Growthpoint Properties Australia Ltd
Annual Report 2018

Plain-text annual report

Growthpoint Properties Australia Growthpoint Properties Australia Trust ARSN 120 121 002 Growthpoint Properties Australia Limited ABN 33 124 093 901 AFSL 316409 www.growthpoint.com.au 2018 Annual Report For the year ended 30 June 2018 2 Growthpoint Properties Australia 2018 Annual Report All areas of the business continue to contribute to a common goal; delivering sustainable income returns and long-term capital appreciation for Securityholders from properties we own and manage Geoff Tomlinson, Chairman A1, 32 Cordelia Street and A4, 52 Merivale Street, South Brisbane, QLD Growthpoint Properties Australia 2018 Annual Report 3 About the Directors’ Report The Directors’ Report which follows is signed in Melbourne on 16 August 2018 in accordance with a resolution of the Directors of Growthpoint Properties Australia Limited. The Directors’ Report comprises pages 4 to 53 of this report except where referenced otherwise. Further information can be found in the 2018 Sustainability report Download from growthpoint.com.au/ sustainability/operating- sustainably/ What’s inside Directors’ Report Business Overview FY18 Highlights Chairman’s report Managing Director’s report FY18 strategy and outlook Sustainability review Financial Management Strategic execution Financial management Funds From Operations Five year performance summary Portfolio Review Property portfolio overview Office portfolio review Industrial portfolio review Governance Board of Directors Executive management Remuneration report Additional information Financial Report Contents Financial Statements Notes to the Financial Statements Directors’ Declaration Auditor’s Independence Declaration Independent Auditor’s Report Additional information Detailed Portfolio information About Growthpoint South Africa Securityholder information Frequently asked questions Securityholder calendar Glossary Contact details 4 7 9 10 12 15 15 18 19 20 24 28 32 34 37 53 55 56 61 96 97 98 102 105 107 109 111 112 113 About this Report This is the Annual Report for Growthpoint Properties Australia (comprising Growthpoint Properties Australia Limited, Growthpoint Properties Australia Trust and its controlled entities) for the year ended 30 June 2018. It is available online at www.growthpoint.com.au and in hard copy. Persons can request a hard copy through any of the communication methods listed on the inside back cover of this report. This report provides readers with an overview of Growthpoint’s business including summaries of the strategies, objectives, assets, operating model, achievements, key risks and opportunities at 16 August 2018 as well as detailed financial information over the last six months, one year and five year periods. There are also references which enable readers to obtain more information should they wish to. 4 Growthpoint Properties Australia 2018 Annual Report FY18 Highlights 3.3% 25.0cps Increase in distributions per security to 22.2cps (FY17: 21.5cps) Funds From Operations (FY17: 25.5cps) 10.8% Increase in net tangible assets to $3.19 (FY17: $2.88) Returns $3.4bn Property portfolio value (FY17: $3.3bn) $205.4m New assets purchased1 (FY17: $469.9m) $90.8m Strategic asset sales (FY17: $259.1m) Property _ Lower gearing _ Higher percentage of fixed debt _ Maintained debt maturity Capital management 7% Increase in percentage of fixed debt to 82% (30 June 2017: 75%) 5.0yrs Weighted average debt maturity (WADM) (30 June 2017: 5.0yrs) 33.9% Gearing Decrease of 460bps (30 June 2017: 38.5%) Sustainability _ Increased average portfolio NABERS energy rating to 4.6 stars _ Increased gender diversity of employees _ Targeting net zero emissions across all properties under operational control by 2050 50% of employees are female (30 June 2017: 43%) 4.6s Average NABERS Energy rating (30 June 2017: 4.5 stars) 1. Includes acquisition of 836 Wellington Street, West Perth, WA for $91.3 million announced 18 July 2018. Growthpoint Properties Australia Growthpoint Properties Australia 2018 Annual Report 2018 Annual Report 5 We are constantly reviewing new markets and opportunities. While the market for some direct assets is priced competitively, there remain a number of other avenues for growth open to the Group Timothy Collyer, Managing Director 75 Dorcas Street, South Melbourne, VIC Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information6 Growthpoint Properties Australia 2018 Annual Report A1, 32 Cordelia Street, South Brisbane, QLD Growthpoint Properties Australia 2018 Annual Report 7 Total Securityholder return over 1, 3 & 5 years (%)1 22.3 16.2 13.2 11.8 12.2 10.0 1 year 3 years 5 years Growthpoint S&P/ASX 300 A-REIT accumulation index Chairman’s Report Consistent and transparent business model Dear Securityholders, The 2018 financial year was another strong year for Growthpoint with the Group continuing on a path of executing on its promises and growing distributions for Securityholders. Over the year investors in Growthpoint securities achieved a total return of 22.3%, outperforming the ASX300 A-REIT Acc Index by 10.1 percentage points, an excellent achievement and validation of the Group’s portfolio strategy and execution. Importantly this outperformance extends to longer term time periods, with outperformance also achieved over 3 and 5 years (see chart on the right of page). In October 2017 we introduced a new Board member in Josephine Sukkar AM. Josephine joins as the Group’s fourth Independent Director and brings with her significant construction expertise with over 27 years running a large building company in Sydney. Importantly, this coincides with the Group commencing construction of a high-quality, A-grade office building on vacant land at the Botanicca Corporate Park in the inner- city Melbourne suburb of Richmond. Josephine’s appointment brings female representation on the Board to 25% (from 14% at 30 June 2017). Recognising the increasing burden of energy costs for our tenants, and with a view to reducing our carbon footprint as an organisation, Growthpoint has identified a number of potential solar projects it will look to progress over FY19. Investment in these projects demonstrates a genuine commitment to renewable energy being made by the Group, while importantly making our property portfolio more efficient to attract the highest quality tenants. More information on these projects can be found in the Group’s FY18 Sustainability Report. To ensure the Group is maintaining pace with best practice across the sector, PwC were asked as part of their annual engagement to review the existing executive remuneration framework. The Nomination, Remuneration and HR Committee has recommended to implement three key changes from FY19 it believes will further align the interests of Securityholders with Management remuneration. More information on the Group’s remuneration can be found on pages 37 to 52 of this report. 37 We believe the Group is well positioned to take advantage of a number of exciting new opportunities to continue growing the business in a sustainable way. With strong support from our majority Securityholder, Growthpoint Properties Limited, we enter FY19 with enthusiasm and a belief that we can continue delivering the best outcomes for our Securityholders, creating additional value from properties we own and continuing to grow our portfolio. On behalf of the Board, I would like to thank all our Securityholders for their continued support of Growthpoint. I would also like to thank our employees, tenants, third party suppliers, debt providers, directors and other stakeholders for their continued contribution to our success. Geoff Tomlinson Independent Chairman & Director Growthpoint Properties Australia Limited 1. Source: UBS Investment Research: Annual compound returns to 30 June 2018. Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information8 Growthpoint Properties Australia 2018 Annual Report 333 Ann Street, Brisbane, QLD Growthpoint Properties Australia 2018 Annual Report 9 Managing Director’s Report Growthpoint delivers another year of positive operational performance and financial returns Total portfolio value ($b) as at 30 June 3.3 3.4 2.8 2.4 2.1 2014 2015 2016 2017 2018 Portfolio occupancy (%) as at 30 June 98 97 99 99 98 2014 2015 2016 2017 2018 to $2.30 per IDR security and an attractive DPS yield of 7.2%. Post-FY18 balance date, Growthpoint entered into transaction documents for the acquisition of 836 Wellington Road, West Perth for $91.3 million. This is Growthpoint’s first office investment in Perth after a long period of due diligence on the Perth office property market which is showing clear signs of a turnaround. Importantly these acquisitions were funded by asset sales which achieved attractive prices. An example of this is 522-550 Wellington Road, Mulgrave, Victoria which sold in December 2017 for $90.75 million, representing a 37.7% premium to the 30 June 2017 book valuation. Achieving a high price on exit and re-investing proceeds into new markets where we believe will achieve long-term upside is a strategy management will continue to deploy. We are constantly reviewing new markets and opportunities to generate the best outcomes for Securityholders. To this end the Group has a pipeline of development and expansion projects it will look to undertake over the next two years, including the exciting development of a new, 19,300 square metre (sqm) A-Grade office building in Richmond, Victoria. Transactions over the year coupled with further uplift in valuations helped reduce gearing by 460 bps to 33.9% giving the Group significant flexibility moving forward. This lower level of gearing, coupled with the successful extension of bank debt leaves the balance sheet in an excellent position to explore further growth opportunities as we move into FY19. Timothy Collyer Managing Director Growthpoint Properties Australia Limited Dear Securityholders, On behalf of Growthpoint’s management team, I am pleased to present the FY18 Annual Report which demonstrates another strong year of operational performance and financial returns for Securityholders. Over the year the Group achieved a record statutory profit of $357.7 million and delivered an above- sector total return of 22.3% to our Securityholders. Other key highlights over the year were: t Statutory earnings of 53.5 cents per security (cps), which is the highest reported EPS of any year since Growthpoint’s inception in 2009 t FFO of 25.0 cps, a decrease of 2.0% on FY17 t Annual distribution of 22.2 cps, an increase of 3.3% on FY17 t 10.8% increase in NTA per security, up from $2.88 at 30 June 2017 to $3.19 t Completed over $257.2 million in property and equity transactions, taking advantage of strong pricing to sell property and reinvest favourably into markets we know and understand t Undertook 132,433 sqm of new and extended leasing, equating to 13% of total portfolio lettable area, maintaining portfolio occupancy at 98% t Reduced gearing by 460 basis points (bps), from 38.5% at 30 June 2017 to 33.9% giving the Group significant flexibility to take advantage of growth opportunities should they arise t Successfully extended near-term debt maturities, maintaining the Group’s weighted average debt maturity at 5 years, with no refinancing required until September 2020 t Increased the average NABERS energy rating for the office portfolio from 4.5 stars at 30 June 2017 to 4.6 stars at 30 June 2018 Continued repositioning of the portfolio was achieved via transactions weighted towards the first half, with the Group acquiring four adjoining, modern industrial warehouses at Perth Airport, Western Australia for $46 million, providing an initial passing yield of 8.1%. We also announced the acquisition of an 18.2% interest in Industria REIT for approximately $68.1 million, equating Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information10 Growthpoint Properties Australia 2018 Annual Report Considered investment decisions in competitive direct property market Market opportunities not limited to direct property acquisition LISTED MARKET NEW DIRECT MARKETS RETAIL MARKET REVIEW 18.2% Stake in Industria REIT (ASX: IDR) t Acquired stake in July 2017 for $2.30 per security ($68.1 million) t Value as at 30 June 2018: $2.65 per security ($78.5 million) t Continue to evaluate IDR whilst receiving attractive income yield $91.3m Inaugural investment into Perth office market t Long period of due diligence on Perth office market t Recovery in Perth to be driven by recent improvement in business investment and removal of substantial sub- leasing from the market over a recent period of subdued development Completed detailed review of retail market in May 2018 t Continue to believe no investment in retail is correct strategy at this time t Difficult to identify catalyst for rebound in consumer spending t Sector undergoing significant structural change t Expect significant retail property to be on the market over next 12-24 months and yields to rise for some retail property categories BIDDING ON DIRECT PROPERTY INVESTMENTS $1.5bn Opportunities reviewed in FY18 $0.8bn Opportunities bid on in FY18 $137.3m Direct properties acquired1 8.3 yr WALE ‘AAA’ rated Tenant 1. Includes acquisition of 836 Wellington Street, West Perth, WA for $91.3 million, expected to settle in October 2018. Portfolio opportunities to maximise value STRATEGIC DIVESTMENTS INTERNAL DEVELOPMENT OPPORTUNITIES Sell property with residential conversion upside Pipeline of >$200m in development and expansion opportunities, led by: 522-550 Wellington Road, Mulgrave, VIC sold for $90.8 million – 37.7% premium to book value Quads 2 & 3, Sydney Olympic Park, NSW – Marketing commenced July 2018 Botanicca 3 development at Richmond, VIC – development yield on cost between 7.5% and 8.5% Gepps Cross Expansion, SA – Negotiating with tenant regarding potential $50 to $60 million expansion Growthpoint Properties Australia 2018 Annual Report 11 Robust capital position well placed for future growth BALANCE SHEET EQUITY CAPITAL 33.9% Gearing – reduced by 460bps, below bottom of target gearing range $320m Undrawn debt 5yrs WADM – maintained due to extension of near-term debt facilities Good access to equity capital t Supportive majority Securityholder in Growthpoint Properties Limited (JSE code: GRT) t GRT has a stated internationalisation strategy to increase offshore EBITDA contribution to 30% (from 15%) t Ongoing support from domestic and other offshore institutional investors Capacity to take advantage of the right opportunities As the market for direct assets on Australia’s Eastern seaboard continues to be priced competitively there remain a number of avenues for growth open to the Group with the balance sheet well positioned to provide support Timothy Collyer Manging Director 836 Wellington Street, West Perth, WA Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information12 Growthpoint Properties Australia 2018 Annual Report FY18 Sustainability Highlights Environment Targeting net zero emissions by 2050 across all properties under operational control 4.6 4.5 FY17 FY18 4.6s Average NABERS Energy rating (FY17: 4.5 stars) C B CY16 CY17 B 2017 CDP Climate Performance score (CY16: C rating) 50% $47,786 of employees are women (30 June 2017: 43%) Donations (FY17: $30,617) Social Governance Baa2 grade credit rating maintained since November 2015 Improved board diversity to 25% female (30 June 2017: 14%) Operations $524.3m Economic Value Provided in FY181 comprising $248.2m Generated Value2 and $276.0m Distributed Value3 (FY17: $564.2m) $21.9m Taxes paid in FY184 equating to 8.6% of revenue (FY17: $27.2m, 10.4% of revenue) 1. Economic Value Provided is the sum of Economic Value Generated and Economic Value Distributed (calculated in accordance with GRI methodology). 2. Economic Value Generated is the sum of cash receipts from customers plus interest received. 3. Economic Value Distributed is the sum of Director and employee wages and benefits, payments to providers of capital, payments to Australian governments and all other cash expenses 4. Consists of stamp duty, net GST, income tax, payroll tax and mortgage duties calculated in accordance with GRI methodology. Growthpoint Properties Australia 2018 Annual Report 13 Planned renewable energy projects being investigated through FY19 599 Main North Rd, Gepps Cross, SA t Negotiating with tenant regarding $50 to $60 million expansion of Gepps Cross t Exploring the use of sustainable energy options including the proposed addition of a 1.6MW solar farm Botanicca 3, 572-576 Swan St, Richmond, VIC t Design and construct building contract for the Botanicca 3 development includes provision for a total of 120kW solar photovoltaic roof mounted installation. t Detailed design is currently underway t Structural and spatial provision for future battery storage infrastructure (for connection to solar PV system) is being considered as part of the project t Project completion scheduled for second half of CY20 Planned solar installations 75 Dorcas St, South Melbourne, VIC t Feasibility study completed to identify most viable solar projects within Growthpoint portfolio t Dorcas Street suitable investment proposition based on: — Size of roof — Payback period — Percentage offset of existing energy usage t Systems to generate up to 200kW t Estimated savings of ~300tCO2-e per annum t Emissions saving equivalent to taking 66 cars off the road for a full year t Project to progress through FY19 Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional InformationDion Andrews Chief Financial Officer Pascal Moutou Finance Manager 14 Growthpoint Properties Australia 2018 Annual Report 120 Northcorp Boulevard, Broadmeadows, VIC Financial Management Further progress on balance sheet strategy Strategic Execution Maintain gearing within 35%-45% range Maintained average debt maturity Growthpoint Properties Australia 2018 Annual Report 15 Increase fixed debt percentage 7% 82% 38.5% 4.6% 5.0yrs 5.0yrs 75% 33.9% FY171 FY182 FY17 FY18 FY17 FY18 Securityholders benefited from a number of accretive acquisitions made over the year which helped to improve on our initial Funds From Operations guidance by 5.9% (from at least 23.6 cents per security), while asset sales above book value and strong revaluation gains supported further reductions in gearing, leaving the balance sheet well positioned to take advantage of the right opportunities. Highlights for FY18 tFFO of 25.0 cents per security tDistributions of 22.2 cents per security equating to a payout ratio of 88.8% tGearing of 33.9%, down 460 basis points from 30 June 20171 tNTA per security of $3.19, 10.8% above 30 June 2017 tMaintained a weighted average debt maturity of 5.0 years; and tIncreased the overall level of fixed debt to 82%, from 75% at 30 June 2017 Progress on Financial Management strategy Over the year the Group extended $515 million of near term bank debt expiring in mid-FY19 to maintain a weighted average debt maturity of 5 years. After significant work in FY17 to further diversify the Group’s debt funding profile, the Group now retains a good balance between shorter term, more flexible bank debt and longer term fixed debt. The Group will continue to act quickly and decisively on upcoming expiries, the first being in September 2020, and will look to all available debt markets for the best solution for Securityholders when new debt is required. Gearing 33.9% as at 30 June 2018 Gearing as at 30 June 2018 was 33.9%, down from 38.5%1 as at 30 June 2017, below the bottom of the target range of 35% - 45%. 17 The chart on page 17 tracks the events that impacted gearing during the year. At financial year end the Group held $320 million of undrawn debt facilities as it pursues a number of growth opportunities. Over time, as part of a prudent gearing strategy, holding approximately $100 million in undrawn debt will to allow for flexibility in transactions, while aiming to minimise the cost burden of holding undrawn debt lines. Fixed debt percentage increased to 82% At 30 June 2018, fixed debt was 82%, up from 75% at 30 June 2017. The weighted average fixed debt maturity is 5.5 years which means a high percentage of debt is protected for the medium term against any future interest rate rises. 1. Gearing calculation changed during the period from interest bearing liabilities divided by total assets to interest bearing liabilities less cash divided by total assets less cash. This change brings Growthpoint’s gearing calculation more closely in line with industry peers. 2. Gearing at 30 June 2018 below target gearing range. See page 17 of this report for pro forma. Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information16 Growthpoint Properties Australia 2018 Annual Report Financial Management continued Increasing Distributions and FFO per security The graph at right illustrates the increase in distributions and FFO per security over five years, including FY19 guidance. Growthpoint has been able to achieve its medium-term target of growing distributions by 3%-4% annually, based on a high percentage of fixed income increases in leases (WARR of 3.3%) and a high proportion of debt costs being fixed. This, along with low operating expenses of approximately 0.4% of average gross assets per annum, has allowed the Group to grow distributions at a CAGR of 3.9% for the five years up to and including FY18. Importantly, as the graph shows, over the same time period Growthpoint has been able to grow FFO at a higher rate of 4.0%, ensuring that distribution growth is covered by earnings growth. Long-term growth in FFO and distributions (cps) 26.0 25.0 24.0 23.0 22.0 21.0 20.0 19.0 18.0 25.5 25.0 22.2 21.5 At least 24.6 23.0 4.0% CAGR 3.9% CAGR 22.9 20.5 21.8 19.7 20.2 19.0 FFO per security Distributions per security FY14 FY15 FY16 FY17 FY18 FY19 Outlook for FY19 Movements in NTA per stapled security ($) Subject to market conditions, the Group expects FY19 FFO to be at least 24.6 cents per stapled security and distributions to be 23.0 cents per stapled security, representing a 3.6% increase in distributions to Securityholders. This is within the Group’s medium-term target range of 3-4% increase in distributions per security growth per annum and equates to a FY19 payout ratio to FFO being a maximum 93.5%. FY19 guidance takes into account the West Perth acquisition announced 18 July 2018, up to $110 million of asset sales expected to take place throughout FY19 and the Dividend Reinvestment Plan activated for the August 2018 distribution. Growthpoint will continue to distribute as much FFO as is reasonably prudent to Securityholders. In determining its payout ratio, Growthpoint will consider its capital expenditure, tenant incentive and working capital requirements over the medium term as well as current and anticipated business and financial conditions, especially as they relate to raising debt and equity capital. +$0.04 +$0.01 +$0.01 $3.19 +$0.25 $2.88 10.8% increase since 30 June 2017 30 June 2017 Property revaluations Profit on property sale Financial instruments revaluations Equity raising (DRP) & retained earnings 30 June 2018 Key debt metrics and changes during FY18 Gross assets Interest bearing liabilities Total debt facilities Undrawn debt Gearing1 Weighted average interest rate Weighted average debt maturity Annual Interest Coverage Ratio (ICR) / Covenant ICR Actual Loan to Value Ratio (LVR) / Covenant LVR Weighted average fixed debt maturity % of debt fixed Debt providers $'000 $'000 $'000 $'000 % % years times % years % no. Items influencing gearing1 for the year ended 30 June 2018 Growthpoint Properties Australia 2018 Annual Report 17 30 June 2018 30 June 2017 Change 3,474,569 1,197,555 1,523,482 320,000 33.9 4.4 5.0 3.9 / 1.6 36.1 / 60 5.5 82 17 3,328,372 1,299,380 1,473,482 167,856 38.5 4.3 5.0 4.1 / 1.6 40.2 / 60 6.4 75 17 146,197 (101,825) 50,000 152,144 (4.6) 0.1 – (0.2) / – (1.9) / – (0.9) 7 – 460bps reduction since 30 June 2017 +1.8% 36.3% 40% 39% 38% 37% 36% 35% 34% 33% 32% 31% 30% 38.5% +3.0% -3.6% +1.3% +0.7% -0.1% -2.0% +0.5% 33.9%2 -1.6% -2.2% 7 1 e n u J 0 3 n w o d y a P h s a c s s e c x e h a d n u N l l e S e k a t s R D I e s a h c r u P l a i r t s u d n i h t r e P e s a h c r u P n a m s s a G 0 1 l l e S i d a p n o i t u b i r t s i D 0 5 5 - 2 2 5 l l e S d R n o t g n i l l e W s n o i t a u a v e R l 8 1 e n u J 0 3 n o i t u b i r t s i D P R D r e t f a l e b a y a p e s a h c r u P t S n o t g n i l l e W 6 3 8 a m r o F o r P 8 1 e n u J 0 3 1. Gearing calculation changed during the period from interest bearing liabilities divided by total assets to interest bearing liabilities less cash divided by total assets less cash. This change brings Growthpoint’s gearing calculation more closely in line with industry peers. 2. Numbers may not sum due to rounding. Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information 18 Growthpoint Properties Australia 2018 Annual Report Funds From Operations (FFO) FFO is the net profit available for distribution from the Group which excludes accounting adjustments such as fair value movements to the value of investment property and interest rate swaps, depreciation, profits or losses on sale of investment properties, deferred tax and amortisation of tenant incentives. FFO is non-IFRS financial information and has not been subject to review by the Group’s external auditors. FFO has been provided to allow Securityholders to identify that income which is available to distribute to them and will assist in the assessment of relative performance of the Group. Reconciliation from statutory profit to FFO Profit after tax Less non-FFO items: - Straight line adjustment to property revenue - Net changes in fair value of investment property - (Profit) / loss on sale of investment property - Net change in fair value of investment in securities - Net change in fair value of derivatives - Depreciation - Amortisation of incentives - Deferred tax benefit FY18 $’000 FY17 $’000 357,709 278,090 (5,962) (166,958) (24,419) (10,368) 573 293 16,327 (117) (2,522) (118,157) 1,123 - (2,382) 162 9,969 (185) FFO 167,078 166,098 Change % Change $’000 79,619 (3,440) (48,801) (25,542) (10,368) 2,955 131 6,358 68 980 % 28.6 0.6 The FY18 payout ratio, calculated as distributions on ordinary stapled securities divided by FFO, was 88.8% (FY17: 84.3%). Details about distribution components under the attribution managed investment trust or “AMIT” regime (only relevant for the full year distribution) and Fund Payment amounts (only relevant for foreign holders) will be made available on Growthpoint’s website on or before the relevant distribution date. For more information go to: growthpoint.com.au/investor-centre/distributions/ Operating and capital expenses Operating expenses Total operating expenses Average gross assets value Operating expenses to average Capital expenditure Total portfolio capex Average property asset value Capital expenditure to average property portfolio value FY18 FY17 13,362 12,385 3,377,737 3,204,716 0.40 0.39 FY18 FY17 10,315 10,042 3,236,038 2,915,710 0.32 0.34 $'000 $'000 % $'000 $'000 % Growthpoint Properties Australia 2018 Annual Report 19 Five year performance summary Long-term sustainable returns As at 30 June 2018 2017 2016 2015 2014 Financial performance Investment income Profit for the period Financial position Total assets (at 30 June) Total equity (at 30 June) Securityholder value Basic and diluted earnings per security Funds From Operations per security Distributions per security Total Securityholder return1 Return on equity Gearing (at 30 June) NTA per security (at 30 June) $m $m $m $m ¢ ¢ ¢ % % % $ 466.3 357.7 383.4 278.1 302.1 219.4 361.5 283.0 198.5 117.3 3,474.6 2,157.0 3,328.4 2,879.6 2,407.1 2,128.8 1,901.5 1,522.4 1,411.5 1,165.1 53.5 25.0 22.2 22.3 18.5 33.9 3.19 42.7 25.5 21.5 6.3 18.6 38.5 38.1 22.9 20.5 7.4 13.5 41.2 50.4 21.8 19.7 36.4 23.9 36.3 25.7 20.2 19.0 10.8 17.5 40.3 2.88 2.61 2.48 2.16 Market capitalisation (at 30 June) $m 2,438.1 2,076.6 1,836.8 1,781.1 1,323.3 Other information Number of securities on issue (at 30 June) No. 675,384,368 661,340,472 583,125,744 569,027,781 540,115,360 Market capitalisation and free float ($m) Market Capitalisation Free float 105% increase in free float since 30 June 2014 Total debt facilities (%) as at 30 June 2018 43% Other debt capital markets 57% Major Australian Banks 2,438.1 2,076.6 1,781.1 1,836.8 1,323.3 623.9 633.7 409.2 724.4 840.0 June 2014 June 2015 June 2016 June 2017 June 2018 1. Source: UBS Investment Research. Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information20 Growthpoint Properties Australia 2018 Annual Report Property Portfolio overview Portfolio lease expiry profile (%) per financial year, by income Major lease expiries Industrial Office Michael Green Chief Investment Officer ANZ 2.4% Optus 1.7% Linfox 1.3% Woolworths 10.9% Samsung 2.7% Downer EDI 1.7% Laminex 1.1% NSW Police 8.7% Lion 2.6% Linfox 1.7% Peabody 1.6% Tas Hydro 1.2% 30 26 Office properties – equal to 26 at 30 June 2017 31 Industrial properties – down from 32 at 30 June 2017 98% Portfolio occupancy – down from 99% at 30 June 2017 Central SEQ 2.1% Fox Sports 1.9% 21 21 Monash Uni 1.5% SA Gov 1.0% 11 6 8 2 1 Vacant FY19 FY20 FY21 FY22 FY23 FY24 FY25+ Top ten tenants by passing rent, as at 30 June 2018 NPI per State / Territory ($m) for the year ended 30 June 2018 Woolworths NSW Police Commonwealth of Australia Country Road / David Jones Linfox Samsung Electronics Lion ANZ Banking Group Jacobs Group Queensland Urban Utilities Total / weighted Average Balance of portfolio % 15 9 5 4 4 3 3 2 2 2 49 51 WALE (yrs) 9.4 2.8 12.5 16.8 49.5 $213.6m 65.8 56.8 Victoria New South Wales Queensland South Australia Western Australia Australian Capital Territory Tasmania 4.5 5.9 7.8 13.9 4.9 3.7 5.8 1.7 7.0 4.8 5.9 4.7 Total portfolio 100 5.3 Growthpoint Properties Australia 2018 Annual Report 21 Five year performance summary As at 30 June Number of properties Total value Occupancy 2018 2017 2016 2015 2014 no. $m % 57 58 58 53 51 3,356.1 3,283.8 2,832.6 2,372.5 2,093.7 98 99 99 97 98 Like-for-like value change $m / % of asset value 193.8 / 6.2 138.6 / 5.2 130.2 / 5.5 186.0 / 9.0 52.1 / 3.0 Total lettable area sqm 1,003,444 1,056,336 1,109,545 1,050,611 1,036,740 Weighted average property age Weighted average valuation cap rate WALE WARR1 Average value (per sqm) Average rent (per sqm, per annum) FY net property income Number of tenants years % years % $ $ $m no. 10.6 6.2 5.3 3.3 9.6 6.5 6.1 3.3 3,345 3,109 238 213.6 142 231 223.3 145 9.2 6.9 6.9 3.1 2,553 198 181.2 116 8.3 7.3 6.7 3.0 2,258 183 171.8 97 7.9 7.9 6.9 3.2 2,019 171 148.7 90 Annual rent review type2 (%) as at 30 June 2018 Tenant type (%) by income, as at 30 June 2018 Sector diversity (%) by property value, as at 30 June 2018 17 67 7 1 8 Fixed 2.00-2.99% Fixed 3.00-3.99% Fixed over 4.00% CPI CPI +1.00% 20 24 56 Listed company Government owned Private company & other Industrial Office 34 66 1. Assumes CPI change of 2.1% per annum as per Australian Bureau of Statistics released for FY18. 2. Leases that have a minimum lease increase, typically 3%, or CPI are shown as the minimum fixed rate for the above. Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information22 Growthpoint Properties Australia 2018 Annual Report Property Portfolio overview continued Tenant use (%) as at 30 June 2018 1222 32 61 Office Logistics / Distribution Manufacturing Retail Car parking Other Acquisition method (%) since inception, as at 30 June 2018 17 18 38 27 Direct (on-market) M&A Development fund through Direct (off-market) 2 6% Western Australia $211.7m – Industrial $211.7m Growthpoint Properties Australia 2018 Annual Report 23 Geographic diversity (%) by property value, as at 30 June 2018 Office properties Industrial properties (number of assets) 87% of properties located on Eastern seaboard 26% Queensland $876.9m – Office $632.0m – Industrial $244.9m 27% New South Wales $893.5m – Office $699.3m – Industrial $194.3m 5% Australian Capital Territory $167.5m – Office $167.5m 29% Victoria $971.4m – Office $601.8m – Industrial $369.6m 7 4 2 4 6 5 2 8 16 6% South Australia $208.4m – Office $82.0m – Industrial $126.4m 1 1% Tasmania $26.7m – Office $26.7m Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information24 Growthpoint Properties Australia 2018 Annual Report Office Portfolio Review Office portfolio key statistics (as at 30 June 2018) — $2,209.3 million total value — 286,430 sqm total lettable area — 6.0% weighted average capitalisation rate — 66% of total property portfolio — 98% occupancy — 5.5 year WALE — 3.5% WARR — 26 assets Tenants by Industry (%) by income, as at 30 June 2018 2 6 8 30 11 11 15 Government Resources, Infrastructure & Construction IT, Media & Telecommunications Financial Services Retail Other Consumer & Business Services Education Health 1. From October 2018. Geographic diversity (%) by property value, as at 30 June 2018 4 1 7 27 32 29 NSW QLD VIC ACT SA TAS Top ten office tenants by passing rent, as at 30 June 2018 WALE (yrs) % NSW Police 13 Commonwealth of Australia Country Road Group Samsung Electronics Lion ANZ Banking Group Jacobs Group Queensland Urban Utilities Fox Sports Monash University Total / weighted Average Balance of portfolio 8 6 4 4 4 4 3 3 3 52 48 5.9 7.8 13.9 3.7 5.8 1.7 7.0 4.8 4.5 2.5 6.4 4.4 Total portfolio 100 5.5 Summary Growthpoint’s office portfolio achieved valuation like-for-like growth of $132.4 million (6.4%) over FY18, additional leasing of 17,092 sqm and maintained occupancy at 98%. The main drivers for office demand remained positive in FY18, with solid employment growth and business confidence and conditions tracking above long run averages. Most major office markets recorded positive net absorption over the period, leading to downward pressure on incentives and rent growth in most Eastern seaboard office markets. Acquisitions After a significant transactional year in FY17, there were no direct office transactions made in the year to 30 June 2018. Post-balance date on 18 July 2018 Growthpoint entered into transaction documents for the acquisition of 836 Wellington Street, West Perth for $91.3 million reflecting a market yield of 6.25%. The property is 100% leased to the Commonwealth of Australia (Department of Home Affairs) with a remaining lease term of 8.3 years1 and annual fixed rent reviews of 3.75%. Built in 2009, the property is a modern A-Grade office building consisting of 11,973 sqm over 6 floors with 138 secured car bays. The building has strong environmental credentials with a 5.5 Star NABERS Energy rating and a 4 Star NABERS Water rating. FY18 was another successful period of leasing for Growthpoint with 6.0% of total office portfolio lettable area leased over the year. Highlights include: t Renewal of lease to Westpac Banking Corporation at 7 Laffer Drive, Bedford Park, South Australia for a further 7 years. The lease renewal to Westpac begins in July 2018 and comprises 6,343 sqm with fixed rent increases of 3.00% per annum. 17 Leasing Property team Andrew Kirsch Asset Manager Cathy Ciurlino Asset Manager Nathan Lansell Manager – Analytics & Valuations Growthpoint Properties Australia 2018 Annual Report 25 333 Ann Street, Brisbane, QLD Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information26 Growthpoint Properties Australia 2018 Annual Report Office Portfolio Review continued Leasing (continued) t Further leasing success at 333 Ann Street, Brisbane, Queensland brings total occupancy to 95%, from 44% at 30 June 2015. LGIA Super signed a new 10 year lease comprising 867 sqm in addition to extending their existing lease of 1,734 sqm by over 3 years. t A new lease at 109 Burwood Road, Hawthorn, Victoria to Flow Power who committed to 1,193 sqm for 5 years from March 2018. The lease to Flow Power provides for fixed rent increases of 3.75% per annum. Growthpoint’s major tenants in Buildings 1 and 2 within the Botanicca Corporate Park in Richmond, Country Road/David Jones, have commenced moving into their new national headquarters. Building 1’s fitout is complete and being occupied by 700 employees, while fitout works have commenced on Building 2 with completion expected in September 2018. Valuation Continued investor appetite for office assets along Australia’s Eastern seaboard and improving market rent fundamentals resulted in valuation increases across Growthpoint’s office portfolio. Since 30 June 2017, the value of the office property portfolio (excluding acquisitions and disposals) increased by $132.4 million or 6.4% on a like- for-like basis. The weighted average capitalisation rate across the office portfolio tightened from 6.3% to 6.0%. Valuation highlights include: t 109 Burwood Rd, Hawthorn, Victoria ($16.8 million or 18.8% increase); t Building 2, 572-576 Swan St, Richmond, Victoria ($9.7 million or 12.0% increase); and t 7 Laffer Dr, Bedford Park, South Australia ($4.5 million or 29.0% increase). Five year performance summary - office portfolio As at 30 June 2018 2017 2016 2015 2014 Portfolio value Total properties Weighted average cap rate % of Growthpoint portfolio Occupancy WALE $m no. % % % years 2,209.3 2,180.4 1,596.2 1,206.6 1,049.8 26 6.0 66 98 5.5 26 6.3 66 98 6.5 20 6.8 56 98 7.8 17 7.3 51 94 6.8 16 7.8 50 97 6.5 Total lettable area sqm 286,430 299,955 235,389 191,953 179,175 Average rent (per sqm, per annum) NPI WARR $ $m % 547 540 132.6 136.8 3.5 3.5 533 87.8 3.4 538 87.1 3.2 516 65.8 3.5 Portfolio lease expiry profile (%) per financial year, by income NPI per State / Territory ($m) for the year ended 30 June 2018 2.8 7.5 9.4 45.1 28 28 $132.6m 32.5 11 11 11 8 2 1 Vacant FY19 FY20 FY21 FY22 FY23 FY24 FY25+ 35.3 New South Wales Victoria Queensland Australian Capital Territory South Australia Tasmania Growthpoint Properties Australia 2018 Annual Report 27 Buildings B & C 211 Wellington Rd, Mulgrave Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information28 Growthpoint Properties Australia 2018 Annual Report Industrial Portfolio Review Industrial portfolio key statistics (as at 30 June 2018) — $1,146.8 million total value — 717,014 sqm total lettable area — 6.6% weighted average capitalisation rate — 34% of total property portfolio — 99% occupancy — 4.9 year WALE — 2.8% WARR — 31 assets Tenants by Industry (%) by income, as at 30 June 2018 6 12 25 57 Retail Logistics Manufacturing Other consumer & business services Geographic diversity (%) by property value, as at 30 June 2018 11 17 32 19 21 VIC QLD WA NSW SA Top ten industrial tenants by passing rent, as at 30 June 2018 Woolworths Linfox Australian Postal Corporation Brown & Watson International Paper Australia Reward Supply Co. The Workwear Group Autocare Services Symbion Total / weighted Average Balance of portfolio WALE (yrs) % 44 11 5 3 3 2 2 2 2 2 76 24 4.5 4.9 6.0 4.0 7.1 1.2 1.2 9.0 12.3 10.5 5.0 4.8 Total portfolio 100 4.9 Summary FY18 was a busy year for Growthpoint’s industrial portfolio, with a number of significant transactions and leasing activity contributing to a solid underlying performance. Industrial remains a highly sought-after segment of the property market, both from the perspective of tenancy with new online e-commerce business entering the market, and from domestic and offshore investors with an appetite for well-located assets. This high level of interest was reflected in another strong period of like-for-like valuation growth of $61.4 million, or 5.9%, excellent leasing outcomes to high quality tenants (over 115,340 sqm leased) and occupancy high at 99%. The main drivers of industrial demand remain largely positive, with solid export levels, strong population growth and continued growth in e-commerce retail. Plans for major infrastructure investment by State and Federal governments with a focus on transport infrastructure, particularly in New South Wales and Victoria is also expected to be a long- term driver of demand. Growthpoint was involved in two major industrial transactions over FY18, both of which generated positive outcomes for the Group: Sale of 522-550 Wellington Road, Mulgrave, Victoria In November 2017, Growthpoint announced it had entered into contracts for the sale of 522-550 Wellington Road, Mulgrave, Victoria for $90.75 million, representing a 37.7% premium to the 30 June 2017 book valuation of $65.9 million. The income yield on the sale price was a record 5.2% per annum for a Woolworths distribution centre. The sale of Mulgrave was a particularly favourable outcome for Growthpoint’s Securityholders and an endorsement of the Group’s highly desirable property portfolio. The sale was consistent with management’s stated intention which was to seek to realise material upside in the sale of assets with future development potential to a higher and better use. Acquisitions and Divestments Laminex Group Property team Andrew Fitt Senior Asset Manager Julian Smith Asset Manager Jeanette Otto Analyst Growthpoint Properties Australia 2018 Annual Report 29 10 Hugh Edwards Drive, Perth Airport, WA Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information30 Growthpoint Properties Australia 2018 Annual Report Industrial Portfolio Review continued Acquisitions and Divestments (continued) Acquisition of $46 million industrial portfolio at Perth Airport In July 2017, Growthpoint announced it had exchanged contracts for the acquisition of four adjoining, modern industrial warehouses at 36 and 58 Tarlton Crescent and 2 and 10 Hugh Edwards Drive, Perth Airport, Western Australia for $46 million, providing an initial passing yield of 8.13%. The properties are leased to high quality tenants, with an attractive WALE and were at a compelling yield relative to yields for recent comparable transactions on Australia’s Eastern seaboard. The assets are located near the Group’s sole existing property in Western Australia, being a Woolworths distribution centre at Perth Airport. Leasing Several significant leasing transactions were achieved in FY18, the highlights of which were: t In March 2018, the Group finalised a 5 year lease renewal to Australian Postal Corporation at 40 Annandale Road, Melbourne Airport, Victoria. The lease covers a lettable area of 44,424 sqm with 86 car spaces and annual rent increases of 3.75% t On 1 August 2017, the Group leased 101-111 South Centre Road, Melbourne Airport, Victoria to Direct Couriers. The 14,082 sqm office/ warehouse was leased for 10.2 years with annual rent increases to the greater of CPI and 3.5% Valuation The value of the industrial property portfolio increased by $61.4 million or 5.9% over FY18 on a like-for-like basis. The weighted average capitalisation rate across Growthpoint’s industrial property portfolio is 6.6% at 30 June 2018 down from 6.9% at 30 June 2017. Valuation highlights include: t 70 Distribution Street, Larapinta, Queensland ($15.0 million or 7.3% increase); t 20 Colquhoun Road, Perth Airport, Western Australia ($11.0 million or 7.2% increase); Five year performance summary - industrial portfolio As at 30 June 2018 2017 2016 2015 2014 Portfolio value Total properties Weighted average cap rate % of Growthpoint portfolio Occupancy WALE $m no. % % % years 1,146.8 1,103.4 1,236.3 1,165.9 1,043.9 31 6.6 34 99 4.9 32 6.9 34 100 5.2 38 7.1 44 100 5.9 36 7.3 49 100 6.5 35 8.0 50 99 7.3 Total lettable area sqm 717,014 756,381 874,156 858,658 857,565 Average rent (per sqm, per annum) NPI WARR $ $m % 116 81.1 2.8 110 86.5 2.8 109 93.4 2.7 104 84.7 2.7 99 82.9 2.9 Portfolio lease expiry profile (%) per financial year, by income NPI per State / Territory ($m) for the year ended 30 June 2018 38 9.3 33 11.7 30.5 $81.1m 12.5 17.1 Victoria Queensland Western Australia New South Wales South Australia 10 2 1 3 8 5 Vacant FY19 FY20 FY21 FY22 FY23 FY24 FY25+ t 599 Main North Road, Gepps Cross, South Australia ($5.6 million or 7.6% increase); and t 27-49 Lenore Drive, Erskine Park, New South Wales ($5.3 million or 8.3% increase). Growthpoint Properties Australia 2018 Annual Report 31 Perth CBD Perth Industrial Acquisition Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information32 Growthpoint Properties Australia 2018 Annual Report Board of Directors 4 1. Geoffrey Tomlinson (70) BEC 3. Maxine Brenner (56) BA, LLB 5. Grant Jackson (52) Assoc. Dip. Valuations, FAPI 7. Norbert Sasse (53) BCom (Hons) (Acc), CA (SA) Independent Director (since 19 March 2012) Independent Director (since 5 August 2009) Independent Chairman (since 1 July 2014) and Director (since 1 September 2013) Over 45 years’ experience in the financial services industry. Committees: Audit, Risk & Compliance and Nomination, Remuneration & HR Current Australian directorships of listed public companies1: IRESS Limited 2. Timothy Collyer (50) B.Bus (Prop), Grad Dip Fin & Inv, AAPI, F Fin, MAICD Managing Director (since 12 July 2010) Over 29 years’ experience in A-REITs and unlisted property funds, property investment, development and valuations. Current Australian directorships of listed public companies1: Nil Maxine has over 27 years’ experience in corporate advisory, mergers and acquisition, financial and legal advisory work. Committees: Audit, Risk & Compliance (Chair) Current Australian directorships of listed public companies1: Orica Limited, Origin Energy Limited and Qantas Airways Limited 4. Estienne de Klerk (49) BCom (Industrial Psych), BCom (Hons) (Marketing), BCom (Hons) (Acc), CA (SA) Director2 (since 5 August 2009) Over 21 years’ experience in banking and property finance and over 15 years’ in the listed property market. Committees: Audit, Risk & Compliance Current Australian directorships of listed public companies: Nil Over 32 years’ experience in the property industry, including 28 years as a qualified valuer. Director4 (since 5 August 2009) Over 22 years’ experience in corporate finance and over 15 years’ experience in the listed property market. Committees: Audit, Risk & Compliance Committees: Nomination, Remuneration & HR (Chair) Current Australian directorships of listed public companies1: Nil Current Australian directorships of listed public companies: Nil 6. Francois Marais (63) BCom, LLB, H Dip (Company Law) 8. Josephine Sukkar AM (54) BSc (Hons), Grad Dip Ed Director3 (since 5 August 2009) Over 27 years’ experience in the listed property market. Committees: Nomination, Remuneration & HR Current Australian directorships of listed public companies: Nil Independent Director (since 1 October 2017) Over 28 years’ experience in the construction industry. Committees: Nomination, Remuneration & HR Current Australian directorships of listed public companies: Nil In addition to Group entities. 1. 2. Not deemed independent as South African CEO of Growthpoint Properties Limited (GRT). 3. Not deemed independent as Chairman of GRT. 4. Not deemed independent as Group CEO of GRT. 1526378Growthpoint Properties Australia 2018 Annual Report 33 Independent Directors Board diversity Board expertise matrix (no.) Independence Listed entity Property industry Property valuation Accounting Corporate finance Financial Services Corporate Governance Legal Compliance Audit Risk Full bios on all Directors can be found online at www.growthpoint.com.au/ about/board/ A4, 52 Merivale Street, South Brisbane, QLD Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information34 Growthpoint Properties Australia 2018 Annual Report Executive Management 1 Timothy Collyer B.Bus (Prop), Grad Dip Fin & Inv, AAPI, F Fin, MAICD Managing Director (since 12 July 2010) Over 29 years’ experience in A-REITs and unlisted property funds, property investment, development and valuations. 2 Michael Green B.Bus (Prop) Chief Investment Officer Over 16 years’ experience in listed and unlisted property fund management, property investment and development. 3 Dion Andrews B.Bus, FCCA, MAICD Chief Financial Officer, Company Secretary (since 8 May 2014) Over 17 years’ experience in accounting roles in a corporate capacity. 4 Yien Hong1 LLB (Hons), B.Comm, B.Arts, MAICD General Counsel & Company Secretary (since 13 April 2018) Over 20 years’ experience across debt finance, property, funds, M&A, structured finance, derivatives and project finance as well as risk management and governance. Full bios on all Executive Management can be found online at growthpoint. com.au/about/executive- management/ 1. Yien Hong has been appointed Company Secretary and General Counsel on a 12-month contract while Aaron Hockly is on parental leave. He is expected to return on 13 April 2019. 1324Growthpoint Properties Australia 2018 Annual Report 35 Building C, 219-247 Pacific Highway, Artarmon, NSW Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information36 Growthpoint Properties Australia 2018 Annual Report Building C, 211 Wellington Road, Mulgrave, VIC Remuneration report Letter from the Chair of the Nomination, Remuneration and HR Committee Dear Securityholders, On behalf of the Board of Growthpoint Properties Australia, I am pleased to present our FY18 Remuneration Report. Our remuneration structures have been designed to align compensation for Key Management Personnel (KMP) with both financial and non-financial outcomes of the Group as they relate to strategy and performance. This framework has been established with the intention of generating the best long-term outcomes for Growthpoint’s Securityholders, its employees and the community. The primary objective of the Group remains to provide investors with a growing income stream and long-term capital appreciation. Remuneration of KMP at Growthpoint is therefore tied closely to the success in achieving these objectives in a sustainable way. Pleasingly, the FY18 remuneration report reflects another year of strong growth in Securityholder returns. Declared distributions over FY18 amounted to 22.2 cents per security, representing 3.3% growth on FY17. This, coupled with strong share price growth over the year delivered Securityholders with Total Securityholder Return (TSR) of 22.3%1 to 30 June 2018, exceeding the ASX A-REIT 300 Accumulation Index return of 13.2%1. This continues a long period of outperformance on this metric for the Group, as can be seen from the graph at right. Funds From Operations (FFO) over the year was also strong at 25.0 cents per security following upgrades to guidance in October 2017. While FFO per security reduced by 2.0% versus FY17, this largely related to a “spike” in the prior year due to the timing of the takeover of the GPT Metro Office Property Fund. The Board recognises the Group’s ability to continue growing distributions for Compound annual growth rates (CAGR) Securityholders relies predominantly on its ability to continue growing earnings, and growth in these financial outcomes will continue to be linked as they have been over the long-term. The table below provides medium to long-term growth rates for FFO and distributions per security. The Board is also pleased to report strong sustainability outcomes over the year. Our GRESB score for 2017 increased by 18.5% over the 2016 achievement. The Group also delivered an above-average CDP score of B. More information on the Group’s performance on sustainability can be found in the FY18 Sustainability Report. What’s changed There was little change in the remuneration framework between FY17 and FY18, with only the performance criteria of the non-financial component of the KMP Short-Term Incentive (STI) changing. The reasons for this change 40 are discussed in the section on STI on page 40. While feedback on Growthpoint’s remuneration framework continues to be positive, to ensure the Group is maintaining pace with best practice across the sector, PwC were asked as part of their annual engagement to review the existing executive remuneration framework and provide alternative remuneration frameworks for consideration by the Nomination, Remuneration and HR Committee (the Committee) for FY19 and beyond. This analysis included a high-level overview of business metrics used by competitors as well as the broader market. The Committee has recommended to implement three key changes having regard to the PwC analysis for the Group’s FY19 remuneration structure. FY13 FY16 FY18 2 year CAGR 5 year CAGR FFO per security (cents) Distribution per security (cents) 19.4 18.3 22.9 20.5 25.0 22.2 4.5% 4.1% NTA per security (cents) 200.0 261.0 320.0 10.7% 5.2% 3.9% 9.9% 1. Source: UBS Investment Research: Annual compound returns to 30 June 2018. Growthpoint Properties Australia 2018 Annual Report 37 Strong growth in Securityholder returns (%)1 22.3 16.2 12.2 13.2 11.8 10.0 1 year 3 years compound 5 years compound Growthpoint TSR ASX300-REIT Index TSR These are: t Change the backward-looking LTI structure to a forward-looking structure to align more closely with market practice; t Introduce deferral for part of the STI awarded to KMP, with two thirds paid as cash and one third paid in Performance Rights which vest over two years; and t Introduce a Minimum Securityholding Requirement (MSR) whereby Non- Executive Directors are required to hold 100% of their base fees, the Managing Director 100% of Total Fixed Remuneration (TFR) and other KMP 50% of their TFR in Growthpoint securities. The Committee believes these changes will further align compensation of KMP with the interests of Securityholders. More details on each of these changes are included in the relevant sections of this Remuneration Report. The Committee and the Board remain committed to implementing remuneration policies that incentivise management to carry out the strategy of the Group in the best long-term interests of Securityholders. Norbert Sasse Chair - Nomination, Remuneration and HR Committee Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information38 Growthpoint Properties Australia 2018 Annual Report Remuneration report What’s inside Executive and employee remuneration for FY18 Short-Term incentives Long-Term incentives Non-executive director remuneration FY19 remuneration (unaudited) Other information Nomination, Remuneration and HR Committee Executive Director Remuneration and Service Contract Director and Senior Executive reviews 38 40 43 46 47 49 49 51 52 About the Remuneration Report The Directors present this “Remuneration Report” for the Group for the year ended 30 June 2018. This report summarises key compensation policies and provides detailed information on the compensation for Directors and other KMP. The specific remuneration arrangements described in the report apply to the Managing Director and the KMP as defined in AASB 124 and to the Company Secretaries as defined in section 300A of the Corporations Act 2001 (Cth). Growthpoint’s remuneration practices substantially comply with best practice governance guidelines, as per ASX corporate governance principles and recommendations, as outlined on page 43 of the 2018 Sustainability report. 43 Executive and employee remuneration for FY18 There are currently 24 Employees (“Employees”) of the Group, including the Managing Director and 3 other Key Management Personnel (“KMP”). Remuneration paid and payable Executive remuneration FY18 (%) 39 47 The total remuneration paid or payable to the Employees who are KMP for FY18 is listed on page 39 of this report and the proposed remuneration parameters for FY19 are on page 47. Principles of remuneration for Employees The principles of remuneration for Employees are: 1. Employees should receive total remuneration which is competitive with rates for similar roles with listed and unlisted Australian entities having regard to each person’s skills and experience, value to the Group and workload of the particular role and the industry in which the Group operates. 2. The total remuneration for Employees should be set at a level to attract and retain suitably qualified and experienced persons in each respective role and tailored to encourage overall performance of the Group which is in the best interests of all Securityholders. 3. The components of remuneration for each Employee are: a. total fixed remuneration (including applicable superannuation); Managing Director At Risk 19% 43% 38% Other Key Management Personnel b. if specified performance criteria are met, eligibility to receive a short-term incentive (“STI”) bonus payable in cash in respect of each financial year as determined by At Risk 41 the Managing Director and/or the Committee up to a maximum amount set by the Board. Refer to the table on page 41 for measures for the FY18 STI and the FY17 STI; c. long-term incentive (“LTI”) plan under which, upon meeting specified criteria, each Employee is eligible to receive securities in the Group that vest over time to help ensure alignment of each Employee’s interests with those of Securityholders; d. life, TPD and income protection insurance cover payable to the Employee; and e. annual, personal, long-service and other leave to the extent required by law or under any Group policy. 19% 32% 49% Fixed Fixed Fixed At risk - cash At risk - equity Growthpoint Properties Australia 2018 Annual Report 39 4. Employees are not eligible for any additional fees for additional roles within the Group such as acting as an officer of the Company or being a responsible manager under the Company’s AFSL. 5. Employees who are not KMP are not currently required to hold any securities in the Group but are encouraged to do so. At the date of this Report, most Employees hold securities in the Group. From 1 July 2018, the Committee implemented a Minimum Securityholding Requirement (MSR) for KMP (refer to page 89 for details of KMP’s current holdings and details of the MSR). 89 6. Employees are entitled to receive certain payments including the vesting of all unvested securities under the LTI if the Company decides to terminate a position without cause including through redundancy. Total KMP remuneration FY18 and FY17 Short-term Post employment Share based payments Period Salary and fees Cash bonus1 Non- monetary benefits Super- annuation benefits Other long-term3 Termination benefits Options and rights $ $ $ $ Timothy Collyer (Managing Director) FY18 909,189 1,035,893 1,431 25,000 FY17 868,275 696,983 1,378 30,000 $ – – $ $ – 464,706 2,436,219 – 543,951 2,140,587 25,000 9,368 – 150,020 771,940 Aaron Hockly2 (Chief Operating Officer) FY18 345,258 242,294 FY17 320,175 162,356 Dion Andrews (Chief Financial Officer) FY18 347,930 242,294 FY17 320,175 157,436 Michael Green (Chief Investment Officer) FY18 353,334 245,805 FY17 325,250 157,436 – – – – – – 30,000 25,000 30,000 25,000 30,000 Total FY18 1,965,079 1,766,286 1,431 100,000 FY17 1,833,875 1,174,211 1,378 120,000 – – – – – – – – 161,984 674,515 – 148,590 763,814 – 158,601 666,212 – 150,232 774,371 – 159,781 672,467 – 913,548 4,746,344 – 1,024,317 4,153,780 1. Refers to when cash bonus was paid although it relates to the previous financial year. 2. Aaron Hockly’s FY18 salary was paid until the start of his parental leave on 14 April 2018. He was paid an additional 12 weeks salary under the Group’s paid parental leave policy at that time. He is expected to return on 13 April 2019. In his absence, Yien Hong has been appointed Company Secretary and General Counsel on a 12-month contract. 3. Refers to long service leave taken. Total $ S300A (1) (e) (i) proportion of remuneration performance related % 62% 58% 51% 48% 51% 47% 51% 47% 56% 53% Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information  40 Growthpoint Properties Australia 2018 Annual Report Remuneration report continued Short-Term Incentives (“STI”) In advance of each financial year the Committee, in consultation with the Managing Director, and with assistance from remuneration consultants, establish performance targets and reward levels for STIs in respect of the year ahead. STI assessment is divided into two categories for: 1. Executive Management Team (EMT). The EMT comprises the Managing Director and other KMP 2. Employees A performance review is undertaken near the end of each financial year to determine if any STI should be payable to an employee, respectively, including the Managing Director, based on performance targets set at the start of the financial year. Any award of STI to the Managing Director requires Board approval. STI payments are made in August following the financial year in which they were earnt. Key change in FY19 From FY19 onwards, the EMT STI will change, from 100% payment in cash to 66.6% payment in cash, with the remainder deferred and awarded as rights in Growthpoint securities. Half of these rights will vest after one year and half after two years following the date of issue. If the EMT member resigns before a vesting period ends, the relevant rights do not vest and are forfeited. The rights will receive distributions paid by the Group equivalent to the distribution that would have been received if holding a security. Such payment is to be made in cash on the same date such distribution is payable. No STI deferral applies to other employees. This change has been made to further align EMT and Securityholder interests. 1. EMT STI Criteria The STI is divided into two criteria, namely; a) Financial criteria – 70% of total The financial criteria is based upon achieving budgeted FFO per security (23.7cps for FY18 providing a 50% score) with the opportunity for outperformance, up to 125% achievement, of criteria via a “stretch target” for FFO per security in excess of budget (up to 24.9 cps which is 5.1% above the budgeted figure). If FFO per security is below budget, the Board has discretion whether to grant achievement under the financial criteria. For FY18 the achievement was 125% for the financial criteria due to achievement of 25.0 cps. b) Non-financial criteria – 30% of total 41 The non-financial criteria are based upon the performance criteria in the table on page 41. The criteria are reviewed and approved by the Committee before the start of the financial year and then reviewed on a half yearly basis, with an overall assessment approved by the Committee following the end of the financial year. The half year review involves the Chairman of the Group and the Managing Director jointly analysing actual performance against the criteria and preparation of a report to the Committee. Key change in FY18 Changes were made to the non-financial criteria of EMT STI for the FY18 outcome following a review by the Committee. These changes have been made to further align the STI component of KMP remuneration with the goal of growing Securityholder distributions sustainably over time. The new non-financial criteria have been chosen based on their link to the Group’s strategy and improved measurability. 48 These non-financial performance measures were included as part of PwC’s broader review of Growthpoint’s remuneration structures. Changes to the FY19 measures are outlined on page 48 of this report. EMT achieved 95.8% of their maximum possible STI for 2018 against 99.6% achievement in FY17. 2. Employee STI Criteria Employees, other than the EMT, have their STI determined based upon individual performance reviews, achievement of individual key performance indicators (KPIs) and their personal contribution to the Group’s success throughout a financial year. The STI amounts are determined by either the Managing Director or the Committee based on recommendations by the Managing Director. Growthpoint Properties Australia 2018 Annual Report 41 Performance criteria for STI for FY18 Performance criteria Weighting of total STI FY18 performance measures Segment Sum Achievement of Performance criteria weighted out of 100% Performance criteria weighted out of 100% Achievement of weighting of total STI Segment Sum Financial Of 70.0% weighting of STI FFO per security 70.0% 1. Budget 23.7cps = 50%, stretch 24.9cps = 125% 100.0% 125.0% 87.5% Non-financial Of 30.0% weighting of STI Sustainability of increases in distributions 7.5% Reposition and diversify portfolio 6.3% Enhance existing assets 9.6% 30% Securities liquidity and freefloat 1.2% Debt capital management 2.4% Operate sustainably 3.0% 1. Growth in distributions, both year on year and in comparison with ASX300-AREIT average (excluding GMG) 2. WARR comparison year on year 3. Acquisitions which enhance or secure income 4. Operating cost at or below budget on a like for like basis 1. Reposition of existing portfolio towards specified sectors and geographies 2. Asset acquisitions 3. Asset disposals 1. Leasing and renewals 2. Tenant interaction 3. Capex and value enhancement 4. Development and change of use 1. Inclusion in indices 2. Increase in equity where appropriate 3. Increase in freefloat 4. Increase in liquidity 1. Maintain gearing within Board range 2. Maintain diversity in sources and tenor of debt 3. Additional debt capital issuance if appropriate 4. Ensure fixed debt is within Board range 1. Achievement against stated sustainability objectives 2. GRESB and CDP scores 3. Focus on long-term value over short-term 4. Improve integration of sustainability practices within business operations 25.0% 24.0% 6.8% 21.0% 17.0% 5.1% 32.0% 27.0% 6.0% 25.1% 4.0% 2.5% 0.6% 8.0% 6.0% 2.1% 10.0% 7.0% 2.3% Total non-financial score 100.0% 83.5% Weighting of total STI 100% Achievement of weighting of total STI 112.6% Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information42 Growthpoint Properties Australia 2018 Annual Report Remuneration report continued The table below relates to FY18 STI, but will be paid in FY19 and so will appear in the 2019 Annual Report remuneration tables. Short-term incentives payable to EMT in August 2018 Timothy Collyer (Managing Director) Financial Non-financial Non-financial Non-financial Non-financial Non-financial Non-financial Increase in FFO per security against budget Sustainability of Increases in distributions Reposition and diversify portfolio Enhance existing assets Securities liquidity and freefloat Debt capital management Operate sustainably Aaron Hockly (Chief Operating Officer)1 Financial Non-financial Non-financial Non-financial Non-financial Non-financial Non-financial Increase in FFO per security against budget Sustainability of Increases in distributions Reposition and diversify portfolio Enhance existing assets Securities liquidity and freefloat Debt capital management Operate sustainably Dion Andrews (Chief Financial Officer) Financial Non-financial Non-financial Non-financial Non-financial Non-financial Non-financial Increase in FFO per security against budget Sustainability of Increases in distributions Reposition and diversify portfolio Enhance existing assets Securities liquidity and freefloat Debt capital management Operate sustainably Michael Green (Chief Investment Officer) Financial Non-financial Non-financial Non-financial Non-financial Non-financial Non-financial Increase in FFO per security against budget Sustainability of Increases in distributions Reposition and diversify portfolio Enhance existing assets Securities liquidity and freefloat Debt capital management Operate sustainably 1. Pro rata to 14 April 2018, the date Mr. Hockly went on parental leave. FY18 Max FY18 actual1 $ $ 805,350 805,350 69,030 57,985 88,358 11,045 22,090 27,612 66,269 46,940 74,552 6,903 16,567 19,328 1,081,470 1,035,909 176,955 15,168 12,741 19,415 2,427 4,854 6,067 237,627 176,955 14,561 10,314 16,381 1,517 3,640 4,247 227,615 225,048 225,048 19,290 16,203 24,691 3,086 6,173 7,716 18,518 13,117 20,833 1,929 4,630 5,401 302,207 289,476 228,309 228,309 19,569 16,438 25,049 3,131 6,262 7,828 18,787 13,307 21,135 1,957 4,697 5,479 306,586 293,671   Growthpoint Properties Australia 2018 Annual Report 43 Long-Term Incentives (“LTI”) The Group has had an Employee Securities Plan (“the Plan”) in place for all Employees and the Managing Director since 2011. The Plan is designed to link Employees’ remuneration with the long-term goals and performance of the Group with the aim of consistently increasing total Securityholder return. All securities issued under the LTI are issued on a zero-cost basis. In other words, the EMT and Employees are issued securities as part of their remuneration without having to pay any amounts for them. LTI performance measures The performance measures for the LTI are reviewed in advance of each financial year by the Committee and/or the Board. The performance measures for the LTIs for FY15, FY16, FY17 and FY18 are1: a) Total Securityholder returns (“TSR”) – Weighting 50% TSR reflects the amount of dividends or distributions paid/payable by the Group plus the change in the trading price of the Group’s securities over the financial year. TSR is calculated as a percentage return on the opening trading price of the Group’s securities on the first day of the financial year. TSR is benchmarked relative to the S&P/ASX A-REIT 300 Accumulation Index2 over a rolling 3-year period. At or below 50% performance, nil rights vest, 50% of rights vest at the 51st percentile, up to 100% at the 75th percentile (pro rata vesting in between). b) Return on equity (“ROE”) – Weighting 50% ROE reflects the amount of dividends or distributions paid/payable by the Group plus the change in the Group’s net tangible assets per security over the financial year. ROE is calculated as a percentage return on the Group’s net tangible assets per security as at the first day of the financial year. ROE is benchmarked relative to the ROEs of constituents of the S&P/ASX A-REIT 300 Index2 over a rolling 3-year period using the following methodology: t Below the benchmark return - 0%. t At the benchmark - 50%. t 0.1% - 1.9% above the benchmark – 51.25% - 75% in increments of 1.125% for each 0.1% above the benchmark t 2% or more above the benchmark - 100%. LTI Maximum In advance of each financial year, the Board and/or the Committee will establish an LTI pool in respect of the upcoming financial year and determine the maximum incentive which can be achieved by each Employee (“LTI Maximum”). Under the terms of his employment contract, the Managing Director’s LTI Maximum is 80% of total fixed remuneration (“TFR”). The LTI Maximum for other KMP is 70% of 44 47 TFR. Other Employees currently have an LTI Maximum of 20%-30% of TFR. Refer to the table on page 44 for details of TFR for senior executives for FY17 and FY18 and to page 47 for details of proposed TFR for senior executives for FY19. LTI Minimum There is no minimum grant under the LTI. Accordingly, if minimum performance measures are not achieved, no grant will be made under the LTI. LTI Achievement In early October of each year, the Committee assesses the achievement of the performance measures listed above to determine a percentage achieved for the previous financial year (“LTI Achievement”). LTI Awards The LTI Maximum multiplied by the LTI Achievement provides the “LTI Award” for each employee for the relevant financial year. The LTI Award is translated into an equivalent value of the Group’s securities through dividing the LTI Award by the volume weighted average price of the securities over the 20 trading days prior to 30 September following the financial year to which the LTI relates. This gives a total number of securities to be issued to each Employee for each subsequent vesting. 25% of the securities to be issued to each Employee based on the LTI Award are issued to each Employee in October or November of each of the following four years. Each such vesting is subject to the Employee remaining employed by Growthpoint at the relevant date subject to certain contractual exceptions such as a redundancy and in the discretion of the Board (e.g. in the case of a “good leaver”). 1. Prior to FY15, an additional measure, “Distributable Income”, was used. However, this now forms part of the STI and so has been removed from the LTI. Readers can refer to previous annual reports available on the Group’s website if they require information in relation to previous LTIs. 2. The benchmark only includes those constituents of the ASX REIT 300 that have a comparable trading history. For example, it they have listed, merged or demerged within three years they are excluded. Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information44 Growthpoint Properties Australia 2018 Annual Report Remuneration report continued As each grant is on the basis of a fixed number of securities rather than a fixed value, Employees are exposed to variations in the Group’s security price for securities which are yet to vest (as well as for any securities they already hold). The LTI is cumulative meaning that Employees can receive up to four issues of securities in a particular year in respect of four prior financial years. Subject to some exceptions, securities immediately vest in the case of a takeover of the Group or an Employee being made redundant. ASX Listing Rules In accordance with ASX Listing Rule 10.14, the issue of any stapled securities to the Managing Director is subject to Securityholder approval. It is intended that such approval be obtained at the Group’s annual general meeting each year and, if approved, stapled securities be issued shortly after the relevant meeting. FY18 Achievement The LTI Maximum for the Managing Director and other KMP for the year ended 30 June 2018 is below. The FY18 LTI Achievement cannot be calculated until the release of the benchmark data for the year ended 30 June 2018 so an estimated fair value at issue date is provided. The estimated LTI Achievement is included in an equity reserve in the year to 30 June 2018, pro-rated over the period to which any securities under the LTI are issued. LTI maximum for KMP FY18 LTI Maximum of TFR LTI Maximum LTI Estimate LTI Maximum of TFR LTI Maximum Timothy Collyer (Managing Director) Aaron Hockly (Chief Operating Officer) Dion Andrews (Chief Financial Officer) Michael Green (Chief Investment Officer) % 80 70 70 70 $ $ 736,320 257,198 257,198 260,925 1,511,641 368,160 128,599 128,599 130,463 755,821 FY17 LTI Actual $ 700,920 239,085 239,085 242,550 % 80 70 70 70 $ 708,000 241,500 241,500 245,000 1,436,000 1,421,640 LTI Estimate 50% LTI Actual 99% As there is no minimum LTI Award, if none of the benchmarks were achieved for FY18, the LTI Award would be $0. Hedging of issues by Employees Under the Group’s “Securities Trading Policy” persons eligible to be granted securities as part of their remuneration are prohibited from entering a transaction if the transaction effectively operates to hedge or limit the economic risk of securities allocated under the incentive plan during the period those securities remain unvested or subject to restrictions under the terms of the plan. Worked example of LTI (unaudited) Sam Sample is a manager at Growthpoint with a TFR of $100,000. His TFR has not changed for three years and his LTI Maximum is $30,000 (being 30% of his TFR). The LTI Achievement for the financial years since his employment commenced were: 1. FY13 – 98.6% of $30,000 = $29,580 2. FY14 – 80.0% of $30,000 = $24,000 3. FY 15 - 78.0% of $30,000 = $23,400 The volume weighted average price for the 20 trading days prior to 30 September 2015 was $3.12. As a result, Mr Sample would have been eligible to receive 6,168 Growthpoint Properties Australia securities in October 2015 comprising the following LTI Awards: 1. FY13 – 2,370 ($29,580/$3.12/4) 2. FY14 – 1,923 ($24,000/$3.12/4) 3. FY15 – 1,875 ($23,400/$3.12/4)   Growthpoint Properties Australia 2018 Annual Report 45 Details of Performance Rights that vested to KMP in FY18 Plan participants Plan identification Issue date Value of securities issued on conversion of performance rights Number of securities issued on conversion of performance rights Value of performance rights still to vest Percentage of plan that vested during FY18 $ No. $ Timothy Collyer (Managing Director) FY17 Plan 23/11/17 FY16 Plan 4/10/17 FY15 Plan 4/10/17 Aaron Hockly (Chief Operating Officer) Dion Andrews (Chief Financial Officer) Michael Green (Chief Investment Officer) FY14 Plan FY17 Plan FY16 Plan FY15 Plan FY14 Plan FY17 Plan FY16 Plan FY15 Plan FY14 Plan FY17 Plan FY16 Plan FY15 Plan FY14 Plan 4/10/17 4/10/17 4/10/17 4/10/17 4/10/17 4/10/17 4/10/17 4/10/17 4/10/17 4/10/17 4/10/17 4/10/17 4/10/17 175,231 83,427 129,540 128,653 59,771 24,292 29,813 29,240 59,771 23,557 28,035 27,151 60,639 23,557 28,035 27,151 55,104 26,235 40,736 40,457 18,796 7,639 9,375 9,195 18,796 7,408 8,816 8,538 19,069 7,408 8,816 8,538 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Total 937,865 294,926 % 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 Number of performance rights held by EMT at 30 June 2018 FY18 Names 1 July 2017 Granted Vested 30 June 2018 Timothy Collyer (Managing Director) Aaron Hockly (Chief Operating Officer) Dion Andrews (Chief Financial Officer) Michael Green (Chief Investment Officer) Key change 200,634 220,416 (162,532) 258,518 50,862 48,394 48,394 75,184 75,184 76,276 (45,005) (43,558) (43,831) 81,041 80,020 80,839 Following the PwC review of the Group’s remuneration structures the Committee decided to move the current LTI structure from a “backward looking” measurement period to a “forward looking” structure. For FY19, instead of measuring the 3-year period from 1 July 16 to 30 June 2019 and determining relative TSR and ROE for that period, the assessment period will instead be 1 July 2018 to 30 June 2021. The same relative TSR and ROE measures will be used with the same hurdle rates. Once the assessment of performance is complete, 100% of performance right will vest (i.e. in three years time). There will be a transition period between when the current plans cease and the new plans become fully effective (no vesting under the new plan can occur until after the measurement of the first three-year performance period ending 30 June 2021 is complete). The Group will continue to operate “backward looking” LTI plans in the transition period with steadily reducing opportunities under each plan until they are phased out completely with the first vesting under the new structure. The Committee asked PwC to review these transitional arrangements and they found that there is no advantage/disadvantage of the transitioned arrangements to either the Group or the Employees. The reason for this change is simply to bring the structure of the LTI measurement into line with general market practice. Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information46 Growthpoint Properties Australia 2018 Annual Report Remuneration report continued Non-executive Director Remuneration There are currently seven Non-Executive Directors. An aggregate pool of $1,200,000 available for the remuneration of Non-Executive Directors was approved by Securityholders at the Company’s Annual General Meeting in November 2017. Remuneration paid and payable 47 The total remuneration paid to Non-Executive Directors for FY18 is listed below and the proposed FY19 remuneration is on page 47. Principles of remuneration for Non-Executive Directors The principles of non-executive director remuneration are: 1. Non-Executive Directors should receive total remuneration at market rates for equivalent positions at listed Australian entities of similar size (measured by market capitalisation and gross assets), complexity and Non-Executive Director workload having regard to the industry in which the Group operates. 2. Fees are set at a level to attract and retain suitably qualified and experienced persons to the Board. 3. The Chairman is entitled to a base annual fee and is not eligible for any additional fees for chairing or being a member of any Board committees. 4. All Non-Executive Directors other than the Chair are entitled to a base annual fee plus additional fees for being a Chairman or a member of a committee. 5. All Non-Executive Directors’ fees are paid on a base fee basis rather than per meeting. 6. All Non-Executive Directors’ fees are to be paid in cash and include superannuation where applicable. Where Australian GST is applicable, this is paid in addition to the relevant director’s fees. 7. 89 From 1 July 2019, Non-Executive Directors are required to hold a certain amount of securities in the Group. Refer to page 89 for details of Director holdings at the date of this Report, as well as details on the MSR. 8. Non-Executive Directors are not entitled to any termination or similar payments upon retirement or other departure from office. 9. In addition to remuneration, Non-Executive Directors may claim expenses such as travel and accommodation costs reasonably incurred in fulfilling their duties. 10. With the prior approval of the Chairman, Non-Executive Directors may obtain independent advice at the Company’s cost. Non-executive Director Remuneration Short-term Post employment Geoff Tomlinson, Chair (appointed 1 September 2013) Grant Jackson (appointed 5 August 2009) Francois Marais (appointed 5 August 2009) Norbert Sasse (appointed 5 August 2009) Estienne de Klerk (appointed 5 August 2009) Maxine Brenner (appointed 19 March 2012) Josephine Sukkar (appointed 1 October 2017) Total Period FY18 FY17 FY18 FY17 FY18 FY17 FY18 FY17 FY18 FY17 FY18 FY17 FY18 FY17 FY18 FY17 Fees $ 179,027 170,502 91,618 88,950 100,322 97,400 100,322 97,400 100,322 97,400 91,618 88,950 68,714 – 731,944 640,602 Committee Fees Superannuation benefits $ – – 10,911 10,594 10,609 10,300 15,960 15,200 11,948 11,600 18,342 17,808 7,266 – 75,037 65,502 $ 17,008 16,198 9,740 9,457 – – – – – – 10,446 10,142 7,218 – 44,412 35,796 Total $ 196,035 186,700 112,269 109,001 110,931 107,700 116,282 112,600 112,270 109,000 120,406 116,900 83,198 – 851,393 741,900   Growthpoint Properties Australia 2018 Annual Report 47 FY19 remuneration (unaudited) To assist readers of this Report to understand how Directors and Employees are remunerated for the year ahead and to understand the performance the board and the Committee are trying to encourage through remuneration, FY19 remuneration has been provided below. This information is in addition to that required by the Corporations Act 2001 (Cth) and, as a result, has not been audited. Remuneration listed below is subject to a range of factors including persons remaining employed by the Company in their current role for all of FY19. FY19 Remuneration (unaudited) Chairman Geoff Tomlinson Non- Executive Directors Managing Director Timothy Collyer Chief Operating Officer Aaron Hockly Chief Financial Officer Dion Andrews Chief Investment Officer Michael Green Total fixed remuneration including superannuation ("TFR") Short-term Incentive (maximum) Long-term Incentive (maximum) $203,876 (4.0% increase from FY 18) Nil $104,335 (base fee 4.0% increase from FY 18) plus fees for acting as: Nil Nil Nil Termination notice (without cause) Termination Payments (without cause for redundancy or similar by the Company) Restraint of trade period Nil Nil Nil Nil Nil Nil Other Benefits Nil Ineligible for additional committee fees Nil – Chair - Audit, Risk & Compliance Committee - $22,094 (10.0% increase) – Member - Audit, Risk & Compliance Committee - $13,143 (10.0% increase) – Chair - Nomination, Remuneration & HR Committee - $18,354 (15.0% increase) – Member - Nomination, Remuneration & HR Committee - $11,670 (10.0% increase) $943,410 (2.5% increase from FY 18) 117.5% of TFR 80% of TFR – Gym membership – Payment of up to 1.5% of TFR in lieu of premium for Life, TPD and Income Protection Cover Six months' notice Nine months' notice and Redundancy Policy benefits. Unvested LTI grants remain on foot 12 months $378,448 (3.0% increase from FY 18)1 82.3% of TFR 70.0% of TFR Payment of up to 1.5% of TFR in lieu of premium for Life, TPD and Income Protection Cover $400,000 (8.9% increase from FY 18) 82.3% of TFR 70.0% of TFR Payment of up to 1.5% of TFR in lieu of premium for Life, TPD and Income Protection Cover $400,000 (7.3% increase from FY 18) 82.3% of TFR 70.0% of TFR Payment of up to 1.5% of TFR in lieu of premium for Life, TPD and Income Protection Cover Various Other Management Staff 30.0% of TFR 30.0% of TFR Payment of up to 1.5% of TFR in lieu of premium for Life, TPD and Income Protection Cover Other Staff Various 20.0% of TFR 20.0% of TFR Payment of up to 1.5% of TFR in lieu of premium for Life, TPD and Income Protection Cover 1. Increase based on full year FY18 pay. Six months' notice Six months' notice Six months' notice One month (By either party) One month (By either party) 6 months 6 months 6 months 3 months 0-3 months Redundancy Policy benefits plus vesting of any granted but unvested options under LTI Redundancy Policy benefits plus vesting of any granted but unvested options under LTI Redundancy Policy benefits plus vesting of any granted but unvested options under LTI Redundancy Policy benefits plus vesting of any granted but unvested options under LTI Redundancy Policy benefits plus vesting of any granted but unvested options under LTI Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information48 Growthpoint Properties Australia 2018 Annual Report Remuneration report continued LTI The structure of the LTI for FY19 has changed from FY18 to move to a forward-looking plan. There will be a reduced opportunity backward looking LTI plan in place as part of the transition to the new forward-looking plans. This will have the same structure as the FY18 LTI, except the opportunity under the plan will be 50% rather than 100%. Refer to page 48 for details about the LTI for FY18 backward looking plan and, accordingly, the FY19 LTI backward looking plan. The measures for the forward-looking plan and their hurdles are identical to the backward looking plans. For further explanation of this change, see the section “key change” on page 45. The figures included in the table on page 47 are the maximum available for award under this scheme in respect of FY19. 45 47 STI For the EMT, an STI award may be payable in respect of FY19 based on the following measures: 1) Financial criteria – 70% (subject to a stretch target) The financial criteria is based upon achieving or outperforming budgeted Funds From Operations (“FFO”) per security for the financial year. 2) Non-financial measures – 30% – comprising the matters below The Committee again reviewed non-financial measures for EMT based on market feedback and the PwC review of remuneration structures. The changes to these criteria were based on simplification (reducing the overall number of measures) and introducing an individual measure to the assessment. The agreed criteria for FY19 and their weightings are as follows: Performance Criteria FY19 performance measures Reason chosen Execution of Business Strategy – Delivery of development pipeline of Botanicca, Gepps Cross and Broadmeadows – Undertake strategic acquisition and disposition of property assets to maximise income and capital growth opportunities – Maintain the quality of property portfolio whilst operating within the framework of the Group’s gearing range, cost of capital and yields available in the property market Development and delivery of key strategic initiatives will deliver long- term and sustainable growth Weighting 7.5% Organisational Performance – Maintain a high employee engagement score – Delivery of IT, compliance and risk management business excellence projects – Retain talented individuals in roles and provide for advancement within the Group Creating a talented and engaged team and providing them with the right functionality to support Growthpoint will underpin ongoing high performance 7.5% Environmental, Social and Governance (ESG) Improvement and Initiatives – Promote and achieve diversity targets – Maintain average high NABERS ratings, undertake budgeted property specific energy reduction projects and develop long-term energy reduction strategy – Maintain investment grade credit rating Individual Performance of Executive – Execution of key strategies to achieve annual budget/ guidance and longer-term earnings growth – Role model values, leadership behaviours, collaboration and inclusiveness – Embedding strong governance, risk and compliance culture ESG goals form the foundation for Growthpoint’s guiding principles. 7.5% Having a focussed Executive Team with clear targets, displaying strong leadership and governance is important to the Group’s success. 7.5% Employees, other than the EMT, have their STI determined based upon individual performance reviews, achievement of individual KPIs and their personal contribution to the Group’s success throughout the financial year. The STI amounts are determined by either the Managing Director or the Committee based on recommendations of the Managing Director. Growthpoint Properties Australia 2018 Annual Report 49 Other information KMP and Non-Executive Director holdings of Growthpoint securities Key change From 1 July 18, the Committee implemented a Minimum Securityholding Requirement (MSR) for KMP and Non-Executive Directors. Those covered must comply with the MSR within four years of the implementation date. The MSR is as follows: t Non-Executive Directors – 100% of base fees in equivalent value of Growthpoint securities; t Managing Director – 100% of TFR in equivalent value of Growthpoint securities; and t Other KMP – 50% of TFR in equivalent value of Growthpoint securities. The table below provides holdings as at the date of this report and indicates the current percentage holdings. Name Geoff Tomlinson Grant Jackson Francois Marais Norbert Sasse Estienne de Klerk Maxine Brenner Josephine Sukkar Timothy Collyer Aaron Hockly Dion Andrews Michael Green Holding as at 16 August 2018 Current equivalent value in Growthpoint securities1 MSR No. 81,467 170,309 150,322 1,520,087 1,601,804 7,245 – 953,492 45,005 85,815 45,201 % 100 100 100 100 100 100 100 100 50 50 50 % 144 589 520 5,260 5,542 25 – 365 86 155 82 1. Current equivalent value takes the closing price of Growthpoint securities on 30 June 2018 ($3.61), multiplied by the holding and compares this to the relevant FY19 measure (100% of base fees for Non-Executive Directors, for example). This is provided for information only at this time as compliance with the MSR is not required until 30 June 22. Nomination, Remuneration & HR Committee The Committee advises the Board on compensation policies and practices generally, and makes specific recommendations on compensation packages and other terms of engagement for non-executive directors, executive directors and other senior executives. The Committee also periodically reviews the compensation arrangements for other Employees. Committee members The members of the Committee during the year and at the date of this Report are: t Norbert Sasse (Chairman) – non-executive director t Francois Marais – non-executive director t Geoff Tomlinson – independent, non-executive director t Josephine Sukkar – independent, non-executive director (appointed 1 October 2017) Delegated authority The Committee operates under delegated authority from the Board. The duties of the Committee in relation to remuneration are to: a) Recommend, for adoption by the Board, a remuneration package for the Chairman of the Board and the other Directors on a not less than annual basis. b) Recommend, for adoption by the Board, a remuneration package, including bonus incentives and related key performance indicators, for the most senior executive officer of the Group both on appointment and on a not less than annual basis. c) Review the most senior executive officer’s recommendations for the remuneration packages, including bonus incentives and related key performance indicators, of other Group Employees both on appointment and on a not less than annual basis. Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information  50 Growthpoint Properties Australia 2018 Annual Report Remuneration report continued d) Review the most senior executive officer’s recommendations for any bonus payments which are in excess of that delegated to the most senior executive officer under the Group’s “Delegations of Authority Policy”. The Committee cannot approve payments which exceed the bonus pool approved by the Board without Board approval. e) Make recommendations to the Board in relation to the introduction of, and amendments to, any employee share plan established by the Group. Remuneration objectives In carrying out its remuneration functions, the Nomination, Remuneration & HR Committee shall have regard to the following objectives: a) Provide competitive rewards to attract, motivate and retain highly skilled directors and management. b) Set challenging but achievable objectives for short and long-term incentive plans. c) Link rewards to the creation of value for Securityholders. d) Limit severance payments on termination to pre-established contractual arrangements that do not commit the Group to making unjustified payments in the event of non-performance. Impact of performance on Securityholders’ wealth In considering the Group’s performance and benefits for Securityholders’ wealth, the Committee has regard to the financial measures in the table below in respect of the five financial years ended 30 June 2018. 2018 2017 2016 2015 2014 $'000 $'000 357,709 148,432 $ $ $ % % 0.222 3.61 0.470 22.3 18.5 278,090 140,077 0.215 3.14 -0.010 6.3 18.6 219,377 118,134 283,004 110,685 117,348 86,790 0.205 3.15 0.020 7.4 13.5 0.197 3.13 0.680 36.4 23.9 0.190 2.45 0.050 10.8 17.5 Profit attributable to the owners of the Group Dividends and distributions paid Distribution per stapled security Closing stapled security price Change in stapled security price Total Securityholder return¹ Return on equity 1. Source UBS Investment Research. Independent consultants During the year, the Committee engaged PwC as an independent consultant. PwC was paid a total of $86,700 for providing these services. The Committee is satisfied on behalf of the Board that PwC remained free from undue influence from those KMP in respect of whom it was making recommendations. The Committee received the report directly from PwC and reviewed and discussed the report with PwC when it was received. The company did not engage PwC for any other work during FY18. The Committee also had regard to additional third-party industry remuneration benchmarking surveys. Remuneration reviews The Committee reviews the appropriate levels of remuneration for all Directors and Employees based on: 1. Remuneration advice and benchmarking from PwC. 2. Remuneration surveys. 3. Benchmarking against peers. 4. Recommendations from the Managing Director (excluding in relation to his own remuneration). Growthpoint Properties Australia 2018 Annual Report 51 Executive Director Remuneration and Service Contract There is currently only one executive director being the Managing Director, Timothy Collyer. Remuneration paid and payable 44 47 The total remuneration paid or payable to the Managing Director for FY18 is listed on page 44 of this report and the proposed remuneration parameters for FY19 are on page 47. Service contract The Managing Director has a contract of employment dated 22 August 2016 with the Group that specifies the duties and obligations to be fulfilled by the Managing Director and provides that the Board and the Managing Director will, early in each financial year, consult to agree objectives for achievement during that year. Changes to the Managing Directors’ remuneration requires full Board approval and, in certain circumstances, Securityholder approval. The Managing Director can resign by providing six months’ written notice. The Group can terminate his employment immediately for serious misconduct, bankruptcy, material breach of his employment agreement, failure to comply with a reasonable and lawful direction by the Board, committing an act which brings the Group into disrepute or conviction of an offence punishable by imprisonment. In addition, the Group can terminate the Managing Director’s employment without cause with not less than nine months’ severance pay. On termination as Managing Director, he must resign as a director of any Group entity and he is restrained from a number of activities in competition with or to the detriment of the Group for a period of 12 months from the date of termination. Principles of remuneration for the Managing Director The principles of remuneration for the Managing Director are: 1. The Managing Director should receive total remuneration which is competitive with rates for an equivalent position at listed and unlisted Australian entities of similar size (measured by market capitalisation and gross assets), complexity and workload having regard to the industry in which the Group operates and the relative profit and expenses versus the Group’s peers. 2. The Managing Director’s total remuneration should be set at a level to attract and retain a suitably qualified and experienced person to this role and tailored to encourage Group performance which is in the best interests of all Securityholders. 3. The components of the Managing Director’s remuneration are: a) total fixed remuneration (including applicable superannuation); b) 41 if specified performance criteria are met, eligibility to receive a short-term incentive (“STI”) bonus payable in cash (up to and including FY18, and cash and deferred performance rights for FY19 onwards) in respect of each financial year up to a maximum set by the Board. Refer to page 41 for measures for the FY18 STI; c) long-term incentive (“LTI”) plan under which, upon attainment of specified criteria, the Managing Director is eligible to receive securities in the Group that vest over time to help ensure alignment of the Managing Director’s interests with those of Securityholders; d) life, TPD and income protection insurance cover payable directly to the Managing Director (in lieu of premium); e) five weeks annual leave; f) personal, long-service and other leave to the extent required by law or under any Group policy; and g) car parking, airline club membership, gym membership and other similar benefits as considered appropriate. 4. The Managing Director is not eligible for any additional fees for chairing or being a member of any Board committee, acting as an officer of the Company or being a responsible manager or key person under the Company’s AFSL. 5. 6. 89 47 The Managing Director has a Minimum Securityholding Requirement. Refer to page 89 for details of his holdings as at the date of this report and details of the MSR. The Managing Director is entitled to receive certain payments including the vesting of all unvested securities under the LTI if the Company decides to terminate his position without cause including through redundancy. Refer to page 47 for more details of redundancy entitlements. Other service contracts It is the Group’s policy that service contracts are unlimited in term but capable of termination on six months’ notice or less and that the Group retains the right to terminate the contract immediately, by making payment equal to a payment in lieu of notice. Employees are also entitled to receive certain statutory entitlements on termination of employment including accrued annual and long service leave, together with any superannuation benefits and, if applicable, redundancy payments in accordance with a redundancy policy approved by the Committee. Service contracts outline the components of compensation paid to each Employee (including all key management persons) but does not prescribe how compensation levels may be modified each year. Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information52 Growthpoint Properties Australia 2018 Annual Report Remuneration report continued Director and Senior Executive Reviews Director reviews The performance of the Board and individual Directors is regularly considered by the Chairman who, from time to time, arranges Board meetings to specifically consider the function of the Board, the strategy of the Group and to hear any concerns/feedback from directors. The Chairman typically meets with each individual Director not less than once per year. A relevant Board meeting and individual meetings all occurred in FY18. The Chair of each Board sub-committee also regularly considers the performance of the committee they chair. Board composition The Board currently comprises Directors with extensive experience and expertise in property, finance, law, investment banking, accounting and corporate governance. Refer to the Growthpoint website for full profiles of each Director: growthpoint.com.au/about/board/ Being a property company, the Board has expressed a particular desire to ensure it comprises directors with extensive Australian commercial property knowledge. The Managing Director, Grant Jackson and Josephine Sukkar have had, and continue to have, extensive careers in Australian commercial property and have held, and continue to hold, senior positions in the property industry. The Board is eager to ensure that where Board members are replaced, the Board’s property experience is not diminished. Succession planning for directors The Committee has developed plans for the succession and/or temporary replacement of the Chairman and the Managing Director. Director training To ensure the Board has sufficient knowledge to discharge its duties, the Company Secretary co-ordinates an annual training program which includes presentations (verbal and written) from the Group’s lawyers, auditors and property managers as well as from investment banks, real estate service providers and leading governance and training organisations. Senior Executive Reviews 41 41 The Managing Director’s performance is formally considered annually by the Committee and, based on this formal assessment, the Committee makes remuneration recommendations to the Board. In making its assessment, the Committee considers, among other things, the STI performance measures listed on page 41. The Managing Director reviews the performance of the other senior executives and makes recommendations to the Committee on their remuneration based, in part, on the STI performance measures listed on page 41. Meetings of Directors (FY18) Board member G. Tomlinson (Chairman) M. Brenner T. Collyer (Managing Director)1,2 E. de Klerk G. Jackson F. Marais J. Sukkar3 N. Sasse Growthpoint Board Audit, Risk & Compliance Committee Nomination, Remuneration & HR Committee eligible to attend attended eligible to attend attended eligible to attend attended 9 9 9 9 9 9 8 9 9 8 9 8 8 9 8 9 4 4 – 4 4 – – – 4 3 4 4 4 – 1 – 7 – – – – 7 6 7 7 – 6 – – 7 6 7 1. As Managing Director, Timothy Collyer, has a standing invitation to all committee meetings, unless its members determine otherwise, but is not a member of the Nomination, Remuneration & HR Committee. Mr Collyer is not present for any part of meetings which consider his remuneration except to answer questions from the Committee. 2. As Managing Director, Timothy Collyer, has a standing invitation to all committee meetings, unless its members determine otherwise, but is not a member of the Audit, Risk & Compliance Committee. 3. Josephine Sukkar was appointed as director and member of the Nomination, Remuneration & HR Committee effective from 1 October 2017. Additional information Growthpoint Properties Australia 2018 Annual Report 53 Indemnification and Insurance of Directors, Officers and Auditor The Company has entered into a Deed of Indemnity, Insurance and Access with each of its directors, Aaron Hockly (Chief Operating Officer), Dion Andrews (Chief Financial Officer) and Michael Green (Head of Property) providing these persons with an indemnity, to the fullest extent permitted by law, against all losses and liabilities incurred in their respective role for the Company. The Deeds also require the Company to grant the indemnified person with access to certain Company documents and insure the indemnified persons. In compliance with the Deeds referred to above, the Company insured its Directors and officers against liability to third parties and for costs incurred in defending any legal proceedings that may be brought against them in their capacity as Directors or officers of the Group. This excludes a liability which arises out of a wilful breach of duty or improper use of inside information. The premium also insures the entity for any indemnity payments it may make to its Officers in respect of costs and liabilities incurred. Disclosure of the premium payable is prohibited under the conditions of the policy. In addition, Growthpoint SA, the Group’s majority Securityholder, has undertaken to those Directors and officers of the Group who are not also Directors of Growthpoint Properties Limited that to the extent D&O insurance is not available due to (1) the insolvency of the Group or (2) limitations on claims arising from Peter David Steingrad & others v BFSL 2007 Limited & Others, HC, Auckland, CIV-2011 – 404 – 611 15 September 2011 and Court of Appeal decision CA 674/2011 (20 December 2012), it will provide the directors and officers the same level of financial recourse had the insurance been available. The undertaking expires on the earlier of a superior court in Australia or New Zealand finally determining that the principles of the aforementioned case should not be followed and Growthpoint Properties Limited ceasing to hold (whether beneficially or otherwise) more than 50% of the shares in Growthpoint Properties Australia Limited. The Auditor is indemnified by the Group against claims from third parties arising from the provision of audit services except where prohibited by the Corporations Act 2001 (Cth) or due to negligence, fraudulent conduct, dishonesty or breach of trust by the auditor. Non-Audit services During the year KPMG, the Group’s auditor, has performed certain other services in addition to the audit and review of the financial statements. The Board has considered the non- audit services providing during the year by the auditor and are satisfied that the provision of those non-audit services during the year by the auditor is compatible with and did not compromise, the auditor independence requirements of the Corporations Act 2001 (Cth) for the following reasons: • all non-audit services were subject to the corporate governance procedures adopted by the Group and have been reviewed by the Audit, Risk & Compliance Committee to ensure they do not impact the integrity and objectivity of the auditor; and • the non-audit services provided do not undermine the general principals relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for the Group, acting as an advocate for the Group or jointly sharing risks and rewards. Details of the amounts paid to the auditor of the Group, KPMG, and its network firms for audit and non-audit services provided during the year are set out below. 2018 $ Services other than audit and review of financial statements: Other regulatory audit services 59,410 Other assurance service and due diligence services 9,000 Audit and review of financial statements Total paid to KPMG 140,966 209,376 Environmental Regulations As a Trustee of a property owner, the Group is subject to the normal environmental regulations of landowners within Australia. The Directors are not aware of any significant breaches during the year. Auditors’ Independence Declaration 97 A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 (Cth) is set out on page 97. Rounding The Group is of a kind referred to in ASIC Corporations (Rounding in Directors' / Financial Reports) Instrument 2016/191 and in accordance with that Instrument, all financial information presented in Australian dollars has been rounded to the nearest thousand unless otherwise stated. Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information54 Growthpoint Properties Australia 2018 Annual Report 836 Wellington Street, West Perth, WA Growthpoint Properties Australia 2018 Annual Report 55 About the Financial Report This report covers Growthpoint Properties Australia Limited, Growthpoint Properties Australia Trust and its controlled entities, together being a stapled group. Growthpoint Properties Australia Limited is the Responsible Entity for Growthpoint Properties Australia Trust. The financial report is presented in Australian currency. Growthpoint Properties Australia Trust and its Responsible Entity, Growthpoint Properties Australia Limited, are both domiciled in Australia. The Responsible Entity’s registered office and principal place of business is Level 31, 35 Collins Street, Melbourne, Victoria, 3000, Australia. A description of the nature of the stapled group’s operations and its principal activities is included in the Directors’ Report which is not part of the financial report. The financial report was authorised for issue by the Directors on 16 August 2018. The Directors have the power to amend and reissue the financial report. References to “the year” or “FY18” in this report refer to the year ended 30 June 2018 unless the context requires otherwise. References to “FY19” and “FY20” relate to the twelve months ending 30 June in the year listed. References to “balance date” in this report refer to 30 June 2018 unless the context requires otherwise. Financial report What’s inside Financial Statements Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Cash Flow Statement Notes to the Financial Statements Section 1: Basis of preparation Section 2: Operating results, assets and liabilities 2.1 Revenue and segment information 2.2 Investment properties 2.3 Investment in securities 2.4 Non-current assets held for sale 2.5 Trade and other assets 2.6 Trade and other liabilities 2.7 Cash flow information Section 3: Capital structure and financing costs 3.1 Interest bearing liabilities 3.2 Borrowing costs 3.3 Derivative financial instruments 3.4 Financial risk management 3.5 Contributed equity and reserves 3.6 Distributions 3.7 Earnings per stapled security (“EPS”) 3.8 Share-based payment arrangements Section 4: Other notes 4.1 Key Management Personnel compensation 4.2 Related party transactions 4.3 Taxation 4.4 Contingent liabilities 4.5 Commitments 4.6 Controlled entities 4.7 Parent entity disclosures 4.8 Remuneration of auditors 4.9 Subsequent events Declarations / Reports Directors’ declaration Auditor’s independence declaration Independent auditor’s report 56 57 58 60 61 63 63 64 71 71 72 73 74 75 75 76 77 79 84 85 86 86 88 88 90 90 92 92 93 94 94 95 96 97 98 Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information56 Growthpoint Properties Australia 2018 Annual Report Consolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended 30 June 2018 Notes 2018 $’000 2017 $’000 Revenue Property revenue Distributions from investment in securities Straight line adjustment to property revenue Net changes in fair value of investment properties Profit / (loss) on sale of investment properties Net change in fair value of investment in securities Net change in fair value of derivatives Loss on settlement of derivatives Net investment income Expenses Property expenses Other expenses from ordinary activities Total expenses Profit from operating activities Interest income Borrowing costs Net finance costs Profit before income tax Income tax expense Profit for the period Profit attributable to: Owners of the Trust Owners of the Company 2.1 254,239 261,463 2.2 2.3 2.1 3.2 4,886 5,962 166,958 24,419 10,368 (573) - 466,259 (40,614) (13,362) (53,976) - 2,522 118,157 (1,123) - 16,161 (13,779) 383,401 (38,145) (12,385) (50,530) 412,283 332,871 316 (54,797) (54,481) 501 (55,232) (54,731) 357,802 278,140 4.3 (93) (50) 357,709 278,090 358,762 (1,053) 357,709 279,324 (1,234) 278,090 Distribution to Securityholders 3.6 (148,432) (140,077) Change in net assets attributable to Securityholders / Total Comprehensive Income 209,277 138,013 Basic and diluted earnings per stapled security (cents) 3.7 53.5 42.7 The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes. Consolidated Statement of Financial Position As at 30 June 2018 Notes Current assets Cash and cash equivalents Trade and other assets Assets held for sale Total current assets Non-current assets Plant & equipment Investment properties Investment in securities Derivative financial instruments Net deferred tax assets Total non-current assets Total assets Current liabilities Trade and other liabilities Distribution to Securityholders Current tax payable Total current liabilities Non-current liabilities Trade and other liabilities Interest bearing liabilities Derivative financial instruments Total non-current liabilities Total liabilities Net assets Securityholders’ funds Contributed equity Reserves Accumulated profits Total Securityholders’ funds Growthpoint Properties Australia 2018 Annual Report 57 2.5 2.4 2.2 2.3 3.3 4.3 2.6 3.6 2.6 3.1 3.3 2018 $’000 31,463 6,583 64,250 102,296 2017 $’000 31,459 10,891 103,500 145,850 930 1,197 3,291,800 3,180,275 78,497 - 1,046 - 121 929 3,372,273 3,182,522 3,474,569 3,328,372 37,370 75,643 67 113,080 48,750 72,086 235 121,071 69 - 1,197,555 1,299,380 6,892 6,440 1,204,516 1,305,820 1,317,596 1,426,891 2,156,973 1,901,481 3.5 1,698,702 1,653,735 7,616 450,655 6,369 241,377 2,156,973 1,901,481 The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information58 Growthpoint Properties Australia 2018 Annual Report Consolidated Statement of Changes in Equity For the year ended 30 June 2018 Share- based payments reserve Deferred tax expenses charged to equity Contributed equity Profits reserve Accumulated profits $’000 $’000 $’000 $’000 $’000 Total $’000 Balance at 30 June 2017 1,653,735 5,825 537 7 241,377 1,901,481 Total comprehensive income for the year Profit after tax for the year Total other comprehensive income Total comprehensive income for the year - - - Transactions with Securityholders in their capacity as Securityholders: Contributions of equity, net of transaction costs 44,968 Distributions provided or paid Share-based payment transactions Deferred tax expense charged to equity - - - - - - - - 1,229 - Total transactions with Securityholders 44,968 1,229 - - - - - - 18 18 - - - - - - - - 357,709 357,709 - - 357,709 357,709 - 44,968 (148,432) (148,432) - - 1,229 18 (148,432) (102,218) Balance at 30 June 2018 1,698,702 7,054 555 7 450,655 2,156,973 Total recognised income and expense for the year is attributable to: - Trust - Company Growthpoint Properties Australia 358,762 (1,053) 357,709   Growthpoint Properties Australia 2018 Annual Report 59 For the year ended 30 June 2017 Share- based payments reserve Deferred tax expenses charged to equity Contributed equity Profits reserve Accumulated profits $’000 $’000 $’000 $’000 $’000 Total $’000 Balance at 30 June 2016 1,414,012 4,506 522 7 103,365 1,522,412 Total comprehensive income for the year Profit after tax for the year Total other comprehensive income Total comprehensive income for the year - - - Transactions with Securityholders in their capacity as Securityholders: Contributions of equity, net of transaction costs 239,723 Distributions provided or paid Share-based payment transactions Deferred tax expense charged to equity - - - - - - - - 1,319 - Total transactions with Securityholders 239,723 1,319 - - - - - - 15 15 - - - - - - - - 278,090 278,090 - - 278,090 278,090 - 239,723 (140,077) (140,077) - - 1,319 15 (140,077) 100,980 Balance at 30 June 2017 1,653,735 5,825 537 7 241,377 1,901,481 Total recognised income and expense for the year is attributable to: - Trust - Company Growthpoint Properties Australia 279,324 (1,234) 278,090 The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information60 Growthpoint Properties Australia 2018 Annual Report Consolidated Cash Flow Statement For the year ended 30 June 2018 Notes Cash flows from operating activities Cash receipts from customers Cash payments to suppliers Cash generated from operating activities Interest paid Taxes paid Net cash inflow from operating activities 2.7 (b) Cash flows from investing activities Interest received Distributions received from investment in securities Receipts from sale of investment properties Payments for investment properties Payments for investment in securities Payments for plant & equipment Net cash inflow / (outflow) from investing activities Cash flows from financing activities Proceeds from external borrowings Repayment of external borrowings Proceeds from equity raising Equity raising costs Payment for settlement of derivatives Distributions paid to Securityholders Net cash outflow from financing activities Net inflow in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period 2.7 (a) 2018 $’000 247,928 (52,604) 195,324 (56,568) (360) 138,396 317 3,673 194,766 (66,943) (68,129) (25) 63,659 322,547 (424,691) 44,968 - - (144,875) (202,051) 4 31,459 31,463 2017 $’000 268,716 (53,125) 215,591 (53,496) (595) 161,500 501 - 161,574 (227,845) - (1,281) (67,051) 903,354 (981,000) 103,864 (6,013) (13,779) (140,077) (133,651) (39,202) 70,661 31,459 The above Consolidated Cash Flow Statement should be read in conjunction with the accompanying notes. Growthpoint Properties Australia 2018 Annual Report 61 Notes to the Financial Statements Section 1: Basis of preparation in this section ... This section shows the basis of reporting for the Group and relevant new accounting standards, amendments and interpretations, whether these are effective in FY18 or later years. We explain how these changes are expected to impact the financial position and performance of the Group. Reporting entity Growthpoint Properties Australia was formed by the stapling of two entities: Growthpoint Properties Australia Limited (“the Company”) and Growthpoint Properties Australia Trust (“the Trust”). In this report, the Trust includes all of its controlled entities. The Company is the Responsible Entity for the Trust. Growthpoint Properties Australia is also referred to as “the Group”. The Group was established for the purpose of facilitating a joint quotation of the Company and the Trust and its controlled entities on the Australian Securities Exchange (ASX Code: GOZ). The constitutions of the Company and the Trust ensure that, for so long as the two entities remain jointly quoted, the number of shares in the Company and the number of units in the Trust shall be equal and the shareholders of the Company and the unitholders in the Trust are identical. The Company, both in its personal capacity and in its capacity as the Responsible Entity of the Trust, must at all times act in the best interests of the Group. The Group is a for profit entity. The consolidated financial report includes financial statements for Growthpoint Properties Australia, the stapled consolidated Group, which is domiciled in Australia as at, and for the twelve months ended, 30 June 2018. The Group’s registered address is Level 31, 35 Collins Street, Melbourne, Victoria 3000, Australia. The ultimate parent entity of the Group is Growthpoint Properties Limited. Working capital deficiency The Group has unutilised facilities of $320 million and sufficient working capital and cashflows in order to fund all requirements arising from the net current asset deficiency as at 30 June 2018. The deficiency is largely driven by the provision for the 30 June 2018 distribution. Statement of compliance The consolidated financial statements are general purpose financial statements which have been prepared in accordance with Australian Accounting Standards (AASB’s) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The consolidated financial statements comply with International Financial Reporting Standards (IFRS) adopted by the International Accounting Standards Board (IASB). The consolidated financial statements were authorised for issue by the Board on 16 August 2018. Basis of measurement The consolidated financial statements have been prepared on the historical cost basis except for the following material items in the Consolidated Statement of Financial Position: t derivative financial instruments measured at fair value; t assets held for sale are measured at fair value; t investment in securities is measured at fair value; t investment property is measured at fair value; and t share-based payment arrangements are measured at fair value. Functional and presentation currency These consolidated financial statements are presented in Australian dollars, which is the Group’s functional currency. The Group is of a kind referred to in ASIC Corporations (Rounding in Directors’ / Financial Reports) Instrument 2016/191 and in accordance with that Instrument, all financial information presented in Australian dollars has been rounded to the nearest thousand unless otherwise stated. Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information62 Growthpoint Properties Australia 2018 Annual Report Use of estimates, assumptions and judgements The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. Information about critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements and information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are included in the following notes: t Note 2.2 – Investment properties; t Note 2.3 – Assets held for sale; t Note 3.3 – Derivative financial instruments; and t Note 3.8 – Share-based payment arrangements. Determination of fair values A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. When applicable, information regarding the method of determining fair value and about the assumptions made in determining fair value is disclosed in the note specific to that asset or liability. New Standards and interpretations not yet adopted A number of new standards, amendments to standards and interpretations effective for annual periods beginning on or after 1 January 2018 have not been applied in preparing these consolidated financial statements. Those which may be relevant to the Group are set out below. The Group does not plan to adopt these standards early. IFRS 9 Financial Instruments IFRS 9, published in July 2014, replaces the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidance on the classification and measurement of financial instruments including a new expected credit loss model for calculating impairment on financial assets and the new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39. IFRS 9 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted. The effect of the Standard has been examined and would not have any material impact on the Group once implemented. IFRS 15 Revenue from contracts with customers IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. IFRS 15 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted. The effect of the Standard has been examined and would not have any material impact on the Group once implemented. IFRS 16 Leases IFRS 16 removes the classification of leases as either operating leases or finance leases, for the lessee, effectively treating all leases as finance leases. Short-term leases (less than 12 months) and leases of low-value assets (such as personal computers) are exempt from the lease accounting requirements. There are also changes in accounting over the life of the leases. In particular, companies will now recognise a front-loaded pattern of expense for most leases, even when they pay constant annual rentals. Lessor accounting remains similar to current practice (i.e. lessors continue to classify leases as finance and operating leases). IFRS 16 is effective for annual reporting periods beginning on or after 1 January 2019, with early adoption permitted. The effect of the Standard has been examined and would not have any material impact on the Group once implemented. Notes to the Financial Statements continuedGrowthpoint Properties Australia 2018 Annual Report 63 Section 2: Operating results, assets and liabilities in this section ... This section shows the assets used to generate the Group’s trading performance and provides information on the office and industrial property segments that make up that performance. It also shows the liabilities incurred as a result. Liabilities relating to the Group’s financing activities are addressed in Section 3. On the following pages there are sections covering investment property, other non-current assets, acquisitions and disposals and other payables. 2.1 Revenue and segment information Accounting policies Revenue recognition Revenue is recognised at the fair value of the consideration received or receivable as detailed below for each category of revenue. All revenue is stated net of the amount of goods and services tax (GST). Revenue from investment properties is recognised on a straight- line basis over the life of the lease for leases where the revenue under the lease terms is fixed and determinable. For leases where the revenue is determined with reference to market reviews, inflationary measures or other variables, revenue is not straight-lined and is recognised in accordance with the lease terms applicable for the period. Segment results Segment results that are reported to the Group’s Managing Director (the chief operating decision maker) include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly distributions from investment in securities, change in fair value of investment in securities, head office expenses, interest expense and income tax assets and liabilities. Segmental information The Group operates wholly within Australia and derives rental income solely from property investments. The Group segments net property income and property revaluations into Office and Industrial segments and those results are shown below: Statement of Profit or Loss and Other Comprehensive Income for the year ended 30 June 2018 Revenue, excluding straight line lease adjustment Property expenses Net Property Income Segment results Profit on sale of investment properties Net changes in fair value of investment properties Segment results Income not assigned to segments Expenses not assigned to segments Net profit before income tax Office Industrial $’000 $’000 Total $’000 158,030 (25,471) 132,559 - 76,461 209,020 96,209 (15,143) 81,066 24,419 90,497 195,982 254,239 (40,614) 213,625 24,419 166,958 405,002 20,959 (68,159) 357,802 Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information64 Growthpoint Properties Australia 2018 Annual Report 2.1 Revenue and segment information (continued) Segmental information (continued) Statement of Profit or Loss and Other Comprehensive Income for the year ended 30 June 2017 Revenue, excluding straight line lease adjustment Property expenses Net Property Income Segment results Loss on sale of investment properties Net changes in fair value of investment properties Segment results Income not assigned to segments Expenses not assigned to segments Net profit before income tax Office Industrial $’000 $’000 Total $’000 160,396 (23,583) 136,813 - 72,221 209,034 101,067 (14,562) 86,505 (1,123) 45,936 131,318 261,463 (38,145) 223,318 (1,123) 118,157 340,352 5,405 (67,617) 278,140 Property values are also reported by segment and this information is reported in note 2.2. Major customer Revenues from one customer, Woolworths Limited, of the Group’s Industrial segment represents $41,400,000 (2017: $45,650,000) of the Group’s total revenues. 2.2 Investment properties Accounting policies Investment property Investment property is property held either to earn rental income or for capital appreciation or both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Investment properties are initially measured at cost including transaction costs. Costs incurred subsequent to initial acquisition are capitalised when it is probable that future economic benefits in excess of the originally assessed performance of the asset will flow to the entity and the cost of that capital expenditure can be measured reliably. All other costs are expensed in the profit and loss in the period incurred. Subsequent to initial recognition as assets, investment properties are revalued to fair value. Directors revalue the property investments on the basis of valuations determined by them or independent valuers on a periodic basis. The Group assesses at each balance date whether these valuations appropriately reflect the fair value of investment properties. Any gains or losses arising from changes in fair value of the properties are recognised in the consolidated statement of profit or loss and other comprehensive income in the period in which they arise. Lease incentives and commissions Any lease incentives provided to a tenant under the terms of a lease such as fit-outs or rent free periods are recognised as a reduction of revenue on a straight-line basis over the term of the lease. Leasing commissions paid to agents on signing of lease agreements are recognised as a reduction of revenue on a straight-line basis over the term of the lease. Determination of fair value An external, independent valuation company, having appropriate recognised professional qualifications and recent experience in the location and category of property being valued generally, values the Group’s entire investment property portfolio each financial year. The fair values are based on market values, being the estimated amount for which a property could be exchanged on the date of the valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgably and willingly. Notes to the Financial Statements continuedGrowthpoint Properties Australia 2018 Annual Report 65 2.2 Investment properties (continued) Determination of fair value (continued) In the absence of current prices in an active market, the valuations are prepared on the basis of a discounted cash flow valuation where the net annual cash flows derived from the property are discounted to a net present value at a target internal rate of return or discount rate. Valuations reflect, where appropriate, the types of tenants actually in occupation or responsible for meeting lease commitments or likely to be in occupation, the allocation of maintenance and insurance responsibilities between the Group and the lessee, and the remaining economic life of the property. When rent reviews or lease renewals are pending with anticipated reversionary increases, it is assumed that all notices and when appropriate, counter-notices, have been served validly and within the appropriate time frame. Investment Properties Value Industrial Properties Date Valuation 30-Jun-18 30-Jun-17 Latest External Valuation Consolidated Book Value $’000 $’000 $’000 VIC VIC VIC VIC VIC VIC VIC VIC VIC VIC VIC VIC VIC VIC VIC VIC VIC 30-Jun-18 31-Dec-16 30-Jun-18 30-Jun-18 31-Dec-17 31-Dec-17 31-Dec-17 31-Dec-17 31-Dec-17 30-Jun-18 30-Jun-18 30-Jun-18 31-Dec-17 31-Dec-17 31-Dec-17 30-Jun-18 30-Jun-18 77,400 65,500 44,000 34,800 33,500 25,000 25,300 24,300 17,000 15,800 12,300 11,700 11,500 10,250 8,300 8,100 7,650 77,400 - 44,000 34,800 34,500 25,250 25,100 24,500 17,000 15,800 12,300 11,700 11,500 11,200 8,800 8,100 7,650 77,700 65,900 42,300 33,000 31,350 24,100 24,500 23,100 15,500 15,250 12,150 13,000 11,000 10,100 7,850 8,100 7,150 Melbourne Airport Keysborough Knoxfield Melbourne Airport Knoxfield Kilsyth Melbourne Airport Keysborough Melbourne Airport Larapinta Yatala QLD 31-Dec-17 215,000 220,000 205,000 QLD 31-Dec-17 15,000 13,750 15,000 Brisbane Airport QLD 31-Dec-17 Brisbane Airport QLD 31-Dec-17 8,700 2,450 8,700 2,450 8,000 2,100 Perth Airport Perth Airport Perth Airport Perth Airport Perth Airport WA WA WA WA WA 31-Dec-17 160,000 163,750 152,800 30-Jun-18 30-Jun-18 30-Jun-18 17,150 8,900 8,500 17,150 8,900 8,500 30-Jun-18 13,350 13,350 - - - - Victoria 120 Northcorp Boulevard 522-550 Wellington Road (i) Broadmeadows Mulgrave 1500 Ferntree Gully Road & 8 Henderson Road Knoxfield 40 Annandale Road 9-11 Drake Boulevard 120-132 Atlantic Drive 130 Sharps Road Melbourne Airport Altona Keysborough Melbourne Airport Lots 2-4, 44-54 Raglan Street Preston 120 Link Road 20 Southern Court 6 Kingston Park Court 60 Annandale Road 3 Millennium Court 31 Garden Street 101-111 South Centre Road 19 Southern Court 75 Annandale Road Queensland 70 Distribution Street 13 Business Street 5 Viola Place 3 Viola Place Western Australia 20 Colquhoun Road 2 Hugh Edwards Drive (ii) 10 Hugh Edwards Drive (ii) 36 Tarlton Crescent (ii) 58 Tarlton Crescent (ii) (i) This property was sold in December 2017. (ii) These properties were acquired in October 2017. Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information66 Growthpoint Properties Australia 2018 Annual Report 2.2 Investment properties (continued) Investment Properties Value (continued) Industrial Properties Date Valuation 30-Jun-18 30-Jun-17 Latest External Valuation Consolidated Book Value $’000 $’000 $’000 New South Wales 27-49 Lenore Drive 6-7 John Morphett Place 51-65 Lenore Drive 34 Reddalls Road 81 Derby Street South Australia 599 Main North Road 1-3 Pope Court 12-16 Butler Boulevard 10 Butler Boulevard Erskine Park Erskine Park Erskine Park NSW 30-Jun-18 NSW 31-Dec-17 NSW 31-Dec-17 Kembla Grange NSW 30-Jun-18 Silverwater NSW 31-Dec-17 Gepps Cross Beverley Adelaide Airport Adelaide Airport SA SA SA SA 31-Dec-17 30-Jun-18 31-Dec-17 31-Dec-17 68,750 45,600 33,750 26,000 18,000 77,500 22,500 15,600 9,100 68,750 46,500 34,500 26,000 18,500 79,000 22,500 15,800 9,100 63,500 45,000 32,000 24,000 16,600 73,400 21,250 14,300 8,400 Total Industrial Properties 1,198,250 1,146,800 1,103,400 Office Properties Victoria 75 Dorcas Street Vantage, 109 Burwood Road Building 2, 572-576 Swan Street Buildings 1&3, 572-576 Swan Street Building B, 211 Wellington Road Building C, 211 Wellington Road Car Park, 572-576 Swan Street Queensland Latest External Valuation Consolidated Book Value Date Valuation 30-Jun-18 30-Jun-17 $’000 $’000 $’000 South Melbourne Hawthorn Richmond Richmond Mulgrave Mulgrave Richmond VIC VIC VIC VIC VIC VIC VIC 30-Jun-18 190,000 190,000 180,000 30-Jun-18 106,000 106,000 30-Jun-18 31-Dec-17 31-Dec-17 31-Dec-17 30-Jun-18 90,600 80,750 73,500 57,000 1,200 90,600 82,750 74,000 57,250 1,200 89,250 80,900 62,000 72,400 55,500 1,125 Optus Centre, 15 Green Square Close Fortitude Valley QLD 30-Jun-18 144,000 144,000 138,000 Brisbane QLD 30-Jun-18 130,000 130,000 121,000 South Brisbane QLD 30-Jun-18 104,500 104,500 333 Ann Street CB1, 22 Cordelia Street A1, 32 Cordelia Street A4, 52 Merivale Street CB2, 42 Merivale Street South Brisbane QLD 31-Dec-17 South Brisbane QLD 30-Jun-18 South Brisbane QLD 31-Dec-17 83,000 82,500 59,500 27,000 Car Park, 32 Cordelia Street & 52 Merivale Street South Brisbane QLD 31-Dec-17 South Australia World Park, 33-39 Richmond Road 7 Laffer Drive Keswick Bedford Park SA SA 30-Jun-18 31-Dec-17 62,000 19,500 84,000 82,500 60,000 27,000 62,000 20,000 99,000 81,200 79,000 57,200 26,000 62,000 15,500 Notes to the Financial Statements continuedGrowthpoint Properties Australia 2018 Annual Report 67 Latest External Valuation Consolidated Book Value Date Valuation 30-Jun-18 30-Jun-17 $’000 $’000 $’000 Parramatta Artarmon NSW 31-Dec-17 310,000 310,000 303,500 NSW 31-Dec-17 124,000 123,500 115,000 Sydney Olympic Park NSW 30-Jun-18 101,000 101,000 Sydney Olympic Park NSW 31-Dec-17 100,000 100,500 97,000 97,000 28,500 29,800 2.2 Investment properties (continued) Investment Properties Value (continued) Office Properties New South Wales 1 Charles Street Building C, 219-247 Pacific Highway 3 Murray Rose Avenue 5 Murray Rose Avenue Quad 2, 6 Parkview Drive (iii) Sydney Olympic Park NSW 31-Dec-16 Quad 3, 102 Bennelong Parkway (iii) Sydney Olympic Park NSW 30-Jun-17 28,500 29,800 - - Tasmania 89 Cambridge Park Drive Australian Capital Territory 10-12 Mort Street 255 London Circuit Total Office Properties Cambridge TAS 31-Dec-17 27,000 26,700 27,000 Canberra Canberra ACT 30-Jun-18 ACT 31-Dec-17 93,500 73,000 93,500 74,000 87,000 72,000 2,197,850 2,145,000 2,076,875 Total investment properties  3,396,100 3,291,800 3,180,275 (iii) These properties have been transferred to assets held for sale. Valuation basis The basis of the valuation of investment properties is fair value being the amounts for which the properties could be exchanged between willing parties in an arm’s length transaction, based on current prices in an active market for comparable properties in similar location and condition and subject to similar leases. External valuations were conducted by JLL, Savills, Urbis, CBRE, Knight Frank, Colliers and m3property.  The fair value of properties not externally valued as at 30 June 2018 were based solely on Director valuations.  At each reporting date, the Directors update their assessment of the fair value of each property in accordance with the Group’s accounting policy detailed above. The Group determines a property’s value within a range of reasonable fair value estimates and, in making that assessment, considers information from a variety of sources including: t Current prices for comparable investment properties, as adjusted to reflect differences for location, building quality, tenancy profile and other factors. t Discounted cash flow projections based on estimates of future cash flows. t Capitalised income projections based upon a property’s estimated net market income, and a capitalisation rate derived from analysis of market evidence. Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information  68 Growthpoint Properties Australia 2018 Annual Report 2.2 Investment properties (continued) Valuation basis (continued) At reporting date, the key assumptions and inputs into the valuation techniques used by the Group in determining fair value were in the following ranges for the Group’s portfolio of industrial properties: Discount rate Terminal yield Capitalisation rate Expected vacancy period Rental growth rate For the office portfolio the following ranges were used: Discount rate Terminal yield Capitalisation rate Expected vacancy period Rental growth rate Commentary on Discount Rates Date of Valuation Weighted average 10-year discount rate used to value the Group’s properties 10-year Australian Government bond rate Implied property risk premium 2018 2017 6.8%-8.8%  7.3%-8.5%   6.0%-10.0% 6.3%-10.0%  5.8%-8.8% 5.8%-9.0%   3-12 months 3-12 months   2.5%-4.0%  2.5% - 5.0% 2018 2017 6.8%-9.0%  6.8%-10.5%  6.0%-8.5% 6.3%-10.3%   5.3%-14.4% 5.5%-13.4%  6-12 months  6-12 months 3.0%–4.5%  3.0% - 4.5% 30-Jun-18 30-Jun-17  7.11%  2.63%  4.48% 7.49%  2.60%  4.89% As the above table shows, over the 12 months to 30 June 2018 discount rates utilised in the valuation of the Group’s property portfolio have tightened (lowered) by approximately 38 basis points. Over the same period the implied property risk premium has decreased by approximately 41 basis points. The implied property risk premium is the difference between the weighted average discount rate and the 10-year Australian Government bond rate. The decrease in the implied property risk premium is largely due to further tightening of the Group’s weighted average discount rate. Commentary on Capitalisation Rates Office Australian office markets, particularly Eastern seaboard markets, continue to attract significant volumes of capital and remain attractive relative to international investment markets given healthy yields, improving leasing fundamentals and near historically low borrowing rates. Melbourne and Sydney remain the focal point of investor attention given the strength of their local economies and occupier markets, while Brisbane and Adelaide continue to attract investment given their favourable yield spreads (yield premiums) over Melbourne and Sydney. Improving leasing market fundamentals in Perth have also encouraged counter-cyclical investor activity over the past year. Transactional evidence over the past 12 months has demonstrated yield compression of between 12.5 and 50 basis points in most major office markets. The weighted average capitalisation rate used in valuing the office portfolio has firmed from 6.3% to 6.0% over the year to 30 June 2018. Industrial Strong investor demand and a re-assessment of return expectations led to further yield compression in the major Australian industrial markets over the past 12 months. The Eastern seaboard remains the focus for both domestic and foreign capital, although a lack of opportunity in both markets and improved confidence in local market conditions has encouraged investors to consider the Brisbane and Perth markets. Prime yields are now generally placed between 5.75% and 6.50% for modern, well located assets with long-term leases, while assets considered ‘super prime’ (modern assets with lease terms longer than 10 years) are now generally priced at or below 5.50%. Transactional evidence over the past 12 months has provided good evidence for the Group’s own industrial properties. The weighted average capitalisation rate used to value the industrial portfolio firmed from 6.9% to 6.6% over the year to 30 June 2018. Notes to the Financial Statements continuedGrowthpoint Properties Australia 2018 Annual Report 69 2.2 Investment properties (continued) Uncertainty around property valuations Fair value of investment property is the price at which the property could be exchanged between knowledgeable, willing parties in an arm’s length transaction. A “willing seller” is not a forced seller prepared to sell at any price. The best evidence of fair value is given by current prices in an active market for comparable property in terms of investment characteristics such as location, lettable area and land area, building characteristics, property condition, lease terms and rental income potential, amongst others. The fair value of investment property has been assessed to reflect market conditions at the end of the reporting period. While this represents the best estimates of fair value as at the balance sheet date, the current market uncertainty means that if investment property is sold in future the price achieved may be higher or lower than the most recent valuation, or higher or lower than the fair value recorded in the financial statements. An increase in discount rates, terminal yields, capitalisation rates and expected vacancy periods would decrease the value of investment property. Conversely, a decrease in these inputs would increase the value of investment property. An increase in rental growth rates would increase the value of investment property, where as a decrease would decrease the value of investment property. Contractual obligations At 30 June 2018, the following contractual obligations relating to development and expansions at existing investment property are in place: t Under an expansion clause in the current lease to Symbion at 120-132 Atlantic Drive, Keysborough, Victoria the tenant can request a 3,000 sqm expansion at any point during the term (which currently expires on 20 December 2028). The Group would be responsible for funding this expansion. Upon completion, the lease would be re-set so that at least seven years remained and rent would be charged on the additional lettable area constructed under the expansion clause. t Under a warehouse expansion clause in the current lease to Brown & Watson International Pty Ltd at 1500 Ferntree Gully Road, Knoxfield, Victoria, the tenant can request an expansion of the warehouse over the vacant land at any point during the initial term prior to the latest date for exercising the first option (which is 13 August 2024). The Group would be responsible for funding this expansion. Upon completion, the lease would be re-set so that at least seven years remained and rent would be charged on a formula utilising the construction costs under the warehouse expansion clause. The property expansions detailed above have an estimated aggregate cost of not more than $5.0 million. Construction contract for Building 3, 572-576 Swan Street, Richmond, Victoria with Hacer Group for development of a new 19,300 sqm office property with a contract value of approximately $80.0 million. The Group also has an obligation in June 2019 to make available $6.0 million to the tenant at 1 Charles Street, Parramatta, New South Wales to spend on capital expenditure or refurbishment at the property. The Group has an obligation in FY19, under a lease at Building 2, 572-576 Swan Street, Richmond, Victoria, to pay for lessor works totalling $3.8 million. Amounts recognised in profit and loss for investment properties Rental income Straight line adjustment to rental income Net gain from fair value adjustment Profit / (loss) on sale of investment properties Direct operating expenses from property that generated rental income 2018 $’000 254,239 5,962 166,958 24,419 (40,614) 410,964 2017 $’000 261,463 2,522 118,157 (1,123) (38,145) 342,874 Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information  70 Growthpoint Properties Australia 2018 Annual Report 2.2 Investment properties (continued) Leasing arrangements The majority of the investment properties are leased to tenants under non-cancellable, long-term operating leases with rent payable monthly. The minimum lease payments under these leases are receivable as follows: Within one year Later than one year but not later than five years Later than five years 2018 $’000 226,109 747,117 345,803 2017 $’000 228,397 819,366 476,081 1,319,029 1,523,844 10 (2017: 10) of the investment properties are held on a leasehold basis with non-cancellable, long-term operating leases with ground rent payable monthly. The minimum lease payments under these leases payable by the Trust are as follows: Within one year Later than one year but not later than five years Later than five years Reconciliation of value of investment properties At fair value Opening balance Acquisitions Capital expenditure Lease incentives and leasing costs Amortisation of lease incentives and leasing costs Disposals Reclassification (to) / from held for sale Straight lining of revenue adjustment Net gain from fair value adjustment Closing balance at 30 June 2018 $’000 3,646 8,551 930 13,127 2018 $’000 3,180,275 48,847 10,315 25,934 (16,327) (65,914) (64,250) 5,962 166,958 2017 $’000 2,261 4,722 148 7,131 2017 $’000 2,651,144 510,867 10,042 17,238 (9,969) (16,226) (103,500) 2,522 118,157 3,291,800 3,180,275 Notes to the Financial Statements continuedGrowthpoint Properties Australia 2018 Annual Report 71 2.3 Investment in securities Determination of fair value Investment in securities contains a financial asset designated at fair value through profit or loss at inception. The fair value of investment in securities is the price that would be received to sell this asset in an orderly transaction between market participants at the measurement date. This fair value is based on the last traded market price from the Australian Securities Exchange (ASX) of the relating security at reporting date. The following table represents the fair value movement in investment in securities for the year ended 30 June 2018. Opening balance Purchases Sales Closing balance Gain in the net change in fair value of investment in securities Fair value of Industria REIT stapled securities $’000 - 68,129 - 78,497 10,368 An off-market purchase of 29,621,555 Industria REIT (IDR) stapled securities was completed in July 2017. The last traded market price of an IDR stapled security on the ASX was $2.65 as at 30 June 2018. Fair value hierarchy The fair value of investments in securities has been classified as Level 1 in the fair value hierarchy based on quoted prices in an active market. 2.4 Non-current assets held for sale Accounting policy Non-current assets that are expected to be recovered primarily through sale rather than through continuing use are classified as held for sale. Immediately before classification as held for sale, the assets are re-measured in accordance with the Group’s accounting policies. Thereafter the assets are measured at the lower of their carrying amount and fair value with the exception of investment property which continues to be measured in accordance with accounting policy note 2.2. As at 30 June 2018, there were two properties classed as held for sale (2017: 1) and their value is shown on the table below: 1231-1241 Sandgate Road, Nundah, QLD Quad 2, 6 Parkview Drive, Sydney Olympic Park, NSW Quad 3, 102 Bennelong Parkway, Sydney Olympic Park, NSW Total 2018 $’000 2017 $’000 - 103,500 32,500 31,750 64,250 - - 103,500 Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information72 Growthpoint Properties Australia 2018 Annual Report 2.5 Trade and other assets Accounting policy Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method, less provision for impairment. Trade receivables are generally due for settlement within 30 days. Collectability of trade and other assets is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. A provision for impairment of receivables is established when there is objective evidence that all amounts due will not be able to be collected according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or significant delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the impairment allowance is the difference between the asset’s carrying amount and the present value of the 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. The amount of the impairment loss is recognised in the Consolidated Statement of Profit or Loss and Other Comprehensive Income within property revenue. When a trade receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off. Subsequent recoveries of amounts previously written off are credited against property revenue in the Consolidated Statement of Profit or Loss and Other Comprehensive Income. Impairment A financial asset not carried at fair value through profit or loss (meaning the asset value has not been increased or decreased to accord with its assessed market value) is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. Objective evidence that financial assets (including equity securities) are impaired can include default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not otherwise normally consider, indications that a debtor or issuer will enter bankruptcy and the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment. The Group considers evidence of impairment for receivables at both a specific asset and collective level. All individually significant receivables are assessed for specific impairment. All individually significant receivables found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Receivables that are not individually significant are collectively assessed for impairment by grouping together receivables with similar risk characteristics. In assessing collectively for impairment, the Group uses historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in the Consolidated Statement of Profit or Loss and Other Comprehensive Income and reflected in an allowance account against receivables. If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase can be related objectively to an event occurring after the impairment loss was recognised in the Consolidated Statement of Profit or Loss and Other Comprehensive Income, then the impairment loss is reversed, with the amount of the reversal recognised in the Consolidated Statement of Profit or Loss and Other Comprehensive Income. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in Other Comprehensive Income. Notes to the Financial Statements continuedGrowthpoint Properties Australia 2018 Annual Report 73 2.5 Trade and other assets (continued) Determination of fair value The fair value of trade and other assets is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. This fair value is determined for disclosure purposes. Trade and other assets can be analysed as follows: Current Rent receivables Distribution receivables Prepayments Proceeds from sale of investment properties Impaired rent receivables As at 30 June 2018, there were no impaired rent receivables (2017: nil). 2.6 Trade and other liabilities Accounting policies 2018 $’000 538 1,244 4,801 - 6,583 2017 $’000 1,335 - 4,756 4,800 10,891 These amounts represent liabilities for goods and services provided to the Group prior to the end of the reporting period and which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Trade and other liabilities are initially recognised at fair value, net of transaction costs incurred and are subsequently measured at amortised cost. Trade and other liabilities can be analysed as follows: Current Trade payables Non-trade payables GST payable Accrued expenses - other Prepaid rent Other liabilities (i) Non-current Non-trade payables ) 2018 $’000 2,340 865 1,881 12,378 18,052 1,854 37,370 69 69 2017 $’000 2,350 586 2,040 21,238 20,321 2,215 48,750 - - (i) Other liabilities represents an obligation to fund capital expenditure by the Company as the custodian of the Charles Street Property Trust. An equal amount was received and is held as cash (see Note 2.7) Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information  74 Growthpoint Properties Australia 2018 Annual Report 2.7 Cash flow information Accounting policies Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits with maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments. Restricted cash Cash and cash equivalents includes a balance of $1,854,000 (30 June 2017: $2,215,000) in restricted cash which is being held by the Company as the custodian of the Charles Street Property Trust. These funds are not available for general use by the Group. Cash flow information (a) Reconciliation of cash at end of year Cash and cash equivalents balance 2018 $’000 2017 $’000 31,463 31,459 (b) Reconciliation of net operating profit to net cash inflow from operating activities Net profit for the period 357,709 278,090 Distributions from investment in securities Fair value adjustment to investment properties (Profit)/ loss on sale of investment properties Fair value adjustment to investment in securities Fair value adjustment to derivatives Loss on settlement of derivatives Amortisation of borrowing costs Interest received Depreciation Change in operating assets and liabilities, net of effects from purchase of controlled entity: – Increase in Lease incentives and leasing costs – Decrease/ (Increase) in receivables – Increase in prepayments – Increase in deferred tax asset – Increase/ (decrease) in payables (4,886) (166,958) (24,419) (10,368) 573 - 1,583 (317) 293 (9,607) 5,568 (1,308) (104) (9,363) - (118,157) 1,123 - (16,161) 13,779 2,412 (501) 162 (7,304) (5,141) (2,612) (221) 16,031 Net cash inflow from operating activities 138,396 161,500 Notes to the Financial Statements continued  Growthpoint Properties Australia 2018 Annual Report 75 Section 3: Capital structure and financing costs in this section ... This section outlines how the Group manages its capital and related financing costs. 3.1 Interest bearing liabilities Accounting policies Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the Consolidated Statement of Profit or Loss and Other Comprehensive Income over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the date of the Consolidated Statement of Financial Position. Interest bearing liabilities The table below summarises the movements in the Group’s interest bearing liabilities during the year. Opening balance 1 July 2017 Movement during period Balance as at 30 June 2018 Facility limit Maturity $’000 $’000 $’000 $’000 Secured loans Syndicated bank facility – Facility B – Facility C – Facility D – Facility E – Facility G – Facility I – Facility H Loan note 1 Loan note 2 Loan note 3 Fixed bank facility 1 USPP 1 USPP 2 USPP 3 Total loans 100,000 245,000 52,144 100,000 150,000 - - 200,000 100,000 60,000 90,000 130,344 52,138 26,000 - - 17,856 - (120,000) - - - - - - - - - 100,000 245,000 70,000 100,000 30,000 - - 200,000 100,000 60,000 90,000 130,344 52,138 26,000 100,000 245,000 70,000 150,000 150,000 75,000 75,000 200,000 100,000 60,000 90,000 130,344 52,138 26,000 Mar-23 Dec-21 Dec-21 Jun-23 Sep-21 Nov-20 Sep-20 Mar-25 Dec-22 Dec-22 Dec-22 Jun-27 Jun-29 Jun-29 1,305,626 (102,144) 1,203,482 1,523,482 Less unamortised upfront costs (6,246) 319 Total interest bearing liabilities 1,299,380 (101,825) (5,927) 1,197,555 The weighted average all-in interest rate on interest bearing liabilities (including bank margin and amortisation of upfront fees paid) at 30 June 2018 was 4.44% per annum (2017: 4.29% per annum). Refer to note 3.3 for details on interest rate and cross currency swaps. Fair value The carrying amounts are not materially different to the fair values of borrowings at balance sheet date since the interest payable on those borrowings is close to current market rates. Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information  76 Growthpoint Properties Australia 2018 Annual Report 3.1 Interest bearing liabilities (continued) Interest bearing liabilities (continued) Assets pledged as security The bank loans, Loan Notes, USPP and bills payable by the Group are secured by first ranking mortgages over the Group’s real property interests, including those classified as investment properties. The carrying amounts of assets pledged as security for current and non-current borrowings are: Current Floating charge Cash and cash equivalents Receivables Assets held for sale Non-current First mortgage Investment properties Floating charge Plant and equipment Deferred tax assets Total non-current assets pledged as security Total assets pledged as security 3.2 Borrowing costs Accounting policies 2018 $’000 2017 $’000 31,463 6,583 64,250 102,296 31,459 10,891 103,500 145,850 3,291,800 3,180,275 930 1,046 1,197 929 3,293,776 3,396,072 3,182,401 3,328,251 Borrowing costs are interest and other costs incurred in connection with interest bearing liabilities including derivatives and recognised as expenses in the period in which they are incurred, except where they are incurred for the construction of any qualifying asset where they are capitalised during the period of time that is required to complete and prepare the asset for its intended use. Borrowing costs can be analysed as follows: Bank interest expense and charges Amortisation of borrowing costs 2018 $’000 53,215 1,582 54,797 2017 $’000 52,821 2,411 55,232 Notes to the Financial Statements continued      Growthpoint Properties Australia 2018 Annual Report 77 3.3 Derivative financial instruments Accounting policies Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured to their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument. The Group takes out certain derivative contracts as part of its financial risk management, however, it has elected not to designate these to qualify for hedge accounting under AASB 139. Interest rate and cross currency swaps Changes in fair value of such derivative instruments that do not qualify for hedge accounting are recognised immediately in the Consolidated Statement of Profit or Loss and Other Comprehensive Income. Determination of fair value The fair value of interest rate and cross currency swaps are based on broker quotes. Those quotes are tested for reasonableness by discounting estimated future cash flows based on the terms and maturity of each contract and using market interest rates for a substitute instrument at the measurement date. Fair values reflect the credit risk of the instrument and include adjustments to take account of the credit risk of the Group and counterparty when appropriate. Derivative financial instruments Derivative financial instruments can be analysed as follows: Interest rate swap contracts – carried at fair value through profit and loss: Total non-current derivative financial instrument assets Total non-current derivative financial instrument liabilities 2018 $’000 - (6,892) (6,892) 2017 $’000 121 (6,440) (6,319) Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information  78 Growthpoint Properties Australia 2018 Annual Report 3.3 Derivative financial instruments (continued) Derivative financial instruments (continued) Instruments used by the Group The Group is party to derivative financial instruments in the normal course of business in order to hedge exposure to fluctuations in interest and currency rates in accordance with the Group’s financial risk management policies (refer to note 3.4). The gain or loss from re-measuring the interest rate and cross currency swaps at fair value is recognised in the Consolidated Statement of Profit or Loss and Other Comprehensive Income immediately. Interest rate swap contracts – carried at fair value through profit and loss Swaps in effect at 30 June 2018 covered 27% (30 June 2017: 25%) of the loan principal outstanding. With total fixed interest rate debt of $984 million outstanding (30 June 2017: $984 million), the total fixed interest rate coverage of outstanding principle is 82% (30 June 2017: 75%). The average fixed interest rate of swaps at 30 June 2018 was 2.30% per annum (2017: 2.30% per annum) and the variable interest rate (excluding bank margin) is 1.97% per annum (30 June 17: 1.68% per annum) at balance date. See table below for further details of swaps in effect at 30 June 2018: Counter Party Amount of Swap Swap Expiry Fixed Rate Term to Maturity Interest rate swaps NAB CBA CBA ANZ Westpac Westpac ANZ Total / Weighted average $’000 25,000 75,000 25,000 50,000 50,000 50,000 50,000 325,000 Jun-2020 Nov-2021 Jun-2020 Dec-2020 May-2021 Jun-2021 Jun-2021 % Years 2.36 2.20 2.36 2.42 2.10 2.48 2.33 2.30 2.0 3.4 2.0 2.5 2.9 3.0 3.0 2.8 These contracts require settlement of net interest receivable or payable each 30 days. The settlement dates generally coincide with the dates on which interest is payable on the underlying debt. These contracts are settled on a net basis. At balance date these contracts were a total liability with a fair value of $6,892,000 (30 June 17: net liability of $6,319,000) for the Group. For the year ended 30 June 2018 there was a loss from the decrease in fair value of $573,000 for the Group (2017: gain of $16,161,000). Cross currency swap contracts – carried at fair value through profit and loss Counter Party Amount of Swap Swap Expiry Fixed Rate Term to Maturity Cross Currency Swaps NAB Westpac ANZ CBA NAB Westpac ANZ CBA Total / Weighted average $’000 32,586 32,586 32,586 32,586 13,034 13,034 13,034 13,034 182,482 Jun-2027 Jun-2027 Jun-2027 Jun-2027 Jun-2029 Jun-2029 Jun-2029 Jun-2029 % Years 5.29 5.29 5.27 5.26 5.47 5.47 5.45 5.44 5.33 9.0 9.0 9.0 9.0 11.0 11.0 11.0 11.0 9.5 Notes to the Financial Statements continued    Growthpoint Properties Australia 2018 Annual Report 79 3.3 Derivative financial instruments (continued) Derivative financial instruments (continued) Fair value hierarchy The table below analyses financial instruments carried at fair value by valuation method. The different levels have been defined as follows: t Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. t 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). t Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). The fair value of investment properties has been categorised as Level 3 in the fair value hierarchy based on the significant unobservable inputs into the valuation techniques used. 30 June 2018 Derivative financial assets Derivative financial liabilities 30 June 2017 Derivative financial assets Derivative financial liabilities Level 1 Level 2 Level 3 $’000 $’000 $’000 - - - - - - - 6,892 6,892 (121) 6,440 6,319 - - - - - - Total $’000 - 6,892 6,892 (121) 6,440 6,319 3.4 Financial risk management Overview The Group has exposure to the following risks from their use of financial instruments: t credit risk; t liquidity risk; and t market risk (including interest rate risk). This note presents information about the Group’s exposure to each of the above risks, their objectives, policies and processes for measuring and managing risk, and the management of capital as well as relevant quantitative disclosure on risks. Risk management framework The Board has overall responsibility for the establishment and oversight of the risk management framework. The Board has established an Audit, Risk and Compliance Committee, which is responsible for developing and monitoring risk management policies and making appropriate recommendations to the Board. The Committee reports regularly to the Board on its activities. In addition, the Managing Director provides a regular report to the Board in relation to risks facing the Group. Risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. The Audit, Risk and Compliance Committee oversees how management monitor compliance with the Group’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. 46 Refer to page 46 of the Group’s 2018 Sustainability Report for more details. Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information80 Growthpoint Properties Australia 2018 Annual Report 3.4 Financial risk management (continued) Financial instruments used by the Group The Group’s principal financial instruments, other than derivatives, comprise bank loans and Loan Notes (including USPP Notes). The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has various other financial assets and liabilities such as other receivables and payables, which arise directly from its operations. The Group also enters into derivative transactions (interest rate and cross currency swaps) to manage the interest rate risks arising from the Group’s operations. It is the Group’s policy that no speculative trading in financial instruments shall be undertaken. The main risks arising from the Group’s financial instruments are cash flow interest rate risk and foreign exchange risk. The Board of Directors reviews and agrees policies for managing these risks and these are summarised below. Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instruments are disclosed in the relevant note to the financial statements. Derivative financial instruments – interest rate swaps The Group is exposed to financial risk from movement in interest rates. To reduce its exposure to adverse fluctuations in interest rates, the Group has employed the use of interest rate swaps whereby the Group agrees with a bank to exchange at specified intervals, the difference between fixed rate and floating rate interest amounts calculated by reference to an agreed notional principal amount. Any amounts paid or received relating to interest rate swaps are recognised as adjustments to interest expense over the life of each swap contract, thereby adjusting the effective interest rate on the underlying obligations. The gain or loss from re-measuring the interest rate swaps at fair value is recognised in the Consolidated Statement of Profit or Loss and Other Comprehensive Income immediately, as hedge accounting under AASB 139 has not been adopted. Derivative financial instruments – cross currency swaps The Group is exposed to financial risk from the movement in foreign exchange rates based on its USD denominated debt. To remove its exposure to adverse fluctuations in foreign exchange rates, the Group has employed the use of cross currency swaps which convert foreign currency exposures into AUD exposures and convert all future payments of interest in USD to AUD. Sensitivity to foreign exchange fluctuations is therefore removed. Credit risk Credit risk is the risk that counterparties to a financial asset will fail to discharge their obligations, causing the Group to incur a financial loss. For cash and current receivables, the maximum exposure to credit risk at the reporting date is the carrying amount of each class of receivable. The Group has significant derivative financial instruments held with four major Australian banks, NAB, Westpac, ANZ and CBA, counterparties which are considered to be high quality financial institutions. At balance sheet date, the fair value of the financial instruments is in a liability position (refer to Note 3.3). The Group manages credit risk and the losses which could arise from default by ensuring that parties to contractual arrangements are of an appropriate credit rating, or do not show a history of defaults. Cash at bank is held with a major Australian bank. Tenants for each of the properties held by the Group are assessed for creditworthiness before a new lease commences. This assessment is also undertaken where the Group acquires a tenanted property. If necessary, a new tenant will be required to provide lease security (such as personal, director or bank guarantees, a security deposit, letter of credit or some other form of security) before the tenancy is approved. Tenant receivables are monitored by property managers and the Group’s asset managers on a monthly basis. If any amounts owing under a lease are overdue these are followed up for payment. Where payments are outstanding for a longer period than allowed under the lease, action to remedy the breach of the lease can be pursued, including legal action or the calling of security held by the Group under the lease. Where it is assessed it is not likely that the amount outstanding will be received by the Group an allowance is made for the debt being doubtful. For developers from whom coupon interest is receivable by the Group over the course of a development, the Group assesses the creditworthiness of a developer counterparty prior to entering into a binding contractual relationship. Net fair values The carrying values of the Group’s financial assets and liabilities included in the Statement of Financial Position approximate their fair values. Refer to the individual notes to these accounts regarding these assets and liabilities for the methods and assumptions adopted in determining net fair values. Notes to the Financial Statements continuedGrowthpoint Properties Australia 2018 Annual Report 81 3.4 Financial risk management (continued) Financial instruments used by the Group (continued) Market risk Market risk is the risk that changes in market prices (such as foreign exchange rates, interest rates and equity prices) will affect the Group’s income or the value of its holding of financial instruments. A potential market risk to the Group arises from changes in interest rates relating to its Syndicated Facility with a principal amount outstanding of $545,000,000 at balance sheet date (2017: $647,144,000). The Group is party to derivative financial instruments in the normal course of business in order to hedge exposure to fluctuations in interest rates. The following table sets out the carrying amount of the financial instruments that are exposed to interest rate risk. Financial assets Cash and cash equivalents Derivative financial instruments Financial liabilities Derivative financial instruments Interest bearing liabilities – fixed debt Interest bearing liabilities – hedged (i) Interest bearing liabilities – unhedged (i) Note – hedge accounting has not been adopted. Fixed/Floating Floating Floating Floating Fixed Fixed Floating 2018 $’000 31,463 - 31,463 6,892 658,482 325,000 220,000 2017 $’000 31,459 121 31,580 6,440 658,482 325,000 322,144 1,210,374 1,312,066 The following sensitivity analysis is based on the interest rate risk exposures in existence at balance sheet date. At 30 June 2018, if interest rates had moved, as illustrated in the table below, with all other variables held constant, net profit and equity would have been affected as follows: +100 bps Cash and borrowings Interest rate derivatives Cross currency derivatives -100 bps Cash and borrowings Interest rate derivatives Cross currency derivatives Post Tax Profit Higher / (Lower) 2018 $’000 (1,885) (8,933) (2,178) (12,996) 1,885 13,188 16,566 31,639 2017 $’000 (2,907) (9,032) (3,055) (14,994) 2,907 14,549 14,077 31,533 As can be seen from the table above, the movements in profit are primarily due to fair value gains or losses on financial derivatives from an interest rate increase or decrease. These fair value gains or losses would be unrealised and non-cash in nature unless the interest rate swaps were closed or sold. Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information      82 Growthpoint Properties Australia 2018 Annual Report 3.4 Financial risk management (continued) Financial instruments used by the Group (continued) Other market price risk The Group is exposed to equity price risk, which arises from its investment in securities measured at fair value through profit and loss. The management of the Group monitors the proportion of equity securities in its investment portfolio based on market indices. Material investments within the portfolio are managed on an individual basis and all buy and sell decisions are approved by the Board. The primary goal of the Group’s investment strategy is to maximise investment returns. Certain investments are designated as at fair value through profit and loss because their performance is actively monitored and they are managed on a fair value basis. Sensitivity analysis – equity price risk The Group’s listed equity investments are listed on the Australian Securities Exchange (ASX). For such investments classified as fair value through profit and loss, a 10% increase/decrease in the equity value would have increased/decreased post tax profit by $7,850,000 (2017: nil). Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its obligations in relation to investment activities or other operations of the Group. The Group manages its liquidity risk by ensuring that on a daily basis there is sufficient cash on hand or available loan facilities to meet the contractual obligations of financial liabilities as they fall due. The Board sets budgets to monitor cash flows. In addition, the Company, as an Australian Financial Services Licensee, is required to prepare a rolling 12 month cashflow projection approved by the Directors. As at the balance sheet date, the Group had cash and cash equivalents totalling $31,463,000 (2017: $31,459,000). Financing arrangements The Group had access to the following borrowing facilities as at the balance sheet date: Syndicated bank facility Total facility Used at balance date Unused at balance date Fixed debt Total facility Used at balance date Unused at balance date Total unused bank facilities 2018 $’000 865,000 545,000 320,000 2017 $’000 815,000 647,144 167,856 658,482 658,482 - 658,482 658,482 - 320,000 167,856 Notes to the Financial Statements continued  Growthpoint Properties Australia 2018 Annual Report 83 3.4 Financial risk management (continued) Financial instruments used by the Group (continued) Maturities of financial liabilities The maturity of financial liabilities (including trade and other payables, provision for distribution, provision for current tax payable, derivative financial instruments and interest bearing liabilities) at reporting date is shown below, based on the contractual terms of each liability in place at reporting date. The amounts disclosed are based on undiscounted cash flows, including interest payments based on variable rates at 30 June 2018. Carrying amount Total contractual cashflows 6 months or less 6 to 12 months 1 to 5 years More than 5  years $’000 $’000 $’000 $’000 $’000 $’000 2018 Non-derivative financial liabilities Bank loans and Loan Notes 1,203,482 1,903,320 Trade and other liabilities 94,731 94,799 1,298,213 1,998,119 (16,029) 93,533 77,504 80,935 293,832 1,544,582 721 545 - 81,656 294,377 1,544,582 Derivative financial liabilities Interest rate swaps used for hedging 2017 Non-derivative financial liabilities 6,892 6,892 1,713 1,713 873 873 736 736 104 104 - - Bank loans 1,305,626 1,320,005 (148,157) Trade and other liabilities 100,688 100,688 1,406,314 1,420,693 95,787 (52,370) 63,436 4,901 68,337 231,727 1,172,999 - - 231,727 1,172,999 Derivative financial liabilities Interest rate swaps used for hedging 6,440 6,440 4,508 4,508 1,208 1,208 1,113 1,113 2,187 2,187 - - Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information84 Growthpoint Properties Australia 2018 Annual Report 3.5 Contributed Equity and reserves Accounting policies Share capital Stapled securities are classified as equity. Incremental costs directly attributable to the issue of stapled securities are recognised as a deduction from equity, net of any tax effects. Distributions and dividends Provision is made for the amount of any distribution or dividend declared, determined or publicly recommended by the Directors on or before the end of the period but not distributed at the balance sheet date. Contributed Equity Contributed equity can be analysed as follows: 2018 No. (‘000) 2018 $’000 2017 No. (‘000) 2017 $’000 Opening balance at 1 July 661,341 1,653,735 583,126 1,414,012 Issue of ordinary stapled securities during the year: Securities issued on acquisition of assets Distribution reinvestment plans Securities issued through Employee Incentive Plans Costs of raising capital - - 13,668 44,967 376 - - - 44,380 33,528 307 - 14,044 44,967 78,215 139,808 105,928 - (6,013) 239,723 Closing balance at 30 June 675,385 1,698,702 661,341 1,653,735 Ordinary stapled securities Ordinary stapled securities entitle the holder to participate in dividends and distributions and the proceeds on winding up of the Group in proportion to the number of and the amounts paid on the stapled securities held. On a show of hands every holder of ordinary stapled securities present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each unit is entitled to one vote. Distribution reinvestment plan The Distribution Reinvestment Plan is operative for the 31 December 2017 and 30 June 2018 distributions of the Group. Capital risk management The Group’s objective when managing capital is to safeguard its ability to continue as a going concern, so that the Group can continue to provide returns for Securityholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends and distributions paid to Securityholders, return capital to Securityholders, vary the level of borrowings, issue new securities or sell assets. During the year, the Group implemented several capital management initiatives, namely: t The Distribution Reinvestment Plan was in operation for the 31 December 2017 distribution, raising a total of $44,967,000 for the issue of 13,667,999 new stapled securities. t In April 2018, the Group extended two tranches of bank debt with a facility limit of $315,000,000 by two years to 31 December 2021. t In June 2018, the Group extended a tranche of bank debt with a facility limit of $100,000,000 by four years to 31 March 2023. t In June 2018, the Group increased a tranche of bank debt by $50,000,000 to a facility limit of $150,000,000. It also extended the maturity date by 4 years to 30 June 2023. t The Distribution Reinvestment Plan was in operation for the 30 June 2018 distribution. Notes to the Financial Statements continued  Growthpoint Properties Australia 2018 Annual Report 85 3.5 Contributed Equity and reserves (continued) Capital risk management (continued) The Group also holds an independent credit rating to aid it accessing debt capital markets. In April 2018, Moody’s confirmed the Group’s independent credit rating of Baa2 on senior secured debt with a stable outlook. The Group maintains undrawn debt facilities to aid in capital management. As at 30 June 2018 the Group had total debt facilities of $1,523,482,000 of which $320,000,000 was undrawn at balance date. The Group monitors capital by using a number of measures, such as gearing, interest cover and loan to valuation ratio. The gearing ratio is calculated by dividing interest bearing liabilities less cash by total assets less cash. The Group has a target gearing range of 35% - 45%. At 30 June 2018, the gearing ratio was 33.9% (30 June 17: 38.5%). The gearing ratios at 30 June 2018 and 30 June 2017 were calculated as follows: Total interest bearing liabilities less cash Total assets less cash Gearing ratio Nature and purpose of reserves Share-based payments reserve 2018 $’000 1,166,092 3,444,415 33.9% 2017 $’000 1,267,921 3,296,913 38.5% The share-based payments reserve comprises the transfer of the portion of the fair value of the total cost recognised under the Employee Incentive Plans in operation and is the portion of the fair value of the total cost recognised of the unissued securities, which remain conditional on employment with the Group at the relevant vesting date. Refer to Note 3.8 for more information. Deferred tax expense charged to equity This reserve comprises deferred tax balances attributable to amounts that are also recognised directly in equity. Refer to Note 4.3 for further information. Profits reserve The profits reserve comprises the transfer of net profit in the Company for the year (if any) and contains profits available for distribution as dividends in future years. There were no dividends distributed from the profits reserve during the year (2017: nil). 3.6 Distributions Period for distribution Half year to 31 December 2017 Half year to 30 June 2018 Total distribution for FY18 Half year to 31 December 2016 Half year to 30 June 2017 Total distribution for FY17 Total distribution Total stapled securities Distributions per stapled security $’000 (’000) 72,789 75,643 148,432 67,991 72,086 140,077 661,716 675,384 641,424 661,340 (cents) 11.00 11.20 22.20 10.60 10.90 21.50 Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information86 Growthpoint Properties Australia 2018 Annual Report 3.7 Earnings per stapled security (“EPS”) Earnings per stapled security Basic EPS is determined by dividing the profit or loss attributable to Securityholders of the Group by the weighted average number of equivalent securities outstanding during the financial year. Diluted EPS adjusts the figures used in the determination of basic EPS by taking into account amounts unpaid on securities and the effect of all dilutive potential ordinary securities. Profit attributable to Securityholders of the Group ($) Weighted average number of stapled securities on issue for the year (no.) Basic & diluted earnings per stapled security (cents) 3.8 Share-based payment arrangements Accounting policies Share-based payment transactions 2018 2017 357,709,000 278,090,000 668,456,752 651,245,952 53.5 42.7 The grant-date fair value of share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. Determination of fair values Fair value is calculated based on the present value of the performance right on the date of issuance in future periods, discounted at a market-related discount rate. Share-based payment arrangements At 30 June 2018, the Group has the following share-based payment arrangements: Employee Incentive Plans FY15, FY16, FY17, FY18 The Group has introduced employee incentive plans for all employees (including the Managing Director). The plans are designed to link employees’ remuneration with the long-term goals and performance of the Group and the maximisation of wealth for its Securityholders. The current measures for the plans, which are reviewed regularly by the Nomination, Remuneration & HR Committee and/or the Board are described in full on page 43 (in the remuneration report section of the Directors’ report). 43 Under each plan, each eligible employee is sent a letter of invitation to the plan which outlines the percentage of their base salary that they can earn as performance rights. Acceptance of this invitation is the grant date for those performance rights. The percentage of the maximum possible earnings for each employee is determined by the percentage of the measures under each plan that are achieved. Subject to the employee remaining employed by the Group, on or about 30 September of each year the employee will receive 25% of his or her performance rights, as they vest through the issue of stapled securities in the Group. Securities will be issued for an equivalent amount at an issue price per security based on the volume weighted average price of the securities over the first 20 trading days in September prior to the vesting date of the first tranche of each plan. Any director in the plan will have their grant ratified at the Group’s Annual General Meeting and following approval will be issued their securities on the same basis as the employees. The performance rights are cumulative and, subject to some exceptions, immediately vest in the case of a takeover of the Group or a redundancy. Notes to the Financial Statements continuedGrowthpoint Properties Australia 2018 Annual Report 87 3.8 Share-based payment arrangements (continued) Share-based payment arrangements (continued) During the year, the first tranche of the FY17, the second tranche of the FY16, the third tranche of the FY15 and the fourth tranche of the FY 14 Employee Incentive Plan performance rights was determined with the results shown on the table below: Plan identification Plan participants Tranche FY17 Plan FY17 Plan FY16 Plan FY16 Plan FY15 Plan FY15 Plan FY14 Plan FY14 Plan Director Employees Director Employees Director Employees Director Employees 1 1 2 2 3 3 4 4 Cost $ 175,230 300,222 83,427 112,019 129,540 140,308 128,653 125,944 The first tranche of the FY17 Employee Incentive Plan performance rights vested during the year. The fair value of performance rights under the FY18 Employee Incentive Plan was determined on the grant date of those rights and then “trued-up” at 30 June 2018 where allowed. The fair value of these rights for the director is estimated as $368,160 and for other employees $705,201. This estimate is based on achieving 50.0% of the maximum payable under the FY18 plan. This is seen as a reasonable estimate of fair value as it is based on the percentage achieved for comparable elements from the FY16 plan, adjusted for information available on likely achievement as at 30 June 2018. The actual costs of performance rights cannot be determined until FY19 and the first issue of securities under the FY18 plan will not occur until FY19. During the year, $1,229,000 was recognised in the share based payments reserve (June 17: $1,319,000). This represents the amounts recognised under the four plans in operation and is the portion of the fair value of the total cost recognised of the unissued securities, which remain conditional on employment with the Group at the relevant vesting date. As of the date of the report, the number of equity shares to be granted and vested in the future cannot be determined until the rights fully vest. The table below outlines the value of performance rights granted during the year to 30 June 2018, where those values can be determined. It also outlines the value of performance rights that were issued as stapled securities in the Group. Plan identification Plan participants Issue date FY17 Plan FY17 Plan FY16 Plan FY16 Plan FY15 Plan FY15 Plan FY14 Plan FY14 Plan Director Employees Director Employees Director Employees Director Employees 23-Nov-17 4-Oct-17 4-Oct-17 4-Oct-17 4-Oct-17 4-Oct-17 4-Oct-17 4-Oct-17 Value of securities issued on conversion of performance rights Number of securities issued on conversion of performance rights Value of performance rights still to vest Percentage of plan that vested during FY18 $ 175,230 300,222 83,427 112,019 129,540 140,308 128,653 125,944 No. 55,104 94,410 26,235 35,227 40,736 44,123 40,457 39,605 $ N/A N/A N/A N/A N/A N/A N/A N/A % 25% 25% 25% 25% 25% 25% 25% 25% Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information88 Growthpoint Properties Australia 2018 Annual Report Section 4: Other notes 4.1 Key management personnel compensation Accounting policies Employee benefits - Defined contribution plans A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognised as an employee benefit expense in the Consolidated Statement of Profit or Loss and Other Comprehensive Income in the periods during which services are rendered by employees. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available. Contributions to a defined contribution plan that are due more than 12 months after the end of the period in which the employees render the service are discounted to their present value. Employee benefits - Termination benefits Termination benefits are recognised as an expense when the Group is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognised as an expense if the Group has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. If benefits are payable more than 12 months after the reporting period, they are discounted to their present value. Employee benefits - Short-term benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. Compensation The key management personnel compensation comprised: Short-term employee benefits Other long-term employee benefits Post-employment benefits Share-based payments 2018 $ 2017 $ 4,530,409 3,715,568 9,368 144,412 913,548 5,597,737 - 155,796 1,024,316 4,895,680 Individual directors’ and executives’ compensation disclosures Information regarding individual directors’ and executives’ compensation and equity instruments disclosure as required by Corporations Regulation 2M.3.03 is provided in the remuneration report section of the Directors’ Report. Apart from the details disclosed in this note, no Director has entered into a material contract with the Group since the end of the previous financial year and there were no material contracts involving Directors’ interests existing at year-end. Notes to the Financial Statements continued  Growthpoint Properties Australia 2018 Annual Report 89 4.1 Key management personnel compensation (continued) Compensation (continued) Movements in securities The movement in the number of ordinary stapled securities in the Group held, directly, indirectly or beneficially, by each key management person, including their related parties, is as follows: 2018 Securityholder G. Jackson N. Sasse E. de Klerk T. Collyer F. Marais A. Hockly D. Andrews M. Green G. Tomlinson M. Brenner J. Sukkar Opening securities 1 July No. 164,799 1,470,908 1,549,983 790,960 150,322 - 42,257 47,370 78,831 7,245 - Securities granted as compensation Acquired securities Disposed securities Closing securities 30 June No. - - - 162,532 - 45,005 43,558 43,831 - - - No. 5,510 49,179 51,821 - - - - - 2,636 - - No. No. - - - - - - - (46,000) - - - 170,309 1,520,087 1,601,804 953,492 150,322 45,005 85,815 45,201 81,467 7,245 - During the year to 30 June 2018, a total of 294,926 stapled securities with a total value of $937,865 were issued to key management personnel upon vesting of performance rights under Employee Incentive Plans. 2017 Securityholder G. Jackson N. Sasse E. de Klerk T. Collyer F. Marais A. Hockly D. Andrews M. Green G. Tomlinson M. Brenner Opening securities 1 July No. 144,707 1,293,762 1,354,592 625,612 134,451 107,558 120,851 32,399 59,332 7,245 Securities granted as compensation Acquired securities Disposed securities Closing securities 30 June No. - - - 150,033 - 35,719 33,511 33,321 - - No. 20,092 177,146 195,391 15,315 15,871 8,482 9,396 - 19,499 - No. No. - - - - - (151,759) (121,501) (18,350) - - 164,799 1,470,908 1,549,983 790,960 150,322 - 42,257 47,370 78,831 7,245 During the year to 30 June 2017, a total of 252,584 stapled securities with a total value of $818,372 were issued to key management personnel upon vesting of performance rights under Employee Incentive Plans. Key management personnel loan disclosures The Group has not made, guaranteed or secured, directly or indirectly, any loans to the key management personnel or their personally related entities at any time during the reporting period. Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information90 Growthpoint Properties Australia 2018 Annual Report 4.2 Related party transactions Responsible Entity The current Responsible Entity of Growthpoint Properties Australia Trust is Growthpoint Properties Australia Limited. It has acted in that role since its appointment on 5 August 2009. Responsible Entity’s/manager’s fees and other transactions Under the current stapled structure, the management of the Trust is internalised and no Responsible Entity or management fees are paid to external parties. No performance fee or other fees were paid or payable during the year. Director transactions A number of Directors, or their related parties, hold positions in other entities that result in them having control or significant influence over the financial or operating policies of those entities. One of these entities transacted with the Group in the reporting period. The terms and conditions of the transaction were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions with non-related parties on an arm’s length basis. The aggregate value of transactions and outstanding balances relating to directors and entities over which they have significant control or significant influence were as follows: Director G. Jackson (i) Transaction 2018 $ 2017 $ Valuation 68,720 52,150 (i) The Group used the valuation services of m3property, a company that Mr Jackson is a director of, to independently value 12 properties (2017: 7). Amounts were billed based on normal market rates for such services and were due and payable under normal payment terms and Mr Jackson was not directly involved in the Group’s engagement of m3property. The expense of valuation services provided by m3property represented 16% of the total valuation expense for the year (2017: 11%). At 30 June 2018, $26,500 was payable for valuation services to m3property (2017: $11,500). Transactions with significant shareholders During the year there were no transactions with significant shareholders (FY 17: the ultimate parent entity, Growthpoint Properties Limited, provided underwriting for the December 2016 half year DRP. No fees were charged for this underwriting and Securityholder approval was obtained at the November 2016 Annual General Meeting for this underwriting.). There were no balances outstanding from transactions with significant shareholders as at 30 June 2018 (2017: nil). 4.3 Taxation Accounting policies Income Tax Under current income tax legislation, no income tax is payable by the Trust provided taxable income is fully distributed to Securityholders or the Securityholders become presently entitled to all the taxable income. For the Company, income tax expense comprises current and deferred tax. Current and deferred tax are recognised in profit or loss except to the extent that they relate to a business combination, or items recognised directly in equity or in other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax assets are reviewed each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Notes to the Financial Statements continuedGrowthpoint Properties Australia 2018 Annual Report 91 4.3 Taxation (continued) Accounting policies (continued) Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. Income tax expense The tables below relate to income tax for the Company only. Income tax expense: Current tax expense Deferred tax benefit Over provision from prior year Numerical reconciliation of income tax expense to prima facie tax payable: Loss before income tax expense Income tax benefit using the Company’s domestic rate of 30% Increase in income tax due to: Non-deductible expenses 2018 $’000 210 (117) - 93 2018 $’000 (960) (288) 381 93 2017 $’000 217 (185) 18 50 2017 $’000 (1,184) (355) 405 50 The weighted average tax rate for FY18 and FY17 is not meaningful as there is a loss before tax expenses but for tax purposes there is a profit. As at 30 June 2018, the Company had franking credits of $2,256,486 available to it (30 June 2017: $1,896,021). Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information    92 Growthpoint Properties Australia 2018 Annual Report 4.3 Taxation (continued) Income tax expense (continued) Movement in temporary differences during the year Non-current assets: Property, plant and equipment Equity raising costs Total Current liabilities: Accrued expenses Employee benefits Prepayments Total Total movement in temporary differences Non-current assets: Equity raising costs Total Current liabilities: Accrued expenses Employee benefits Prepayments Total Total movement in temporary differences Opening balance 1 July 2017 Charged to profit and loss Charged to equity Balance 30 June 2018 $’000 $’000 $’000 $’000 - 83 83 164 663 19 846 929 35 (31) 4 64 48 - 112 116 - - - - - - - - 35 53 88 228 711 19 958 1,046 Opening balance 1 July 2016 Charged to profit and loss Charged to equity Balance 30 June 2017 $’000 $’000 $’000 $’000 69 69 146 471 23 640 709 (71) (71) 18 192 (4) 206 135 85 85 - - - - 85 83 83 164 663 19 846 929 4.4 Contingent liabilities The Group has no contingent liabilities as at the date of this report (2017: nil). 4.5 Commitments For details of commitments on properties to be expanded see Note 2.2. The Group has no other significant capital, lease or remuneration commitments in existence at reporting date, which have not been recognised as liabilities in these financial statements (2017: nil). Notes to the Financial Statements continued  Growthpoint Properties Australia 2018 Annual Report 93 4.6 Controlled entities Accounting policies Basis of consolidation Subsidiaries Subsidiaries are entities controlled by the Group. Where control of an entity is obtained during a period, its results are included in the consolidated income statement from the date on which control commences. Where control of an entity ceases during a period its results are included only for that part of the period during which control existed. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group. Transaction eliminated on consolidation Intra-group balances and transactions, and any unrealised income and expense arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. Controlled entities The controlled entities of the Group listed below were all domiciled in Australia and were wholly owned during the current year and prior year, unless otherwise stated: Wholesale Industrial Property Fund 19 Southern Court Property Trust Kilsyth 1 Property Trust Kilsyth 2 Property Trust Queensland Property Trust New South Wales Property Trust Coolaroo Property Trust Broadmeadows Leasehold Trust Atlantic Drive Property Trust 20 Southern Court Property Trust Ravenhall Property Trust Laverton Property Trust Drake Boulevard Property Trust Preston 2 Property Trust Goulburn Property Trust Growthpoint Properties Australia Limited Growthpoint Nominees (Aust) Pty Limited Derrimut Property Trust Dandenong South Property Trust Nundah Property Trust Rabinov Property Trust Rabinov Property Trust No. 2 Rabinov Property Trust No. 3 Ann Street Property Trust CB Property Trust New South Wales 2 Property Trust Richmond Car Park Trust Mort Street Property Trust Erskine Park Pharmaceutical Trust Erskine Park Truck Trust Erskine Park Warehouse Trust William Angliss Drive Trust Charles Street Property Trust Wellington Road Property Trust Growthpoint Nominees (Aust) 2 Pty Limited 1500 Ferntree Gully Road Property Trust Eagle Farm Property Trust Yatala 1 Property Trust Yatala 2 Property Trust Yatala 3 Property Trust South Brisbane 1 Property Trust South Brisbane 2 Property Trust SW1 Car Park Trust World Park Property Trust Building 2 Richmond Property Trust Lot S5 Property Trust 6 Kingston Park Court Property Trust 3 Millennium Court Property Trust Pope Street Property Trust Kembla Grange Property Trust 211 Wellington Road Property Trust Building C, 211 Wellington Road Property Trust 255 London Circuit Trust 75 Dorcas Street Trust Growthpoint Metro Office Fund Growthpoint Developments Pty Ltd Kewlink East Trust (i) (i) Indicates entities established or purchased during the financial year ended 30 June 2018. Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information94 Growthpoint Properties Australia 2018 Annual Report 4.7 Parent entity disclosures As at, and throughout, the financial year ended 30 June 2018 the parent of the Group was Growthpoint Properties Australia Trust. Result of the parent entity Profit for the period Other comprehensive expense Total comprehensive income for the period Financial position of the parent entity at year end Current assets Total assets Current liabilities Total liabilities Net assets Total equity of the parent entity comprising: Contributed equity Retained profits/ (losses) Total equity 2018 $’000 2017 $’000 358,762 (148,432) 210,330 279,324 (140,077) 139,247 86,322 128,649 3,456,619 3,308,924 159,547 1,363,995 2,092,624 164,530 1,470,229 1,838,695 1,639,014 1,595,415 453,610 243,280 2,092,624 1,838,695 The contractual obligations of the parent entity are identical to those disclosed on Note 2.2 4.8 Remuneration of auditors During the year to 30 June 2018 the following fees were paid or payable for services provided by the auditor of the Group: Audit services - KPMG Audit and review of financial statements Other regulatory audit services Non-audit services - KPMG Other assurance and due diligence services 2018 $ 2017 $ 140,966 59,410 124,522 58,728 9,000 209,376 9,600 192,850 Notes to the Financial Statements continued    Growthpoint Properties Australia 2018 Annual Report 95 4.9 Subsequent events On 18 July 2018, the Group announced that the issue price for securities to be issued under the DRP for the distribution to be paid on or around 31 August 2018 will be $3.58 per stapled security. Approximately 72.5% of Growthpoint’s distribution payable on or around 31 August 2018 will be issued as new stapled securities under the DRP, raising, after allowing for withholding tax, $46.7 million for the issue of 13.0 million new stapled securities. Total stapled securities on issue following the DRP will be approximately 688.4 million. On 18 July 2018, the Group announced that it had entered into a put and call option to acquire 836 Wellington Road, West Perth, WA. The acquisition is scheduled to settle in October 2018 for a purchase price of $91,325,000. Other than noted above, there has not arisen a transaction or event of an unusual nature likely to affect significantly the operations of the business, the results of those operations or the state of affairs of the entity in future financial years from the end of the interim period to the date of this report. Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information96 Growthpoint Properties Australia 2018 Annual Report Directors’ declaration In the opinion of the Directors: (a) the attached Financial Statements and notes, and the Remuneration Report in the Directors’ Report set out on pages 36 to 95 are in accordance with the Corporations Act 2001 (Cth), including: (i) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and (ii) giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its performance for the financial year ended on that date; and (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1; and (c) there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable. The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 (Cth) from the Managing Director and Chief Financial Officer for the financial year ended 30 June 2018. This declaration is made in accordance with a resolution of the Directors of the Group. Timothy Collyer Managing Director Growthpoint Properties Australia Limited Melbourne, 16 August 2018 Auditor’s Independence declaration Growthpoint Properties Australia 2018 Annual Report 97 97 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation. Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To the Directors of Growthpoint Properties Australia Limited, being the Responsible Entity of Growthpoint Properties Australia Trust I declare that, to the best of my knowledge and belief, in relation to the audit of Growthpoint Properties Australia Limited, being the Responsible Entity of Growthpoint Properties Australia Trust for the financial year ended 30 June 2018 there have been: i. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and ii. no contraventions of any applicable code of professional conduct in relation to the audit. KPMG Dean Waters Partner Melbourne 16 August 2018 Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information98 Growthpoint Properties Australia 2018 Annual Report Independent Auditor’s report 98 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation. Independent Auditor’s Report To the stapled security holders of Growthpoint Properties Australia Report on the audit of the Financial Report Opinion We have audited the Financial Report of Growthpoint Properties Australia (the Stapled Group Financial Report). In our opinion, the accompanying Stapled Group Financial Report is in accordance with the Corporations Act 2001, including:  giving a true and fair view of the Stapled Group’s financial position as at 30 June 2018 and of its financial performance for the year ended on that date; and  complying with Australian Accounting Standards and the Corporations Regulations 2001. The Financial Report of the Stapled Group comprises:  Consolidated statement of financial position as at 30 June 2018  Consolidated statement of profit or loss and other comprehensive income consolidated statement of changes in equity, and consolidated statement of cash flows for the year then ended  Notes including a summary of significant accounting policies  Directors’ Declaration. The Stapled Group consists of Growthpoint Properties Australia Trust and the entities it controlled at the year-end or from time to time during the financial year and Growthpoint Properties Australia Limited. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Stapled Group, Growthpoint Properties Australia Trust and Growthpoint Properties Australia Limited (the Responsible Entity) in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code. Key Audit Matters The Key Audit Matters we identified for the Stapled Group are:  Valuation of investment properties  Recognition of rental income and straight line-adjustment to property revenue Key Audit Matters are those matters that, in our professional judgment, were of most significance in our audit of the Financial Report of the current period. These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Growthpoint Properties Australia 2018 Annual Report 99 99 Valuation of Investment Properties ($3,292 million) Refer to Note 2.2 to the Financial Report The key audit matter How the matter was addressed in our audit The valuation of the Stapled Group’s investment property portfolio, given it represents the majority of the total assets of the Stapled Group and requires significant judgement by us, is a key audit matter. The Stapled Group has $3.3 billion of investment properties, which constitutes 95.2% of the Group’s total assets as at 30 June 2018. The fair value of the investment properties was assessed by the Board of Directors based on a combination of external valuations conducted by Jones Lang LaSalle, Savills, Collier, Urbis, Knight Frank, m3property, and CBRE and internally prepared valuations. An external valuation is obtained for each property each year. The Stapled Group determines a property’s value within a range of reasonable fair value estimates and, in making that assessment, considers information from a variety of sources including:  Current prices for comparable investment properties, as adjusted to reflect differences for location, building quality, tenancy profile and other factors.  Discounted cash flow projections based on estimates of future cash flows.  Capitalised income projections based upon a property’s estimated net market income, and a capitalisation rate derived from analysis of market evidence. Our procedures included:  Examining the valuations prepared by the external property valuers to evaluate the appropriateness of the valuation methodologies and assumptions used in accordance with industry practice and the accounting standards;  Assessing the scope, competence and objectivity of the external valuers engaged by the Stapled Group;  Checking a sample of internal and external valuations of the Stapled Group to published reports of industry commentators for comparable investment properties;  Checking a sample of internal and external valuer’s assumptions and data by comparing key inputs to discounted cash flow projections, such as discount rate and capitalisation rate, to published reports of industry commentators. We also tested, on a sample basis, other key inputs to the valuations, such as, gross rent, occupancy rate, lease term remaining and lease commitments, for consistency to existing lease contracts or published statistics;  Checking property acquisitions and disposals to signed contracts; and  Considering the Stapled Group’s disclosures in relation to the use of estimates and judgements regarding the fair value of investment properties and the Stapled Group’s valuation policies adopted and fair value disclosures for compliance with the Australian Accounting Standards. Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information100 Growthpoint Properties Australia 2018 Annual Report Independent Auditor’s report continued 100 Recognition of Rental Income ($254.2m) and straight-line adjustment to property revenue ($5.6m) Refer to Note 2.1 to the Financial Report The key audit matter How the matter was addressed in our audit During the course of the year, the Stapled Group enters into new lease contracts with existing tenants or through investment property acquisitions. The revenue generated from all lease contracts constitutes 55.8% of net investment income. Accounting recognition of rental income and straight line adjustment to property revenue is a key audit matter given rental income represents a significant portion of net investment income and the volume of new and amended leases results in additional audit effort around the straight line adjustment to property revenue. Revenue from investment properties is recognised on a straight-line basis over the life of the lease for leases where the revenue under the lease terms is fixed and determinable. For leases where the revenue is determined with reference to market reviews, inflationary measures or other variables, revenue is not straight-lined and is recognised in accordance with the lease terms applicable for the period. Our procedures included:  Checking a sample of rental income for leases subject to market reviews, to the original signed lease contract with the terms associated to the market reviews, and documentation between the parties of the revised market rates;  For new, cancelled or variations to leases, we checked the lease terms to the Stapled Group’s straight line schedule used to recognise revenue on a straight line basis;  Performing a recalculation of the straight line adjustment to property revenue by using the fixed revenue over the lease term from the new or amended lease terms from the signed lease contract and comparing this to the Stapled Group’s straight line schedule; and  Created an expectation to compare to actual revenue reported by management by applying the weighted average annual rent increase to the office and the industrial base rent balances for FY17 and adjusting for changes in tenancy to arrive at an expected revenue balance for the year ended. Other Information Other Information is financial and non-financial information in Growthpoint Properties Australia’s annual reporting which is provided in addition to the Financial Report and the Auditor’s Report. The Directors of the Responsible Entity are responsible for the Other Information. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not and will not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Growthpoint Properties Australia 2018 Annual Report 101 101 Responsibilities of the Directors for the Financial Report The Directors of the Responsible Entity are responsible for:  preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001  implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error  assessing the Stapled Group’s ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Stapled Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objective is:  to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and  to issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this Financial Report. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar2.pdf. This description forms part of our Auditor’s Report. Report on the Remuneration Report of Growthpoint Properties Australia Limited The information below is a reproduction of our opinion on the Remuneration Report of Growthpoint Properties Australia Limited (the Company) as the Responsible Entity of Growthpoint Properties Australia Trust. Opinion In our opinion, the Remuneration Report of Growthpoint Properties Australia Limited for the year ended 30 June 2018, complies with Section 300A of the Corporations Act 2001. Directors’ responsibilities The Directors of Growthpoint Properties Australia Limited are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001. Our responsibilities We have audited the Remuneration Report included in pages 37 to 52 of the Directors’ Report for the year ended 30 June 2018. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG Dean Waters Partner Melbourne 16 August 2018 Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information102 Growthpoint Properties Australia 2018 Annual Report Additional information FY18 Portfolio information Office Portfolio Address Book Value Valuer Cap rate Discount rate Major tenant WALE Lettable area Site area $’000 % % years sqm sqm 75 Dorcas St South Melbourne 109 Burwood Rd Hawthorn VIC VIC 190,000 106,000 Urbis JLL 5.8 5.8 7.0 6.8 ANZ Banking Group 3.4 23,811 9,632 Orora 5.9 12,388 3,529 Country Road Bldg 2, 572-576 Swan St Richmond VIC 90,600 CBRE 5.3 6.8 Group 14.0 14,602 8,459 Bldg B, 211 Wellington Rd Mulgrave VIC 74,000 Directors 6.8 7.0 Monash University Country Road 2.5 12,780 11,040 Bldg 1, 572-576 Swan St Richmond VIC 59,750 Directors 5.3 6.8 Group 14.0 8,554 8,288 Bldg C, 211 Wellington Rd Mulgrave Bldg 3, 572-576 Swan St Richmond VIC VIC 57,250 Directors 6.8 7.3 BMW Australia Finance 4.3 10,289 11,070 23,000 Directors Development Site 1,355 8,545 Car Park, 572-576 Swan St Richmond VIC 1,200 CBRE 14.4 – 15 Green Square Cl Fortitude Valley QLD 144,000 Urbis 6.0 7.0 333 Ann St Brisbane QLD 130,000 CBRE 6.0 7.3 CB1, 22 Cordelia St South Brisbane QLD 104,500 Colliers A1, 32 Cordelia St South Brisbane QLD 84,000 Directors A4, 52 Merivale St South Brisbane CB2, 42 Merivale St South Brisbane QLD QLD 82,500 Colliers 60,000 Directors Car Park, 32 Cordelia St & 52 Merivale St South Brisbane QLD 27,000 Directors 33-39 Richmond Rd Keswick SA SA 62,000 JLL 20,000 Directors 7 Laffer Dr 1 Charles St Bedford Park Parramatta NSW 310,000 Directors Bldg C, 219-247 Pacific Hwy Artarmon NSW 123,500 Directors 3 Murray Rose Ave Sydney Olympic Park NSW 101,000 Savills 5 Murray Rose Ave Sydney Olympic Park NSW 100,500 Directors 102 Bennelong Pkwy Sydney Olympic Park NSW 32,500 m3property 6.1 6.0 6.0 6.0 6.0 7.5 7.5 5.8 6.0 6.2 6.0 6.3 7.0 7.0 7.0 Country Road Group Queensland Urban Utilities Federation University Downer EDI Mining 8.9 – 3,756 3.7 16,442 2,519 4.6 16,320 1,563 4.5 11,529 5,772 Jacobs Group 6.7 10,004 2,667 University of the Sunshine Coast 7.0 Peabody Energy 4.6 6.6 9,405 2,331 6,598 3,158 7.3 Secure Parking 1.4 – 9,319 8.0 Coffey Corporate 5.1 11,835 4,169 Westpac Banking Corporation 7.1 6,343 33,090 NSW Police 5.9 32,356 6,460 Fox Sports 4.8 14,375 4,212 Samsung 3.7 13,423 3,980 Lion 5.8 12,386 3,826 8.0 7.0 7.0 7.0 7.0 7.0 Alstom Australia 1.3 5,244 6,635 6 Parkview Dr Sydney Olympic Park NSW 31,750 m3property 6.3 7.0 89 Cambridge Park Dr Cambridge TAS 26,700 Directors 8.3 9.0 Universities Admissions Centre Hydro Tasmania Consulting 3.2 5,145 7,788 5.8 6,876 28,080 10-12 Mort St Canberra ACT 93,500 KF 6.4 255 London Cct Canberra ACT 74,000 Directors 5.8 Commonwealth of Australia 7.0 Commonwealth of Australia 7.0 6.7 15,398 3,064 9.2 8,972 2,945 Total / Weighted Average 2,209,250 6.0 7.1 5.5 286,430 194,625 Growthpoint Properties Australia 2018 Annual Report 103 Industrial Portfolio Address Book Value Valuer Cap rate Discount rate Major tenant WALE Lettable area Site area $’000 % % years sqm sqm 120 Northcorp Blvd Broadmeadows VIC 77,400 Urbis 6.5 7.3 Woolworths 3.1 58,320 250,000 1500 Ferntree Gully Rd & 8 Henderson Rd Knoxfield VIC 44,000 m3property 6.0 7.3 40 Annandale Rd Melbourne Airport VIC 34,800 Urbis 8.0 7.3 9-11 Drake Blvd Altona 120-132 Atlantic Dr Keysborough VIC VIC 34,500 Directors 25,250 Directors 130 Sharps Rd Melbourne Airport VIC 25,100 Directors Lots 2, 3 & 4, 44-54 Raglan St Preston VIC 24,500 Directors 120 Link Rd Melbourne Airport VIC 17,000 Directors 20 Southern Crt Keysborough 6 Kingston Park Crt Knoxfield VIC VIC 15,800 Colliers 12,300 m3property 60 Annandale Rd Melbourne Airport VIC 11,700 m3property 3 Millennium Crt Knoxfield 31 Garden St Kilsyth VIC VIC 11,500 Directors 11,200 Directors 101-111 South Centre Rd Melbourne Airport VIC 19 Southern Crt Keysborough VIC 8,800 8,100 Directors Colliers 75 Annandale Rd Melbourne Airport VIC 7,650 m3property 70 Distribution St Larapinta QLD 220,000 Directors 13 Business St Yatala QLD 13,750 Directors 5 Viola Pl Brisbane Airport QLD 8,700 Directors 3 Viola Pl Brisbane Airport QLD 2,450 Directors 20 Colquhoun Rd Perth Airport WA 163,750 Directors Hugh Edwards Dr & Tarlton Cr Perth Airport WA 47,900 27-49 Lenore Dr Erskine Park NSW 68,750 JLL CBRE 6-7 John Morphett Pl Erskine Park NSW 46,500 Directors 51-65 Lenore Dr Erskine Park NSW 34,500 Directors 34 Reddalls Rd Kembla Grange NSW 26,000 CBRE 81 Derby St Silverwater NSW 18,500 Directors 599 Main North Rd Gepps Cross SA 79,000 Directors 1-3 Pope Crt Beverley SA 22,500 Savills 12-16 Butler Blvd Adelaide Airport SA 15,800 Directors 10 Butler Blvd Adelaide Airport SA 9,100 Directors 6.3 5.8 8.3 7.0 8.3 6.3 6.5 8.3 6.5 6.5 7.8 6.5 8.0 6.8 6.8 7.5 7.5 6.1 7.7 5.8 6.3 5.8 6.0 6.0 6.8 7.5 8.8 8.4 Brown & Watson International Australian Postal Corporation Peter Stevens Motorcycles 7.4 22,009 40,844 6.0 44,424 75,325 4.6 25,743 41,730 Symbion 10.5 12,864 26,181 Laminex Group 4.0 28,100 47,446 7.3 6.8 7.3 7.3 7.0 7.3 7.3 7.5 7.3 7.0 7.3 7.8 7.5 7.0 8.2 7.0 7.3 7.3 7.3 7.0 7.3 8.0 8.0 7.8 Paper Australia 7.3 The Workwear Group 7.0 7.3 Sales Force National NGK Spark Plug 7.3 Garden City Planters Orora Cummins Filtration Direct Couriers Transms Neovia Logistics Services Woolworths Reward Supply Co. CEVA Logistics Cargo Transport Systems Woolworths Mainfreight Linfox Linfox Linfox 1.2 9.0 4.5 3.9 9.9 2.7 5.4 9.4 0.8 1.3 3.7 1.2 1.7 4.7 7.3 6.3 5.2 1.8 9.7 26,980 42,280 26,517 51,434 11,430 19,210 7,645 12,795 16,276 34,726 8,040 14,750 8,919 17,610 14,082 24,799 6,455 11,650 10,280 16,930 76,109 250,900 8,951 18,630 14,726 35,166 3,431 12,483 80,374 193,936 31,965 57,617 29,476 76,490 24,881 82,280 3,720 36,720 Autocare Services 12.3 355 141,100 IVE Group Australia Woolworths Aluminium Specialties Group Cheap as Chips Toll Transport 4.2 3.1 2.9 2.4 3.6 7,984 13,490 67,238 233,500 14,459 25,660 16,800 30,621 8,461 16,100 Total / Weighted Average 1,146,800 6.6 7.2 4.9 717,014 1,952,403 Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information104 Growthpoint Properties Australia 2018 Annual Report Oxford Corner, Rosebank, Johannesburg Growthpoint Properties Australia 2018 Annual Report 105 Additional information About Growthpoint South Africa1 Growthpoint Properties Limited of South Africa (“GRT”) owns 65.5% of the securities of Growthpoint (at 30 June 2018) and is its major Securityholder. Other information about GRT t Included in the JSE Top 40 Index t Top ten constituent of FTSE EPRA / NAREIT Emerging Index t Included in the FTSE/JSE Responsible Investment Index, FTSE4Good Index and the Dow Jones Sustainability Index t Underpinned by high-quality, physical property assets, diversified across sectors (Retail, Office and Industrial) t 15-year track record of uninterrupted dividend growth t Sustainable quality of earnings that can be projected with a high degree of accuracy t Well capitalised and conservatively geared t Good corporate governance with transparent reporting t Proven management track record t Recipient of multiple sustainability, governance and reporting awards t Baa3 global scale rating from Moody’s As of 31 December 2017 Growthpoint represents: t 24.5% of GRT’s gross property assets t 23.1% of GRT’s net property income t 14.2% of GRT’s total distributable income Growth in tangible assets and market capitalisation (Rbn) as at 31 December 2017 Growth in distributions (R¢) per share, as at 31 December 2017 Tangible Assets Market Cap 103.8 124.6 116.1 6.5% CAGR 195.8 71.5 71.5 70.7 183.8 173.3 161.3 149.0 82.0 62.8 49.9 56.5 FY13 FY14 FY15 FY16 FY17 FY13 FY14 FY15 FY16 FY17 Key Facts (as at 31 December 2017)1 Listing GRT is listed on the Johannesburg Stock Exchange (JSE) Ranking on the JSE 21 by market capitalisation Closing exchange rate used AUD:ZAR=9.66 Market capitalisation R80.4 / AUD8.3B Gross assets Net assets R127.7B / AUD13.2B R96.0B / AUD10.0B Gearing (SA only) 33.8% Distributable Income R2.9B/ AUD282m (for the 6 month period using an average exchange rate of R10.45 / AUD) ICR (SA only) 3.4 times No. of employees (SA only) 620 Properties 463 properties in South Africa, including 50% ownership of the prestigious V&A Waterfront. 39 Properties in Eastern Europe, 19 in Romania and 20 in Poland, through its 29% holding of AIM listed Globalworth Real Estate Investments Ltd 1. All information supplied by GRT (figures as at 31 December 2017). Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information106 Growthpoint Properties Australia 2018 Annual Report 15 Green Square Close, Fortitude Valley, QLD Growthpoint Properties Australia 2018 Annual Report 107 Top 20 Legal Securityholders as at 18 July 2018 Rank Name No. of Securities % of Securities GROWTHPOINT PROPERTIES LIMITED 442,693,457 65.55 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED J P MORGAN NOMINEES AUSTRALIA LIMITED EMIRA PROPERTY FUND CITICORP NOMINEES PTY LIMITED NATIONAL NOMINEES LIMITED BNP PARIBAS NOMS PTY LTD BNP PARIBAS NOMINEES PTY LTD SHARON INVESTMENTS PTY LTD CITICORP NOMINEES PTY LIMITED 11. RABINOV HOLDINGS PTY LTD 12. WARBONT NOMINEES PTY LTD 13. 14. 15. 16. AUSTRALIAN EXECUTOR TRUSTEES LIMITED BNP PARIBAS NOMINEES PTY LTD NAVIGATOR AUSTRALIA LTD BNP PARIBAS NOMS (NZ) LTD 17. MR MAX KARL KOEP 18. 19. JONAERE PTY LTD BOND STREET CUSTODIANS LIMITED 20. MS KYLIE MAREE CECILIA THOMAS 58,594,535 35,060,627 26,058,566 25,952,261 17,699,481 6,631,947 4,344,441 2,252,000 2,250,655 2,000,000 1,101,701 922,279 891,996 779,420 754,968 745,000 680,000 607,427 594,205 630,614,966 44,769,402 8.68 5.19 3.86 3.84 2.62 0.98 0.64 0.33 0.33 0.30 0.16 0.14 0.13 0.12 0.11 0.11 0.10 0.09 0.09 93.37 6.63 Distribution of Securityholders as at 18 July 2018 There is currently only one class of Growthpoint securities, being ordinary securities, and there are no securities currently held in escrow. All of Growthpoint’s securities are quoted on the ASX and no other stock exchanges. Growthpoint does not currently have any share buy- back plans in place. The number of Securityholders holding less than a marketable parcel of 138 securities (based on the 18 July 2018 closing price of $3.64) is 256 and they hold 2,795 Growthpoint securities. In accordance with the ASX Listing Rules, a “marketable parcel” is “…a parcel of securities of not less than $500…” Additional information Securityholders Dan Colman Investor Relations Manager Growthpoint Securityholders* (%) as at 18 July 2018 0.7 7.5 26.3 65.5 GRT Institutional Retail Directors and Employees Location of Growthpoint Securityholders* (%) as at 18 July 2018 10 18 Range 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 72 100,001 - 9,999,999,999 Rounding Total Total holders Securities % of Issued Capital 984 1,485 655 782 90 461,503 4,077,864 4,807,225 20,406,320 645,631,456 3,996 675,384,368 0.07 0.60 0.71 3.02 95.59 0.01 100.00 As at 18 July 2018, there were 675,384,368 fully-paid stapled securities held by 3,996 individual Securityholders. South Africa Australia Rest of World * Figures are approximate and based on beneficial ownership. Substantial holders as at 18 July 2018 Name No. of Securities % of issued capital Growthpoint Properties Limited 442,693,457 65.55 Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information108 Growthpoint Properties Australia 2018 Annual Report 33-39 Richmond Road, Keswick, SA Growthpoint Properties Australia 2018 Annual Report 109 How to contact us growthpoint.com.au 1800 260 453 info@growthpoint.com.au Connect @Growthpoint_Aus Growthpoint Properties Australia Additional information Frequently asked questions How do I update my contact details? Please update your details via Computershare. Please note you will require your holder identification number. How do I buy or sell Growthpoint securities? Growthpoint securities trade on the ASX under the code ‘GOZ’. To buy or sell securities directly you must transact via an ASX approved broker (including on- line brokers such as NAB, E-Trade and Commsec). More details are available at asx.com.au/products/shares/buying- selling-shares.htm. Growthpoint cannot sell direct to you other than via the DRP or, in certain limited circumstances, additional equity raisings. Why does Growthpoint outsource its registry function to Computershare? Most ASX-listed entities outsource this function to a third party registry provider. Growthpoint does not have the scale or in-house resources (including technology) to in-source this function. Computershare is one of the largest registry providers in Australia and is included in the ASX’s top 100 companies with a market capitalisation of approximately $7.0 billion. Growthpoint has chosen Computershare on the basis of its price and service offering. Growthpoint regularly considers Computershare’s performance (including any complaints or feedback received from Securityholders), pricing and services versus other providers to determine if it should continue to outsource this function to Computershare. I have lost or not received a tax statement, holding statement or report. How can I obtain a replacement? Contact Computershare in the first instance. Details are supplied below. Contacting Computershare For direct holders for Growthpoint securities, most matters can be dealt with on-line at: www-au.computershare. com/Investor/ Note that you will require your holder identification number. If you cannot resolve matters on-line, contact details for Computershare are: • Address: Computershare Investor Services Pty Limited, Yarra Falls, 452 Johnston Street, Abbotsford, Victoria 3067 Australia • Telephone: 1300 850 505 (within Australia) or +61(0) 3 9415 4000 (from outside of Australia) • Facsimile: +61(0) 3 9473 2500 • Email: webqueries@computershare. com.au For indirect holders, i.e. holders that hold securities via fund, custodian or other third party, you should contact that party. Computershare will only be able to assist those with holdings directly on Growthpoint’s Securityholder register. Complaints Growthpoint Properties Australia aims to provide each Securityholder with a professional and high level of client service in managing the Stapled Group. If you have a complaint, you may contact us in writing to our registered address or by email to complaints@growthpoint. com.au, detailing the complaint. A response will normally be provided within 15 working days. All complaints should be addressed to the Complaints Manager. The Responsible Entity is a member of the Financial Ombudsman Service Limited (FOS), an external, independent complaints handling organisation. FOS can be contacted on 1300 78 08 08, should your complaint not be resolved by Growthpoint Properties Australia. Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information110 Growthpoint Properties Australia 2018 Annual Report Notes Growthpoint Properties Australia 2018 Annual Report 111 2018 Securityholder Calendar* 16 August 2018 t Results for the full year ended 30 June 2018 announced to ASX 31 August 2018 t Distribution paid for the half year ending 30 June 2018 t FY18 Annual Report sent to Securityholders 18 October 2018 t Investor Update released to ASX 21 November 2018 t Annual General Meeting * Dates indicative and subject to change by the Board. Financial ReportPortfolio ReviewFinancial ManagementBusiness OverviewGovernanceAdditional Information112 Growthpoint Properties Australia 2018 Annual Report Glossary $ or dollar refers to Australian currency unless otherwise indicated AFSL Australian Financial Services Licence A-REIT Australian Real Estate Investment Trust Growthpoint or the Group Growthpoint Properties Australia comprising the Company, the Trust and its controlled entities Growthpoint SA or GRT Growthpoint Properties Limited of South Africa (Growthpoint’s majority Securityholder) which trades on the JSE under the code “GRT” IDR Industria REIT IFRS International Financial Reporting Standards JLL the Australian arm of Jones Lang LaSalle, an international professional services and investment management firm ASX Australian Securities Exchange JSE Johannesburg Stock Exchange AUD Australian Dollars bn billion Basis points one hundredth of one percentage point (used chiefly in expressing differences of interest rates) Board the board of directors of the Company Cap rate or capitalisation rate refers to the market income produced by an asset divided by its value or cost CAGR compound annual growth rate CBD central business district CBRE an international professional services and investment management firm formerly known as CB Richard Ellis Company or responsible entity Growthpoint Properties Australia Limited cps cents per security discount rate the interest rate used in a discounted cash flow (DCF) analysis to determine the net present value of an asset’s future cash flows distributions the amount Securityholders receive by way of income in their hand (before any tax or brokerage costs). It is similar to a dividend by a company but it is payable by the Trust dps distribution per security Funds From Operations (FFO) refer to explanation at top of page 18 Fund-through a mechanism under which an entity (in this report typically Growthpoint) funds development as completion of works occur FY14, FY15, FY16, FY17 and FY18 the 12 months ended on 30 June in the year listed i.e. “FY18” means the 12 months ended 30 June 2018 FY19, FY20, FY21, FY22 and FY23 the 12 months ending on 30 June in the year listed i.e. “FY19” means the 12 months ending 30 June 2019 kW kilowatt LTI long-term incentive m million MW Megawatt Unit of power equal to one million watts NABERS National Australian Built Environment Rating System (a national system for measuring environmental performance of buildings) NGER National Greenhouse and Energy Reporting NLA net lettable area NPI net property income NTA net tangible assets Operational Control operational control is defined as having the ability to introduce and implement operating, health & safety or environmental policies and measures for a facility. This is based on the approach for defining controlling corporations, as outlined in NGER legislative framework. PwC the professional services firm previously known as PriceWaterhouseCoopers Return on equity or ROE calculated as the percentage change in NTA plus the distribution for a given period divided by the opening NTA REIT real estate investment trust Securityholder an owner of Growthpoint securities S&P Standard & Poor’s sqm square metres STI short-term incentive sustainability a process for ensuring activities are able to be continued and assets and resources are able to endure for a medium-long-term Syndicated Facility syndicated loan facility from CBA, NAB, WBC and ANZ to Growthpoint ICR Interest coverage ratio TFR total fixed remuneration Gearing interest bearing liabilities less cash divided by total assets less cash GHG greenhouse gas GMF previously GPT Metro Office Fund which traded on the ASX as GMF (renamed Growthpoint Metro Office Fund) GOZ the ASX trading code that Growthpoint trades under. Green Star an internationally recognised sustainability rating system issued by the Green Building Council in Australia GRESB Global Real Estate Sustainability Benchmark GRI Global Reporting Initiative. Further information can be found on page 62 of the 2018 Sustainability Report. gross assets the total value of assets tCO2-e Tonnes of carbon dioxide equivalents. The universal unit of measurement to indicate the global warming potential of greenhouse gases Total Securityholder return change in security price plus distributions paid or payable for the relevant period TPD total and permanent disability Trust Growthpoint Properties Australia Trust USPP United States Private Placement WADM weighted average debt maturity WALE weighted average lease expiry WARR weighted average rent review Contact details Retail Investors: Computershare Investor Services Pty Limited GPO Box 2975, Melbourne VIC 3001 Australia Phone (within Australia): 1300 850 505 Phone (outside Australia): +61 (0)3 9415 4000 Fax: +61 (0)3 9473 2500 Email: webqueries@computershare.com.au Institutional Investors: Daniel Colman – Investor Relations Manager Pooja Shetty – Investor Relations Administrator Email: info@growthpoint.com.au Investor Services Line: 1800 260 453 www.growthpoint.com.au Corporate directory Growthpoint Properties Australia Limited ABN 33 124 093 901; AFSL No 316409 Growthpoint Properties Australia Trust ARSN 120 121 002 Registered Office Level 31, 35 Collins Street, Melbourne VIC 3000 Australia Phone: (03) 8681 2900 Fax: (03) 8681 2910 www.growthpoint.com.au Directors Geoffrey Tomlinson, Timothy Collyer, Maxine Brenner, Estienne de Klerk, Grant Jackson, Francois Marais, Norbert Sasse, Josephine Sukkar Company Secretaries Aaron Hockly1, Dion Andrews, Yien Hong Auditor KPMG Tower 2, 727 Collins Street Melbourne VIC 3008 Australia ASX Code Growthpoint Properties Australia securities are listed on the Australian Securities Exchange (Code GOZ). 1. Aaron Hockly is on parental leave and will return in April 2019. G r o w t h p o n t i P r o p e r t i e s A u s t r a l i a 2 0 1 8 A n n u a l R e p o r t 2018 Annual Report Growthpoint Properties Australia Level 31, 35 Collins Street, Melbourne VIC Australia Investor Services Line: 1800 260 453 www.growthpoint.com.au 

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