisation Non assessable income Other tax adjustments Income tax expense Add/(less) amounts to reconcile to current tax liability: Temporary differences: Employee benefits Provisions and accruals Dividends received/(receivable) Other deferred tax asset charged to income Movement in reserves Opening balance: Tax losses transferred from deferred tax asset Tax losses and adjustments: Tax losses recognised Prior tax losses utilised Movement in reserves Prior year adjustments Tax payments made to tax authorities Current tax liability 31 Dec 17 $M 31 Dec 16 $M 114.5 115.1 31 Dec 17 $M 31 Dec 16 $M 20.0 (9.7) 10.3 10.3 – 10.3 1,279.4 (1,274.5) 4.9 1.5 0.2 (0.4) 10.0 (6.1) 5.1 10.3 0.7 (0.3) 9.1 1.9 (1.7) (2.0) – – (2.5) – (6.9) 8.6 – 22.4 22.4 22.4 – 22.4 1,175.1 (1,132.6) 42.5 12.8 0.5 (15.2) 26.2 (4.0) 2.1 22.4 0.7 0.3 (9.1) (0.9) (0.3) – 15.2 (27.8) – (0.5) – – 41 Annual Financial Report of The GPT GroupNotes to the Financial Statements – Year ended 31 December 2017 (c) Deferred tax assets Employee benefits Provisions and accruals Other Tax losses recognised Net deferred tax asset Movement in temporary differences during the year Opening balance at beginning of the year Credited to the Statement of Comprehensive Income Movement in reserves Utilisation of tax losses Closing balance at end of the year (d) Effective tax rate Adoption of Voluntary Tax Transparency Code 31 Dec 17 $M 31 Dec 16 $M 15.4 2.9 (1.4) – 16.9 7.5 9.7 1.7 (2.0) 16.9 14.7 3.2 (12.4) 2.0 7.5 30.2 6.6 (0.3) (29.0) 7.5 The Board of Taxation has released a voluntary Tax Transparency Code (TTC). The TTC sets out a recommended set of principles and minimum standards regarding the disclosure of tax information for businesses. GPT is committed to the TTC. The non-IFRS income tax disclosures below and in note 9(b) include the recommended additional disclosures. The Australian Accounting Standards Board have issued a Draft Appendix to the TTC outlining the method to calculate the effective tax rate as shown in the table below, using: • accounting profit before tax adjusted to exclude transactions which are not reflected in the calculation of income tax expense; and • tax expense adjusted to exclude carry forward tax losses that have been recognised and prior year under/overstatements. Net profit for the year excluding income tax expense Less: Trust profit not subject to tax Add: non-deductible revaluation items in the Company Less: equity accounted profits from joint ventures in the Company Profit used to calculate effective tax rate Income tax expense Add: carry forward tax losses recognised Less: prior year under/overstatements Income tax expense used to calculate effective tax rate Effective tax rate Trusts 31 Dec 17 $M 1,279.4 (1,274.5) 31 Dec 16 $M 1,175.1 (1,132.6) 34.1 (6.2) 32.8 10.3 0.4 (0.2) 10.5 32% 81.8 (1.5) 122.8 22.4 15.2 (0.5) 37.1 30% Property investments are held by the Trust for the purposes of earning rental income. Under current tax legislation, the Trust is not liable for income tax provided the taxable income of the Trust including realised capital gains is attributed in full to its securityholders each financial year. Securityholders are subject to income tax at their own marginal tax rates on amounts attributable to them. Company and other taxable entities Income tax expense for the financial year is the tax payable on the current year’s taxable income. This is adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. 42 Annual Financial Report of The GPT GroupNotes to the Financial Statements – Year ended 31 December 2017 Deferred income tax liabilities and assets – recognition Deferred income tax liabilities are recognised for all taxable temporary differences. Deferred income tax assets are recognised for all deductible temporary differences, carried forward unused tax assets and unused tax losses, to the extent it is probable that taxable profit will be available to utilise them. The carrying amount of deferred income tax assets is reviewed and reduced to the extent that it is no longer probable that sufficient taxable profit will be available. Deferred income tax liabilities and assets – measurement Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date. Deferred income tax is provided on temporary differences at the reporting date between accounting carrying amounts and the tax cost bases of assets and liabilities, other than for the following: • where taxable temporary differences relate to investments in subsidiaries, associates and interests in joint ventures: – deferred tax liabilities are not recognised if the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future; – deferred tax assets are not recognised if it is not probable that the temporary differences will reverse in the foreseeable future and taxable profit will not be available to utilise the temporary differences. Tax relating to equity items Income taxes relating to items recognised directly in equity are recognised in equity and not in the Consolidated Statement of Comprehensive Income. Capital structure Capital is defined as the combination of securityholders’ equity, reserves and net debt (borrowings less cash). The Board is responsible for monitoring and approving the capital management framework within which management operates. The purpose of the framework is to safeguard GPT’s ability to continue as a going concern while optimising its debt and equity structure. GPT aims to maintain a capital structure which includes net gearing levels within a range of 25 to 35 per cent (based on net debt, less fair value adjustment on foreign bonds to total tangible assets, less cash and cross currency derivative assets) that is consistent with a stable investment grade credit rating in the “A category”. At 31 December 2017, GPT is credit rated A (stable)/A2 (stable) by Standard and Poor’s (S&P) and Moody’s Investor Services (Moody’s) respectively. The ratings are important as they reflect the investment grade credit rating of GPT which allows access to global capital markets to fund its development pipeline and future acquisition investment opportunities. The stronger ratings improve both the availability of capital, in terms of amount and tenor, and reduce the cost at which it can be obtained. GPT is able to vary the capital mix by: • issuing stapled securities; • buying back stapled securities; • activating the distribution reinvestment plan; • adjusting the amount of distributions paid to stapled securityholders; • selling assets to reduce borrowings; or • increasing borrowings. 43 Annual Financial Report of The GPT GroupNotes to the Financial Statements – Year ended 31 December 2017 10. Equity and reserves (a) Contributed equity (i) Ordinary stapled securities Number Other entities stapled to GPT $M Trust $M Total $M Opening securities on issue as at 1 January 2016 1,794,816,529 7,793.9 325.3 8,119.2 Securities issued – Long Term Incentive Plan Securities issued – Deferred Short Term Incentive Plan Securities issued – Broad Based Employee Security Ownership Plan 2,102,805 978,834 57,400 5.6 4.5 0.3 0.1 0.1 – 5.7 4.6 0.3 Closing securities on issue as at 31 December 2016 1,797,955,568 7,804.3 325.5 8,129.8 Opening securities on issue as at 1 January 2017 1,797,955,568 7,804.3 325.5 8,129.8 Securities issued – Long Term Incentive Plan Securities issued – Deferred Short Term Incentive Plan Securities issued – Broad Based Employee Security Ownership Plan Securities issued – Employee Incentive Plan 2,763,052 855,355 54,338 12,569 6.0 4.2 0.2 0.1 0.1 0.1 – – 6.1 4.3 0.2 0.1 Closing securities on issue as at 31 December 2017 1,801,640,882 7,814.8 325.7 8,140.5 (ii) Exchangeable securities Opening securities on issue as at 1 January 2016 Transfer to retained earnings Closing securities on issue as at 31 December 2016 Total contributed equity – 31 December 2016 Total contributed equity – 31 December 2017 – – – – – (84.5) 84.5 – 7,804.3 7,814.8 – – – (84.5) 84.5 – 325.5 8,129.8 325.7 8,140.5 Ordinary stapled securities are classified as equity and recognised at the fair value of the consideration received by GPT. Any transaction costs arising on the issue and buy back of ordinary securities are recognised directly in equity as a reduction, net of tax, of the proceeds received. 44 Annual Financial Report of The GPT GroupNotes to the Financial Statements – Year ended 31 December 2017 (b) Reserves Foreign currency translation reserve Cash flow hedge reserve Employee incentive scheme reserve Available for sale reserve Total reserve Other entities stapled to GPT $M 34.1 Trust $M (24.6) – – (1.8) 1.0 – – – – Trust $M (19.3) – – 14.5 – Balance at 1 January 2016 Revaluation of available for sale financial asset, net of tax Net foreign exchange translation adjustments Changes in the fair value of cash flow hedges Security-based payment transactions, net of tax Balance at 31 December 2016 (26.4) 35.1 (4.8) Balance at 1 January 2017 (26.4) 35.1 (4.8) Revaluation of available for sale financial asset, net of tax Derecognition of available for sale financial asset, net of tax Changes in the fair value of cash flow hedges Security-based payment transactions, net of tax – – – – – – – – – – (9.4) – Balance at 31 December 2017 (26.4) 35.1 (14.2) Nature and purpose of reserves Foreign currency translation reserve Other entities stapled to GPT $M Trust $M – – – – – – – – – – – – – – – – – – – – – – – – Other entities stapled to GPT $M 16.4 – – – 0.9 17.3 17.3 – – – 4.6 21.9 Other entities stapled to GPT $M 8.6 (1.5) – – – Other entities stapled to GPT $M 59.1 Trust $M (43.9) – (1.5) (1.8) 1.0 14.5 – – 0.9 7.1 (31.2) 59.5 7.1 (31.2) 59.5 1.0 (8.1) – – – – – 1.0 (8.1) (9.4) – – 4.6 (40.6) 57.0 Trust $M – – – – – – – – – – – – The reserve is used to record exchange differences arising on translation of foreign controlled entities and associated funding of foreign controlled entities. The movement in the reserve is recognised in the net profit when the investment in the foreign controlled entity is disposed. Cash flow hedge reserve The reserve records the portion of the unrealised gain or loss on a hedging instrument in a cash flow hedge that is determined to be an effective hedge relationship inclusive of share of cash flow hedge reserve of equity accounted investments. Employee incentive scheme reserve The reserve is used to recognise the fair value of equity-settled security based payments provided to employees, including key management personnel, as part of their remuneration. Refer to note 18 for further details of the security based payments. Available for sale reserve The reserve is used to recognise the changes in the fair value of the available for sale financial assets. 45 Annual Financial Report of The GPT GroupNotes to the Financial Statements – Year ended 31 December 2017 (c) Retained earnings/accumulated losses Consolidated entity Balance at 1 January 2016 Net profit for the financial year Less: Distributions paid/payable to ordinary stapled securityholders 12 Reclassification of redemption deficit of exchangeable securities to retained earnings Reclassification of employee incentive security scheme reserve to retained earnings/ accumulated losses Balance at 31 December 2016 Balance at 1 January 2017 Net profit for the financial year Less: Distributions paid/payable to ordinary stapled securityholders 12 Reclassification of employee incentive security scheme reserve to retained earnings/ accumulated losses Balance at 31 December 2017 11. Earnings per stapled security Trust $M Other entities stapled to GPT $M Total $M Note 477.8 1,048.8 (420.7) (84.5) 1.4 (1,002.6) (524.8) 103.9 1,152.7 – – – (420.7) (84.5) 1.4 1,022.8 (898.7) 124.1 1,022.8 1,249.3 (443.2) (898.7) 124.1 19.8 1,269.1 – (443.2) 0.6 (0.5) 0.1 1,829.5 (879.4) 950.1 (a) Attributable to ordinary securityholders of the Trust Basic and diluted earnings per security – profit from continuing operations Basic and diluted earnings per security – profit from discontinued operations Total basic and diluted earnings per security attributable to ordinary securityholders of the Trust (b) Attributable to ordinary stapled securityholders of GPT Group Basic and diluted earnings per security – profit from continuing operations Basic and diluted earnings per security – profit from discontinued operations Total basic and diluted earnings per security attributable to ordinary stapled securityholders of The GPT Group 31 Dec 17 Cents 31 Dec 17 Cents 31 Dec 16 Cents 31 Dec 16 Cents Basic Diluted Basic Diluted 69.3 – 69.3 70.4 – 70.4 69.2 – 69.2 70.3 – 70.3 57.9 0.5 58.4 63.7 0.5 64.2 57.8 0.5 58.3 63.6 0.5 64.1 The earnings and weighted average number of ordinary securities (WANOS) used in the calculations of basic and diluted earnings per ordinary stapled security are as follows: (c) Reconciliation of earnings used in calculating earnings per ordinary stapled security $M $M $M $M Net profit from continuing operations attributable to the securityholders of the Trust 1,248.5 1,248.5 1,040.4 1,040.4 Net profit from discontinued operations attributable to the securityholders of the Trust 0.8 0.8 8.4 8.4 Basic and diluted earnings of the Trust 1,249.3 1,249.3 1,048.8 1,048.8 Add: Net profit from continuing operations attributable to the securityholders of other stapled entities 19.8 19.8 103.8 103.8 Add: Net profit from discontinued operations attributable to the securityholders of other stapled entities Basic and diluted earnings of the Company Basic and diluted earnings of The GPT Group (d) WANOS – – 0.1 0.1 19.8 19.8 103.9 103.9 1,269.1 1,269.1 1,152.7 1,152.7 Millions Millions Millions Millions WANOS used as the denominator in calculating basic earnings per ordinary stapled security 1,801.1 1,801.1 1,797.4 1,797.4 Performance security rights at weighted average basis1 WANOS used as the denominator in calculating diluted earnings per ordinary stapled security 2.4 1,803.5 2.7 1,800.1 1 Performance security rights granted under the employee incentive schemes are only included in dilutive earnings per ordinary stapled security where the performance hurdles are met as at the year end. 46 Annual Financial Report of The GPT GroupNotes to the Financial Statements – Year ended 31 December 2017 Calculation of earnings per stapled security Basic earnings per stapled security is calculated as net profit attributable to ordinary stapled securityholders of GPT, divided by the weighted average number of ordinary stapled securities outstanding during the financial year which is adjusted for bonus elements in ordinary stapled securities issued during the financial year. Diluted earnings per stapled security is calculated as net profit attributable to ordinary stapled securityholders of GPT divided by the weighted average number of ordinary stapled securities and dilutive potential ordinary stapled securities. Where there is no difference between basic earnings per stapled security and diluted earnings per stapled security, the term basic and diluted earnings per stapled ordinary security is used. 12. Distributions paid and payable Distributions are paid to GPT stapled securityholders half yearly. Distributions paid/payable 2017 6 month period ended 30 June 2017 6 month period ended 31 December 20171 Total distributions paid/payable for the year 2016 6 month period ended 30 June 2016 6 month period ended 31 December 2016 Total distributions paid/payable for the year Cents per stapled security Total amount $M 12.3 12.3 24.6 11.5 11.9 23.4 221.6 221.6 443.2 206.7 214.0 420.7 1 December 2017 half yearly distribution of 12.3 cents per stapled security has been declared on 20 December 2017 and is expected to be paid on 28 February 2018 based on the record date of 29 December 2017. 13. Borrowings Current borrowings at amortised cost – unsecured Current borrowings at amortised cost – secured Current borrowings Non-current borrowings at amortised cost – unsecured Non-current borrowings at fair value – unsecured Non-current borrowings at amortised cost – secured Non-current borrowings Total borrowings1 – carrying amount Total borrowings2 – fair value 31 Dec 17 $M 31 Dec 16 $M – 19.9 19.9 1,911.9 1,280.5 88.3 3,280.7 3,300.6 30.0 18.8 48.8 1,920.5 940.0 87.3 2,947.8 2,996.6 3,347.8 3,014.4 1 Including unamortised establishment costs, fair value and other adjustments. 2 For the majority of the borrowings, the carrying amount is a reasonable approximation of fair value. Where material difference arises, the fair value is calculated using market observable inputs (level 2) and unobservable inputs (level 3). This excludes unamortised establishment costs. Borrowings are either initially recognised at fair value and subsequently measured at amortised cost using the effective interest rate method or at their fair value. Under the amortised cost method, any transaction fees, costs, discounts and premiums directly related to the borrowings are recognised in the Consolidated Statement of Comprehensive Income over the expected life of the borrowings unless there is an effective fair value hedge of the borrowings, in which case a fair value adjustment will be applied based on the mark to market movement in the benchmark component of the borrowings and this movement is recognised in the Consolidated Statement of Comprehensive Income. All borrowings with maturities greater than 12 months after reporting date are classified as non-current liabilities. 47 Annual Financial Report of The GPT GroupNotes to the Financial Statements – Year ended 31 December 2017 The maturity profile of borrowings is as follows: Due within one year Due between one and five years Due after five years Cash and cash equivalents Total financing resources available at the end of the year Total facility1,2 $M 32.2 2,178.5 1,606.8 3,817.5 Used facility1 $M 20.0 1,495.5 1,606.8 3,122.3 Unused facility2 $M 12.2 683.0 – 695.2 49.9 745.1 1 Excluding unamortised establishment costs, and fair value and other adjustments. This reflects the contractual cashflows payable on maturity of the borrowings taking into account historical exchange rates under cross currency swaps entered into to hedge the foreign currency denominated borrowings. 2 There are a further $350 million of forward starting facilities available to GPT. Cash and cash equivalents includes cash on hand, cash at bank and short term money market deposits. Debt covenants GPT’s borrowings are subject to a range of covenants, according to the specific purpose and nature of the loans. Most bank facilities include one or more of the following covenants: • Gearing: total debt must not exceed 50 per cent of total tangible assets; and • Interest coverage: the ratio of earnings before interest and taxes (EBIT) to finance costs is not to be less than 2 times. A breach of these covenants may trigger consequences ranging from rectifying and/or repricing to repayment of outstanding amounts. GPT performed a review of debt covenants as at 31 December 2017 and no breaches were identified. 14. Financial risk management The GPT Board approve GPT’s treasury policy which: • establishes a framework for the management of risks inherent to the capital structure; • defines the role of GPT’s treasury; and • sets out the policies, limits, monitoring and reporting requirements for cash, borrowings, liquidity, credit risk, foreign exchange, interest rate and other derivative instruments. (a) Interest rate risk Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. GPT’s primary interest rate risk arises from borrowings. The table below provides a summary of GPT’s gross interest rate risk exposure as at 31 December 2017 on interest bearing borrowings as well as the net effect of interest rate risk management transactions. This excludes unamortised establishment costs and fair value and other adjustments. Fixed rate interest-bearing borrowings Floating rate interest-bearing borrowings Gross exposure Net exposure 31 Dec 17 $M 31 Dec 16 $M 31 Dec 17 $M 31 Dec 16 $M 2,056.8 1,065.5 3,122.3 1,653.3 1,098.4 2,751.7 2,370.0 752.3 3,122.3 1,575.0 1,176.7 2,751.7 48 Annual Financial Report of The GPT GroupNotes to the Financial Statements – Year ended 31 December 2017 Interest rate risk – sensitivity analysis The impact on interest expense and interest revenue of a 1 per cent increase or decrease in market interest rates is shown below. Interest expense is sensitive to movements in market interest rates on floating rate debt (net of any derivatives). A 1 per cent increase or decrease is used for consistency of reporting interest rate risk across GPT and represents management’s assessment of the potential change in interest rates. Impact on statement of comprehensive income Impact on interest revenue increase/(decrease) Impact on interest expense (increase)/decrease Hedging interest rate risk 31 Dec 17 (+1%) $M 31 Dec 17 (-1%) $M 31 Dec 16 (+1%) $M 31 Dec 16 (-1%) $M 0.5 (7.5) (0.5) 7.5 0.7 (11.8) (0.7) 11.8 Interest rate risk inherent on borrowings issued at floating rates is managed by entering into interest rate swaps that are used to convert a portion of floating interest rate borrowings to fixed interest rates, which reduces GPT’s exposure to interest rate volatility. The derivative financial instruments used to hedge interest rate risk which are presented in the Consolidated Statement of Financial Position comprise the following: Current derivative assets Non-current derivative assets Total derivative assets Subject to master netting but not offset Net derivative assets post offset Current derivative liabilities Non-current derivative liabilities Total derivative liabilities Subject to master netting but not offset Net derivative liabilities post offset 31 Dec 17 $M 31 Dec 16 $M 3.4 257.7 261.1 95.9 165.2 9.1 118.0 127.1 95.9 31.2 – 337.2 337.2 113.0 224.2 – 128.5 128.5 113.0 15.5 All of GPT’s derivatives were valued using market observable inputs (level 2) with the exception of a year on year inflation swap. For additional fair value disclosures refer to note 22. Derivative financial assets and liabilities are not offset in the Consolidated Statement of Financial Position. Agreements with derivative counterparties are based on the ISDA (International Swap Derivatives Association) Master Agreement, which in certain circumstances (such as default) confers a right to set-off the position owing/receivable to a single counterparty to a net position as long as all outstanding derivatives with that counterparty are terminated. As GPT does not presently have a legally enforceable right to set-off, these amounts have not been offset in the Consolidated Statement of Financial Position, but have been presented separately. Derivatives are carried in the Consolidated Statement of Financial Position at fair value and classified according to their contractual maturities. If they do not qualify for hedge accounting, changes in fair value are recognised in the Consolidated Statement of Comprehensive Income including gains or losses on maturity or close-out. Where derivatives qualify for hedge accounting and are designated in hedge relationships, the recognition of any gain or loss depends on the nature of the item being hedged. Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in profit or loss, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. For cash flow hedges, the effective portion of changes in the fair value of derivatives is recognised in other comprehensive income and accumulated in reserves in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss. GPT applies hedge accounting to borrowings denominated in foreign currencies only. GPT designates and documents the relationship between hedging instruments and hedged items and the proposed effectiveness of the risk management objective the hedge relationship addresses. On an ongoing basis, GPT documents its assessment of retrospective and prospective hedge effectiveness. Hedge accounting is discontinued when the hedging instrument expires, is terminated, or is no longer in an effective hedge relationship. 49 Annual Financial Report of The GPT GroupNotes to the Financial Statements – Year ended 31 December 2017 (b) Liquidity risk Liquidity risk is the risk that GPT, as a result of its operations: • will not have sufficient funds to settle a transaction on the due date; • will be forced to sell financial assets at a value which is less than what they are worth; or • may be unable to settle or recover a financial asset at all. GPT manages liquidity risk by: • maintaining sufficient cash; • maintaining an adequate amount of committed credit facilities; • maintaining a minimum liquidity buffer in cash and surplus committed facilities for the forward rolling twelve month period; • minimising debt maturity concentration risk by diversifying sources and spreading maturity dates of committed credit facilities and maintaining a minimum weighted average debt maturity of 4 years; and • maintaining the ability to close out market positions. The following table provides an analysis of the undiscounted contractual maturities of liabilities which forms part of GPT’s assessment of liquidity risk: 31 Dec 17 1 year or less $M Over 1 year to 2 years $M Over 2 years to 5 years $M Over 5 years $M Total $M 1 year or less $M 31 Dec 16 Over 1 year to 2 years $M Over 2 years to 5 years $M Over 5 years $M Total $M Liabilities Non-derivatives Payables Current tax liabilities Borrowings Projected finance cost on borrowings1 Derivatives Projected finance cost on derivative liabilities1,2 374.9 8.6 – – – – – – 374.9 8.6 378.3 – – – – – – – 378.3 – 20.0 513.5 982.0 1,606.8 3,122.3 48.8 375.0 1,074.6 1,253.3 2,751.7 128.2 114.2 279.1 433.6 955.1 110.4 109.6 231.9 338.7 790.6 23.8 21.7 36.5 6.8 88.8 20.0 24.9 47.4 17.3 109.6 Total liabilities 555.5 649.4 1,297.6 2,047.2 4,549.7 557.5 509.5 1,353.9 1,609.3 4,030.2 Less cash and cash equivalents 49.9 – – – 49.9 56.3 – – – 56.3 Total liquidity exposure 505.6 649.4 1,297.6 2,047.2 4,499.8 501.2 509.5 1,353.9 1,609.3 3,973.9 Projected interest income on derivative assets2 34.3 31.6 59.5 64.4 189.8 14.5 22.1 35.7 42.2 114.5 Net liquidity exposure 471.3 617.8 1,238.1 1,982.8 4,310.0 486.7 487.4 1,318.2 1,567.1 3,859.4 1 Projection is based on the likely outcome of contracts given the interest rates, margins, forecast exchange rates and interest rate forward curves as at 31 December 2017 and 31 December 2016 up until the contractual maturity of the contract. The projection is based on future non-discounted cash flows and does not ascribe any value to optionality on any instrument which may be included in the current market values. Projected interest on foreign currency borrowings is shown after the impact of associated hedging. 2 In accordance with AASB 7, the future value of contractual cash flows of non-derivative and derivative liabilities only is to be included in liquidity risk disclosures. As derivatives are exchanges of cash flows, the positive cash flows from derivative assets have been disclosed separately to provide a more meaningful analysis of GPT’s net liquidity exposure. The methodology used in calculating projected interest income on derivative assets is consistent with the above liquidity risk disclosures. (c) Refinancing risk Refinancing risk is the risk that credit is unavailable or available at unfavourable interest rates and credit market conditions resulting in an unacceptable increase in GPT’s interest cost. Refinancing risk arises when GPT is required to obtain debt to fund existing and new debt positions. GPT manages this risk by spreading sources and maturities of borrowings in order to minimise debt concentration risk, allow averaging of credit margins over time and reducing refinance amounts. As at 31 December 2017, GPT’s exposure to refinancing risk can be monitored by the spreading of its contractual maturities on borrowings in the liquidity risk table above or with the information in note 13. 50 Annual Financial Report of The GPT GroupNotes to the Financial Statements – Year ended 31 December 2017 (d) Foreign exchange risk Foreign exchange risk refers to the risk that the value of a financial commitment, asset or liability will fluctuate due to changes in foreign exchange rates. GPT’s foreign exchange risk arises primarily from: • firm commitments of highly probable forecast transactions for receipts and payments settled in foreign currencies or with prices dependent on foreign currencies; and • investments in foreign assets. The foreign exchange risk arising from borrowings denominated in foreign currency is managed with cross currency interest rate swaps which convert foreign currency exposures into Australian dollar exposures. Sensitivity to foreign exchange is deemed insignificant. Foreign currency assets and liabilities The following table shows the Australian dollar equivalents of amounts within the Consolidated Statement of Financial Position which are denominated in foreign currencies. Euros United States Dollars Hong Kong Dollars 31 Dec 17 $M 31 Dec 16 $M 31 Dec 17 $M 31 Dec 16 $M 31 Dec 17 $M 31 Dec 16 $M 1.2 – – 1.2 0.3 – 0.3 1.2 9.3 – 10.5 0.3 – 0.3 0.1 – 118.2 118.3 – 1,096.1 1,096.1 0.2 – 178.6 178.8 – 746.2 746.2 – – 24.1 24.1 – 186.9 186.9 – – 35.8 35.8 – 196.6 196.6 Assets Cash and cash equivalents Interests in unlisted investments Derivative financial instruments Liabilities Other liabilities Borrowings1 1 Excluding unamortised establishment costs (e) Credit risk Credit risk is the risk that a contracting entity will not complete its obligations under a contractual agreement, resulting in a financial loss to GPT. GPT has exposure to credit risk on all financial assets included on the Consolidated Statement of Financial Position. GPT manages this risk by: • establishing credit limits for financial institutions and monitoring credit exposures for customers to ensure that GPT only trades and invests with approved counterparties; • investing and transacting derivatives with multiple counterparties that have a minimum long term credit rating of A- from S&P, or equivalent if an S&P rating is not available, minimising exposure to any one counterparty; • providing loans into joint ventures, associates and third parties, only where GPT is comfortable with the underlying property exposure within that entity; • regularly monitoring loans and receivables balances; • regularly monitoring the performance of its associates, joint ventures and third parties; and • obtaining collateral as security (where appropriate). Receivables are reviewed regularly throughout the year. A provision for doubtful debts is made where collection is deemed uncertain. GPT’s policy is to hold collateral as security over tenants via bank guarantees (or less frequently collateral such as bond deposits or cash). The maximum exposure to credit risk as at 31 December 2017 is the carrying amounts of financial assets recognised on GPT’s Consolidated Statement of Financial Position. For more information refer to note 4. 51 Annual Financial Report of The GPT GroupNotes to the Financial Statements – Year ended 31 December 2017 Other Disclosure Items 15. Cash flow information (a) Cash flows from operating activities Reconciliation of net profit after tax to net cash inflows from operating activities: Net profit for the year Fair value gain on investment properties Fair value loss on derivatives Net impact of foreign currency borrowings and associated hedging loss/(gain) Gain on financial liability at amortised cost Impairment expense Share of after tax profit of equity accounted investments (net of distributions) Derecognition of available for sale financial asset Net gain on disposal of assets Depreciation and amortisation Non-cash employee benefits – security based payments Non-cash revenue adjustments Interest capitalised Profit on sale of inventory Proceeds from sale of inventory Payment for inventories Decrease in operating assets Increase/(decrease) in operating liabilities Net foreign exchange (gain)/loss Reversal of prior period impairment Other Net cash inflows from operating activities (b) Net debt reconciliation Reconciliation of net debt movements during the financial year: 31 Dec 17 $M 1,269.1 (481.0) 5.7 0.2 (2.2) 5.4 (285.0) (10.7) – 7.7 13.2 8.5 (8.6) (1.5) 7.6 (25.1) 21.3 5.6 (0.8) – 6.1 535.5 31 Dec 16 $M 1,152.7 (418.1) 26.6 (2.2) (1.6) 6.0 (236.9) – (15.9) 7.3 11.9 14.8 (8.5) (1.8) 12.6 (16.1) 2.4 (9.0) 0.2 (0.4) 2.2 526.2 Net debt as at 31 December 2016 Cash flows Foreign exchange adjustments Other non-cash movements Net debt as at 31 December 2017 16 Commitments Borrowings due within 1 year $M Borrowings due after 1 year $M Total $M (48.8) 28.8 – 0.1 (2,947.8) (2,940.3) (396.0) (373.6) 63.2 (0.1) 63.2 – (19.9) (3,280.7) (3,250.7) Cash $M 56.3 (6.4) – – 49.9 (a) Capital expenditure commitments Commitments arising from contracts principally relating to the purchase and development of investment properties contracted for at balance date but not recognised on the Consolidated Statement of Financial Position. Retail Office Logistics Properties under development Corporate Total capital expenditure commitments 52 31 Dec 17 $M 31 Dec 16 $M 101.2 23.1 6.1 48.3 1.4 144.7 40.4 4.6 9.9 0.4 180.1 200.0 Annual Financial Report of The GPT GroupNotes to the Financial Statements – Year ended 31 December 2017 (b) Operating lease commitments Operating lease commitments are contracted non-cancellable future minimum lease payments expected to be payable but not recognised on the Consolidated Statement of Financial Position. Due within one year Due between one and five years Over five years Total operating lease commitments (c) Commitments relating to equity accounted investments GPT’s share of equity accounted investments’ commitments at balance date are set out below: Capital expenditure Total joint ventures and associates’ commitments 31 Dec 17 $M 31 Dec 16 $M 3.2 6.2 – 9.4 2.8 8.2 – 11.0 31 Dec 17 $M 31 Dec 16 $M 31.8 31.8 22.6 22.6 17. Contingent liabilities A contingent liability is a liability that is not sufficiently certain to qualify for recognition as a provision where uncertainty may exist regarding the outcome of future events. As at the end of 2017, GPT has no material contingent liabilities which need to be disclosed. converting to restricted GPT stapled securities to the extent the performance conditions are met. For the 2014 and 2015 plans, half of the awarded stapled securities will vest one year after conversion with the remaining half vesting two years after conversion, subject to continued employment up to the vesting dates. For the 2016 and 2017 plans, all the awarded stapled securities will vest one year after conversion, subject to continued employment up to the vesting date. 18. Security based payments (d) LTI GPT currently has four employee security schemes – the General Employee Security Ownership Plan (GESOP), the Broad Based Employee Security Ownership Plan (BBESOP), the Deferred Short Term Incentive Plan (DSTI) and the Long Term Incentive (LTI) Scheme. (a) GESOP The Board believes in creating ways for employees to build an ownership stake in the business. As a result, the Board introduced the GESOP in March 2010 for individuals who do not participate in the LTI. Under the plan individuals who participate receive an additional benefit equivalent to 10 per cent of their short term incentives (STIC) which is (after the deduction of income tax) invested in GPT securities to be held for a minimum of 1 year. (b) BBESOP Under the plan individuals who are not eligible to participate in any other employee security scheme may receive $1,000 worth of GPT securities or $1,000 cash if GPT achieves at least target level performance. Securities must be held for the earlier of 3 years or the end of employment. (c) DSTI Since 2014, STIC is delivered to the senior executives as 50 per cent in cash and 50 per cent in GPT stapled securities (a deferred component). The deferred component is initially awarded in the form of performance rights, with the rights At the 2009 AGM, GPT securityholders approved the introduction of a LTI plan based on performance rights. Any subsequent amendments to the LTI plan have been approved by GPT securityholders. The LTI plan covers each 3 year period. Awards under the LTI to eligible participants are in the form of performance rights which convert to GPT stapled securities for nil consideration if specified performance conditions for the applicable 3 year period are satisfied. Please refer to the Remuneration Report for detail on the performance conditions. The Board determines those executives eligible to participate in the plan and, for each participating executive, grants a number of performance rights calculated as a percentage of their base salary divided by GPT’s volume weighted average price (VWAP) for the final quarter of the year preceding the plan launch. Fair value of performance rights issued under DSTI and LTI The fair value of the performance rights is recognised as an employee benefit expense with a corresponding increase in the employee security scheme reserve in equity. Fair value is measured at grant date, recognised over the period during which the employees become unconditionally entitled to the rights and is adjusted to reflect market vesting conditions. Non-market vesting conditions are included in assumptions about the number of rights that are expected to be vested. At each reporting date, GPT revises its estimate of the number of performance rights that are expected to be exercisable and the employee 53 Annual Financial Report of The GPT GroupNotes to the Financial Statements – Year ended 31 December 2017 benefit expense recognised each reporting period takes into account the most recent estimate. The impact of the revision to original estimates, if any, is recognised in the Consolidated Statement of Comprehensive Income with a corresponding adjustment to equity. Fair value of the performance rights issued under LTI is determined using the Monte Carlo simulation and the Black Scholes methodologies then applying a discount on lack of marketability. Fair value of the performance rights issued under DSTI is determined using the security price then applying a discount on lack of marketability. The following key inputs are taken into account: Fair value of rights Security price at valuation date Total Securityholder Return Grant dates Expected vesting dates Security price at the grant date Expected life Distribution yield Risk free interest rate Volatilty1 1 The volatility is based on the historic volatility of the security. (e) Summary table of all employee security schemes Rights outstanding at 1 January 2016 Rights granted during 2016 Rights forfeited during 2016 Rights converted to GPT stapled securities during 20161 Rights outstanding at 31 December 2016 Rights outstanding at 1 January 2017 Rights granted during 2017 Rights forfeited during 2017 Rights converted to GPT stapled securities during 20172 Rights outstanding at 31 December 2017 2017 LTI 2017 DSTI $2.66 $4.88 6.6% $4.86 $5.11 N/A 21 February 2017 21 February 2017 31 December 2019 31 December 2018 $4.88 $4.88 3 years (2 years remaining) 2 years (1 year remaining) 4.8% 2.0% 18.4% 4.8% N/A N/A Number of rights DSTI 1,282,432 1,313,947 (345,461) LTI Total 8,917,888 10,200,320 3,024,264 4,338,211 (977,775) (1,323,236) (1,038,279) (2,356,843) (3,395,122) 1,212,639 8,607,534 9,820,173 1,212,639 1,338,498 (357,284) (855,355) 8,607,534 2,854,675 (323,771) 9,820,173 4,193,173 (681,055) (2,792,225) (3,647,580) 1,338,498 8,346,213 9,684,711 1 Rights under the 2015 DSTI plan were converted to GPT stapled securities on 21 March 2016 and rights under the 2013 LTI Plan were converted to GPT stapled securities on 18 February 2016. 2 Rights under the 2016 DSTI plan were converted to GPT stapled securities on 20 March 2017 and rights under the 2014 LTI Plan were converted to GPT stapled securities on 14 February 2017. Number of stapled securities GESOP 67,728 72,985 (79,957) 60,756 60,756 53,982 (60,756) 53,982 BBESOP 53,846 57,400 (18,485) 92,761 92,761 48,480 (17,688) 123,553 Total 121,574 130,385 (98,442) 153,517 153,517 102,462 (78,444) 177,535 Securities outstanding at 1 January 2016 Securities granted during 2016 Securities vested during 2016 Securities outstanding at 31 December 2016 Securities outstanding at 1 January 2017 Securities granted during 2017 Securities vested during 2017 Securities outstanding at 31 December 2017 54 Annual Financial Report of The GPT GroupNotes to the Financial Statements – Year ended 31 December 2017 19. Related party transactions General Property Trust is the ultimate parent entity. Equity interests in joint ventures and associates are set out in note 3. Loans provided to joint ventures and associates as part of the funding of those arrangements are set out in note 4. Key management personnel Key management personnel compensation was as follows: Short term employee benefits Post employment benefits Long term incentive award accrual Other long term benefits Total key management personnel compensation 31 Dec 17 $’000 31 Dec 16 $’000 6,778.9 168.3 2,064.3 – 9,011.5 6,302.4 169.2 1,467.2 64.3 8,003.1 Information regarding individual Directors’ and Senior Executives’ remuneration is provided in the Remuneration Report. There have been no other transactions with key management personnel during the year. Transactions with related parties Transactions with related parties other than associates and joint ventures Expenses Contributions to superannuation funds on behalf of employees (5,704.0) (5,766.6) Consolidated entity 31 Dec 17 $’000 31 Dec 16 $’000 Transactions with associates and joint ventures Revenue and expenses Responsible Entity fees from associates Property management fees Development management fees from associates Rent expense Management fees from associates Performance fee from associate Distributions received/receivable from joint ventures Distributions received/receivable from associates Payroll costs recharged to associates Other transactions Loans advanced to joint ventures Loan repayments from joint ventures Increase in units in joint ventures Increase in units in associates Divestment of units in associate 50,744.1 15,660.8 6,963.9 (597.3) 6,441.7 – 48,783.5 110,030.9 9,396.8 46,800.5 14,622.4 6,200.4 (462.5) 6,003.3 28,121.6 44,472.3 95,284.1 9,065.3 – 146.0 (1,593.9) 18,700.0 (17,915.2) (18,078.4) (139,818.3) (365,966.6) – 38,998.2 55 Annual Financial Report of The GPT GroupNotes to the Financial Statements – Year ended 31 December 2017 20. Auditor’s remuneration Audit services PricewaterhouseCoopers Australia Statutory audit and review of financial reports Total remuneration for audit services Other assurance services PricewaterhouseCoopers Australia Regulatory and contractually required audits Total remuneration for other assurance services Total remuneration for audit and assurance services Non audit related services PricewaterhouseCoopers Australia Other services Taxation services Total remuneration for non audit related services Total auditor’s remuneration 21. Parent entity financial information Assets Current assets Non-current assets Total assets Liabilities Current liabilities Non-current liabilities Total liabilities Net assets Equity Equity attributable to secutityholders of the parent entity Contributed equity Reserves Retained earnings Total equity Profit attributable to members of the parent entity Total comprehensive income for the year, net of tax, attributable to members of the parent entity Capital expenditure commitments Retail Office Logistics Properties under development Total capital expenditure commitments 31 Dec 17 $’000 31 Dec 16 $’000 1,245.2 1,245.2 1,142.8 1,142.8 208.5 208.5 220.7 220.7 1,453.7 1,363.5 58.0 3.5 61.5 18.0 – 18.0 1,515.2 1,381.5 Parent entity 31 Dec 17 $M 31 Dec 16 $M 148.2 12,965.3 13,113.5 383.8 3,424.6 3,808.4 9,305.1 7,833.9 (13.5) 1,484.7 9,305.1 1,259.4 1,259.4 92.4 11.8 3.9 48.3 156.4 161.5 11,775.7 11,937.2 439.2 3,019.0 3,458.2 8,479.0 7,816.1 (4.8) 667.7 8,479.0 1,217.8 1,217.8 141.9 26.5 2.5 – 170.9 As at 31 December 2017, the parent entity had a deficiency of current net assets of $235.6 million (2016: $277.7 million) arising as a result of the inclusion of the provision for distribution payable to stapled securityholders. The parent has access to undrawn financing facilities of $1,045.2 million as set out in note 13. 56 Annual Financial Report of The GPT GroupNotes to the Financial Statements – Year ended 31 December 2017 22. Fair value disclosures The most significant categories of assets for which fair values are used are investment properties and financial instruments. Information about how those values are calculated, including the valuation process, critical assumptions underlying the valuations, information on sensitivity and other information required by the accounting standards, is provided in this note. (a) Fair value measurement, valuation techniques and inputs A description of the valuation techniques and key inputs are included in the table below: Class of assets/liabilities Fair value hierarchy1 Valuation technique Inputs used to measure fair value Retail2 Level 3 Office Level 3 Discounted cash flow (DCF) and income capitalisation method DCF and income capitalisation method Logistics Level 3 DCF and income capitalisation method Properties under development Level 3 Derivative financial instruments Level 2 Income capitalisation method, or land rate Discounted cash flow (DCF) (adjusted for counterparty creditworthiness) Level 3 Foreign currency borrowings Level 2 DCF Unobservable inputs 31 Dec 2017 Unobservable inputs 31 Dec 2016 3.0% – 3.7% 3.2% – 3.9% 10 year average specialty market rental growth Gross market rent (per sqm p.a.) $1,280 – $2,252 $1,254 – $2,127 Adopted capitalisation rate 4.3% – 5.5% 4.8% – 5.8% Adopted terminal yield 4.5% – 5.8% 5.0% – 6.0% Adopted discount rate 6.3% – 7.3% 7.3% – 7.8% Net market rent (per sqm p.a.) $420 – $1,450 $400 – $1,400 10 year average market rental growth 3.1% – 4.0% 3.2% – 4.1% Adopted capitalisation rate 5.0% – 5.5% 5.2% – 5.8% Adopted terminal yield Adopted discount rate 5.3% – 5.8% 5.6% – 6.1% 6.6% – 7.0% 6.8% – 7.3% Lease incentives (gross) 23.3% – 35.0% 23.3% – 37.5% Net market rent (per sqm p.a.) $68- $385 $63- $500 10 year average market rental growth 2.8% – 3.4% 2.8% – 3.7% Adopted capitalisation rate 5.5% – 8.0% 5.8% – 8.3% Adopted terminal yield Adopted discount rate 6.0% – 8.3% 6.3% – 8.5% 7.0% – 8.5% 7.3% – 8.5% Lease incentives (gross) 10.0% – 25.0% 10.0% – 25.0% Net market rent (per sqm p.a.) $115 – $410 $53 – $410 Adopted capitalisation rate 5.8% – 6.8% 6.0% – 6.8% Land rate (per sqm) $122 – $945 $108 – $672 Interest rates Basis CPI Volatility Foreign exchange rates Interest rates CPI volatility Interest rates Foreign exchange rates Not applicable – all inputs are market observable inputs Not applicable – market observable input 0.91% 0.94% Not applicable – all inputs are market observable inputs Available for sale financial assets 2016: Level 3 DCF Discount rate Not applicable 20% Foreign exchange rates Not applicable Not applicable – market observable input 1 Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 – inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs). 2 Excludes Homemaker City, Maribyrnong in order not to skew the range of inputs. 57 Annual Financial Report of The GPT GroupNotes to the Financial Statements – Year ended 31 December 2017 DCF method Under the DCF method, the fair value is estimated using explicit assumptions regarding the benefits and liabilities of ownership over the assets’ or liabilities’ life including an exit or terminal value. The DCF method involves the projection of a series of cash flows from the assets or liabilities. To this projected cash flow series, an appropriate, market- derived discount rate is applied to establish the present value of the cash flow stream associated with the assets or liabilities. Income capitalisation method This method involves assessing the total net market income receivable from the property and capitalising this in perpetuity to derive a capital value, with allowances for capital expenditure and reversions. Gross market rent Net market rent 10 year average specialty market rental growth 10 year average market rental growth A gross market rent is the estimated amount of rent for which a property or space within a property should lease between a willing lessor and a willing lessee on appropriate lease terms in an arm’s length transaction, after proper marketing and wherein the parties have each acted knowledgeably, prudently and without compulsion. The gross market rent is all inclusive and takes into account outgoings and potential turnover rent. A net market rent is the estimated amount for which a property or space within a property should lease between a willing lessor and a willing lessee on appropriate lease terms in an arm’s length transaction, after proper marketing and wherein the parties have each acted knowledgeably, prudently and without compulsion. In a net rent, the owner recovers outgoings from the tenant on a pro-rata basis (where applicable). An average of a 10 year period of forecast annual percentage growth rates in Retail specialty tenancy rents. Specialty tenants are those tenancies with a gross lettable area of less than 400 square metres (excludes ATMs and kiosks). The expected annual rate of change in market rent over a 10 year forecast period. Adopted capitalisation rate The rate at which net market income is capitalised to determine the value of a property. The rate is determined with regards to market evidence and the prior external valuation. Adopted terminal yield The capitalisation rate used to convert income into an indication of the anticipated value of the property at the end of the holding period when carrying out a discounted cash flow calculation. The rate is determined with regards to market evidence and the prior external valuation. Adopted discount rate The rate of return used to convert a monetary sum, payable or receivable in the future, into present value. Theoretically it should reflect the opportunity cost of capital, that is, the rate of return the capital can earn if put to other uses having similar risk. The rate is determined with regards to market evidence and the prior external valuation. Land rate (per sqm) The land rate is the market land value per sqm. Lease incentives A lease incentive is often provided to a lessee upon the commencement of a lease. Incentives can be a combination of, or, one of the following: a rent free period, a fit-out contribution, a cash contribution or rental abatement. Counterparty credit worthiness Credit value adjustments are applied to derivatives assets based on that counterparty’s credit risk using the observable credit default swaps curve as a benchmark for credit risk. Debit value adjustments are applied to derivatives liabilities based on GPT’s credit risk using GPT’s credit default swaps curve as a benchmark for credit risk. (b) Valuation process – investment properties GPT manages the semi-annual valuation process to ensure that investment properties are held at fair value in GPT’s accounts and that GPT is compliant with applicable regulations (for example the Corporations Act 2001 and ASIC regulations), the GPT RE Constitution and Compliance Plan. GPT has a Valuation Committee (committee) which is comprised of the Chief Operating Officer, Chief Financial Officer, Head of Funds Management and Head of Capital Transactions. The purpose of the committee is to: • approve the panel of independent valuers; • review valuation inputs and assumptions; • provide an escalation process where there are differences of opinion from various team members responsible for the valuation; • oversee the finalisation of the valuations; and • review the external valuation sign-off and any comments that have been noted. All external valuations and internal tolerance checks are reviewed by the valuation committee prior to these being presented to the Board for approval. External valuations GPT’s external valuations are performed by independent professionally qualified valuers who hold recognised relevant professional qualifications and have specialised expertise in the investment properties being valued. Selected independent valuation firms form part of a panel approved by the committee. Each valuation firm is limited to undertaking consecutive valuations of a property for a maximum period of two years. The Valuation Policy requires an external valuation at least annually for all completed investment properties. Properties under development with value of $100 million or greater are externally valued at least every six months. Unimproved land is externally valued at least every three years. 58 Annual Financial Report of The GPT GroupNotes to the Financial Statements – Year ended 31 December 2017 Internal tolerance checks Every six months, with the exception of properties externally valued, an internal tolerance check is prepared. The internal tolerance check involves the preparation of a DCF and income capitalisation valuation for each investment property. These are produced using a capitalisation rate, terminal yield and discount rates based on comparable market evidence and recent external valuation parameters. The tolerance measurement will typically be a mid-point of these two approaches. These internal tolerance checks are used to determine whether the book value is in line with the fair value or whether an external valuation is required. The valuation of the properties under development is determined by a development feasibility analysis for each parcel of land within each asset. The development feasibility is prepared on an “as if complete” basis and is a combination of the income capitalisation method and where appropriate, the discounted cash flow method. The cost to complete the development includes development costs, finance costs and an appropriate profit and risk margin. These costs are deducted from the “as if complete” valuation to determine the “as is” basis or “current fair value.” Fair value of vacant land parcels is based on the market land value per square metre. Highest and best use Fair value for investment properties is calculated for the highest and best use whether or not current use reflects highest and best use. For all GPT investment properties current use equates to the highest and best use, with the exception of the following: • 3 Figtree Drive, Sydney Olympic Park; • 7 Figtree Drive, Sydney Olympic Park; • 6 Herb Elliott Avenue, Sydney Olympic Park; and • 8 Herb Elliott Avenue, Sydney Olympic Park. After the zoning application is approved, the underlying zoning of 3 and 7 Figtree Drive and 6 and 8 Herb Elliott Avenue, all located at Sydney Olympic Park, will allow for mixed use development which would provide significantly higher floor space ratio than what is currently being achieved. These properties are currently being leased and any potential redevelopment is subject to the expiry of these leases. (c) Sensitivity information – investment properties Significant inputs Net market rent 10 year average specialty market rental growth 10 year average market rental growth Adopted capitalisation rate Adopted terminal yield Adopted discount rate Lease incentives Fair value measurement sensitivity to significant increase in input Fair value measurement sensitivity to significant decrease in input Increase Decrease Decrease Increase Generally, if the assumption made for the adopted capitalisation rate changes, the adopted terminal yield will change in the same direction. The adopted capitalisation rate forms part of the income capitalisation approach and the adopted terminal yield forms part of the discounted cash flow approach. The mid-point of the two valuations is then typically adopted. Discounted cash flow approach When assessing a discounted cash flow, the adopted discount rate and adopted terminal yield have a strong interrelationship because the discount rate will determine the rate at which the terminal value is discounted to the present value. In theory, an increase (softening) in the adopted discount rate and a decrease (tightening) in the adopted terminal yield could potentially offset the impact on fair value, and vice versa. If both the discount rate and terminal yield moved in the same direction, the impact on fair value would be magnified. Income capitalisation approach When calculating income capitalisation, the net market rent has a strong interrelationship with the adopted capitalisation rate. This is because the methodology involves assessing the total net market income receivable from the property and capitalising this in perpetuity to derive a capital value. In theory, an increase in the net market rent and an increase (softening) in the adopted capitalisation rate could potentially offset the impact to the fair value, and vice versa. If the net market rent increases but the capitalisation rate goes down (or vice versa), this may magnify the impact on fair value. 59 Annual Financial Report of The GPT GroupNotes to the Financial Statements – Year ended 31 December 2017 (d) Financial instruments The following table presents the changes in level 3 instruments for recurring fair value measurements. GPT’s policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period. Opening balance 1 January 2016 Fair value movements in profit or loss Fair value movements in other comprehensive income Closing balance 31 December 2016 Opening balance 1 January 2017 Fair value movements in profit or loss Transfers from level 3 to level 2 Closing balance 31 December 2017 Sensitivities Available for sale financial asset $M Derivative liabilities $M 8.6 – 0.7 9.3 9.3 – (9.3) – (18.4) 6.1 – (12.3) (12.3) 7.2 – (5.1) Total $M (9.8) 6.1 0.7 (3.0) (3.0) 7.2 (9.3) (5.1) The table below summarises the impact from the change of significant inputs on GPT’s profit and on equity for the year. Change of significant input 31 Dec 17 $M 31 Dec 16 $M 1% increase in interest rates – gain 1% decrease in interest rates – loss 5% increase in discount rate – loss 5% decrease in discount rate – gain (5.1) 1.4 (1.5) – – – (12.3) 3.5 (3.5) 9.3 (0.6) 0.6 Fair value of level 3 derivatives Fair value of level 3 available for sale financial asset 23. Accounting policies (a) Basis of preparation The financial report has been prepared: • in accordance with the requirements of the Trust’s Constitution, Corporations Act 2001, Australian Accounting Standards (AAS) and other authoritative pronouncements of the Australian Accounting Standards Board and International Financial Reporting Standards; • on a going concern basis in the belief that GPT will realise its assets and settle its liabilities and commitments in the normal course of business and for at least the amounts stated in the financial statements. The net deficiency of current assets over current liabilities at 31 December 2017 of $259.4 million arises as a result of the inclusion of the provision for distribution payable to stapled securityholders. GPT has access to undrawn financing facilities of $1,045.2 million as set out in note 13; • under the historical cost convention, as modified by the revaluation for financial assets and liabilities and investment properties at fair value through the Consolidated Statement of Comprehensive Income; • using consistent accounting policies with adjustments to bring into line any dissimilar accounting policies being adopted by the controlled entities, associates or joint ventures; and • in Australian dollars with all values rounded in the nearest hundred thousand dollars in accordance with ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, unless otherwise stated. In accordance with Australian Accounting Standards, the stapled entity reflects the consolidated entity. Equity attributable to other stapled entities is a form of non-controlling interest and, in the consolidated entity column, represents the contributed equity of the Company. As a result of the stapling, investors in GPT will receive payments from each component of the stapled security comprising distributions from the Trust and dividends from the Company. The financial report was approved by the Board of Directors on 13 February 2018. 60 Annual Financial Report of The GPT GroupNotes to the Financial Statements – Year ended 31 December 2017 (b) Basis of consolidation Controlled entities The consolidated financial statements of GPT report the assets, liabilities and results of all controlled entities for the financial year. Controlled entities are all entities over which GPT has control. GPT controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Controlled entities are consolidated from the date on which control is obtained to the date on which control is disposed. The acquisition of controlled entities is accounted for using the acquisition method of accounting. All intercompany balances and transactions, income and expenses and profits and losses resulting from intra-group transactions have been eliminated. Associates Associates are entities over which GPT has significant influence but not control, generally accompanying a shareholding of between 10% and 50% of the voting rights. Management considered if GPT controls its associates (GPT Wholesale Shopping Centre Fund and GPT Wholesale Office Fund) and concluded that it does not based on the following considerations. GPT has a 24.95% equity interest in GPT Wholesale Office Fund (GWOF) and 28.80% equity interest in GPT Wholesale Shopping Centre Fund (GWSCF) as at 31 December 2017. GPT Funds Management Limited (GPTFM), which is wholly owned by the GPT Group is the responsible entity (RE) of the Funds. The Board of GPT FM comprises six directors, of which GPT can only appoint two. As a result, the Group has significant influence over GPT FM and accordingly accounts for it as an associate using the equity method. The Group also has significant influence over the Fund’s and accounts for its interests in them using the equity method. Investments in associates are accounted for using the equity method. Under this method, GPT’s investment in associates is carried in the Consolidated Statement of Financial Position at cost plus post acquisition changes in GPT’s share of net assets. GPT’s share of the associates’ result is reflected in the Consolidated Statement of Comprehensive Income. Where GPT’s share of losses in associates equals or exceeds its interest in the associate, including any other unsecured long term receivables, GPT does not recognise any further losses, unless it has incurred obligations or made payments on behalf of the associate. Joint arrangements Investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations each investor has, rather than the legal structure of the joint arrangement. GPT has assessed the nature of its joint arrangements and determined it has both joint operations and joint ventures. Joint operations GPT has significant co-ownership interests in a number of properties through unincorporated joint ventures. These interests are held directly and jointly as tenants in common. GPT recognises its direct share of jointly held assets, liabilities, revenues and expenses in the consolidated financial statements under the appropriate headings. The investment properties that are directly owned as tenants in common are disclosed in note 2. Joint ventures Investments in joint ventures are accounted for in the Consolidated Statement of Financial Position using the equity method which is the same method adopted for associates. (c) Other accounting policies Significant accounting policies that summarise the recognition and measurement basis used and are relevant to an understanding of the financial statements are provided throughout the notes to the financial statements. Other accounting policies include: (i) Available for sale financial assets Available for sale financial assets are recognised at fair value. Gains/losses arising from changes in the fair value of the carrying amount of available for sale financial assets are recognised in other comprehensive income. (ii) Foreign currency translation Functional and presentation currency Items included in the financial statements of each of the GPT entities are measured using the currency of the primary economic environment in which they operate (‘the functional currency’). Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Consolidated Statement of Comprehensive Income. Foreign operations Non-monetary items that are measured in terms of historical cost are converted using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences of non-monetary items, such as equities held at fair value through profit or loss, are reported as part of the fair value gain or loss. Exchange differences arising on monetary items that form part of the net investment in a foreign operation are taken against a foreign currency translation reserve on consolidation. Where forward foreign exchange contracts are entered into to cover any anticipated excesses of revenue less expenses within foreign joint ventures, they are converted at the ruling rates of exchange at the reporting period. The resulting foreign exchange gains and losses are taken to the Consolidated Statement of Comprehensive Income. (iii) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST (or equivalent tax in overseas locations) except where the GST incurred on purchase of goods and services is not recoverable from the tax authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable. Receivables and payables are stated inclusive 61 Annual Financial Report of The GPT GroupNotes to the Financial Statements – Year ended 31 December 2017 of the amount of GST. The net amount of GST receivable from, or payable to, the taxation authority is included with other receivables or payables in the Consolidated Statement of Financial Position. Cash flows are presented on a gross basis in the Statement of Cash flows. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to, the taxation authority are presented as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. (d) New and amended accounting standards and interpretations adopted from 1 January 2017 There are no significant changes to GPT’s financial performance and position as a result of the adoption of the new and amended accounting standards and interpretations effective for annual reporting periods beginning on or after 1 January 2017. (e) New accounting standards and interpretations issued but not yet adopted The following standards and amendments to standards are relevant to GPT. Reference Description AASB 9 Financial Instruments AASB 15 Revenue from Contracts with Customers AASB 16 Leases AASB 9 addresses the classification, measurement and de-recognition of financial assets and financial liabilities, introduces expanded disclosure requirements, a new impairment (expected credit loss) model and changes in presentation. When adopted, this could change the classification and measurement of financial assets and financial liabilities. The new expected credit loss model for calculating impairment on financial assets will not have a material impact on the provision for doubtful debts. The new hedging rules align hedge accounting more closely with the reporting entity’s risk management practices. As a general rule it will be easier to apply hedge accounting going forward. Changes in own credit risk in respect of liabilities designated at fair value through profit and loss must now be presented in other comprehensive income. Debt modifications where the impact results in a change in the present value of expected cashflows of less than 10%, taking into account other qualitative factors, will be taken immediately through the Consolidated Statement of Comprehensive Income unless the modifications are reset or entered at market rates. This will not have a material impact for GPT, as all previous modifications have been entered at market rates. GPT will apply the standard from 1 January 2018. AASB 15 will replace AASB 118 Revenue and AASB 111 Construction Contracts. It is based on the principle that revenue is recognised when control of a good or service is transferred to a customer. It contains a single model that applies to contracts with customers and two approaches to recognising revenue: at a point in time or over time. The model features a contract–based five-step analysis of transactions to determine whether, how much and when revenue is recognised. It applies to all contracts with customers except leases, financial instruments and insurance contracts. It requires reporting entities to provide users of financial statements with more informative and relevant disclosures. GPT will apply the standard from 1 January 2018. It is not expected that the application of this standard will have a material impact on the financial results, however some changes in the presentation of certain revenue items and additional disclosures will be required. The disclosure changes will have a greater impact on GPT from 1 January 2019 as there are certain revenue streams such as outgoings income that will continue to be accounted for under AASB 117 Leases until the adoption of AASB 16 Leases from 1 January 2019. AASB 16 will change the way lessees account for leases by eliminating the current dual accounting model which distinguishes between on-balance sheet finance leases and off-balance sheet operating leases. Instead, there will be a single, on-balance sheet accounting model that is similar to the current finance lease accounting. Where GPT is the lessee, this new treatment will result in recognition of a right of use asset along with the associated lease liability in the balance sheet and both a depreciation and interest charge in the Consolidated Statement of Comprehensive Income. In contrast, lessor accounting will remain similar to current practice. The new leasing model requires the recognition of operating leases on the balance sheet. If GPT had adopted the new standard from 1 January 2017, management estimates that net profit before tax for the 12 months to 31 December 2017 would decrease by approximately $0.1 million. Assets at 31 December 2017 would increase by approximately $4.0 million and liabilities would increase by $6.3 million. Application of Standard 1 January 2018 1 January 2018 1 January 2019 24. Events subsequent to reporting date On 24 January 2018, GPT acquired 4 logistics assets in Sunshine, Victoria for a total consideration of $74.0 million. Other than the above, the Directors are not aware of any matter or circumstance occurring since 31 December 2017 that has significantly or may significantly affect the operations of GPT, the results of those operations or the state of affairs of GPT in subsequent financial years. 62 Annual Financial Report of The GPT GroupNotes to the Financial Statements – Year ended 31 December 2017 Directors’ Declaration Year ended 31 December 2017 In the Directors of the Responsible Entity’s opinion: (a) The consolidated financial statements and notes set out on pages 24 to 62 are in accordance with the Corporations Act 2001, including: • complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and • giving a true and fair view of GPT’s financial position as at 31 December 2017 and of its performance for the financial year ended on that date; and (b) the consolidated financial statements and notes comply with International Financial Reporting Standards as disclosed in note 23 to the financial statements. (c) There are reasonable grounds to believe that GPT will be able to pay its debts as and when they become due and payable. The net deficiency of current assets over current liabilities at 31 December 2017 of $259.4 million arises as a result of the inclusion of the provision for distribution payable to stapled securityholders. GPT has access to undrawn financing facilities of $1,045.2 million as set out in note 13 to the financial statements. The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer as required by Section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the Directors. Rob Ferguson Chairman GPT RE Limited Sydney 13 February 2018 Bob Johnston Chief Executive Officer and Managing Director 63 Annual Financial Report of The GPT Group • • • • • • • • • • • • 64 Annual Financial Report of The GPT Group • • • −−−− • • • • • • • −−−− • • 65 Annual Financial Report of The GPT Group • • • • • • • • • • 35 66 Annual Financial Report of The GPT Group • • • • • • • • • • • • • • • • • 67 Annual Financial Report of The GPT Group 851 • • • • • • • • • • • • • • • 68 Annual Financial Report of The GPT Group • • • • • • • 69 Annual Financial Report of The GPT Group • • • • • 42 • 70 Annual Financial Report of The GPT Group Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities Year ended 31 December 2017 Contents Directors’ Report .......................................................................................................................................................................... 72 Auditor’s Independence Declaration ............................................................................................................................................ 89 Financial Statements .................................................................................................................................................................... 90 Consolidated Statement of Comprehensive Income ............................................................................................................ 90 Consolidated Statement of Financial Position ..................................................................................................................... 91 Consolidated Statement of Changes in Equity ..................................................................................................................... 92 Consolidated Statement of Cash Flows ............................................................................................................................... 93 Notes to the Financial Statements ....................................................................................................................................... 94 Result for the year ....................................................................................................................................................... 94 1. Segment information .............................................................................................................................................. 94 Operating assets and liabilities .................................................................................................................................. 95 2. Equity accounted investments ................................................................................................................................ 95 3. Loans and receivables ............................................................................................................................................ 97 4. Intangible assets ..................................................................................................................................................... 98 5. Inventories .............................................................................................................................................................. 99 6. Property, plant and equipment............................................................................................................................. 100 7. Other assets ......................................................................................................................................................... 101 8. Payables ................................................................................................................................................................ 101 9. Provisions ............................................................................................................................................................. 101 10. Taxation ................................................................................................................................................................. 102 Capital Structure ....................................................................................................................................................... 104 11. Equity and reserves .............................................................................................................................................. 104 12. Earnings per share ............................................................................................................................................... 106 13. Dividends paid and payable .................................................................................................................................. 106 14. Borrowings ........................................................................................................................................................... 106 15. Financial risk management ................................................................................................................................. 107 Other disclosure items .............................................................................................................................................. 110 16. Cash flow information .......................................................................................................................................... 110 17. Commitments ....................................................................................................................................................... 111 18. Contingent liabilities ............................................................................................................................................ 111 19. Security based payments ..................................................................................................................................... 111 20. Related party transactions .................................................................................................................................. 113 21. Auditors remuneration ......................................................................................................................................... 115 22. Parent entity financial information....................................................................................................................... 115 23. Fair value disclosures .......................................................................................................................................... 116 24. Discontinued operations and available for sale financial assets ......................................................................... 117 25. Accounting policies ............................................................................................................................................... 118 26. Events subsequent to reporting date ................................................................................................................... 120 Directors’ Declaration ................................................................................................................................................................. 121 Independent Auditor’s Report .................................................................................................................................................... 122 This financial report covers both GPT Management Holdings Limited (the Company) as an individual entity and the Consolidated Entity consisting of GPT Management Holdings Limited and its controlled entities. GPT Management Holdings Limited is a company limited by shares, incorporated and domiciled in Australia. Through our internet site, we have ensured that our corporate reporting is timely, complete and available globally at minimum cost to the Company. All press releases, financial reports and other information is available on our website: www.gpt.com.au. 71 Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities Directors’ Report Year ended 31 December 2017 The Directors of GPT Management Holdings Limited (the Company), present their report together with the financial statements of GPT Management Holdings Limited and its controlled entities (the Consolidated Entity) for the financial year ended 31 December 2017. The Consolidated Entity is stapled to the General Property Trust and the GPT Group (GPT or the Group) financial statements include the results of the stapled entity as a whole. GPT Management Holdings Limited is a company limited by shares, incorporated and domiciled in Australia. The registered office and principal place of business is MLC Centre, Level 51, 19 Martin Place, Sydney NSW 2000. 1. Operating and financial review About GPT GPT is an owner and manager of a $12.3 billion diversified portfolio of high quality Australian retail, office and logistics property assets and together with GPT’s funds management platform the Group has $21.5 billion of property assets under management (AUM). GPT owns some of Australia’s most significant real estate assets, including the MLC Centre and Australia Square in Sydney, Melbourne Central and Highpoint Shopping Centre in Melbourne and One One One Eagle Street in Brisbane. Listed on the Australian Securities Exchange (ASX) since 1971, GPT is today one of Australia’s largest diversified listed property groups with a market capitalisation of approximately $9.2 billion. GPT is one of the top 50 listed stocks on the ASX by market capitalisation as at 31 December 2017. GPT’s strategy is focused on leveraging its extensive real estate experience to deliver strong returns through disciplined investment, asset management and development. The development capability has a focus on creating value for securityholders through the enhancement of the core investment portfolio and in the creation of new investment assets. A key performance measure for GPT is Total Return. Total Return is calculated as the change in Net Tangible Assets (NTA) per security plus distributions per security declared over the year, divided by the NTA per security at the beginning of the year. This focus on Total Return is aligned with securityholders’ long term investment aspirations. In 2017 GPT achieved a Total Return of 15.2 per cent. GPT targets a Management Expense Ratio (MER) of less than 45 basis points. MER is calculated as management expenses as a percentage of assets under management. In 2017 GPT achieved an MER of 34 basis points. GPT focuses on maintaining a strong balance sheet. GPT has moderate gearing and significant investment capacity giving it the flexibility to execute on investment opportunities as they arise. In 2017 the Weighted Average Cost of Debt was 4.2 per cent with net gearing at 24.4 per cent. Review of operations The Consolidated Entity’s financial performance for the year ended 31 December 2017 is summarised below. The net loss after tax for the year ended 31 December 2017 is $14,222,000 (2016: net profit of $19,821,000). Property management fees Development management fees and revenue Fund management fees Management costs recharged Proceeds from sale of inventory Other income Expenses Profit from continuing operations before income tax expense Income tax expense (Loss)/profit after income tax for continuing operations Loss from discontinued operations Net (loss)/profit for the year 72 31 Dec 17 $’000 31 Dec 16 $’000 38,863 32,039 77,206 32,334 10,358 18,368 41,227 69,232 99,044 33,009 12,532 48,173 (203,315) (231,697) 5,853 (6,406) (553) (13,669) (14,222) 71,520 (22,649) 48,871 (29,050) 19,821 Change % (6%) (54%) (22%) (2%) (17%) (62%) 12% (92%) 72% (101%) 53% (172%) Consolidated Entity result Logistics The decrease in earnings after tax compared with 2016 is mainly attributable to decreases in development management revenue, performance management fees earned for GPT Wholesale Office Fund (GWOF), proceeds from sale of inventory and other income. This is partially offset by a decrease in expenses. Property management Retail The Consolidated Entity is responsible for property management activities across the retail sector. Property management fees decreased to $28,986,000 in 2017 as a result of lower development leasing fees due to the completion of a redevelopment in 2016 and lower energy income. Office The Consolidated Entity is responsible for property management activities across the office sector. Property management fees increased to $7,920,000 in 2017 as a result of higher membership income from Space & Co. Logistics The Consolidated Entity is responsible for property management activities across the logistics sector. Property management fees decreased to $1,957,000 in 2017 as a result of lower occupancy in the portfolio. Development management Retail The retail development team has focused on master planning and delivery of development opportunities within its $1.6 billion development pipeline. In 2017, this includes the delivery of the $68.0 million repositioning of Wollongong Central. The remix has introduced David Jones to the asset and was completed on schedule in October 2017. During 2017, retail development contributed $5.3 million to profit from continuing operations before income tax expense (2016: $5.8 million) from the sale of residential land parcels at Rouse Hill. Office The office development team has focused on progressing a number of repositioning projects at Melbourne Central Tower, CBW and 750 Collins Street in Melbourne and MLC Centre in Sydney. Progress is also being made on the planning approval for a new tower at Darling Park. Following the successful pre-commitment lease of 9,240sqm to the Rural Fire Service, construction has commenced on a 15,680sqm campus building on the 4 Murray Rose site at Sydney Olympic Park. Completion is expected in late 2018. The acquisition of an office development site of 2,439sqm in the heart of Parramatta’s commercial district settled in March 2017. This site will provide the opportunity to develop an office building of over 28,000sqm, with the development application submitted. In 2017, the logistics development business completed construction of four new logistics facilities totalling 70,000sqm at Seven Hills, Eastern Creek and Huntingwood in Sydney and Wacol in Brisbane. 100 per cent of this space has been leased. At the Huntingwood site, construction has commenced to develop an 11,000sqm warehouse on the adjoining land parcel to the existing building recently leased to IVE Group for 10 years. Planning approval is also in place and earthworks completed on Lot 21 Old Wallgrove Road site at Eastern Creek for a 30,000sqm facility. Funds Management GPT Wholesale Office Fund (GWOF) GWOF’s portfolio value increased to $7.1 billion, up $0.5 billion compared to 2016. The management fee income earned from GWOF decreased by $23.0 million as compared to 2016, primarily due to performance fee income of $28.1 million being earned in 2016 which will not be earned in the future in accordance with the revised Fund Terms. This was partially offset by higher base management fee income of $5.1 million due to strong upward revaluations across the portfolio, net new asset acquisitions and a higher base management fee structure compared with 2016. In June 2017, GPT acquired a further 16.3 million securities in GWOF for $23.2 million, increasing GPT’s ownership interest from 24.53 per cent to 24.95 per cent. GPT Wholesale Shopping Centre Fund (GWSCF) GWSCF’s portfolio value increased to $4.9 billion, up $1.1 billion compared to 2016. This was primarily due to the acquisition of an additional 25 per cent interest in September 2017 in Highpoint Shopping Centre for $660.0 million and Homemaker City, Maribyrnong for $20.0 million coupled with upward revaluations across the portfolio. Management fee income earned from GWSCF of $17.3 million has remained stable as compared to 2016. In May 2017, GPT acquired a further 115.6 million securities in GWSCF for $116.6 million, increasing GPT’s ownership interest from 25.29 per cent to 28.80 per cent. Fund Terms Review On 20 February 2017, GWSCF held an Extraordinary General Meeting (EGM) in relation to changes in the terms of GWSCF. At the EGM, investors approved all seven resolutions put to the meeting. The key changes included: • removal of the performance fee structure from 1 April 2017; • introduction of an Investor Representation Committee; and • other amendments to operational policies and investor rights. 73 Directors’ Report – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities Investor Liquidity Review Capital management On 31 March 2017, the first investor liquidity 10 year review concluded which allowed GWSCF securityholders to notify GPT Funds Management Limited (as Responsible Entity of GWSCF) whether they required liquidity. The outcome of the review was that binding requests for liquidity for a total of 78,474,213 securities, being 2.4 per cent of securities on issue, were submitted. This equated to $79.8 million at the 31 March 2017 current unit value of $1.0174. All requests for liquidity were met within the June 2017 quarter. Management expenses Management expenses increased to $73.4 million (2016: $71.0 million) predominantly caused by lower intercompany income elimination and moderate expense increases. In 2017, GPT achieved an MER of 34 basis points (2016: 37 basis points). Non-core operations Joint venture In October 2017, the Consolidated Entity received a return of capital of $10.7 million in respect of its 5.3 per cent interest in BGP Holding Plc (BGP). BGP was classified as an available for sale financial asset with a carrying value of $9.3 million at 31 December 2016. In 2017, following the return of capital the asset has been revalued and derecognised in the Consolidated Statement of Financial Position and $10.7 million has been recognised in the Consolidated Statement of Comprehensive Income as profit on derecognition of available for sale financial asset. Financial position 31 Dec 17 $’000 31 Dec 16 $’000 Change % Current assets Non-current assets Total assets Current liabilities 133,715 134,583 266,955 249,851 400,670 384,434 129,304 104,536 Non-current liabilities 115,471 98,080 (1%) 7% 4% 24% 18% 21% The Consolidated Entity has an external loan relating to the Metroplex joint venture. The Consolidated Entity has non-current, related party borrowings from GPT Trust and its subsidiaries. Under Australian Accounting Standards, the loans must be revalued to fair value each reporting period. Cash flows The cash balance as at 31 December 2017 increased to $20,033,000 (2016: $17,842,000). Operating activities Net cash inflows from operating activities have decreased in 2017 to $13,943,000 (2016: $55,605,000) due to the removal of the performance fee structure and reduced funds management fees resulting from the sale of GPT Metro Office Fund (GMF) in 2016. The following table shows the reconciliation from net (loss)/profit to the cash flow from operating activities: Net (loss)/profit for the year (14,222) 19,822 (172%) 31 Dec 17 $’000 31 Dec 16 $’000 Change % Non-cash items included in net (loss)/profit Capital return from available for sale financial asset Timing difference Net cash flows from operating activities Investing activities 62,207 76,880 (19%) (10,699) (12,429) (23,343) (28,668) 14% 19% 13,943 55,605 (75%) Net cash inflows from investing activities have increased to $6,165,000 in 2017 (2016: $5,048,000) due to a decline in property, plant and equipment acquisitions during the year. Financing activities Net cash outflows from financing activities have decreased to $17,917,000 in 2017 (2016: $73,191,000) due to a decline in the repayment of related party borrowings. Total liabilities Net assets 244,775 202,616 155,895 181,818 (14%) Dividends Total assets remains in line with prior year at $400,670,000 in 2017 (2016: $384,434,000). The Directors have not declared any dividends for the year ended 31 December 2017 (2016: nil). Total liabilities increased by 21 per cent to $244,775,000 in 2017 (2016: $202,616,000) due to increased borrowings to fund inventory development. 74 Directors’ Report – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities Risks The Board is ultimately accountable for corporate governance and the appropriate management of risk. The Board determines the risk appetite and oversees the risk profile to ensure activities are consistent with GPT’s strategy and values. The Sustainability and Risk Committee and the Audit Committee support the Board and are responsible for overseeing and reviewing the effectiveness of the risk management framework. GPT has an active enterprise-wide risk management framework. Within this framework the Board has adopted a policy setting out the principles, objectives and approach established to maintain GPT’s commitment to integrated risk management. GPT recognises the requirement for effective risk management as a core capability and consequently all employees are expected to be managers of risk. GPT’s risk management approach incorporates culture, people, processes and systems to enable the organisation to realise potential opportunities whilst managing adverse effects. The approach is consistent with AS/NZS ISO 31000:2009: Risk Management. Employees, contractors, the Leadership Team, the Sustainability and Risk Committee, the Audit Committee and through them, the Board: • report on or receive reports on GPT’s risk management practices and control systems including the effectiveness of GPT’s management of its material business risks; • promote risk awareness and assess the risk management culture; • develop and maintain internal specialist risk management expertise; • identify and assess risks in a timely and consistent manner; • design, embed and assess the effectiveness of controls; and • provide transparency and assurance that the risk profile is aligned with GPT’s strategy, values and risk appetite. Prospects Group GPT is well positioned with high quality assets and high levels of occupancy. As at 31 December 2017, the Group’s balance sheet is in a strong position, with a smooth, long debt expiry profile and net gearing slightly below the Group’s target range of 25 per cent to 35 per cent. Retail Australian retail sales grew 2.7 per cent for the year to 31 December 2017 led by the Eastern states. This has supported the performance of the GPT portfolio with more than 85 per cent of the portfolio located in NSW and VIC. Total centre sales grew 1.7 per cent whilst specialties sales per square metre grew 2.2 per cent. Office The Sydney and Melbourne office markets continued to deliver exceptional growth in net effective rents and asset valuations. The Sydney office market is expected to continue to enjoy favourable leasing conditions as supply remains limited through until 2020. The Melbourne office market is expected to see an elevated level of supply over the next 3 years however absorption is also expected to remain strong keeping vacancy rates low and upward pressure on net effective rents. GPT’s office portfolio weighting in the Sydney and Melbourne markets should benefit from these favourable market conditions. Logistics The investment market for institutional grade product has been strong over the past 24 months, with quality assets and portfolios transacting at yields firmer than at previous market peaks. Despite a modest rental growth outlook and increasing supply, assets with long WALE, good rent review structures and secure covenants have been well sought after. The medium term outlook is for a stabilisation of yields as this investment activity tapers off, while rents are likely to remain stable. GPT’s desire to increase exposure to the sector will see a continued focus on development. Funds management GPT has a strong funds management platform which has experienced significant growth over the past five years. The funds management team will continue to actively manage the existing portfolios, with new acquisitions, divestments and developments reviewed based on meeting the relevant investment objectives of the respective funds. Guidance for 2018 In 2018, GPT expects to deliver approximately 3 per cent growth in Funds From Operations (FFO) per ordinary security and approximately 3 per cent growth in distribution per ordinary security. Achieving this target is subject to risks detailed in the following section. 75 Directors’ Report – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities The risk appetite considers the most significant, material risks to which GPT is exposed. The following table sets out material risks and issues, the potential strategic impact to GPT and the ways in which they may be mitigated: Risk Category Risk/Issue Potential Strategic Impact Mitigation Investment mandate Investments do not perform in line with forecast • Investments deliver lower investment performance than target • Credit rating downgrade Volatility and speed of adverse changes in market conditions, including competition and digital disruption • Investments deliver lower investment returns than target • Formal deal management process • Active asset management including regular forecasting and monitoring of performance • High quality property portfolio • Development program to enhance asset returns • Comprehensive asset insurance program • Holistic capital management • Large multi asset portfolio • Monitoring of asset concentration • Digital strategy Development Leasing Capital management, including macro- economic factors Developments do not perform in line with forecast • Developments deliver lower • Formal development approval and returns than target management process Inability to lease assets in line with forecast • Investments deliver lower investment performance than target Re-financing and liquidity risk • Limits ability to meet debt maturities • Constrains future growth • Limits ability to execute strategy • May impact distributions • Failure to continue as a going concern • Large and diversified tenant base • High quality property portfolio • Experienced leasing team • Development program to enhance asset returns • Diversity of funding sources and spreading of debt maturities with a long weighted average debt term • Maintaining a minimum liquidity buffer in cash and surplus committed credit facilities for the forward rolling twelve-month period Interest rate risk – higher interest rate cost than forecast • Detrimental impact to investment performance • Interest rate exposures are actively hedged Health and safety Incidents causing injury to tenants, visitors to the properties, employees and/or contractors • Adversely affect GPT’s operating results • Criminal/civil proceedings and resultant reputation damage • Financial impact of remediation and restoration People Inability to attract, retain and develop talented people and provide an inclusive workplace • Limits the ability to deliver the business objectives and strategy • Formalised Health and Safety management system including policies and procedures for managing safety • Training and education of staff and contractors • Competitive remuneration • Structured development planning • Succession planning and talent management • Diversity & Inclusion Working Group • Diversity & Inclusion policies, guidelines and training Environmental and social sustainability Information security Inability to continue operating in a manner that does not compromise the health of ecosystems and meets accepted social norms This includes the consideration of climate change, energy (initiatives, security and cost), community and supply chain Risk of loss of data, breach of confidentiality, regulatory breach (privacy) and/or reputational impact including as a result from a cyber attack • Limits the ability to deliver the • Formalised Environment and business objectives and strategy • Criminal/civil proceedings and resultant reputation damage • Financial impact of remediation and restoration Sustainability management system including policies and procedures for managing environmental and social sustainability risks • Limits the ability to deliver the • Technology risk management business objectives and strategy framework • Criminal/civil proceedings and resultant reputation damage • Financial impact of remediation and restoration • Privacy policy, guidelines and procedures 76 Directors’ Report – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities 2. Environmental regulation GPT has policies and procedures in place that are designed to ensure that where operations are subject to any particular and significant environmental regulation under a law of Australia (for example property development and property management), those obligations are identified and appropriately addressed. This includes obtaining and complying with conditions of relevant authority consents and approvals and obtaining necessary licences. GPT is not aware of any breaches of any environmental regulations under the laws of the Commonwealth of Australia or of a State or Territory of Australia and has not incurred any significant liabilities under any such environmental legislation. GPT is also subject to the reporting requirements of the National Greenhouse and Energy Reporting Act 2007 (“NGER Act”). The NGER Act requires GPT to report its annual greenhouse gas emissions and energy use. The measurement period for GPT is 1 July to 30 June each year. GPT has implemented systems and processes for the collection and calculation of the data required which enabled submission of its report to the Department of Climate Change and Energy Efficiency within the legislative deadline of 31 October each year. GPT has submitted its report to the Department of Climate Change and Energy Efficiency for the period ended 30 June 2017 within the required timeframe. More information about GPT’s participation in the NGER program is available at www.gpt.com.au. 3. Events subsequent to reporting date On 15 January 2018, the Consolidated Entity sold vacant land at 368 Wembley Road, Berrinba for a total consideration of $4,100,000. Other than the above, the Directors are not aware of any matter or circumstances occurring since 31 December 2017 that has significantly or may significantly affect the operations of the Consolidated Entity, the results of those operations or the state of affairs of the Consolidated Entity in the subsequent financial years. 4. Directors and secretary Information on directors Rob Ferguson – Chairman Rob joined the Board in May 2009 and is also a member of the Nomination and Remuneration Committee. He brings a wealth of knowledge and experience in finance, investment management and property as well as corporate governance. Rob currently holds Non-Executive directorships in the following listed and other entities: • Primary Health Care Limited (since 2009) – Chairman • Watermark Market Neutral Fund Limited (since 2013) • Tyro Payments Limited (since 2005) • Smartward Limited (since 2012). He was also a Non-Executive Chairman of IMF Bentham Limited from 2004 to January 2015. As at the date of this report, he holds 207,628 GPT stapled securities. Robert Johnston – Chief Executive Officer and Managing Director Bob was appointed to the Board as Chief Executive Officer and Managing Director in September 2015. He has 29 years experience in the property sector including investment, development, project management and construction in Australia, Asia, the US and UK. Prior to joining GPT, Bob was the Managing Director of listed Australand Property Group which became Frasers Australand in September 2014. As at the date of this report, he holds 343,264 GPT stapled securities. Brendan Crotty Brendan was appointed to the Board in December 2009 and is also a member of the Audit Committee and the Sustainability and Risk Committee. He brings extensive property industry experience to the Board, including 17 years as Managing Director of Australand until his retirement in 2007. Brendan is currently a director of Brickworks Limited (since 2008) and Chairman of Cloud FX Pte Ltd. Brendan resigned from his role as Chairman of Western Sydney Parklands Trust on 31 December 2017. As at the date of this report, he holds 67,092 GPT stapled securities. 77 Directors’ Report – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities Eileen Doyle Gene Tilbrook Gene was appointed to the Board in May 2010 and is also the Chair of the Nomination and Remuneration Committee. He brings extensive experience in finance, corporate strategy, investments and capital management. Gene currently holds the position of Non-Executive Director in the following listed entities: • Orica Limited (since 2013) • Woodside Petroleum Limited (since 2014). Gene was also a Director of listed entities Transpacific Industries Group Limited from 2009 to 2013, Fletcher Building Limited from 2009 to April 2015, and Aurizon Holdings Limited from 2010 to February 2016. As at the date of this report, he holds 48,546 GPT stapled securities. James Coyne – General Counsel and Company Secretary James is responsible for the legal, compliance and company secretarial activities of GPT. He was appointed as the General Counsel and Company Secretary of GPT in 2004. His previous experience includes company secretarial and legal roles in construction, infrastructure, and the real estate funds management industry (listed and unlisted). Lisa Bau – Senior Legal Counsel and Company Secretary Lisa was appointed as a Company Secretary of GPT in September 2015. Her previous experience includes legal roles in mergers and acquisitions, capital markets, funds management and corporate advisory. Eileen was appointed to the Board in March 2010. She is also the Chair of the Sustainability and Risk Committee and a member of the Nomination and Remuneration and Audit Committees. She has diverse and substantial business experience having held senior executive roles and directorships in a wide range of industries, including research, financial services, building and construction, steel, mining, logistics and export. Eileen is also a Fellow of the Australian Academy of Technological Sciences and Engineering. Eileen currently holds the position of Non-Executive Director in the following listed and other entities: • Boral Limited (since 2010) • Oil Search Limited (since 2016). Eileen was also previously a director of Bradken Limited from 2011 to November 2015. As at the date of this report, she holds 45,462 GPT stapled securities. Swe Guan Lim Swe Guan was appointed to the Board in March 2015 and is also a member of the Audit Committee and the Sustainability and Risk Committee. Swe Guan brings significant Australian real estate skills and experience and capital markets knowledge to the Board, having spent most of his executive career as a Managing Director in the Government Investment Corporation (GIC) in Singapore. Swe Guan is currently Chairman of Cromwell European REIT in Singapore (since 2017), a director of Sunway Berhad in Malaysia (since 2011) and Global Logistics Properties in Singapore (since 2012). Swe Guan is also a member of the Investment Committee of CIMB Trust Cap Advisors. As at the date of this report, he holds 15,800 GPT stapled securities. Michelle Somerville Michelle was appointed to the Board in December 2015 and is also the Chair of the Audit Committee and a member of the Sustainability and Risk Committee. She was previously a partner of KPMG for nearly 14 years specialising in external audit and advising Australian and international clients both listed and unlisted primarily in the financial services market in relation to business, finance risk and governance issues. Michelle currently holds the position of Non-Executive Director in the following entities: • Bank Australia Limited (since 2014) • Challenger Retirement and Investment Services Ltd (since 2014) • Save the Children (Australia) (since 2012) • Down Syndrome Australia (since 2011). Michelle is also an independent consultant to the UniSuper Ltd Audit, Risk and Compliance Committee since 2015. As at the date of this report, she holds 16,157 GPT stapled securities. 78 Directors’ Report – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities Attendance of directors at meetings The number of Board meetings, including meetings of Board Committees, held during the financial year and the number of those meetings attended by each Director is set out below: Board Audit Committee Nomination and Remuneration Committee Sustainability and Risk Committee Number of meetings attended Number of meetings eligible to attend Number of meetings attended Number of meetings eligible to attend Number of meetings attended Number of meetings eligible to attend Number of meetings attended Number of meetings eligible to attend Rob Ferguson Michelle Somerville Gene Tilbrook Eileen Doyle 12 12 12 12 12 12 12 12 12 12 12 12 12 12 – – 4 3 4 4 – – – 4 3 4 4 – 6 – – 6 – – 6 6 – – 6 – – 6 – – 4 4 4 3 – – – 4 4 4 3 – Chair Rob Ferguson Robert Johnston Brendan Crotty Eileen Doyle Swe Guan Lim Michelle Somerville Gene Tilbrook 5. Other disclosures Indemnification and insurance of directors, officers and auditor GPT provides a Deed of Indemnity and Access (Deed) in favour of each of the Directors and Officers of GPT and its subsidiary companies and each person who acts or has acted as a representative of GPT serving as an officer of another entity at the request of GPT. The Deed indemnifies these persons on a full indemnity basis to the extent permitted by law for losses, liabilities, costs and charges incurred as a Director or Officer of GPT, its subsidiaries or such other entities. Subject to specified exclusions, the liabilities insured are for costs that may be incurred in defending civil or criminal proceedings that may be brought against Directors and Officers in their capacity as Directors and Officers of GPT, its subsidiary companies or such other entities, and other payments arising from liabilities incurred by the Directors and Officers in connection with such proceedings. GPT has agreed to indemnify the auditors out of the assets of GPT if GPT has breached the agreement under which the auditors are appointed. During the financial year, GPT paid insurance premiums to insure the Directors and Officers of GPT and its subsidiary companies. The terms of the contract prohibit the disclosure of the premiums paid. Non-audit services During the year PricewaterhouseCoopers, GPT’s auditor, has performed other services in addition to their statutory duties. Details of the amounts paid to the auditor, which includes amounts paid for non-audit services and other assurance services, are set out in note 21 to the financial statements. The Directors have considered the non-audit services and other assurance services provided by the auditor during the financial year. In accordance with advice received from the Audit Committee, the Directors are satisfied that the provision of non-audit services by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons: • the Audit Committee reviewed the non-audit services and other assurance services at the time of appointment to ensure that they did not impact upon the integrity and objectivity of the auditor; • the Board’s own review conducted in conjunction with the Audit Committee concluded that the auditor independence was not compromised, having regard to the Board’s policy with respect to the engagement of GPT’s auditor; and • the fact that none of the non-audit services provided by PricewaterhouseCoopers during the financial year had the characteristics of management, decision-making, self-review, advocacy or joint sharing of risks. Auditor’s independence declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 89 and forms part of the Directors’ Report. Rounding of amounts The amounts contained in this report and in the financial statements have been rounded to the nearest thousand dollars unless otherwise stated (where rounding is applicable) under the option available to the Consolidated Entity under ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191. The Consolidated Entity is an entity to which the Instrument applies. 79 Directors’ Report – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities 6. Remuneration report The Nomination & Remuneration Committee (the Committee) of the Board presents the Remuneration Report (Report) for the GPT Group. This Report has been audited in accordance with section 308(3C) of the Corporations Act 2001. The Board aims to communicate the remuneration outcomes with full transparency; demonstrate that the GPT Group’s remuneration platform is both market competitive and fair to all stakeholders; and align performance measures to the achievement of GPT’s strategic objectives. Governance Who are the members of the Committee? What is the scope of work of the Committee? The Committee consists of 3 Non-Executive Directors: • Gene Tilbrook (Committee Chairman) • Eileen Doyle • Rob Ferguson The Committee provides advice and recommendations to the Board on: • Criteria for selection of Directors; • Nominations for appointment of Directors; • Criteria for reviewing the performance of Directors individually and the GPT Board collectively; • Remuneration policies for Directors and Committee members; • Remuneration amounts for Directors from within the overall Directors fee cap approved by securityholders; • Remuneration policy for the Chief Executive Officer (CEO) and employees; • Incentive plans for the CEO and employees, including exercising discretion where appropriate in determining short term incentive compensation (STIC) and long term incentive compensation (LTI) outcomes; and • Any other related matters regarding executives or the Board1. Who is included in the Remuneration Report? GPT’s Key Management Personnel (KMP) are the individuals responsible for planning, controlling and managing the GPT Group (being the Non-Executive Directors, CEO, Chief Financial Officer (CFO), and the Chief Operating Officer (COO)). Committee key decisions and remuneration outcomes in 2017 Platform component Key decisions and outcomes Base pay (Fixed) • Implemented the annual review of employee base pay effective 1 January 2017, with an average increase of Short term incentive compensation (STIC) Long term incentive (LTI) compensation Other employee ownership plans 3.6 per cent. • Implemented an average increase of 3.0 per cent in Non-Executive Director base fees effective 1 January 2017. This was the first review of base fees since 1 January 2015. • The Group achieved an EPS growth outcome of 3.0 per cent which generated a STIC pool of $13.8 million. • The Group achieved a compound annual Total Return2 for the 2015-17 period of 14.05 per cent, exceeding the maximum target of 9.75 per cent, and delivered a Total Securityholder Return (TSR)3 of 44.34 per cent which ranked 5th against the comparator group. • As a result, the vesting outcome for the 2015-17 LTI plan was 83.29 per cent of the performance rights for each of the 23 participants in the LTI plan. • Launched the 2017-2019 LTI with two performance measures, Total Return and Relative TSR. • Strengthened the performance hurdle for vesting under the Total Return measure to commence at 8.5 per cent and reach maximum at 10 per cent. • Continued the General Employee Security Ownership Plan (GESOP) for 137 STIC eligible employees not in the LTI. Under GESOP each participant receives an amount equal to 10 per cent of their STIC (less tax) delivered in GPT securities, which must be held for at least 1 year. • Continued the Broad Based Employee Security Ownership Plan (BBESOP) for 281 employees ineligible for GESOP. Under BBESOP, participants receive $1,000 worth of GPT securities that cannot be transferred or sold until the earlier of 3 years from the allocation date or cessation of employment (or $1,000 cash (less tax) at the election of the individual). Policy & governance • Utilised external advice on market compensation benchmarks and practice, prevailing regulatory and governance standards, and drafting of incentive plan documentation from Ernst & Young and Conari Partners4. Diversity • Completed an organisation wide gender pay equity audit and launched GPT’s Gender Equality Policy. • GPT’s CEO Bob Johnston is a member of the Property Male Champions of Change, and was also appointed a Gender Pay Equity Ambassador by the Workplace Gender Equality Agency (WGEA). • Increased the percentage of females in senior leadership roles from 36.7 per cent at the end of 2016 to 41.4 per cent. • Maintained participation of First Nations employees in the permanent workforce at 1 per cent. • Launched GPT’s LGBTI Strategy and established an ally network. 1 Further information about the role and responsibility of the Committee is set out in its Charter which is available on GPT’s website (www.gpt.com.au). 2 Total Return is defined as the sum of the change in Net Tangible Assets (NTA) plus distributions over the performance period, divided by the NTA at the beginning of the performance period. 3 TSR represents an investor’s return, calculated as the percentage difference between an initial amount invested in stapled securities and the final value of those stapled securities at the end of the relevant period, assuming distributions were reinvested. 4 During 2017, no remuneration recommendations in relation to Key Management Personnel, as defined by Division 1 of Part 1.2 of Chapter 1 of the Corporations Act 2001, were made by these or other consultants. 80 Directors’ Report – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities GPT’s vision and financial goals linked to remuneration structures GPT’s vision & financial goals To be the most respected property company in Australia in the eyes of our Investors, People, Customers and Communities Total Return > 8.5 per cent Generate competitive Relative Total Securityholder Return Generate competitive EPS growth Base pay (Fixed) STIC (variable) LTI (variable) Total remuneration components • Base level of reward. • Discretionary, at risk, and • Set around Australian market median using external benchmark data (including AON Hewitt and the Financial Institutions Remuneration Group (FIRG)). • Reviewed based on employee’s responsibilities, experience, skill and performance. • External & internal relativities considered. with aggregate STIC funding aligned to overall Group financial outcomes. • Set around market median for target performance with potential to achieve top quartile for stretch outcomes. • Determined by GPT and individual performance against a mix of balanced scorecard measures which include financial and non- financial measures. • Financial measures include EPS growth, portfolio, fund and/or property level metrics. • Non-financial objectives focus on execution of strategy, delivery of key projects and developments, and people and culture objectives. • Delivered in cash, or (for senior executives), a combination of cash and equity with deferred vesting for 1 year. • Discretionary, at risk, and aligned to overall Group financial outcomes. • Set around market median for target performance with potential to achieve top quartile for stretch outcomes. • Vesting determined by GPT performance against Total Return and Relative TSR financial performance. • Relative TSR is measured against ASX200 AREIT Accumulation Index (including GPT). • Assessed over a 3 year performance period, no re-testing. • No value derived unless GPT meets or exceeds defined performance measures. • Delivered in GPT securities to align executive and securityholder interests. Other employee ownership plans (variable) GESOP • For STIC eligible individuals who are ineligible for LTI. • Equal to 10 per cent of their STIC (less tax) delivered in GPT securities, which must be held for at least 1 year. BBESOP • For individuals ineligible for STIC or LTI. • GPT must achieve at least Target outcome on annual EPS growth. • A grant of $1,000 worth of GPT securities which must be held until the earlier of 3 years from the allocation date or cessation of employment (or $1,000 cash (less tax) at the election of the individual). Attract, retain, motivate and reward high calibre executives to deliver superior performance by providing: Align executive rewards to GPT’s performance and securityholder interests by: • Competitive rewards. • Opportunity to achieve incentives beyond base pay based on high performance. • Assessing incentives against financial and non-financial business measures that are aligned with GPT strategy. • Delivering a meaningful component of executive remuneration in the form of equity subject to performance hurdles being achieved. 81 Directors’ Report – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities Employment Terms 1. Employment terms – Chief Executive Officer and Managing Director Term Contract duration Conditions Open ended. Termination by Executive 6 months’ notice. GPT may elect to make a payment in lieu of notice. Remuneration Package Bob Johnston’s 2017 remuneration arrangements were as follows: • Fixed pay: $1,435,000. • STIC: $0 to $1,793,750 (i.e. 0 per cent to 125 per cent of base pay) based on performance and paid in an equal mix of cash and deferred GPT securities, with the securities component vesting one year after the conclusion of the performance year. • LTI: A grant of performance rights with the face value at time of grant of $2,152,500 (i.e. 150 per cent of base pay) with vesting outcomes dependent on performance and continued service, and delivered in restricted GPT securities. Termination by Company for cause No notice requirement or termination benefits (other than accrued entitlements). Termination by Company (other) 12 months’ notice. Treatment of unvested STIC and LTI will be at the Board’s discretion under the terms of the relevant plans and GPT policy. Post-employment restraints 6 months non-compete, and 12 months non-solicitation of GPT employees. External Directorships Bob Johnston is a Director on the Boards of the Property Industry Foundation (PIF) and the Property Council of Australia (PCA). He does not receive remuneration for these roles. Clawback Policy All GPT employees who participate in STIC and LTI are subject to remuneration being clawed back if the recipient has acted fraudulently, dishonestly, or where there has been a material misstatement or omission in the Group’s financial statements leading to the receipt of an unfair benefit. 2. Employment terms – Executive KMP Term Contract duration Conditions Open ended. Termination by Executive 3 months’ notice. GPT may elect to make a payment in lieu of notice. Remuneration Package Component Fixed pay STIC5 LTI Mark Fookes $820,000 $0 to $820,000 $0 to $820,000 Anastasia Clarke $750,000 $0 to $750,000 $0 to $750,000 Termination by Company for cause Termination by Company (other) No notice requirement or termination benefits (other than accrued entitlements). 3 months’ notice. Severance payments may be made subject to GPT policy and capped at the three year average of the executive’s annual base (fixed) pay. Treatment of unvested STIC and LTI will be at the Board’s discretion under the terms of the relevant plans and GPT policy. Post-employment restraints 12 months non-solicitation of GPT employees. 3. Compensation mix at maximum STIC and LTI outcomes Executive KMP Position Bob Johnston Chief Executive Officer and Managing Director Anastasia Clarke Chief Financial Officer Mark Fookes Chief Operating Officer Base pay 26.7% 33.4% 33.4% STI 33.3% 33.3% 33.3% LTI 40.0% 33.3% 33.3% Fixed remuneration Variable or “at risk” remuneration6 5 The STIC is paid in an equal mix of cash and deferred GPT securities, with the securities component vesting 1 year after the conclusion of the performance year. 6 The percentage of each component of total remuneration is calculated with reference to maximum or stretch potential outcomes as set out under Remuneration Package in Tables 1 and 2 above. 82 Directors’ Report – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities Group Financial Performance & Incentive Outcomes 1. Five year Group financial performance Total Securityholder Return (TSR) (%) Total Return (%) NTA (per security) ($) FFO (per security)7 (cents) Security price at end of calendar year ($) 2017 6.6 15.2 5.04 30.8 5.11 2016 10.1 15.5 4.59 29.9 5.03 2015 15.4 11.5 4.17 28.3 4.78 2014 34.5 9.6 3.94 26.8 4.35 2013 4.1 8.5 3.79 25.7 3.40 2. Summary of CEO Objectives and Performance Outcomes Financial Strategy Performance Performance measure Earnings per security (EPS) and EPS growth targets. Strategy objectives focussed on exploring growth opportunities for GPT group, as well as development & implementation of strategy plans for each division. Operational objectives focused on driving performance of the investment portfolio and on fund term reviews, fund performance, key milestones in the development pipeline, and other projects. Reason chosen EPS is a key financial measure of GPT’s performance. Developing, communicating and implementing GPT’s strategy will underpin GPT’s medium term activities. Focus on delivery of investment and fund performance, conversion of the development pipeline and operational efficiency to optimise GPT’s performance. People People objectives centred on increasing employee engagement, driving our diversity and inclusion agenda, and leadership team performance. Maintaining a high performing executive team and achieving engagement and diversity goals is key to GPT’s performance. Weighting 70% Performance outcomes The Group delivered EPS of 30.8 cents and EPS growth of 3.0 per cent for 2017. This was consistent with budget but below the stretch objective set by the Board. 15% 10% 5% Strategy plans have been developed and updated for each division, approved by the Board, and implementation of plans is on-track. Acquisition opportunities consistent with strategy were targeted throughout the year but the Group was unsuccessful in securing major new opportunities that met the Group’s return expectations. GWSCF performance was a 1 year equity IRR of 12.5 per cent, and fund terms were successfully renewed. GWOF performance was a 1 year equity IRR of 13.4 per cent, and GPT acquired a further $23.2m worth of units to take the Group’s position to 25 per cent. The expansion of the Rouse Hill Town Centre was delayed due to changing retail market conditions and authority delays have hampered progress on the mixed-use opportunities at Sydney Olympic Park and Camellia. The Darling Park Stage 4 opportunity has been further advanced. $88.5m of Logistics development projects were completed at Seven Hills, Huntingwood and Wacol, with a further $126.5m of projects underway. The Sunshine Plaza redevelopment is expected to be completed successfully in the 4th Quarter of 2018. The Group has also successfully completed the repositioning of Wollongong Central. Employee engagement has been independently assessed and the Group’s sustainable engagement score increased 3 per cent to 82 per cent. Gender diversity remained a focus for 2017 with female representation in senior leadership roles increasing to 41.4 per cent. Aboriginal and Torres Strait Islander representation in the permanent workforce has remained steady at 1 per cent. Strategies have been implemented to ensure that GPT is an inclusive organisation for all including our LGBTI, Aboriginal and Torres Strait Islander employees. The Leadership Team and senior cohort completed Hogan Profiles as part of leadership development activities to help drive business performance. 7 Represents Realised Operating Income (ROI) until 2013. 83 Directors’ Report – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities 3. 2017 STIC Framework The CEO objectives are cascaded (in full or in part) to KMP and all STIC participants where applicable. Performance measures and weightings may vary according to areas of responsibility for each STIC participant. Group and segment financial KPI’s and performance KPI’s in relation to occupancy, leasing, progress on developments, investment performance and operational efficiency are included. Performance objectives are then measured to determine performance outcomes and recommended STIC. For the Group, EPS Growth performance hurdles are set for the year. For 2017, with the Group delivering an EPS Growth outcome of 3.0 per cent, an amount of $13.8 million was derived for the STIC pool, representing 64 per cent of the aggregate of STIC participants’ maximum STIC potential (2016: 69 per cent). The proportion of the available STIC pool for each individual participant is then determined by the performance of the individual and their business unit/team against Group and individual KPI’s. Final allocation of the STIC pool for 2017 among the balance of the eligible employees8 is to occur post the issue of the 2017 Remuneration Report in March 2018. The following table shows the distribution of 2016 STIC outcomes as a percentage of the individuals’ maximum STIC opportunity. 2016 STIC Received as a % of STIC potential Percentage of STIC participants 0–50% 6.0% 50–60% 6.9% 60–70% 31.9% 70–80% 44.9% 80–90% 90–100% 10.3% 0.0% 4. 2017 STIC outcomes by Executive KMP9 Executive KMP Position Bob Johnston Chief Executive Officer and Managing Director Anastasia Clarke Chief Financial Officer Mark Fookes Chief Operating Officer Actual STIC awarded $1,142,000 $500,000 $540,000 Actual STIC awarded as a % of maximum STIC % of maximum STIC award forfeited Cash component Equity component (# of GPT securities)10 63.67% 66.67% 65.85% 36.33% $571,000 119,958 33.33% 34.15% $250,000 $270,000 52,521 56,723 8 i.e. excluding the KMP. 9 Excluding the impact of movements in the GPT security price on deferred STIC value received. 10 The number of deferred GPT securities granted are calculated by dividing 50 per cent of the Actual STIC awarded by GPT’s Q4 2016 VWAP of $4.76. The deferred GPT securities will vest subject to service on 31 December 2018. 84 Directors’ Report – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities Performance measure Performance measure hurdle Weighting Results 5. Group performance measures for LTI Plans LTI performance measurement period LTI 2015 2015-17 2016 2016-18 2017 2017-19 Relative TSR versus comparator group 50 per cent of rights vest at 51st percentile, up to 100 per cent at the 75th percentile (pro rata vesting in between) Total Return Relative TSR versus ASX200 AREIT Accumulation Index (including GPT) Total Return Relative TSR versus ASX200 AREIT Accumulation Index (including GPT) Total Return 25 per cent of rights vest at 9 per cent Total Return, up to 100 per cent at 9.75 per cent Total Return (pro-rata vesting in between) 10 per cent of rights vest at Index performance, up to 100 per cent at Index plus 10 per cent (pro rata vesting in between) 0 per cent of rights vest at 8 per cent Total Return, up to 100 per cent at 9.5 per cent Total Return (pro-rata vesting in between) 10 per cent of rights vest at Index performance, up to 100 per cent at Index plus 10 per cent (pro rata vesting in between) 0 per cent of rights vest at 8.5 per cent Total Return, up to 100 per cent at 10.0 per cent Total Return (pro-rata vesting in between) Vesting % by performance measure 66.58% 50% TSR of 44.34 per cent. Relative TSR of 5th out of 11 participants, placing GPT at the 58.96th percentile. 50% Compound TR of 14.05 per cent. 100% 50% N/A N/A 50% N/A N/A 50% N/A N/A 50% N/A N/A 6. 2015-2017 LTI outcomes by Executive KMP Senior Executive Position Bob Johnston Chief Executive Officer and Managing Director Anastasia Clarke Chief Financial Officer Mark Fookes Chief Operating Officer Performance rights granted Performance rights vested Performance rights lapsed 430,476 104,981 194,747 358,543 87,439 162,205 71,933 17,542 32,542 7. LTI outcomes – fair value and maximum value recognised in future years11 Executive KMP Bob Johnston Chief Executive Officer and Managing Director Anastasia Clarke Chief Financial Officer Mark Fookes Chief Operating Officer LTI Outcome 2017 2016 2017 2016 2017 2016 Grant date 22 May 2017 16 May 2016 21 February 2017 16 May 2016 21 February 2017 16 May 2016 Fair value per performance right Performance rights granted as at 31 Dec 17 $2.66 $2.96 $2.66 $2.96 $2.66 $2.96 452,206 450,257 157,563 139,365 172,269 171,527 Vesting date 31 Dec 19 31 Dec 18 31 Dec 19 31 Dec 18 31 Dec 19 31 Dec 18 Maximum value to be recognised in future years $955,709 $903,120 $293,563 $314,439 $320,962 $387,004 11 For the avoidance of doubt, the GPT incentive plans (i.e. STIC and LTI) use face value grants of performance rights based on the volume weighted average security price (VWAP) of GPT securities for specified periods; reference to fair value per performance right is included in this table to comply with accounting standards. 85 Directors’ Report – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities 8. Reported remuneration – Executive KMP – Actual Amounts Received12 Fixed pay Variable or “at risk”13 Executive KMP Bob Johnston Chief Executive Officer and Managing Director Anastasia Clarke Chief Financial Officer Mark Fookes Chief Operating Officer Total Year Base pay Superannuation Other14 2017 $1,415,168 $19,832 $3,299 2016 $1,300,883 $19,462 $5,677 2017 2016 2017 2016 2017 2016 $730,168 $630,538 $800,168 $780,538 $2,945,504 $2,711,959 $19,832 $2,480 $19,462 $2,334 $19,832 $4,326 $19,462 $6,999 $59,496 $10,105 $58,386 $15,010 STIC $1,195,801 $1,143,136 $523,556 $481,107 $565,442 $571,233 $2,284,799 $2,195,476 LTI $1,867,471 – $455,426 $517,555 $844,845 $979,499 $3,167,742 $1,497,054 Total $4,501,571 $2,469,158 $1,731,462 $1,650,996 $2,234,613 $2,357,731 $8,467,646 $6,477,885 9. Reported remuneration – Executive KMP – AIFRS Accounting15 Executive KMP Bob Johnston Chief Executive Officer and Managing Director Anastasia Clarke Chief Financial Officer Mark Fookes Chief Operating Officer Total Fixed pay Variable or “at risk” Year Base pay Superannuation Other STIC (cash plus accrual)16 LTI award accrual17 Grant or vesting of non STI or LTI performance rights18 Total 2017 $1,376,680 $19,832 $3,299 $1,219,543 $1,166,796 – $3,786,150 2016 $1,390,757 $19,462 $5,677 $936,837 $694,626 $64,319 $3,111,678 2017 2016 2017 2016 2017 2016 $775,348 $633,714 $840,325 $784,411 $2,992,353 $2,808,882 $19,832 $2,480 $569,961 $382,324 $19,462 $2,334 $495,523 $290,933 $19,832 $4,326 $669,971 $515,208 $19,462 $6,999 $720,099 $481,598 $59,496 $10,105 $2,459,475 $2,064,328 – – – – – $1,749,945 $1,441,966 $2,049,662 $2,012,569 $7,585,757 $58,386 $15,010 $2,152,459 $1,467,157 $64,319 $6,566,213 10. GPT security ownership – Executive KMP as at 31 December 2017 GPT Holdings (start of period)19 330,695 486,402 1,008,431 Executive KMP Bob Johnston Chief Executive Officer and Managing Director Anastasia Clarke Chief Financial Officer Mark Fookes Chief Operating Officer Sign on performance rights converting in 2017 Employee Security Schemes (ESS) 2017 DSTIC 2015- 17 LTI TOTAL ESS for 2017 Purchase /(Sales) during period20 GPT Holdings (end of period)21 Gross Value of GPT Holdings22 MSHR Guideline23 12,569 119,958 358,543 478,501 – 821,765 $4,280,163 $2,152,500 – – 52,521 87,439 139,960 (163,777) 462,585 $2,409,374 $750,000 56,723 162,205 218,928 (109,091) 1,118,268 $5,824,499 $820,000 12 This table discloses the cash and other benefit amounts actually received by GPT’s executive KMP, as distinct from the accounting expense. As a result, it does not align to Australian Accounting Standards. 13 Gross dollar values for the equity components have been calculated by multiplying the number of securities by GPT’s fourth quarter VWAP for the applicable year; 2017: $5.2085 (2016: $4.76). 14 Other may include death & total/permanent disability insurance premiums, service awards, GPT superannuation plan administration fees, and/or other benefits. 15 This table provides a breakdown of remuneration for executive KMP in accordance with statutory requirements and Australian Accounting Standards. 16 The accrual accounting valuation of the deferred securities in Mr. Johnston’s 2015 STIC are included in the 2016 number as they were approved for issue at the 2016 AGM. 17 This column records the amount of the fair value of performance rights under the various LTI plans expensed in the relevant financial years, and does not represent actual LTI awards made to executives or the face value grant method. 18 Grant or vesting of one-off non STI or LTI performance rights includes an accounting valuation of the sign on package for Mr. Johnston. 19 GPT Holdings (start of period) may include GPT securities obtained as sign on grants (Mr Johnston only), DSTIC up to and including 2016, LTI plans up to and including the 2014-16 LTI plan, and private holdings. 20 Movement in GPT security holdings as a result of the sale of vested, unrestricted security holdings and/or the sale or purchase of additional private holdings on the individuals own account during the 2017 calendar year. 21 GPT Holdings (end of period) is the sum of GPT Holdings (start of the period) plus DSTIC and LTI securities obtained under ESS and adjusted for any purchases or sales during the period. 22 The GPT Holdings (end of period) multiplied by GPT’s fourth quarter 2017 VWAP of $5.2085 to derive a dollar value. 23 GPT’s MSHR guideline requires the CEO to acquire and maintain a holding equal to 150 per cent of base salary. For Leadership Team members the holding requirement is equal to 100 per cent of base salary. Individuals have four years from commencement of employment to achieve the MSHR before it is assessed for the first time. 86 Directors’ Report – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities 11. GPT performance rights – Executive KMP Executive KMP Position Bob Johnston Chief Executive Officer and Managing Director Anastasia Clarke Chief Financial Officer Mark Fookes Chief Operating Officer Remuneration – Non-Executive Directors Performance rights Performance rights that lapsed in 201724 (# of rights) Performance rights still on foot at 31/12/1725 (# of rights) 140,394 43,802 61,953 902,463 296,928 343,796 What are the key elements of the Non- Executive Director Remuneration Policy? • The Board determines the remuneration structure for Non-Executive Directors based on recommendations from the Committee. • Non-Executive Directors are paid one fee for participation as a Director in all GPT related companies (principally GPT RE Limited, the Responsible Entity of General Property Trust and GPT Management Holdings Limited). • Non-Executive Director remuneration is composed of three main elements: – Main Board fees – Committee fees – Superannuation contributions at the statutory superannuation guarantee contribution rate. • Non-Executive Directors do not participate in any short or long term incentive arrangements and are not entitled to any retirement benefits other than compulsory superannuation. • Non-Executive Director remuneration is set by reference to comparable entities listed on the ASX (based on GPT’s industry sector and market capitalisation). • External independent advice on remuneration levels for Non-Executive Directors is sought on an annual basis. In the event that a review is conducted, the new Board and Committee fees are effective from the 1st of January in the applicable year and advised in the ensuing Remuneration Report. • Fees (including superannuation) paid to Non-Executive Directors are subject to an aggregate limit of $1,800,000 per annum, which was approved by GPT securityholders at the Annual General Meeting on 5 May 2015. As an executive director, Mr Johnston does not receive fees from this pool as he is remunerated as one of GPT’s senior executives. 1. Board and committee fees26, 27 Chairman Members Year 2017 2016 2017 2016 Board Base Fee Audit Committee Sustainability and Risk Committee Nomination and Remuneration Committee $380,000 $362,500 $148,000 $145,000 $36,000 $36,000 $18,000 $18,000 $30,000 $30,000 $15,000 $15,000 $30,000 $30,000 $15,000 $15,000 24 The sum of performance rights that were awarded to a participant in the 2015 LTI that did not vest at the end of the 2015-2017 performance period, and as a result, lapsed and/or performance rights granted under the 2017 DSTIC that also lapsed. 25 The total of unvested performance rights currently on foot excluding any GPT securities or performance rights that may have lapsed up to 31 December 2017. This represents the current maximum number of additional GPT securities to which the individual may become entitled subject to satisfying the applicable performance measures in the 2016-18 and 2017-19 LTI plans on foot; as such, these performance rights represent the incentive opportunity over multiple future years, are subject to performance and hence “at risk”, and as a result may never vest. 26 ‘Chairman’ used in this sense may refer to the chairperson of the board or a particular committee. 27 In addition to the fees noted in the table, all non-executive directors receive reimbursement for reasonable travel, accommodation and other expenses incurred while undertaking GPT business. 87 Directors’ Report – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities 2. Reported remuneration – Non-Executive Directors – AIFRS accounting28, 29 Non-Executive Director – Current Rob Ferguson Chairman Brendan Crotty Eileen Doyle Swe Guan Lim Michelle Somerville Gene Tilbrook Non-Executive Director – Former Anne McDonald31 Total Year 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 Fixed pay Salary & fees Superannuation Other30 $380,000 $362,500 $181,000 $181,333 $203,500 $190,000 $181,000 $178,000 $192,750 $174,723 $178,000 $175,000 – $62,422 $1,316,250 $1,323,978 $19,832 $19,462 $17,195 $17,227 $19,333 $18,050 $17,195 $16,910 $18,311 $16,599 $16,910 $16,625 – $5,930 $108,776 $110,803 – – – – – – $287 $615 – – $380 $767 – $641 $667 $2,023 Total $399,832 $381,962 $198,195 $198,560 $222,833 $208,050 $198,482 $195,525 $211,061 $191,322 $195,290 $192,392 – $68,993 $1,425,693 $1,436,804 3. Non-Executive Director – GPT securityholdings Non-Executive Director Balance 31/12/16 Purchase/(Sale) Balance 31/12/17 Private holdings (# of securities) Minimum securityholding requirement (MSHR) MSHR guideline33 Gross value32 Rob Ferguson Brendan Crotty Eileen Doyle Swe Guan Lim Michelle Somerville Gene Tilbrook 207,628 67,092 45,462 – 2,912 48,546 – – – 15,800 13,245 – 207,628 67,092 45,462 15,800 16,157 48,546 $1,081,430 $349,449 $236,789 $82,294 $84,154 $252,852 $380,000 $148,000 $148,000 $148,000 $148,000 $148,000 28 This table provides a breakdown of remuneration for non-executive directors in accordance with statutory requirements and Australian accounting standards. 29 No termination benefits were paid during the financial year. 30 Other may include death & total/permanent disability insurance premiums and/or GPT superannuation plan administration fees. 31 Ms. McDonald retired from the GPT Board on 4 May 2016. 32 Non-executive directors holdings multiplied by GPT’s fourth quarter 2017 VWAP of $5.2085 to derive a dollar value. 33 The MSHR for non-executive directors is equal to 100 per cent of base fees. Individuals have four years from commencement of employment to achieve the MSHR before it is assessed for the first time. The Directors’ Report, including the Remuneration Report, is signed in accordance with a resolution of the Directors of the GPT Group. Bob Johnston Chief Executive Officer and Managing Director Rob Ferguson Chairman Sydney 13 February 2018 88 Directors’ Report – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities 89 Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities Financial Statements Consolidated Statement of Comprehensive Income Year ended 31 December 2017 Note 31 Dec 17 $’000 31 Dec 16 $’000 Revenue Fund management fees Property management fees Development management fees Development revenue Other revenue Management costs recharged Other income Share of after tax profit of equity accounted investments Dividend income Interest revenue Reversal of prior period impairment expense Derecognition of available for sale financial asset Profit on the sale of other assets Proceeds from sale of inventory Total revenue and other income Expenses Remuneration expenses Cost of sale of inventory Property expenses and outgoings Development expenses Repairs and maintenance Professional fees Depreciation Amortisation Revaluation of financial arrangements Impairment expense Finance costs Other expenses Total expenses Profit before income tax Income tax expense (Loss)/profit after income tax for continuing operations Loss from discontinued operations Net (loss)/profit for the year Other comprehensive income from discontinued operations Items that may be reclassified to profit and loss Net foreign exchange translation adjustments Revaluation of available for sale financial asset Total comprehensive income for the year Net (loss)/profit attributable to: – Members of the Company – Non-controlling interest Total comprehensive income attributable to: – Members of the Company – Non-controlling interest Basic earnings per share attributable to the ordinary equity holders of the Company Basic earnings per share (cents per share) from continuing operations Basic earnings per share (cents per share) – Total 77,206 38,863 24,601 7,438 331 32,334 180,773 6,237 – 572 525 10,699 4 10,358 28,395 209,168 123,124 8,976 8,879 8,237 4,597 5,098 1,867 6,041 20,164 5,859 2,332 8,141 203,315 5,853 6,406 (553) (13,669) (14,222) 30 (7,125) (21,317) (18,776) 4,554 (25,871) 4,554 (0.28) (1.04) 99,044 41,227 15,144 54,088 1,442 33,009 243,954 1,532 30,437 1,889 411 – 12,462 12,532 59,263 303,217 120,972 10,822 8,550 2,156 3,885 7,800 2,112 5,401 52,619 5,952 3,277 8,151 231,697 71,520 22,649 48,871 (29,050) 19,821 907 458 21,186 15,399 4,422 16,764 4,422 2.47 0.85 2(c) 10(a) 24(b) 11(b) 11(b) 12(a) 12(a) The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes. 90 Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities Consolidated Statement of Financial Position As at 31 December 2017 Note 31 Dec 17 $’000 31 Dec 16 $’000 Assets Current assets Cash and cash equivalents Loans and receivables Inventories Prepayments Available for sale financial asset Total current assets Non-current assets Intangible assets Property, plant and equipment Inventories Equity accounted investments Loans and receivables Deferred tax assets Deferred acquisition costs Other assets Total non-current assets Total assets Liabilities Current liabilities Payables Current tax liability Provisions Borrowings Deferred revenue Total current liabilities Non-current liabilities Borrowings Provisions Other liabilities Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Accumulated losses Total equity attributable to Company members Non-controlling interests Total equity 3 5 4 6 5 2 3 10(c) 7 8 10(b) 9 14 14 9 11(a) 11(b) 11(c) 20,033 100,557 11,808 1,317 – 17,842 99,055 7,304 1,086 9,296 133,715 134,583 30,901 9,910 177,410 21,988 – 17,763 1,198 7,785 266,955 400,670 62,109 8,559 38,715 19,921 – 129,304 99,146 10,250 6,075 115,471 244,775 155,895 35,256 14,900 128,607 15,752 37,033 7,550 1,852 8,901 249,851 384,434 49,449 – 28,690 18,812 7,585 104,536 82,426 9,217 6,437 98,080 202,616 181,818 325,703 37,803 325,512 44,683 (220,275) (201,041) 143,231 12,664 155,895 169,154 12,664 181,818 The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. 91 Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities Consolidated Statement of Changes in Equity Year ended 31 December 2017 l a t o T y t i u q e 0 0 0 ’ $ d e t a l u m u c c A d e t u b i r t n o C d e t a l u m u c c A l a t o T 0 0 0 ’ $ s e s s o l 0 0 0 ’ $ 0 0 0 ’ $ s e v r e s e R y t i u q e 0 0 0 ’ $ l a t o T 0 0 0 ’ $ s e s s o l 0 0 0 ’ $ 0 0 0 ’ $ s e v r e s e R y t i u q e 0 0 0 ’ $ d e t u b i r t n o C s t s e r e t n i g n i l l o r t n o c - n o N s r e b m e m y n a p m o C 0 0 2 , 5 6 1 0 7 5 , 2 1 ) 0 9 4 , 9 ( 8 5 4 7 0 9 5 6 3 , 1 1 2 8 , 9 1 6 8 1 , 1 2 – – – – – – 2 2 4 , 4 2 2 4 , 4 2 2 4 , 4 2 2 4 , 4 4 8 1 ) 4 2 4 ( – – – – ) 8 2 3 , 4 ( ) 8 2 3 , 4 ( ) 8 2 3 , 4 ( 8 1 8 , 1 8 1 4 6 6 , 2 1 ) 6 9 3 , 9 ( 0 3 3 8 9 ) 8 0 1 , 8 ( ) 5 9 0 , 7 ( ) 2 2 2 , 4 1 ( ) 7 1 3 , 1 2 ( – – – – – – – – 4 5 5 , 4 4 5 5 , 4 4 5 5 , 4 4 5 5 , 4 8 1 8 , 1 8 1 4 6 6 , 2 1 ) 6 9 3 , 9 ( 1 9 1 – ) 3 4 2 ( – – – – – – ) 4 5 5 , 4 ( ) 4 5 5 , 4 ( ) 4 5 5 , 4 ( 5 9 8 , 5 5 1 4 6 6 , 2 1 ) 6 9 3 , 9 ( – – – – – – – – – – – – – – – – – – – – – – 0 6 0 , 2 2 0 3 6 , 2 5 1 ) 0 4 4 , 6 1 2 ( 2 4 7 , 3 4 8 2 3 , 5 2 3 – – – – – – – – 8 5 4 7 0 9 5 6 3 , 1 9 9 3 , 5 1 4 6 7 , 6 1 4 8 1 – ) 4 2 4 ( – – – 9 9 3 , 5 1 9 9 3 , 5 1 – – – 8 5 4 7 0 9 – 5 6 3 , 1 5 6 3 , 1 – – ) 4 2 4 ( – – – – – – – 4 8 1 0 6 0 , 2 2 4 5 1 , 9 6 1 ) 1 4 0 , 1 0 2 ( 3 8 6 , 4 4 2 1 5 , 5 2 3 0 6 0 , 2 2 4 5 1 , 9 6 1 ) 1 4 0 , 1 0 2 ( 3 8 6 , 4 4 2 1 5 , 5 2 3 – – – – – – – – – – 0 3 3 8 9 ) 8 0 1 , 8 ( ) 5 9 0 , 7 ( – – – – 0 3 3 8 9 ) 8 0 1 , 8 ( ) 5 9 0 , 7 ( ) 6 7 7 , 8 1 ( ) 6 7 7 , 8 1 ( – ) 1 7 8 , 5 2 ( ) 6 7 7 , 8 1 ( ) 5 9 0 , 7 ( 1 9 1 ) 3 4 2 ( – – – – – ) 8 5 4 ( – ) 3 4 2 ( – 8 5 4 – – – – – – – – – 1 9 1 0 6 0 , 2 2 1 3 2 , 3 4 1 ) 5 7 2 , 0 2 2 ( 3 0 8 , 7 3 3 0 7 , 5 2 3 e t o N ) b ( 1 1 ) b ( 1 1 ) c ( 1 1 ) a ( 1 1 ) b ( 1 1 ) c ( 1 1 ) b ( 1 1 ) b ( 1 1 ) b ( 1 1 ) c ( 1 1 ) a ( 1 1 ) b ( 1 1 ) b ( 1 1 ) c ( 1 1 s r e b m e M s a y t i c a p a c r i e h t n i s r e b m e M h t i w s n o i t c a s n a r T e v r e s e r e m e h c s y t i r u c e s e v i t n e c n i e e y o l p m e n i t n e m e v o M s e i t i r u c e s f o e u s s I 6 1 0 2 r e b m e c e D 1 3 t A i d a p s n o i t u b i r t s i D x a t f o t e n t e s s a l a i c n a n i f e l a s r o f e l b a l i a v a f o n o i t i n g o c e r e D t e s s a l a i c n a n i f e l a s r o f e l b a l i a v a f o n o i t a u l a v e R s r e b m e M y n a p m o C o t e l b a t u b i r t t a y t i u q E 7 1 0 2 y r a u n a J 1 t A r a e y e h t r o f e m o c n i e v i s n e h e r p m o c r e h t O e v r e s e r n o i t a l s n a r t y c n e r r u c n g e r o F i r a e y e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T r a e y e h t r o f t i f o r p / ) s s o L ( t e s s a l a i c n a n i f e l a s r o f e l b a l i a v a f o n o i t a u l a v e R r a e y e h t r o f e m o c n i e v i s n e h e r p m o c r e h t O e v r e s e r n o i t a l s n a r t y c n e r r u c n g e r o F i r a e y e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T r a e y e h t r o f t i f o r P s r e b m e M y n a p m o C o t e l b a t u b i r t t a y t i u q E 6 1 0 2 y r a u n a J 1 t A 92 s r e b m e M s a y t i c a p a c r i e h t n i s r e b m e M h t i w s n o i t c a s n a r T e v r e s e r e m e h c s y t i r u c e s e v i t n e c n i e e y o l p m e n i t n e m e v o M x a t f o t e n e m e h c s y t i r u c e s e v i t n e c n i e e y o l p m e f o n o i t a c i f i s s a l c e R s e s s o l d e t a l u m u c c a o t e v r e s e r s e i t i r u c e s f o e u s s I 7 1 0 2 r e b m e c e D 1 3 t A i d a p s n o i t u b i r t s i D . s e t o n g n i y n a p m o c c a e h t h t i w n o i t c n u n o c n j i d a e r e b d u o h s l y t i u q E n i s e g n a h C f o t n e m e t a t S d e t a d i l o s n o C e v o b a e h T Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities Consolidated Statement of Cash Flows Year ended 31 December 2017 Cash flows from operating activities Receipts in the course of operations (inclusive of GST) Payments in the course of operations (inclusive of GST) Payments for inventories Proceeds from sale of inventories Receipts from development activities Payments for development activities Income taxes paid Dividend received from available for sale financial asset Interest received Finance costs paid Net cash inflows from operating activities Cash flows from investing activities Payments for property, plant and equipment Payments for intangibles Proceeds from the sale of property, plant and equipment Proceeds from the sale of other assets Proceeds on disposal of equity accounted investment Capital return from available for sale financial asset Net cash inflows from investing activities Cash flows from financing activities Loan to related parties Proceeds from repayment of related party loans Repayment of related party borrowings Proceeds from related party borrowings Proceeds from borrowings Repayments of borrowings Purchase of securities for the employee incentive scheme Net cash outflows from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year Note 31 Dec 17 $’000 31 Dec 16 $’000 149,423 223,472 16 (155,245) (51,951) 10,358 41,686 (3,904) (6,442) 30,437 572 (991) 13,943 (1,119) (4,694) 1,279 – – 10,699 6,165 (149,121) (48,298) 12,532 16,621 – – – 1,892 (1,493) 55,605 (2,594) (4,786) – 11,177 1,251 – 5,048 – – (29,486) 18,697 (35,181) (100,677) 16,256 15,705 (14,681) (16) 40,995 7,177 (8,707) (1,190) (17,917) (73,191) 2,191 17,842 20,033 (12,538) 30,380 17,842 The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. 93 Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities Notes to the Financial Statements Year ended 31 December 2017 These are the consolidated financial statements of GPT Management Holdings Limited and its controlled entities (the Consolidated Entity). The notes to these financial statements have been organised into sections to help users find and understand the information they need to know. Additional information has also been provided where it is helpful to understand the Consolidated Entity’s performance. The notes to the financial statements are organised into the following sections: Note 1 – Result for the year: focuses on results and performance of the Consolidated Entity. Notes 2 to 10 – Operating assets and liabilities: provides information on the assets and liabilities used to generate the Consolidated Entity’s trading performance. Notes 11 to 15 – Capital structure: outlines how the Consolidated Entity manages its capital structure and various financial risks. Notes 16 to 26 – Other disclosure items: provides information on other items that must be disclosed to comply with Australian Accounting Standards and other regulatory pronouncements. Key judgements, estimates and assumptions In applying the Consolidated Entity’s accounting policies, management has made a number of judgements, estimates and assumptions regarding future events. The following judgements and estimates have the potential to have a material impact on the financial statements: Area of judgements and estimates Assumptions underlying Note Loan receivables Recoverability Management rights with indefinite life Impairment trigger and recoverable amounts IT development and software Impairment trigger and Inventories recoverable amounts Lower of cost and net realisable value Deferred tax assets Recoverability Security based payments Fair value Fair value 3 4 4 5 10 19 23 Assessment of control versus disclosure guidance 25(b) Investment in financial assets Investment in equity accounted investments 94 Result for the year 1. Segment information The chief operating decision makers monitor the performance of the business in a manner consistent with that of the financial report. Refer to the Consolidated Statement of Comprehensive Income for the segment financial performance and the Consolidated Statement of Financial Position for the total assets and liabilities. Revenue Rental revenue from investment properties is recognised on a straightline basis over the lease term. An asset is also recognised as a component of investment properties relating to fixed increases in operating lease rentals in future periods. When the Company provides lease incentives to tenants, any costs are recognised on a straightline basis over the lease term. Contingent rental income is recognised as revenue in the period in which it is earned. Property, development and fund management fee revenue is recognised on an accruals basis, in accordance with the terms of the relevant contracts. Development revenue is recognised as and when the Company is entitled to the benefits. Revenue from dividends and distributions is recognised when they are declared. Interest income is recognised on an accruals basis using the effective interest method. Profit or loss on disposal of an asset is recognised as the difference between the carrying amount and the net proceeds from disposal. Where revenue is obtained from the sale of properties or assets, it is recognised when the significant risks and rewards have transferred to the buyer. Expenses Property expenses and outgoings which include rates, taxes and other property outgoings, are recognised on an accruals basis. Finance costs Finance costs include interest, amortisation of discounts or premiums relating to borrowings and amortisation of ancillary costs incurred in connection with the arrangement of borrowings. Finance costs are expensed as incurred unless they relate to a qualifying asset. A qualifying asset is an asset under development which generally takes a substantial period of time to bring to its intended use or sale. Finance costs incurred for the acquisition and construction of a qualifying asset are capitalised to the cost of the asset for the period of time that is required to complete the asset. Where funds are borrowed specifically for a development project, finance costs associated with the development facility are capitalised. Where funds are used from group borrowings, finance costs are capitalised using an appropriate capitalisation rate. Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities Operating assets and liabilities 2. Equity accounted investments Investments in joint ventures and associates Total equity accounted investments (a) Details of equity accounted investments Name (i) Joint ventures DPT Operator Pty Limited Lendlease GPT (Rouse Hill) Pty Limited1,2 Chullora Trust 13 Erskine Park Trust Total investment in joint ventures (ii) Associates GPT Funds Management Limited Total investment in associates Note (a) 31 Dec 17 $’000 31 Dec 16 $’000 21,988 21,988 15,752 15,752 Ownership Interest Principal Activity 2017 % 2016 % 31 Dec 17 $’000 31 Dec 16 $’000 Managing property Property development Property development Property development 50.00 50.00 – 50.00 50.00 50.00 50.00 50.00 89 11,896 – 3 88 5,660 2 2 Funds management 100.00 100.00 11,988 5,752 10,000 10,000 10,000 10,000 1 The Consolidated Entity has a 50 per cent interest in Lendlease GPT (Rouse Hill) Pty Limited, a joint venture developing residential and commercial land at Rouse Hill, in partnership with Urban Growth and the NSW Department of Planning. 2 The Consolidated Entity’s interest is held through a subsidiary that is 52 per cent owned by GMH and 48 per cent owned by GPT Trust. 3 Chullora Trust 1 was wound up on 13 December 2017. (b) Summarised financial information for joint ventures and associates The information disclosed reflects the amounts presented in the financial results of the relevant joint ventures and associates and not the Consolidated Entity’s share of those amounts. They have been amended to reflect adjustments made by the entity when using the equity method, including fair value adjustments and modifications for differences in accounting policy. Cash and cash equivalents Other assets Property investments and loans Total assets Liabilities Total liabilities Net assets Consolidated entity’s share 31 Dec 17 $’000 31 Dec 16 $’000 25,966 18,635 17,408 62,009 28,180 28,180 33,829 21,988 26,538 19,540 14,400 60,478 38,974 38,974 21,504 15,752 95 Notes to the Financial Statements – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities (c) Share of joint ventures and associates’ net profits Revenue Expenses Profit before income tax expense Income tax expense Negative net assets not recognised Total net profit Share of net profits of joint ventures and associated interests (d) Share of joint ventures and associates commitments and contingent liabilities Capital expenditure commitments Total joint venture commitments 31 Dec 17 $’000 12,478 (3) 12,475 (1) 12,474 – 12,474 6,237 31 Dec 16 $’000 23,129 (20,068) 3,061 (1) 3,060 4 3,064 1,532 31 Dec 17 $’000 31 Dec 16 $’000 168 168 1,084 1,084 The capital expenditure commitments in the Consolidated Entity’s joint ventures at 31 December 2017 relate to Lendlease GPT (Rouse Hill) Pty Limited (2016: Lendlease GPT (Rouse Hill) Pty Limited). (e) Reconciliation of the carrying amount of investments in joint ventures and associates Carrying amount at the beginning of the year Reversal of negative net assets Share of joint venture entities’ net operating profit Distributions received/receivable from joint ventures Carrying amount at the end of the year 31 Dec 17 $’000 31 Dec 16 $’000 15,752 14,274 – 6,237 (1) 21,988 (2) 1,532 (52) 15,752 96 Notes to the Financial Statements – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities Current loans and receivables Non-current loans and receivables 3. Loans and receivables Current assets Trade receivables1 Less: impairment of trade receivables Dividends receivable from other investments Other debtors Related party receivables2 Loans to related parties Total current loans and receivables Non-current assets Loans to related parties Total non-current loans and receivables 31 Dec 17 $’000 31 Dec 16 $’000 23,950 (12) 23,938 – 2,104 37,483 37,032 20,866 (1) 20,865 30,437 3,297 44,456 – 100,557 99,055 – – 37,033 37,033 1 The trade receivables balance includes amounts receivable from GWOF and GWSCF. See note 20 for more details on related party transactions. 2 The related party receivables are from GPT Trust and have been agreed on commercial terms and conditions. The table below shows the ageing analysis of the Consolidated Entity’s loans and receivables. 31 Dec 17 31 Dec 16 Not Due $’000 0-30 days $’000 31-60 days $’000 61-90 days $’000 90+ days $’000 Total $’000 Not Due $’000 0-30 days $’000 31-60 days $’000 61-90 days $’000 90+ days $’000 Total $’000 37,032 59,767 504 – 3,254 100,557 – 96,137 584 32 2,302 99,055 Total loans and receivables 37,032 59,767 – – – 504 – – – 37,033 – – – – 37,033 – 3,254 100,557 37,033 96,137 584 32 2,302 136,088 Loans and receivables are initially recognised at fair value and subsequently at amortised cost using the effective interest rate method less any allowance for impairment. All loans and receivables with maturities greater than 12 months after the balance date are classified as non-current assets. Recoverability of trade receivables Recoverability of trade receivables is assessed on an ongoing basis. Impairment is recognised in the Consolidated Statement of Comprehensive Income when there is objective evidence that the Consolidated Entity will not be able to collect the debts. Financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial re-organisation and default or delinquency in payments are considered objective evidence of impairment. See note 15(e) for more information on management of credit risk in relation to trade receivables. The amount of the impairment loss is the receivable carrying amount compared to the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. Debts that are known to be uncollectable are written off when identified. Recoverability of loan receivables At the end of each reporting period, the Consolidated Entity assesses whether there is objective evidence that a loan receivable is impaired. The amount of the impairment is measured as the difference between the loan receivable’s carrying amount and the present value of estimated future cash flows discounted at the loan receivable’s original effective interest rate. The carrying amount of the loan receivable is reduced and the amount of the loss is recognised in the Consolidated Statement of Comprehensive Income. In a subsequent period, if the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the reversal of the previously recognised impairment loss is recognised in the Consolidated Statement of Comprehensive Income. 97 Notes to the Financial Statements – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities 4. Intangible assets Cost At 1 January 2016 Additions Transfers At 31 December 2016 Additions Transfers Disposals At 31 December 2017 Accumulated amortisation and impairment At 1 January 2016 Amortisation At 31 December 2016 Amortisation Disposals Impairment At 31 December 2017 Carrying amounts At 31 December 2016 At 31 December 2017 Management rights Management rights $’000 IT development and software $’000 55,817 8 – 55,825 – – – 55,825 (44,751) (343) (45,094) (326) – – 62,050 4,918 189 67,157 4,702 2,843 (11,467) 63,235 (37,574) (5,058) (42,632) (5,715) 11,467 (5,859) Total $’000 117,867 4,926 189 122,982 4,702 2,843 (11,467) 119,060 (82,325) (5,401) (87,726) (6,041) 11,467 (5,859) (45,420) (42,739) (88,159) 10,731 10,405 24,525 20,496 35,256 30,901 Management rights include property management and development management rights. Rights are initially measured at cost and rights with a definite life are subsequently amortised over their useful life, which ranges from 5 to 10 years. For the management rights of Highpoint Shopping Centre, management considers the useful life as indefinite as there is no fixed term included in the management agreement. Therefore, the Consolidated Entity tests for impairment at balance date. Assets are impaired if the carrying value exceeds their recoverable amount. The recoverable amount is determined using a multiples approach. A range of multiples from 10-15x have been used in the calculation. IT development and software Costs incurred in developing systems and acquiring software and licenses that will contribute future financial benefits are capitalised. These include external direct costs of materials and services and direct payroll and payroll related costs of employees’ time spent on the project. Amortisation is calculated on a straightline basis over the length of time over which the benefits are expected to be received, generally ranging from 3 to 10 years. IT development and software are assessed for impairment at each reporting date by evaluating if any impairment triggers exist. Where impairment triggers exist, management calculate the recoverable amount. The asset will be impaired if the carrying amount exceeds the recoverable amount. Critical judgements are made by management in setting appropriate impairment triggers and assumptions used to determine the recoverable amount. 98 Notes to the Financial Statements – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities 5. Inventories Development properties Current inventories Development properties Non-current inventories Total inventories 31 Dec 17 $’000 31 Dec 16 $’000 11,808 11,808 177,410 177,410 189,218 7,304 7,304 128,607 128,607 135,911 Development properties held as inventory to be sold are stated at the lower of cost and net realisable value. Cost Cost includes the cost of acquisition, development, finance costs and all other costs directly related to specific projects including an allocation of direct overhead expenses. Post completion of the development, finance costs and other holding charges are expensed as incurred. Net realisable value (NRV) The NRV is the estimated selling price in the ordinary course of business less estimated costs to sell. At each reporting date, management reviews these estimates by taking into consideration: • the most reliable evidence; and • any events which confirm conditions existing at the year end and cause any fluctuations of selling price and costs to sell. The amount of any inventories write down is recognised as an impairment expense in the Consolidated Statement of Comprehensive Income. An impairment expense reversal of $357,000 has been recognised for the year ended 31 December 2017 (2016: Impairment expense of $5,952,000). 99 Notes to the Financial Statements – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities 6. Property, plant and equipment Computers At cost Less: accumulated depreciation and impairment Total computers Office, fixtures and fittings At cost Less: accumulated depreciation and impairment Total office, fixtures and fittings Total property, plant and equipment 31 Dec 17 $’000 31 Dec 16 $’000 15,092 (11,077) 4,015 12,683 (6,788) 5,895 9,910 15,069 (10,062) 5,007 15,828 (5,935) 9,893 14,900 Reconciliations of the carrying amount of property, plant and equipment at the beginning and end of the financial year are set out below: At 1 January 2016 Opening carrying value Additions Disposals Transfers Depreciation At 31 December 2016 At 1 January 2017 Opening carrying value Additions Disposals Transfers Depreciation At 31 December 2017 Computers $’000 Office fixtures & fittings $’000 4,827 1,605 – (189) (1,236) 5,007 5,007 980 (1,341) 383 (1,014) 4,015 9,308 1,463 – – (878) 9,893 9,893 81 – (3,226) (853) 5,895 Total $’000 14,135 3,068 – (189) (2,114) 14,900 14,900 1,061 (1,341) (2,843) (1,867) 9,910 The value of property, plant and equipment is measured as the cost of the asset less depreciation and impairment. The cost of the asset includes acquisition costs and any costs directly attributable to bring the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Consolidated Entity and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the Consolidated Statement of Comprehensive Income during the financial period in which they are incurred. Depreciation Items of property, plant and equipment are depreciated on a straightline basis over their useful lives. The estimated useful life is between 3 and 40 years. Impairment The Consolidated Entity tests property, plant and equipment for impairment where there is an indicator that the asset may be impaired. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Disposals Gains and losses on disposals are determined by comparing proceeds from disposals with the carrying amount of the property, plant and equipment and are included in the Consolidated Statement of Comprehensive Income in the year of disposal. 100 Notes to the Financial Statements – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities 7. Other assets Lease incentive asset Investment in financial asset Total other assets 8. Payables Trade payables1 Accruals Other payables Total payables 31 Dec 17 $’000 31 Dec 16 $’000 3,493 4,292 7,785 4,083 4,818 8,901 31 Dec 17 $’000 31 Dec 16 $’000 27,813 27,689 6,607 62,109 14,041 28,029 7,379 49,449 1 Includes a $10,461,283 distribution payable (2016: $5,907,633) to General Property Trust (Trust) for the Trust’s 48 per cent ownership of GPT Residential (Rouse Hill) Trust of which the Consolidated Entity has control. Trade payables and accruals represent liabilities for goods and services provided to the Consolidated Entity prior to the end of the financial year which are unpaid. They are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method. 9. Provisions Current provisions Employee benefits Other Total current provisions Non-current provisions Employee benefits Other Total non-current provisions As at 1 January 2016 Arising during the year Utilised during the year As at 31 December 2016 As at 1 January 2017 Arising during the year Utilised during the year As at 31 December 2017 31 Dec 17 $’000 31 Dec 16 $’000 29,159 9,556 38,715 9,553 697 10,250 Other $’000 3,628 772 (716) 3,684 3,684 7,143 (574) Employee benefits $’000 31,395 30,826 (27,998) 34,223 34,223 29,337 (24,848) 38,712 10,253 25,608 3,082 28,690 8,615 602 9,217 Total $’000 35,023 31,598 (28,714) 37,907 37,907 36,480 (25,422) 48,965 Provisions are recognised when: • the Consolidated Entity has a present obligation (legal or constructive) as a result of a past event; • it is probable that resources will be expended to settle the obligation; and • a reliable estimate can be made of the amount of the obligation. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the obligation. 101 Notes to the Financial Statements – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities Provision for employee benefits The provision for employee benefits represents annual leave, long service leave and parental leave entitlements accrued for employees. The employee benefit liability expected to be settled within twelve months after the end of the reporting period is recognised in current liabilities. The non-current provision relates to entitlements, including long service leave, which are due to be payable after more than twelve months from the balance sheet date. It is measured as the present value of expected future payments for the service provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at balance date on high quality corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Employee benefit on-costs are recognised together with the employee benefits and included in employee benefit liabilities. 10. Taxation (a) Income tax expense Current income tax expense Deferred income tax (credit)/expense Income tax expense in the Statement of Comprehensive Income Income tax expense/(credit) attributable to: Profit from continuing operations Loss from discontinued operations Aggregate income tax expense (b) Reconciliation of income tax (credit)/expense to prima facie tax payable Profit from continuing operations before income tax expense Loss from discontinued operations before income tax expense Net (loss)/profit before income tax expense Prima facie income tax (credit)/expense at 30% tax rate (2016: 30%) Tax effect of amounts not deductible/assessable in calculating income tax expense: Prior year adjustments Previously unrecognised tax losses Revaluation and amortisation Non assessable income: Derecognition of available for sale financial asset Other non-assessable income Other tax adjustments: Release of gain from available for sale reserve Other income Permanent differences arising from non-deductible amounts Income tax expense Add/(less) amounts to reconcile to current tax liability: Temporary differences: Employee benefits Provisions and accruals Dividends received/(receivable) Other deferred tax asset charged to income Movement in reserves Opening balance: Tax losses transferred from deferred tax asset Tax losses and adjustments: Tax losses recognised Prior tax losses recognised Prior year adjustments Tax payments made to tax authorities Current tax liability 102 31 Dec 17 $’000 31 Dec 16 $’000 17,012 (10,606) 6,406 6,406 – 6,406 – 22,648 22,648 22,649 (1) 22,648 31 Dec 17 $’000 31 Dec 16 $’000 5,853 (13,669) (7,816) 71,520 (29,051) 42,469 (2,345) 12,741 175 (421) 10,028 (3,210) (2,865) 2,592 1,480 972 6,406 713 (236) 9,131 2,616 (1,618) 484 (13,186) 26,235 – (3,985) – – 359 22,648 766 309 (9,131) 1,167 (39) (2,011) – – – – (6,442) 8,559 13,186 (28,424) (482) – – Notes to the Financial Statements – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities (c) Deferred tax assets Employee credits Provisions and accruals Other Tax losses recognised Net deferred tax asset Movement in temporary differences during the year Opening balance at the beginning of the year Credited to the Consolidated Statement of Comprehensive Income Movement in reserves Utilisation of tax losses Closing balance at the end of the year (d) Effective tax rate Adoption of Voluntary Tax Transparency Code 31 Dec 17 $’000 15,449 2,947 (633) – 17,763 7,550 10,606 1,618 (2,011) 17,763 31 Dec 16 $’000 14,736 3,183 (12,380) 2,011 7,550 30,240 6,335 (39) (28,986) 7,550 The Board of Taxation has released a voluntary Tax Transparency Code (TTC). The TTC sets out a recommended set of principles and minimum standards regarding the disclosure of tax information for businesses. The Consolidated Entity is committed to the TTC. The non-IFRS income tax disclosures below and in note 10(b) include the recommended additional disclosures. The Australian Accounting Standards Board have issued a Draft Appendix to the TTC outlining the method to calculate the effective tax rate as shown in the table below, using: • accounting profit before tax adjusted to exclude transactions which are not reflected in the calculation of income tax expense; and • tax expense adjusted to exclude carry forward tax losses that have been recognised and prior year under/overstatements. Net (loss)/profit for the year excluding income tax expense Add: non-deductible revaluation items Less: equity accounted profits from joint ventures Profit used to calculate effective tax rate Income tax expense Add: carry forward tax losses recognised Less: prior year under/overstatements Income tax expense used to calculate effective tax rate Effective tax rate Income tax expense 31 Dec 17 $’000 31 Dec 16 $’000 (7,816) 33,657 (6,237) 19,604 6,406 421 (175) 6,652 34% 42,469 81,772 (1,478) 122,763 22,648 13,186 (484) 35,350 29% Income tax expense for the financial year is the tax payable on the current year’s taxable income. This is adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and for unused tax losses. Deferred income tax liabilities and assets – recognition Deferred income tax liabilities are recognised for all taxable temporary differences. Deferred income tax assets are recognised for all deductible temporary differences, carried forward unused tax assets and unused tax losses, to the extent it is probable that taxable profit will be available to utilise them. The carrying amount of deferred income tax assets is reviewed and reduced to the extent that it is no longer probable that sufficient taxable profit will be available. Deferred income tax assets and liabilities – measurement Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date. 103 Notes to the Financial Statements – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities Deferred income tax is provided on temporary differences at the reporting date between accounting carrying amounts and the tax cost bases of assets and liabilities, other than for the following: • where taxable temporary differences relate to investments in subsidiaries, associates and interests in joint ventures: – deferred tax liabilities are not recognised if the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future; – deferred tax assets are not recognised if it is not probable that the temporary differences will reverse in the foreseeable future and taxable profit will not be available to utilise the temporary differences. Tax relating to equity items Income taxes relating to items recognised directly in equity are recognised in equity and not in Consolidated Statement of Comprehensive Income. Capital Structure 11. Equity and reserves (a) Contributed equity Ordinary stapled securities Opening securities on issue as at 1 January 2016 Securities issued – Long Term Incentive Plan Securities issued – Deferred Short Term Incentive Plan Securities issued – Broad Based Employee Security Ownership Plan Closing securities on issue as at 31 December 2016 Opening securities on issue as at 1 January 2017 Securities issued – Long Term Incentive Plan Securities issued – Deferred Short Term Incentive Plan Securities issued – Broad Based Employee Security Ownership Plan Securities issued – Employee Incentive Plan Closing securities on issue as at 31 December 2017 Number $’000 1,794,816,529 325,328 2,102,805 978,834 57,400 100 79 5 1,797,955,568 325,512 1,797,955,568 325,512 2,763,052 855,355 54,338 12,569 109 76 5 1 1,801,640,882 325,703 Ordinary securities are classified as equity and recognised at the fair value of the consideration received by the Consolidated Entity. Any transaction costs arising on the issue and buy back of ordinary securities are recognised directly in equity as a reduction, net of tax, of the proceeds received. 104 Notes to the Financial Statements – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities (b) Reserves Balance at 1 January 2016 Net foreign exchange translation adjustments Employee incentive schemes expense Tax on incentives valued at reporting date Purchase of securities Issue of securities Revaluation of available for sale financial asset, net of tax Balance at 31 December 2016 Balance at 1 January 2017 Net foreign exchange translation adjustments Reclassification to accumulated losses Employee incentive schemes expense Tax on incentives valued at reporting date Purchase of securities Issue of securities Revaluation of available for sale financial asset, net of tax Derecognition of available for sale financial asset, net of tax Foreign Currency Translation Reserve $’000 Employee Incentive Scheme Reserve $’000 Fair Value Reserve $’000 34,006 907 – – – – – 34,913 34,913 30 – – – – – – – 3,069 6,667 – 788 157 (1,190) (179) – 2,645 2,645 – 458 624 (552) (131) (184) – – 2,860 – – – – – 458 7,125 7,125 – – – – – – 983 (8,108) – Total Reserve $’000 43,742 907 788 157 (1,190) (179) 458 44,683 44,683 30 458 624 (552) (131) (184) 983 (8,108) 37,803 Balance at 31 December 2017 34,943 Nature and purpose of reserves Foreign currency translation reserve The reserve is used to record exchange differences arising on translation of foreign controlled entities and associated funding of foreign controlled entities. The movement in the reserve is recognised in the net profit when the investment in the foreign controlled entity is disposed. Employee incentive scheme reserve The reserve is used to recognise the fair value of equity-settled security-based payments provided to employees, including key management personnel, as part of their remuneration. Refer to note 19 for further details of security based payments. Fair value reserve The fair value reserve comprises the cumulative net change in available for sale financial assets until the assets are derecognised or impaired. (c) Accumulated losses Balance at 1 January 2016 Net profit for the year Distributions payable Balance at 31 December 2016 Balance at 1 January 2017 Net (loss)/profit for the year Reclassification from employee incentive security scheme Distributions payable Balance at 31 December 2017 Company $’000 (216,440) 15,399 – (201,041) (201,041) (18,776) (458) – (220,275) Non-controlling interest $’000 (9,490) 4,422 (4,328) (9,396) (9,396) 4,554 – (4,554) (9,396) Total $’000 (225,930) 19,821 (4,328) (210,437) (210,437) (14,222) (458) (4,554) (229,671) 105 Notes to the Financial Statements – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities 12. Earnings per share (a) Basic and diluted earnings per share Basic and diluted earnings per share – (loss)/profit from continuing operations Basic and diluted loss per share – loss from discontinued operations Total basic and diluted earnings per ordinary share 31 Dec 17 Cents 31 Dec 16 Cents (0.28) (0.76) (1.04) 2.47 (1.62) 0.85 (b) The profit used in the calculation of the basic and diluted earnings per share is as follows: (Loss)/profit reconciliation – basic and diluted (Loss)/profit from continuing operations Loss from discontinued operations Profit attributed to external non-controlling interest (c) WANOS 31 Dec 17 $’000 (5,107) (13,669) 4,554 (14,222) 31 Dec 16 $’000 44,449 (29,050) 4,422 19,821 The earnings and weighted average number of ordinary shares (WANOS) used in the calculations of basic and diluted earnings per ordinary share are as follows: WANOS used as denominator in calculating basic earnings per ordinary share Performance security rights (weighted average basis)1 WANOS used as denominator in calculating diluted earnings per ordinary share Number of shares ‘000s Number of shares ‘000s 1,801,095 1,797,440 2,410 2,733 1,803,505 1,800,173 1 Performance security rights granted under the Long Term Incentive plan are only included in dilutive earnings per ordinary share where the performance hurdles are met as at the year end. Calculation of earnings per share Basic earnings per share is calculated as net profit or loss attributable to ordinary shareholders of the Company, divided by the weighted average number of ordinary shares outstanding during the financial year which is adjusted for bonus elements in ordinary shares issued during the financial year. Diluted earnings per share is calculated as net profit or loss attributable to ordinary shareholders of the Company divided by the weighted average number of ordinary shares and dilutive potential ordinary securities. Where there is no difference between basic earnings per share and diluted earnings per share, the term basic and diluted earnings per ordinary share is used. 13. Dividends paid and payable No dividends have been paid or declared for the 2017 financial year (2016: nil). 14. Borrowings Current borrowings – secured Current borrowings Related party borrowings from GPT Trust Non-current borrowings Total borrowings 1 Including unamortised establishment costs. 31 Dec 17 31 Dec 16 Carrying amount1 $’000 19,921 19,921 99,146 99,146 Fair value2 $’000 19,980 19,980 99,625 99,625 Carrying amount1 $’000 18,812 18,812 82,426 82,426 119,067 119,605 101,238 Fair value2 $’000 18,822 18,822 82,962 82,962 101,784 2 For the majority of borrowings, the carrying amount approximates its fair value. The fair value of fixed rate interest-bearing borrowings is estimated by discounting the future contractual cash flows at the current market interest rate curve. Excluding unamortised establishment costs. 106 Notes to the Financial Statements – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities The unsecured borrowings are provided by GPT Trust and its subsidiaries and have been revalued based on an adjusted working capital calculation at 31 December 2017, in accordance with the loan agreement. As a result, a revaluation loss of $34,097,679 for both continuing ($20,458,608) and discontinued ($13,639,071) operations has been recognised in the Consolidated Statement of Comprehensive Income (2016: loss of $82,134,865). The following borrowings were revalued to nil at 31 December 2017 (Dec 2016: nil): • • • • • loan facility to GPT Management Holdings Limited was drawn to $348,797,027 (Dec 2016: $355,616,562). The facility expires on 31 December 2030; loan facility to GPT Property Management Ltd was drawn to $9,922,998 (Dec 2016: $16,742,534). This facility expires on 31 December 2030; loan facility to GPT International Pty Limited was drawn to $75,628,519 (Dec 2016: $82,448,055). This facility expires on 12 June 2032; loan facility to Voyages Hotels & Resorts (Loan 1) was drawn to $32,616,333 (Dec 2016: $39,435,869). This facility expires on 30 June 2032; loan facility to Voyages Hotels & Resorts (Loan 2) was drawn to $47,952,860 (Dec 2016: $54,772,395). This facility expires on 3 January 2035. No interest is payable in connection with the above loans from 3 September 2015. The loans are non-revolving interest free borrowings that are revalued each reporting date in accordance with accounting standards. Borrowings are initially recognised at fair value and subsequently measured at amortised cost using the effective interest rate method. Under this method, any transaction fees, costs, discounts and premiums directly related to the borrowings are recognised in the Consolidated Statement of Comprehensive Income over the expected life of the borrowings. All borrowings with maturities greater than 12 months after reporting date are classified as non-current liabilities. The maturity profile of borrowings is provided below: Due within one year Due between one and five years Due after five years Cash and cash equivalents Total financing resources available at the end of the year 1 Excludes unamortised establishment costs. Total facility1 $’000 Used facility1 $’000 Unused facility $’000 32,220 80,924 559,918 673,062 19,980 67,577 546,487 634,044 12,240 13,347 13,431 39,018 20,033 59,051 Cash and cash equivalents includes cash on hand, cash at bank and short term money market deposits. 15. Financial risk management The Board approve the Consolidated Entity’s treasury policy which: • establishes a framework for the management of risks inherent to the capital structure; • defines the role of the Consolidated Entity’s treasury; and • sets out the policies, limits, monitoring and reporting requirements for cash, borrowings, liquidity, credit risk, foreign exchange and interest rate instruments. (a) Interest rate risk Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Consolidated Entity’s primary interest rate risk arises from interest bearing borrowings. The table below provides a summary of the Consolidated Entity’s gross interest rate risk exposure as at 31 December 2017 on interest bearing borrowings together with the net effect of interest rate risk management transactions. This excludes unamortised establishment costs. Fixed rate interest-bearing borrowings Floating rate interest-bearing borrowings Gross exposure Net exposure 2017 $’000 48,353 70,715 119,068 2016 $’000 32,000 69,248 2017 $’000 48,353 70,715 101,248 119,068 2016 $’000 32,000 69,248 101,248 107 Notes to the Financial Statements – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities The impact on interest expense and interest revenue of a 1 per cent increase or decrease in market interest rates is shown below. A 1 per cent increase or decrease is used for consistency of reporting interest rate risk across the Consolidated Entity and represents management’s assessment of the potential change in interest rates. Impact on Statement of Comprehensive Income Impact on interest revenue increase/(decrease) Impact on interest expense (increase)/decrease (b) Liquidity risk 2017 (+1%) $’000 200 (708) (508) 2017 (-1%) $’000 (200) 708 508 2016 (+1%) $’000 278 (692) (414) 2016 (-1%) $’000 (278) 692 414 Liquidity risk is the risk that the Consolidated Entity, as a result of its operations: • will not have sufficient funds to settle a transaction on the due date; • will be forced to sell financial assets at a value which is less than what they are worth; or • may be unable to settle or recover a financial asset at all. The Consolidated Entity manages liquidity risk by: • maintaining sufficient cash; • maintaining an adequate amount of committed credit facilities; • maintaining a minimum liquidity buffer in cash and surplus committed facilities for the forward rolling twelve month period; and • maintaining the ability to close out market positions. The table below shows an analysis of the undiscounted contractual maturities of liabilities which forms part of the Consolidated Entity’s assessment of liquidity risk. 31 Dec 17 1 year or less $’000 Over 1 year to 2 years $’000 Over 2 years to 5 years $’000 Over 5 years $’000 Total $’000 1 year or less $’000 31 Dec 16 Over 1 year to 2 years $’000 Over 2 years to 5 years $’000 Over 5 years $’000 Total $’000 62,109 8,559 – – – – – – 62,109 49,449 8,559 – 19,980 28,353 39,224 546,487 634,044 18,822 – – – – – – – 49,449 – 51,224 580,217 650,263 Liabilities Non-derivatives Payables Current tax liability Borrowings1 Projected interest cost on borrowings 7,646 4,804 5,928 5,669 24,047 5,042 4,817 8,232 7,799 25,890 Total liabilities 98,294 33,157 45,152 552,156 728,759 73,313 4,817 59,456 588,016 725,602 Less cash and cash equivalents 20,033 – – – 20,033 17,842 – – – 17,842 Total liquidity exposure 78,261 33,157 45,152 552,156 708,726 55,471 4,817 59,456 588,016 707,760 1 Excluding unamortised establishment costs and fair value adjustments. Includes unsecured borrowings provided by GPT Trust and its subsidiaries which have been revalued to nil as per note 14. (c) Refinancing risk Refinancing risk is the risk that credit is unavailable or available at unfavourable interest rates and credit market conditions result in an unacceptable increase in the Consolidated Entity’s interest cost. Refinancing risk arises when the Consolidated Entity is required to obtain debt to fund existing and new debt positions. The Consolidated Entity manages this risk by spreading sources and maturities of borrowings in order to minimise debt concentration risk, allow averaging of credit margins over time and reducing refinance amounts. As at 31 December 2017, the Consolidated Entity’s exposure to refinancing risk can be monitored by the spreading of its contractual maturities on borrowings in the liquidity risk table above or with the information in note 14. 108 Notes to the Financial Statements – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities (d) Foreign exchange risk Foreign exchange risk refers to the risk that the value of a financial commitment, asset or liability will fluctuate due to changes in foreign exchange rates. The Consolidated Entity’s foreign exchange risk arises primarily from: • firm commitments of highly probable forecast transactions for receipts and payments settled in foreign currencies or with prices dependent on foreign currencies; and • investments in foreign assets. Sensitivity to foreign exchange is deemed insignificant. Foreign currency assets and liabilities The following table shows the Australian dollar equivalents of amounts within the Consolidated Statement of Financial Position which are denominated in foreign currencies. Assets Cash and cash equivalents Interests in unlisted investments Liabilities Other liabilities (e) Credit risk Euros United States Dollars 31 Dec 17 $’000 31 Dec 16 $’000 31 Dec 17 $’000 31 Dec 16 $’000 1,151 – 1,151 304 304 1,152 9,296 10,448 302 302 133 – 133 – – 145 – 145 – – Credit risk is the risk that a contracting entity will not complete its obligations under a contractual agreement, resulting in a financial loss to the Consolidated Entity. The Consolidated Entity has exposure to credit risk on all financial assets included in the Consolidated Statement of Financial Position. The Consolidated Entity manages this risk by: • establishing credit limits for financial institutions and monitoring credit exposures for customers to ensure that the Consolidated Entity only trades and invests with approved counterparties; • providing loans to joint ventures, associates and third parties, only where the Consolidated Entity is comfortable with the underlying property exposure within that entity; • regularly monitoring loans and receivables balances; • regularly monitoring the performance of its associates, joint ventures and third parties; and • obtaining collateral as security (where appropriate). Receivables are reviewed regularly throughout the year. A provision for doubtful debts is made where collection is deemed uncertain. The maximum exposure to credit risk as at 31 December 2017 is the carrying amounts of financial assets recognised on the Consolidated Statement of Financial Position. For more information, refer to note 3. 109 Notes to the Financial Statements – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities Other disclosure items 16. Cash flow information (a) Cash flows from operating activities Reconciliation of net profit after tax to net cash inflows from operating activities: Net (loss)/profit for the year Share of after tax profit of equity accounted investments (net of distributions) Proceeds from the sale of other assets Proceeds from the disposal of equity accounted investment Loss on disposal of assets Capital return from available for sale financial asset Impairment expense Non-cash employee benefits – security based payments Fair value movement of investment in Trust Lease incentive amortisation Interest capitalised Deferred interest Amortisation of rental abatement Depreciation expense Amortisation expense Amortisation of deferred acquisition costs Finance costs Revaluation of financial arrangements Profit on the sale of inventory Payment for inventories Proceeds from inventories Dividends receivable Decrease in operating assets Increase in operating liabilities Other Net cash inflows from operating activities (b) Net debt reconciliation Reconciliation of net debt movements during the financial year: 31 Dec 17 $’000 (14,222) (6,237) – – 62 (10,699) 5,501 21,781 (295) 224 (10,486) (3,252) 476 1,867 6,041 654 11,394 34,098 (1,382) (51,951) 10,358 – 18,534 1,100 377 13,943 Borrowings due within 1 year $’000 (18,812) (1,024) (85) Cash $’000 17,842 2,191 – 20,033 (19,921) Borrowings due after 1 year $’000 (82,426) 18,925 (35,645) (99,146) Net debt as at 31 December 2016 Cash flows Other non-cash movements Net debt as at 31 December 2017 110 31 Dec 16 $’000 19,821 (7,602) (11,177) (1,252) 93 – 5,773 16,552 (361) 275 (2,941) – 561 2,114 5,401 654 4,164 82,133 (1,710) (48,298) 14,242 (30,437) 3,062 4,038 500 55,605 Total $’000 (83,396) 20,092 (35,730) (99,034) Notes to the Financial Statements – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities 17. Commitments (a) Capital expenditure commitments The capital expenditure commitments at 31 December 2017 were $1,401,000 (2016: $717,000). Commitments are arising from purchase of plant and equipment and intangibles, which have been approved but not recognised as liabilities in the Consolidated Statement of Financial Position. (b) Operating lease commitments Due within one year Due between one and five years Over five years Total operating lease commitments 31 Dec 17 $’000 31 Dec 16 $’000 6,430 15,049 5,495 26,974 5,270 15,816 892 21,978 Operating lease commitments are contracted non-cancellable future minimum lease payments on office premises and equipment expected to be payable but not recognised in the Consolidated Statement of Financial Position. 18. Contingent liabilities A contingent liability is a liability that is not sufficiently certain to qualify for recognition as a provision where uncertainty may exist regarding the outcome of future events. GPT Management Holdings Ltd has provided guarantees over GPT RE Limited as responsible entity of the General Property Trust’s obligations under the note purchase and guarantee agreements in relation to US Private Placement issuances totalling US$850,000,000 until July 2032. Apart from the matter referred to above, there are no other material contingent liabilities at reporting date. 19. Security based payments GPT currently has four employee security schemes – the General Employee Security Ownership Plan (GESOP), the Broad Based Employee Security Ownership Plan (BBESOP), the Deferred Short Term Incentive Plan (DSTI) and the Long Term Incentive (LTI) Scheme. (a) GESOP The Board believes in creating ways for employees to build an ownership stake in the business. As a result, the Board introduced the GESOP in March 2010 for individuals who do not participate in the LTI. Under the plan individuals who participate receive an additional benefit equivalent to 10 per cent of their short term incentives (STIC) which is (after the deduction of income tax) invested in GPT securities to be held for a minimum of 1 year. (b) BBESOP Under the plan individuals who are not eligible to participate in any other employee security scheme may receive $1,000 worth of GPT securities or $1,000 cash if GPT achieves at least target level performance. Securities must be held for the earlier of 3 years or the end of employment. (c) DSTI Since 2014, STIC is delivered to the senior executives as 50 per cent in cash and 50 per cent in GPT stapled securities (a deferred component). The deferred component is initially awarded in the form of performance rights, with the rights converting to restricted GPT stapled securities to the extent the performance conditions are met. For the 2014 and 2015 plans, half of the awarded stapled securities will vest one year after conversion with the remaining half vesting two years after conversion, subject to continued employment up to the vesting dates. For the 2016 and 2017 plans, all the awarded stapled securities will vest one year after conversion, subject to continued employment up to the vesting date. 111 Notes to the Financial Statements – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities (d) LTI At the 2009 AGM, GPT securityholders approved the introduction of a LTI plan based on performance rights. Any subsequent amendments to the LTI plan have been approved by GPT securityholders. The LTI plan covers each 3 year period. Awards under the LTI to eligible participants are in the form of performance rights which convert to GPT stapled securities for nil consideration if specified performance conditions for the applicable 3 year period are satisfied. Please refer to the Remuneration Report for detail on the performance conditions. The Board determines those executives eligible to participate in the plan and, for each participating executive, grants a number of performance rights calculated as a percentage of their base salary divided by GPT’s volume weighted average price (VWAP) for the final quarter of the year preceding the plan launch. Fair value of performance rights issued under DSTI and LTI The fair value of the performance rights is recognised as an employee benefit expense with a corresponding increase in the employee security scheme reserve in equity. Fair value is measured at grant date, recognised over the period during which the employees become unconditionally entitled to the rights and is adjusted to reflect market vesting conditions. Non-market vesting conditions are included in assumptions about the number of rights that are expected to be vested. At each reporting date, GPT revises its estimate of the number of performance rights that are expected to be exercisable and the employee benefit expense recognised each reporting period takes into account the most recent estimate. The impact of the revision to original estimates, if any, is recognised in the Consolidated Statement of Comprehensive Income with a corresponding adjustment to equity. Fair value of the performance rights issued under LTI is determined using the Monte Carlo simulation and the Black Scholes methodologies then applying a discount on lack of marketability. Fair value of the performance rights issued under DSTI is determined using the security price then applying a discount on lack of marketability. The following key inputs are taken into account: Fair value of rights Security price at valuation date Total Securityholder Return Grant dates Expected vesting dates Security Price at the grant date Expected life Distribution yield Risk free interest rate Volatilty1 1 The volatility is based on the historic volatility of the security. 2017 LTI $3.04 $5.11 6.6% 2017 DSTI $4.86 $5.11 N/A 21 February 2017 21 February 2017 31 December 2019 31 December 2018 $4.88 $4.88 3 years (2 years remaining) 2 years (1 year remaining) 4.8% 2.0% 17.9% 4.8% N/A N/A 112 Notes to the Financial Statements – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities (e) Summary table of all employee security schemes Rights outstanding at 1 January 2016 Rights granted during 2016 Rights forfeited during 2016 Rights converted to GPT stapled securities during 20161 Rights outstanding at 31 December 2016 Rights outstanding at 1 January 2017 Rights granted during 2017 Rights forfeited during 2017 Rights converted to GPT stapled securities during 20172 Rights outstanding at 31 December 2017 DSTI 1,282,432 1,313,947 (345,461) (1,038,279) 1,212,639 1,212,639 1,338,498 (357,284) (855,355) 1,338,498 Number of rights LTI 8,917,888 3,024,264 (977,775) (2,356,843) 8,607,534 8,607,534 2,854,675 (323,771) (2,792,225) 8,346,213 Total 10,200,320 4,338,211 (1,323,236) (3,395,122) 9,820,173 9,820,173 4,193,173 (681,055) (3,647,580) 9,684,711 1 Rights under the 2015 DSTI plan were converted to GPT stapled securities on 21 March 2016 and rights under the 2013 LTI Plan were converted to GPT stapled securities on 18 February 2016. 2 Rights under the 2016 DSTI plan were converted to GPT stapled securities on 20 March 2017 and rights under the 2014 LTI Plan were converted to GPT stapled securities on 14 February 2017. 12,173 one off grants to employees converted to GPT stapled securities during 2017. Securities outstanding at 1 January 2016 Securities granted during 2016 Securities vested during 2016 Securities outstanding at 31 December 2016 Securities outstanding at 1 January 2017 Securities granted during 2017 Securities vested during 2017 Securities outstanding at 31 December 2017 20. Related party transactions Number of stapled securities GESOP 67,728 72,985 (79,957) 60,756 60,756 53,982 (60,756) 53,982 BBESOP 53,846 57,400 (18,485) 92,761 92,761 48,480 (17,688) 123,553 Total 121,574 130,385 (98,442) 153,517 153,517 102,462 (78,444) 177,535 GPT Management Holdings Limited is the ultimate parent entity. The Consolidated Entity is stapled to the General Property Trust (Trust) and the GPT Group (GPT or the Group) financial statements include the results of the stapled entity as a whole. Equity interests in joint ventures and associates are set out in note 2. Payables and loans with Trust are set out in note 8 and note 14 respectively. Key management personnel Key management personnel compensation was as follows: Short term employee benefits Post employment benefits Long term incentive award accrual Other long term benefits Total key management personnel compensation 31 Dec 17 $ 6,778,850 168,272 2,064,328 – 9,011,450 31 Dec 16 $ 6,302,352 169,189 1,467,157 64,319 8,003,017 Information regarding individual Directors’ and Senior Executives’ remuneration is provided in the Remuneration Report. There have been no other transactions with key management personnel during the year. 113 Notes to the Financial Statements – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities Transactions with related parties Transactions with related parties other than associates and joint ventures Transactions with Trust: Revenue and expenses Fund management fees from Trust Property management fees from Trust Development management fees from Trust Development revenue received from Trust Management costs recharged from Trust Property rent and outgoings paid to Trust Interest paid to Trust Receivables Current receivables from Trust Non-current receivables from Trust Other transactions Revaluation of arrangements with Trust – continued and discontinued operations Purchase of inventory from Trust Transactions with employees 31 Dec 17 $ 31 Dec 16 $ 25,282,904 14,469,095 15,650,457 – 7,095,234 (3,661,067) (11,309,992) 22,110,728 13,312,704 16,046,350 2,977,130 10,809,144 (5,013,107) (4,483,075) 74,515,435 – 44,455,512 37,033,383 34,097,679 2,799,125 82,134,865 39,243,333 Contributions to superannuation funds on behalf of employees (5,703,954) (5,766,595) Transactions with GWOF, GWSCF & GMF1: Revenue Responsible Entity fees Performance fee Asset management fees Development management fees Directors fees recharged Management costs recharged Payroll costs recharged Expense Rent expenses Receivables and payables Current receivable outstanding Current performance fee receivable Current fund management fee receivable 1 The Consolidated Entity earned management fees in relation to GMF up to 30 September 2016. 50,744,061 – 15,660,782 6,963,854 653,208 5,788,457 9,396,803 46,800,456 28,121,621 14,622,388 6,200,389 904,351 5,098,977 9,065,297 (597,294) (462,493) 9,089,187 – 12,926,671 6,590,602 15,318,650 13,026,175 114 Notes to the Financial Statements – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities 21. Auditors remuneration Audit services PricewaterhouseCoopers Australia Statutory audit and review of financial reports Total remuneration for audit services Other assurance services PricewaterhouseCoopers Australia Regulatory and contractually required audits Total remuneration for other assurance service Total remuneration for audit and assurance service Non audit related services PricewaterhouseCoopers Australia Taxation services Total remuneration for non audit related services Total auditors remuneration 22. Parent entity financial information Assets Total current assets Total non-current assets Total assets Liabilities Total current liabilities Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Accumulated losses Total equity Profit attributable to members of the parent entity Total comprehensive income for the year attributable to members of the parent entity Operating lease commitments Due within one year Due between one and five years Over five years Total operating lease commitments Capital expenditure commitments 31 Dec 17 $ 31 Dec 16 $ 345,846 345,846 241,129 241,129 99,818 99,818 445,664 68,097 68,097 309,226 3,500 3,500 – – 449,164 309,226 Parent entity 31 Dec 17 $’000 31 Dec 16 $’000 288,431 117,756 406,187 176,788 99,146 275,934 130,253 325,703 5,667 (201,117) 130,253 5,190 5,190 6,430 15,049 5,495 26,974 267,011 116,667 383,678 241,095 10,346 251,441 132,237 325,512 12,574 (205,849) 132,237 50,179 50,179 5,270 15,816 892 21,978 The parent entity has $807,000 capital expenditure commitments at 31 December 2017 (2016: $403,000). Parent entity financial information The financial information for the parent entity of the Consolidated Entity, GPT Management Holdings Limited, has been prepared on the same basis as the consolidated financial statements, except as set out below. 115 Notes to the Financial Statements – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities Investments in subsidiaries, associates and joint ventures Investments in subsidiaries, associates and joint ventures are accounted for at cost in the financial statements of the parent entity. Distributions received from subsidiaries, associates and joint ventures are recognised in the parent entity’s profit or loss rather than being deducted from the carrying amount of these investments. 23. Fair value disclosures Information about how the fair value of financial instruments is calculated and other information required by the accounting standards, including the valuation process, critical assumptions underlying the valuations and information on sensitivity are disclosed below. The different levels of the fair value hierarchy have been defined as follows: Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 – inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs). Fair value measurement, valuation techniques and inputs Class of assets Fair value hierarchy Valuation technique Inputs used to measure fair value Range of unobservable inputs 31 Dec 17 31 Dec 16 Investment in financial assets Available for sale financial asset DCF method Level 2 Market price Market price Not applicable – observable input 2017: Not applicable Discounted cash flow (DCF) Discount rate Not applicable Discount for lack of marketability 0% 0–5% 20% 2016: Level 3 Foreign currency exchange rate Not applicable – observable input The available for sale financial asset was valued using a discounted cash flow methodology. The expected future cash flow is converted into Australian dollars and discounted over the estimated realisation period. 116 Notes to the Financial Statements – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities 24. Discontinued operations and available for sale financial assets (a) Discontinued operations At 31 December 2017, there are two discontinued operations: Hotel/Tourism portfolio and Funds Management – Europe portfolio. Hotel/Tourism The Consolidated Entity has substantially completed its exit from the Hotel/Tourism portfolio. Funds Management – Europe Relates to equity investments in small closed-end funds (a legacy of GPT’s ownership of GPT Halverton) managed by Internos Real Investors. (b) Details of financial performance and cash flow information relating to discontinued operations The table below sets out the financial performance and cash flow information for the discontinued operations that continue to be owned by the Consolidated Entity at reporting date. Revenue Expenses Loss before income tax Income tax credit Loss after income tax of discontinued operations Net cash outflow from operating activities Net decrease in cash from discontinued operations Discontinued operation 31 Dec 17 $’000 31 Dec 16 $’000 – (13,669) (13,669) – (13,669) 13 13 12 (29,063) (29,051) (1) (29,050) (306) (306) A discontinued operation is a part of the Consolidated Entity’s business that: • it has disposed of or has classified as held for sale and that represents a major line of its business or geographical area of operations; or • is part of a single co-ordinated plan to dispose of such a line of business or area of operations. The results of discontinued operations are presented separately on the face of the Consolidated Statement of Comprehensive Income and the assets and liabilities are presented separately on the face of the Consolidated Statement of Financial Position. (c) Derecognition of available for sale financial assets In October 2017, the Consolidated Entity received a return of capital of $10,639,000 in respect of its 5.3 per cent interest in BGP Holding Plc (BGP). BGP was classified as an available for sale financial asset with a carrying value of $9,296,000 at 31 December 2016. In 2017, following the return of capital the asset has been derecognised in the Consolidated Statement of Financial Position and $10,699,000 has been recognised in the Consolidated Statement of Comprehensive Income as profit on derecognition of the available for sale financial asset. Assets held for sale Non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Investment property held for sale will continue to be carried at fair value. Non-current assets and disposal groups are classified as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. This condition is met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. 117 Notes to the Financial Statements – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities 25. Accounting policies Associates (a) Basis of preparation The financial report has been prepared: • in accordance with the requirements of the Company’s constitution, Corporations Act 2001, Australian Accounting Standards (AAS) and other authoritative pronouncements of the Australian Accounting Standards Board and International Financial Reporting Standards; • on a going concern basis in the belief that the Consolidated Entity will realise its assets and settle its liabilities and commitments in the normal course of business and for at least the amounts stated in the financial statements. The Consolidated Entity has access to undrawn financing facilities of $39,018,000 as set out in note 14; • under the historical cost convention, as modified by the revaluation for financial assets and liabilities at fair value through the Consolidated Statement of Comprehensive Income; • using consistent accounting policies and adjustments to bring into line any dissimilar accounting policies being adopted by the controlled entities, associates or joint ventures; and • in Australian dollars with all values rounded to the nearest thousand dollars, in accordance with ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191, unless otherwise stated. The financial report was approved by the Board of Directors on 13 February 2018. (b) Basis of consolidation Controlled entities The consolidated financial statements of the Consolidated Entity report the assets, liabilities and results of all controlled entities for the financial year. Controlled entities are all entities over which the Consolidated Entity has control. The Consolidated Entity controls an entity when the Consolidated Entity is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Controlled entities are consolidated from the date on which control is obtained to the date on which control is disposed. The acquisition of controlled entities is accounted for using the acquisition method of accounting. All intercompany balances and transactions, income and expenses and profits and losses resulting from intra-group transactions have been eliminated. Associates are entities over which the Consolidated Entity has significant influence but not control, generally accompanying a shareholding of between 10 per cent and 50 per cent of the voting rights. GPT Funds Management Limited (GPTFM), which is wholly owned by the Company is the responsible entity (RE) of the Funds. The Board of GPTFM comprises six directors, of which GPT can only appoint two. As a result, the Company has significant influence over GPTFM and accordingly accounts for it as an associate using the equity method. Investments in associates are accounted for using the equity method. Under this method, the Consolidated Entity’s investment in associates is carried in the Consolidated Statement of Financial Position at cost plus post acquisition changes in the Consolidated Entity’s share of net assets. The Consolidated Entity’s share of the associates’ result is reflected in the Consolidated Statement of Comprehensive Income. Where the Consolidated Entity’s share of losses in associates equals or exceeds its interest in the associate, including any other unsecured long term receivables, the Consolidated Entity does not recognise any further losses, unless it has incurred obligations or made payments on behalf of the associate. Joint arrangements Investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations each investor has, rather than the legal structure of the joint arrangement. The Consolidated Entity has assessed the nature of its joint arrangements and determined it has joint ventures only. Joint ventures Investments in joint ventures are accounted for in the Consolidated Statement of Financial Position using the equity method which is the same method adopted for associates. (c) Other accounting policies Significant accounting policies that summarise the recognition and measurement basis used and are relevant to an understanding of the financial statements are provided throughout the notes to the financial statements. Other accounting policies include: (i) Available for sale financial assets Available for sale financial assets are recognised at fair value. Gains/losses arising from changes in the fair value of the carrying amount of available for sale financial assets are recognised in other comprehensive income. 118 Notes to the Financial Statements – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities (ii) Deferred revenue (iv) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST (or equivalent tax in overseas locations) except where the GST incurred on purchase of goods and services is not recoverable from the tax authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable. Receivables and payables are stated inclusive of the amount of GST. The net amount of GST receivable from, or payable to, the taxation authority is included with other receivables or payables in the Consolidated Statement of Financial Position. Cash flows are presented on a gross basis in the Statement of Cash flows. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to, the taxation authority are presented as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. (v) Deferred acquisition costs Deferred acquisition costs associated with the property management business are costs that are directly related to and incremental to earning property management fee income. These costs are recorded as an asset and are amortised in the income statement on the same basis as the recognition of property management fee revenue. (d) New and amended accounting standards and interpretations adopted from 1 January 2017 There are no significant changes to the Consolidated Entity’s financial performance and position as a result of the adoption of the new and amended accounting standards and interpretations effective for annual reporting periods beginning on or after 1 January 2017. The Consolidated Entity recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met. The Consolidated Entity bases its estimates taking into consideration the type of transaction and the specifics of each arrangement. Those transactions where the revenue cannot be reliably measured and/or it is not probable that future economic benefit will flow to the entity are recorded as deferred revenue until such time as the transaction meets the recognition criteria. (iii) Foreign currency translation Functional and presentation currency Items included in the financial statements of each of the GPT entities are measured using the currency of the primary economic environment in which they operate (‘the functional currency’). Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Consolidated Statement of Comprehensive Income. Foreign operations Non-monetary items that are measured in terms of historical cost are converted using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences of non-monetary items, such as equities held at fair value through profit or loss, are reported as part of the fair value gain or loss. Exchange differences arising on monetary items that form part of the net investment in a foreign operation are taken against a foreign currency translation reserve on consolidation. Where forward foreign exchange contracts are entered into to cover any anticipated excesses of revenue less expenses within foreign joint ventures, they are converted at the ruling rates of exchange at the reporting period. The resulting foreign exchange gains and losses are taken to the Consolidated Statement of Comprehensive Income. 119 Notes to the Financial Statements – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities (e) New accounting standards and interpretations issued but not yet adopted The following standards and amendments to standards are relevant to the Consolidated Entity. Reference Description AASB 9 Financial Instruments AASB 15 Revenue from Contracts with Customers AASB 16 Leases AASB 9 addresses the classification, measurement and de-recognition of financial assets and financial liabilities, introduces expanded disclosure requirements, a new impairment (expected credit loss) model and changes in presentation. When adopted, this could change the classification and measurement of financial assets and financial liabilities. The new expected credit loss model for calculating impairment on financial assets will not have a material impact on the provision for doubtful debts. Debt modifications where the impact results in a change in the present value of expected cashflows of less than 10 per cent, taking into account other qualitative factors, will be taken immediately through the Consolidated Statement of Comprehensive Income unless the modifications are reset or entered at market rates. An assessment has been completed on all loans with external parties and it has been determined that this will not have a material impact for the Consolidated Entity, as all previous modifications have been entered at market rates. The impact relating to related party loans is still being assessed. The Consolidated Entity will apply the standard from 1 January 2018. AASB 15 will replace AASB 118 Revenue and AASB 111 Construction Contracts. It is based on the principle that revenue is recognised when control of a good or service is transferred to a customer. It contains a single model that applies to contracts with customers and two approaches to recognising revenue: at a point in time or over time. The model features a contract–based five-step analysis of transactions to determine whether, how much and when revenue is recognised. It applies to all contracts with customers except leases, financial instruments and insurance contracts. It requires reporting entities to provide users of financial statements with more informative and relevant disclosures. The Consolidated Entity will apply the standard from 1 January 2018. It is not expected that the application of this standard will have a material impact on the financial results, however some changes in the presentation of certain revenue items and additional disclosures will be required. AASB 16 will change the way lessees account for leases by eliminating the current dual accounting model which distinguishes between on-balance sheet finance leases and off-balance sheet operating leases. Instead, there will be a single, on-balance sheet accounting model that is similar to the current finance lease accounting. Where the Consolidated Entity is the lessee, this new treatment will result in recognition of a right of use asset along with the associated lease liability in the balance sheet and both a depreciation and interest charge in the Consolidated Statement of Comprehensive Income. In contrast, lessor accounting will remain similar to current practice. The new leasing model requires the recognition of operating leases on the balance sheet. If the Consolidated Entity had adopted the new standard from 1 January 2017, management estimates that the net profit before tax for the 12 months to 31 December 2017 would decrease by approximately $136,220. Assets at 31 December 2017 would increase by approximately $12,733,000 and liabilities increase by $15,068,000. Application of Standard 1 January 2018 1 January 2018 1 January 2019 26. Events subsequent to reporting date On 15 January 2018, the Consolidated Entity sold vacant land at 368 Wembley Road, Berrinba for a total consideration of $4,100,000. Other than the above, the Directors are not aware of any matter or circumstance occurring since 31 December 2017 that has significantly or may significantly affect the operations of the Consolidated Entity, the results of those operations or the state of affairs of the Consolidated Entity in subsequent financial years. 120 Notes to the Financial Statements – Year ended 31 December 2017Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities Directors’ Declaration Year ended 31 December 2017 In the Directors of GPT Management Holdings Limited’s opinion: (a) the consolidated financial statements and notes set out on pages 90 to 120 are in accordance with the Corporations Act 2001, including: • complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and • giving a true and fair view of the Consolidated Entity’s financial position as at 31 December 2017 and of its performance for the financial year ended on that date; and (b) the consolidated financial statements and notes comply with International Financial Reporting Standards as disclosed in note 25 to the financial statements. (c) there are reasonable grounds to believe that the Consolidated Entity will be able to pay its debts as and when they become due and payable. The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer as required by Section 295A of the Corporations Act 2001. This declaration is made in accordance with the resolution of the directors. Rob Ferguson Chairman Bob Johnston Chief Executive Officer and Managing Director GPT Management Holdings Limited Sydney 13 February 2018 121 Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities • • • • • • • • • • • • 122 Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities • • • • • • • • −−−− −−−− −−−− • • • • • • 123 99 • • • • • Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities • 99 • • • • • • • • • • • 124 Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities • • • • • • • • • • • • • • • • • 125 Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities • • • • • • • • • • • • • • 126 Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities • • • • • • • • • • • • • • • 127 Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities • • • • • • 128 Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities 88 • • • • • • 129 Annual Financial Report of GPT Management Holdings Limited and its Controlled Entities Supplementary information Securityholder information Substantial Securityholders UniSuper BlackRock Group Vanguard Investments Australia State Street Corporation Voting Rights Number of Securities 233,746,431 144,613,051 117,427,713 106,158,896 Securityholders in The GPT Group are entitled to one vote for each dollar of the value of the total securities they hold in the Group. Distribution of Securityholders 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and Over Total Number of Securityholders Number of Securityholders Percentage of Total Issued Securities 14,234 14,026 3,530 2,365 110 34,265 41.54 40.93 10.30 6.90 0.32 There were 955 securityholders holding less than a marketable parcel of 98 securities, based on a close price of $5.11 as at 31 December 2017, and they hold 21,647 securities. Twenty Largest Securityholders HSBC Custody Nominees (Australia) Limited J P Morgan Nominees Australia Limited BNP Paribas Nominees Pty LtdCiticorp Nominees Pty Limited National Nominees Limited BNP Paribas Noms Pty Ltd Citicorp Nominees Pty Limited AMP Life Limited HSBC Custody Nominees (Australia) Limited HSBC Custody Nominees (Australia) Limited-GSCO ECA RBC Investor Services Australia Nominees Pty Limited National Nominees Limited Bond Street Custodians Limited Argo Investments Limited Ecapital Nominees Pty Limited BNP Paribas Noms (NZ) LTD Neweconomy Com Au Nominees Pty Limited <900 Account> CS Fourth Nominees Pty Limited UBS Nominees Pty Ltd IOOF Investment Management Limited Total Total Securities on Issue Number of Securities Percentage of Total Issued Securities 722,930,423 294,537,111 278,213,815 195,108,840 67,388,787 20,266,760 16,309,631 14,377,642 5,914,260 4,648,433 4,352,266 4,141,453 4,045,602 3,480,667 3,054,738 2,037,702 1,874,878 1,864,674 1,792,482 1,627,268 1,647,967,432 1,801,640,882 40.13 16.35 15.44 10.83 3.74 1.12 0.91 0.80 0.33 0.26 0.24 0.23 0.22 0.19 0.17 0.11 0.10 0.10 0.10 0.09 91.47 130 Annual Financial Report Issue of Securities The following table lists the issue of GPT securities during the period from 1 January 2017 to 31 December 2017. A complete list of all securities issued since GPT’s inception in 1971 can be obtained from the Group’s website (www.gpt.com.au) or by calling the GPT Securityholder Service Centre on 1800 025 095 (freecall within Australia). Date 14.02.17 20.03.17 07.09.17 Description Issue of Securities Issue of Securities Issue of Securities Number of Securities Price ($) 2,763,052 909,693 12,569 $4.88 $5.00 $4.99 Amount ($) 13,483,694 4,548,465 62,719 Investor information Securityholder Services You can access your investment online at www.linkmarketservices.com.au, signing in using your SRN/HIN, Surname and Postcode. Functions available include updating your address details, downloading a PDF of your Annual Tax Statement and collecting FATCA/CRS self certification. Also online at www.linkmarketservices.com.au are regularly requested forms relating to payment instructions, name corrections and changes and deceased estate packs. For assistance with altering any of your investment details, please phone the GPT Registry on 1800 025 095 (free call within Australia) or +61 1800 025 095 (outside Australia). Receive Your Report Electronically Sustainability is core to GPT’s vision and values. As part of our sustainability initiatives we would like to offer you the opportunity to receive notification of GPT’s investor communications electronically, including the 2017 Annual Financial Report and the Annual Review. We encourage securityholders to visit www.gpt.com.au to view the online versions of these reports. As an investor opting to receive your securityholder updates electronically, you will benefit by receiving prompt information and have the convenience and security associated with electronic delivery. There are also significant cost savings associated with this method of communication and above all this is a responsible and environmentally friendly option. To receive your investor communications electronically, please go to www.linkmarketservices.com.au and register for online services. AGM Information GPT’s Annual General Meeting (AGM) will be held at the Amora Hotel Jamison Sydney, Whiteley Ballroom, Level 2, 11 Jamison Street, Sydney, New South Wales on Wednesday, 2 May 2018, commencing at 10.00am (Sydney time). GPT encourages securityholders to attend the AGM. The AGM will also be webcast live via GPT’s website (www.gpt.com.au) for those securityholders who are unable to attend in person. Additionally, the Chairman’s address will be immediately announced to the ASX on the day. Investor Calendar 28 February 2018 December 2017 Half Year Distribution Payment 2 March 2018 2 May 2018 June 2018 August 2018 Annual Tax Statement Annual General Meeting June 2018 Half Year Distribution Announcement 2018 Interim Result Announcement (14 August) June 2018 Half Year Distribution Payment An investor calendar is also available on GPT’s website at www.gpt.com.au/investor-centre/key-dates-events Distribution Policy and Payments GPT has a distribution policy in place that effectively aligns the Group’s capital management framework with its business strategy, which reflects a sustainable distribution level to ensure a prudent approach to managing the Group’s gearing through market and economic cycles. GPT makes distribution payments to securityholders two times a year, for the six months ended 30 June and the six months ended 31 December. GPT declares and pays its distribution in Australian dollars. 131 Supplementary information – Year ended 31 December 2017Annual Financial Report Corporate directory The GPT Group Comprising: GPT Management Holdings Limited ACN 113 510 188 GPT RE Limited ACN 107 426 504 AFSL 286511 As Responsible Entity for General Property Trust ARSN 090 110 357 Board of Directors Rob Ferguson (Chair) Bob Johnston Brendan Crotty Eileen Doyle Gene Tilbrook Swe Guan Lim Michelle Somerville Company Secretaries James Coyne Lisa Bau Telephone: +61 2 8239 3555 Facsimile: +61 2 9225 9318 Audit Committee Michelle Somerville Brendan Crotty Swe Guan Lim Eileen Doyle Nomination and Remuneration Committee Gene Tilbrook Eileen Doyle Rob Ferguson Sustainability and Risk Management Committee Eileen Doyle Brendan Crotty Swe Guan Lim Michelle Somerville Registered Office Level 51 MLC Centre 19 Martin Place Sydney NSW 2000 Telephone: +61 2 8239 3555 Facsimile: +61 2 9225 9318 Auditors PricewaterhouseCoopers One International Towers Sydney, Watermans Quay, Barangaroo Sydney NSW 2000 Principal Registry Link Market Services GPT Security Registrar Locked Bag A14 Sydney South NSW 1235 Within Australia: 1800 025 095 (free call) Outside Australia: +61 1800 025 095 Fax: Email: Website: +61 2 9287 0303 registrars@linkmarketservices.com.au www.linkmarketservices.com.au Stock Exchange Quotation GPT is listed on Australian Securities Exchange under ASX Listing Code GPT. 132 Annual Financial Report 8 1 / 2 0 1 5 0 T P G