Ingenia Communities Group
Annual Report 2015

Plain-text annual report

2015 Securityholder Review Ingenia is a leading owner, operator and developer of affordable Retirement, Lifestyle and Leisure communities 61 quality Australian seniors living communities and growing 8 9 30 9 5 Western Australia 6 Garden Villages 3 Settlers Queensland 3 Active Lifestyle 2 Garden Villages 3 Settlers New South Wales 19 Active Lifestyle 9 Garden Villages 2 Settlers Victoria 9 Garden Villages Tasmania 5 Garden Villages Includes announced acquisitions. Contents Year in Review Letter from the Chairman Chief Executive Officer Update Portfolio Overview Investing in our People 1 2 4 8 22 26 Board of Directors 28 Leadership Team Securityholder Review 20151 Year in Review Highlights   Underlying profit up 51%, to $17.5m   Distribution up 17%, to 1.35 cents per security   Increased cash yielding asset base – now 85% of portfolio value   Garden Villages portfolio occupancy at 90.7%   Development pipeline of over 1,500 potential home sites now in place   Lifestyle Parks business expanded through acquisition and development – six parks acquired or contracted   Lifestyle Parks sales momentum building rapidly – 56 home settlements Financial Summary $25.7m Statutory Profit 123% 2014: ($11.5m) $17.5m Underlying Profit 51% 2014: $11.6m 2.1c Underlying Profit EPS 17% 2014: 1.8c $9.0m Operating Cashflow 37% 2014: $14.2m 38.9c 1.35c Net Asset Value per Security Distribution Per Security 10% 2014: 35.5c 17% 2014: 1.15c Ingenia Communities Group 2 Letter from the Chairman We have established a strong platform for the future and are confident that Ingenia remains on track to continue to deliver long-term stable returns for securityholders Jim Hazel, Chairman Dear Securityholders The last year has again been one of significant growth and achievement for Ingenia. We delivered growth in distributions as we continued to transition the business in line with our strategy to focus on cash yielding assets dominated by affordable seniors housing in Australia. Pleasingly, we finished the 2015 financial year with significant progress on each of our objectives and we have seen an increasing contribution to returns from the now well established Lifestyle Parks business which Ingenia entered with an initial investment in 2013. In December 2014 we completed our exit from offshore markets with the sale of the NZ Student portfolio. Combined with continued momentum in our Active Lifestyle Estates business, Ingenia is now a scalable business focused on stable cash yielding Australian investments complemented by low risk, capital light development. Over the last financial year an increase of 51% in underlying profit was achieved as newly acquired assets and the growing development business made a more substantial contribution. A full year distribution of 1.35 cents per security represented an increase of 17% on the prior year, building on similar growth in 2014. Commensurate with our focus on building a significant portfolio of lifestyle and leisure assets, much time was spent on establishing our platform and building our development and sales capability in this new business. This investment has supported a significant increase in the contribution from manufactured home sales in the Lifestyle Parks business and positions the Group well for further growth in sales and rental returns. Notwithstanding very strong price performance since internalisation, the security price closed the year at 43 cents, below the 50.8 cent security price at the beginning of the 2015 financial year. Despite this, Ingenia’s returns over the past 3 and 5 years have been strong, with the Group significantly outperforming the ASX All Ordinaries Accumulation and S&P/ASX Property 300 Accumulation indices. We will continue to focus on delivering results from the business and trust that over time the price will re-rate as our earnings grow and our business model becomes more established. Securityholder Review 20153 We raised $89.1 million through a capital raising in September, which provided additional funds for investment in the Lifestyle Parks business and allowed existing securityholders to participate in Ingenia’s growth. We have carefully deployed this capital and the capital from the sale of non- core assets in accretive acquisitions with five Lifestyle Parks acquired over the year and an additional two acquisitions following year end. With work done during the year to secure an increase in funding capacity at a lower debt cost, a focus on recycling capital from the non-core Deferred Management Fee (Settlers) portfolio and the active Distribution Reinvestment Plan, we will continue to pursue growth opportunities which meet our strict return requirements. Importantly, we have made good progress on key initiatives and priorities. Further scale has been established in the lifestyle parks sector and operationally these and our rental assets are performing well, with the rental portfolio achieving occupancy of over 90%. Both the Garden Villages and Active Lifestyle Estates portfolios demonstrated significant valuation gains with capitalisation rates across these asset classes beginning to tighten, leading to higher values for these assets. Striking the balance between returns to securityholders and reinvestment for growth continued to be a focus of the Board and management. Following a 15% increase in distributions in financial year 2014, distributions were again increased, with a final distribution payment for financial year 2015 of 0.70 cents per security taking the full year distribution to 1.35 cents. We are committed to continuing to grow distributions while maximising value to securityholders through prudent reinvestment into accretive investments to deliver ongoing growth in returns. The Group strategy remains driving performance and organic growth within existing assets and seeking to continue to expand in the Lifestyle Parks business through acquisitions and development in targeted markets. Much has been achieved this year and I would like to thank Ingenia’s dedicated directors and the management team for their hard work and ongoing commitment. INA Security Price since internalisation ($) 0.6 0.5 0.4 0.3 0.2 0.1 Compound Annual Growth Rate of 23% 2 1 n u J 6 2 1 g u A 6 2 1 t c O 6 2 1 c e D 6 3 1 b e F 6 3 1 r p A 6 3 1 n u J 6 3 1 g u A 6 3 1 t c O 6 3 1 c e D 6 4 1 b e F 6 4 1 r p A 6 4 1 n u J 6 4 1 g u A 6 4 1 t c O 6 4 1 c e D 6 5 1 b e F 6 5 1 r p A 6 5 1 n u J 6 5 1 g u A 6 Performance against indices Ingenia has outperformed relevant indices over the last 3 and 5 years (INA versus Indices to 30 June 2015 (%p.a)) % 2 0 2 . % 7 5 . % 1 . 1 1 - % 3 . 8 1 % 5 4 1 . % 8 . 4 3 % 1 . 7 5 Source: S&P/ASX Property 300 Accumulation Index, June 2015 (UBS). % 2 4 1 . % 4 9 . 1 Year 3 Years 5 Years Ingenia S&P/ASX 300 Property Accumulation Index ASX All Ordinaries Accumulation Index Entering the 2016 financial year we have established a strong platform for the future and are confident that Ingenia remains on track to continue to deliver long-term stable returns for securityholders. As your Chairman I would like to take this opportunity to thank all securityholders for your continued support and I look forward to meeting with you and providing a further update on the business at our upcoming Annual General Meeting to be held on 17 November 2015. Jim Hazel Chairman Ingenia Communities Group 4 Chief Executive Officer Update We have rapidly transformed Ingenia’s business model into an emerging high growth asset class with strong long-term industry fundamentals underpinned by a convergence of an ageing population and the demand for quality affordable housing Simon Owen, Managing Director and CEO The 2015 financial year represented a significant year of achievement for the business as we continued to deliver on our strategy – further expanding our Australian Lifestyle Parks business, divesting non-core assets and continuing to extract performance from the existing asset base to deliver stronger returns for investors. We also completed our first development in the Lifestyle Parks business, achieved our sales target in this business and most importantly began to see the benefits of our strategy with growth in distributions as we consolidated Ingenia’s position as a provider of quality, affordable seniors accommodation. Financial performance Reflecting the transition of the business in line with Ingenia’s strategy, the 2015 financial results demonstrate significant growth from Ingenia’s Australian portfolios through a revenue base dominated by stable rental cashflows complemented by increasing development returns. There was a significant increase in revenue from the Lifestyle Parks business as a result of recent acquisitions and emerging development profits from an expanded portfolio. Overall, the Group reported a Statutory Profit of $25.7 million (up 123% on the 2014 result), reflecting improved operational performance and strong increases in valuations across the Garden Villages and Active Lifestyle Estates rental portfolios. Underlying profit of $17.5 million was up 51% on the prior comparative period, driven by growth in the core business as rental cashflow increases were generated from the Garden Village and Lifestyle Parks assets. Operating cashflow for the year of $9.0 million was down on the prior year due to the establishment of new home inventory throughout an increasing number of lifestyle parks under development. At 30 June 2015 the Group had new manufactured home inventory of $7.3 million comprising 45 completed homes. A further 44 homes were under construction. The majority of these homes have since either been deposited or settled. Net Asset Value per security (NAV) increased by 10%, to 38.9 cents. Securityholder Review 20155 Capital management Active capital management continues to be a key priority for the Board and management and we are committed to divesting the remaining non-core assets in the DMF portfolio to provide additional capital for on strategy growth. Significant growth in the Lifestyle Parks portfolio was funded via capital recycling from divested assets, the proceeds of a successful $89.1 million capital raising and debt. At 30 June 2015, Ingenia’s LVR of 22.6% was below the Group’s target range of 30- 35% and well below the Group’s covenant of 50%. Following completion of the recent and pending Lifestyle Park acquisitions, Ingenia’s LVR is expected to move towards the lower end of the Group’s target range of 30-35%. Consistent with our focus on maintaining funding capacity to support future growth, a new finance arrangement was put in place during the year. This facility provides increased capacity, greater lender diversity, and improved pricing. Following the establishment of this facility, Ingenia’s current all in cost of debt is 4.6%. Balancing capital return and reinvestment in growth The Board and management recognise the importance of maximising returns to securityholders while maintaining the ability to secure opportunities for future growth. Following an increase in distributions of 15% in the 2014 financial year, distributions again increased, to 1.35 cents for the year. This represented a 17% increase on the prior year’s distribution and a 63% payout ratio. A disciplined approach to investment will continue to underpin our capital allocation strategy as we focus on delivering on the Group’s strategy and expanding Ingenia’s presence in the Lifestyle Parks sector through further acquisition and development. Highlights We have rapidly transformed Ingenia’s business model, removing exposure to offshore assets and transitioning the business into an emerging high growth asset class with strong long-term industry fundamentals underpinned by a convergence of an ageing population and the demand for quality affordable housing. Portfolio remixing We finalised our exit from offshore investments with the sale of the NZ Student portfolio in December 2014 and sold additional non-core assets from our Settlers and Garden Villages portfolios during the year. Consistent with our focus on deploying capital to deliver most value to investors, the sale of these assets released additional capital which has been deployed into Lifestyle Park assets. We have continued to access off market acquisitions in the increasingly competitive lifestyle parks market, driven by our internal team and unique research database. Over the year Ingenia invested an additional $71.1 million in Lifestyle Parks, acquiring a further five assets and adding close to 1,400 income generating sites and almost 190 approved development sites to support future sales growth. We are committed to the sale of the DMF portfolio which will finalise the Group’s transition to a portfolio comprised of yield based assets. These recently acquired Parks have been acquired on attractive metrics as shown in the table below: Purchase price ($m) Approxi- mate Ingoing Yield Long-term sites Annual sites Short- term sites Potential Development sites White Albatross, Nambucca Heads, NSW 23.0 10% Noosa, Tewantin, QLD 12.5 10% Chambers Pines, Brisbane, QLD Sydney Hills, Sydney, NSW Monterey, Lake Macquarie, NSW 16.8 12.0 6.8 8% 8% 9% 135 49 204 64 18 – – – – 52 Significant repositioning 165 Significant repositioning 136 – 277 Significant repositioning 64 Significant repositioning 71 Ingenia Communities Group6 Chief Executive Officer Update continued This acquisition strategy has seen Lifestyle Parks rapidly becoming the key earnings driver across the Group. There were a further two acquisitions following year end and the acquisition pipeline remains strong. Bethania, a partially developed manufactured home community outside Brisbane, settled in July 2015. We have also secured the right to acquire an additional 7.1 hectares of land adjacent to this community, providing potential for further expansion. Conjola Lakeside, a prime waterfront coastal park, which will seed a new Southern NSW cluster, was acquired for $24 million and settled in September 2015. Portfolio performance We have continued to drive improvements in operating performance from our existing assets over the year with each portfolio delivering improved performance. Across Ingenia’s Garden Villages, like for like occupancy increased by 2.8% over the year, with rent increases also achieved. These villages provide a high quality recurrent stream of cash earnings which underpin our balance sheet and cashflows. The portfolio also demonstrated strong growth in valuations with an uplift of $15.9 million as a result of strong portfolio management, rent growth and capitalisation rate compression. Across the Settlers Villages, a strong uplift in Deferred Management Fee accruals driven by rising prices in Western Australian assets was offset by moderating development income as the development and conversion program, which has delivered significant value since commencement, nears completion. Ingenia’s main focus is the growth of the Lifestyle Parks business, and development currently underway at eight assets. The portfolio continued to expand with the first acquisitions in Queensland extending our presence into a new market. The lifestyle parks market is attractive due to its strong recurrent cash earnings, low risk and capital light development returns, low level of industry consolidation, and above all its affordability focus. The Lifestyle Parks portfolio continued to build returns with rental revenue of $19.8 million in financial year 2015 reflecting significant growth in sites through acquisition and development. The portfolio’s EBIT contribution of $8.4 million was up over 110% on the prior year, driven by a growing rental revenue base and increasing development profits. Active Lifestyle Estates, Ettalong Beach – Community Centre The Active Lifestyle Estates Portfolio value of $204.2 million at 30 June 2015, reflected additional acquisitions and the impact of a compression in capitalisation rates on values. Development The Group continued to invest in internal capability across the digital platform, asset and portfolio branding and the development and sales platform over the year. Significant progress was made in development, with works undertaken at six sites over the year and growth secured through acquisitions and additional development consents. The development pipeline now consists of 1,500 potential sites with an estimated end sales value of over $350 million. Ingenia completed the first of the Group’s Lifestyle Park developments during the year, with the conversion of the Ettalong Beach community from a mixed use (tourism and permanent living) to pure permanent living community. Securityholder Review 20157 Recently acquired Conjola Lakeside (Lake Conjola, NSW) Along with sales at Lake Macquarie and Stoney Creek, Ettalong was a key contributor to the 100 sales achieved over the year, with 56 settlements to 30 June 2015 contributing to a development profit of $5.7 million. New projects to launch at Chain Valley Bay, Chambers Pines and Bethania in the 2016 financial year will support future sales growth. Outlook Ingenia is well placed to continue to grow and to build its return profile as we capitalise on the demand for affordable seniors housing and our leading position in the Lifestyle Parks sector, which remains our focus for expansion. With additional assets being assessed in line with Ingenia’s focus on quality parks in key metropolitan and coastal markets and a development pipeline of 1,500 potential sites we remain confident of continued growth from this portfolio. The potential to release additional capital for investment through the planned divestment of the DMF portfolio will assist in funding this growth. Over the last year we have continued to build our platform to position the business for growth. With supply secured and sales strategies in place, we expect the rate of home delivery and sales to continue to build in FY16, contributing to future growth in returns. This, combined with the integration of quality acquisitions and amortisation of our cost base across a larger operational platform, is anticipated to improve earnings growth. In closing, I would like to thank the Board for their support and our management team and all employees for their continuing commitment and contribution to the business. The remainder of this Review contains greater detail on Ingenia’s business activities and individual portfolios. Simon Owen Chief Executive Officer and Managing Director Ingenia Communities Group8 Portfolio Overview 61 total properties 4,000 homes Ingenia’s Australian business has grown rapidly, with additional assets secured over the year delivering increased scale Image: Ettalong Beach new community facilities Securityholder Review 20159 Asset Allocation (by value) Ingenia has now exited offshore markets, building a large scale Australian portfolio dominated by its core rental and lifestyle communities. Cash yielding assets now comprise 85% of total portfolio value. Asset Value 30 June 20141 Asset Value 30 June 20151 Target Allocation $350.0m $424.9m Continued growth Garden Villages DMF Lifestyle Parks NZ Students 33% 20% 34% 13% 1. Proforma, post announced acquisitions. Garden Villages DMF Lifestyle Parks 29% 15% 56% Garden Villages Lifestyle Parks ~25% ~75% — Over time, Ingenia is targeting a portfolio allocation of ~25% Garden Villages and ~75% Lifestyle Parks — Ingenia is rapidly moving closer to this target allocation with a focus on exiting the Settlers (Deferred Management Fee) portfolio and continued growth in the Lifestyle Parks portfolio as acquisitions and developments are progressed Ingenia Communities Group10 LIFESTYLE ESTATES 1 2 3 1. New home at Active Lifestyle Estates, Albury (NSW) 2 & 3. New home interiors – Active Lifestyle Estates, Lake Macquarie (NSW) Securityholder Review 201511 Active Lifestyle Estates LIFESTYLE PARKS Ingenia has rapidly grown the Lifestyle Parks business – a business focused on high quality rental cashflows complemented by capital light development. Key data Total properties Total permanent sites Total annual sites Total short-term sites Potential development sites2 30 June 20151 30 June 2014 20 1,468 306 1,033 1,135+ 15 1,093 261 777 917+ Book value $204.2m $119.3m Portfolio Location (by value)* Coastal 50% Metropolitan 36% Regional 14% 1 Excludes Bethania and Conjola Lakeside (acquired post year end). 2 Includes new and recycled permanent and short-term sites. * Includes announced acquisitions. Number of sites* 9 2 2 , 3 6 8 3 , 2 1 3 1 , 2 1 6 3 , 1 0 3 2 Jun 13 Dec 13 Jun 14 Dec 14 Jun 15 Ingenia entered the Lifestyle Parks sector in March 2013, with an initial investment in The Grange, a lifestyle park located on the NSW Central Coast. The Lifestyle Parks portfolio provides exposure to a growing demand from Australia’s ageing population through the provision of affordable age-appropriate housing. The portfolio is dominated by stable cashflows from short and long-term rental income. Community expansion and redevelopment provides additional capital light, low risk development earnings. Offering a cash yielding affordable accommodation segment within the Australian seniors living sector, Lifestyle Parks also offer the opportunity for highly accretive development with limited risk and a modest capital outlay. Since entering the sector the Group has used its proprietary database and in house acquisitions team to establish a portfolio which includes 22 assets located largely in coastal and metropolitan locations across NSW and Queensland. Rental revenue from the portfolio was $19.8 million in the 2015 financial year, up from $9.6 million the prior year. The portfolio’s EBIT contribution of $8.4 million, was up over 110% on FY14, driven by a growing rental revenue base and increasing development profits. The core of this portfolio is permanent site revenue generated from residents which is supported by government pension and rental assistance. This stable cashflow is now generated from over 1,500 sites across Ingenia’s growing portfolio. In addition to strong rental cashflows from permanent homes the portfolio also provides exposure to tourism and to attractive development returns through development sites within existing parks. The ongoing growth of this portfolio through acquisition and development is at the core of Ingenia’s strategy and will contribute to growing securityholder returns. Ingenia Communities Group12 1 2 1 & 2. Active Holiday Parks, White Albatross (Nabucca Heads, NSW) 3. Active Holiday Parks, Conjola Lakeside (Lake Conjola, NSW) 3 Securityholder Review 201513 Active Holiday Parks HOLIDAY PARKS Tourism provides a complementary strong cashflow business with significant cross selling potential and preserves longer term land redevelopment optionality. Key data Total properties Total self contained units Average daily rate1 Caravan and camping sites Average daily rate1 1. Average daily rate represents average annualised rate. * Includes Bethania and Conjola Lakeside (acquired post 30 June 2015). 30 June 2015 14 376 $113 657 $33 Portfolio Location (by site numbers)* Coastal 64% Metropolitan 10% Regional 26% A number of Ingenia’s Lifestyle Parks contain tourism and short-term accommodation. This accommodation includes tourism villas, cabins, caravan and camping sites which target the affordable tourism market, are attractive to grey nomads and families and are located in a range of attractive locations. In addition to regional areas such as Mudgee and metropolitan locations such as Dural (Sydney), Ingenia owns a number of iconic coastal parks which generate compelling returns. While a number of tourism sites will be converted to permanent home sites through development, short-term accommodation provides a number of benefits to the portfolio, including: — Diversifying and increasing cashflows — Providing potential residents with their first exposure to an Ingenia community and the manufactured home estate (lifestyle parks) model — Access to Australia’s growing grey nomad caravanning market — Generating cashflows pending development — Significant cross selling opportunities (through resident discounts at Ingenia’s holiday parks and the ability to market permanent homes to visitors). Short-term sites are managed as a complementary business where they represent the highest and best use of land and are beginning to generate growing returns as Ingenia’s scale in this market increases and with it the ability to leverage the Group’s brand and marketing platform. A key focus has been investing in a digital platform which is beginning to generate benefits through increased revenues and rates. Ingenia also introduced an Investor Discount card and has progressed a range of cross selling opportunities, including a Resident Gold Card. Over the year, partnerships with online travel agents have also been extended, and bookings through these agents are now providing over $100,000 in revenue monthly. As further initiatives are implemented and Ingenia’s brand and marketing gain further recognition, ongoing growth in returns from short-term sites are anticipated. Ingenia Communities Group 14 Lifestyle Park Development PARK DEVELOPMENT Development provides the opportunity to improve returns through the sale of new homes, expand cash yields through additional future rent roll, and improve the amenity of existing communities as new, high quality homes are delivered. Key data 30 June 2015 30 June 2014 Total active development projects Sales projects ‘in market’ Homes under construction Contracted and reserved Gross development profit Settlements Average price ($’000) 8 8 44 44 $5.7m 56 $293 4 2 22 2 $1.3m 15 $253 A key focus for management is the build out of the accretive development pipeline embedded within Ingenia’s existing Lifestyle Parks. The development pipeline offers attractive returns while growing permanent rental income. The pipeline has been extended with recent acquisitions and now represents 1,500 potential development sites with a potential end sales value of over $350 million, providing Ingenia with significant organic growth as projects are approved and developments commenced. Significant progress was made in development over the past year. Ingenia completed its first development and invested in development and sales capabilities to support accelerated growth and sales as new projects were launched. The Portfolio delivered development profit of $5.7 million, with 56 settlements totalling $16.4 million of revenue and is well placed to continue to grow this contribution. These settlements were largely at Ingenia’s Ettalong Beach and Lake Macquarie projects on the NSW Central Coast and Stoney Creek in Marsden Park (Sydney). With Ettalong Beach sold out, strong sales at Lake Macquarie and ongoing demand at Stoney Creek will contribute to sales in the coming year, supplemented by the launch of Ingenia’s first Queensland projects (Bethania and Chambers Pines). Customer research and efficiencies are contributing to product evolution targeting increased market penetration and sales growth. Based on current contracts in place and the level of interest in new projects to be launched, 120 sales (either reserved, contracted or settled) are forecast for the current financial year. Development earnings are anticipated to grow in the coming year as projects are launched and targeted sales achieved. Securityholder Review 201515 2 3 1 4 1. Floor plan at Ettalong Beach (NSW) 2 & 3. Construction of manufactured home 4. Active Lifestyle Estates, Ettalong Beach (NSW) Ingenia Communities Group16 Ettalong Beach Holiday Village DEVELOPMENT CASE STUDY Ingenia’s first development, at Ettalong Beach, sold out in 7 months and was completed in under a year. Key Metrics On acquisition On completion Average weekly rent Permanent sites Tourism sites Average sale price $121 85 29 $165 (new homes) 116 – $320,000 Profit in excess of total spend With an average price for new homes of $320,000 and land lease rent of $165 per week, the completed development is forecast to deliver ~10% yield and an unlevered internal rate of return of ~19%. The end result is not only a financially successful development but a vibrant new community which includes a community centre and library, a new pool and is home to many happy residents. Ettalong Beach Holiday Village, located at Ettalong Beach in NSW, was Ingenia’s second lifestyle park investment. Acquired in April 2013, Ettalong Beach was a mixed use community with dated facilities consisting of 85 permanent homes and 29 tourism sites (including 22 cabins and 7 powered sites). Ingenia acquired this leasehold community for $2.1 million. On acquisition Ingenia identified the opportunity to capitalise on the attractive beachside location and proximity to services by repositioning the village as an over 50s estate. This would be achieved by converting the tourism offering and utilising vacant land. A Development Application (DA) was lodged in March 2014 and approval for 31 new home sites was received in June 2014. Tourism was progressively removed from August 2014 and development commenced in September that year. The first homes were delivered to site in November 2014 with initial settlements occurring the following month. All homes were sold in 7 months of the project’s launch with the final settlements complete in August 2015. With homes sold off the plan at prices above expectations, strong development profits were achieved and the return from the development exceeded Ingenia’s total spend. Securityholder Review 201517 1 2 3 1. Development of new homes 2. New signage at Ettalong Beach (NSW) 3. New homes Ingenia Communities Group18 1 2 3 Focus on care and wellness is improving resident quality of life whilst driving occupancy and revenue growth. 1. Garden Villages interior 2. Wheeler Gardens, Dubbo (NSW) 3. General Manager Care Development, Janene Eagleton, engaging with residents Securityholder Review 201519 Garden Villages RENTAL Ingenia is the largest owner/operator of seniors’ rental accommodation in Australia. This portfolio provides stable recurring cashflows underpinned by Government payments (pension and rent assistance). Key data Total properties Total units Occupancy1 Book value 1. Excludes villages sold June 2015. 30 June 2015 30 June 2014 31 1,629 90.7% 34 1,801 87.9% $125.7m $114.3m The Garden Villages portfolio consists of 31 rental communities with over 1,600 units across Australia. The portfolio was remixed during the year and operating metrics improved with the sale of three non-core villages in regional NSW and Victorian locations. The villages were sold in June at a premium to Ingenia’s December 2014 book value. Over the year portfolio occupancy increased to close the year at an all time high of 90.7%. This occupancy increase, combined with rent growth and margin enhancement, contributed to increased revenue from the portfolio, to $28.2 million (up from $24.6 million in 2014). The benefit of improved occupancy and operating performance across a number of assets was also reflected in increased asset values. The portfolio benefitted from movement in capitalisation rates as the value of stable cashflows delivered from rental based seniors assets began to gain greater market recognition. Across the Garden Villages portfolio engaging residents and contributing to their health and wellbeing has continued to be a key element of Ingenia’s service and value proposition. In its fourth year of operation, the resident engagement program, ‘Activate 2015’, continued to build on the sense of community in the Villages, offering a range of social events as well as services to promote resident health, including eye and hearing checks, talks on men’s and women’s health and maintaining an active brain. Complementing this focus, ‘Ingenia Care Assist’, a free service that acts as a ‘care concierge’, to assist residents find a pathway through the maze of accessing care, was launched in October 2013. Ingenia Care Assist extends Ingenia’s commitment to resident health and well being, enabling residents to access primary health services, social support, transport and allied health services, assisting them to age in place while extending the tenure of residents across the villages. The Care Assist service also assists residents, many of whom have little family support, to prepare Powers of Attorney and Advanced Care Directives. For residents with complex histories or where one partner is caring for the other the Care Assist service ensures that these residents are well supported socially and health wise to live a good quality life. Through referrals and regular dialogue the program is increasing the awareness of health professionals to the benefits of Garden Villages for seniors needing supported accommodation as a rental alternative to assisted living apartments and residential care. These professionals are increasingly referring residents to Ingenia’s villages. Commencing in four villages, the program is operating across all 31 Garden Villages and has now been extended to selected communities within the Active Lifestyle Estates portfolio. With occupancy growing across the portfolio, the key focus will be on growing rents above the pension/CPI. Combined with an ongoing focus on community engagement, operational efficiencies and the growing benefit of Ingenia Care Assist, the portfolio is positioned well to continue to improve occupancy towards the target of 93% and grow earnings in the 2016 financial year. Ingenia Communities Group20 1 2 1. Home at Settlers Ridge Estate (Gillieston Heights, NSW) 2. Residents enjoying the summer sun 3. Community Centre at Settlers Lakeside (Ravenswood, WA) 3 Securityholder Review 201521 Settlers DEFERRED MANAGEMENT FEE Ingenia’s Settlers Villages provide traditional retirement living for self funded retirees. Ingenia’s focus is on maximising returns while seeking to exit the portfolio at an appropriate value. Key data Total properties Total units Occupancy Book value 30 June 2015 30 June 2014 8 838 93% 9 980 92% $62.9m $76.0m Despite this, the portfolio has started 2016 well with an additional 27 contracts in place at 30 June 2015. The sale of Settlers Lifestyle Noyea Park settled in July 2014, providing net proceeds of $5.4 million for reinvestment in the higher yielding Lifestyle Parks portfolio. Growth from the portfolio is anticipated to moderate, as developments and the conversion program are largely complete. Ingenia will seek to divest these assets over time, in line with the Group’s strategy to focus on cash yielding rental assets. The Settlers Lifestyle portfolio consists of eight Deferred Management Fee (DMF) communities with over 830 homes across WA, QLD and NSW. An increase in accrued deferred management fee income as a result of rising prices in Ingenia’s Western Australian Villages contributed to a strong result for the year. Development profits across the portfolio were down on the prior year as stock levels have reduced, reflecting the completion of developments and remaining 1 bedroom and studio stock. With the conversion program (which has seen the sale of 192 converted units for over $34 million over the past four and a half years) also nearing completion, development profits will continue to moderate. Ingenia Communities Group22 Investing in our People Committed, motivated and passionate staff are vital to Ingenia’s service proposition to residents. As the Group continues to grow, we remain committed to building a team delivering exceptional service to our residents and results for our investors. We promote an engaging and healthy work culture and seek to grow the skills of our team to keep pace with business growth; ensuring team members have opportunities to develop new skills and experiences to help them achieve their individual career goals. As an organisation, we are very fortunate to have many highly committed, experienced people. They are key to our success and to our ability to continue to meet the needs of a growing number of residents and holiday makers across our extensive portfolio. This year, we are again delighted to showcase employees who are a testament to what drives our success. Securityholder Review 201523 Maggie Arnold General Manager Village Operations, Swan View Gardens What is your role within Ingenia, and how long have you worked for the Group? My role is Village Manager at Swan View Gardens. Swan View is Ingenia’s largest village in Western Australia with 72 units, in a busy suburb not far from the Perth Airport. How long have you worked for the Group? I have been Village Manager at Swan View Gardens for over nine years and have been with Ingenia since the Group acquired the Village. How has your career progressed? Before we came to Swan View Gardens my husband Keith (our Village Cook) and I had been self employed, which was really stressful. Over our years with Ingenia we have seen many changes which have improved the lives and experiences of residents. It’s been interesting watching the way in which the villages are managed now and the changes are for the better. For example it’s easier to get things done, such as approvals for repairs and the units being upgraded. These really add to residents’ satisfaction. What is the most rewarding part of your role? I like working with people, you have to in this industry and this role. I enjoy the residents – they have a lot to teach us and it is great to see them engaged and enjoying themselves. The Activate program is wonderful – I wish I’d had a video camera to record the ladies playing croquet recently – they laughed and laughed. What is the hardest part of your role? Saying goodbye to residents who have been in the Village for many years if they really have to go to Higher Care. Where do you see yourself in five years? I would like to think I’ll still be doing the same job for many years yet, as I really enjoy directly working with so many wonderful residents. Tell us a fun fact about yourself that we’ll never guess? When I was 20 I played Netball for the New Zealand National team for two years, although my past-times now are more leisurely - watching my grandchildren grow up and reading a good book with a glass of red! Ingenia Communities Group24 Investing in our People continued Melanie Matthias Contracts Administrator What is your role within Ingenia? My role with Ingenia is Contracts Administrator. In addition, I oversee the Call Centre where we receive enquiries across the three portfolios (Active Lifestyle Estates, Settlers and Garden Villages). How long have you worked for the Group? I have been with Ingenia for six years. What attracted you to your role? And Ingenia? I commenced work with the business in a Customer Service role. The role involved being the first point of contact for enquiries for the Garden Villages brand, distributing and managing leads for the business and supporting the marketing department. The majority of my day was spent listening to the needs of seniors and explaining the benefits of renting in our retirement communities. What interests you about retirement? When I tell my friends the Retirement sector is an exciting industry I usually get some strange looks. Working in this industry is extremely rewarding, especially when residents declare they love their village and wish they made the move so much sooner. How has your career progressed? With the introduction of Retirement Villages and Residential Parks to the portfolio, the role of Contracts Administration for me was a natural progression. The role requires a solid understanding of legislation across the different states and Acts. What’s the most rewarding part of your role? The most rewarding part of my job is being able to support our sales team and also present to our clients the offer of a quality lifestyle, no matter which type of community they choose to live in. Where do you see yourself in five years? I see myself continuing to work in the retirement sector in five years with Ingenia and look forward to being able to make a positive mark on the way seniors spend their retirement years. Tell us a fun fact about yourself that we’ll never guess? Amongst the menagerie of pets I have at home, my latest additions to the family are two pet Barramundi named Barry and Brian. Securityholder Review 201525 Lance Barratt Service Station Manager, BP Noosa What is your role within Ingenia, and how long have you worked for the Group? I am manager of the BP Noosa Service Station which was acquired by Ingenia along with the Big4 Noosa at Tewantin, Queensland in February this year. Prior to the acquisition I have been an employee of the business since 1997 and manager since 2005. What attracted you to your role? Having worked for the same business all my adult life it was natural progression. My years of service meant I had a good knowledge of the day-to- day operations and it was an exciting step up in my career and presented new ways to challenge myself. What excites about our organisation? Having a team behind me providing the support and assistance where and when it is needed. What interests you about the petrol and convenience sector? It’s a competitive industry and the challenge of finding ways to keep loyal customers returning is something I enjoy. Where do you see yourself in five years? In five years time I’d love to be happily working still in my role or have broadened my skill set and progressed up the career ladder. Tell us a fun fact about yourself that we’ll never guess? Last year my fiancé and I bought a 50 acre property which is quickly becoming a hobby farm with a couple of horses, two border collie dogs, two miniature goats and some rescued ex- battery hens now living the good life! What’s the most rewarding part of your role? Getting positive feedback about friendly staff interactions or in store promotions. When sales and profits are up and customers leave smiling, everything is running as it should be. What’s the hardest part of your role? Remaining competitive in the ‘dog eat dog’ world of fuel retailing is a nightmare. Being an independent amongst a world of corporate owned and operated fuel sites means we can’t play the price war head to head but instead must find alternate ways to keep a loyal customer base. We achieve this by offering a point of difference, friendly driveway services and competitive pricing on everyday shop items for our largely residential surrounds. Ingenia Communities Group26 Board of Directors 1 3 5 7 2 4 6 A dedicated and focused Board with significant industry expertise and strong professional experience 1. Jim Hazel Non-Executive Chairman Mr Hazel was appointed to the Board in March 2012. Mr Hazel has had an extensive corporate career in both the banking and retirement sectors. His retirement village operations experience includes being Managing Director of Primelife Corporation Limited (now part of Lend Lease). Other current listed company directorships include Bendigo and Adelaide Bank Limited, Centrex Metals Limited and Impedimed Limited. He also serves on the Boards of Motor Accident Commission, Coopers Brewery Limited, Adelaide Football Club and the Council of the University of South Australia. Mr Hazel holds a Bachelor of Economics and is a Senior Fellow of the Financial Services Institute of Australasia and a Fellow of the Australian Institute of Company Directors. Mr Hazel is a member of the Remuneration and Nomination Committee. 2. Simon Owen Chief Executive Officer and Managing Director Mr Owen was appointed to the Board in November 2011. Mr Owen joined the Group in November 2009 as the Chief Executive Officer. He initiated the internalisation of management and exit from the ING Group as well as Ingenia’s focus on lifestyle parks. Mr Owen brings to the Group in-depth experience in the retirement sector and is a past National President of the Retirement Villages Association (now part of the Retirement Living Council), the peak industry advocacy group for the owners, operators, developers and managers of retirement communities in Australia, a role he held for four years. Mr Owen has over 20 years experience working in ASX listed groups with roles across finance, funds management, mergers and acquisitions, business development and sales and marketing. Prior to joining Ingenia Communities, Mr Owen was the CEO of Aevum, a formerly listed retirement company. Mr Owen is a qualified accountant (CPA) with postgraduate diplomas in finance and investment and advanced accounting. Securityholder Review 201527 Ms Barlow is a professional company director. For the past 12 years, she served as the Chief Executive Officer of Summerset Group, the third largest retirement village operator and the second largest developer of villages in New Zealand. She is also a past President of Retirement Villages Association of New Zealand, a role she held for six years. Ms Barlow currently sits on the Boards of Summerset Group Holdings Limited, Estia Health Limited, Vigil Monitoring Limited, Lifetime Design Limited, Evolve Education Group Limited and Methven Limited. She also serves as a member of the New Zealand Government’s National Advisory Council for the Employment of Women. Ms Barlow holds a Bachelor of Commerce and Administration and is a qualified Chartered Accountant. Ms Barlow was made an Officer of the New Zealand Order of Merit for services to business in 2014. Ms Barlow is a member of the Audit and Risk Committee. 7. Leanne Ralph Joint Company Secretary Ms Ralph was appointed to the position of Company Secretary in April 2012. She has over 20 years experience in Chief Financial Officer and Company Secretarial roles for various publicly listed and unlisted entities. Ms Ralph is a member of the Governance Institute of Australia and the Australian Institute of Company Directors. She is the principal of Boardworx Australia Pty Ltd, which supplies bespoke outsourced Company Secretarial services to a number of listed and unlisted companies. 3. Philip Clark AM Non-Executive Director Mr Clark was appointed to the Board in June 2012. Mr Clark is the Chair of SCA Property Group Limited and Hunter Hall Global Value Limited. He is a member of the J.P. Morgan Advisory Council and also chairs a number of government and private company boards. He was Managing Partner and Chief Executive Officer of Minter Ellison and worked with that firm from 1995 until June 2005. Prior to joining Minter Ellison, Mr Clark was Director and Head of Corporate with ABN Amro Australia and prior to that he was Managing Partner with Mallesons Stephen Jaques for 16 years. Mr Clark’s qualifications include a Bachelor of Arts, Bachelor of Law and a Masters of Business Administration. Mr Clark is Chair of the Remuneration and Nomination Committee. 4. Amanda Heyworth Non-Executive Director Ms Heyworth was appointed to the Board in April 2012. Ms Heyworth is a professional company director. She previously served as Executive Director of Playford Capital Venture Capital Fund. She has a wealth of experience in the finance, technology and government sectors and teaches in the Australian Graduate School of Management’s MBA program. Ms Heyworth brings a finance and growth focus to the Group, having worked on many product launches and geographic expansions and over 40 capital raisings and mergers and acquisitions transactions. She sits on a number of public sector and private boards. Ms Heyworth has a BA (Accounting) with a major in finance from the University of South Australia and has post graduate qualifications in accounting and finance. She also holds a MBA from the Australian Graduate School of Management. Ms Heyworth is Chair of the Audit and Risk Committee and a member of the Remuneration and Nomination Committee. 5. Robert Morrison Non-Executive Director Mr Morrison was appointed to the Board in February 2013. Mr Morrison has extensive experience in property investment and funds management. During his 21 years at AMP, Mr Morrison’s executive roles included Head of Property for Asia Pacific and Director of Asian Investments. Mr Morrison’s investment experience includes senior portfolio management roles where he managed both listed and unlisted property funds on behalf of institutional investors. Mr Morrison was previously a Non-Executive Director of Mirvac Funds Management Limited, an Executive Director of AMP Capital Limited and a National Director of the Property Council of Australia. He is a founding partner and Executive Director of alternative investments firm, Barwon Investment Partners. Mr Morrison holds a Bachelor of Town and Regional Planning (Hons) and a Master of Commerce. Mr Morrison is a member of the Audit and Risk Committee. 6. Norah Barlow ONZM Non-Executive Director Ms Barlow was appointed to the Board in March 2014. Ingenia Communities Group28 Leadership Team 1 3 5 7 2 4 6 8 A strong industry experienced leadership team 1. Simon Owen Chief Executive Officer and Managing Director Simon joined the Group in November 2009 as the Chief Executive Officer. He initiated the internalisation of management and exit from the ING Group as well as Ingenia’s focus on lifestyle parks. Simon brings to the Group in-depth experience in the retirement sector and is a past National President of the Retirement Villages Association (now part of the Retirement Living Council), the peak industry advocacy group for the owners, operators, developers and managers of retirement communities in Australia, a role he held for four years. Simon has over 20 years experience working in ASX listed groups with roles across finance, funds management, mergers and acquisitions, business development and sales and marketing. Prior to joining Ingenia Communities, Simon was the CEO of Aevum, a formerly listed retirement company. Simon is a qualified accountant (CPA) with postgraduate diplomas in finance and investment and advanced accounting. 2. Tania Betts Chief Financial Officer and Joint Company Secretary Tania joined the Group in May 2012, after a 6-year career at Stockland Group where she held various positions, including National Finance Manager within their Retirement Living Division. Tania’s previous experience includes several years within the chartered accounting profession as well as working for a leading healthcare provider. She holds a Bachelor of Business in Accounting and Finance, and is a member of both the Institute of Chartered Accountants and the Governance Institute of Australia. Tania was the 2011 winner of the Urban Development Institute of Australia NSW and SMEC Urban Young Developers’ Award for Excellence. Securityholder Review 201529 Donna has over 15 years experience in communications and investor relations having worked with The GPT Group, Lend Lease US Office Trust, Lend Lease, the Securities Institute of Australia and Westpac Banking Corporation. Prior roles include Head of Investor Relations and Corporate Affairs with the GPT Group and a range of communications, marketing and investor relations roles at Lend Lease. Donna’s experience spans both listed and unlisted investor markets. Donna holds a Bachelor of Economics and a Masters of Education. 8. Kate Melrose General Manager, Project Sales Kate joined Ingenia in August 2014 and is responsible for sales across the Group’s Active Lifestyle Estate development projects. Kate brings over 20 years of property experience to the role. Kate spent 14 years at Lend Lease in a range of roles including Global Strategic Marketing Manager, Project Director, and roles focused on product innovation and sales management. Kate has been at the leading edge of innovation in the retirement and integrated aged care sector leading design innovation and sales at Mark Moran Vaucluse and Greengate and is passionately committed to “providing better Retirement solutions”. Kate holds a Bachelor of Business (Land Economics) and a Certificate in Corporate Real Estate. 3. Nikki Fisher Chief Operating Officer Nikki is responsible for the operations of Ingenia’s portfolio of Rental and Deferred Management Fee (DMF) Villages and the Group’s growing Active Lifestyle Estates & Holidays business. She joined the Group in 2010. Nikki has 19 years’ experience in the property and asset management industry. Her career spans multiple asset classes including industrial, commercial and retail. Prior to Ingenia, Nikki spent 10 years at Westfield Group where she held the position of Regional Manager QLD North, overseeing a portfolio in excess of $2 billion. She holds a Bachelor of Business in Accounting and Industry Economics. 4. Janene Eagleton General Manager, Care Development Janene joined the Group in August 2013 and has responsibility for the development and operation of the Group’s care and re- enablement program, Ingenia Care Assist. Janene brings to the Group extensive experience in health, retirement and aged care strategy and operations, having held senior management positions with Australian Unity, Catholic Healthcare and St Vincent’s Private Hospital. Janene holds an MBA (Macquarie) and is a graduate member of the Australian Institute of Company Directors and the Governance Institute of Australia. She has substantial experience as a Board Director for industry and consumer associations, not- for-profit companies and NSW Government Councils. 5. Simon King Chief Investment Officer Simon is responsible for the Group’s acquisitions and divestments, asset allocation and overall capital management. He joined the Group in May 2015. Simon has 20 years’ experience in the property and funds management industry having worked at Mirvac, Stockland and Lend Lease. Most recently, Simon held the position of Fund Manager in Lend Lease’s Investment Management business where he was responsible for the operation of three unlisted wholesale Funds. Simon also has extensive experience in asset management and property development. Simon holds a Bachelor of Business (Land Economics). 6. Corrie Milne General Manager, Village Operations Corrie oversees the day to day operational management of the Group’s villages. Corrie joined the business in October 2008 as the Regional Manager (Queensland) and in February 2009 moved into the role of Senior Regional Manager across the Australian portfolio. His rapid growth within the business has seen him promoted to his current role in July 2013. Prior to starting with Ingenia, Corrie worked with Sunny Cove Villages Group for two years in various roles. Corrie has over 10 years of experience in the hospitality industry with Mirvac Hotels and the Stamford Group, mainly in senior management roles. Corrie holds a Diploma in Business and a Graduate Certificate in Asset Management. 7. Donna Byrne Group Investor Relations Manager Donna joined the Group in November 2014 and is responsible for the Group’s investor relations and corporate affairs functions. Ingenia Communities Group Ingenia Communities Group Level 5, 151 Castlereagh Street Sydney NSW 2000 T. 1300 132 946 E. investor@ingeniacommunities.com.au W. www.ingeniacommunities.com.au I n g e n i a C o m m u n i t i e s A n n u a l R e p o r t 2 0 1 5 2015 Annual Report Ingenia Communities Holdings Limited Annual Reports for the year ended 30 June 2015 CONTENTS Directors’ Report Auditor’s Independence Declaration Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Cash Flow Statement Consolidated Statement of Changes in Equity Notes to the Financial Statements 1. Summary of significant accounting policies 2. Accounting estimates and judgements 3. Segment information 4. Earnings per security 5. Revenue 6. Finance expense 7. Income tax benefit 8. Discontinued Operations 9. Business combinations 10. Assets and liabilities held for sale 11. Cash and cash equivalents 12. Trade and other receivables 13. Inventories 14. Investment properties 15. Plant and equipment 16. Intangibles 17. Trade and other payables 18. Borrowings 19. Retirement village resident loans 20. Provisions 21. Derivatives 22. Deferred tax assets and liabilities 23. Issued securities 24. Reserves 25. Accumulated losses 26. Commitments 27. Contingent liabilities 28. Share-based payment transactions 29. Capital management 30. Financial instruments 31. Fair value measurement 32. Auditor’s remuneration 33. Related parties 34. Company financial information 35. Subsidiaries 36. Notes to the cash flow statement 37. Subsequent events Directors’ Declaration Independent Auditor’s Report www.ingeniacommunities.com.au 1 29 30 32 33 34 35 35 42 43 46 47 47 48 49 50 50 51 51 51 51 58 58 59 59 60 61 61 61 62 63 63 64 64 64 66 66 72 73 73 74 75 77 78 79 80 Annual Report 2015Directors’ Report for the year ended 30 June 2015 The directors of Ingenia Communities Holdings Limited (“ICH” or the “Company”) present their report together with the Company’s financial report for the year ended 30 June 2015 (the “current year”) and the Independent Auditor’s Report thereon. The Company’s financial report comprises the consolidated financial report of the Company and its controlled entities, including Ingenia Communities Fund (“ICF” or the “Fund”) and Ingenia Communities Management Trust (“ICMT”) (collectively, the “Trusts”). The shares of the Company are “stapled” with the units of the Trusts and trade on the Australian Securities Exchange (“ASX”) effectively as one security. Ingenia Communities RE Limited (“ICRE” or “Responsible Entity”), a wholly owned subsidiary of the Company is the responsible entity of the Trusts. In this report, the Company and the Trusts are referred to collectively as the Group. In accordance with Accounting Standard AASB 3 Business Combinations, the stapling of the Company and the Trusts is regarded as a business combination. The Company has been identified as the parent for preparing consolidated financial reports. 1. DIRECTORS The directors of the Company at any time during or since the end of the financial year were: Non-executive Directors (“NEDs”) Jim Hazel (Chairman) Philip Clark AM Amanda Heyworth Robert Morrison Norah Barlow ONZM Executive Directors Simon Owen (Managing Director and Chief Executive Officer) (“MD” and “CEO”) 1.1 Qualifications, Experience and Special Responsibilities Jim Hazel - Chairman Mr Hazel has had an extensive corporate career in both the banking and retirement sectors. His retirement village operations experience includes being Managing Director of Primelife Corporation Limited (now part of Lend Lease). Other current listed company directorships include Bendigo and Adelaide Bank Limited, Centrex Metals Limited and Impedimed Limited. He also serves on the Boards of Motor Accident Commission, Coopers Brewery Limited, Adelaide Football Club and the Council of the University of South Australia. Mr Hazel holds a Bachelor of Economics and is a Senior Fellow of the Financial Services Institute of Australasia and a Fellow of the Australian Institute of Company Directors. Mr Hazel is a member of the Remuneration and Nomination Committee. 1 Philip Clark AM Mr Clark is the Chair of SCA Property Group Limited and Hunter Hall Global Value Limited. He is a member of the J.P. Morgan Advisory Council and also chairs a number of government and private company boards. He was Managing Partner and Chief Executive Officer of Minter Ellison and worked with that firm from 1995 until June 2005. Prior to joining Minter Ellison, Mr Clark was Director and Head of Corporate with ABN Amro Australia and prior to that he was Managing Partner with Mallesons Stephen Jaques for 16 years. Mr Clark’s qualifications include a Bachelor of Arts, Bachelor of Law and a Masters of Business Administration. Mr Clark is Chair of the Remuneration and Nomination Committee. Amanda Heyworth Ms Heyworth is a professional company director. She previously served as Executive Director of Playford Capital Venture Capital Fund. She has a wealth of experience in the finance, technology and government sectors and teaches in the Australian Graduate School of Management’s Masters of Business Administration (“MBA”) program. Ms Heyworth brings a finance and growth focus to the Group, having worked on many product launches and geographic expansions and over 40 capital raisings and mergers and acquisitions transactions. She sits on a number of public sector and private boards. Ms Heyworth has a Bachelor of Arts (Accounting) with a major in finance from the University of South Australia and has postgraduate qualifications in accounting and finance. She also holds a MBA from the Australian Graduate School of Management. Ms Heyworth is Chair of the Audit and Risk Committee and a member of the Remuneration and Nomination Committee. Robert Morrison Mr Morrison has extensive experience in property investment and funds management. During his 21 years at AMP, Mr Morrison’s executive roles included Head of Property for Asia Pacific and Director of Asian Investments. Mr Morrison’s investment experience includes senior portfolio management roles where he managed both listed and unlisted property funds on behalf of institutional investors. Mr Morrison was previously a Non-Executive Director of Mirvac Funds Management Limited, an Executive Director of AMP Capital Limited and a National Director of the Property Council of Australia. He is a founding partner and Executive Director of alternative investments firm, Barwon Investment Partners. Mr Morrison holds a Bachelor of Town and Regional Planning (Hons) and a Master of Commerce. Mr Morrison is a member of the Audit and Risk Committee. Ingenia Communities Holdings Limited2 Directors’ Report for the year ended 30 June 2015 | continued Norah Barlow ONZM Ms Barlow is a professional company director. For the past 12 years, she served as the Chief Executive Officer of Summerset Group, the third largest retirement village operator and the second largest developer of villages in New Zealand. She is also a past President of Retirement Villages Association of New Zealand, a role she held for six years. Ms Barlow currently sits on the Boards of Summerset Group Holdings Limited, Estia Health Limited, Vigil Monitoring Limited, Lifetime Design Limited, Evolve Education Group Limited and Methven Limited. She also serves as a member of the New Zealand Government’s National Advisory Council for the Employment of Women. Ms Barlow holds a Bachelor of Commerce and Administration and is a qualified Chartered Accountant. Ms Barlow was made an Officer of the New Zealand Order of Merit for services to business in 2014. Ms Barlow is a member of the Audit and Risk Committee. Simon Owen – MD and CEO Simon joined the Group in November 2009 as the Chief Executive Officer. He initiated the internalisation of management and exit from the ING Group as well as the Group’s focus on lifestyle parks. Simon brings to the Group in-depth experience in the retirement sector and is the immediate past National President of the Retirement Villages Association (now part of the Retirement Living Council), the peak industry advocacy group for the owners, operators, developers and managers of retirement communities in Australia, a role he held for four years. Simon has over 20 years experience working in ASX listed groups with roles across finance, funds management, mergers and acquisitions, business development and sales and marketing. Prior to joining Ingenia Communities Group, Simon was the CEO of Aevum, a formerly listed retirement company. Simon is a qualified accountant (CPA) with postgraduate diplomas in finance and investment and advanced accounting. 1.2 Meetings The number of meetings of directors (including meetings of committees of directors) held during the year and the number of meetings attended by each director was as follows: Jim Hazel Philip Clark AM Amanda Heyworth Robert Morrison Norah Barlow Simon Owen Board Audit & Risk Committee Remuneration & Nomination Committee A 21 21 21 21 21 21 B 20 20 21 21 20 21 A – – 7 7 7 – B – – 7 7 7 – A 3 3 3 – – – B 3 3 3 – – – A: Meetings eligible to attend B: Meetings attended 1.3 Interests of directors Securities in the Group held by directors or their associates as at 30 June 2015 were: Jim Hazel Philip Clark AM Amanda Heyworth Robert Morrison Norah Barlow Simon Owen Issued stapled securities Performance quantum rights 1,669,587 238,096 641,524 453,335 209,063 – – – – – 3,763,905 5,429,413 Annual Report 20153 2. COMPANY SECRETARIES Leanne Ralph Ms Ralph was appointed to the position of Company Secretary in April 2012. Ms Ralph has over 20 years experience in chief financial officer and company secretarial roles for various publicly listed and unlisted entities. Ms Ralph is a member of the Governance Institute of Australia and the Australian Institute of Company Directors. Ms Ralph is the principal of Boardworx Australia Pty Ltd, which supplies bespoke outsourced Company Secretarial services to a number of listed and unlisted companies. Tania Betts Ms Betts joined the Group as Chief Financial Officer (“CFO”) in May 2012, after a six-year career at Stockland Group where she held various positions including National Finance Manager within their Retirement Living Division. Ms Betts’ previous experience includes several years within the chartered accounting profession as well as working for a leading health care provider. She holds a Bachelor of Business in Accounting and Finance, and is a member of both the Institute of Chartered Accountants and the Governance Institute of Australia. Ms Betts was the 2011 winner of the Urban Development Institute of Australia NSW and SMEC Urban Young Developers’ Award for Excellence. 3. OPERATING AND FINANCIAL REVIEW a. Ingenia Communities Group Overview The Group is an active owner, manager and developer of a diversified portfolio of retirement communities and lifestyle parks across Australia. Its real estate assets are valued at $392.8 million, being 20 lifestyle parks, 31 rental villages and eight deferred management fee villages. The Group is in the ASX 300 with a market capitalisation of approximately $408 million. The Group’s vision is to be a leading Australian provider of affordable long-term and short-term rental accommodation with a focus on the seniors demographic. The Board is committed to delivering long-term earnings and security price growth to securityholders and providing a supportive community environment to both its permanent and short-term residents. b. Strategy The Group’s strategy is primarily focused on improved operational performance across its portfolio and continued acceleration of development within its lifestyle parks sector. Using a disciplined investment framework, the Group will continue to acquire further lifestyle parks through deployment of the balance of equity funds raised in October 2014 as well as capital recycling, efficient inventory management and sale of completed homes. The Group finalised its strategic exit from the non-core New Zealand Students portfolio in December 2014 and is in the process of reducing its investment in DMF assets. A key element to achieving growth is efficient operational and capital management. In February 2015, the Group completed a debt refinance which increased its facility limit to $175.0 million, expanded its lender base, created enhanced flexibility and lowered pricing to an “all in” cost of debt currently of 4.6%. As at 30 June 2015, the facility is drawn to $63.9 million, which represents a loan to value ratio (“LVR”) of 22.6%, well below our target range of 30-35%. This leaves the Group well positioned to execute on further investment opportunities. The key immediate business priorities of the Group are: – Continue building velocity in the delivery and sale of new homes within the Active Lifestyle Estates business; – Acquire additional lifestyle parks in existing and new market clusters; – Grow occupancy rates within the Garden Villages portfolio towards a new medium term target of 93%; – Grow occupancy and average room rates for short-term accommodation within Active Lifestyle Estates – Continue sell down of completed homes within the Settlers portfolio and explore opportunities to recycle capital from Settlers assets into higher cash yielding lifestyle park assets; and – Focus on growing asset cash yields through operational efficiencies including revenue optimisation and disciplined cost management. c. FY15 Financial Results FY15 has been a year of significant investment in the Active Lifestyle Estates portfolio, with the focus on building a proven sales and development platform to deliver the forecast development pipeline returns. Management has also remained focused on increasing occupancy within the Garden Villages portfolio, selling down available stock within the Settlers portfolio and recycling capital from low yielding assets as evidenced by the divestment of three underperforming Garden Villages assets in June 2015. Overall, FY15 has produced an Underlying Profit of $17.5 million and a statutory profit of $25.7 million, which respectively represents a significant increase of $5.9 million (51.3%) and $14.2 million (123.3%) on prior year. These results are underpinned by a significantly higher contribution from the Active Lifestyle Estates of $8.4 million, up 112.5% from prior year. Operating cashflow for the year was $9.0 million, down 36.6% from the prior year, reflecting growth in recurring rental income offset by increased investment in manufactured home production. In October 2014, the Group raised $89.1 million from an institutional placement and rights issue, which with available debt facilities provided capacity to invest approximately $120 million into the lifestyle parks sector. Over the year the Group invested an additional $71.1 million (excluding transaction costs) into lifestyle parks acquiring a further five assets. To date, $87.0 million has been deployed into six assets with a further acquisition announced in August. Ingenia Communities Holdings Limited4 Directors’ Report for the year ended 30 June 2015 | continued The Group has today announced a final distribution of 0.70 cents, which brings the full year distribution to 1.35 cents. The dividend reinvestment plan will be available to securityholders and Board reaffirms its commitment to further growth in securityholder returns over the medium term. d. Key Metrics – Full year distribution of 1.35 cents per security, up 17.4%. – Underlying Profit was $17.5 million, up 51.3% from FY14. – Underlying Profit per security was 2.1 cents, up 0.3 cents from FY14. – Net asset value grew by 3.4 cents per security to 38.9 cents. – Statutory profit was $25.7 million, up 123.3% from FY14. – Statutory profit per security was 3.2 cents, up 1.5 cents from FY14. e. Group Results Summary Underlying Profit for the financial year has been calculated as follows: EBIT – continuing operations Net interest expense Tax benefit associated to Underlying Profit Underlying Profit – continuing operations Underlying Profit – discontinued operations Underlying Profit Net foreign exchange gain/(loss) Net loss on disposal of investment properties Net gain/(loss) on change in fair value of: Investment properties Derivatives Retirement village resident loans Gain on revaluation of newly constructed retirement villages Other Discontinued operations (below Underlying Profit), net of tax Tax benefit associated with items below Underlying Profit Statutory profit 2015 $’000 18,050 (4,567) 3,319 16,802 705 17,507 111 (69) 16,404 164 (8,878) (2,422) 503 (883) 3,285 25,722 2014 $’000 12,144 (4,077) 2,896 10,963 605 11,568 (147) – (341) 41 (616) (3,320) – (35) 4,368 11,518 Underlying Profit is a non-IFRS measure designed to present, in the opinion of the Directors, the results from the on-going operating activities in a way that appropriately reflects underlying performance. Underlying Profit excludes items such as unrealised fair value gains/(losses) and adjustments arising from the effect of revaluing assets/liabilities (such as derivatives and investment properties). These items are required to be included in Statutory Profit in accordance with Australian Accounting Standards. Annual Report 2015 5 f. Segment Performance and Priorities Active Lifestyle Estates Active Lifestyle Estates was launched in March 2013 and the Group now owns 20 lifestyle parks. This business is the key focus of growth for the Group as it provides an affordable yield focused housing alternative for seniors and short-term residents with a capital light, low risk development cycle. The carrying value of these assets at 30 June 2015 is $204.2 million. i. Performance Active Lifestyle Estates New and refurbished home settlements # Development profit $m Permanent rental income $m Annuals rental income $m Short-term rental income $m EBIT contribution FY15 56 $5.7m $8.3m $1.0m $10.3m $8.4m FY14 Change 15 $1.3m $4.2m $0.3m $5.0m $3.9m 41 $4.4m $4.1m $0.7m $5.3m $4.4m Active Lifestyle Estates delivered an EBIT contribution of $8.4 million in FY15, of which $5.7 million was attributable to development of new and refurbished manufactured homes. The momentum achieved in settlements during FY15 has been strong and indicates a growing customer awareness and understanding of the lifestyle offering within our parks. Our two key manufactured home builders have performed well under the supplier agreements established this year and further council approvals has seen an increase in the volume of development ready approved sites. The rental accommodation earnings of this segment have grown strongly both through acquisitions and improved performance from the short-term tourism rental accommodation, despite taking some short-term sites off line to facilitate development. This strong result reflects investment in a sales and development framework for new homes which is well progressed with further refinements expected in FY16. We remain confident of building on this strong result during the coming financial year. ii. Strategic priorities The key strategic priorities for this business are continuing the sales and settlement momentum achieved during FY15, securing further development approvals for new homes within our existing parks, optimising home designs for efficiency and customer demand, growing rental returns and leveraging scale efficiencies. In FY16, the Group will assess expanding into greenfield development. Garden Villages Garden Villages comprises 31 rental villages located across the eastern seaboard and Western Australia. These villages accommodate more than 1,600 residents, and generate $24.4 million in gross rental income per annum. The carrying value of these assets at 30 June 2015 is $125.7 million. i. Performance metrics Garden Villages Like for like occupancy % Rental income $m Catering income $m EBIT $m FY15 FY14 Change 90.7% $24.4m $3.5m $11.0m 87.9% $21.0m $3.2m $9.9m 2.8% $3.4m $0.3m $1.1m Garden Villages delivers a consistent stream of recurring cash income for the Group. The results are up $1.1 million on prior year due to growing occupancy levels, which are up 2.8% on a like for like basis. In June 2015, three ‘out of cluster’, management intensive villages were divested for $6.7 million. Two of these villages were owned by the Group for eighteen months and were sold at 14% above their purchase price. ii. Strategic priorities The key strategic priorities of this business over the coming year are to continue increasing village occupancy, increasing rents above CPI, growing cash margins, ensuring residents are actively engaged and maintaining affordability whilst leveraging scale efficiencies across the portfolio. Ingenia Communities Holdings Limited6 Directors’ Report for the year ended 30 June 2015 | continued Settlers Lifestyle Settlers Lifestyle is comprised of eight deferred management fee villages, four of which are being converted from the rental to deferred management fee model. These villages are located in Queensland, New South Wales and Western Australia and accommodate more than 800 residents generating income from accrued deferred management fees, rental income from villages which are not yet fully converted and development income from unit conversions and village expansion. The carrying value of these assets at 30 June 2015, net of resident loans and lease liabilities is $62.9 million. The Group is exploring opportunities of reducing its exposure to this portfolio with five assets classified as held for sale at 30 June 2015. i. Performance Settlers Lifestyle Occupancy % New unit settlements # Development income $m Accrued deferred management fee income $m EBIT $m FY15 93% 43 $2.4m $6.8m $6.3m FY14 Change 92% 57 $3.3m $5.3m $4.5m 1% (14) ($0.9m) $1.5m $1.8m The Settlers Lifestyle result is up $1.8 million from prior year despite lower settlement volumes and development margins as a result of several development projects nearing completion. These lower development earnings were offset by significant growth in the Group’s share of capital growth in the underlying units and winding down of sales and marketing efforts on near complete projects. ii. Strategic priorities The key strategic priorities of this business over the coming year are completing the sale of the five assets classified as held for sale along with selling down any remaining stock across the portfolio. Discontinued Operations The Group completed its exit from the New Zealand Students portfolio in December 2014. g. Capital Management The Group adopts a prudent and considered approach to capital management. During the year, the Group strengthened its capital position by undertaking an $89.1 million capital raising and negotiating a new $175.0 million Australian multilateral debt facility; an increase of $45.5 million from the previous facility. As at 30 June 2015, the current LVR is 22.6%, which is below our target LVR of 30-35%. Once the Group deploys remaining proceeds from the capital raising and debt into further lifestyle parks, the LVR will move towards the lower end of the target range. h. Financial Position The following table provides a summary of the Group’s financial position as at 30 June 2015: $,000 Cash and cash equivalents Inventories Investment properties Assets held for sale Assets of discontinued operations Deferred tax asset Other assets Total assets Borrowings Retirement village resident loans Liabilities held for sale Liabilities from discontinued operations Other liabilities Total liabilities Net assets/equity 30 June 2015 30 Jun 2014 Change 15,117 13,208 12,894 2,208 539,728 498,863 61,598 – 6,348 9,308 5,439 47,657 – 7,863 2,223 11,000 40,865 56,159 (47,657) 6,348 1,445 645,307 574,924 70,383 66,782 161,878 42,041 98,356 190,122 (31,574) (28,244) – 42,041 – 30,449 (30,449) 31,086 301,787 15,820 15,266 334,747 (32,960) 343,520 240,177 103,343 Annual Report 20157 Inventories, up $11.0 million, include 53 completed homes, reflecting the Group’s growing investment in the lifestyle sector. Development and sale of new manufactured homes is key to the Group’s strategy and as the number of active development projects increases, this balance will grow however at a lesser rate than that in FY15. Investment properties increased by $40.9 million due to acquisition of five lifestyle parks for $78.2 million (including transaction costs), development expenditure, a $16.4 million fair value uplift offset by divestment of three Garden Villages assets and a $61.6 million reclassification of five Settlers villages to assets held for sale. Assets and liabilities held for sale relates to five Settlers villages which are currently subject to sale with settlement expected within twelve months. Assets and liabilities of discontinued operations decreased to nil reflecting the disposal of New Zealand operations in December 2014, in line with the divestment strategy. Borrowings fell by $31.6 million reflecting application of funds yet to be deployed from the October equity raising and proceeds from the New Zealand Students divestment. Full deployment of these funds is anticipated within the coming months which will see debt levels increase. Other liabilities increased by $15.3 million due to recognition of deferred consideration associated with some of the lifestyle park acquisitions during the year. i. Cashflow $,000 Operating cashflow Investing cashflow Financing cashflow Net change in cash and cash equivalents 30 June 2015 30 Jun 2014 Change 9,034 14,240 (5,206) (24,232) (126,084) 101,852 15,564 366 89,012 (73,448) (22,832) 23,198 Operating cash flow for the Group was $9.0 million reflecting growth recurring rental income contribution from the Active Lifestyle Estates and Garden Villages segments offset by a net cash outflow of $3.6 million associated with the manufactured homes. Over the last year, the Group has significantly ramped up its development activities and launched several projects. The Group has settled 56 homes during the year with a further 53 completed homes and 44 under construction homes included within inventory at June 2015. j. Distributions The following distributions were made during or in respect of the year: – On 24 February 2015, the directors declared an interim distribution of 0.65 cps (2014: 0.50 cps) amounting to $5,712,537 which was paid on 18 March 2015. – On 25 August 2015, the directors declared a final distribution of 0.70 cps (2014: 0.65 cps) amounting to $6,205,793, to be paid on 16 September 2015. The distribution is 71.0% tax deferred and the dividend reinvestment plan will apply to the final distribution. The Group is committed to continuing to grow distributions in the near term. k. Outlook The Group is well positioned to continue growing its lifestyle parks business with a significant and accretive acquisition pipeline in place and significant debt capacity. Further growth in sales and settlements volumes is expected in FY16 as further projects are launched. The Group will continue to regularly assess the performance of its existing assets and where appropriate recycle that capital into other opportunities delivering superior returns. Ingenia Communities Holdings Limited8 Directors’ Report for the year ended 30 June 2015 | continued 4. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS Changes in the state of affairs during the financial year are set out in the various reports in this Annual Report. Refer to Note 10 of the accompanying financial statements for Assets and liabilities held for sale, Note 14 for Australian investment properties acquired or disposed of during the year, Note 30 for details of Australian debt refinanced and Note 23 for Issued securities. 5. EVENTS SUBSEQUENT TO REPORTING DATE a. Performance Quantum Rights Vesting On 1 July 2015, 3,842,000 Performance Quantum Rights (“PQRs”) granted to key management personnel (“KMP”) in 2012 vested. As a result, 3,842,000 fully paid stapled securities have been issued to the following KMP: Simon Owen 2,260,000 Tania Betts 791,000 Nicole Fisher 791,000 b. Acquisition of Upstream Bethania On 3 July 2015, the Group settled Upstream Bethania, the Group’s second Active Lifestyle Estate in Brisbane, complementing Chambers Pines Lifestyle Resort and the Group’s existing Garden Villages in the region. The acquisition price was $8.2 million (excluding transaction costs) and was funded from the proceeds of the capital raising in October 2014. This park, now known as Active Lifestyle Estate Bethania, is an existing manufactured home community outside Brisbane and represents a significant development opportunity that will grow the Group’s existing rental stream. c. Execution of Hedging Contract On 31 July 2015, the Group entered into an interest rate hedge collar for $16.0 million with an expiry date of August 2017. The execution of this hedge means 23.2% of the Group’s debt is currently hedged with the intention to gradually increase the hedged exposure over the coming months. d. Acquisition of Big 4 Conjola Lakeside On 13 August 2015, the Group announced it had exchanged unconditional contracts for the acquisition of Big 4 Conjola Lakeside in Lake Conjola, NSW. The acquisition price is $24.0 million (excluding transaction costs) and will be funded from the proceeds of the capital raising in October 2014. e. Final FY15 Distribution On 25 August 2015, the directors of the Group resolved to declare a final distribution of 0.70 cps (2014: 0.65 cps) amounting to $6,205,793 to be paid as 16 September 2015. The distribution is 71.0% tax deferred and the dividend reinvestment plan will apply to the final distribution. 6. LIKELY DEVELOPMENTS The Group will continue to pursue strategies aimed at improving its cash earnings, profitability and market share within the rental property industry during the next financial year, with a continuing focus on the development and acquisition of lifestyle parks. Other information about certain likely developments in the operations of the Group and the expected results of those operations in future financial years is included in the various reports in this Annual Report. 7. ENVIRONMENTAL REGULATION The Group has policies and procedures in place to ensure that, where operations are subject to any particular and significant environmental regulation under the law of Australia, those obligations are identified and appropriately addressed. The directors have determined that there has not been any material breach of those obligations during the financial year. 8. GROUP INDEMNITIES The Group has purchased various insurance policies to cover a range of risks (subject to specified exclusions) for directors, officers and employees of the Group serving in their respective capacities. Key insurance policies include: directors and officers insurance, professional indemnity insurance and management liability insurance. 9. INDEMNIFICATION OF AUDITORS To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young Australia, as part of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst & Young during or since the financial year. 10. AUDITOR’S INDEPENDENCE DECLARATION A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 29. 11. ROUNDING OF AMOUNTS Ingenia Communities Group is an entity of the kind referred to in ASIC Class Order 98/100, and in accordance with that Class Order, amounts in the financial report and Director’s report have been rounded to the nearest thousand dollars, unless otherwise stated. Annual Report 2015 12. MESSAGE FROM THE REMUNERATION AND NOMINATION COMMITTEE Dear Securityholders The Board of Ingenia Communities Group (“Ingenia”) is pleased to present the Remuneration Report for FY15. 12.1 Introduction Ingenia undertook a thorough review and made significant changes to its executive remuneration arrangements between 30 June 2014 and the AGM in November 2014. Those changes were summarised last year in a message from the Committee and detailed in the FY14 Remuneration Report under the section dealing with FY15 remuneration. They are also detailed in the FY15 Remuneration Report which follows, so it is not necessary for me to repeat them here. We were very pleased by the strong support from securityholders for those changes which was reflected in a 99% vote in favour of the Remuneration Report at last year’s AGM. We are not proposing significant changes this year in relation to FY16 executive remuneration. The few changes that are proposed are highlighted below and detailed in the Remuneration Report Section 13.13. 12.2 Ingenia’s Performance The Board has established a strong nexus between remuneration for executives and Ingenia’s performance and returns to securityholders. Ingenia was internalised in June 2012. Performance in the first two years of operation, FY13 and FY14 was exceptional. Ingenia ran into some headwinds in the first half of FY15 and results were below expectations. However, Ingenia had a strong second six months with results for the FY15 year above threshold but below target. This outcome is reflected in the executive and NED remuneration recommendations in the Remuneration Report. 12.3 Ingenia’s Corporate Strategy Ingenia’s corporate strategy has not changed substantially from last year. The strategy is highlighted in the CEO’s Investor Presentation. The Board has continued to closely align remuneration objectives and strategy with corporate strategy. For example, because the Board is focusing on medium to long-term return on investment, we have decided to introduce an additional LTI hurdle for performance against Return on Equity targets. 9 12.4 Overview of 2015 Remuneration We acknowledge that corporate governance requirements are making remuneration reports more complex so key outcomes from Ingenia’s FY15 and FY16 remuneration are summarised below for the convenience of our securityholders: – FY15 STI award outcomes for Key Management Personnel (“KMP”) were broadly in line with Ingenia’s performance, above threshold but below target and well below maximum. – FY16 STI metrics have again been set at quite challenging levels and are substantially based on quantified targets including Underlying Profit and relevant operating targets. – The Board has approved modest increases in FY16 Total Fixed Remuneration for KMP: no increase for the CEO, a 2.5% increase for the CFO and a 5.0% increase for the Chief Operating Officer (“COO”). – The Board is proposing a change from last year in the mix of TFR, STI and LTI percentages for the CFO and COO, increasing the STI at risk component from 40% to 60% of TFR. – The structure of KMP remuneration also remains unchanged • STI will be paid 50% in cash and 50% in deferred equity which is subject to a vesting requirement that Underlying Profit must increase by at least 5% over the previous year for deferred STI to vest. This effectively operates as a performance gateway for vesting. • Both deferred STI and LTI are subject to a malus provision. – As noted above the Board has introduced an additional LTI hurdle which measures performance against Return on Equity targets. As with our TSR hurdle there will be zero LTI vesting at threshold. – The review of NED remuneration has been deferred until December 2015. 12.5 Conclusion My colleagues on the Remuneration and Nomination Committee and I wish to acknowledge the valuable input we received from our Board colleagues including the Company Secretary, management, Guerdon Associates, investors and proxy advisors. We recommend Ingenia’s Remuneration Report to investors and seek your support for the resolution to adopt the Remuneration Report at Ingenia’s AGM on Tuesday 17 November 2015. Yours sincerely Philip Marcus Clark AM Chairman – Remuneration and Nomination Committee Ingenia Communities Holdings Limited10 Directors’ Report for the year ended 30 June 2015 | continued 13. REMUNERATION REPORT (AUDITED) 13.1 Introduction The Board presents the Remuneration Report for the Group for the year ended 30 June 2015, which forms part of the Directors’ Report and has been prepared in accordance with section 300A of the Corporations Act 2001 (Cth) (“Corporations Act”). The data provided in the Remuneration Report was audited as required under section 308(3C) of the Corporations Act. 13.2 Remuneration Governance a. Remuneration and Nomination Committee (“RNC”) The Board has an established RNC, which is directly responsible for reviewing and recommending remuneration arrangements for non-executive directors, the MD and CEO and senior executives who directly report to the CEO. The RNC comprises the following non-executive directors (“NEDs”): – Philip Marcus Clark AM (Chairman); – – Amanda Heyworth. Jim Hazel; and The RNC provides oversight for general remuneration levels of the Group ensuring they are set at appropriate levels to access the skills and capabilities the Group needs to operate successfully. The RNC operates under the delegated authority of the Board for some matters related to remuneration arrangements for both executives and non-executives, and is required to make recommendations to the Board. The RNC also reviews and makes recommendations to the Board on incentive schemes. The RNC is required to meet regularly throughout the year, and in any event at least twice per year, and considers recommendations from internal management and external advisors. The Board is ultimately responsible for decisions made on recommendations from the RNC. No director votes on remuneration resolutions which directly impact on his or her remuneration. b. External Remuneration Advisers In March 2014, the Board rotated external remuneration advisors and engaged Guerdon Associates to provide independent remuneration advice for Key Management Personnel (“KMP”), including senior executives and NEDs, and to review the rules of the Group’s LTI and STI Plans for FY15. Guerdon Associates were re-engaged in March 2015 to provide independent remuneration advice for KMP for FY16. For the provision of the advice to date, Guerdon Associates have been commissioned by, engaged with, and addressed reports directly to the Chairman of the RNC. The Board is satisfied that the remuneration advice from Guerdon Associates was made free from undue influence by the KMP to whom the advice related, due to there being no engagement with the remuneration advisors outside of the Chairman of the RNC. A declaration of independence from Guerdon Associates was received by the Board prior to the acceptance of their engagement and accompanied their report to the RNC. While remuneration services were received, no remuneration recommendations as defined under Division 1, Part 1.2.98 (1) of the Corporations Act, were made by Guerdon Associates. Annual Report 201511 13.3 Details of KMP KMP for the year ended 30 June 2015 are those persons who are identified as having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including any executive or NED of the Group. The KMP of the Group for the year ended 30 June 2015 have been determined by the Board to be as follows: Non-executive directors Jim Hazel Position Chairman of the Board NED Amanda Heyworth NED Member – Remuneration and Nomination Committee Philip Clark AM Robert Morrison Norah Barlow Executive director Simon Owen Other executives Tania Betts Nicole Fisher Chairman – Audit and Risk Committee Member – Remuneration and Nomination Committee NED Chairman – Remuneration and Nomination Committee NED Member – Audit and Risk Committee NED Member – Audit and Risk Committee Managing Director and CEO CFO COO 13.4 Remuneration of Executive KMP a. Remuneration Policy The Group’s Remuneration Policy is to ensure remuneration packages properly reflect the person’s duties and responsibilities and that the remuneration is competitive in attracting, retaining and motivating people of suitable quality. The structure of remuneration, as explained below, is designed to attract suitably qualified candidates, reward the achievement of strategic objectives, and achieve the broader outcome of long-term value creation for securityholders. The remuneration structures take into account a range of factors, including the following: – Capability, skills and experience; – Ability to impact achievement of the strategic objectives of the Group; – Performance of the KMP in their roles; – The Group’s overall performance; – Remuneration levels being paid by competitors for similar positions; and – The need to ensure continuity of executive talent. Refer below for detail of the mechanisms in place, which link the remuneration outcomes to individual and the Group’s performance. Ingenia Communities Holdings Limited12 Directors’ Report for the year ended 30 June 2015 | continued b. Link between Remuneration and Performance The Board understands the importance of the relationship between the Group’s remuneration policy for KMP and the Group’s performance. The remuneration packages for KMP are aimed at achieving this balance and aligning KMP remuneration with the interests of securityholders. Remuneration component Link to Group performance Total Fixed Remuneration (“TFR”) Short-term incentive (“STI”) Long-term incentive (“LTI”) TFR is not directly linked to Group performance. It is set with reference to  the individual’s role, responsibilities and performance and remuneration levels for similar positions in the market. STIs are awarded to individuals whose achievements, behaviour and focus meet the Group’s business plan and individual Key Performance Indicators (“KPI”) measured over the financial year. The Board maintains sole discretion over the granting of STIs to eligible employees. For achievement of FY15 STIs, the payment will be 50% cash and a 50% deferred equity element linked to earnings growth sustainability. This mechanism will be continued in FY16. LTI is granted to individuals to align their focus with the Group’s required TSR and for FY16 Return on Equity (“ROE”) performance measured over three financial years. The Board maintains sole discretion over the granting of the LTI to eligible employees. Payment for achievement of LTIs will be made in equity for alignment with securityholders’ interests. LTIs are subject a malus provision. The table below sets out summary information about the Group’s earnings and movement in securityholder wealth for the five years to 30 June 2015: Underlying Profit ($000) Statutory profit/(loss) ($000) EPS (cents) Net asset value per security (cents) Security price 30 June (cents) Distributions (cents) 30 June 2015 30 June 2014 30 June 2013 30 June 2012 30 June 2011 17,507 25,722 3.1(3) 38.9(3) 43.0 1.35 11,568 11,518 1.8(2) 35.5(2) 50.5 1.15 5,867 7,434 (10,290) 33,627 (2.0)(1) 34.4(1) 34.5 1.0 7.6 34.3 19.5 – 6,889 13,051 3.0 25.9 11.5 – (1) During the year ended 30 June 2013, the Group issued 66,150,000 securities under an institutional placement. (2) During the year ended 30 June 2014, the Group issued 169,061,000 securities under the non-renounceable rights issue. (3) During the year ended 30 June 2015, the Group issued 197,968,000 securities under the institutional placement and rights issue, 1,818,000 upon vesting of Retention Quantum Rights (“RQRs”) and 6,674,000 under the dividend reinvestment plan. Annual Report 201513 c. Mix of Remuneration Components Executive remuneration packages include a mix of fixed remuneration, STIs and LTIs. The Group aims to reward executives with a mix of remuneration commensurate with their position and responsibilities and aligned with market practice. The Group’s policy is to set the total employment cost of KMP by reference to the 50th percentile range of comparable industry peers and other Australian listed companies of similar size and complexity, whilst also taking into account the individual’s competence and the potential impact of incentives. The target remuneration mix for executives for the year ended 30 June 2015, expressed as a percentage of total remuneration, is detailed in the table below: Target mix CEO CFO COO TFR (%) 43.5% 62.5% 62.5% Maximum STI (%) Maximum LTI (%) Total remuneration (%) 34.8% 25.0% 25.0% 21.7% 12.5% 12.5% 100.0% 100.0% 100.0% 13.5 Total Fixed Remuneration of Executive KMP TFR is a guaranteed annual salary, which is calculated on a total cost basis, which may include salary-packaged benefits grossed up for FBT payable, as well as employer contributions to superannuation funds and other non-cash benefits that may be agreed from time to time. The RNC reviews and makes recommendations to the Board in relation to fixed remuneration levels for KMP on an annual basis. The table below details the TFR for each of the executives for the year ended 30 June 2015: Executive Simon Owen Tania Betts Nicole Fisher(1) Position Managing Director and CEO CFO COO TFR(2) $638,098 $324,988 $253,573 (1) Based on four days per week. (2) TFR increases for FY15 took effect on 1 October 2014, so they only applied for part of the year. 13.6 New Rights Plan Guerdon Associates were engaged to review the rules of the STI and LTI plan and subsequently proposed rules for a Rights Plan, which were endorsed by the RNC and approved by the Board. The new Rights Plan was also approved by securityholders at the Annual General Meeting (“AGM”) held on 12 November 2014. The Rights Plan provides for the issuance of Rights which, upon a determination by the Board that the performance conditions attached to the Rights have been met, will result in the issue of stapled securities in the Group for each Right. The Rights Plan provides for the issue of Rights to eligible employees for both STIs and LTIs. Ingenia Communities Holdings Limited14 Directors’ Report for the year ended 30 June 2015 | continued 13.7 Short-Term Incentive Plan (“STIP”) Under the new Rights Plan, a structural change was implemented for the FY15 STIs with 50% of the maximum STI for the executive KMP being paid in cash and the remaining 50% being a deferred equity element, subject to forfeiture where earnings growth is not sustained. The deferral is for 12 months and sustainability has been defined as earnings growth in the following year to be equal to or above a set threshold on prior year. The deferral is to be Rights to INA stapled securities, plus additional stapled securities equal to distributions during the deferral period on a reinvestment basis. Executives Maximum STIP Cash Maximum STIP Deferred (STIP Rights) Total Maximum STIP Available Simon Owen 40% of FY15 TFR 40% of FY15 TFR 80% of FY15 TFR Tania Betts 20% of FY15 TFR 20% of FY15 TFR 40% of FY15 TFR $260,000 $260,000 $520,000 Nicole Fisher 20% of FY15 TFR 20% of FY15 TFR 40% of FY15 TFR $65,600 $65,600 $131,200 $63,000 $63,000 $126,000 The FY15 STIP Rights are subject to the following terms and conditions: – A ‘malus’ (forfeiture) provision during the deferral period, which means that some or all of the STIP Rights may lapse if: • the Board forms the view that Ingenia’s earnings growth is not sustainable (in general, this will require earnings growth to be equal to or above 5% on the prior year); or • any of the circumstances set out in the rules of the Rights Plan occur, such as fraud or dishonesty, a breach of obligations or material misstatement of Ingenia’s financial statements; – A one-year deferral period and are eligible to vest on or following 1 October 2016; – On the vesting date Ingenia will cause the relevant number of INA securities to be issued to the executive in accordance with a prescribed formula; and – No amount is payable by the executive for the issue or transfer of Ingenia securities to the executive. The STIP award is subject to STI performance conditions that focus on Board assessment areas of operating earnings, capital management (for the CEO only), operational targets and people and reporting assessments. Each assessment area is weighted to break down the award further. These KPIs have been chosen as they aim to focus individuals to meet the Group’s business plan. The KPIs specific to the executive KMPs are outlined in the table below, together with what the Board will consider in determining the achievement of the KPI. In each case, the KPIs are set with ‘threshold’, ‘target’ and ‘stretch’ performance levels, with entitlements calculated on a pro- rata basis between these levels. Details of the KPI split for each executive KMP is as follows: CEO CFO COO Financial % Capital Management % Operational % 40 40 40 30 – – 20 50 50 People and Reporting % 10 10 10 KPIs, their applicability, targets, and outcomes are tabulated below. KPI Financial Executives to which KPI applied CEO, CFO, COO Capital management CEO Operational CEO, CFO, COO People and reporting CEO, CFO, COO Key Considerations in achievement Operating income (Underlying Profit) to exceed threshold level. Non-core asset divestment, access to debt to deliver strategic plan. Equity investors regard Ingenia as clear sector leader. Achievement of operational and sales metrics that deliver on business strategy, established for each KMP specific for their area of responsibility. Recruit and retain leading industry talent. Develop internal succession options. Annual Report 201515 For the year ended 30 June 2015, the Board assessed the performance of the CEO and the CEO assessed the performance of the CFO and COO, against their respective KPIs. The RNC then recommended and the Board approved STIP awards. The Board approved STIP awards for the year ended 30 June 2015 for each executive KMP were as follows: KMP Simon Owen Tania Betts Nicole Fisher(1) Position Actual STI awarded $ Actual STI awarded as a % of maximum STI MD & CEO CFO COO 273,000 62,976 64,980 52.5% 48.0% 51.6% (1) Actual amount awarded was calculated on a pro rata basis based on 4 days per week. The FY15 deferred equity STIP component of the CEO’s remuneration was approved by securityholders at the AGM held on 12 November 2014. Any STIP Rights deferred equity component of the CEO’s remuneration for FY16 will be subject to securityholder approval at the 2015 AGM to be held on 17 November 2015. 13.8 Long-Term Incentives a. Long-Term Incentive Plan (“LTIP”) The objective of the Group’s LTIP is to align long-term securityholder returns with the ‘at risk’ compensation payable to executive level employees whilst also acting as a mechanism to retain key talent. On advice from Guerdon Associates, the RNC recommended, and the Board and securityholders approved significant changes under the new Rights Plan commencing in FY15 to: – The performance conditions for vesting of LTIP Rights; and – The methodology used to convert dollar amount awards to LTIP Rights entitlements. The LTIP Rights are subject to the LTIP Performance Condition, which is based on growth in INA’s TSR relative to the ASX 300 Industrials Index (“Index”) return over the Rights Performance Period. The ASX 300 Index was chosen because the Board considers it to be transparent and more closely aligned to the Group’s core business operations. TSR is the growth in the security price plus distributions, assuming distributions are reinvested. To minimise the impact of any short-term volatility, Ingenia’s TSR will be calculated using the volume weighted average of the closing security price over the 30 days up to and including the trading day prior to the start and the 30 days up to and including the end trading day of the Rights Performance Period. The FY15 LTIP Rights will vest on the following basis: Growth rate in INA’s TSR % of Rights that vest At or Below Threshold Equal to or less than Index + 1% CAGR Nil Between Threshold and Maximum Between Index + 1% and Index +6% CAGR 10% plus an additional amount progressively vesting on a straight line basis between Threshold and Maximum Maximum Index + 6% CAGR 100% CAGR: compound annual growth rate It is important to note that executive KMP must outperform the Index to qualify for an award of LTIP Rights. The methodology used to calculate Rights entitlements in FY15 determines security value as the volume weighted average price (“VWAP”) of Ingenia securities in the period of 30 trading days ending on the grant date (being, 1 October 2014 for the CFO and COO, and 12 November 2014 for the CEO). The number of LTIP Rights granted in FY15 was calculated by dividing the maximum LTIP Award by the VWAP. Each LTIP Right vested equals one Ingenia security plus an additional number of Ingenia securities calculated on the basis of the distributions that would have been paid during the relevant period being reinvested. The FY15 LTIP components of Simon Owen’s remuneration were approved by securityholders at the Annual General Meeting held on 12 November 2014. Any LTIP components of the CEO’s remuneration for FY16 will be subject to securityholder approval at the 2015 Annual General Meeting to be held on 17 November 2015. Ingenia Communities Holdings Limited16 Directors’ Report for the year ended 30 June 2015 | continued b. Performance Quantum Rights (“PQRs”) Issued in FY14 Prior to FY15, the Board adopted an LTI scheme that provided for the issue of PQRs rather than LTIP Rights. Subject to vesting conditions, each PQR entitles the holder to one Ingenia fully paid stapled security. PQRs granted in FY14 vest based on the Group’s performance as measured by the absolute TSR. TSR is calculated as the percentage gain from an investment in Ingenia Communities securities over the vesting period, assuming that distributions are reinvested. The vesting period for PQRs granted in FY14 is 3 years from 1 July 2013. The vesting conditions are based on Group performance over the vesting period as measured by the actual TSR. The Board has absolute discretion to vary the vesting conditions outlined in the table below. In respect of FY14 year, the percentage of PQRs held by an eligible employee on the vesting date in respect of a Scheme Year that may vest shall be determined in accordance with the table below: Where Group’s actual TSR over the 3 year vesting period is: Percentage of employee’s PQRs that may vest in respect of the Scheme Year: Below 26% - below threshold performance. 26% (approximately 8%pa compound), on threshold performance. 0% 25% At or above 26% but below 33% performance, between threshold and target performance. 25%-50%, in the same proportion as the Group’s actual TSR bears to the threshold and target performance. 33% (approximately 10%pa compound), on target performance. 50% Above 33% but below 40% performance, between target and stretch performance. 50%-100%, in the same proportion as the Group’s actual TSR bears to the target TSR and stretch performance. 40% or above (approximately 12%pa compound), stretch performance. 100% c. Summary of PQRs and LTIPs on Issue The following table sets out the participation level of KMP in the past LTI Scheme (where PQRs were issued) and the new Rights Plan (where LTIP Rights were issued), in terms of grant size, fair value, vesting date and the maximum amount to be expensed in the future. PQRs were granted during the years ended 30 June 2013 and 30 June 2014. LTIP Rights were granted during the year ended 30 June 2015. KMP Position Simon Owen CEO Tania Betts CFO Nicole Fisher COO LTI Scheme PQRs / LTIP Rights Number of rights granted Grant date Fair value of rights $ Vesting date Maximum to expense in future years $ 2013 2014 2015 2013 2014 2015 2013 2014 2015 2,260,000 31 May 2012 230,520 1 July 2015 – 2,460,000 19 November 2013 799,500 1 July 2016 266,986 709,413 12 November 2014 179,481 1 October 2017 134,775 791,000 14 May 2012 71,032 1 July 2015 – 641,000 19 November 2013 208,325 1 July 2016 69,568 139,544 1 October 2014 33,909 1 October 2017 25,463 791,000 4 June 2012 80,287 1 July 2015 – 615,000 19 November 2013 199,875 1 July 2016 66,747 134,014 1 October 2014 32,565 1 October 2017 24,453 No PQRs were granted during the year ended 30 June 2015, but LTIP Rights were granted in that year. Annual Report 201517 The following PQRs vested on 1 July 2015. KMP Position LTI Scheme - PQRs Number of performance rights vested Simon Owen Tania Betts Nicole Fisher CEO CFO COO 2013 2013 2013 2,260,000 791,000 791,000 Grant date 31 May 2012 14 May 2012 4 June 2012 d. Retention Quantum Rights (“RQRs”) These are rights that were granted at the time the Group was internalised, to encourage the retention of key executives and were subject to the holder remaining an employee of the Group until the end of the retention period, which was two years. An employee is not required to pay for a RQR and each right entitles the holder to one Ingenia fully paid stapled security which is traded on the Australian Securities Exchange under the code INA. RQRs were granted to the following employees during FY12 as a one off retention bonus of between 25% and 50% of the Executive’s total fixed annual remuneration in FY13 only. They were aimed at incentivising them to remain with the business during the important transitional phase of Internalisation and the initial transition of the business as an ASX listed entity. All the following RQR rights vested on 1 July 2014 and have been converted to Ingenia securities as at that date. Grant date Retention period Vesting date Vesting conditions Simon Owen 31 May 2012 2 years 1 July 2014 Tania Betts 14 May 2012 2 years 1 July 2014 Nicole Fisher 4 June 2012 2 years 1 July 2014 Remaining employed at vesting date Remaining employed at vesting date Remaining employed at vesting date Value of RQRs 50% of TFR in year 1, $200,000 Number of RQRs 1,070,000 25% of TFR in year 1, $70,000 374,000 25% of TFR in year 1, $70,000 374,000 There have been no additional RQRs issued during the year ended 30 June 2015 or since then, and before the date of this report. e. LTIP – Termination of Employment The following outlines the treatment of unvested LTIP Rights at the time of termination of employment. This treatment also applies to unvested STIP Rights. – Where a Participant holding unvested Rights ceases to be an employee of the Group, those Rights immediately lapse. – Notwithstanding the above, where a Participant holding unvested Rights ceases to be an employee of the Group due to a Qualifying Reason, the Board may, in its discretion, determine the treatment of those unvested Rights. – Qualifying Reason means: • the death, total and permanent disablement, retirement or redundancy of the Participant as determined by the Board in its absolute discretion; or • any other reason with the approval of the Board. Ingenia Communities Holdings Limited18 Directors’ Report for the year ended 30 June 2015 | continued f. LTI Scheme (PQRs) – Termination of Employment The following table outlines the treatment of unvested PQRs at the time of a termination of employment: Termination circumstance Rights Dismissal (termination for cause) All are forfeited. Resignation Other circumstance All are forfeited unless and to the extent otherwise determined by the Board. Rights granted in the financial year of termination of employment are forfeited in the same proportion as the remainder of the financial year bears to the full financial year. Rights that do not lapse at the termination of employment will continue to be held by participants with a view to testing for vesting at the end of the measurement period. If the security price at the end of the measurement period is less than the security price at the date of cessation of employment then: PQR – the rights will lapse and an amount up to the value of the Rights that would otherwise have vested will be paid in cash. If the security price at the end of the measurement period is not less than the security price at the date of termination of employment then: PQR – the rights will be tested for vesting in accordance with the terms of rights. 13.9 KMP Employment Contracts Managing Director and CEO – Simon Owen Contract duration Fixed remuneration Commenced 4 June 2012, open-ended. Total fixed remuneration includes cash salary, superannuation and other non- cash benefits. Variable remuneration eligibility Eligible for STI of up to 30%(1) for any one year of the executive’s total cost fixed annual remuneration. Eligible for LTI of up to 50%(1) for any one year of the executive’s total cost of fixed annual remuneration. The Board may withdraw or vary the STI and LTI schemes at any time by written notice to the executive, provided that the scheme will not be varied or withdrawn part way through a financial year in respect of that same financial year. Non-compete period Non-solicitation period Notice by Ingenia Notice by executive Treatment on termination 12 months. 12 months. 12 months. 12 months. Payment in lieu of notice: Payment may be made in lieu of notice, which would include pro rata fixed remuneration and statutory entitlements. Treatment of Incentives: As outlined above. Annual Report 201519 Chief Financial Officer – Tania Betts Contract duration Fixed remuneration Commenced 14 May 2012, open-ended. Total fixed remuneration includes cash salary, superannuation and other non- cash benefits. Variable remuneration eligibility Eligible for STI of up to 30%(1) for any one year of the executive’s total cost fixed annual remuneration. Eligible for LTI of up to 30%(1) for any one year of the executive’s total cost of fixed annual remuneration. The Board may withdraw or vary the STI and LTI schemes at any time by written notice to the executive, provided that the scheme will not be varied or withdrawn part way through a financial year in respect of that same financial year. Non-compete period Non-solicitation period Notice by Ingenia Notice by executive Treatment on termination 12 months. 12 months. 6 months. 6 months. Payment in lieu of notice: Payment may be made in lieu of notice, which would include pro rata fixed remuneration and statutory entitlements. Treatment of Incentives: As outlined above. (1) The Board has varied the percentage of STI and LTI that executive KMP are eligible for in line with external remuneration consultant’s advice on appropriate mix of total remuneration for executives. Refer to Section 13.7 for the FY15 applicable percentages. Chief Operating Officer – Nicole Fisher Contract duration Fixed remuneration Commenced 4 June 2012, open-ended. Total fixed remuneration includes cash salary, superannuation and other non- cash benefits. Variable remuneration eligibility Eligible for STI of up to 30%(1) for any one year of the executive’s total cost fixed annual remuneration. Eligible for LTI of up to 30%(1) for any one year of the executive’s total cost of fixed annual remuneration. The Board may withdraw or vary the STI and LTI schemes at any time by written notice to the executive, provided that the scheme will not be varied or withdrawn part way through a financial year in respect of that same financial year. Non-compete period Non-solicitation period Notice by Ingenia Notice by executive Treatment on termination 12 months. 12 months. 6 months. 6 months. Payment in lieu of notice: Payment may be made in lieu of notice, which would include pro rata fixed remuneration and statutory entitlements. Treatment of Incentives: As outlined above. (1) The Board has varied the percentage of STI and LTI that executive KMP are eligible for in line with external remuneration consultant’s advice on appropriate mix of total remuneration for executives. Refer to Section 13.7 for the FY15 applicable percentages. Ingenia Communities Holdings Limited20 Directors’ Report for the year ended 30 June 2015 | continued 13.10 Remuneration Tables The following tables outline the remuneration provided to KMP excluding NEDs for the years ended 30 June 2015 and 30 June 2014. No executive KMP appointed during the period received a payment as part of their consideration for agreeing to hold the position. Key Management Personnel – Executive Remuneration Short-Term Non- Monetary Benefits $ Other Payments $ Super- Annuation Benefits $ Salary $ STI(1) $ Total Short- Term $ Other Long- Term Long Service Leave $ Performance Quantum Rights $ LTI(2) Retention Quantum Rights Termination Benefits Performance Related STI+LTI Percent of Total % LTI Percent of Total % Total $ Executive Director Simon Owen Managing Director and CEO 2015 Senior Executives Tania Betts CFO Nicole Fisher COO Total Executive KMP 2014 2015 2014 2015 2014 2015 2014 618,592 588,915 305,482 279,989 234,067 225,780 1,158,141 1,094,684 – – – – – – – – – – – – – – – – 19,506 273,000 23,831 205,200 911,098 817,946 19,506 17,644 62,976 387,964 70,875 368,508 19,506 64,980 318,553 17,609 56,160 299,549 58,518 400,956 1,617,615 59,084 332,235 1,486,004 (1) STIs were accrued in the year ended 30 June 2015 and 30 June 2014. (2) The RQRs vested on 1 July 2014 and 1,818,000 fully paid stapled securities were issued at that time. LTI expense for the year ended 30 June 2015 was $590,928 (2014: 680,600). $ – – – – 91,085 30,222 29,630 150,937 – – – – – – – – 387,803 343,097 101,555 93,108 101,570 93,458 590,928 529,663 $ – – – – – – – – 1,298,901 1,252,128 489,519 491,838 420,123 422,637 2,208,543 2,166,604 51 51 34 39 40 42 45 47 30 35 21 25 24 29 27 31 Annual Report 201521 13.10 Remuneration Tables and 30 June 2014. hold the position. The following tables outline the remuneration provided to KMP excluding NEDs for the years ended 30 June 2015 No executive KMP appointed during the period received a payment as part of their consideration for agreeing to Key Management Personnel – Executive Remuneration Executive Director Managing Director Simon Owen and CEO 2015 Senior Executives Tania Betts CFO Nicole Fisher COO Total Executive KMP 618,592 588,915 305,482 279,989 234,067 225,780 1,158,141 1,094,684 2014 2015 2014 2015 2014 2015 2014 $ – – – – – – – – $ – – – – – – – – (1) STIs were accrued in the year ended 30 June 2015 and 30 June 2014. (2) The RQRs vested on 1 July 2014 and 1,818,000 fully paid stapled securities were issued at that time. LTI expense for the year ended 30 June 2015 was $590,928 (2014: 680,600). 19,506 273,000 23,831 205,200 911,098 817,946 19,506 17,644 62,976 387,964 70,875 368,508 19,506 64,980 318,553 17,609 56,160 299,549 58,518 400,956 1,617,615 59,084 332,235 1,486,004 Short-Term Non- Monetary Benefits Other Payments Super- Annuation Benefits $ STI(1) $ Total Short- Term $ Salary $ Other Long- Term Long Service Leave $ Performance Quantum Rights $ LTI(2) Retention Quantum Rights $ Termination Benefits $ Total $ Performance Related STI+LTI Percent of Total % LTI Percent of Total % – – – – – – – – 387,803 343,097 101,555 93,108 101,570 93,458 590,928 529,663 – 91,085 – 30,222 – 29,630 – 150,937 – – – – – – – – 1,298,901 1,252,128 489,519 491,838 420,123 422,637 2,208,543 2,166,604 51 51 34 39 40 42 45 47 30 35 21 25 24 29 27 31 Ingenia Communities Holdings Limited22 Directors’ Report for the year ended 30 June 2015 | continued 13.11 Non-Executive Directors’ Remuneration a. NED Fees The maximum aggregate fee pool available to NEDs is $1,000,000 as stipulated in the Constitution that was adopted pre-internalisation. b. Performance-Based Remuneration NEDs are remunerated by way of cash and mandated superannuation. They are not permitted to participate in performance based remuneration practices unless approved by securityholders. The Group currently has no intention to remunerate NEDs by any way other than cash benefits. c. Equity-Based Remuneration Directors are eligible to participate in the existing Rights Plan, however there is no current intention to grant any Rights to NEDs under this plan. However, all NEDs have self funded the purchase of Ingenia securities on market thereby aligning their interests with securityholders. Details are shown below in Section 13.12. The Board has introduced a policy guideline for Non-Executive Directors to hold the equivalent of one year’s gross fees in Ingenia securities within a period of two years from the date of appointment. d. NED Remuneration Table The following table outlines the remuneration provided to NEDs for the years ended 30 June 2015 and 30 June 2014: Non-executive directors Jim Hazel Amanda Heyworth Philip Clark Robert Morrison Norah Barlow Total non-executive KMP 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 Directors’ fees ($) 170,000 170,000 93,000 90,000 93,000 90,000 93,000 90,000 93,000 22,500 542,000 462,500 In addition to the above fees, all NEDs receive reimbursement for reasonable travel, accommodation and other expenses incurred while undertaking Ingenia business. NEDs do not receive additional remuneration for chairing or being a member of Board committees. Annual Report 201523 13.12 KMP Interests Securities held directly, indirectly or beneficially by each key management person, including their related parties, were: Directors Jim Hazel Philip Clark AM Amanda Heyworth Robert Morrison Norah Barlow Simon Owen Balance 1 July 2014 Acquisitions Disposals On exercise of rights Balance 30 June 2015 1,333,334 336,253 208,334 561,334 221,667 178,000 2,179,667 29,762 80,190 231,668 31,063 514,238 – – – – – – – – – – – 1,669,587 238,096 641,524 453,335 209,063 1,070,000 3,763,905 PQRs held by key management personnel were: Directors Simon Owen Executives Tania Betts Nicole Fisher Balance 1 July 2014 Granted Vested Balance 30 June 2015 4,720,000 1,432,000 1,432,000 – – – – – – 4,720,000 1,432,000 1,432,000 3,842,000 PQRs vested on 1 July 2015 and 3,842,000 fully paid stapled securities were issued at that time. RQRs held by key management personnel were: Directors Simon Owen Executives Tania Betts Nicole Fisher Balance 1 July 2014 Granted Vested Balance 30 June 2015 1,070,000 374,000 374,000 – – – (1,070,000) (374,000) (374,000) – – – The retention quantum rights vested on 1 July 2014 and 1,818,000 fully paid stapled securities were issued at that time. LTIP Rights held by key management personnel were: Directors Simon Owen Executives Tania Betts Nicole Fisher Balance 1 July 2014 Granted Vested Balance 30 June 2015 – – – 709,413 139,544 134,014 – – – 709,413 139,544 134,014 Ingenia Communities Holdings Limited24 Directors’ Report for the year ended 30 June 2015 | continued 13.13 FY16 Remuneration This section of the Remuneration Report deals with the period from 1 July 2015 to the date of this report. a. External Remuneration Advisors Guerdon Associates were re-appointed by the Board to provide independent remuneration advice for KMP remuneration in respect of FY16, including latest market practices and a review of the STI and LTI scheme rules. b. Remuneration Drivers The following are considered key drivers in dictating the direction of the remuneration structures for FY16: i. Focus management on delivering outcomes in the short to medium term, particularly significant Underlying Profit growth; ii. Provide long-term value creation for securityholders and strong alignment between management and securityholders; and iii. Attracting, retaining and motivating KMP. c. Details of KMP There have been no changes to the KMP since 30 June 2015 and before the date of this report. d. Review Date The review date for FY16 will remain 1 October 2016, to ensure that remuneration reviews are based on final audited results and equity grants for deferred STI and LTI are based on an informed market. e. Target Mix of Remuneration Components Based on market data from Guerdon Associates and recommendations from the RNC, the Board has set the remuneration mix for executives for FY16, expressed as a percentage of total remuneration, as detailed in the table below: Target mix CEO CFO COO TFR 43.5% 55.6% 55.6% Maximum STI Maximum LTI Total remuneration 34.8% 33.3% 33.3% 21.7% 11.1% 11.1% 100.0% 100.0% 100.0% The mix reflects implementation of the key remuneration drivers set out above. f. TFR Based on market data from Guerdon Associates and recommendations from the RNC, the Board has set TFR for each of the executives for FY16 as detailed in the table below: CEO CFO COO(1) (1) Based on five days per week. TFR (p.a.) $650,000 $336,200 $330,750 No increase on FY15 TFR will be made to the FY16 fixed remuneration for the CEO. The increase in FY16 TFR for the CFO is 2.5% and COO is 5.0%. The Board considers these increases reasonable in the context of market remuneration levels for matched positions in comparable companies. Data for TFR ranges for the CFO and COO for FY16 were provided by Guerdon Associates. The RNC used an element of judgement to determine the appropriate positioning within this range and arrived at the TFR amounts set out above. Those recommendations were approved by the Board. Annual Report 201525 g. STI For FY16 STI 50% of the maximum STI for the executive KMP will be paid in cash and the remaining 50% will be a deferred equity element. The deferred equity component is subject to forfeiture where earnings growth is not sustained. The deferral is for 12 months and earnings growth sustainability has been defined as at least 5% Underlying Profit growth in the following year to be equal to or above a set threshold on prior year. The deferral is to be rights to INA stapled securities, plus additional stapled securities equal to distributions during the deferral period on a reinvestment basis. Executives Simon Owen Maximum STI Cash Maximum STI Deferred (STI Rights) Total Maximum STI Available 40% of FY16 TFR 40% of FY16 TFR 80% of FY16 TFR $260,000 $260,000 $520,000 Tania Betts 30% of FY16 TFR 30% of FY16 TFR 60% of FY16 TFR Nicole Fisher(2) 30% of FY16 TFR 30% of FY16 TFR 60% of FY16 TFR $100,860 $100,860 $201,720 $99,225 $99,225 $198,450 (1) Subject to securityholder approval at the Annual General Meeting to be held on 17 November 2015. (2) Based on five days per week. The STI deferral rights are subject to the following terms and conditions: a ‘malus’ (forfeiture) provision during the deferral period – – – on the vesting date Ingenia will cause the relevant number of INA securities to be issued to the executive in accordance a one-year deferral period and are eligible to vest on or following 1 October 2017 with a prescribed formula – no amount is payable by the executive for the issue or transfer of INA securities to the executive. The STI award is subject to STI performance conditions (KPIs) that focus on Underlying Profit, capital management, operational, systems and people and reporting metrics. In each case, the KPIs are further broken down to identify specific measurements to monitor the achievement of performance. These are set with ‘threshold’, ‘target’ and ‘stretch’ performance levels, with entitlements calculated on a pro-rata basis between these levels. Details of the STI KPI split for each executive KMP are as follows: CEO CFO COO Financial % Capital Management % Operational % Systems % People and Reporting % 40 30 30 25 15 – 20 – 40 – 15 10 15 40 20 Ingenia Communities Holdings Limited26 Directors’ Report for the year ended 30 June 2015 | continued h. LTI There were no PQRs or RQRs issued during the year ended 30 June 2015 or since then and before the date of this report, but note the comment in Section 13.8(d) above in relation to RQRs which vested on 1 July 2014 and Section 13.8(c) in relation to PQRs which vested on 1 July 2015. i. Long-Term Incentive Plan – LTIP Rights offered Since 1 July 2015 and before the date of this report, the value and number of LTIP Rights that have been offered to executives are: Simon Owen Tania Betts Nicole Fisher(2) Value of LTIP Rights Vesting Date 50% of FY16 TFR $325,000(1) 20% of FY16 TFR $67,240 20% of FY16 TFR $66,150 30 September 2018 30 September 2018 30 September 2018 (1) Subject to securityholder approval at the Annual General Meeting to be held on 17 November 2015. (2) Based on five days per week. ii. LTIP Rights Performance Conditions The LTIP Rights offered after 30 June 2015 and before the date of this report are subject to two LTIP Performance Conditions: a. 70% based on a Relative TSR; and b. 30% based on a Return on Equity (“ROE”). a. Relative TSR Performance Condition The Relative TSR Hurdle is growth in Ingenia’s TSR relative to growth in the ASX 300 Industrials Index, measured over the Rights Performance Period ending on 30 June 2018. The Index was chosen because the Board considers it to be transparent and more closely aligned to the Group’s core business operations. Total TSR is the growth in the security price plus distributions, assuming distributions are reinvested. To minimise the impact of any short-term volatility, Ingenia’s TSR will be calculated using the weighted average of the closing security price over the 30 days up to and including the trading day prior to the start and the 30 days up to and including the end trading day of the Rights Performance Period. Annual Report 2015 27 The Rights will vest on the following basis: At or Below Threshold Equal to or less than Index + 1% CAGR Nil Growth rate in INA’s TSR % of Rights that vest Between Threshold and Maximum Between Index + 1% and Index + 6% CAGR 10% plus an additional amount progressively vesting on a straight line basis between Threshold and Maximum Maximum Index + 6% CAGR 100% CAGR: compound annual growth rate It is important to note that executive KMP must outperform the Index to qualify for an award of LTIP Rights. b. ROE Performance Condition The ROE Performance Condition has been added in FY16 because the Board is focused on improving medium to long-term return on investment. ROE is defined as Underlying Profit divided by net assets. The relevant metric is ROE achieved in FY18. Vesting levels for FY18 are: Threshold ROE > 8.0% Target ROE = or > 9.0% Maximum ROE = or > 10.0% FY16 LTIP Rights will vest on the following basis: At Threshold Nil Above Threshold and below Maximum 30% plus an additional amount of progressive vesting on a straight line basis to 100% At or above Maximum 100% iii. LTIP Methodology The FY16 LTIP methodology determines security value as the VWAP of Ingenia securities in the period of 30 trading days ending on the grant date (expected to be 1 October 2015 for the CFO and COO and within a week of approval from securityholders at the annual general meeting on 17 November 2015 for the CEO). The number of LTIP Rights granted in FY16 will be calculated by dividing the Rights by the 30 day VWAP of the INA security price. Each LTI Right vested equals one Ingenia security plus an additional number of Ingenia securities calculated on the basis of the distributions that would have been paid during the relevant period being reinvested. iv. Entitlement to Distribution adjustment FY16 LTIP Rights will be entitlements to Rights to stapled securities plus additional stapled securities equal to distributions paid during the vesting period. The Board aims to have executive KMP incentivised to grow distributions to securityholders. Ingenia Communities Holdings Limited 28 Directors’ Report for the year ended 30 June 2015 | continued i. Total maximum FY16 Remuneration Executive Simon Owen Tania Betts Nicole Fisher Fixed Remuneration Maximum STI Cash Maximum STI Deferred(1) Maximum LTI(1) Maximum Total Remuneration $650,000 $260,000 $260,000 $325,000 $1,495,000 $336,200 $330,750 $100,860 $100,860 $99,225 $99,225 $67,240 $66,150 $605,160 $595,350 (1) For Simon Owen, subject to securityholder approval at the Annual General Meeting to be held on 17 November 2015. (2) Review date is 1 October 2015. In accordance with the Board’s objective, a significant proportion of each executive KMP’s total maximum remuneration in FY16 is performance based. The percentage of total maximum remuneration at risk for each executive KMP is: CEO CFO COO 56.5% 44.4% 44.4% It is worth noting that the CEO’s total FY16 Maximum Total Remuneration remains unchanged from FY15 at $1,495,000 and 56.5% of that amount is at risk. j. Non-Executive Directors’ Remuneration The RNC has recommended that remuneration for the Chairman of the Board and non-executive directors remain unchanged from FY15, at $170,000 and $93,000 respectively. This position is to be re-assessed towards the end of calendar year 2015. Signed in accordance with a resolution of the directors. Jim Hazel Chairman Sydney, 9 September 2015 Annual Report 2015Auditor’s Independence Declaration for the year ended 30 June 2015 29 Ingenia Communities Holdings Limited30 Consolidated Statement of Comprehensive Income for the year ended 30 June 2015 Continuing Operations Revenue Rental income Accrued deferred management fee income Manufactured home sales Catering income Other property income Service station sales Interest income Property expenses Employee expenses Administration expenses Operational, marketing and selling expenses Cost of manufactured homes sold Service station expenses Finance expenses Net foreign exchange gain/(loss) Net loss on disposal of investment properties Net gain/(loss) on change in fair value of: Investment properties Derivatives Retirement village resident loans Depreciation and amortisation expense Profit from continuing operations before income tax Income tax benefit Profit from continuing operations Profit/(loss) from discontinued operations Net profit for the year Other comprehensive income, net of income tax Items that may be reclassified subsequently to profit or loss: Foreign currency translation differences arising during the year Release of foreign currency translation reserve on disposal of foreign operations Total comprehensive income for the year, net of tax Note 2015 $’000 2014 $’000 5(a) 19(b) 5(b) 6 19(b) 15, 16 7 8 24 24 44,984 6,788 14,937 3,538 3,235 2,359 180 76,021 (18,024) (21,230) (4,880) (3,931) (9,256) (1,910) (4,747) 111 (69) 16,404 164 (8,878) (479) 19,296 6,604 31,643 5,333 3,442 3,178 1,819 – 369 45,784 (11,613) (15,341) (4,160) (3,136) (2,130) – (4,446) (147) – (341) 41 (616) (211) 3,684 7,264 25,900 10,948 (178) 25,722 570 11,518 1,339 (2,374) 269 – 24,687 11,787 Annual Report 2015 31 2015 $’000 2014 $’000 (850) 31,039 (4,467) 25,722 (1,942) 31,265 (4,636) 24,687 2015 Cents 1.3 3.2 (0.2) 3.1 (0.2) 2.0 (0.2) 2.0 – (2,736) 15,313 (1,059) 11,518 (2,736) 15,533 (1,010) 11,787 2014 Cents 1.0 1.7 (0.4) 1.8 (0.4) 1.7 (0.4) 1.8 (0.4) Note 4 4 4 4 4 4 4 4 Profit/(loss) attributable to securityholders of: Ingenia Communities Holdings Limited Ingenia Communities Fund Ingenia Communities Management Trust Total comprehensive income attributable to securityholders of: Ingenia Communities Holdings Limited Ingenia Communities Fund Ingenia Communities Management Trust Distributions per security(1) Earnings per security: Basic earnings from continuing operations Per security Per security attributable to parent Basic earnings Per security Per security attributable to parent Diluted earnings from continuing operations Per security Per security attributable to parent Diluted earnings Per security Per security attributable to parent (1) Distributions relate to the amount paid during the financial year. Subsequent to the end of the year, a final distribution was declared for 0.70 cents for a total full year distribution of 1.35 cents. Ingenia Communities Holdings Limited 32 Consolidated Balance Sheet as at 30 June 2015 Current assets Cash and cash equivalents Trade and other receivables Inventories Income tax receivable Assets held for sale Assets of discontinued operations Total current assets Non-current assets Trade and other receivables Investment properties Plant and equipment Intangibles Deferred tax asset Total non-current assets Total assets Current liabilities Trade and other payables Borrowings Retirement village resident loans Provisions Derivatives Liabilities held for sale Liabilities of discontinued operations Total current liabilities Non-current liabilities Trade and other payables Borrowings Provisions Derivatives Deferred tax liabilities Total non-current liabilities Total liabilities Net assets Equity Issued securities Reserves Accumulated losses Total equity Attributable to securityholders of: Ingenia Communities Holdings Limited Issued securities Reserves Accumulated losses Ingenia Communities Fund Ingenia Communities Management Trust Net asset value per security (cents) Note 2015 $’000 2014 $’000 11 12 13 10(a) 8(d) 12 14 15 16 22 17 18 19 20 21 10(b) 8(d) 17 18 20 21 22 23 24 25 23 24 25 15,117 4,327 13,208 33 61,598 – 94,283 12,894 3,745 2,208 960 5,439 47,657 72,903 2,649 2,168 539,728 498,863 720 1,579 6,348 551,024 645,307 15,073 291 161,878 992 3 42,041 – 220,278 14,770 66,491 248 – – 81,509 301,787 343,520 517 473 – 502,021 574,924 10,409 283 190,122 718 84 – 30,449 232,065 4,000 98,073 249 84 276 102,682 334,747 240,177 657,214 1,334 569,116 2,023 (315,028) (330,962) 343,520 240,177 8,900 1,334 (3,175) 7,059 315,951 20,510 343,520 38.9 7,377 988 (2,659) 5,706 224,254 10,217 240,177 35.5 Annual Report 2015 Consolidated Cash Flow Statement for the year ended 30 June 2015 33 Cash flows from operating activities Rental and other property income Payment of management fees Property and other expenses Proceeds from resident loans Repayment of resident loans Proceeds from sale of manufactured homes Purchase of manufactured homes Proceeds from sale of service station inventory Purchase of service station inventory Distributions received from formerly equity accounted investments Interest received Borrowing costs paid Income tax received/(paid) Cash flows from investing activities Purchase and additions of plant and equipment Purchase and additions of intangibles Payments for investment properties Additions to investment properties Proceeds from sale of investment properties Proceeds from sale of equity accounted investments Amounts received from/(advanced to) villages Payments for lease arrangements Cash flows from financing activities Proceeds from issue of stapled securities Payments for security issue costs Payments for derivatives Finance lease payments Distributions to securityholders Payments for debt issue costs Proceeds from borrowings Repayment of borrowings Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year Effects of exchange rate fluctuation on cash held Cash and cash equivalents at the end of the year Note 2015 $’000 2014 $’000 58,085 43,274 – (29) (51,225) (34,847) 19,815 22,021 (10,544) (10,361) 15,736 3,511 (19,358) (4,035) 2,359 (1,936) – 198 (4,902) 806 9,034 – – 301 358 (5,811) (142) 14,240 (446) (1,371) (57) (386) (64,423) (113,255) (14,112) 56,161 (209) 168 – (18,724) 1,200 5,811 72 (745) (24,232) (126,084) 91,968 (3,870) (444) (126) (10,105) (1,867) 61,707 (2,771) – (81) (5,885) (216) 65,205 104,258 (125,197) (68,000) 15,564 89,012 366 14,551 200 15,117 (22,832) 37,550 (167) 14,551 19(b) 19(b) 36 11 Ingenia Communities Holdings Limited34 Consolidated Statement of Changes in Equity for the year ended 30 June 2015 Attributable to Securityholders Ingenia Communities Holdings Limited Note Issued capital $’000 Reserves $’000 Retained earnings $’000 Carrying amount at 1 July 2013 Net profit/(loss) for the year Other comprehensive income Total comprehensive income for the year Transactions with securityholders in their capacity as securityholders: Issue of securities Share-based payment transactions Payment of distributions to securityholders Carrying amount at 30 June 2014 Net profit/(loss) for the year Other comprehensive income Total comprehensive income for the year Transactions with securityholders in their capacity as securityholders: Issue of securities Share-based payment transactions Payment of distributions to securityholders Transfer from reserves to retained earnings Carrying amount at 30 June 2015 23 24 25 23 24 25 6,078 308 – – – 1,299 – – – – – – 680 – – – – – 678 – – – – 1,523 – – – Total $’000 6,463 (2,736) ICF and ICMT $’000 Total equity $’000 168,189 174,652 14,254 11,518 77 (2,736) – – 269 269 (2,736) (2,736) 14,523 11,787 – – – 1,299 57,676 58,975 680 – 680 – (5,917) (5,917) (850) (850) 26,572 25,722 – – (1,035) (1,035) (850) (850) 25,537 24,687 7,377 988 (2,659) 5,706 234,471 240,177 – – – 1,523 86,575 88,098 678 – 678 – – (10,120) (10,120) – – (332) 332 8,900 1,334 (3,177) 7,057 336,463 343,520 Annual Report 2015Notes to the Financial Statements for the year ended 30 June 2015 35 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. The Group The financial report of Ingenia Communities Holdings Limited (the “Company”) comprises the consolidated financial report of the Company and its controlled entities, including Ingenia Communities Fund (“ICF” or the “Fund”) and Ingenia Communities Management Trust (“ICMT”) (collectively, the “Trusts”). The shares of the Company are “stapled” with the units of the Trusts and trade on the Australian Securities Exchange (“ASX”) effectively as one security. Ingenia Communities RE Limited (“ICRE”), a wholly owned subsidiary of the Company, is the Responsible Entity of the Trusts. In this report, the Company and the Trusts are referred to collectively as the Group. The constitutions of the Company and the Trusts require that, for as long as they remain jointly quoted on the ASX, the number of shares in the Company and of units in each trust shall remain equal and those securityholders in the Company and unitholders in each trust shall be identical. The stapling structure will cease to operate on the first to occur of: – – the Company or either of the Trusts resolving by special resolution in accordance with its constitution to terminate the stapling provisions; or the commencement of the winding up of the Company or either of the Trusts. The financial report as at and for the year ended 30 June 2015 was authorised for issue by the directors on 9 September 2015. b. Basis of Preparation The financial report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards, Australian Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board (“AASBs”) and the Corporations Act 2001. The financial report complies with Australian Accounting Standards as issued by the Australian Accounting Standards Board and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. As permitted by Class Order 05/642, issued by the Australian Securities and Investments Commission, the financial statements and accompanying notes of the Group have been presented in the attached combined financial report. The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000) unless otherwise stated. The financial report is prepared on an historical cost basis, except for investment properties, retirement village resident loans and derivative financial instruments, which are measured at fair value. At 30 June 2015, the Group recorded a net current asset deficiency of $125,995,000. This deficiency includes retirement village resident loans of $161,878,000 and liabilities held for sale of $42,041,000. Resident loans obligations of the Group are classified as current liabilities due to the demand feature of these obligations despite the unlikely possibility that the majority of the loans will be settled within the next twelve months. Furthermore, if required, the proceeds from new resident loans could be used by the Group to settle its existing loan obligations should those incumbent residents vacate their units. Accordingly, there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable; and the financial report of the Group has been prepared on a going concern basis. c. Adoption of New and Revised Accounting Standards The Group has adopted all of the new and revised standards and interpretations issued by the Australian Accounting Standards Board that are relevant to its operations and effective for the current period including AASB 2012-3 Offsetting Financial Assets and Financial Liabilities. The impact of application of the Standard is as follows: Accounting Standard Impact on the Group AASB 2012-3 This amendment clarifies that the right of set off must be available today and must be legally enforceable in the normal course of business as well as in the event of default, insolvency or bankruptcy. The application of this Standard did not have any impact on the Group as retirement village loans are already offset. d. Principles of Consolidation The Group’s consolidated financial statements comprise the Company and its subsidiaries (including the Trusts). Subsidiaries are all those entities (including special purpose entities) over which the Company or the Trusts have the power to govern the financial and operating policies so as to obtain benefits from their activities. The financial statements of the subsidiaries are prepared for the same reporting period as the parent, using consistent accounting policies. Inter company balances and transactions including dividends and unrealised gains and losses from intra-group transactions have been eliminated. Subsidiaries are consolidated from the date on which the parent obtains control. They are de-consolidated from the date that control ceases. Investments in subsidiaries are carried at cost in the parent’s financial statements. Ingenia Communities Holdings Limited36 Notes to the Financial Statements for the year ended 30 June 2015 | continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The Company was incorporated on 24 November 2011. In accordance with Accounting Standard AASB 3 Business Combinations, the stapling of the Company and the Trusts was regarded as a business combination. Under AASB 3, the stapling was accounted for as a reverse acquisition with ICF “acquiring” the Company and the Company subsequently being identified as the ongoing parent for preparing consolidated financial reports. Consequently, the consolidated financial statements are a continuation of the financial statements of the Trusts, and include the results of the Company from the date of incorporation. e. Business Combinations and Goodwill Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the Group elects whether it measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed and included in other expenses. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss. Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss. f. Discontinued Operations and Assets Held for Sale The Group has classified certain components as discontinued operations. A discontinued operation is a component of the entity that has been disposed of, or is classified as held for sale, and that represents a separate major line of business or geographical area of operations, or is part of a single co-ordinated plan to dispose of such a line of business or area of operations. The results of discontinued operations are presented separately on the face of the income statement. Components of the entity are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. They are measured at the lower of their carrying amount and fair value less costs to sell, except for assets such as investment property, which are carried at fair value. An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset (or disposal group), but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset (or disposal group) is recognised at the date of derecognition. Non-current assets classified as held for sale, and the assets of a disposal group classified as held for sale, are presented separately from the other assets on the face of the balance sheet. The liabilities of a disposal group classified as held for sale are presented separately from other liabilities on the face of the balance sheet. Details of discontinued operations and assets and liabilities held for sale are given at Notes 8 and 10. g. Dividends and Distributions A liability for any dividend or distribution declared on or before the end of the reporting period is recognised on the balance sheet in the reporting period to which the dividend or distribution pertains. h. Foreign Currency i. Functional and presentation currencies The presentation currency of the Group, and functional currency of the Company, is the Australian dollar. ii. Translation of foreign currency transactions Transactions in foreign currency are initially recorded in the functional currency at the exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currency are retranslated at the rate of exchange prevailing at the balance date. All differences in the consolidated financial report are taken to the income statement with the exception of differences on foreign currency borrowings designated as a hedge against a net investment in a foreign entity. These are taken directly to equity until the disposal of the net investment at which time they are recognised in the income statement. A non-monetary item that is measured at fair value in a foreign currency is translated using the exchange rates at the date when the fair value was determined. iii. Translation of financial statements of foreign subsidiaries The functional currency of certain subsidiaries is not the Australian dollar. At reporting date, the assets and liabilities of these entities are translated into the presentation currency of the Group at the rate of exchange prevailing at balance date. Financial performance is translated at the average exchange rate prevailing during the reporting period. The exchange differences arising on translation are taken directly to the foreign currency translation reserve in equity. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that foreign operation is recognised in the income statement. Annual Report 2015i. Leases Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised as an expense in the income statement. Finance leases, which transfer away from the Group substantially all the risks and benefits incidental to ownership of the leased item, are recognised at the inception of the lease. A finance lease receivable is recognised on inception at the present value of the minimum lease receipts. Finance lease receipts are apportioned between the interest income and reduction in the lease receivable to achieve a constant rate of interest on the remaining balance of the receivable. Interest is recognised as income in the income statement. Leases of properties that are classified as investment properties, are classified as finance leases under AASB 140 Investment Properties. Leases where the lessor retains substantially all the risks and benefits of ownership are classified as operating leases. Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the term of the lease. j. Plant and Equipment Plant and equipment is stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. Such cost includes the cost of replacing part of the property, plant and equipment and borrowing costs for long-term construction projects if the recognition criteria are met. When significant parts of property, plant and equipment are required to be replaced at intervals, the Group recognises such parts as individual assets with specific useful lives and depreciates them accordingly. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in profit or loss as incurred. The present value of the expected cost for the decommissioning of an asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met. 37 k. Financial Assets and Liabilities Current and non-current financial assets and liabilities within the scope of AASB 139 Financial Instruments: Recognition and Measurement are classified as fair value through profit or loss; loans and receivables; held-to- maturity investments or as available-for-sale. The Group determines the classification of its financial assets and liabilities at initial recognition with the classification depending on the purpose for which the asset or liability was acquired or issued. Financial assets and liabilities are initially recognised at fair value, plus directly attributable transaction costs unless their classification is at fair value through profit or loss. They are subsequently measured at fair value or amortised cost using the effective interest method. Changes in fair value of available-for-sale financial assets are recorded directly in equity. Changes in fair values of any other financial assets and liabilities classified as at fair value through profit or loss are recorded in the income statement. The fair values of financial instruments that are actively traded in organised financial markets are determined by reference to quoted market bid prices at the close of business on the balance sheet date. For those with no active market, fair values are determined using valuation techniques. Such techniques include: using recent arm’s length market transactions; reference to the current market value of another instrument that is substantially the same; discounted cash flow analysis and option pricing models, making as much use of available and supportable market data as possible and keeping judgemental inputs to a minimum. l. Impairment of Non-Financial Assets Assets other than investment property and financial assets carried at fair value, are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Non-financial assets excluding goodwill which have suffered impairment are reviewed for possible reversal of the impairment at each reporting date. m. Cash and Cash Equivalents Cash and cash equivalents in the balance sheet and cash flow statements comprise cash at bank and in hand and shortterm deposits that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value. Ingenia Communities Holdings Limited38 Notes to the Financial Statements for the year ended 30 June 2015 | continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) n. Trade and Other Receivables Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less any provision for impairment. An allowance for impairment is made when there is objective evidence that collection of the full amount is no longer probable. o. Inventories The Group holds inventory in relation to the acquisition and development of manufactured homes and service station fuel and supplies both within its Active Lifestyle Estates segment. Inventories are held at the lower of cost and net realisable value. Costs of inventories comprise all acquisition costs, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Inventory includes work in progress and raw materials used in the production of manufactured home units. Net realisable value is determined on the basis of an estimated selling price in the ordinary course of business less estimated costs of completion and the estimated costs necessary to make the sale. p. Derivative Financial Instruments The Group uses derivative financial instruments such as foreign currency contracts and interest rate swaps to hedge its risks associated with foreign currency and interest rate fluctuations. Such derivative financial instruments are initially recognised at fair value on the date in which the derivative contract is entered into and are subsequently remeasured to fair value. q. Investment Property Land and buildings have the function of an investment and are regarded as composite assets. In accordance with applicable accounting standards, the buildings, including plant and equipment, are not depreciated. Investment property includes property under construction, tourism cabins and associated amenities. Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the reporting date. Gains or losses arising from changes in the fair values of investment properties are included in the income statement in the period in which they arise, including corresponding tax effect. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal market for the asset or liability or in its absence, the most advantageous market. In determining the fair value of assets held for sale, recent market offers have been taken into consideration. It is the Group’s policy to have all investment properties independently valued at intervals of not more than two years. It is the policy of the Group to review the fair value of each investment property every six months and to cause investment properties to be revalued to fair values whenever their carrying value materially differs to their fair values. Changes in the fair value of the investment property are recorded in the statement of comprehensive income. In determining fair values, the Group considers relevant information including the capitalisation of rental streams using market assessed capitalisation rates, expected net cash flows discounted to their present value using market determined risk adjusted discount rates and other available market data such as recent comparable transactions. The assessment of fair value of investment properties does not take into account potential capital gains tax assessable. r. Intangible Assets An intangible asset arising from development expenditure related to software is recognised only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use, how the asset will generate future economic benefits, the availability of resources to complete the asset and the ability to measure reliably the expenditure during its development. Costs capitalised include external direct costs of materials and service, and direct payroll and payroll related costs of employees’ time spent on the project. Following the initial recognition of expenditure, the asset is carried at cost less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when the development is complete and the asset is available for use. Amortisation is over the period of expected future benefit. Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination are their fair values as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. The Group’s policy applied to capitalised development costs is as follows: Software and associated development to capitalised development costs (assets in use) – Useful life: Finite Amortisation method using 7 years on a straight line basis; and – Impairment test: Amortisation method reviewed at each financial year end; closing carrying value reviewed annually for indicators of impairment. Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred. Gains or losses arising from de-recognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in profit or loss when the asset is de-recognised. Annual Report 201539 s. Payables Trade and other payables are carried at amortised cost and due to their short-term nature are not discounted. They represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and are recognised when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. t. Provisions, Including Employee Benefits i. General Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the statement of profit or loss net of any reimbursement. ii. Wages, salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within twelve months of the reporting date are recognised in respect of employees’ services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Expenses for non- accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable. iii. Long service leave The liability for long service leave is recognised and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on corporate bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows. u. Retirement Village Resident Loans These loans, which are repayable on the departure of the resident, are classified as financial liabilities at fair value through profit and loss with resulting fair value adjustments recognised in the income statement. The fair value of the obligation is measured as the ingoing contribution plus the resident’s share of capital appreciation to reporting date. Although the expected average residency term is more than ten years, these obligations are classified as current liabilities, as required by Accounting Standards, because the Group does not have an unconditional right to defer settlement to more than twelve months after reporting date. This liability is stated net of accrued deferred management fees at reporting date, because the Group’s contracts with residents require net settlement of those obligations. Refer to Notes 30(k), 27(j) and 1(aa) for information regarding the valuation of retirement village resident loans. v. Borrowings Borrowings are initially recorded at the fair value of the consideration received less directly attributable transaction costs associated with the borrowings. After initial recognition, borrowings are subsequently measured at amortised cost using the effective interest rate method. Under this method fees, costs, discounts and premiums that are yield related are included as part of the carrying amount of the borrowing and amortised over its expected life. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement to more than twelve months after reporting date. Borrowing costs are expensed as incurred except where they are directly attributable to the acquisition, construction or production of a qualifying asset. When this is the case, they are capitalised as part of the acquisition cost of that asset. w. Issued Equity Issued and paid up securities are recognised at the fair value of the consideration received by the Group. Any transaction costs arising on issue of ordinary securities are recognised directly in equity as a reduction of the security proceeds received. x. Revenue Revenue from rents, interest and distributions is recognised to the extent that it is probable that the economic benefits will flow to the entity and the revenue can be reliably measured. Revenue brought to account but not received at balance date is recognised as a receivable. Rental income from operating leases is recognised on a straight-line basis over the lease term. Contingent rentals are recognised as income in the financial year that they are earned. Fixed rental increases that do not represent direct compensation for underlying cost increases or capital expenditures are recognised on a straight-line basis until the next market review date. Rent paid in advance is recognised as unearned income. Deferred management fee income is calculated as the expected fee to be earned on a resident’s ingoing loan, allocated pro-rata over the resident’s expected tenure, together with any share of capital appreciation that has occurred at reporting date. Revenue from the sale of manufactured homes within the Active Lifestyle Estate segment is recognised when the significant risks, rewards of ownership and effective control has been transferred to the buyer. Service station sales revenue represents the revenue earned from the provision of products to external parties. Sales revenue is only recognised when the significant risks and rewards of ownership of the products including possession are passed to the buyer. Government incentives are recognised where there is reasonable assurance the incentive will be received and all attached conditions will be complied with. When the incentive relates to an expense item, it is recognised as income on a systematic basis over the periods that the incentive is intended to compensate. Interest income is recognised as the interest accrues using the effective interest rate method. Ingenia Communities Holdings Limited40 Notes to the Financial Statements for the year ended 30 June 2015 | continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING z. Income Tax POLICIES (CONTINUED) y. Share-Based Payment Transactions Certain senior executives of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments (equity-settled transactions). The Group does not have any cash-settled share-based payment transactions in the financial year. The cost of equity-settled transactions is recognised, together with a corresponding increase in reserves in equity, over the period in which the performance and service conditions are fulfilled. The cumulative expense recognised for these transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The income statement expense or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period and is recognised in employee expenses. No expense is recognised for awards that do not ultimately vest, except for equity-settled transactions for which vesting is conditional upon a market or non-vesting condition. These are treated as vesting irrespective of whether or not the market or non-vesting condition is satisfied, provided that all other performance and service conditions are satisfied. When the terms of an equity-settled transaction are modified, the minimum expense recognised is the expense as if the terms had not been modified, if the original terms of the award are met. An additional expense is recognised for any modification that increases the total fair value of the transaction, or is otherwise beneficial to the employee as measured at the date of modification. When an equity-settled award is cancelled, it is treated as if it vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. This includes any award where non-vesting conditions within the control of either the Group or the employee are not met. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph. The dilutive effect of outstanding rights is reflected as additional share dilution in the computation of diluted earnings per share. i. Current income tax Under the current tax legislation, ICF and its subsidiaries are not liable to pay Australian income tax provided that its taxable income (including any assessable capital gains) is fully distributed to securityholders each year. Tax allowances for building and fixtures depreciation are distributed to securityholders in the form of the tax- deferred component of distributions. However, the Company, ICMT and their subsidiaries are subject to Australian income tax. Current tax assets and liabilities for the current period are measured at the amount expected to be recovered from, or paid to, the taxation authorities based on the current period’s taxable income. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date. The subsidiaries that hold the Group’s foreign properties may be subject to corporate income tax and withholding tax in the countries in which they operate. Under current Australian income tax legislation, securityholders may be entitled to receive a foreign tax credit for this withholding tax. ii. Deferred income tax Deferred income tax represents tax (including withholding tax) expected to be payable or recoverable by taxable entities on the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised through continuing use or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at reporting date. Income taxes related to items recognised directly in equity are recognised in equity and not against income. iii. Tax Consolidation Each of the Company and ICMT and their respective subsidiaries have formed a tax consolidation group with the Company or ICMT being the head entity. The head entity and the controlled entities in the tax consolidation group continue to account for their own current and deferred tax amounts. Each tax consolidated group has applied a group allocation approach in determining the appropriate amount of current taxes and deferred taxes to allocate to the members therein. In addition to its own current and deferred tax amounts, the head entity of each tax consolidated group also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from entities in their respective tax consolidated group. Assets of liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the Group. Annual Report 201541 aa. Fair Value Measurement The Group measures financial instruments, such as derivatives, and non-financial assets, such as investment properties, at fair value at each balance sheet date. Also, fair values of financial instruments measured at amortised cost are disclosed in Note 30. bb. Goods and Services Tax (“GST”) Revenue, expenses and assets (with the exception of receivables) are recognised net of the amount of GST to the extent that the GST is recoverable from the taxation authority. Where GST is not recoverable, it is recognised as part of the cost of the acquisition, or as an expense. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: – – In the principal market for the asset or liability; or In the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible to the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of the reporting period. The Group’s Audit and Risk Committee determines the policies and procedures for both recurring fair value measurement, such as investment properties and resident loans and for non-recurring measurement. External valuers are involved for valuation of significant assets, such as properties and significant liabilities. Selection criteria include market knowledge, experience and qualifications, reputation, independence and whether professional standards are maintained. On a six monthly basis management presents valuation results to the Audit and Risk Committee and the Group’s auditors. This includes a discussion of the major assumptions used in the valuations. For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained within Note 30. Receivables and payables are stated inclusive of GST. The net amount of GST recoverable from or payable to the tax authority is included in the balance sheet as an asset or liability. Cash flows are included in the cash flow statement on a gross basis. The GST components of cash flows arising from investing and financing activities, which are recoverable from or payable to the tax authorities, are classified as operating cash flows. cc. Earnings Per Share (“EPS”) Basic EPS is calculated as net profit attributable to members of the Group, divided by the weighted average number of ordinary securities, adjusted for any bonus element. Diluted EPS is calculated as net profit attributable to the Group divided by the weighted average number of ordinary securities and dilutive potential ordinary securities, adjusted for any bonus element. dd. Pending Accounting Standards AASB 9 Financial Instruments is applicable to reporting periods beginning on or after 1 January 2018. The Group has not early adopted this standard. This standard provides requirements for the classification, measurement and de-recognition of financial assets and financial liabilities. Changes in the Group’s credit risk, which affect the value of liabilities designated at fair value through profit and loss, can be presented in other comprehensive income. The application of the Standard is not expected to have any material impact on the Group’s financial reporting in future periods. AASB 15 Revenue from Contracts with Customers is applicable to reporting periods beginning on or after 1 January 2018. The Group has not early adopted this standard. The standard is based on the principle that revenue is recognised when control of a good or service is transferred to a customer. It contains a single model that applies to contracts with customers and two approaches to recognising revenue; at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognised. It applies to all contracts with customers except leases, financial instruments and insurance contracts. It requires reporting entities to provide users of financial statement with more informative and relevant disclosures. The application of the Standard is not expected to have any material impact on the Group’s financial reporting in future periods. Other new accounting standards, amendments to accounting standards and interpretations have been published that are not mandatory for the current reporting period. These are not expected to have any material impact on the Group’s financial reporting in future reporting periods. Ingenia Communities Holdings Limited42 Notes to the Financial Statements for the year ended 30 June 2015 | continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ee. Current Versus Non-Current Classification The Group presents assets and liabilities in the balance sheet based on current/non-current classification. An asset is current when it is: – Expected to be realised or intended to be sold or consumed in the normal operating cycle – Held primarily for the purpose of trading – Expected to be realised within twelve months after the reporting period, or – Cash or cash equivalents unless restricted from being exchanged or used to settle a liability for at least twelve months after reporting period. All other assets are classified as non-current. A liability is current when: – – – It is expected to be settled in the normal operating cycle It is held primarily for the purpose of trading It is due to be settled within twelve months after the reporting period, or – There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period. The Group classifies all other liabilities as non-current. Deferred tax assets and liabilities are classified as non- current assets and liabilities. 2. ACCOUNTING ESTIMATES AND JUDGEMENTS The preparation of financial statements requires the use of certain critical accounting estimates. It also requires the Group to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed below. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. a. Critical Accounting Estimates and Assumptions The Group makes estimates and assumptions concerning the future. The resulting accounting estimates, by definition, will seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. i. Valuation of investment property The Group has investment properties and assets held for sale with a carrying amount of $601,326,000 (2014: $504,302,000) (refer Note 10 and Note 14), and retirement village residents’ loans and liabilities held for sale with a carrying amount of $203,919,000 (2014: $190,122,000) (refer Note 10 and Note 19), which together represent the estimated fair value of the Group’s property business. These carrying amounts reflect certain assumptions about expected future rentals, rent-free periods, operating costs and appropriate discount and capitalisation rates. The valuation assumptions for deferred management fee villages reflect assumptions relating to average length of stay, unit market values, estimates of capital expenditure, contract terms with residents, discount rates and projected property growth rates. The valuation assumption for properties to be developed reflect assumptions around sales prices for new homes, sales rates, new rental tariffs, estimates of capital expenditure, discount rates and projected property growth rates. In forming these assumptions, the Group considered information about current and recent sales activity, current market rents, and discount and capitalisation rates, for properties similar to those owned by the Group, as well as independent valuations of the Group’s property. ii. Valuation of inventories The Group has inventory in the form of manufactured homes and service station fuel and supplies, which it carries at the lower of cost or net realisable value. Estimates of net realisable value are based on the most reliable evidence available at the time the estimates are made, of the amount the inventories are expected to realise and the estimate of costs to complete. Key assumptions require the use of management judgement, which are continually reviewed. iii. Fair value of derivatives The fair value of derivative assets and liabilities is based on assumptions of future events and involves significant estimates. Given the complex nature of these instruments and various assumptions that are used in calculating mark-to-market values, the Group relies on counterparty valuations for derivative values. The counterparty valuations are usually based on mid-market rates and calculated using the main variables including the forward market curve, time and volatility. iv. Valuation of share-based payments Valuation of share-based payment transactions is performed using judgements around the fair value of equity instruments on the date at which they are granted. The fair value is determined using a Monte Carlo based simulation method for long-term incentive performance rights and the security price at grant date of short-term incentive rights. Refer to Note 28 for assumptions used in determining the fair value. Annual Report 201543 3. SEGMENT INFORMATION a. Description of Segments The Group invests predominantly in rental properties located in Australia with three reportable segments: – Garden Villages – rental villages; – Settlers Lifestyle – deferred management fee villages; and – Active Lifestyle Estates – comprising long-term and short-term accommodation within lifestyle parks and the sale of manufactured homes. The Group has identified its operating segments based on the internal reports that are reviewed and used by the chief operating decision maker in assessing performance and in determining the allocation of resources. Other parts of the Group are neither an operating segment nor part of an operating segment. Assets that do not belong to an operating segment are described below as “unallocated”. v. Valuation of assets acquired in business combinations Upon recognising the acquisition, management uses estimations and assumptions of the fair value of assets and liabilities assumed at the date of acquisition, including judgements related to valuation of investment property as discussed above. vi. Valuation of retirement village resident loans The fair value of the retirement village resident loans is calculated by reference to the initial loan amount plus the resident’s share of any capital gains in accordance with their contracts less any deferred management fee income accrued to date by the Group as operator. The key assumption for calculating the capital gain and deferred management fee income components is the value of the dwelling being occupied by the resident. This value is determined by reference to the valuation of investment property as referred to above. vii. Calculation of deferred management fee (“DMF”) Deferred management fees are recognised by the Group over the estimated period of time the property will be leased by the resident and the accrued DMF is realised upon exit of the resident. The accrued DMF is based on various inputs including the initial price of the property, estimated length of stay of the resident, various contract terms and projected price of property at time of re-leasing. b. Critical Judgements in Applying the Entity’s Accounting Policies There were no judgements, apart from those involving estimations, that management has made in the process of applying the entity’s accounting policies that had a significant effect on the amounts recognised in the financial report. Ingenia Communities Holdings Limited44 Notes to the Financial Statements for the year ended 30 June 2015 | continued 3. SEGMENT INFORMATION (CONTINUED) b. 30 June 2015 i. Segment revenue External segment revenue Interest income Reclassification of gain on revaluation of newly constructed villages Active Lifestyle Estates $’000 38,810 – – Settlers Lifestyle $’000 Garden Villages $’000 Corporate/ Unallocated $’000 11,132 – (2,422) 28,162 – – Total revenue 38,810 8,710 28,162 ii. Segment Underlying Profit External segment revenue Interest income Property expenses Employee expenses Administration expenses Operational, marketing and selling expenses Manufactured home cost of sales Service station expenses Finance expense Income tax benefit Depreciation and amortisation expense Other 38,810 – (7,918) (8,514) (979) (1,794) (9,256) (1,910) – – (113) – 11,132 – (1,694) (1,786) (191) (608) – – – – (46) (503) 28,162 – (8,042) (7,450) (959) (591) – – – – (101) – Total $’000 78,263 180 (2,422) 76,021 78,263 180 159 180 – 339 159 180 (370) (18,024) (3,480) (21,230) (2,751) (938) – – (4,747) 3,319 (219) – (4,880) (3,931) (9,256) (1,910) (4,747) 3,319 (479) (503) Underlying Profit/(loss) – continuing operations 8,326 6,304 11,019 (8,847) 16,802 Reconciliation of Underlying Profit to profit from continuing operations: Net foreign exchange gain Net gain/(loss) disposal of investment property Net gain/(loss) on change in fair value of: Investment properties Retirement village resident loans Derivatives Gain on revaluation of newly constructed villages Other Income tax benefit associated with reconciliation items Profit from continuing operations per the consolidated statement of comprehensive income iii. Segment assets Segment assets Assets held for sale Total assets – (23) (2,818) – – – – – – (365) 3,269 (8,878) – (2,422) 503 – – 319 15,953 – – – – – 111 – – – 164 – – 111 (69) 16,404 (8,878) 164 (2,422) 503 3,285 3,285 5,485 (1,589) 27,291 (5,287) 25,900 228,329 205,357 129,604 20,419 583,709 61,598 645,307 Annual Report 2015 c. 30 June 2014 Active Lifestyle Estates $’000 Settlers Lifestyle $’000 Garden Villages $’000 Corporate/ Unallocated $’000 i. Segment revenue External segment revenue Interest income Reclassification of gain on revaluation of newly constructed villages 13,589 10,575 24,571 – – – (3,320) – – Total revenue 13,589 7,255 24,571 – 369 – 369 45 Total $’000 48,735 369 (3,320) 45,784 ii. Segment Underlying Profit External segment revenue Interest income Property expenses Employee expenses Administration expenses Operational, marketing and selling expenses Manufactured home cost of sales Finance expense Income tax benefit Depreciation expense 13,589 10,575 24,571 – 48,735 – (2,640) (4,096) (384) (421) (2,130) – – – – (1,900) (2,173) (208) (1,801) – – – – (6,798) (6,365) (947) (512) – – – (18) (49) 369 (275) (2,707) (2,621) (402) – 369 (11,613) (15,341) (4,160) (3,136) (2,130) (4,446) (4,446) 2,896 (144) 2,896 (211) Underlying Profit/(loss) – continuing operations 3,918 4,475 9,900 (7,330) 10,963 Reconciliation of Underlying Profit to profit from continuing operations: Net foreign exchange loss – – – (147) (147) Net gain/(loss) on change in fair value of: Investment properties (2,124) Derivatives Retirement village resident loans Gain on revaluation of newly constructed villages Income tax benefit associated with reconciliation items Profit from continuing operations per the consolidated statement of comprehensive income iii. Segment assets Segment assets Assets held for sale Discontinued operations Total assets (599) – (616) (3,320) – 2,382 – – – – – 41 – – (341) 41 (616) (3,320) 4,368 4,368 – – – – 1,794 (60) 12,282 (3,068) 10,948 130,243 262,498 115,293 13,794 521,828 5,439 47,657 574,924 Ingenia Communities Holdings Limited 46 Notes to the Financial Statements for the year ended 30 June 2015 | continued 4. EARNINGS PER SECURITY(1) a. Per security Profit attributable to securityholders ($’000) Profit from continuing operations ($’000) Profit/(loss) from discontinued operations ($’000) Weighted average number of securities outstanding (thousands): Issued securities Dilutive securities Performance quantum rights Retention quantum rights Note 2015 2014 25,722 25,900 (178) 11,518 10,948 570 821,653 646,603 28 470 – 2,310 1,818 Weighted average number of issued and dilutive potential securities outstanding (thousands) 822,123 650,731 Basic earnings per security from continuing operations (cents) Basic earnings per security from discontinued operations (cents) Basic earnings per security (cents) Dilutive earnings per security from continuing operations (cents) Dilutive earnings per security from discontinued operations (cents) Dilutive earnings per security (cents) b. Per security attributable to parent 3.2 (0.2) 3.1 2.0 – 2.0 1.7 0.1 1.8 1.7 0.1 1.8 Profit/(loss) attributable to securityholders ($’000) (850) (2,734) Weighted average number of securities outstanding (thousands): Issued securities Dilutive securities Performance quantum rights Retention quantum rights Weighted average number of issued and dilutive potential securities outstanding (thousands) Basic earnings per security (cents) Dilutive earnings per security (cents) 821,653 646,603 28 470 – 2,310 1,818 822,123 650,731 (0.2) – (0.4) (0.4) (1) The weighted average number of securities on issue for FY14, prior to the rights issue in September 2013, has been adjusted in accordance with AASB 133 Earnings per Share. Annual Report 2015 5. REVENUE a. Rental income Residential rental income – Garden Villages Residential rental income – Settlers Lifestyle Residential rental income – Active Lifestyle Estates Annuals rental income – Active Lifestyle Estates Short-term tourism rental income – Active Lifestyle Estates Commercial rental income – Active Lifestyle Estates Total rental income b. Other property income Government incentives Commissions and administrative fees Linen fees Land transfer duty refund Sundry income Utility recoveries Total other property income 6. FINANCE EXPENSE Interest paid or payable Finance lease interest paid or payable(1) Total finance expense 47 2015 $’000 2014 $’000 24,367 21,032 707 8,329 1,020 10,323 238 44,984 301 758 152 – 1,222 802 3,235 2015 $’000 4,483 264 4,747 1,025 4,231 302 4,990 63 31,643 219 239 170 622 263 306 1,819 2014 $’000 4,189 257 4,446 (1) Finance lease interest relates to a long-term lease with Gosford City Council for the land and facilities of Ettalong Holiday Village and long-term Crown leases in relation to One Mile Beach Holiday Park. Refer to Note 18(c). Ingenia Communities Holdings Limited48 Notes to the Financial Statements for the year ended 30 June 2015 | continued 7. INCOME TAX BENEFIT a. Income tax benefit Current tax Decrease in deferred tax liabilities Income tax benefit b. Reconciliation between tax expense and pre-tax profit Profit before income tax Less amounts not subject to Australian income tax Income tax at the Australian tax rate of 30% (2014: 30%) ICMT tax consolidation impact Tax effect of amounts which are not deductible/(taxable) in calculating taxable income: Prior period income tax return true-ups Movements in carrying value and tax cost base of investment properties Movements in carrying value and tax cost base of DMF receivables Other timing differences Non deductible expenses Income tax benefit 2015 $’000 2014 $’000 – 6,604 6,604 19,296 (31,901) (12,605) 3,781 – 263 1,516 1,683 (143) (496) 6,604 84 7,180 7,264 3,684 (14,741) (11,057) 3,317 2,823 613 1,163 (1,232) 580 – 7,264 c. Tax consolidation Effective from 1 July 2011, ICH and its Australian domiciled wholly owned subsidiaries formed a tax consolidation group with ICH being the head entity. Under the tax funding agreement the funding of tax within the tax group is based on taxable income as if that entity was not a member of the tax group. Effective from 1 July 2012, ICMT and its Australian domiciled owned subsidiaries formed a tax consolidation group with ICMT being the head entity. Under the tax funding agreement the funding of tax within the tax group is based on taxable income as if that entity was not a member of the tax group. Upon entering into the ICMT tax consolidated group, the tax cost bases for certain assets were reset resulting in income tax benefits being recorded. In addition, unrecognised losses incurred by entities within the ICMT tax consolidated group are now available for utilisation by the ICMT tax consolidated group resulting in an additional income tax benefit being recorded during the year ended 30 June 2014. Annual Report 2015 49 8. DISCONTINUED OPERATIONS a. Details of Discontinued Operations The Group’s investment in its New Zealand Students business has been classified as a discontinued operation since 30 June 2011, which is consistent with the previously announced strategy to focus on transitioning to an actively managed Australian property business. The Group held a 100% interest in three facilities in Wellington, New Zealand that are primarily leased for 15 years to Victoria University of Wellington and Wellington Institute of Technology. The Group completed the sale of these assets in December 2014. Funds remain in New Zealand to facilitate the final stages of exit. b. Financial Performance The financial performance of components of the Group disposed of or classified as discontinued operations was: Revenue Net loss on change in fair value of investment properties Unrealised net foreign exchange gain/(loss) Other income Expenses Interest expense Distributions from formerly equity accounted investments Disposal costs associated with overseas investments Profit/(loss) from operating activities before income tax Income tax expense Profit/(loss) from operating activities Gain/(loss) on sale of discontinued operations (net of tax) Release of foreign currency translation reserve on disposal of foreign operations Profit/(loss) from discontinued operations for the year 2015 $’000 2,182 – (1,038) 46 (715) (799) – – (324) (214) (538) (2,014) 2,374 (178) 2014 $’000 3,210 (1,630) 1,557 – (1,231) (1,633) 274 (290) 257 (14) 243 327 – 570 Profit/(loss) from discontinued operations attributable to the Company for years ended 30 June 2015 and 30 June 2014 is $nil. c. Cash Flows The cash flows of components of the Group disposed of or classified as discontinued operations were: Net cash flow from operating activities Net cash flows from investing activities: (Payments)/proceeds on sale of discontinued operations Additions to investment properties Payments for lease arrangements Net cash flow from financing activities Transfer to continuing operations Net cash flows from discontinued operations 2015 $’000 223 43,966 – (4) (45,381) (461) (1,657) 2014 $’000 1,135 (120) (9,081) (745) 11,449 – 2,638 Ingenia Communities Holdings Limited 50 Notes to the Financial Statements for the year ended 30 June 2015 | continued 8. DISCONTINUED OPERATIONS (CONTINUED) d. Assets and Liabilities The assets and liabilities of components of the Group classified as disposal groups at each reporting date were: Assets Cash and cash equivalents Trade and other receivables Investment properties Total assets Liabilities Payables Borrowings Total liabilities Net assets of disposal groups 2015 $’000 2014 $’000 – – – – – – – – 1,657 98 45,902 47,657 368 30,081 30,449 17,208 e. Capitalisation Rate The weighted average capitalisation rate of the New Zealand Students internal valuation within discontinued operations at 30 June 2014 was 8.6%. 9. BUSINESS COMBINATIONS On 18 February 2015, Group acquired Active Lifestyle Estates & Holiday Noosa in Tewantin, Queensland, and after considering the accounting treatment for the acquisition of this business combination, the Group has determined the components acquired from the business combination are investment property of $13,648,000, service station inventory of $268,000 and no goodwill. 10. ASSETS AND LIABILITIES HELD FOR SALE a. Summary of carrying values The following are the carrying values of assets held for sale: Deferred management fee receivable – Settlers Lifestyle(1) Investment properties – Settlers Lifestyle(2) Note 19 2015 $’000 – 61,598 61,598 2014 $’000 5,439 – 5,439 (1) This relates to Settlers Noyea which was sold in July 2014. (2) These properties are presented as held for sale in view of the intention and expectation of management to sell these properties during the twelve months ended 30 June 2016. These properties have been reclassified from investment property to assets held for sale. b. Summary of carrying amounts - loans The following is a summary of the carrying amounts of the loans associated with investment properties held for sale: Gross resident loans Accrued deferred management fee Net resident loans Note 19 2015 $’000 44,271 (2,230) 42,041 2014 $’000 – – – Annual Report 201511. CASH AND CASH EQUIVALENTS Cash at bank and in hand Reconciliation to statements of cash flows Cash and cash equivalents attributable to: Continuing operations - cash at bank Discontinued operations - cash at bank Cash at the end of the year as per cash flow statement 12. TRADE AND OTHER RECEIVABLES Current Trade and other receivables Prepayments and deposits Total current trade and other receivables Non-current Other receivables 51 2015 $’000 2014 $’000 15,117 12,894 15,117 – 15,117 12,894 1,657 14,551 2015 $’000 2014 $’000 960 3,367 4,327 1,105 2,640 3,745 2,649 2,168 Rental amounts due are typically paid in advance and other amounts due are receivable within 30 days. 13. INVENTORIES Current assets Manufactured homes Service station fuel and supplies Total Inventories 2015 $’000 2014 $’000 12,875 333 13,208 2,208 – 2,208 The manufactured homes balance represents 53 completed homes of $8.0 million (2014: nil), 44 homes under construction of $3.8 million (2014: 24 homes of $1.7 million), and 41 site buybacks of $1.1 million (2014: 20 homes of $0.5 million). 14. INVESTMENT PROPERTIES a. Summary of Carrying Amounts Completed properties Properties under development 2015 $’000 514,125 25,603 2014 $’000 482,618 16,245 539,728 498,863 Ingenia Communities Holdings Limited52 Notes to the Financial Statements for the year ended 30 June 2015 | continued 14. INVESTMENT PROPERTIES (CONTINUED) b. Individual Valuations and Carrying Amounts Property Completed properties Garden Villages Yakamia, Yakamia, WA Mardross, Albury, NSW Seville Grove, Seville Grove, WA Hertford, Sebastopol, VIC Carey Park, Bunbury, WA Jefferis, Bundaberg North, QLD Claremont, Claremont, TAS Taloumbi, Coffs Harbour, NSW Devonport, Devonport, TAS Wheelers, Dubbo, NSW Elphinwood, Launceston, TAS Glenorchy, Glenorchy, TAS Chatsbury, Goulburn, NSW Grovedale, Grovedale, VIC Horsham, Horsham, VIC Sea Scape, Erskine, WA Marsden, Marsden, QLD Coburns, Brookfield, VIC Brooklyn, Brookfield, VIC Oxley, Port Macquarie, NSW Townsend, St Albans Park, VIC St Albans Park, St Albans Park, VIC Swan View, Swan View, WA Date of purchase Latest external valuation date Valuation $’000 2015 $’000 2014 $’000 Carrying amount Jun 04 Jun 04 Jun 04 Jun 04 Jun 04 Jun 04 Jun 04 Jun 04 Jun 04 Jun 04 Jun 04 Jun 05 Jun 04 Jun 05 Jun 04 Jun 04 Jun 05 Jun 04 Jun 04 Jun 04 Jun 04 Jun 04 Jan 06 Jun 15 4,750 – Dec 14 Jun 14 Jun 15 Jun 15 Dec 13 Dec 14 Dec 14 Dec 13 Jun 15 Dec 13 Dec 13 Jun 15 Jun 15 Dec 14 Dec 14 Dec 14 Jun 15 Jun 15 Jun 15 Jun 14 Dec 14 – 3,200 3,770 4,300 4,300 3,320 4,300 1,700 3,800 3,750 3,160 2,940 4,700 3,900 4,000 8,500 3,300 4,100 4,200 4,400 4,140 6,000 4,750 – 3,400 3,910 4,300 4,300 3,420 4,500 1,785 4,680 3,750 3,780 3,760 4,700 3,900 4,330 8,640 3,490 4,100 4,200 4,400 4,620 6,480 2,730 2,400 3,390 3,770 3,520 3,480 3,230 4,170 2,100 4,300 2,910 3,370 3,430 4,010 3,300 4,170 8,380 3,290 3,270 3,120 3,800 4,140 5,990 Annual Report 201553 Date of purchase Latest external valuation date Valuation $’000 2015 $’000 2014 $’000 Carrying amount Dec 04 Dec 12 Feb 13 Mar 13 Jun 13 Jun 13 Jan 14 Jan 14 Jan 14 Jan 14 Jan 14 Nov 05 Nov 05 Nov 05 Nov 05 Jun 04 Apr 07 Apr 07 Apr 07 Apr 07 Apr 07 Jul 12 Jun 15 Dec 13 Dec 13 Jun 15 Jun 14 Jun 14 Jun 15 Jun 15 – – 3,350 3,290 3,280 4,100 3,100 3,930 3,850 3,300 – – Jun 15 2,500 3,350 2,940 3,290 4,100 3,130 4,000 3,850 3,300 – – 2,500 125,655 – – – – – – – – – – Jun 13 Jun 13 Jun 13 Dec 13 Dec 14 Dec 14 – Jun 13 Jun 13 Jun 13 Dec 14 75,672 75,866 – 17,066 2,455 105,104 – – 16,648 2,455 109,114 – 204,083 259,325 2,320 2,670 3,100 2,040 3,100 3,930 2,580 2,510 1,780 2,170 1,800 114,270 14,194 12,534 750 14,314 6,009 77,242 –(3) 16,510 2,455 103,552 11,765 Property Completed properties (continued) Garden Villages (continued) Taree, Taree, NSW Dubbo, Dubbo, NSW Ocean Grove, Mandurah, WA Peel River, Tamworth, NSW Sovereign, Ballarat, VIC Wagga, Wagga Wagga, NSW Bathurst, Bathurst, NSW Launceston, Launceston, TAS Shepparton, Shepparton, VIC Murray River, Mildura, VIC Warrnambool, Warrnambool, VIC Settlers Lifestyle Forest Lake, Forest Lake, QLD(3) Gladstone, South Gladstone, QLD(3) Gladstone, South Gladstone, QLD - Land(3) Rockhampton, Rockhampton, QLD(3) Cessnock, Cessnock, NSW(3) Lakeside, Ravenswood, WA Noyea Riverside, Mt Warren Park, QLD(4) Meadow Springs, Mandurah, WA Meadow Springs, Mandurah, WA – Land Ridgewood Rise, Ridgewood, WA Ridge Estate, Gillieston Heights, NSW(3) Ingenia Communities Holdings Limited54 Notes to the Financial Statements for the year ended 30 June 2015 | continued 14. INVESTMENT PROPERTIES (CONTINUED) Property Active Lifestyle Estates The Grange, Morisset, NSW Ettalong Beach, Ettalong Beach, NSW(1) Albury, Lavington, NSW Nepean River, Emu Plains, NSW Mudgee Valley, Mudgee, NSW Mudgee, Mudgee, NSW Kingscliff, Kingscliff, NSW Lake Macquarie, Morisset, NSW Chain Valley Bay, Chain Valley Bay, NSW One Mile Beach, One Mile, NSW(2) Hunter Valley, Cessnock, NSW Wine Country, Cessnock, NSW Sun Country, Mulwala, NSW Stoney Creek, Marsden Park, NSW Rouse Hill, Rouse Hill, NSW(5) White Albatross, Nambucca Heads, NSW Noosa, Tewantin, QLD Chambers Pines, Chambers Flat, QLD Mannering Park, Mannering Park, NSW Sydney Hills, Dural, NSW Total completed properties Date of purchase Latest external valuation date Valuation $’000 2015 $’000 2014 $’000 Carrying amount Mar 13 Apr 13 Aug 13 Aug 13 Sep 13 Oct 13 Nov 13 Nov 13 Dec 13 Dec 13 Feb 14 Feb 14 Apr 14 May 14 Jun 14 Dec 14 Feb 15 Mar 15 Apr 15 Apr 15 Dec 13 Dec 13 Jun 14 Jun 14 Jun 14 Jun 14 Dec 14 Dec 14 Dec 14 Dec 14 Dec 14 Dec 14 Dec 14 Dec 14 Jun 15 Jun 15 Jun 15 – 9,400 2,200 1,725 11,000 4,250 6,393 10,500 5,010 3,700 10,500 7,500 1,000 6,610 14,740 16,125 25,500 13,000 – Jun 15 6,800 – – 11,072 5,583 2,275 13,317 3,662 5,934 11,734 4,212 247 12,769 7,589 1,000 6,514 10,940 16,125 25,500 13,000 14,114 6,800 12,000 184,387 514,125 10,761 5,811 1,510 11,000 3,710 6,403 10,991 5,693 – 13,349 8,282 1,109 6,858 16,184 7,362 – – – – – 109,023 482,618 Annual Report 201555 Carrying amount Date of purchase 2015 $’000 2014 $’000 Mar 13 Apr 13 Aug 13 Aug 13 Sep 13 Oct 13 Nov 13 Nov 13 Dec 13 Dec 13 Feb 14 Feb 14 Apr 14 May 14 Mar 15 1,291 – 1,993 – 775 430 444 3,279 3,700 – 2,133 556 1,300 7,064 2,638 1,387 310 490 – 797 540 520 1,990 4,045 – 1,500 556 850 3,260 – 25,603 16,245 539,728 498,863 Property Properties to be developed Active Lifestyle Estates The Grange, Morisset, NSW Ettalong Beach, Ettalong Beach, NSW(1) Albury, Lavington, NSW Nepean River, Emu Plains, NSW Mudgee Valley, Mudgee, NSW Mudgee, Mudgee, NSW Kingscliff, Kingscliff, NSW Lake Macquarie, Morisset, NSW Chain Valley Bay, Chain Valley Bay, NSW One Mile Beach, One Mile, NSW(2) Hunter Valley, Cessnock, NSW Wine Country, Cessnock, NSW Sun Country, Mulwala, NSW Stoney Creek, Marsden Park, NSW Chambers Pines, Chambers Flat, QLD Properties to be developed Total investment properties (1) Ettalong Beach Holiday Village land component is leased from the Gosford City Council and is recognised as investment property with an associated finance lease. (2) One Mile Beach land component is leased from the Crown under 40 year and perpetual leases and is recognised as investment property with an associated finance lease. (3) Classified as assets held for sale at 30 June 2015. (4) Classified as assets held for sale at 30 June 2014. (5) Rouse Hill has been independently valued at 30 June 2015 on a highest and best use basis as a medium density residential development. Investment property that has not been valued by external valuers at reporting date is carried at the Group’s estimate of fair value in accordance with the accounting policy detailed at Note 1(q). Valuations of retirement villages are provided net of residents’ loans (after deducting any accrued deferred management fees). For presentation in this note, the external valuations shown are stated before deducting this liability to reflect its separate balance sheet presentation. The carrying amounts include the fair value of units completed since the date of the external valuation. Ingenia Communities Holdings Limited 56 Notes to the Financial Statements for the year ended 30 June 2015 | continued 14. INVESTMENT PROPERTIES (CONTINUED) c. Movements in Carrying Amounts Carrying amount at beginning of year Acquisitions Expenditure capitalised Sale of units – Strata title Transferred from plant and equipment Transferred to inventory Net gain/(loss) on change in fair value Transferred to assets held for sale Carrying amount at end of year 2015 $’000 498,863 78,152 14,356 – (6,290) (159) 16,404 (61,598) 2014 $’000 370,931 118,303 10,336 (492) 320 (194) (341) – 539,728 498,863 The net change in fair value is recognised in profit or loss as net gain/(loss) on change in fair value of investment properties. Fair value hierarchy disclosures for investment properties have been provided in Note 31. d. Reconciliation of Fair Value Garden Villages $’000 Settlers Active Lifestyle Estates $’000 Total $’000 Carrying amount at 1 July 2014 114,270 259,325 125,268 498,863 Acquisitions Expenditure capitalised Assets sold Transferred to inventory – 1,739 (6,290) – 320 2,729 – – 77,832 9,888 – (159) 78,152 14,356 (6,290) (159) Net gain/(loss) on change in fair value(1) 15,934 3,303 (2,833) 16,404 Transferred to assets held for sale Carrying amount at 30 June 2015 – (61,598) – (61,598) 125,653 204,079 209,996 539,728 (1) Includes $13,288,000 of transaction costs relating to Active Lifestyle Estates acquisitions written off during the year. Annual Report 201557 e. Description of Valuations Techniques used and Key Inputs to Valuation on Investment Properties Valuation technique Significant unobservable inputs Range (weighted average) Garden Villages Capitalisation method Stabilised occupancy 70%-100% (92%) Capitalisation rate 9%-12% Settlers Lifestyle Discounted cash flow Current market value $125,000-$475,000 per unit Long-term property growth rate 4% Average length of stay – future residents 11.4 years Average length of stay – current residents 15.0-17.6 years Discount rate 14.5%-15.0% Active Lifestyle Estates Capitalisation method Short-term occupancy 15%-30% for powered (for existing rental streams) and camp sites; 45%-70% for tourism and short term rental Relationship of unobservable input to fair value As costs are fixed in nature, occupancy has a direct correlation to valuation (ie. the higher the occupancy, the greater the value). Capitalisation has an inverse relationship to valuation. Market value and growth in value have a direct correlation to valuation, while length of stay and discount rate have an inverse relationship to valuation. Average length of stay projection is based on life expectancy and other factors. Parameters exclude assets that are subject to a sale agreement. Assets that are subject to a sale agreement are carried at fair value. Higher the occupancy, the greater the value. Residential occupancy 100% Operating profit margin 50%-70% dependent upon short-term and residential accommodation mix Higher the profit margin, the greater the value. Capitalisation rate 8.2%-17.5% Discounted cash flow (for future development) Discount rate 13%-16% Capitalisation has an inverse relationship to valuation. Discount rate has an inverse relationship to valuation. Capitalisation Method Under the capitalisation method, fair value is estimated using assumptions regarding the expectation of future benefits. The capitalisation method involves estimating the expected income projections of the property and applying a capitalisation rate into perpetuity. The capitalisation rate is based on current market evidence. Future income projections take into account occupancy, rental income and operating expenses. Ingenia Communities Holdings Limited58 Notes to the Financial Statements for the year ended 30 June 2015 | continued 14. INVESTMENT PROPERTIES (CONTINUED) Discounted Cash Flow Method Under the discounted cash flow method, fair value is estimated using assumptions regarding the benefits and liabilities of ownership over the asset’s life including an exit or terminal value. This method involves the projection of a series of cash flows on a real property interest. To this projected cash flow series, a market-derived discount rate is applied to establish the present value of the income stream associated with the asset. The exit yield normally reflects the exit value expected to be achieved upon selling the asset and is a function of the risk adjusted returns of the asset and expected capitalisation rate. The duration of the cash flows and the specific timing of inflows and outflows are determined by events such as rent reviews, lease renewal and related re-letting, redevelopment, or refurbishment as well as the development of new units. The appropriate duration is typically driven by market behaviour that is a characteristic of the class of real property. Periodic cash flow is typically estimated as gross income less vacancy, non-recoverable expenses, collection losses, lease incentives, maintenance cost, agent and commission costs and other operating and management expenses. The series of periodic net underlying cash flows, along with an estimate of the terminal value anticipated at the end of the projection period, is then discounted. 15. PLANT AND EQUIPMENT a. Summary of carrying amounts Plant and equipment Less: accumulated depreciation Total plant and equipment b. Movements in carrying amount Carrying amount at beginning of year Assets written off Transferred to investment property Transferred to intangibles Additions Depreciation expense Carrying amount at end of year 16. INTANGIBLES a. Summary of carrying amounts Software & development Less: accumulated amortisation Total Intangibles b. Movements in carrying amount Carrying amount at beginning of year Assets written off Transferred from plant and equipment Additions Amortisation expense Carrying amount at end of year 2015 $’000 2014 $’000 1,895 (1,175) 720 517 (118) – – 643 (322) 720 1,407 (890) 517 1,034 (82) (320) (473) 569 (211) 517 2015 $’000 2014 $’000 1,736 (157) 1,579 473 – – 1,263 (157) 1,579 473 – 473 – – 473 – – 473 Annual Report 201517. TRADE AND OTHER PAYABLES Current liabilities Trade payables and accruals Deposits and other unearned income Deferred acquisition consideration Total current liabilities Non-current liabilities Deferred acquisition consideration 18. BORROWINGS Current liabilities Finance leases Non-current liabilities Bank debt Prepaid borrowing costs Finance leases Total non-current borrowings 59 2015 $’000 2014 $’000 10,047 1,526 3,500 15,073 8,814 1,595 – 10,409 14,770 4,000 Note 2015 $’000 2014 $’000 18(c) 291 283 18(a) 63,900 94,000 18(c) (1,681) 4,272 66,491 (312) 4,385 98,073 a. Bank Debt On 13 February 2015, the Group refinanced its Australian dollar denominated bank debt facility to a $175.0 million multi- lateral debt facility with three Australian banks. $100 million of the facility expires on 12 February 2018 with the remainder expiring on 12 February 2020. The facility has the following principal financial covenants: LVR (excluding Settlers) is less than or equal to 55%; Loan to value ratio (“LVR”) is less than or equal to 50%; – – – Total Interest Cover Ratio of at least 2x; – Core Interest Cover Ratio (adjusted to exclude development income and associated costs) of at least 1.50x in financial year ending 2015 increasing to at least 2.0x in FY2016; – Net debt to adjusted EBITDA ratio not more than 6x up to 30 June 2015, 5.5x up to 31 December 2015, 5x up to 30 June 2016, 4x after 30 June 2016. As at 30 June 2015, the facility has been drawn to $63,900,000 (2014: $94,000,000). The carrying value of investment property net of resident liabilities at reporting date for the Group’s Australian properties pledged as security is $363,720,000 (2014: $290,375,000). b. Bank Guarantees The Group has the ability to utilise its $175.0 million bank facility to provide bank guarantees. Bank guarantees at 30 June 2015 were $28.8 million (2014: $4.4 million). Refer to Note 27. c. Finance Leases On 23 April 2013, the Group was assigned a commercial lease with 16.5 years remaining with the Gosford City Council for land and facilities as part of the Active Lifestyle Estates Ettalong Beach acquisition. The lease is for an initial three years commencing September 2012 with two renewal options of seven years each. The first option period was exercised on 1 July 2015 for seven years to June 2022. The below table is based on the expectation that the last lease option will be exercised. In December 2013, the Group acquired Active Lifestyles Estates One Mile Beach, accounted for as investment property. Two Crown leases are attached to the land, one for 40 years expiring on 19 September 2031 and one in perpetuity. Ingenia Communities Holdings Limited60 Notes to the Financial Statements for the year ended 30 June 2015 | continued 18. BORROWINGS (CONTINUED) i. Minimum lease payments – excluding perpetual lease Minimum lease payments: Within one year Later than one year but not later than five years Later than five years Total minimum lease payments Future finance charges Present value of minimum lease payments Present value of minimum lease payments: Within one year Later than one year but not later than five years Later than five years 2015 $’000 2014 $’000 299 1,273 3,431 5,003 (1,579) 3,424 291 1,082 2,051 3,424 292 1,242 3,761 5,295 (1,765) 3,530 283 1,056 2,191 3,530 ii. Minimum lease payments – perpetual lease The perpetual lease is recognised as investment property and non-current liability at a value of $1.1 million based on a capitalisation rate applicable at the time of acquisition of 10.6% applied to the current lease payment. Payments each period in relation to the lease are recognised as finance expenses in the statement of comprehensive income, therefore, there is no subsequent change to the originally determined present value of the minimum lease payments as calculated above. As this is a perpetual lease, the lease liability will not amortise and no fair value adjustments in relation to the lease will be recognised unless circumstances of the lease change. Under the terms of the lease, lease payments will continue into perpetuity. The current annual lease payment is $121,000. 19. RETIREMENT VILLAGE RESIDENT LOANS a. Summary of carrying amounts Gross resident loans Accrued deferred management fee Net resident loans b. Movements in carrying amounts Carrying amount at beginning of year Net (gain)/loss on change in fair value of resident loans Accrued deferred management fee income Deferred management fee cash collected Proceeds from resident loans Repayment of resident loans Transfer to assets and liabilities held for sale 10 Other Carrying amount at end of year Fair value hierarchy disclosures for retirement village resident loans have been provided in Note 31. Note 2015 $’000 2014 $’000 192,898 218,639 (31,020) 161,878 (28,517) 190,122 190,122 175,703 8,878 (6,788) 2,056 19,815 (10,544) (42,041) 380 616 (5,333) 1,811 22,021 (10,361) 5,439 226 161,878 190,122 Annual Report 201520. PROVISIONS Current liabilities Employee liabilities Non-current liabilities Employee liabilities 21. DERIVATIVES Current liabilities Interest rate swap contracts Non-current liabilities Interest rate swap contracts 22. DEFERRED TAX ASSETS AND LIABILITIES Deferred tax assets Tax losses Other Deferred tax liabilities DMF receivable Investment properties Net deferred tax asset 61 2015 $’000 2014 $’000 992 248 718 249 Note 2015 $’000 2014 $’000 30 30 3 – 84 84 2015 $’000 2014 $’000 17,496 1,401 (7,982) (4,567) 6,348 – – – – – – Deductible temporary differences and carried forward losses tax effected for which no deferred tax asset has been recognised 7,500 7,488 Deferred tax liabilities Tax losses Other Deferred tax liabilities DMF receivable Investment properties Net deferred tax liabilities – – – – – – 14,228 1,081 8,176 7,409 276 The availability of carried forward tax losses of $7.5 million to the ICMT tax consolidated group is subject to recoupment rules at the time of recoupment. Further, the rate at which these losses can be utilised is determined by reference to market values at the time of tax consolidation and subsequent events. Accordingly, a portion of these carried forward tax losses may not be available in the future. The Group offsets tax assets and liabilities, if and only if, it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same tax authority. Ingenia Communities Holdings Limited62 Notes to the Financial Statements for the year ended 30 June 2015 | continued 23. ISSUED SECURITIES a. Carrying values At beginning of year Issued during the year: Dividend Reinvestment Plan issues Institutional placement Rights issue Institutional Placement and Rights issue costs At end of year The closing balance is attributable to the securityholders of: Ingenia Communities Holding Limited Ingenia Communities Fund Ingenia Communities Management Trust b. Number of issued securities At beginning of year Issued during the year: Retention Quantum Rights Dividend Reinvestment Plan Institutional Placement and Rights Issue At end of year 2015 $’000 2014 $’000 569,116 510,141 2,884 45,315 43,769 (3,870) – – 61,707 (2,732) 657,214 569,116 8,900 619,286 29,028 657,214 7,377 547,642 14,097 569,116 2015 Thousands 2014 Thousands 676,240 – 1,818 6,674 197,968 507,179 169,061 – – – 882,700 676,240 c. Terms of Securities All securities are fully paid and rank equally with each other for all purposes. Each security entitles the holder to one vote, in person or by proxy, at a meeting of securityholders. Annual Report 2015 24. RESERVES Foreign currency translation reserve Balance at beginning of year Translation differences arising during the year Amounts transferred to profit and loss on disposal of foreign operation Balance at end of year Share-based payment reserve Balance at beginning of year Transfer from reserves to retained earnings Share-based payment transactions Balance at end of year Total reserves at end of year The closing balance is attributable to the securityholders of: Ingenia Communities Holding Limited Ingenia Communities Fund Ingenia Communities Management Trust 63 2015 $’000 2014 $’000 1,035 1,339 (2,374) 766 269 – – 1,035 988 (332) 678 1,334 1,334 1,334 – – 308 – 680 988 2,023 988 866 169 1,334 2,023 The share-based payment reserve records the value of equity-settled share-based payment transactions provided to employees, including key management personnel, as part of their remuneration. Refer Note 28. The foreign currency translation reserve records exchange differences arising from the translation of the financial statements of foreign subsidiaries. 25. ACCUMULATED LOSSES Balance at beginning of year Net profit/(loss) for the year Transfer from reserves to retained earnings Distributions Balance at end of year The closing balance is attributable to the securityholders of: Ingenia Communities Holding Limited Ingenia Communities Fund Ingenia Communities Management Trust 2015 $’000 2014 $’000 (330,962) (336,563) 25,722 332 11,518 – (10,120) (5,917) (315,028) (330,962) (3,175) (2,659) (303,335) (324,254) (8,518) (4,049) (315,028) (330,962) Ingenia Communities Holdings Limited 64 Notes to the Financial Statements for the year ended 30 June 2015 | continued 26. COMMITMENTS a. Capital Commitments There were commitments for capital expenditure on investment property and inventory contracted but not provided for at reporting date of $7,048,000 (2014: $3,266,000), all payable within one year. b. Operating Lease Commitments The Group has two non-cancellable operating leases for its Sydney and Brisbane offices. These leases have remaining lives of six months and five years respectively. Future minimum rentals payable under these leases as at reporting date were: Within one year Later than one year but not later than five years 2015 $’000 2014 $’000 362 744 1,106 482 1,106 1,588 c. Finance Lease Commitments On 23 April 2013, the Group was assigned a commercial lease with 16.5 years remaining with the Gosford City Council for land and facilities as part of its Ettalong Holiday Village acquisition. The lease is for an initial three years commencing September 2012 with two renewal options of seven years each. The first option period was exercised on 1 July 2015 for seven years to June 2022. In December 2013, the Group acquired One Mile Beach Holiday Park, accounted for as investment property. Two Crown leases are attached to the land, one for 40 years expiring on 19 September 2031 and one for perpetuity. Refer to Note 18 for future minimum lease payments payable and the present value of minimum lease payments payable at reporting date for the finance leases at Ettalong Holiday Village and One Mile Beach Holiday Park. 27. CONTINGENT LIABILITIES There are no known contingent liabilities other than the bank guarantees totalling $28.8 million provided for under the $175.0 million bank facility (refer to Note 18). Bank guarantees of $18.8 million primarily related to deferred acquisition consideration recognised as current and non-current payables (refer to Note 17). These guarantees will not be called by the counterparties unless the deferred consideration is not paid in accordance with the terms of the agreement. There is a $10 million bank guarantee in favour of Ingenia Communities RE Limited issued to satisfy the Responsible Entity’s AFSL capital requirements. 28. SHARE-BASED PAYMENT TRANSACTIONS The Group has established rights plans, which provide for the grant of conditional rights to receive securities in the Group. The intention of these plans is to align long-term securityholder returns with the ‘at-risk’ compensation potentially payable to executive level employees and to reward managers who remain in employment and perform at the required levels of performance to sustain earnings growth. These plans encompass various types of security rights, being: – Performance Quantum rights (“PQRs”) which vest on completion of a period of service, with the number of rights vesting based on the Group’s performance, as measured by total securityholder returns (“TSR”). On vesting, each PQR entitles the employee to receive one security of the Group for no consideration. – Retention Quantum Rights (“RQRs”) issued as a one off grant in 2012 to ensure stability during the internalisation transition. These rights were subject to the employee remaining with the Group for a two year retention period. These rights vested on 1 July 2014 and RQRs will not be issued in the future. – Long-Term Incentive Rights (“LTIPs”) which vest subject to a performance condition based on growth in the Group’s TSR relative to the ASX 300 Industrials Index return over the performance period. – Short-Term Incentive Rights (“STIPs”) which are awarded based on agreed performance conditions as part of the executive’s short-term incentive remuneration. The value of the rights awarded is conditional based on executives meeting pre-agreed Key Performance Indicators (KPIs). Once performance against the KPIs has been assessed, the value of the STIPs to be issued is determined. These STIPs are then subject to a one year vesting deferral period from the issue date. The STIP allows for certain lapsing conditions within the deferral period, should certain conditions occur. Annual Report 2015Movements in rights during the year were: PQRs & LTIPs Outstanding at beginning of year(1) Granted during the year Outstanding at end of year Exercisable at end of year Weighted average remaining contractual life of outstanding rights (years) RQRs Outstanding at beginning of year(2) Granted during the year Outstanding at end of year Exercisable at end of year Weighted average remaining contractual life of outstanding rights (years) (1) 3,842,000 PQRs vested on 1 July 2015 and 3,842,000 fully paid stapled securities were issued at that time. (2) The RQRs vested on 1 July 2014 and 1,818,000 fully paid stapled securities were issued at that time. 65 2015 Thousands 2014 Thousands 7,558 983 8,541 – 0.70 1,818 – – – – 3,842 3,716 7,558 – 1.5 1,818 – 1,818 – – During the year, 982,971 LTIPs were granted to senior executives of the Group. The number of LTIPs that will vest depends on the TSR achieved and is conditional on the individual being in employment of the Group on the vesting date (30 September 2017). The measurement period for these LTIPs is 1 October 2014 to 30 September 2017 and full rights vest based on TSR growth relative to growth in the ASX 300 Industrial Index. A sliding scale applies for lower TSRs with the number of rights vesting being nil for a TSR at or below 1%. One right equates to one security in the Group. The fair value of the LTIPs issued during the year was estimated using a Monte Carlo Simulation model. Assumptions made in determining the fair value, and the results of these assumptions, are: Grant Date Price of stapled securities at grant date Volatility of security price Distribution yield Risk-free rate at grant date Expected remaining life at grant date Fair value of each right 1 October 2014 12 November 2014 $0.445 30.0% 2.24% 2.53% $0.455 30.0% 2.28% 2.56% 2.9 years 2.9 years $0.243 $0.253 The fair value of PQRs and LTIPs is recognised as an employee benefit expense with a corresponding increase in reserves. The fair value is expensed on a straight-line basis over the vesting period. The expense recognised for the financial year was $590,928 (2014: $680,600). The total value of STIP rights is conditional based on KMPs meeting pre-agreed Key Performance Indicators (“KPIs”) and is subject to adjustment through to 1 October 2015 once the full year audited result is known and the KPIs can be reliably measured. An estimate based on the current period performance and KMP performance against these KPIs has been recognised at 30 June 2015. However, the total number of rights to be issued will be determined by 1 October 2015. The deferred expense for STIPs recognised for the year was $86,356 (2014: nil). Ingenia Communities Holdings Limited66 Notes to the Financial Statements for the year ended 30 June 2015 | continued 29. CAPITAL MANAGEMENT The Group aims to meet its strategic objectives and operational needs and to maximise returns to securityholders through the appropriate use of debt and equity, while taking account of the additional financial risks of higher debt levels. In determining the optimal capital structure, the Group takes into account a number of factors, including the views of investors and the market in general, the capital needs of its portfolio, the relative cost of debt versus equity, the execution risk of raising equity or debt, and the additional financial risks of debt including increased volatility of earnings due to exposure to interest rate movements, the liquidity risk of maturing debt facilities and the potential for acceleration prior to maturity. In assessing this risk, the Group takes into account the relative security of its income flows, the predictability of its expenses, its debt profile, the degree of hedging and the overall level of debt as measured by gearing. The actual capital structure at a point in time is the product of a number of factors, many of which are market driven and to various degrees outside of the control of the Group, particularly the impact of revaluations, the availability of new equity and the liquidity in real estate markets. While the Group periodically determines the optimal capital structure, the ability to achieve the optimal structure may be impacted by market conditions and the actual position may often differ from the optimal position. The Group primarily monitors its capital position through the Loan to Value Ratio (LVR) which is a key covenant under the Group’s $175.0 million multilateral debt facility. LVR is calculated as the sum of bank debt, bank guarantees and finance leases net of cash at bank as a percentage of the value of properties pledged as security. The Group’s strategy is to maintain an LVR range of 30-35%. As at 30 June 2015, LVR is 22.6% compared to 33.9% at 30 June 2014. In addition the Group also monitors Interest Cover Ratio and Net Debt: Adjusted EBITDA as defined under the multilateral debt facility. At 30 June 2015, the Total Interest Cover Ratio was 2.96%; the Core Interest Cover Ratio was 2.68% and Net Debt: Adjusted EBITDA was 4.58. 30. FINANCIAL INSTRUMENTS a. Introduction The Group’s principal financial instruments comprise cash and short-term deposits, receivables, payables, interest bearing liabilities, other financial liabilities, and derivative financial instruments. The main risks arising from the Group’s financial instruments are interest rate risk, foreign exchange risk, credit risk and liquidity risk. The Group manages its exposure to these risks primarily through its treasury policy. The policy sets out various targets aimed at restricting the financial risk taken by the Group. Management reviews actual positions of the Group against these targets on a regular basis. If the target is not achieved, or the forecast is unlikely to be achieved, a plan of action is, where appropriate, put in place with the aim of meeting the target within an agreed timeframe. Depending on the circumstances of the Group at a point in time, it may be that positions outside of the treasury policy are accepted and no plan of action is put in place to meet the treasury targets, because, for example, the risks associated with bringing the Group into compliance outweigh the benefits. The adequacy of the treasury policy in addressing the risks arising from the Group’s financial instruments is reviewed on a regular basis. While the Group aims to meet its treasury policy targets, many factors influence its performance, and it is probable that at any one time it will not meet all its targets. For example, the Group may be unable to negotiate the extension of bank facilities sufficiently ahead of time, so that it fails to achieve its liquidity target. When refinancing loans it may be unable to achieve the desired maturity profile or the desired level of flexibility of financial covenants, because of the cost of such terms or their unavailability. Hedging instruments may not be available, or their cost may outweigh the benefit of risk reduction or they may introduce other risks such as mark to market valuation risk. Changes in market conditions may limit the Group’s ability to raise capital through the issue of new securities or sale of properties. Annual Report 201567 b. Interest Rate Risk The Group’s exposure to the risk of changes in market interest rates arises primarily from its use of borrowings. The main consequence of adverse changes in market interest rates is higher interest costs, reducing the Group’s profit. In addition, one or more of the Group’s loan agreements may include minimum interest cover covenants. Higher interest costs resulting from increases in market interest rates may result in these covenants being breached, providing the lender the right to call in the loan or to increase the interest rate applied to the loan. The Group manages the risk of changes in market interest rates by maintaining an appropriate mix of fixed and floating rate borrowings. Fixed rate debt is achieved either through fixed rate debt funding or through derivative financial instruments permitted under the treasury policy. The policy sets minimum and maximum levels of fixed rate exposure over a ten-year time horizon. At 30 June 2015, after taking into account the effect of interest rate swaps, approximately 28% of the Group’s borrowings are at a fixed rate of interest (2014: 47%). Exposure to changes in market interest rates also arises from financial assets such as cash deposits and loan receivables subject to floating interest rate terms. Changes in market interest rates will also change the fair value of any interest rate hedges. c. Interest Rate Risk Exposure The Group’s exposure to interest rate risk and the effective interest rates on financial instruments at reporting date was: Fixed interest maturing in: Floating interest rate Less than 1 year 1 to 5 Years More than 5 years Total 30 June 2015 Principal amounts $’000 Financial assets Cash at bank Financial liabilities Bank debt denominated in AUD 30 June 2014 Principal amounts $’000 Financial assets Cash at bank Financial liabilities Bank debt denominated in AUD 15,117 63,900 – – – – – – Finance leases (excluding perpetual lease) – 291 1,082 2,051 Interest rate swaps: denominated in AUD; Group pays fixed rate (18,000) 18,000 – – – The Group’s exposure to interest rate risk and the effective interest rates on financial instruments at the end of the previous financial year was: Fixed interest maturing in: Floating interest rate Less than 1 year 1 to 5 Years More than 5 years Total 12,894 94,000 – – – – – – Finance leases (excluding perpetual lease) – 283 1,056 2,191 Interest rate swaps: denominated in AUD; Group pays fixed rate (45,000) 45,000 – – – Other financial instruments of the Group not included in the above tables are non-interest bearing and are therefore not subject to interest rate risk. 15,117 63,900 3,424 12,894 94,000 3,530 Ingenia Communities Holdings Limited 68 Notes to the Financial Statements for the year ended 30 June 2015 | continued 30. FINANCIAL INSTRUMENTS (CONTINUED) d. Interest Rate Sensitivity Analysis The impact of an increase or decrease in average interest rates of 1% (100 basis points) at reporting date, with all other variables held constant, is illustrated in the tables below. This analysis is based on the interest rate risk exposures in existence at balance sheet date. As the Group has no derivatives that meet the documentation requirements to qualify for hedge accounting, there would be no impact on securityholders interest (apart from the effect on profit). i. Increase in average interest rates of 1% The effect on net interest expense for one year would have been: Variable interest rate instruments denominated in: Australian dollars The effect on change in fair value of derivatives would have been: Interest rate swaps denominated in: Australian dollars ii. Decrease in average interest rates of 1% The effect on net interest expense for one year would have been: Variable interest rate instruments denominated in: Australian dollars The effect on change in fair value of derivatives would have been: Interest rate swaps denominated in: Australian dollars Effect on profit after tax higher/(lower) 2015 $’000 2014 $’000 (639) (940) Effect on profit after tax higher/(lower) 2015 $’000 2014 $’000 – 417 Effect on profit after tax higher/(lower) 2015 $’000 2014 $’000 639 940 Effect on profit after tax higher/(lower) 2015 $’000 2014 $’000 – (297) Annual Report 201569 e. Foreign Exchange Risk The Group’s exposure to foreign exchange risk is limited to foreign denominated cash balances and receivables following the divestment of its final overseas operations in December 2014. These amounts are unhedged as cash will be used to cover final costs to wind up the companies and receivables relate to escrows. f. Net Foreign Currency Exposure The Group’s net foreign currency monetary exposure as at reporting date is shown in the following table. The net foreign currency exposure reported is of foreign currencies held by entities whose functional currency is the Australian dollar. It excludes assets and liabilities of entities, including equity accounted investments, whose functional currency is not the Australian dollar. Net foreign currency exposure: United States dollars New Zealand dollars Total net foreign currency assets Net foreign currency assets 2015 $’000 2014 $’000 3,491 473 3,964 157 1,657 1,814 g. Foreign Exchange Sensitivity Analysis The impact of an increase or decrease in average foreign exchange rates of 10% at reporting date, with all other variables held constant, is illustrated in the tables below. This analysis is based on the foreign exchange risk exposures in existence at balance sheet date. In these tables, the effect on securityholders interest excludes the effect on profit after tax. i. Effect of appreciation in Australian dollar of 10%: Foreign exchange risk exposures denominated in: United States dollars New Zealand dollars ii. Effect of depreciation in Australian dollar of 10%: Foreign exchange risk exposures denominated in: United States dollars New Zealand dollars Effect on profit after tax higher/(lower) 2015 $’000 2014 $’000 (317) (43) (16) (166) Effect on profit after tax higher/(lower) 2015 $’000 2014 $’000 388 53 16 166 The Group believes that the reporting date risk exposures are representative of the risk exposure inherent in its financial instruments. These tables do not show the effect on equity that would occur from the translation of the financial statements of foreign operations with a change in exchange rates. Ingenia Communities Holdings Limited70 Notes to the Financial Statements for the year ended 30 June 2015 | continued 30. FINANCIAL INSTRUMENTS (CONTINUED) h. Credit Risk Credit risk refers to the risk that a counterparty defaults on its contractual obligations resulting in a financial loss to the Group. The major credit risk for the Group is default by tenants, resulting in a loss of rental income while a replacement tenant is secured and further loss if the rent level agreed with the replacement tenant is below that previously paid by the defaulting tenant. The Group assesses the credit risk of prospective tenants, the credit risk of in-place tenants when acquiring properties and the credit risk of existing tenants renewing upon expiry of their leases. Factors taken into account when assessing credit risk include the financial strength of the prospective tenant and any form of security, for example a rental bond, to be provided. The decision to accept the credit risk associated with leasing space to a particular tenant is balanced against the risk of the potential financial loss of not leasing up vacant space. Rent receivable balances are monitored on an ongoing basis and arrears actively followed up in order to reduce, where possible, the extent of any losses should the tenant subsequently default. The Group believes that its receivables that are neither past due nor impaired do not give rise to any significant credit risk. Credit risk also arises from deposits placed with financial institutions and derivatives contracts that may have a positive value to the Group. The Group’s treasury policy sets target limits for credit risk exposure with financial institutions and minimum counterparty credit ratings. Counterparty exposure is measured as the aggregate of all obligations of any single legal entity or economic entity to the Group, after allowing for appropriate set offs which are legally enforceable. The Group’s maximum exposure to credit risk at reporting date in relation to each class of financial instrument is its carrying amount as reported in the balance sheet. i. Liquidity Risk The main objective of liquidity risk management is to reduce the risk that the Group does not have the resources available to meet its financial obligations and working capital and committed capital expenditure requirements. The Group’s treasury policy sets a target for the level of cash and available undrawn debt facilities to cover future committed capital expenditure in the next year, 75% of forecast net operating cash flow in the next year, six months estimated distributions and 5% of the value of resident loan liabilities. The Group may also be exposed to contingent liquidity risk under its term loan facilities, where term loan facilities include covenants which if breached give the lender the right to call in the loan, thereby accelerating a cash flow which otherwise was scheduled for the loan maturity. The Group monitors adherence to loan covenants on a regular basis, and the treasury policy sets targets based on the ability to withstand adverse market movements and remain within loan covenant limits. In addition, the Group targets the following benchmarks to ensure resilience to breaking covenants on its primary debt facilities: – – 10% reduction in value of assets for LVR covenants; and 2% nominal increase in interest rates combined with a 5% fall in income for ICR covenants. The contractual maturities of the Group’s non-derivative financial liabilities at reporting date are reflected in the following table. It shows the undiscounted contractual cash flows required to discharge the liabilities at market rates. Although the expected average residency term is more than ten years, retirement village residents’ loans are classified as current liabilities, as required by Accounting Standards, because the Group does not have an unconditional right to defer settlement to more than twelve months after reporting date. 2015 Trade and other payables Retirement village residents loans Borrowings Provisions Finance leases (excluding perpetual lease) Finance lease (perpetual lease)(1) Liabilities held for sale Less than 1 year $’000 15,073 161,878 1 to 5 Years $’000 14,770 – 2,731 68,344 992 299 121 42,041 177 1,273 483 – More than 5 years $’000 – – – 71 3,431 – – Total $’000 29,843 161,878 71,075 1,240 5,003 604 42,041 223,135 85,047 3,502 311,684 Annual Report 2015 71 2014 Trade and other payables Retirement village residents loans Borrowings Provisions Finance leases (excluding perpetual lease) Finance lease (perpetual lease)(1) Less than 1 year $’000 10,409 190,122 1 to 5 Years $’000 4,000 – 4,521 99,653 718 292 121 249 1,242 483 More than 5 years $’000 – – – – 3,761 – Total $’000 14,409 190,122 104,174 967 5,295 604 206,183 105,627 3,761 315,571 (1) For purposes of the table above, the lease payments are included for five years for the perpetual lease. Refer to Note 18(c)(ii). The contractual maturities of the Group’s derivative financial liabilities at reporting date are reflected in the following table. It shows the undiscounted contractual cash flows required to discharge the instruments at market rates. 2015 Liabilities Derivative liabilities – net settled 2014 Liabilities Derivative liabilities – net settled Less than 1 year $’000 1 to 5 Years $’000 More than 5 years $’000 Total $’000 3 – 84 84 – – 3 168 j. Other Financial Instrument Risk The Group carries retirement village residents’ loans at fair value with resulting fair value adjustments recognised in the income statement. The fair value of these loans is dependent on market prices for the related retirement village units. The impact of an increase or decrease in these market prices of 10% at reporting date, with all other variables held constant, is shown in the table below. This analysis is based on the retirement village residents’ loans in existence at reporting date. Increase in market prices of investment properties of 10% Decrease in market prices of investment properties of 10% Effect on profit after tax higher/(lower) 2015 $’000 2014 $’000 (19,290) (21,864) 19,290 21,864 These effects are largely offset by corresponding changes in the fair value of the Group’s investment properties. The effect on equity would be the same as the effect on profit. k. Fair Value The Group uses the following fair value measurement hierarchy: Level 1: Level 2: fair value is calculated using quoted prices in active markets for identical assets or liabilities; fair value is calculated using inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and Level 3: fair value is calculated using inputs for the asset or liability that are not based on observable market data. Quoted market price represents the fair value determined based on quoted prices on active markets as at the reporting date without any deduction for transaction costs. Ingenia Communities Holdings Limited 72 Notes to the Financial Statements for the year ended 30 June 2015 | continued 30. FINANCIAL INSTRUMENTS (CONTINUED) The following table presents the Group’s financial instruments that were measured and recognised at fair value at reporting date: Financial assets/ financial liabilities Valuation technique(s) and key inputs Significant unobservable inputs Relationship of unobservable inputs to fair value Retirement village resident loans Deferred management fee accrued Derivative interest rate swaps Loans measured as the ingoing resident’s contribution plus the resident’s share of capital appreciation to reporting date, less DMF accrued to reporting date. DMF measured using the initial property price, estimated length of stay, various contract terms and projected property price at time of re-leasing. Net present value of future cash flows discounted at market rates adjusted for the Group’s credit risk. Long-term capital appreciation rates for residential property between 0-4%. Estimated length of stay of residents based on life tables. Estimated length of stay of residents based on life tables. The higher the appreciation, the higher the value of resident loans. The longer the length of stay, the lower the value of resident loans. The longer the length of stay, the higher the DMF accrued, capped at a predetermined period of time. N/A N/A There has been no movement from Level 3 to Level 2 during the current period. Changes in the Group’s retirement village resident loans which are Level 3 instruments are presented in Note 19. The carrying amounts of the Group’s other financial instruments approximate their fair values. 31. FAIR VALUE MEASUREMENT The following table provides the fair value measurement hierarchy of the Group’s assets and liabilities: a. Assets Measured at Fair Value 30 June 2015 Investment properties Date of valuation 30 June 2015 Refer to Note 14 Assets held for sale – investment property 30 June 2015 Refer to Note 10(a) 30 June 2014 Date of valuation Investment properties 30 June 2014 Refer to Note 14 Discontinued operations- investment property 30 June 2014 Refer to 8(d) Assets held for sale – deferred management fee receivable 30 June 2014 Refer to Notes 10(a) and 19 Fair value measurement using Quoted prices in active markets (Level 1) $’000 – – Significant observable inputs (Level 2) $’000 Significant unobservable inputs (Level 3) $’000 – 539,715 61,598 – Fair value measurement using Quoted prices in active markets (Level 1) $’000 Significant observable inputs (Level 2) $’000 Significant unobservable inputs (Level 3) $’000 – – – – – – 498,863 45,902 5,439 Total $’000 539,715 61,598 Total $’000 498,863 45,902 5,439 Annual Report 201573 b. Liabilities Measured at Fair Value 30 June 2015 Date of valuation Retirement village resident loans Derivatives 30 June 2015 Refer to Note 19 30 June 2015 Liabilities held for sale Refer to Note 10(b) 30 June 2014 Date of valuation Retirement village resident loans Derivatives 30 June 2014 Refer to Note 19 30 June 2014 Fair value measurement using Quoted prices in active markets (Level 1) $’000 Significant observable inputs (Level 2) $’000 Significant unobservable inputs (Level 3) $’000 – – – – 3 42,041 161,878 – – Fair value measurement using Quoted prices in active markets (Level 1) $’000 Significant observable inputs (Level 2) $’000 Significant unobservable inputs (Level 3) $’000 – – – 168 190,122 – Total $’000 161,878 3 42,041 Total $’000 190,122 168 There have been no transfers between Level 1 and Level 2 during the year. 32. AUDITOR’S REMUNERATION Amounts received or receivable by EY for: Audit or review of the financial reports Other audit related services Non-audit related services 2015 $ 2014 $ 469,524 333,355 140,738 – 34,450 27,295 610,262 395,100 33. RELATED PARTIES a. Key Management Personnel The aggregate compensation paid to Key Management Personnel (“KMP”) of the Group is as follows: Directors fees Salaries and other short-term benefits Short-term incentives Superannuation benefits Share-based payments Note 2015 $ 2014 $ 542,000 462,500 1,158,141 1,094,684 400,956 332,235 58,518 59,084 28 590,928 680,600 2,750,543 2,629,103 The amounts disclosed in the table are the amounts recognised as an expense during the reporting period related to key management personnel. Ingenia Communities Holdings Limited74 Notes to the Financial Statements for the year ended 30 June 2015 | continued 33. RELATED PARTIES (CONTINUED) The aggregate PQRs and RQRs (refer to Note 28) of the Group held directly, by KMP, are as follows: Issue date Rights Expiry date 2012 2012 2013 2014 RQR PQR PQR PQR 2014 2015 2016 2017 34. COMPANY FINANCIAL INFORMATION Summary financial information about the Company is: Current assets Total assets Current liabilities Total liabilities Net assets Securityholders’ equity Issued securities Reserves Accumulated losses Total securityholders’ equity Loss from continuing operations Net loss attributable to securityholders Total comprehensive income Number outstanding 2015 2014 – 1,818,000 3,842,000 3,842,000 3,716,000 3,716,000 982,971 – 2015 $’000 2014 $’000 177 5,315 5,747 4,014 1,301 8,900 1,334 (8,933) 1,301 (1,118) (1,118) (1,118) – 7,870 7,320 7,320 550 7,377 988 (7,815) 550 (4,771) (4,771) (4,771) The Company is a joint guarantor of the $175.0 million multi-lateral debt facility, which has been drawn to $63,900,000 at 30 June 2015 (2014: $94,000,000). Annual Report 2015 75 35. SUBSIDIARIES a. Names of Subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in Note 1(d): Name Bridge Street Trust Browns Plains Road Trust Casuarina Road Trust Edinburgh Drive Trust Garden Villages Management Trust INA CC Holdings Pty Ltd INA CC Pty Ltd INA Community Living Lynbrook Trust INA CC Trust INA Community Living Subsidiary Trust INA Community Living Subsidiary Trust No. 2 INA Garden Villages Pty Ltd INA Kiwi Communities Pty Ltd INA Kiwi Communities Subsidiary Trust No. 1 INA Management Pty Ltd INA Regency Co Pty Ltd INA Settlers Co Pty Ltd INA Sunny Communities Pty Ltd INA Sunny Trust Ingenia Communities RE Limited Jefferis Street Trust Lovett Street Trust ILF Regency Operations Trust ILF Regency Subsidiary Trust Settlers Operations Trust Settlers Subsidiary Trust SunnyCove Gladstone Unit Trust SunnyCove Rockhampton Unit Trust Ridge Estate Trust Taylor Street (2) Trust INA Subsidiary Trust No. 1 INA Subsidiary Trust No. 3 INA Operations Pty Ltd INA Operations Trust No. 1 INA Operations Trust No. 2 INA Operations Trust No. 3 Country of residence Ownership interest 2015 % 2014 % Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Ingenia Communities Holdings Limited76 Notes to the Financial Statements for the year ended 30 June 2015 | continued 35. SUBSIDIARIES (CONTINUED) Ownership interest Name Country of residence 2015 % INA Operations Trust No. 4 (formerly INA Subsidiary Trust No. 2) Australia INA Operations Trust No. 6 INA Operations Trust No. 7 Noyea Pty Ltd Noyea Operations Pty Ltd INA Operations No. 2 Pty Limited INA Operations No. 3 Pty Limited IGC NZ Student Holdings Ltd INA NZ Subsidiary Unit Trust No. 1 CSH Lynbrook GP LLC CSH Lynbrook LP Lynbrook Freer Street Member LLC Lynbrook Management, LLC Australia Australia Australia Australia Australia Australia New Zealand New Zealand United States of America United States of America United States of America United States of America INA Community Living LLC (formerly ING Community Living LLC) United States of America INA Community Living II LLC (formerly ING Community Living II LLC) United States of America INA US Community Living Fund LLC (formerly ING US Community Living Fund LLC) United States of America The Group’s voting interest in its subsidiaries is the same as its ownership interest. 100 100 100 – – 100 100 100 100 100 100 100 100 100 100 100 2014 % 100 – – 100 100 – – 100 100 100 100 100 100 100 100 100 Annual Report 201536. NOTES TO THE CASH FLOW STATEMENT Reconciliation of profit to net cash flow from operating activities Net profit for the year Adjustments for: Net foreign exchange (gain)/loss Release of FCTR on disposal of foreign operations Net loss on disposal of investment properties - continuing Net loss on disposal of investment properties - discontinued Disposal costs associated with overseas investments - discontinued Gain on disposal of equity accounted investments Net (gain)/loss on change in fair value of: Investment properties – continuing Investment properties – discontinued Derivatives Retirement village residents’ loan Income tax expense/(benefit): Continuing Discontinued Share-based payments expense Amortisation of borrowing costs Other non-cash items 77 2015 $’000 25,722 2014 $’000 11,518 927 (1,410) (2,374) 69 2,014 – – (16,404) – (164) 8,878 – – – 290 (327) 341 1,630 (41) 616 (6,604) (7,264) 214 678 536 479 14 681 369 211 Operating profit for the year before changes in working capital 13,971 6,628 Changes in working capital: (Increase)/decrease in receivables Increase in inventory Increase in retirement village residents’ loans Increase/(decrease) in other payables and provisions Net cash provided by operating activities (2,599) (11,750) 12,446 (3,034) 9,034 5,237 (1,923) 6,327 (2,029) 14,240 Ingenia Communities Holdings Limited 78 Notes to the Financial Statements for the year ended 30 June 2015 | continued 37. SUBSEQUENT EVENTS a. Performance Quantum Rights Vesting On 1 July 2015, 3,842,000 Performance Quantum Rights (“PQRs”) granted to KMP in 2012 vested. As a result, 3,842,000 fully paid stapled securities have been issued to the following KMP: Simon Owen Tania Betts Nicole Fisher 2,260,000 791,000 791,000 b. Acquisition of Upstream Bethania On 3 July 2015, the Group settled Upstream Bethania, the Group’s second Active Lifestyle Estate in Brisbane, complementing Chambers Pines Lifestyle Resort and the Group’s existing Garden Villages in the region. The acquisition price was $8.15 million (excluding transaction costs) and was funded from the proceeds of the capital raising in October 2014. This park, now known as Active Lifestyle Estate Bethania, is an existing manufactured home community outside Brisbane and represents a significant development opportunity that will grow the Group’s existing rental stream. c. Execution of Hedging Contract On 31 July 2015, the Group entered into an interest rate hedge collar for $16.0 million with an expiry date of August 2017. The execution of this hedge means 23.2% of the Group’s debt is currently hedged with the intention to gradually increase the hedged exposure over the coming months. d. Acquisition of Big 4 Conjola Lakeside On 13 August 2015, the Group announced it had exchanged unconditional contracts for the acquisition of Big 4 Conjola Lakeside in Lake Conjola, NSW. The acquisition price is $24.0 million (excluding transaction costs) and will be funded from the proceeds of the capital raising in October 2014. e. Final FY15 distribution On 25 August 2015, the directors of the Group resolved to declare a final distribution of 0.70 cps (2014: 0.65 cps) amounting to $6,205,793 to be paid as 16 September 2015. The distribution is 71.0% tax deferred and the dividend reinvestment plan will apply to the final distribution. Annual Report 2015Directors’ Declaration for the year ended 30 June 2015 79 In accordance with a resolution of the directors of Ingenia Communities Holdings Limited, I state that: 1. In the opinion of the directors: a. the financial statements and notes of Ingenia Communities Holdings Limited for the financial year ended 30 June 2015 are in accordance with the Corporations Act 2001, including: i. giving a true and fair view of its financial position as at 30 June 2015 and of its performance for the year ended on that date; and ii. complying with Accounting Standards (including Australian Accounting Interpretations) and Corporations Regulations 2001; and b. there are reasonable grounds to believe that Ingenia Communities Holdings Limited will be able to pay its debts as and when they become due and payable. 2. The financial statements and notes also comply with International Financial Reporting Standards as disclosed in Note 1(b). 3. This declaration has been made after receiving the declarations required to be made to the directors in accordance with section 295A of the Corporations Act 2001. On behalf of the Board Jim Hazel Chairman Sydney, 9 September 2015 Ingenia Communities Holdings Limited80 Independent Auditor’s Report for the year ended 30 June 2015 Annual Report 201581 Ingenia Communities Holdings Limited88 82 Ingenia Communities Holdings Limited Annual Report 2015Ingenia Communities Fund & Ingenia Communities Management Trust Annual Reports for the year ended 30 June 2015 83 CONTENTS Directors’ Report Auditor’s Independence Declaration Consolidated Statements of Comprehensive Income Consolidated Balance Sheets Consolidated Cash Flow Statements Statements of Changes in Unitholders’ Interest Notes to the Financial Statements 1. Summary of significant accounting  policies 2. Accounting estimates and judgements 3. Segment information 4. Earnings per unit 5. Finance expense 6. Income tax benefit 7. Discontinued operations 8. Business combinations 9. Assets and liabilities held for sale 10. Cash and cash equivalents 11. Trade and other receivables 12. Inventories 13. Investment properties 14. Plant and equipment 15. Intangibles 16. Trade and other payables 17. Borrowings 18. Retirement village resident loans 19. Provisions 20. Derivatives 21. Deferred tax assets and liabilities 22. Issued units 23. Reserves 24. Accumulated losses 25. Commitments 26. Contingencies 27. Capital management 28. Financial instruments 29. Fair value measurement 30. Auditor’s remuneration 31. Related parties 32. Parent financial information 33. Subsidiaries 34. Notes to the cash flow statements 35. Subsequent events Directors’ Declaration Independent Auditor’s Report Securityholder Information Investor Relations Corporate Directory 84 87 88 90 91 92 94 94 100 102 106 106 107 108 109 110 110 110 111 111 113 113 114 114 115 116 116 116 117 117 118 118 118 119 119 125 127 128 130 131 132 133 134 135 137 139 140 Ingenia Communities Holdings Limited84 Directors’ Report for the year ended 30 June 2015 The Ingenia Communities Fund (“ICF” or the “Fund”) (ARSN 107 459 576) and the Ingenia Communities Management Trust (“ICMT”) (ARSN 122 928 410) (together the “Trusts”) are Australian registered schemes. Ingenia Communities RE Limited (ACN 154 464 990; Australian Financial Services Licence number 415862), the Responsible Entity of the Trusts, is incorporated and domiciled in Australia. The parent company of Ingenia Communities RE Limited (“ICRE” or “Responsible Entity”) is Ingenia Communities Holdings Limited (the “Company” or “ICH”). The shares of the Company and the units of the Trusts are “stapled” and trade on the Australian Securities Exchange (“ASX”) as a single security. The Company and the Trusts along with their subsidiaries are collectively referred to as the Group in this report. The directors’ report is a combined directors’ report that covers both Trusts for the full year ended 30 June 2015 (the “current period”). DIRECTORS The directors of Ingenia Communities RE Limited at any time during or since the end of the financial year were: Non-executive directors Jim Hazel (Chairman) Philip Clark AM Amanda Heyworth Robert Morrison Norah Barlow ONZM Executive director Simon Owen (Managing Director and CEO) PRINCIPAL ACTIVITY The principal activity of ICF is investment in seniors living communities in Australia. The principal activities of ICMT are the development, management and operation of seniors living communities in Australia. There was no significant change in the nature of either Trust’s activities during the financial year. OPERATING AND FINANCIAL REVIEW a. ICF and ICMT Overview ICF and ICMT are two of the entities forming part of the Ingenia Communities Group (the “Group”) which is a triple stapled structure traded on the ASX. The Group is an active owner, manager and developer of a diversified portfolio of retirement communities and lifestyle parks across Australia. Its real estate assets are valued at $393.0 million, being twenty lifestyle parks, thirty-one rental villages and eight deferred management fee villages. The Group is in the ASX 300 with a market capitalisation of approximately $408 million. The Group’s vision is to be a leading Australian provider of affordable long term and short term rental accommodation with a focus on the seniors demographic. The Board is committed to delivering long term earnings and security price growth to securityholders and providing a supportive community environment to both its permanent and short term residents. b. Strategy The strategies of ICF and ICMT are aligned with the Group’s strategy of being primarily focused on improved operational performance across its portfolio and continued acceleration of development within its lifestyle parks sector. Using a disciplined investment framework, the Group will continue to acquire further lifestyle parks through deployment of the balance of equity funds raised in October 2014 as well as capital recycling, efficient inventory management and sale of completed homes. The Group finalised its strategic exit from the non-core New Zealand Students portfolio in December 2014 and is in the process of reducing its investment in DMF assets. A key element to achieving growth is efficient operational and capital management. In February 2015, the Group completed a debt refinance which increased its facility limit to $175 million, expanded its lender base, created enhanced flexibility and lowered pricing to an “all in” cost of debt currently of 4.6%. As at 30 June 2015, the facility is drawn to $63.9 million, which represents a loan to value ratio (“LVR”) of 22.6%, well below our target range of 30-35%. This leaves the Group well positioned to execute on further investment opportunities. The key immediate business priorities of the Group are: – Continue building velocity in the delivery and sale of new homes within the Active Lifestyle Estates business; – Acquire additional lifestyle parks in existing and new market clusters; – Grow occupancy rates within the Garden Villages portfolio towards a new medium term target of 93%; – Grow occupancy and average room rates for short term accommodation within Active Lifestyle Estates – Continue sell down of completed homes within the Settlers portfolio and explore opportunities to recycle capital from Settlers assets into higher cash yielding lifestyle park assets; and – Focus on growing asset cash yields through operational efficiencies including revenue optimisation and disciplined cost management c. FY15 financial results FY15 has been a year of significant investment in the Active Lifestyle Estates portfolio, with the focus on building a proven sales and development platform to deliver the forecast development pipeline returns. Management has also remained focused on increasing occupancy within the Garden Villages portfolio, selling down available stock within the Settlers portfolio and recycling capital from low yielding assets as evidenced by the divestment of three underperforming Garden Villages assets in June 2015. In October 2014, the Group raised $89.1 million from an institutional placement and rights issue, which with available debt facilities provided capacity to invest approximately $120 million into the lifestyle parks sector. Over the year ICMT invested an additional $71.1 million (excluding transaction costs) into lifestyle parks acquiring a further five assets. To date, $87.0 million has been deployed into six assets with a further acquisition announced in August. Annual Report 201585 d. Key metrics – Net profit for the year of $34.5 million for ICF, up 124% from FY14 – Net loss from ICMT of $7.9 million (2014: $1.2 million loss) – Full year distribution of 1.35 cent per security by ICF, nil from ICMT These results are reflective of execution of divestment of its overseas operations and deployment of capital into the Australian market to generate strong returns for unitholders. e. Continuing operations The key strategic priorities of the continuing operations are: – Continuing the sales and settlement momentum achieved in Active Lifestyle Estates during FY15, – Securing further development approvals for new homes within our existing lifestyle parks; – Optimising home designs for efficiency and customer demand; – Growing rental returns and leveraging scale efficiencies; – Assessing expansion into greenfield lifestyle park development; – Continuing to grow Garden Villages occupancy, increasing rents above CPI and improving cash margins; – Completing the sale of the five Settlers assets classified as held for sale. f. Discontinued operations and assets held for sale ICF and ICMT completed their exit from the New Zealand Students portfolio in December 2014. g. Capital management The Group adopts a prudent and considered approach to capital management. During the year, the Group strengthened its capital position by undertaking an $89.1 million capital raising and negotiating a new $175 million Australian multilateral debt facility; an increase of $45.5 million from the previous facility. As at 30 June 2015, the current LVR is 22.6%, which is below our target LVR of 30-35%. Once the Group deploys remaining proceeds from the capital raising and debt into further lifestyle parks, the LVR will move towards the target range. h. Distributions The following distributions were made by ICF during or in respect of the year: – On 24 February 2015, the directors declared an interim distribution of 0.65 cps (2014: 0.50 cps) amounting to $5,712,537 which was paid on 18 March 2015. – On 25 August 2015, the directors declared a final distribution of 0.70 cps (2014: 0.65 cps) amounting to $6,205,793, to be paid on 16 September 2015. The distribution is 71.0% tax deferred and the dividend reinvestment plan will apply to the final distribution. The Group is committed to continuing to grow distributions in the near term. i. Outlook The Trusts are well positioned to continue growing their lifestyle parks business with a significant and accretive acquisition pipeline in place and significant debt capacity. Further growth in sales and settlements volumes is expected in FY16 as further projects are launched. The Trusts will continue to regularly assess the performance of their existing assets and where appropriate recycle that capital into other opportunities delivering superior returns. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS Changes in the state of affairs during the financial year are set out in the various reports in this Annual Report. Refer to Note 7 of the accompanying financial statements for Discontinued operations, Note 9 for Assets and liabilities held for sale, Note 13 for Investment properties acquired or disposed of during the year, Note 17 for details of Australian debt refinanced and Note 22 for Issued units. EVENTS SUBSEQUENT TO REPORTING DATE a. Performance Quantum Rights vesting On 1 July 2015, 3,842,000 Performance Quantum Rights (“PQRs”) granted to Key Management Personnel (“KMP”) in 2012 vested. As a result, 3,842,000 fully paid stapled securities have been issued to the following KMP: Simon Owen 2,260,000 Tania Betts 791,000 Nicole Fisher 791,000 b. Acquisition of Upstream Bethania On 3 July 2015, ICMT settled Upstream Bethania, ICMT’s second Active Lifestyle Estate in Brisbane, complementing Chambers Pines Lifestyle Resort and ICMT’s existing Garden Villages in the region. The acquisition price was $8.15 million (excluding transaction costs) and was funded from the proceeds of the capital raising in October 2014. This park, now known as Active Lifestyle Estate Bethania, is an existing manufactured home community outside Brisbane and represents a significant development opportunity that will grow the Group’s existing rental stream. c. Execution of Hedging Contract On 31 July 2015, ICF entered into an interest rate hedge collar for $16.0 million with an expiry date of August 2017. The execution of this hedge means 23.2% of ICF’s debt is currently hedged with the intention to gradually increase the hedged exposure over the coming months. d. Acquisition of Big 4 Conjola Lakeside On 13 August 2015, ICMT announced it had exchanged unconditional contracts for the acquisition of Big 4 Conjola Lakeside in Lake Conjola, NSW. The acquisition price is $24.0 million (excluding transaction costs) and will be funded from the proceeds of the capital raising in October 2014. Ingenia Communities Holdings Limited 86 Directors’ Report for the year ended 30 June 2015 e. Final FY15 distribution On 25 August 2015, the directors of ICF resolved to declare a final distribution of 0.70 cps (2014: 0.65 cps) amounting to $6,205,793 to be paid as 16 September 2015. The distribution is 71.0% tax deferred and the dividend reinvestment plan will apply to the final distribution. LIKELY DEVELOPMENTS The Trusts will continue to pursue strategies aimed at improving cash earnings, profitability and market share within the seniors living industry during the next financial year, with a strong focus on the development and acquisition of manufactured home estates. Other information about certain likely developments in the operations of the Trusts and the expected results of those operations in future financial years is included in the various reports in the Ingenia Communities Annual Report. ENVIRONMENTAL REGULATION The Trusts have policies and procedures in place to ensure that, where operations are subject to any particular and significant environmental regulation under the law of Australia, those obligations are identified and appropriately addressed. The directors have determined that there has not been any material breach of those obligations during the financial year. INDEMNITIES The Trusts have not indemnified, nor paid any insurance premiums for, a person who is or has been an officer of the Responsible Entity or an auditor of either Trust. INTERESTS OF DIRECTORS OF THE RESPONSIBLE ENTITY Units in each Trust held by directors of the Responsible Entity or associates of the directors as at 30 June 2015 were: Jim Hazel Philip Clark AM Amanda Heyworth Robert Morrison Norah Barlow Simon Richard Owen Number of units 1,669,587 238,096 641,524 453,335 209,063 Performance quantum rights Retention quantum rights – – – – – – – – – – – 3,763,905 4,720,000 OTHER INFORMATION Fees paid to the Responsible Entity and its associates, and the number of units in each Trust held by the Responsible Entity and its associates as at the end of the financial year are set out in Note 31 in the financial report. AUDITOR’S INDEPENDENCE DECLARATION A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 87. ROUNDING OF AMOUNTS The Trusts are of a kind referred to in Class Order 98/100, issued by the Australian Securities and Investments Commission, relating to the ‘’rounding off’’ of amounts in this report and in the financial report. Amounts in these reports have been rounded off in accordance with that Class Order to the nearest thousand dollars, unless otherwise stated. Signed in accordance with a resolution of the directors of the Responsible Entity. Jim Hazel Chairman Sydney, 9 September 2015 Annual Report 2015Auditor’s Independence Declaration for the year ended 30 June 2015 87 Ingenia Communities Holdings Limited88 Consolidated Statements of Comprehensive Income for the year ended 30 June 2015 Ingenia Communities Fund Ingenia Communities Management Trust Note 2015 $’000 2014 $’000 2015 $’000 2014 $’000 Revenue Rental income Accrued deferred management fee income 18 Manufactured home sales Catering income Other property income Service station sales Interest income Property expenses Employee expenses Administration expenses Operational, marketing and selling expenses Manufactured home cost of sales Service station expenses Finance expense Net foreign exchange gain/(loss) Net gain/(loss) on disposal of investment properties Net gain/(loss) on change in fair value of: Investment properties Derivatives Retirement village resident loans Responsible Entity’s fees and expenses Depreciation and amortisation expense Profit/(loss) from continuing operations before income tax Income tax benefit Profit/(loss) from continuing operations Profit/(loss) from discontinued operations Net profit/(loss) for the year Net profit/(loss) for the year Other comprehensive income, net of income tax: Items that may be reclassified subsequently to profit or loss: Foreign currency translation differences arising during the year Release of foreign currency translation reserve on disposal of foreign operations Total comprehensive income for the year, net of tax 9,720 9,354 44,984 31,643 – – – – – – – – – – 14,564 24,284 10,339 19,693 6,788 14,937 3,538 3,076 2,359 7 5,333 3,442 3,178 1,819 – 16 75,689 45,431 (327) – (506) (648) – – (274) (27,372) (20,693) – (582) (295) – – (17,061) (2,689) (3,150) (9,256) (1,910) (11,131) (1,983) (2,734) (2,130) – 5 (3,601) (3,955) (15,144) (10,145) 107 (1,689) (147) – – 1,620 15,922 1,530 164 – (1,676) (117) 41 – (1,170) (100) 482 – (8,878) (2,165) (259) 31,913 14,741 (10,093) – – 6,019 31,913 2,587 34,500 34,500 14,741 681 15,422 15,422 (4,074) (3,854) (7,928) (7,928) – – (1,871) – (616) (1,626) (67) (7,565) 6,506 (1,059) (111) (1,170) (1,170) 1,846 (226) (169) 495 (1,620) 34,726 – – 15,196 (8,097) – (675) 31(b) 14,15 6 7 23 23 Annual Report 2015 89 Ingenia Communities Fund Ingenia Communities Management Trust Note 2015 $’000 2014 $’000 2015 $’000 2014 $’000 Attributable to unitholders of: Ingenia Communities Fund Ingenia Communities Management Trust Total comprehensive income/(loss) for the year is attributable to: Ingenia Communities Fund Ingenia Communities Management Trust Distributions per unit(1) Earnings per unit: Basic earnings from continuing operations Basic earnings Diluted earnings from continuing Operations Diluted earnings Note 4 4 4 4 34,500 15,422 – – 34,500 15,422 34,726 – 34,726 2015 Cents 1.3 3.9 4.2 2.5 2.7 15,196 – 15,196 2014 Cents 1.0 2.3 2.4 2.3 2.4 (3,461) (4,467) (7,928) (3,461) (4,636) (8,097) 2015 Cents – (0.5) (1.0) (0.3) (0.6) (111) (1,059) (1,170) 335 (1,010) (675) 2014 Cents – (0.2) (0.2) (0.2) (2.2) (1) Distributions relate to the amount paid during the financial year. Subsequent to the end of the year, a final distribution was declared for 0.70 cents for a total full year distribution of 1.35 cents. Ingenia Communities Holdings Limited 90 Consolidated Balance Sheets as at 30 June 2015 Current assets Cash and cash equivalents Trade and other receivables Inventories Income tax receivable Assets of discontinued operations Assets held for sale Total current assets Non-current assets Trade and other receivables Receivable from related party Investment properties Plant and equipment Intangibles Investments Deferred tax asset Total non-current assets Total assets Current liabilities Trade and other payables Borrowings Retirement village resident loans Provisions Derivatives Provision for income tax Payable to related party Liabilities of discontinued operations Liabilities held for sale Total current liabilities Non-current liabilities Trade and other payables Borrowings Provisions Derivatives Deferred tax liabilities Total non-current liabilities Total liabilities Net assets Equity Issued units Reserves Accumulated losses Unitholders’ interest Non-controlling interest Total equity Attributable to unitholders of: Ingenia Communities Fund Ingenia Communities Management Trust Note 10 11 12 7(d) 9(a) 11 31 13 14 15 21 16 17 18 19 20 31 7(d) 9(b) 16 17 19 20 21 22 23 24 Ingenia Communities Fund Ingenia Communities Management Trust 2015 $’000 2014 $’000 2015 $’000 2014 $’000 8,966 2,643 – 16 – – 11,625 31,401 185,798 153,434 122 2 3,874 – 2,658 4,280 – 975 3,874 – 11,787 39,334 135,805 134,488 239 – – – 374,631 386,256 309,866 321,653 1,200 1,210 – – – 3 – – – – – – – 84 – – – – 6,094 4,104 13,208 16 – 61,598 85,020 110 – 3,893 3,131 2,208 – 47,657 5,439 62,328 40 – 386,294 364,375 459 1,577 – 4,606 393,046 478,066 12,785 2,817 161,878 830 – – 189,635 – 42,041 180 – – – 364,595 426,923 8,480 3,461 190,122 590 – 29 133,249 30,449 – 1,203 1,294 409,986 366,380 – – 62,217 93,688 – – – 62,217 63,420 322,836 – 84 – 93,772 95,066 226,587 14,770 33,252 248 – – 48,270 458,256 19,810 619,285 547,642 29,028 – (226) (296,449) (320,829) 322,836 226,587 – – 322,836 226,587 322,836 226,587 – – 322,836 226,587 – (8,518) 20,510 (700) 19,810 (700) 20,510 19,810 4,000 41,883 249 – 1,433 47,565 413,945 12,978 14,097 169 (4,049) 10,217 2,761 12,978 2,761 10,217 12,978 Annual Report 2015 Consolidated Cash Flow Statements for the year ended 30 June 2015 91 Cash flows from operating activities Rental and other property income Payment of management fees Property and other expenses Proceeds from resident loans Repayment of resident loans Proceeds from manufactured home sales Payments for manufactured homes Purchase of service station inventory Proceeds from sale of service station inventory Distributions received from equity accounted investments Interest received Borrowing costs paid Income taxes received/(paid) 34 Cash flows from investing activities Purchase & additions of plant & equipment Purchase & additions of intangibles Additions to investment properties Proceeds/(costs) from sale of investment properties Payments for investment properties Amounts received from villages Payments for lease arrangements Proceeds/(costs) of equity accounted investments Cash flows from financing activities Proceeds from the issue units Payment of unit issue costs Distributions to unitholders Finance lease payments Ingenia Communities Fund Ingenia Communities Management Trust Note 2015 $’000 2014 $’000 2015 $’000 2014 $’000 – – – – 57,922 43,274 – (29) (998) (51) (45,256) (30,286) – – – – – – – 167 (3,132) 800 (3,163) (2) – (1,292) 6,650 – – – (207) 5,149 74,787 (3,143) (8,794) – – – – – – – 295 205 (4,123) (125) (3,799) 19,815 22,021 (10,543) (10,361) 15,735 3,511 (19,358) (4,035) (1,936) 2,362 – 17 – – 6 12 (1,771) (1,689) (5) 4 16,982 22,428 – – (415) (1,364) (150) – (2) (12,820) (18,723) 1,321 49,511 (120) (10,452) (64,423) (102,803) – – 5,695 168 – (2) 72 (745) 116 (3,438) (29,345) (122,353) 61,707 (2,528) (5,885) – 15,587 (656) (1,311) (126) – (243) – (81) (Repayment of)/proceeds from borrowings with related parties 3,147 (100,124) (237) 108,231 Proceeds from borrowings Repayment of borrowings Payment of borrowing costs Payments for debt issue costs Payments for derivatives Net increase/(decrease) in cash Cash at beginning of the year Effects of exchange rate changes on cash Cash at the end of the year 10 65,205 94,000 (125,197) (68,000) – (142) (1,789) – – – 4,216 (20,972) 6,202 2,658 106 8,966 (28,209) 31,014 (147) 2,658 – – – – (444) 12,813 450 5,550 94 6,094 – (2,581) (75) – – 105,251 5,326 248 (24) 5,550 Ingenia Communities Holdings Limited92 Statements of Changes in Unitholders’ Interest for the year ended 30 June 2015 Ingenia Communities Fund Attributable to unitholders Issued capital $’000 Reserves $’000 Retained earnings $’000 Non- controlling interest $’000 Total $’000 Note Carrying amounts at 1 July 2013 Net profit for the year Other comprehensive income Total comprehensive income for the year Transactions with unitholders in their capacity as unitholders: Issue of securities Payment of distributions to securityholders Carrying amounts at 30 June 2014 Net profit for the year Other comprehensive income Total comprehensive income for the year Transactions with unitholders in their capacity as unitholders: Issue of securities Payment of distributions to securityholders Carrying amounts at 30 June 2015 23 22 24 23 22 24 497,956 – – – – – (330,334) 167,622 15,422 15,422 (226) – (226) (226) 15,422 15,196 49,686 – – – – 49,686 (5,917) (5,917) 547,642 (226) (320,829) 226,587 – – – – 34,500 34,500 226 – 226 226 34,500 34,726 71,643 – 619,285 – – – – 71,643 (10,120) (10,120) (296,449) 322,836 – – – – – – – – – – – – – Total equity $’000 167,622 15,422 (226) 15,196 49,686 (5,917) 226,587 34,500 226 34,726 71,643 (10,120) 322,836 Annual Report 2015 93 Ingenia Communities Management Trust Attributable to unitholders Reserves $’000 Retained earnings $’000 Total $’000 3,236 (1,059) (2,990) (1,059) – 49 (1,059) (1,010) Non- controlling interest(1) $’000 2,426 (111) 446 335 Total equity $’000 5,662 (1,170) 495 (675) – 7,991 – 7,991 (4,049) (4,467) 10,217 (4,467) 2,761 (3,461) 12,978 (7,928) (169) – (169) – (169) (169) (4,467) (4,636) (3,461) (8,097) Note Carrying amounts at 1 July 2013 Net loss for the year Other comprehensive income Total comprehensive income for the year Transactions with unitholders in their capacity as unitholders: Issued capital $’000 6,106 – – – Issue of securities 22 7,991 Carrying amounts at 30 June 2014 Net loss for the year Other comprehensive income Total comprehensive income for the year Transactions with unitholders in their capacity as unitholders: 23 14,097 – – – 120 – 49 49 – 169 – Issue of securities 22 14,929 Carrying amounts at 30 June 2015 29,026 – – – 14,929 – 14,929 (8,516) 20,510 (700) 19,810 (1) Non-controlling interest relates to the portion in which ICF owns subsidiaries consolidated within ICMT. Ingenia Communities Holdings Limited 94 Notes to the Financial Statements for the year ended 30 June 2015 As at 30 June 2015, ICMT recorded a net current asset deficiency of $322,440,000. This deficiency includes retirement village resident loans of $161,878,000, liabilities held for sale of $42,041,000 and payables to other entities within the Group of $189,635,000. Resident loan obligations of the Trusts are classified as current liabilities due to the demand feature of these obligations despite the unlikely possibility that the majority of the loans will be settled within the next twelve months. Furthermore, if required, the proceeds from new resident loans could be used by the Group to settle its existing loan obligations should those incumbent residents vacate their units. Intercompany loan balances are payable on demand, however ICF has undertaken not to call its loan receivable from ICMT within twelve months of the date of this report, if calling the loan would result in ICMT being unable to pay its debts as and when they are due and payable. Accordingly, there are reasonable grounds to believe that ICMT will be able to pay its debts as and when they become due and payable; and the financial report of ICMT has been prepared on a going concern basis. c. Adoption of new and revised accounting standards The Trusts have adopted all of the new and revised standards and interpretations issued by the Australian Accounting Standards Board that are relevant to its operations and effective for the current period including AASB 2012-3 Offsetting Financial Assets and Financial Liabilities. The impact of application of this Standard is as follows: Accounting Standard Impact on the Group AASB 2012-3 This amendment clarifies that the right of set off must be available today and must be legally enforceable in the normal course of business as well as in the event of default, insolvency or bankruptcy. The application of this Standard did not have any impact on the Trusts as retirement village loans are already offset. 1. SUMMARY OF SIGNIFICANT ACCOUNTING  POLICIES a. The Trusts The Ingenia Communities Fund (“ICF” or the “Fund”) (ARSN 107 459 576) and the Ingenia Communities Management Trust (“ICMT”) (ARSN 122 928 410) (together the “Trusts”) are Australian registered schemes. Ingenia Communities RE Limited (ACN 154 464 990; Australian Financial Services Licence number 415862), the Responsible Entity of the Trusts, is incorporated and domiciled in Australia. The parent company of Ingenia Communities RE Limited is Ingenia Communities Holdings Limited (the “Company”). The shares of the Company and the units of the Trust are “stapled” and trade on the Australian Securities Exchange (“ASX”) as a single security. The Company and the Trust along with their subsidiaries are collectively referred to as the Group in this report. The stapling structure will cease to operate on the first to occur of: – – the Company or either of the Trusts resolving by special resolution in accordance with its constitution to terminate the stapling provisions; or the commencement of the winding up of the Company or either of the Trusts. b. Basis of preparation The financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards (“AASB”), Australian Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board (the “Board”) and the Corporations Act 2001. As permitted by Class Order 05/642, issued by the Australian Securities and Investments Commission, this financial report is a combined financial report that presents the financial statements and accompanying notes of both ICF and ICMT. The financial statements and accompanying notes of the Trusts have been presented in the attached associated financial report. The financial report complies with Australian Accounting Standards as issued by the Australian Accounting Standards Board and International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. The financial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000) unless otherwise stated. The financial report is prepared on an historical cost basis, except for investment properties, retirement village residents’ loans and derivative financial instruments, which are measured at fair value. Annual Report 2015d. Principles of consolidation ICF’s consolidated financial statements comprise the parent and its subsidiaries. ICMT’s consolidated financial statements comprise ICMT and its subsidiaries. Subsidiaries are all those entities (including special purpose entities) whose financial and operating policies a trust has the power to govern, so as to obtain benefits from their activities. The financial statements of the subsidiaries are prepared for the same reporting period as the parent, using consistent accounting policies. Adjustments are made to bring into line dissimilar accounting policies. Inter-company balances and transactions including unrealised profits have been eliminated. Subsidiaries are consolidated from the date on which the parent obtains control. They are de-consolidated from the date that control ceases. Investments in subsidiaries are carried at cost in the parent’s financial statements. e. Business combinations and goodwill Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the Trusts elect whether it measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed and included in other expenses. When the Trusts acquire a business, they assess the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss. Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss. 95 f. Discontinued operations and assets held for sale The Trusts have classified certain components as discontinued operations. A discontinued operation is a component of the entity that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical area of operations, or is part of a single co-ordinated plan to dispose of such a line of business or area of operations. The results of discontinued operations are presented separately on the face of the income statement. Components of the entity are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. They are measured at the lower of their carrying amount and fair value less costs to sell, except for assets such as investment property, which are carried at fair value. An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset (or disposal group), but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset (or disposal group) is recognised at the date of derecognition. Non-current assets classified as held for sale, and the assets of a disposal group classified as held for sale are presented separately from the other assets on the face of the balance sheet. The liabilities of a disposal group classified as held for sale are presented separately from other liabilities on the face of the balance sheet. Details of discontinued operations and assets and liabilities held for sale are given at Notes 7 and 9. g. Distributions A liability for any distribution declared on or before the end of the reporting period is recognised on the balance sheet in the reporting period to which the distribution pertains. h. Foreign currency i. Functional and presentation currencies The functional currency and presentation currency of the Trusts and their subsidiaries, other than foreign subsidiaries, is the Australian dollar. ii. Translation of foreign currency transactions Transactions in foreign currency are initially recorded in the functional currency at the exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currency are retranslated at the rate of exchange prevailing at the balance date. All differences in the consolidated financial report are taken to the income statement with the exception of differences on foreign currency borrowings designated as a hedge against a net investment in a foreign entity. These are taken directly to equity until the disposal of the net investment at which time they are recognised in the income statement. A non-monetary item that is measured at fair value in a foreign currency is translated using the exchange rates at the date when the fair value was determined. Ingenia Communities Holdings Limited96 Notes to the Financial Statements for the year ended 30 June 2015 | continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) iii. Translation of financial statements of foreign subsidiaries The functional currency of certain subsidiaries is not the Australian dollar. At reporting date, the assets and liabilities of these entities are translated into the presentation currency of the Trusts at the rate of exchange prevailing at balance date. Financial performance is translated at the average exchange rate prevailing during the reporting period. The exchange differences arising on translation are taken directly to the foreign currency translation reserve in equity. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that foreign operation is recognised in the income statement. i. Leases Finance leases, which transfer to the Trusts substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised as an expense in the income statement. Finance leases, which transfer away from the Trusts substantially all the risks and benefits incidental to ownership of the leased item, are recognised at the inception of the lease. A finance lease receivable is recognised on inception at the present value of the minimum lease receipts. Finance lease receipts are apportioned between the interest income and reduction in the lease receivable to achieve a constant rate of interest on the remaining balance of the receivable. Interest is recognised as income in the income statement. Leases of properties that are classified as investment properties, are classified as finance leases under AASB 140 Investment Properties. Leases where the lessor retains substantially all the risks and benefits of ownership are classified as operating leases. Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the term of the lease. j. Financial assets and liabilities Current and non-current financial assets and liabilities within the scope of AASB 139 Financial Instruments: Recognition and Measurement are classified as at fair value through profit or loss; loans and receivables; held- to-maturity investments; or as available-for-sale. The Trusts determine the classification of their financial assets and liabilities at initial recognition with the classification depending on the purpose for which the asset or liability was acquired or issued. Financial assets and liabilities are initially recognised at fair value, plus directly attributable transaction costs unless their classification is at fair value through profit or loss. They are subsequently measured at fair value or amortised cost using the effective interest method. Changes in fair value of available-for-sale financial assets are recorded directly in equity. Changes in fair values of financial assets and liabilities classified as at fair value through profit or loss are recorded in the income statement. The fair values of financial instruments that are actively traded in organised financial markets are determined by reference to quoted market bid prices at the close of business on the balance sheet date. For those with no active market, fair values are determined using valuation techniques. Such techniques include: using recent arm’s length market transactions; reference to the current market value of another instrument that is substantially the same; discounted cash flow analysis and option pricing models, making as much use of available and supportable market data as possible and keeping judgemental inputs to a minimum. k. Impairment of non-financial assets Assets other than investment property and financial assets carried at fair value are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Non-financial assets excluding goodwill which have suffered impairment are reviewed for possible reversal of the impairment at each reporting date. l. Cash and cash equivalents Cash and cash equivalents in the balance sheet and cash flow statement comprise cash at bank and in hand and short-term deposits that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value. m. Trade and other receivables Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less any provision for impairment. An allowance for impairment is made when there is objective evidence that collection of the full amount is no longer probable. Annual Report 201597 n. Inventories The Trusts hold inventory in relation to the acquisition and development of manufactured homes and service station fuel and supplies both within its Active Lifestyle Estates segment. Inventories are held at the lower of cost and net realisable value. Costs of inventories comprise all acquisition costs, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Inventory includes work in progress and raw materials used in the production of manufactured home units. Net realisable value is determined on the basis of an estimated selling price in the ordinary course of business less estimated costs of completion and the estimated costs necessary to make the sale. o. Derivative financial instruments The Trusts use derivative financial instruments such as foreign currency contracts and interest rate swaps to hedge its risks associated with foreign currency and interest rate fluctuations. Such derivative financial instruments are initially recognised at fair value on the date in which the derivative contract is entered into and are subsequently remeasured to fair value. p. Investment property Land and buildings have the function of an investment and are regarded as composite assets. In accordance with applicable accounting standards, the buildings, including plant and equipment, are not depreciated. Investment property includes property under construction, tourism cabins and associated amenities. Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the reporting date. Gains or losses arising from changes in the fair values of investment properties are included in the income statement in the period in which they arise, including corresponding tax effect. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal market for the asset or liability or in its absence, the most advantageous market. In determining the fair value of assets held for sale recent market offers have been taken into consideration. It is the Trusts’ policy to have all investment properties externally valued at intervals of not more than two years. It is the policy of the responsible trust to review the fair value of each investment property every six months and to cause investment properties to be revalued to fair values whenever their carrying value materially differs to their fair values. Changes in the fair value of investment property are recorded in the statement of comprehensive income. In determining fair values, the group considers relevant information including the capitalisation of rental streams using market assessed capitalisation rates, expected net cash flows discounted to their present value using market determined risk adjusted discount rates and other available market data such as recent comparable transactions. The assessment of fair value of investment properties does not take into account potential capital gains tax assessable. q. Intangible assets An intangible asset arising from development expenditure related to software is recognised only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use, how the asset will generate future economic benefits, the availability of resources to complete the asset and the ability to measure reliably the expenditure during its development. Costs capitalised include external direct costs of materials and service, and direct payroll and payroll related costs of employees’ time spent on the project. Following the initial recognition of expenditure, the asset is carried at cost less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when the development is complete and the asset is available for use. Amortisation is over the period of expected future benefit. Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination are their fair values as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. The Group’s policy applied to capitalised development costs is as follows: Software and associated development to capitalised development costs (assets in use) – Useful life: Finite Amortisation method using 7 years on a straight line basis; and – Impairment test: Amortisation method reviewed at each financial year end; closing carrying value reviewed annually for indicators of impairment. Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred. Gains or losses arising from de-recognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in profit or loss when the asset is de-recognised. r. Payables Trade and other payables are carried at amortised cost and due to their short-term nature are not discounted. They represent liabilities for goods and services provided to the Trusts prior to the end of the financial year that are unpaid and are recognised when the Trusts become obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within 60 days of recognition. Ingenia Communities Holdings Limited98 Notes to the Financial Statements for the year ended 30 June 2015 | continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) s. Retirement village resident loans These loans, which are non-interest bearing and repayable on the departure of the resident, are classified as financial liabilities at fair value through profit and loss with resulting fair value adjustments recognised in the income statement. The fair value of the obligation is measured as the ingoing contribution plus the resident’s share of capital appreciation to reporting date. Although the expected average residency term is more than ten years, these obligations are classified as current liabilities, as required by Accounting Standards, because the Trusts do not have an unconditional right to defer settlement to more than twelve months after reporting date. This liability is stated net of deferred management fee accrued to reporting date, because the Trusts contracts with residents require net settlement of those obligations. Refer to Notes 28(j) and 1(z) for information regarding the valuation of retirement village resident loans. t. Borrowings Borrowings are initially recorded at the fair value of the consideration received less directly attributable transaction costs associated with the borrowings. After initial recognition, borrowings are subsequently measured at amortised cost using the effective interest rate method. Under this method fees, costs, discounts and premiums that are yield related are included as part of the carrying amount of the borrowing and amortised over its expected life. Borrowings are classified as current liabilities unless the Trusts do not have an unconditional right to defer settlement to more than twelve months after reporting date. Borrowing costs are expensed as incurred except where they are directly attributable to the acquisition, construction or production of a qualifying asset. When this is the case, they are capitalised as part of the acquisition cost of that asset. u. Issued units Issued and paid up units are recognised at the fair value of the consideration received by the Trusts. Any transaction costs arising on issue of ordinary units are recognised directly in unitholders’ interest as a reduction of the units proceeds received. v. Revenue Revenue from rents, interest and distributions is recognised to the extent that it is probable that the economic benefits will flow to the entity and the revenue can be reliably measured. Revenue brought to account but not received at balance date is recognised as a receivable. Rental income from operating leases is recognised on a straight-line basis over the lease term. Contingent rentals are recognised as income in the financial year that they are earned. Fixed rental increases that do not represent direct compensation for underlying cost increases or capital expenditures are recognised on a straight-line basis until the next market review date. Rent paid in advance is recognised as unearned income. Deferred management fee income is calculated as the expected fee to be earned on a resident’s ingoing loan, allocated pro-rata over the resident’s expected tenure, together with any share of capital appreciation that has occurred at reporting date. Revenue from the sale of manufactured homes within the Active Lifestyle Estate segment is recognised when the significant risks, rewards of ownership and effective control has been transferred to the buyer. Service station sales revenue represents the revenue earned from the provision of products to external parties. Sales revenue is only recognised when the significant risks and rewards of ownership of the products including possession are passed to the buyer. Government incentives are recognised where there is reasonable assurance the incentive will be received and all attached conditions will be complied with. When the incentive relates to an expense item, it is recognised as income on a systematic basis over the periods that the incentive is intended to compensate. Interest income is recognised as the interest accrues using the effective interest rate method. w. Provisions, including for employee benefits i. General Provisions are recognised when the Trusts have a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Trusts expect some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the statement of profit or loss net of any reimbursement. ii. Wages, salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within twelve months of the reporting date are recognised in respect of employees’ services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Expenses for non- accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable. iii. Long service leave The liability for long service leave is recognised and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on corporate bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows. Annual Report 2015x. Income tax i. Current income tax Under the current tax legislation, the Fund is not liable to pay Australian income tax provided that its taxable income (including any assessable capital gains) is fully distributed to unitholders each year. Tax allowances for building and fixtures depreciation are distributed to unitholders in the form of the tax-deferred component of distributions. However, ICMT and its subsidiaries are subject to Australian income tax. Current tax assets and liabilities for the current period are measured at the amount expected to be recovered from, or paid to, the taxation authorities based on the current period’s taxable income. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date. The subsidiaries that hold the Trusts’ foreign properties may be subject to corporate income tax and withholding tax in the countries in which they operate. Under current Australian income tax legislation, unitholders may be entitled to receive a foreign tax credit for this withholding tax. ii. Deferred income tax Deferred income tax represents tax (including withholding tax) expected to be payable or recoverable by taxable entities on the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised through continuing use or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at reporting date. Income taxes related to items recognised directly in equity are recognised in equity and not against income. y. Goods and services tax (“GST”) Revenue, expenses and assets (with the exception of receivables) are recognised net of the amount of GST to the extent that the GST is recoverable from the taxation authority. Where GST is not recoverable, it is recognised as part of the cost of the acquisition, or as an expense. Receivables and payables are stated inclusive of GST. The net amount of GST recoverable from or payable to the tax authority is included in the balance sheet as an asset or liability. Cash flows are included in the cash flow statement on a gross basis. The GST components of cash flows arising from investing and financing activities, which are recoverable from or payable to the tax authorities, are classified as operating cash flows. 99 z. Fair value measurement The Trusts measure financial instruments, such as derivatives, and non-financial assets, such as investment properties, at fair value at each balance sheet date. Also, fair values of financial instruments measured at amortised cost are disclosed in Note 28. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: – – In the principal market for the asset or liability; or In the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible to the Trusts. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Trusts use valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. For assets and liabilities that are recognised in the financial statements on a recurring basis, the Trusts determine whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of the reporting period. The Trusts’ Audit and Risk Committee determines the policies and procedures for both recurring fair value measurement, such as investment properties and resident loans and for non-recurring measurement. External valuers are involved for valuation of significant assets, such as properties and significant liabilities. Selection criteria include market knowledge, experience and qualifications, reputation, independence and whether professional standards are maintained. On a six monthly basis management presents valuation results to the Audit and Risk Committee and the Trusts’ auditors. This includes a discussion of the major assumptions used in the valuations. For the purpose of fair value disclosures, the Trusts have determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained in Note 29. Ingenia Communities Holdings Limited100 Notes to the Financial Statements for the year ended 30 June 2015 | continued 1. SUMMARY OF SIGNIFICANT ACCOUNTING A liability is current when: POLICIES (CONTINUED) aa. Pending Accounting Standards AASB 9 Financial Instruments is applicable to reporting periods beginning on or after 1 January 2018. The Trusts have not early adopted this standard. This standard provides requirements for the classification, measurement and de-recognition of financial assets and financial liabilities. Changes in the Trusts’ credit risk, which affect the value of liabilities designated at fair value through profit and loss, can be presented in other comprehensive income. The application of the Standard is not expected to have any material impact on the Trusts’ financial reporting in future periods. AASB 15 Revenue from Contracts with Customers is applicable to reporting periods beginning on or after 1 January 2018. The Trusts have not early adopted this standard. The standard is based on the principle that revenue is recognised when control of a good or service is transferred to a customer. It contains a single model that applies to contracts with customers and two approaches to recognising revenue; at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognised. It applies to all contracts with customers except leases, financial instruments and insurance contracts. It requires reporting entities to provide users of financial statement with more informative and relevant disclosures. The application of the Standard is not expected to have any material impact on the Trust’s financial reporting in future periods. Other new accounting standards, amendments to accounting standards and interpretations have been published that are not mandatory for the current reporting period. These are not expected to have any material impact on the Trusts’ financial reporting in future reporting periods. bb. Current versus non-current classification The Trusts present assets and liabilities in the balance sheet based on current/non-current classification. An asset is current when it is: – Expected to be realised or intended to be sold or consumed in the normal operating cycle – Held primarily for the purpose of trading – Expected to be realised within twelve months after the reporting period, or – Cash or cash equivalents unless restricted from being exchanged or used to settle a liability for at least twelve months after reporting period. All other assets are classified as non-current. – – – It is expected to be settled in the normal operating cycle It is held primarily for the purpose of trading It is due to be settled within twelve months after the reporting period, or – There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period. The Trusts classify all other liabilities as non-current. Deferred tax assets and liabilities are classified as non- current assets and liabilities. 2. ACCOUNTING ESTIMATES AND JUDGEMENTS The preparation of financial statements requires the use of certain critical accounting estimates. It also requires the Responsible Entity to exercise its judgement in the process of applying the Trusts’ accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed below. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. a. Critical accounting estimates and assumptions The Trusts make estimates and assumptions concerning the future. The resulting accounting estimates, by definition, will seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. i. Valuation of investment property The Trusts have investment properties and assets held for sale with a combined carrying amount of $601,326,000 (2014: $504,302,000) (refer Note 9 and Note 13), and combined retirement village residents’ loans and liabilities held for sale with a carrying amount of $203,919,000 (2014: $190,122,000) (refer Note 18) which together represent the estimated fair value of the Trusts interest in retirement villages. These carrying amounts reflect certain assumptions about expected future rentals, rent-free periods, operating costs and appropriate discount and capitalisation rates. The valuation assumptions for deferred management fee villages reflect assumptions relating to average length of stay, unit market values, estimates of capital expenditure, contract terms with residents, discount rates and projected property growth rates. The valuation assumption for properties to be developed reflect assumptions around sales prices for new homes, sales rates, new rental tariffs, estimates of capital expenditure, discount rates and projected property growth rates. Annual Report 2015101 In forming these assumptions, the Responsible Entity considered information about current and recent sales activity, current market rents, and discount and capitalisation rates, for properties similar to those owned by the Trusts, as well as independent valuations of the Trusts’ property. ii. Fair value of derivatives The fair value of derivative assets and liabilities is based on assumptions of future events and involves significant estimates. Given the complex nature of these instruments and various assumptions that are used in calculating mark-to-market values, the Trusts rely on counterparty valuations for derivative values. The counterparty valuations are usually based on mid-market rates and calculated using the main variables including the forward market curve, time and volatility. iii. Valuation of assets acquired in business combinations Upon recognising the acquisition, management uses estimations and assumptions of the fair value of assets and liabilities assumed at the date of acquisition, including judgements related to valuation of investment property as discussed above. iv. Valuation of retirement village resident loans The fair value of the retirement village resident loans is calculated by reference to the initial loan amount plus the resident’s share of any capital gains in accordance with their contracts less any deferred management fee income accrued to date by the operator. The key assumption for calculating the capital gain and deferred management fee income components is the value of the dwelling being occupied by the resident. This value is determined by reference to the valuation of investment property as referred to above. v. Calculation of deferred management fee (“DMF”) Deferred management fees are recognised by the Trusts over the estimated period of time the property will be leased by the resident and the accrued DMF is realised upon exit of the resident. The accrued DMF is based on various inputs including the initial price of the property, estimated length of stay of the resident, various contract terms and projected price of property at time of re-leasing. b. Critical judgements in applying the entity’s accounting policies There were no judgements, apart from those involving estimations, that management has made in the process of applying the entity’s accounting policies that had a significant effect on the amounts recognised in the financial report. Ingenia Communities Holdings Limited102 Notes to the Financial Statements for the year ended 30 June 2015 | continued 3. SEGMENT INFORMATION a. Description of segments The Trusts invest predominantly in rental properties located in Australia with three reportable segments: – Garden Villages – rental villages; – Settlers Lifestyle – deferred management fee villages; and – Active Lifestyle Estates – comprising long-term and short-term accommodation within lifestyle parks and sale of manufactured homes. The Trusts have identified their operating segments based on the internal reports that are reviewed and used by the chief operating decision maker in assessing performance and in determining the allocation of resources. Other parts of the Trusts are neither operating segments nor part of an operating segment. Assets that do not belong to an operating segment are described below as “unallocated”. b. Ingenia Communities Fund – 30 June 2015 Active Lifestyle Estates $’000 Settlers Lifestyle $’000 Garden Villages $’000 Corporate/ Unallocated $’000 i. Segment revenue External segment revenue Interest income Total revenue ii. Segment Underlying Profit External segment revenue Interest income Property expenses Administration expenses Operational, marketing and selling expenses Finance expense Income tax expense Depreciation expense 384 – 384 384 – – – – – – – Underlying Profit – continuing operations 384 Reconciliation of Underlying Profit to profit from continuing operations: Net foreign exchange gain Net gain/(loss) on disposal of investment property Net gain/(loss) on change in fair value of: Investment properties Derivatives Responsible Entity fees – – (7) – – Total $’000 9,720 14,564 24,284 9,720 14,564 (327) (506) (648) – 14,564 14,564 – 14,564 (325) (506) (648) – – – – – – – – – – – – – (2,013) 9,336 – 9,336 9,336 – (2) – – – – – – 324 (3,601) (3,601) – (117) – (117) 9,334 9,367 19,085 107 – – 164 107 (1,689) 15,922 164 (1,676) (1,676) (5) 15,934 – – – – Profit from continuing operations per the consolidated statement of comprehensive income 377 (2,018) 25,592 7,962 31,913 iii. Segment assets Segment assets 7,301 51,983 125,657 201,315 386,256 Annual Report 2015 103 Total $’000 9,354 10,339 19,693 9,354 10,339 (274) (582) (295) Active Lifestyle Estates $’000 Settlers Lifestyle $’000 Garden Villages $’000 Corporate/ Unallocated $’000 – – – – – – – – – – – – (852) – – (852) – – – – – – – – – – – – – – – – – 10,339 10,339 – 10,339 (274) (582) (295) 9,354 – 9,354 9,354 – – – – – – 9,354 (3,955) (3,955) (100) 5,133 (100) 14,487 – (147) (147) 2,382 – – – 41 (1,170) 1,530 41 (1,170) 11,736 3,857 14,741 6,904 53,992 114,286 142,597 317,779 3,874 321,653 c. Ingenia Communities Fund – 30 June 2014 i. Segment revenue External segment revenue Interest income Total revenue ii. Segment Underlying Profit External segment revenue Interest income Property expenses Administration expenses Operational, marketing and selling expenses Finance expense Depreciation expense Underlying Profit – continuing operations Reconciliation of Underlying Profit to profit from continuing operations: Net foreign exchange gain Net gain/(loss) on change in fair value of: Investment properties Derivatives Responsible Entity fees Profit from continuing operations per the consolidated statement of comprehensive income iii. Segment assets Segment assets Discontinued operations Total assets Ingenia Communities Holdings Limited 104 Notes to the Financial Statements for the year ended 30 June 2015 | continued 3. SEGMENT INFORMATION (CONTINUED) d. Ingenia Communities Management Trust – 30 June 2015 Active Lifestyle Estates $’000 Settlers Lifestyle $’000 Garden Villages $’000 Corporate/ Unallocated $’000 i. Segment revenue External segment revenue Interest income Reclassification of gain on revaluation of newly constructed villages Total revenue ii. Segment Underlying Profit External segment revenue Interest income Property expenses Employee expenses Administration expenses Operational, marketing and selling expenses Manufactured home cost of sales Service station expenses Finance expense Income tax benefit Depreciation and amortisation expense 38,797 – – 38,797 38,797 – (8,089) (6,657) (746) (1,559) (9,256) (1,910) – – (34) 11,124 – (2,422) 8,702 11,124 – (1,562) (779) (57) (283) – – – – – 28,183 – – 28,183 28,183 – (17,721) (9,599) (1,317) (1,306) – – – – (226) Reconciliation of Underlying Profit to profit from continuing operations: Net gain/(loss) disposal of investment property (23) 1,648 (5) Net loss on change in fair value of: Investment properties (2,812) 3,277 (8,878) (2,422) – – 17 – – – – – – – – Retirement village resident loans Loss on revaluation of newly constructed villages Responsible Entity fees Income tax benefit associated with reconciliation items Profit from continuing operations per the consolidated statement of comprehensive income iii. Segment assets Segment assets Assets held for sale Total assets Total $’000 78,104 7 (2,422) 75,689 78,104 7 (27,372) (17,061) (2,689) (3,150) (9,256) (1,910) – 7 – 7 – 7 – (26) (569) (2) – – (15,144) (15,144) 2,734 – 2,734 (260) – – – – (2,165) 3,286 1,620 482 (8,878) (2,422) (2,165) 3,286 7,711 2,068 (1,974) (11,879) (4,074) 220,961 184,880 5,429 5,198 416,468 61,598 478,066 Underlying Profit/(loss) – continuing operations 10,546 8,443 (1,986) (13,000) 4,003 Annual Report 2015 105 Total $’000 48,735 16 (3,320) 45,431 48,735 16 (20,693) (11,131) (1,983) (2,734) (2,130) e. Ingenia Communities Management Trust – 30 June 2014 Active Lifestyle Estates $’000 Settlers Lifestyle $’000 Garden Villages $’000 Corporate/ Unallocated $’000 i. Segment revenue External segment revenue Interest income Reclassification of gain on revaluation of newly constructed villages 13,589 10,576 24,570 – – – (3,320) – – Total revenue 13,589 7,256 24,570 ii. Segment Underlying Profit External segment revenue Interest income Property expenses Employee expenses Administration expenses Operational, marketing and selling expenses Manufactured home cost of sales Finance expense Income tax expense Depreciation expense 13,589 10,576 24,570 – (2,570) (2,367) (320) (377) (2,130) – – – – – (1,738) (16,385) (851) (139) (3) – – – (7,913) (1,080) (2,354) – – – (18) (49) – 16 – 16 – 16 – – (444) – – (10,145) (10,145) 2,137 – 2,137 (67) Underlying Profit – continuing operations 5,825 7,827 (3,211) (8,436) 2,005 Reconciliation of Underlying Profit to profit from continuing operations: Net gain/(loss) on change in fair value of: Investment properties (1,273) Retirement village resident loans Gain on revaluation of newly constructed villages Responsible Entity fees Income tax benefit associated with reconciliation items Profit from continuing operations per the consolidated statement of comprehensive income iii. Segment assets Segment assets Assets held for sale Discontinued operations Total assets (598) (616) (3,320) – – – – – – – – – – (1,626) 4,369 (1,871) (616) (3,320) (1,626) 4,369 – – – – 4,552 3,293 (3,211) (5,693) (1,059) 122,955 249,183 1,420 269 373,827 5,439 47,657 426,923 Ingenia Communities Holdings Limited 106 Notes to the Financial Statements for the year ended 30 June 2015 | continued 4. EARNINGS PER UNIT Earnings per unit Profit/(loss) from continuing operations ($’000) Profit/(loss) from discontinued operations ($’000) Net profit/(loss) for the year ($’000) Weighted average number of units outstanding (thousands) Dilutive securities: Performance quantum rights (thousands) Retention quantum rights (thousands) Weighted average number of issued and dilutive potential securities outstanding (thousands) Basic earnings per unit from continuing operations (cents)(1) Basic earnings per unit from discontinued operations (cents)(1) Basic earnings per unit (cents)(1) Diluted earnings per unit from continuing operations (cents)(1) Diluted earnings per unit from discontinued operations (cents)(1) Diluted earnings per unit (cents)(1) Ingenia Communities Fund Ingenia Communities Management Trust 2015 2014 2015 2014 31,913 2,587 34,500 821,653 14,741 681 15,422 (4,074) (3,854) (7,928) (1,059) (111) (1,170) 646,603 821,653 646,603 470 – 2,310 1,818 470 – 2,310 1,818 822,123 650,731 822,123 650,731 3.9 – 4.2 2.5 – 2.7 2.3 0.1 2.4 2.3 0.1 2.4 (0.5) – (1.0) (0.3) – (0.6) (0.2) – (0.2) (0.2) – (0.2) (1) The weighted average number of units on issue for FY14, prior to the rights issue in September 2013, has been adjusted in accordance with AASB 133 Earnings per Share. 5. FINANCE EXPENSE Interest paid or payable Ingenia Communities Fund Ingenia Communities Management Trust 2015 $’000 3,601 2014 $’000 3,955 2015 $’000 15,144 2014 $’000 10,145 Annual Report 2015 107 6. INCOME TAX BENEFIT a. Income tax benefit/(expense) Current tax Decrease in deferred tax liabilities Income tax benefit/(expense) Ingenia Communities Fund Ingenia Communities Management Trust 2015 $’000 2014 $’000 2015 $’000 2014 $’000 – – – – – – – 6,019 6,019 83 6,423 6,506 b. Reconciliation between tax expense and pre-tax net profit Profit/(loss) before income tax 31,913 14,741 (10,093) (7,565) Less amounts not subject to Australian income tax (31,913) (14,741) – – Income tax at the Australian tax rate of 30% (2014: 30%) ICMT tax consolidation impact Tax effect of amounts which are not (deductible)/ taxable in calculating taxable income Prior period income tax return true-ups Movement in carrying value and tax cost base of investment properties Movements in carrying value and tax cost base of DMF receivables Other timing differences Recognition of Australian tax losses Non deductible expenses Income tax benefit/(expense) – – – – – – – – – – – – – – – – – – (10,093) (7,565) 3,028 – 173 1,516 2,270 2,823 588 1,163 1,683 (1,232) (131) – (250) 6,019 406 488 – 6,506 c. Tax consolidation Effective from 1 July 2012, ICMT and its Australian domiciled owned subsidiaries formed a tax consolidation group with the ICMT being the head entity. Under the tax funding agreement the funding of tax within the tax group is based on taxable income as if that entity was not a member of the tax group. Upon entering into the ICMT tax consolidated group, the tax cost bases for certain assets were reset resulting in income tax benefits being recorded. In addition, unrecognised losses incurred by entities within the ICMT tax consolidated group are now available for utilisation by the ICMT tax consolidated group. Ingenia Communities Holdings Limited 108 Notes to the Financial Statements for the year ended 30 June 2015 | continued 7. DISCONTINUED OPERATIONS a. Details of discontinued operations The Trust’s investment in its New Zealand Students business has been classified as a discontinued operation since 30 June 2011, which is consistent with the previously announced strategy to focus on transitioning to an actively managed Australian property business. The Trusts held a 100% interest in three facilities in Wellington, New Zealand that are primarily leased for 15 years to Victoria University of Wellington and Wellington Institute of Technology. The Trust completed the sale of these assets in December 2014. Funds remain in New Zealand to facilitate the final stages of exit. b. Financial performance The financial performance of components of the Trusts disposed of or classified as discontinued operations at each reporting date were: Ingenia Communities Management Trust Revenue Net loss on change in fair value of investment properties Ingenia Communities Fund 2015 $’000 2014 $’000 – – – – 2015 $’000 2,182 – Unrealised net foreign exchange gain/(loss) 1,184 104 (2,222) Other income Expenses Interest expense Gain on disposal of equity investments Distributions from formerly equity accounted investments Disposal costs associated with overseas investments Profit/(loss) from operating activities before income tax Income tax expense Profit/(loss) from operating activities Gain/(loss) on sale of discontinued operations Release of foreign currency translation reserve on disposal of foreign operations Profit/(loss) from discontinued operations for the year – (5) – – – – 1,179 (212) 967 – 1,620 2,587 – (5) – 320 268 – 687 (6) 681 – – 681 46 (710) (799) – – – (1,503) (2) (1,505) (2,014) (335) (3,854) 2014 $’000 3,211 (1,630) 1,453 – (1,226) (1,633) 7 5 (290) (103) (8) (111) – – (111) Net profit attributable to the parent of ICF is $2,587,000 (2014: $681,000), and net loss attributable to the parent of ICMT is $385,400 (2014: $11,100). c. Cash flows The cash flows of components of the Trusts disposed of or classified as discontinued operations at each reporting date were: Net cash flow from operating activities Net cash flow from investing activities: Proceeds/(payments) on sale of discontinued operations Additions to investment properties Payments for lease arrangements Net cash flow from financing activities Transfer to continuing operations Net cash flows from discontinued operations Ingenia Communities Fund 2015 $’000 2014 $’000 – – – – – – – – – – – – – – Ingenia Communities Management Trust 2015 $’000 223 43,966 – (4) (45,381) (461) (1,657) 2014 $’000 1,135 (120) (9,081) (745) 11,449 – 2,638 Annual Report 2015 109 d. Assets and liabilities The assets and liabilities of components of the Trusts classified as disposal groups at each reporting date were: Assets Cash and cash equivalents Trade and other receivables Investment properties Equity accounted investments Total assets Liabilities Payables Borrowings Total liabilities Net assets of disposal groups Ingenia Communities Fund Ingenia Communities Management Trust 2015 $’000 2014 $’000 2015 $’000 2014 $’000 – – – – – – – – – – – – 3,874 3,874 – – – 3,874 – – – – – – – – – 1,657 98 45,902 – 47,657 368 30,081 30,449 17,208 e. Capitalisation rate The weighted average capitalisation rate of the New Zealand Students internal valuation within discontinued operations at 30 June 2014 was 8.6%. 8. BUSINESS COMBINATIONS On 18 February 2015, ICMT acquired Active Lifestyle Estates & Holiday Noosa in Tewantin, Queensland, and after considering the accounting treatment for the acquisition of this business combination, ICMT has determined the components acquired from the business combination are investment property of $13,648,000, service station inventory of $268,000 and no goodwill. Ingenia Communities Holdings Limited110 Notes to the Financial Statements for the year ended 30 June 2015 | continued 9. ASSETS AND LIABILITIES HELD FOR SALE a. Summary of carrying values The following are the carrying values of assets held for sale: Deferred management fee receivable – Settlers Lifestyle(1) Investment properties – Settlers Lifestyle(2) Ingenia Communities Fund 2015 $’000 2014 $’000 – – – – – – Ingenia Communities Management Trust 2015 $’000 – 61,598 61,598 2014 $’000 5,439 – 5,439 (1) This relates to Settlers Noyea which was sold in July 2014. (2) These properties are presented as held for sale in view of the intention and expectation of management to sell these properties during the twelve months ended 30 June 2016. These properties have been reclassified from investment property to assets held for sale. b. Summary of carrying amounts – loans The following is a summary of the carrying amounts of the loans associated with investment properties held for sale: Gross resident loans Accrued deferred management fee Net resident loans 10. CASH AND CASH EQUIVALENTS Cash at bank and in hand Reconciliation to statements of cash flows Cash and cash equivalents attributable to: Continuing operations – cash at bank Discontinued operations – cash at bank Cash at end of the year as per cash flow statement 11. TRADE AND OTHER RECEIVABLES Current Rental and other amounts due Finance lease receivable from stapled entity Other receivables Total current trade and other receivables Non-current Finance lease receivable from stapled entity Other receivables Total non-current trade and other receivables Ingenia Communities Fund 2015 $’000 2014 $’000 – – – – – – Ingenia Communities Management Trust 2015 $’000 44,271 (2,230) 42,041 2014 $’000 – – – Ingenia Communities Fund Ingenia Communities Management Trust Note 28 2015 $’000 8,966 2014 $’000 2,658 2015 $’000 6,094 2014 $’000 3,893 8,966 – 8,966 2,658 – 2,658 6,094 – 6,094 3,893 1,657 5,550 Ingenia Communities Fund Ingenia Communities Management Trust 2015 $’000 2014 $’000 2015 $’000 2014 $’000 – 2,643 – 2,643 28,862 2,539 31,401 866 3,322 92 4,280 37,356 1,978 39,334 3,772 – 332 4,104 – 110 110 1,648 – 1,483 3,131 – 40 40 Annual Report 2015111 Rental amounts due are typically paid in advance and other amounts due are receivable within 30 days. There are no receivables which are either past due or impaired. ICF has leased a number of its properties to ICMT under leases that are classified as finance leases. The remaining term of each agreement varies between 92 and 115 years. There are no purchase options. Minimum payments under the agreements and their present values are: Ingenia Communities Fund Ingenia Communities Management Trust 2015 $’000 2014 $’000 2015 $’000 2014 $’000 Minimum lease payments receivable: Not later than one year Later than one year and not later than five years Later than five years Unearned finance income Net present value of minimum lease payments Net present value of minimum lease payments receivable: Not later than one year Later than one year and not later than five years Later than five years 2,643 10,573 240,091 253,307 3,322 13,287 301,540 318,149 (221,802) (277,471) 31,505 40,678 2,526 8,222 20,757 31,505 3,178 10,399 27,101 40,678 Finance income recognised and included in interest income in the income statement 2,642 3,320 Information about the related finance lease payable by ICMT is given in Note 17. – – – – – – – – – – – – – – – – – – – – – – 12. INVENTORIES Current assets Manufactured homes Service station fuel and supplies Total Inventories Ingenia Communities Fund Ingenia Communities Management Trust 2015 $’000 2014 $’000 2015 $’000 2014 $’000 – – – – – – 12,875 333 13,208 2,208 – 2,208 The manufactured homes balance represents 53 completed homes of $8.0 million (2014: nil), 44 homes under construction of $3.8 million (2014: 24 homes of $1.7 million), and 41 site buybacks of $1.1 million (2014: 20 homes of $0.5 million). 13. INVESTMENT PROPERTIES a. Summary of carrying amounts Completed properties Properties under development Total investment properties Ingenia Communities Fund Ingenia Communities Management Trust 2015 $’000 152,142 1,292 2014 $’000 133,101 1,387 2015 $’000 361,984 24,310 2014 $’000 349,517 14,858 153,434 134,488 386,294 364,375 Ingenia Communities Holdings Limited112 Notes to the Financial Statements for the year ended 30 June 2015 | continued 13. INVESTMENT PROPERTIES (CONTINUED) b. Movements in carrying amounts Completed investment property Carrying amount at beginning of year Acquisitions Expenditure capitalised Transferred from plant and equipment Disposals Sale of units – Strata title Transfer to inventory Net gain/(loss) on change in fair value(1) Transferred to assets held for sale Carrying amount at end of year Ingenia Communities Fund Ingenia Communities Management Trust 2015 $’000 2014 $’000 2015 $’000 2014 $’000 134,488 120,167 364,375 – 2,149 – 875 – – 15,922 – 10,616 2,175 – – – – 1,530 – 78,152 12,207 – (7,165) – (159) 482 (61,598) 250,764 108,300 7,551 320 – (495) (186) (1,871) – 153,434 134,488 386,294 364,375 (1) For ICMT this includes $13,288,000 of transaction costs relating to Active Lifestyle Estates acquisitions written off during the year. The net change in fair value is recognised in profit or loss as net gain/(loss) on change in fair value of investment properties. Fair value hierarchy disclosures for investment properties have been provided in Note 29. c. Description of valuation techniques used and key inputs to valuation of investment properties: Valuation technique Significant unobservable inputs Range (weighted average) Relationship of unobservable input to fair value Garden Villages Capitalisation method Stabilised occupancy 70%-100% (92%) Capitalisation rate 9%-12% Settlers Lifestyle Discounted cash flow Current market value per unit $125,000-$475,000 Long term property growth rate 4% Average length of stay – future residents Average length of stay – current residents 11.4 years 15.0-17.6 years Discount rate 14.5%-15.0% Active Lifestyle Estates Capitalisation method (for existing rental streams) Short-term occupancy 15%-30% for powered and camp sites; 45%-70% for tourism and short term rental As costs are fixed in nature, occupancy has a direct correlation to valuation (ie. the higher the occupancy, the greater the value). Capitalisation has an inverse relationship to valuation. Market value and growth in value have a direct correlation to valuation, while length of stay and discount rate have an inverse relationship to valuation. Average length of stay projection is based on life expectancy and other factors. Parameters exclude assets that are subject to a sale agreement. Assets that are subject to a sale agreement are carried at fair value. Higher the occupancy, the greater the value. Residential occupancy Operating profit margin 100% 50%-70% dependent upon short-term and residential accommodation mix Higher the profit margin, the greater the value. Capitalisation rate 8.2%-17.5% Discount rate 13%-16% Capitalisation has an inverse relationship to valuation Discount rate has an inverse relationship to valuation. Discounted cash flow (for future development) Annual Report 2015113 Capitalisation method Under the capitalisation method, fair value is estimated using assumptions regarding the expectation of future benefits. The capitalisation method involves estimating the expected income projections of the property and applying a capitalisation rate into perpetuity. The capitalisation rate is based on current market evidence. Future income projections take into account occupancy, rental income and operating expenses. Discounted cash flow method Under the discounted cash flow method, fair value is estimated using assumptions regarding the benefits and liabilities of ownership over the asset’s life including an exit or terminal value. This method involves the projection of a series of cash flows on a real property interest. To this projected cash flow series, a market-derived discount rate is applied to establish the present value of the income stream associated with the asset. The exit yield normally reflects the exit value expected to be achieved upon selling the asset and is a function of the risk adjusted returns of the asset and expected capitalisation rate. The duration of the cash flows and the specific timing of inflows and outflows are determined by events such as rent reviews, lease renewal and related re-letting, redevelopment, or refurbishment as well as the development of new units. The appropriate duration is typically driven by market behaviour that is a characteristic of the class of real property. Periodic cash flow is typically estimated as gross income less vacancy, non-recoverable expenses, collection losses, lease incentives, maintenance cost, agent and commission costs and other operating and management expenses. The series of periodic net underlying cash flows, along with an estimate of the terminal value anticipated at the end of the projection period, is then discounted. 14. PLANT AND EQUIPMENT a. Summary of carrying amounts Plant and equipment Less: accumulated depreciation Total plant and equipment b. Movements in carrying amount Carrying amount at beginning of year Assets written off Transferred to investment property Additions Depreciation expense Carrying amount at end of year 15. INTANGIBLES a. Summary of carrying amounts Software & development Less: accumulated amortisation Total intangibles b. Movements in carrying amount Carrying amount at beginning of year Additions Amortisation expense Carrying amount at end of year Ingenia Communities Fund Ingenia Communities Management Trust 2015 $’000 2014 $’000 2015 $’000 2014 $’000 423 (301) 122 423 (184) 239 239 339 – – – (117) 122 – – – (100) 239 1,169 (710) 459 180 (118) – 499 (102) 459 824 (644) 180 547 (82) (320) 102 (67) 180 Ingenia Communities Fund Ingenia Communities Management Trust 2015 $’000 2014 $’000 2015 $’000 2014 $’000 2 – 2 – 2 – 2 – – – – – – 1,734 (157) 1,577 1,734 (157) 1,577 – – – – – – Ingenia Communities Holdings Limited114 Notes to the Financial Statements for the year ended 30 June 2015 | continued 16. TRADE AND OTHER PAYABLES Current liabilities Trade and other payables Non-current liabilities Ingenia Communities Fund Ingenia Communities Management Trust 2015 $’000 2014 $’000 2015 $’000 2014 $’000 1,200 1,210 12,785 8,480 Deferred acquisition consideration – – 14,770 4,000 17. BORROWINGS Current liabilities Finance leases Non-current liabilities Bank debt Prepaid borrowing costs Finance leases Total non-current borrowings Ingenia Communities Fund Ingenia Communities Management Trust 2015 $’000 2014 $’000 2015 $’000 2014 $’000 – – 2,817 3,461 Note 17(c) 17(a) 63,900 94,000 17(c) (1,683) – (312) – 62,217 93,688 – – 33,252 33,252 – – 41,883 41,883 a. Bank debt On 13 February 2015, ICF refinanced its Australian dollar denominated bank debt facility to a $175.0 million multi-lateral debt facility with three Australian banks. $100 million of the facility expires on 12 February 2018 with the remainder expiring on 12 February 2020. The facility has the following principal financial covenants: LVR (excluding Settlers) is less than or equal to 55%; Loan to value ratio (“LVR”) is less than or equal to 50%; – – – Total Interest Cover Ratio of at least 2x; – Core Interest Cover Ratio (adjusted to exclude development income and associated costs) of at least 1.50x in financial year ending 2015 increasing to at least 2.0x in FY2016; – Net debt to adjusted EBITDA ratio not more than 6x up to 30 June 2015, 5.5x up to 31 December 2015, 5x up to 30 June 2016, 4x after 30 June 2016. As at 30 June 2015, the facility has been drawn to $63,900,000 (2014: $94,000,000). The carrying value of investment property net of resident liabilities at reporting date for the Trusts’ Australian properties pledged as security is $363,720,000 (2014: $290,375,000). b. Bank guarantees ICF has the ability to utilise a portion of its $175.0 million bank facility to provide bank guarantees. Bank guarantees at 30 June 2015 were $28.8 million (2014: $4.4 million). Refer to Note 26. c. Finance leases Subsidiaries of ICMT have entered into agreements with subsidiaries of ICF. The subject of each agreement is to lease a retirement village. The remaining term of each agreement varies between 91 and 114 years. There are no purchase options. On 23 of April 2013, ICMT was assigned a commercial lease with 16.5 years remaining with the Gosford City Council for land and facilities as part of its Active Lifestyle Estates Ettalong Beach acquisition. The lease is for an initial three years commencing September 2012 with two renewal options of seven years each. The first option period was exercised on 1 July 2015 for seven years to June 2022. The below table is based on the expectation that the last lease option will be exercised. In December 2013, ICMT acquired Active Lifestyles Estates One Mile Beach, accounted for as investment property. Two Crown leases are attached to the land, one for 40 years expiring on 19 September 2031 and one in perpetuity. Annual Report 2015115 i. Minimum lease payments – excluding perpetual lease Minimum lease payments: Within one year Later than one year but not later than five years Later than five years Total minimum lease payments Future finance charges Present value of minimum lease payments Present value of minimum lease payments: Within one year Later than one year but not later than five years Later than five years Ingenia Communities Fund Ingenia Communities Management Trust 2015 $’000 2014 $’000 2015 $’000 2014 $’000 – – – – – – – – – – – – – – – – – – – – 2,942 11,846 243,522 258,310 3,613 14,530 305,301 323,444 (223,380) (279,237) 34,930 44,207 2,817 9,305 22,808 34,930 3,461 11,456 29,290 44,207 ii. Minimum lease payments – perpetual lease The perpetual lease is recognised as investment property and non-current liability at a value of $1.1 million based on a capitalisation rate applicable at the time of acquisition of 10.6% applied to the current lease payment. Payments each period in relation to the lease are recognised as finance expenses in the statement of comprehensive income, therefore, there is no subsequent change to the originally determined present value of the minimum lease payments as calculated above. As this is a perpetual lease, the lease liability will not amortise and no fair value adjustments in relation to the lease will be recognised unless circumstances of the lease change. Under the terms of the lease, lease payments will continue into perpetuity. The current annual lease payment is $121,000. 18. RETIREMENT VILLAGE RESIDENT LOANS a. Summary of carrying amounts Gross resident loans Accrued deferred management fee Net resident loans b. Movements in carrying amounts Carrying amount at beginning of year Net (gain)/loss on change in fair value of resident loans Accrued deferred management fee income Deferred management fee cash collected Proceeds from resident loans Repayment of resident loans Transfer to assets and liabilities held for sale Other Carrying amount at end of year Ingenia Communities Fund Ingenia Communities Management Trust 2015 $’000 2014 $’000 2015 $’000 2014 $’000 – – – – – – – – – – – – – – – – – – – – – – – – 192,898 218,639 (31,020) 161,878 (28,517) 190,122 190,122 175,703 8,878 (6,788) 2,056 19,815 (10,544) (42,041) 380 616 (5,333) 1,811 22,021 (10,361) 5,439 226 161,878 190,122 Fair value hierarchy disclosures for retirement village resident loans have been provided in Note 29. Ingenia Communities Holdings Limited116 Notes to the Financial Statements for the year ended 30 June 2015 | continued 19. PROVISIONS Current liabilities Employee liabilities Non-current liabilities Employee liabilities 20. DERIVATIVES Current liabilities Interest rate swap contracts Non-current liabilities Interest rate swap contracts 21. DEFERRED TAX ASSETS AND LIABILITIES Deferred tax assets Tax losses Other Deferred tax liabilities DMF receivable Investment properties Net deferred tax asset Deductible temporary differences and carried forward losses tax effected for which no deferred tax asset has been recognised Deferred tax assets Tax losses Other Deferred tax liabilities DMF receivable Investment properties Net deferred tax liabilities Ingenia Communities Fund Ingenia Communities Management Trust 2015 $’000 2014 $’000 2015 $’000 2014 $’000 – – – – 830 590 248 249 Ingenia Communities Fund Ingenia Communities Management Trust Note 2015 $’000 2014 $’000 2015 $’000 2014 $’000 28 28 3 – 84 84 – – – – Ingenia Communities Fund Ingenia Communities Management Trust 2015 $’000 2014 $’000 2015 $’000 2014 $’000 – – – – – – – – – – – – 15,938 1,205 7,970 4,567 4,606 – – – – – 7,500 7,488 Ingenia Communities Fund Ingenia Communities Management Trust 2015 $’000 2014 $’000 2015 $’000 2014 $’000 – – – – – – – – – – – – – – – 13,269 883 8,176 7,409 1,433 The availability of carried forward tax losses of $7.5 million to the ICMT tax consolidated group is subject to recoupment rules at the time of recoupment. Further, the rate at which these losses can be utilised is determined by reference to market values at the time of tax consolidation and subsequent events. Accordingly, a portion of these carried forward tax losses may not be available in the future. The Trusts offset tax assets and liabilities, if and only if, it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same tax authority. Annual Report 2015117 22. ISSUED UNITS a. Carrying amounts At beginning of year Dividend reinvestment plan Institutional placement Rights issue Institutional placement and rights issue costs At end of year The closing balance is attributable to the unitholders of: Ingenia Communities Fund Ingenia Communities Management Trust b. Number of issued units At beginning and end of year Retention Quantum Rights Dividend Reinvestment Plan Ingenia Communities Fund Ingenia Communities Management Trust 2015 $’000 2014 $’000 2015 $’000 547,642 497,956 14,097 2,374 36,835 35,578 (3,144) – – 51,985 (2,299) 464 7,693 7,430 (656) 619,285 547,642 29,028 619,285 547,642 – – 619,285 547,642 – 29,028 29,028 2014 $’000 6,106 – – 8,364 (373) 14,097 – 14,097 14,097 Ingenia Communities Fund Ingenia Communities Management Trust 2015 Thousands 2014 Thousands 2015 Thousands 2014 Thousands 676,240 507,179 676,240 507,179 1,818 6,674 – – 1,818 6,674 – – Institutional Placement and Rights Issue 197,968 169,061 197,968 169,061 At end of year 882,700 676,240 882,700 676,240 c. Terms of units All units are fully paid and rank equally with each other for all purposes. Each unit entitles the holder to one vote, in person or by proxy, at a meeting of unitholders. 23. RESERVES Foreign currency translation reserve Balance at beginning of year Translation differences arising during the year Amounts transferred to profit and loss on disposal of foreign operations Balance at end of a year The closing balance is attributable to the unitholders of: Ingenia Communities Fund Ingenia Communities Management Trust Ingenia Communities Fund Ingenia Communities Management Trust 2015 $’000 2014 $’000 2015 $’000 2014 $’000 (226) 1,846 (1,620) – – – – – (226) – (226) (226) – (226) 1,261 (926) (335) – – – – 766 495 – 1,261 1,092 169 1,261 The foreign currency translation reserve records exchange differences arising from the translation of the financial statements of foreign subsidiaries. Ingenia Communities Holdings Limited 118 Notes to the Financial Statements for the year ended 30 June 2015 | continued 24. ACCUMULATED LOSSES Balance at beginning of year Net profit/(loss) for the year Distributions Balance at end of year The closing balance is attributable to the unitholders of: Ingenia Communities Fund Ingenia Communities Management Trust Ingenia Communities Fund 2015 $’000 2014 $’000 (320,829) (330,334) 34,500 (10,120) 15,422 (5,917) Ingenia Communities Management Trust 2015 $’000 (7,474) (7,928) – 2014 $’000 (6,304) (1,170) – (296,449) (320,829) (15,402) (7,474) (296,449) (320,829) – – (6,886) (8,516) (296,449) (320,829) (15,402) (3,425) (4,049) (7,474) 25. COMMITMENTS a. Capital commitments ICMT had commitments for capital expenditure on investment property and inventory contracted but not provided for at reporting date amounting to $7,048,000 (2014: $3,266,000), all payable within one year. b. Operating lease commitments A subsidiary of ICMT has entered into a non-cancellable operating lease for its Brisbane office. The lease has a remaining life of five years. Future minimum rentals payable under this lease as at reporting date were: Within one year Later than one year but not later than five years Ingenia Communities Fund Ingenia Communities Management Trust 2015 $’000 2014 $’000 2015 $’000 2014 $’000 – – – – – – 229 744 973 220 973 1,193 c. Finance lease commitments On 23 April 2013, a subsidiary of ICMT was assigned a commercial lease with 16.5 years remaining with the Gosford City Council for land and facilities as part of its Ettalong Holiday Village acquisition. The lease is for an initial three years commencing September 2012 with two renewal options of seven years each. The first option period was exercised on 1 July 2015 for seven years to June 2022. In December 2013, a subsidiary of ICMT acquired One Mile Beach Holiday Park, accounted for as investment property. Two Crown leases are attached to the land, one for 40 years expiring on 19 September 2031 and one for perpetuity. Refer to Note 17 for future minimum lease payments payable and the present value of minimum lease payments payable at reporting date for the finance leases at Ettalong Holiday Village and One Mile Beach Holiday Park. For commitments for inter-staple related party finance leases refer to Notes 11, 17 and 28. 26. CONTINGENCIES There are no known contingent liabilities other than the bank guarantees totalling $28.8 million provided for under ICF’s $175.0 million bank facility (refer to Note 17). Bank guarantees of $18.8 million primarily related to deferred acquisition consideration within ICMT recognised as current and non-current payables (refer to Note 16). These guarantees will not be called by the counterparty unless the payable is not paid per the terms of the agreement. There is a $10 million bank guarantee in favour of Ingenia Communities RE Limited issued to satisfy the Responsible Entity’s AFSL capital requirements. Annual Report 2015 119 be achieved, a plan of action is, where appropriate, put in place with the aim of meeting the target within an agreed timeframe. Depending on the circumstances of the Trusts at a point in time, it may be that positions outside of the Treasury Policy are accepted and no plan of action is put in place to meet the treasury targets, because, for example, the risks associated with bringing the Trusts into compliance outweigh the benefits. The adequacy of the Treasury Policy in addressing the risks arising from the Trust’s financial instruments is reviewed on a regular basis. While the Trusts aim to meet the Treasury Policy targets, many factors influence the performance, and it is probable that at any one time, not all targets will be met. For example, the Trusts may be unable to negotiate the extension of bank facilities sufficiently ahead of time, so that they fail to achieve their liquidity target. When refinancing loans they may be unable to achieve the desired maturity profile or the desired level of flexibility of financial covenants, because of the cost of such terms or their unavailability. Hedging instruments may not be available, or their cost may outweigh the benefit of risk reduction or they may introduce other risks such as mark to market valuation risk. Changes in market conditions may limit the Trusts ability to raise capital through the issue of units or sale of properties. The main risks arising from ICMT’s financial instruments are interest rate risk, foreign exchange risk, credit risk and liquidity risk. These risks are not separately managed. Management of these risks for the ICF may result in consequential changes for ICMT. b. Interest rate risk The Trusts’ exposure to the risk of changes in market interest rates arises primarily from its use of borrowings. The main consequence of adverse changes in market interest rates is higher interest costs, reducing the Trust’s profit. In addition, one or more of the Trust’s loan agreements may include minimum interest cover covenants. Higher interest costs resulting from increases in market interest rates may result in these covenants being breached, providing the lender the right to call in the loan or to increase the interest rate applied to the loan. The Trusts manage the risk of changes in market interest rates by maintaining an appropriate mix of fixed and floating rate borrowings. Fixed rate debt is achieved either through fixed rate debt funding or through derivative financial instruments permitted under the Treasury Policy. The policy sets minimum and maximum levels of fixed rate exposure over a ten-year time horizon. At 30 June 2015, after taking into account the effect of interest rate swaps, approximately 28% of ICF’s borrowings are at a fixed rate of interest (2014: 47%). Exposure to changes in market interest rates also arises from financial assets such as cash deposits and loan receivables subject to floating interest rate terms. Changes in market interest rates will also change the fair value of any interest rate hedges. 27. CAPITAL MANAGEMENT The capital management of ICF and ICMT is not managed separately, but rather, is managed at a consolidated Group level (ICH and subsidiaries). At the Group level, the aim is to meet strategic objectives and operational needs and to maximise returns to security holders through the appropriate use of debt and equity, while taking account of the additional financial risks of higher debt levels. In determining the optimal capital structure, the Group takes into account a number of factors, including the views of investors and the market in general, the capital needs of its portfolio, the relative cost of debt versus equity, the execution risk of raising equity or debt, and the additional financial risks of debt including increased volatility of earnings due to exposure to interest rate movements, the liquidity risk of maturing debt facilities and the potential for acceleration prior to maturity. In assessing this risk, the Group takes into account the relative security of income flows, the predictability of expenses, debt profile, the degree of hedging and the overall level of debt as measured by gearing. The actual capital structure at a point in time is the product of a number of factors, many of which are market driven and to various degrees outside of the control of the Group, particularly the impact of revaluations, the availability of new equity and the liquidity in real estate markets. While the Group periodically determines the optimal capital structure, the ability to achieve the optimal structure may be impacted by market conditions and the actual position may often differ from the optimal position. The Group primarily monitors its capital position through the Loan to Value Ratio (LVR) which is a key covenant under the Group’s $175m multilateral debt facility. LVR is calculated as the sum of bank debt, bank guarantees and finance leases net of cash at bank as a percentage of the value of properties pledged as security. The Group’s strategy is to maintain an LVR range of 30-35%. As at 30 June 2015, LVR is 22.6% compared to 33.9% at 30 June 2014. In addition the Group also monitors Interest Cover Ratio and Net Debt: Adjusted EBITDA as defined under the multilateral debt facility. At 30 June 2015, the Total Interest Cover Ratio was 2.96%; the Core Interest Cover Ratio was 2.68% and Net Debt: Adjusted EBITDA was 4.58. 28. FINANCIAL INSTRUMENTS a. Introduction The Trusts’ principal financial instruments comprise receivables, payables, interest bearing liabilities, other financial liabilities, cash and short-term deposits and derivative financial instruments. The main risks arising from the Trusts’ financial instruments are interest rate risk, foreign exchange risk, credit risk and liquidity risk. The Trusts manage the exposure to these risks primarily through the Treasury Policy. The policy sets out various targets aimed at restricting the financial risk taken by the Trusts. Management reviews actual positions of the Trusts against these targets on a regular basis. If the target is not achieved, or the forecast is unlikely to Ingenia Communities Holdings Limited120 Notes to the Financial Statements for the year ended 30 June 2015 | continued 28. FINANCIAL INSTRUMENTS (CONTINUED) c. Interest rate risk exposure ICF’s exposure to interest rate risk and the effective interest rates on financial instruments at reporting date were: 30 June 2015 Principal amounts $’000 Financial assets Cash at bank Financial liabilities Bank debt denominated in AUD Interest rate swaps: Floating interest rate 8,966 63,900 denominated in AUD; Fund pays fixed rate (18,000) 18,000 30 June 2014 Principal amounts $’000 Financial assets Cash at bank Financial liabilities Bank debt denominated in AUD Interest rate swaps: Floating interest rate 2,658 94,000 Ingenia Communities Fund Fixed interest maturing in: Less than 1 year One to five Years More than 5 years Total – – – – – – 8,966 63,900 – Ingenia Communities Fund Fixed interest maturing in: Less than 1 year One to five Years More than 5 years Total – – – – – – 2,658 94,000 – – – – – denominated in AUD; Fund pays fixed rate (45,000) 45,000 ICMT’s exposure to interest rate risk and the effective interest rates on financial instruments at reporting date were: 30 June 2015 Principal amounts $’000 Financial assets Cash at bank Financial liabilities Ingenia Communities Management Trust Fixed interest maturing in: Floating interest rate Less than 1 year One to five Years More than 5 years Total 6,094 – – – 6,094 Finance leases (excluding perpetual lease) – 2,817 9,305 22,808 34,930 ICMT’s exposure to interest rate risk and the effective interest rates on financial instruments at the end of the previous financial year were: 30 June 2014 Principal amounts $’000 Financial assets Cash at bank Financial liabilities Ingenia Communities Management Trust Fixed interest maturing in: Floating interest rate Less than 1 year One to five Years More than 5 years Total 3,893 – – – 3,893 Finance leases (excluding perpetual lease) – 3,461 11,456 29,290 44,207 Other financial instruments of the Trusts not included in the above tables are non-interest bearing and are therefore not subject to interest rate risk. Annual Report 2015 121 d. Interest rate sensitivity analysis The impact of an increase or decrease in average interest rates of 1% (100 basis points) at reporting date, with all other variables held constant, is illustrated in the tables below. This analysis is based on the interest rate risk exposures in existence at balance sheet date. As the Trusts have no derivatives that meet the documentation requirements to qualify for hedge accounting, there would be no impact on unitholders’ interest (apart from the effect on profit). i. Increase in average interest rates of 1% The effect on net interest expense for one year would have been: Effect on profit after tax Ingenia Communities Fund Higher/(lower) Ingenia Communities Management Trust Higher/(lower) 2015 $’000 2014 $’000 2015 $’000 2014 $’000 Variable interest rate instruments denominated in: Australian dollars (639) (940) – – The effect on change in fair value of derivatives would have been: Interest rate swaps denominated in: Australian dollars ii. Decrease in average interest rates of 1% The effect on net interest expense for one year would have been: Effect on profit after tax Ingenia Communities Fund Higher/(lower) Ingenia Communities Management Trust Higher/(lower) 2015 $’000 2014 $’000 2015 $’000 2014 $’000 – 417 – – Effect on profit after tax Ingenia Communities Fund Higher/(lower) Ingenia Communities Management Trust Higher/(lower) 2015 $’000 2014 $’000 2015 $’000 2014 $’000 Variable interest rate instruments denominated in: Australian dollars 639 940 – – The effect on change in fair value of derivatives would have been: Interest rate swaps denominated in: Australian dollars Effect on profit after tax Ingenia Communities Fund Higher/(lower) Ingenia Communities Management Trust Higher/(lower) 2015 $’000 2014 $’000 2015 $’000 2014 $’000 – (297) – – Ingenia Communities Holdings Limited122 Notes to the Financial Statements for the year ended 30 June 2015 | continued 28. FINANCIAL INSTRUMENTS (CONTINUED) e. Foreign exchange risk The Trusts’ exposure to foreign exchange risk is limited to foreign denominated cash balances and receivables following the divestment of its final overseas operations in December 2014. These amounts are unhedged as cash will be used to cover final costs to wind up the companies and receivables relate to escrows. Net foreign currency exposure: United States dollars New Zealand dollars Total net foreign currency assets Net foreign currency asset/(liability) Ingenia Communities Fund Ingenia Communities Management Trust 2015 $’000 2014 $’000 2015 $’000 2014 $’000 3,491 473 3,964 157 1,657 1,814 – – – – – – f. Foreign exchange sensitivity analysis The impact of an increase or decrease in average foreign exchange rates of 10% at reporting date, with all other variables held constant, is illustrated in the tables below. This analysis is based on the foreign exchange risk exposures in existence at balance sheet date. In these tables, the effect on unitholders’ interest excludes the effect on profit after tax. i. Effect of appreciation in Australian dollar of 10%: Foreign exchange risk exposures denominated in: United States dollars New Zealand dollars ii. Effect of depreciation in Australian dollar of 10%: Foreign exchange risk exposures denominated in: United States dollars New Zealand dollars Effect on profit after tax Ingenia Communities Fund Higher/(lower) Ingenia Communities Management Trust Higher/(lower) 2015 $’000 2014 $’000 2015 $’000 2014 $’000 (317) (43) (16) (166) – – – – Effect on profit after tax Ingenia Communities Fund Higher/(lower) Ingenia Communities Management Trust Higher/(lower) 2015 $’000 2014 $’000 2015 $’000 2014 $’000 388 53 16 166 – – – – Annual Report 2015123 g. Credit risk Credit risk refers to the risk that a counterparty defaults on its contractual obligations resulting in a financial loss to the Trusts. The major credit risk for the Trusts is default by tenants, resulting in a loss of rental income while a replacement tenant is secured and further loss if the rent level agreed with the replacement tenant is below that previously paid by the defaulting tenant. The Trusts assess the credit risk of prospective tenants, the credit risk of in-place tenants when acquiring properties and the credit risk of existing tenants renewing upon expiry of their leases. Factors taken into account when assessing credit risk include the financial strength of the prospective tenant and any form of security, for example a rental bond, to be provided. The decision to accept the credit risk associated with leasing space to a particular tenant is balanced against the risk of the potential financial loss of not leasing up vacant space. Rent receivable balances are monitored on an ongoing basis and arrears actively followed up in order to reduce, where possible, the extent of any losses should the tenant subsequently default. The Responsible Entity believes that the Trusts’ receivables that are neither past due nor impaired do not give rise to any significant credit risk. Credit risk also arises from deposits placed with financial institutions and derivatives contracts that may have a positive value to the Trusts. The Trusts’ Treasury Policy sets target limits for credit risk exposure with financial institutions and minimum counterparty credit ratings. Counterparty exposure is measured as the aggregate of all obligations of any single legal entity or economic entity to the Trusts, after allowing for appropriate set offs which are legally enforceable. The Trust’s maximum exposure to credit risk at reporting date in relation to each class of financial instrument is the carrying amount as reported in the balance sheet. h. Liquidity risk The main objective of liquidity risk management is to reduce the risk that the Trusts do not have the resources available to meet their financial obligations and working capital and committed capital expenditure requirements. The Trust’s Treasury Policy sets a target for the level of cash and available undrawn debt facilities to cover future committed expenditure in the next year, loan maturities within the next year and an allowance for unforeseen events such as tenant default. The Trusts may also be exposed to contingent liquidity risk under term loan facilities, where term loan facilities include covenants which if breached give the lender the right to call in the loan, thereby accelerating a cash flow which otherwise was scheduled for the loan maturity. The Trusts monitor adherence to loan covenants on a regular basis, and the Treasury Policy sets targets based on the ability to withstand adverse market movements and remain within loan covenant limits. The Trusts monitor the debt expiry profile and aims to achieve debt maturities below a target level of total committed debt facilities, where possible, to reduce refinance risk in any one year. The contractual maturities of the Trusts’ non-derivative financial liabilities at reporting date are reflected in the following table. It shows the undiscounted contractual cash flows required to discharge the liabilities including interest at market rates. Foreign currencies have been converted at rates of exchange ruling at reporting date. Although the expected average residency term is more than ten years, retirement village residents’ loans are classified as current liabilities, as required by Accounting Standards, because the Trusts do not have an unconditional right to defer settlement to more than twelve months after reporting date. 2015 Trade and other payables Borrowings 2014 Trade and other payables Borrowings Ingenia Communities Fund Less than 1 year $’000 1 to 5 years $’000 More than 5 years $’000 1,200 2,731 3,931 1,210 4,521 5,731 – 68,344 68,344 – 99,653 99,653 – – – – – – Total $’000 1,200 71,075 72,275 1,210 104,174 105,384 Ingenia Communities Holdings Limited 124 Notes to the Financial Statements for the year ended 30 June 2015 | continued 28. FINANCIAL INSTRUMENTS (CONTINUED) 2015 Trade and other payables Retirement village resident loans Borrowings (excluding perpetual lease) Finance lease (perpetual lease)(2) Provisions Liabilities held for sale 2014 Trade and other payables Retirement village resident loans Borrowings (excluding perpetual lease) Finance lease (perpetual lease) Provisions (1) Excludes related party loans. Ingenia Communities Management Trust Less than 1 year $’000 12,785 161,878 2,942 121 830 42,041 1 to 5 years $’000 14,770 – More than 5 years $’000 – – Total(1) $’000 27,555 161,878 11,846 243,522 258,310 483 177 – – 71 – 604 1,078 42,041 220,597 27,276 243,593 491,466 8,480 190,122 3,613 121 590 4,000 – – – 12,480 190,122 14,530 305,301 323,444 483 249 – – 604 839 202,926 19,262 305,301 527,489 (2) For purposes of the table above, the lease payments are included for five years for the perpetual lease. Refer to Note 17(c)(ii). The contractual maturities of ICF’s derivative financial liabilities at reporting date are reflected in the following table. It shows the undiscounted contractual cash flows required to discharge the instruments at market rates. 2015 Liabilities Ingenia Communities Fund Less than 1 year $’000 1 to 5 years $’000 More than 5 years $’000 Total $’000 Derivative liabilities – net settled 3 – 2014 Liabilities Derivative liabilities – net settled 84 84 ICMT did not have any derivative financial liabilities at either 30 June 2015 or 30 June 2014. – – 3 168 i. Other financial instrument risk The Trusts carry retirement village residents’ loans at fair value with resulting fair value adjustments recognised in the income statement. The fair value of these loans is dependent on market prices for the related retirement village units. The impact of an increase or decrease in these market prices of 10% at reporting date, with all other variables held constant, is shown in the table below. This analysis is based on the retirement village residents’ loans in existence at reporting date. Effect on profit after tax Ingenia Communities Fund Higher/(lower) Ingenia Communities Management Trust Higher/(lower) 2015 $’000 2014 $’000 2015 $’000 2014 $’000 Increase in market prices of investment properties of 10% Decrease in market prices of investment properties of 10% – – – – (19,290) (21,864) 19,290 21,864 However, these effects are largely offset by corresponding changes in the fair value of the Trusts’ investment properties. The effect on unitholders’ interest would have been the same as the effect on profit. Annual Report 2015 125 j. Fair value The Trusts use the following fair value measurement hierarchy: Level 1: Level 2: fair value is calculated using quoted prices in active markets for identical assets or liabilities; fair value is calculated using inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and Level 3: fair value is calculated using inputs for the asset or liability that are not based on observable market data. Quoted market price represents the fair value determined based on quoted prices on active markets as at the reporting date without any deduction for transaction costs. The following table presents the Trusts’ financial instruments that were measured and recognised at fair value at reporting date: Financial assets/ financial liabilities Valuation technique(s) and key inputs Significant Unobservable Inputs Relationship of unobservable inputs to fair value Sensitivity to the input to fair value Retirement village resident loans Loans measured as Derivative interest rate swaps the ingoing resident’s contribution plus the resident’s share of capital appreciation to reporting date, less DMF accrued to reporting date Net present value of future cash flows discounted at market rates adjusted for the Trusts’ credit risk Long-term capital appreciation rates for residential property between 0% - 4%. Estimated length of stay of residents based on life tables The higher the appreciation, the higher the value of resident loans. The longer the length of stay, the lower the value of resident loans. The higher the appreciation, the higher the value of resident loans. The longer the length of stay, the lower the value of resident loans. N/A N/A The longer the length of stay, the higher the DMF accrued, capped at a predetermined period of time. There has been no movement from Level 3 to Level 2 during the current period. Changes in ICMT’s retirement village resident loans which are Level 3 instruments are presented in Note 29. The carrying amounts of the Trusts’ other financial instruments approximate their fair values. 29. FAIR VALUE MEASUREMENT a. Ingenia Communities Fund The following table provides the fair value measurement hierarchy of Ingenia Communities Fund assets and liabilities: 1. Assets measured at fair value 30 June 2015 Date of valuation Total Fair value measurement using Quoted prices in active markets (Level 1) Significant observable inputs (Level 2) Significant unobservable inputs (Level 3) Investment properties 30 June 2015 Refer to Note 13(a) 153,434 – – 153,434 30 June 2014 Date of valuation Total Fair value measurement using Quoted prices in active markets (Level 1) Significant observable inputs (Level 2) Significant unobservable inputs (Level 3) Investment properties 30 June 2014 Refer to Note 13(a) 134,488 – – 134,488 Ingenia Communities Holdings Limited 126 Notes to the Financial Statements for the year ended 30 June 2015 | continued 29. FAIR VALUE MEASUREMENT (CONTINUED) ii. Liabilities measured at fair value 30 June 2015 Derivatives Date of valuation Total Fair value measurement using Quoted prices in active markets (Level 1) Significant observable inputs (Level 2) Significant unobservable inputs (Level 3) 30 June 2015 Refer to Note 20 3 – – 3 30 June 2014 Derivatives Date of valuation 30 June 2014 Refer to Note 20 Total 168 There have been no transfers between Level 1 and Level 2 during the year. Fair value measurement using Quoted prices in active markets (Level 1) Significant observable inputs (Level 2) Significant unobservable inputs (Level 3) – 168 – b. Ingenia Communities Management Trust The following table provides the fair value measurement hierarchy of Ingenia Communities Management Trust assets and liabilities: i. Assets measured at fair value 30 June 2015 Date of valuation Total Fair value measurement using Quoted prices in active markets (Level 1) Significant observable inputs (Level 2) Significant unobservable inputs (Level 3) Investment properties Assets held for sale – investment property 30 June 2015 Refer to Note 13 30 June 2015 Refer to Note 9 386,294 61,598 – – – 386,294 61,598 – 30 June 2014 Date of valuation Total Fair value measurement using Quoted prices in active markets (Level 1) Significant observable inputs (Level 2) Significant unobservable inputs (Level 3) Investment properties 30 June 2015 Refer to Note 13 Discontinued operations-investment property 30 June 2014 Refer to Note 7 Assets held for sale – deferred management fee receivable 30 June 2015 Refer to Note 9 364,375 45,902 5,439 – – – – – 364,375 45,902 5,439 – Annual Report 2015127 ii. Liabilities measured at fair value 30 June 2015 Date of valuation Total Fair value measurement using Quoted prices in active markets (Level 1) Significant observable inputs (Level 2) Significant unobservable inputs (Level 3) Retirement village resident loans Liabilities held for sale 30 June 2015 Refer to Note 18 30 June 2015 Refer to Note 9(b) 161,878 42,041 – – – 161,878 42,041 – 30 June 2014 Date of valuation Total Fair value measurement using Quoted prices in active markets (Level 1) Significant observable inputs (Level 2) Significant unobservable inputs (Level 3) Retirement village resident loans 30 June 2014 Refer to Note 18 190,122 – – 190,122 There have been no transfers between Level 1 and Level 2 during the year. 30. AUDITOR’S REMUNERATION Ingenia Communities Fund Ingenia Communities Management Trust 2015 $’000 2014 $’000 2015 $’000 2014 $’000 Amounts received or receivable by EY for: Audit or review of financial reports 202,455 146,025 202,455 146,025 Other audit related services 39,514 9,350 84,514 241,969 155,375 286,969 9,350 155,375 Ingenia Communities Holdings Limited128 Notes to the Financial Statements for the year ended 30 June 2015 | continued 31. RELATED PARTIES a. Responsible Entity The Responsible Entity for both Trusts from 4 June 2012 is Ingenia Communities RE Limited (“ICRE”). ICRE is an Australian domiciled company and is a wholly owned subsidiary of ICH. b. Fees of the Responsible Entity and its related parties Ingenia Communities RE Limited: Asset management fees Ingenia Communities Fund Ingenia Communities Management Trust 2015 $’000 2014 $’000 2015 $’000 2014 $’000 1,676,496 1,170,374 2,164,618 1,625,516 The Responsible Entity is entitled to a fee of 0.5% of total assets. In addition, it is entitled to recover certain expenses. The amount accrued and recognised but unpaid at reporting date was: Ingenia Communities Fund Ingenia Communities Management Trust 2015 $’000 2014 $’000 2015 $’000 2014 $’000 Current trade payables 2,716,671 2,340,175 5,332,190 3,167,572 These are included in current trade payables in the balance sheet. c. Holdings of the Responsible Entity and its related parties There were no holdings of the Responsible Entity and its related parties (including managed investment schemes for which a related party is the Responsible Entity) as at 30 June 2015 and 30 June 2014. d. Other related party transactions Subsidiaries of ICMT have entered into agreements with subsidiaries of ICF for the leases of land that retirement villages are operated on. The remaining term of each agreement varies between 91 and 114 years. There are no purchase options. Rental villages have been classified as operating leases and DMF villages have been classified as finance leases. Intercompany loans are subject to a loan deed dated 29 June 2012 encompassing ICH, ICF and ICMT and their respective subsidiaries. The deed stipulates that on the last business day of each month intercompany balances are set off within each of the ICH, ICF and ICMT sub-groups and the balances between ICH, ICF and ICMT incur interest at 8.5%pa. Intercompany loan balances are payable on demand, however ICF has undertaken not to call its loan receivable from ICMT within twelve months of the date of this report, if calling the loan would result in ICMT being unable to pay its debts as and when they are due and payable. There are a number of other transactions and balances that occur between the Trusts, which are detailed below: Ingenia Communities Fund Ingenia Communities Management Trust Note 2015 $ 2014 $ 2015 $ 2014 $ Finance lease fees received or accrued/(paid or payable) for the year between ICF and ICMT Finance lease balance receivable/(payable) between ICF and ICMT Finance lease commitments Operating lease fees received or accrued/(paid or payable) for the year between ICF and ICMT Interest on intercompany loans received or accrued/ (paid or payable) between stapled entities Intercompany loan balances between stapled entities 2,698,453 3,319,833 (2,698,453) (3,319,833) 11 11 31,505,116 40,677,551 (31,505,116) (40,677,551) 253,307,008 318,149,045 (253,307,008) (318,149,045) 9,719,788 9,354,036 (9,719,788) (9,354,036) 11,693,024 6,807,133 11,323,052 6,335,522 185,799,420 135,805,451 (189,634,511) (133,249,024) Annual Report 2015129 e. Key management personnel Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director of the Responsible Entity. The names of the directors of ICRE, and their dates of appointment or resignation if they were not directors for all of the financial year, are: Jim Hazel (Chairman) Philip Clark AM Amanda Heyworth Robert Morrison Norah Barlow ONZM Simon Owen (Managing Director and CEO) The names of other key management personnel, and their dates of appointment or resignation if they did not occupy their position for all of the financial year, are: Nicole Fisher Tania Betts Chief Operating Officer Chief Financial Officer Key management personnel do not receive any remuneration directly from the Trusts. They receive remuneration from ICH in their capacity as Directors or employees of ICH. Consequently, the Trusts do not pay any compensation as defined in Accounting Standard AASB 124 Related Parties to its key management personnel. The aggregate compensation paid to Key Management Personnel (“KMP”) of the Group is as follows: Directors fees Salaries and other short-term benefits Short-term incentives Superannuation benefits Share-based payment 2015 $ 2014 $ 542,000 462,500 1,158,141 1,094,684 400,956 58,518 332,235 59,084 590,928 680,600 2,750,543 2,629,103 The amounts disclosed in the table are the amounts recognised as an expense during the reporting period related to key management personnel. The aggregate PQRs and RQRs of the Group held directly, by KMP, are as follows: Issue date Rights Expiry date 2015 2014 Number outstanding 2012 2012 2013 2014 RQR PQR PQR PQR 2014 2015 2016 2017 – 1,818,000 3,842,000 3,842,000 3,716,000 3,716,000 982,971 – Ingenia Communities Holdings Limited 130 Notes to the Financial Statements for the year ended 30 June 2015 | continued 32. PARENT FINANCIAL INFORMATION Summary financial information about the parent of each Trust is: Current assets Total assets Current liabilities Total liabilities Net assets/(liabilities) Unitholders’ equity: Issued units Accumulated losses Total unitholders’ equity Profit/(loss) from continuing operations Net profit/(loss) attributable to unitholders of each Trust Total comprehensive income/(loss) Ingenia Communities Fund 2015 $’000 2014 $’000 126,322 335,348 1,171 63,389 271,959 134,675 253,843 1,379 95,067 158,776 Ingenia Communities Management Trust 2015 $’000 (5,744) (2,908) (1,579) (5,579) 2,671 2014 $’000 178 3,165 8,108 5,772 (2,607) 619,288 547,643 29,024 14,092 (347,329) (388,867) (26,353) (16,699) 271,959 158,776 27,700 27,700 27,700 460 460 460 2,671 (9,653) (9,653) (9,653) (2,607) (4,252) (4,252) (4,252) Annual Report 2015 131 33. SUBSIDIARIES a. Names of subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in Note 1(d): Name Country of residence Subsidiaries of Ingenia Communities Fund Bridge Street Trust Browns Plains Road Trust Casuarina Road Trust Edinburgh Drive Trust INA CC Trust INA Community Living Subsidiary Trust No. 2 INA Community Living Subsidiary Trust INA Kiwi Communities Subsidiary Trust No. 1 INA Sunny Trust Jefferis Street Trust Lovett Street Trust ILF Regency Subsidiary Trust Settlers Subsidiary Trust SunnyCove Gladstone Unit Trust SunnyCove Rockhampton Unit Trust Taylor Street (2) Trust INA Subsidiary Trust No.1 INA Operations Trust No.4 (formerly INA Subsidiary Trust No. 2)(1) Noyea Pty Ltd INA Community Living LLC (formerly ING Community Living LLC) INA US Community Living Fund LLC (formerly ING US Community Living Fund LLC) Subsidiaries of Ingenia Communities Management Trust Garden Villages Management Trust INA Community Living Lynbrook Trust ILF Regency Operations Trust Settlers Operations Trust INA Operations Trust No.1 INA Operations Trust No.2 INA Operations Trust No.3 INA Operations Trust No.4 (formerly INA Subsidiary Trust No. 2)(2) INA Operations Trust No.6 INA Operations Trust No.7 Noyea Operations Pty Ltd Ridge Estate Trust INA Subsidiary Trust No.3 INA NZ Subsidiary Unit Trust No. 1 CSH Lynbrook GP LLC CSH Lynbrook LP Subsidiaries of Ingenia Communities Management Trust INA Community Living II (formerly ING Community Living II) Lynbrook Freer Street Member LLC Lynbrook Management, LLC Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia United States of America United States of America Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia New Zealand United States of America United States of America United States of America United States of America United States of America Ownership interest 2015 % 2014 % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 – – 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 – – – 100 100 100 100 100 100 100 100 100 (1) The units were transferred from Ingenia Communities Fund to the Ingenia Communities Management Trust during the year ended 30 June 2015. (2) The units were transferred from Ingenia Communities Management Trust to Ingenia Communities Fund during the year ended 30 June 2014. Ingenia Communities Holdings Limited132 Notes to the Financial Statements for the year ended 30 June 2015 | continued The Trusts’ voting interest in all other subsidiaries is the same as the ownership interest. 34. NOTES TO THE CASH FLOW STATEMENTS a. Reconciliation of profit to net cash flows from operations Ingenia Communities Fund Ingenia Communities Management Trust Net profit for the year Adjustments for: Net foreign exchange (gain)/loss Release of foreign currency translation reserve on disposal of foreign operations Net loss on disposal of investment properties Net (gain)/loss on change in fair value of: Investment properties – continuing Investment properties – discontinued Derivatives Retirement village resident loans Disposal costs associated with overseas investments Income tax expense/(benefit) Depreciation and amortisation expense Amortisation of borrowing costs 2014 $’000 15,422 2015 $’000 (7,928) 2014 $’000 (1,170) 2,222 (1,453) 2015 $’000 34,500 (1,291) (1,620) 1,689 42 – 320 (15,922) (1,530) (482) 338 377 – – 8,878 – – – 1,871 1,630 – 616 290 (6,017) (6,498) 260 – 67 – (164) – – 212 117 322 – (41) – – 6 101 369 Operating profit/(loss) for the year before changes in working capital 17,843 14,689 (2,352) (4,647) Changes in working capital: (Increase)/decrease in receivables (Increase)/decrease in other assets Increase in retirement village resident loans Increase/(decrease) in other payables and provisions Net cash provided by operating activities 5,133 (18,310) – – – – (26,139) (3,163) (178) (3,799) (2,677) (11,749) 12,326 21,435 16,982 20,710 (1,923) 6,327 1,961 22,428 Annual Report 2015 133 35. SUBSEQUENT EVENTS a. Performance Quantum Rights vesting On 1 July 2015, 3,842,000 Performance Quantum Rights (“PQRs”) granted to KMP in 2012 vested. As a result, 3,842,000 fully paid stapled securities have been issued to the following KMP: Simon Owen 2,260,000 Tania Betts 791,000 Nicole Fisher 791,000 b. Acquisition of Upstream Bethania On 3 July 2015, ICMT settled Upstream Bethania, ICMT’s second Active Lifestyle Estate in Brisbane, complementing Chambers Pines Lifestyle Resort and ICMT’s existing Garden Villages in the region. The acquisition price was $8.15 million (excluding transaction costs) and was funded from the proceeds of the capital raising in October 2014. This park, now known as Active Lifestyle Estate Bethania, is an existing manufactured home community outside Brisbane and represents a significant development opportunity that will grow the Group’s existing rental stream. c. Execution of Hedging Contract On 31 July 2015, ICF entered into an interest rate hedge collar for $16.0 million with an expiry date of August 2017. The execution of this hedge means 23.2% of ICF’s debt is currently hedged with the intention to gradually increase the hedged exposure over the coming months. d. Acquisition of Big 4 Conjola Lakeside On 13 August 2015, ICMT announced it had exchanged unconditional contracts for the acquisition of Big 4 Conjola Lakeside in Lake Conjola, NSW. The acquisition price is $24.0 million (excluding transaction costs) and will be funded from the proceeds of the capital raising in October 2014. e. Final FY15 distribution On 25 August 2015, the directors of ICF resolved to declare a final distribution of 0.70 cps (2014: 0.65 cps) amounting to $6,205,793 to be paid as 16 September 2015. The distribution is 71.0% tax deferred and the dividend reinvestment plan will apply to the final distribution. Ingenia Communities Holdings Limited 134 Directors’ Declaration for the year ended 30 June 2015 In accordance with a resolution of the directors of Ingenia Communities RE Limited, I state that: 1. In the opinion of the directors: (a) the financial statements and notes of Ingenia Communities Fund and of Ingenia Communities Management Trust are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of each Trust’s financial position as at 30 June 2015 and of their performance for the year ended on that date; and (ii) complying with Accounting Standards and Corporations Regulations 2001; and (b) there are reasonable grounds to believe that Ingenia Communities Fund and Ingenia Communities Management Trust will be able to pay their debts as and when they become due and payable. 2. 3. The notes to the financial statements include an explicit and unreserved statement of compliance with international financial reporting standards at Note 1(b). This declaration has been made after receiving the declarations required to be made to the Directors in accordance with section 295A of the Corporations Act 2001 for the financial year ended 30 June 2015. On behalf of the Board Jim Hazel Chairman Sydney, 9 September 2015 Annual Report 2015 Independent Auditor’s Report for the year ended 30 June 2015 135 Ingenia Communities Holdings Limited136 Independent Auditor’s Report for the year ended 30 June 2015 Annual Report 2015Securityholder Information for the year ended 30 June 2015 137 Additional information required under ASX Listing Rule 4.10 and not shown elsewhere in this Annual Report is as follows. This information is current as at 18 September 2015. The information set out below was prepared at 18 September and applies equally to units in the trusts and shares in the company under the terms of the joint quotation on the Australian Securities Exchange. Twenty Largest Securityholders as at 18 September 2015 Securityholder HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED J P MORGAN NOMINEES AUSTRALIA LIMITED NATIONAL NOMINEES LIMITED CITICORP NOMINEES PTY LIMITED BNP PARIBAS NOMS PTY LTD MERCANTILE INVESTMENT COMPANY LTD AMP LIFE LIMITED MERCANTILE INVESTMENT COMPANY LTD RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED BNP PARIBAS NOMS (NZ) LTD CITICORP NOMINEES PTY LIMITED MCNEIL NOMINEES PTY LIMITED BOND STREET CUSTODIANS LIMITED CUSTODIAL SERVICES LIMITED RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED GWYNVILL TRADING PTY LTD FORSYTH BARR CUSTODIANS LTD BODIAM PROPERTIES PTY LTD MRS MONIKA BATKIN UBS NOMINEES PTY LTD Total Distribution of Securityholders at 18 September 2015 Holding (securities) 100,001 and Over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Total Number of securities held Percentage of issued capital 204,507,916 194,014,025 100,601,689 72,640,410 44,909,083 16,514,519 15,243,547 13,103,817 11,682,895 11,346,716 11,289,384 10,400,531 6,023,905 5,233,963 4,586,533 4,547,619 3,378,332 3,123,000 3,100,000 2,446,708 22.70 21.53 11.17 8.06 4.98 1.83 1.69 1.45 1.30 1.26 1.25 1.15 0.67 0.58 0.51 0.50 0.37 0.35 0.34 0.27 738,694,592 81.99 Number of securityholders Number of securities Percentage of securityholders 306 827,624,684 2,077 64,601,162 761 885 284 5,981,335 2,696,830 69,619 7.09 48.16 17.64 20.52 6.58 4,313 900,973,630 100.00 There were 321 securityholders holding less than a marketable parcel on 18 September 2015. Ingenia Communities Holdings Limited138 Securityholder Information for the year ended 30 June 2015 Distribution of Performance Quantum Rights Holders Holding (securities) 100,001 and Over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Total Number of securityholders Number of securities Percentage of securityholders 3 3,716,000 100.00 0 0 0 0 0.00 0.00 0.00 0.00 3 3,716,000 100.00 The Performance Quantum Rights on issue are unquoted and issued under the Ingenia Long Term Incentive Scheme. Distribution of Long Term Incentive Plan Rights Holders Holding (securities) 100,001 and Over 10,001 to 100,000 5,001 to 10,000 1,001 to 5,000 1 to 1,000 Total Number of securityholders Number of securities Percentage of securityholders 3 982,971 100.00 0 0 0 0 0.00 0.00 0.00 0.00 3 982,971 100.00 The Long Term Incentive Plan Rights on issue are unquoted and issued under the Ingenia Rights Plan. Substantial holders in INA at 18 September 2015 Securityholder Cohen & Steers, Inc. Daiwa Securities Group, Inc. The Vanguard Group, Inc. AMP Limited Number of securities 87,100,659 55,506,751 54,185,072 50,154,782 VOTING Securityholders in Ingenia Communities Group are entitled to 1 vote for each security they hold in the Group. In accordance with the Constitution each member present at a meeting whether in person, or by proxy, or by power of attorney, or in a duly authorised representative in the case of a corporate member, shall have one vote on a show of hands, and one vote for each fully paid stapled security, on a poll. Holders of Long Term Incentive Plan Rights and Performance Quantum Rights have no voting rights. ON-MARKET BUYBACK There is no current on-market buy-back in relation to the Company’s securities. Annual Report 2015Investor Relations for the year ended 30 June 2015 139 Enquiries relating to Ingenia Communities Group (ASX code: INA) can be directed to the Link Market Services Investor Information line on 1300 554 474 (or from outside Australia +61 1300 554 474). This service is available from 8:30am to 5:30pm (Sydney time) on all business days. Link Market Services can assist with: – Change of address details – Requests to receive communications online – Provision of tax file numbers – Changes to payment instructions – General enquiries about your securityholding. www.ingeniacommunities.com.au Ingenia’s corporate website provides investors with extensive information about the Group. You can visit the website to find: information on Ingenia and its property portfolios; the latest financial information; reports; announcements; and corporate governance information. Securityholders can access their investment details, including holding balance and payment history, from the site. Distribution Payments Distribution payments are made twice a year, for the six months ending 30 June and the six months ending 31 December. Distributions are declared and paid in Australian dollars. The table below details distribution payments for the 2014/2015 financial year. A history of distribution payments made since 2005 is available from the Group’s website www.ingeniacommunities.com.au. Period Ended June 2015 December 2014 Date Paid Total Amount 16 Sept 2015 18 March 2015 $0.0070 $0.0065 * Information on the tax components of distributions can be found on Ingenia’s website or the Annual Tax Statement. Ingenia Communities Group operates a Distribution Reinvestment Plan through which securityholders can elect to reinvest all or part of their distributions in additional Ingenia securities. The rules of the Plan and how to apply can be found on the website or obtained from the Registry, Link Market Services. Annual Taxation Statement Annual Taxation Statements, which summarise payments made during the year and include information required to complete an Australian tax return, are dispatched each September. Details of past distributions and relevant tax information are available on Ingenia’s website. Annual General Meeting The Annual General Meeting will be held on 17 November 2015 in Sydney. 2015/2016 Securityholder Calendar* 16 September 2015 16 September 2015 17 November 2015 February 2016 March 2016 Final FY15 distribution paid Annual Tax Statement dispatched Annual General Meeting 1H16 Result announced Interim FY16 distribution paid *Dates are indicative. Privacy Policy Ingenia Communities Group is committed to ensuring the confidentiality and security of your personal information. The Group’s Privacy Policy, detailing our handling of personal information, is available online at www.ingeniacommunities.com.au. Complaints Any securityholder wishing to register a complaint should direct it to Investor Relations in the first instance, at the Responsible Entity’s address listed in this Report. Ingenia Communities RE Limited is a member of an independent dispute resolution scheme, the Financial Ombudsman Service (FOS). If a securityholder feels that a complaint remains unresolved or wishes it to be investigated further, FOS can be contacted as detailed below: By telephone: 1300 780 808 In writing: Financial Ombudsman Service Limited GPO Box 3, Melbourne VIC 3001 Website: www.fos.org.au Corporate Governance Statement The Corporate Governance Statement was approved by the Board of Directors on 5 August 2015 and can be found at http://www.ingeniacommunities.com.au/wp-content/uploads/2015/09/INA_Appendix-4G-and-Corporate-Governance- Statement.pdf Ingenia Communities Holdings Limited140 Corporate Directory for the year ended 30 June 2015 Ingenia Communities Group Ingenia Communities Holdings Limited ACN 154 444 925 Ingenia Communities Management Trust ARSN 122 928 410 Ingenia Communities Fund ARSN 107 459 576 Responsible Entity Ingenia Communities RE Limited ACN 154 464 990 (AFSL 415862) Registered Office Level 5, 151 Castlereagh Street Sydney NSW 2000 Telephone: 1300 132 946 Facsimile: +61 2 8263 0500 Email: investor@ingeniacommunities.com.au Website: www.ingeniacommunities.com.au Directors of INA (as at 18 September 2015) J Hazel (Chairman) A Heyworth N Barlow NZOM P Clark AM R Morrison S Owen Secretary L Ralph T Betts Security Registry Link Market Services Limited Level 12, 680 George Street Sydney NSW 2000 Locked Bag A14 Sydney South NSW 1235 Telephone: 1300 554 474 (local call cost) or from outside Australia: +61 1300 554 474 Facsimile: +61 2 9287 0303 Email: registrars@linkmarketservices.com.au Auditors EY 680 George Street Sydney NSW 2000 Stock Exchange Quotation Ingenia Communities Group is listed on the Australian Securities Exchange under ASX listing code: INA. Annual Report 2015141 Disclaimer This report was prepared by Ingenia Communities Holdings Limited (ACN 154 444 925) and Ingenia Communities RE Limited (ACN 154 464 990) as responsible entity for Ingenia Communities Fund (ARSN 107 459 576) and Ingenia Communities Management Trust (ARSN  122 928 410) (together Ingenia Communities Group, INA or the Group). Information contained in this report is current as at 30 June 2015. This report is provided for information purposes only and has been prepared without taking account of any particular reader’s financial situation, objectives or needs. Nothing contained in this report constitutes investment, legal, tax or other advice. Accordingly, readers should, before acting on any information in this report, consider its appropriateness, having regard to their objectives, financial situation and needs, and seek the assistance of their financial or other licensed professional adviser before making any investment decision. This report does not constitute an offer, invitation, solicitation or recommendation with respect to the subscription for, purchase or sale of any security, nor does it form the basis of any contract or commitment. Ingenia Communities Holdings LimitedI n g e n i a C o m m u n i t i e s A n n u a l R e p o r t 2 0 1 5 Ingenia Communities Group Level 5, 151 Castlereagh Street Sydney NSW 2000 T. 1300 132 946 E. investor@ingeniacommunities.com.au W. www.ingeniacommunities.com.au 

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