Annual Report 2022 Integrated annual report and consolidated financial statements Sydney Level 13, 95 Pitt Street NSW 2000 +61 2 7906 2000 info@irongategroup.com.au Melbourne Brisbane irongategroup.com.au Irongate Group 01 — Contents Overview FY22 highlights 02 Introduction from the chairperson and the CEO 03 01 Business review Strategy 8 Portfolio overview 9 Acquisitions and disposals 12 Leasing activity 13 Tenant base 14 Valuations 15 Third party funds management 17 02 Financial management FY22 highlights 20 Balance sheet management 21 Funds from operations 22 03 Environmental, social and governance FY22 highlights 24 Risk management 26 Directors of the Responsible Entity 28 Remuneration report 30 04 Irongate Group consolidated financial statements prepared in accordance with the Corporations Act 2001 and ASX Listing Rules Directors’ report 38 Directors’ declaration 41 Auditor’s independence declaration 42 Consolidated statement of profit or loss and other comprehensive income 43 Consolidated statement of financial position 44 Consolidated statement of changes in equity 45 Consolidated statement of cash flows 46 Notes to the consolidated financial statements 47 Independent auditor’s report 84 05 Irongate Group consolidated financial statements prepared in accordance with the regulatory requirements under JSE Listings Requirements Directors’ responsibility statement 90 Directors’ responsibility on financial controls 91 Report of the audit and risk committee 92 Directors’ report 93 Independent auditor’s report 96 Consolidated statement of profit or loss and other comprehensive income 101 Consolidated statement of financial position 102 Consolidated statement of changes in equity 103 Consolidated statement of cash flows 104 Segmental analysis 105 Notes to the consolidated financial statements 112 06 Other information Securityholder information 144 Corporate information 146 Glossary of terms 147 07 Overview / 03 / 02 49,627m² of space leased or subject to signed HoAs during the period FFO 10.40 cps Distributions 9.20 cps 1. Weighted by gross property income. 2. Excludes signed HoAs. 3. The partnership comprises Charter Hall (ASX:CHC) and Dutch pension fund PGGM. 4. Subject to no superior proposal emerging and an independent expert concluding that the proposal is fair and reasonable, and therefore in the best interests of, securityholders. Over the past financial year IAP has continued to acquire good quality real estate in line with its stated strategy, achieved excellent leasing results through active asset management and has prudently managed the balance sheet. The third party funds management platform has also gained traction with significant new mandates secured to invest into landmark real estate opportunities. Introduction from the chairperson and the CEO FY22 highlights FY22 FY21 Properties (#) 37 32 Portfolio value (A$b) 1.679 1.237 Area (m²) 396,593 345,787 Occupancy (%)1, 2 96.1 97.5 WALE (years)1, 2 4.9 4.7 WARR (%)1, 2 3.3 3.4 WACR (%)3 5.27 6.02 WADE (years) 6.0 6.1 WASE (years) 6.8 7.0 Hedged position (%) 85.9 78.3 Year in review IAP started the financial year with clarity and confidence in both our business and general market conditions, having navigated the initial impacts of the COVID-19 pandemic without any material disruption. As the second wave of restrictions associated with the COVID-19 pandemic took effect in the middle part of 2021, the resilience of the business was once again tested. The risk management systems established by the business, together with the quality of the property portfolio and underlying tenant base, meant that IAP was still able to operate efficiently and effectively and deliver a strong FY22 financial result for securityholders. During the year, IAP was able to grow its balance sheet aided by two successful institutional placements, raising approximately A$100 million of additional equity. The Fund’s portfolio now comprises 37 quality properties valued at A$1.679 billion across the office and industrial sectors in Australia and New Zealand. The balance sheet remains in a strong position with gearing at 30.1% and A$104.3 million of undrawn debt facilities available. Third party FUM grew to A$423 million having secured new mandates from both domestic and foreign wholesale investors, and further investments were made into a number of significant real estate opportunities during the reporting period. In January this year, IAP received a non-binding indicative proposal from a Charter Hall managed partnership (Partnership) to acquire all of the securities of IAP for A$1.90 cash per security (Proposal). In February this year the Board entered into a non-disclosure agreement with the Partnership providing it with a period of exclusivity of approximately six weeks, which culminated in IAP and the Partnership entering into a scheme implementation agreement on 30 March 2022. Securityholders will have an opportunity to approve the Proposal at a meeting of securityholders, which is currently scheduled to be held in late June 2022. The Board has unanimously recommended that securityholders vote in favour of the Proposal subject to no superior proposal emerging and an independent expert concluding that the Proposal is fair and reasonable, and therefore in the best interests of, securityholders. 1. Weighted by gross property income. 2. Excludes signed HoAs. 3. Weighted by property value. Richard Longes Independent non-executive chairperson Graeme Katz CEO Scheme implementation agreement entered into with Charter Hall managed partnership3—unanimously recommended by the Board4 Grew third party FUM and invested in landmark real estate opportunities Undertook two institutional placements raising approximately A$100 million of new equity Completed the sale of 24 Wormald Street, Symonston ACT for A$36 million, 18% above book value Completed the acquisition of six properties for A$286 million Portfolio value A$1.679b NTA per security A$1.74 Portfolio occupancy1,2 96.1% Portfolio WALE1,2 4.9 years Gearing 30.1% Funding cost 2.95% / 03 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 / 05 / 04 Introduction from the chairperson and the CEO Continued The Board and management team are committed to upholding the requirements of disclosure and transparency prescribed by applicable rules, guidelines, regulations and statutes, including the JSE Listings Requirements and the King IV Code in South Africa and the ASX Listing Rules and the ASX Guidelines in Australia. The Board has adopted a corporate governance statement and a board charter which formally recognises the codes of corporate practice and conduct under which the Board operates. The Board is satisfied that it has fulfilled its responsibilities under the board charter for the reporting period. Guidance We are not providing guidance for FY23 at this time. However, if the Proposal does not proceed, we will provide further information to securityholders at that time. Acknowledgements We would like to thank the Board and management team who have delivered another strong result for securityholders this past year. We would also like to acknowledge the contribution of the whole IAP team in assisting the Board with progressing the Proposal, which they have done while still running the day-to-day business of IAP. Richard Longes Independent non-executive chairperson Graeme Katz CEO Market commentary The Australian industrial and logistics sector continued to see strong momentum in the occupier and investment markets with A$18.2 billion of industrial assets transacting during calendar year 2021—more than three and a half times the average annual transaction activity over the last ten years. Capital deployed into the sector exceeded the volumes invested in office and retail for the first time ever in 2021 as institutional groups (both domestic and offshore) struggled to increase their allocations, driving yields to record lows across all markets and grades. The Australian office market also saw improvement over 2021, as the risks related to work from home trends and its impact on tenant demand appeared overstated. Conditions in the leasing market and investment market improved with $13.4 billion of office assets trading through 2021. The outlook for the industrial sector remains favourable and outperformance is expected to persist given strong underlying occupier demand and continued market rental growth. Demand for office investment is also expected to grow, further accelerated by the opening of international borders and weight of unsatisfied capital. Financial result We are pleased to announce that IAP is delivering a final distribution of 4.67 cps for the six months ended 31 March 2022. This brings the total distribution for FY22 to 9.20 cps which is above the upper end of FY22 guidance given to the market. IAP’s portfolio has achieved significant valuation uplift over the past 12 months, particularly the industrial properties. This, combined with the acquisitions completed during the period, have resulted in a portfolio valuation of A$1.679 billion, up from A$1.237 billion at 31 March 2021. The WACR1 has tightened to 5.27% from 6.02% at 31 March 2021 . NTA has increased from A$1.43 per security at 31 March 2021 to A$1.74 per security at 31 March 2022. NAV has increased from A$1.49 per security at 31 March 2021 to A$1.79 per security at 31 March 2022. The increase in NTA is largely related to the valuation uplift in the property portfolio offset by the intangible asset related to the value of the management business. The full year financial statements are available on the website at irongategroup.com.au. Portfolio performance Despite further lockdowns during the middle of 2021 associated with the COVID-19 pandemic, the portfolio continued to perform well, with the quality of the tenant base supporting high levels of rent collection. Over the year, 99.7% of rent was collected including rent support arrangements. We continue to support a very limited number of small tenants within the portfolio as they manage the ongoing impacts of the COVID-19 pandemic on their businesses. Our active, hands-on approach to asset management has again delivered excellent leasing outcomes. Since 1 April 2021, 49,627m² of space has been leased or subject to signed HoAs. As a result of the leasing activity during the period, only 8,621m² of space remains vacant at the date of the annual report, the portfolio WALE is 4.9 years2 and 39.9%3 of leases expire after five years, an increase from 38.9% at 31 March 2021. 1. Weighted by property value. 2. Weighted by gross property income. 3. Weighted by gross property income. Since the beginning of the financial year, the Fund completed the acquisition of six properties for a combined value of A$286 million. The acquisitions were consistent with IAP’s strategy of acquiring good quality properties with strong tenant covenants and long lease terms. During the year the Fund also completed the sale of 24 Wormald Street, Symonston ACT for A$36 million, 18% above book value. Third party funds management A difficult global environment due to the COVID-19 pandemic made further capital raising in the ITAP Fund challenging, with the fund closing on 30 April 2022 with A$161 million of equity commitments. To compliment the ITAP Fund, new third party mandates were secured totalling A$230 million, bringing total third party FUM to A$423 million. The acquisition of two landmark assets were secured during the period—the Yarraville residential project and the Younghusband commercial project, both in Melbourne’s inner suburbs. Yarraville is yet another joint venture with our long-term partners, Frasers Property Australia. We were also pleased to secure one of Australia’s leading alternative asset managers, Metrics Credit Partners, as a major investor in the project. Younghusband is a joint venture with one of Australia’s leading builders, Built. We were also pleased to secure a major investment from Ivanhoe Cambridge, one of the world’s largest real estate investors. Environment, social and governance ESG continues to be an important consideration for all of the Fund’s stakeholders, and the Board and management team take their responsibilities in this regard seriously. A copy of IAP’s FY22 sustainability report is available on the website at irongategroup.com.au. The Fund is committed to driving improvements in the way its properties are managed and occupied in an effort to improve the overall sustainability of the portfolio. We are about to commence the GRESB assessment process and expect to be able to publish our first GRESB score later this year. The Fund continues to make progress on achieving its target of net zero emissions by 2030. Six buildings in the office portfolio have now been classified as carbon neutral certified by Climate Active. IAP has also recently obtained ISO accreditation for Quality Management Systems (ISO 9001:2015), Environmental Management Systems (ISO 14001:2015) and Work Health and Safety Management Systems (ISO 45001:2015). IAP has set certain diversity targets which are set out in the Fund’s diversity policy, which is available on the website at irongategroup.com.au. The Fund continues to exceed its targets in respect of gender diversity across all levels of the business. The Fund will continue to review these targets to ensure it is adhering to accepted industry practices. The Fund also acknowledges its responsibility to the communities within which is operates. IAP is proud to continue its association with selected charitable organisations that have special meaning to IAP. / 05 / 04 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 / 06 This page has intentionally been left blank. / 06 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Business review 02 — / 9 / 8 The Fund’s portfolio has grown 13 times since listing on the JSE in October 2013 and now comprises 37 properties with an area of 396,593m² valued at A$1.679 billion 37 properties 396,593m2 area A$1.679b portfolio value 1. Weighted by gross property income. 2. Excludes signed HoAs. 3. Weighted by property value. TOTAL OFFICE INDUSTRIAL Properties (#) 37 14 23 Valuation (A$m) 1,679 1,089 590 Area (m2) 396,593 163,768 232,825 Occupancy (%)1, 2 96.1 94.4 100.0 WALE (years)1, 2 4.9 4.3 6.3 Leases expiring after 5 years (%)1, 2 39.9 31.4 59.5 WACR (%)3 5.27 5.53 4.80 WARR (%)1, 2 3.3 3.4 3.2 The Fund focuses on identifying properties that are located in precincts supported by significant existing or planned infrastructure that provide affordable occupancy costs for tenants and where management can utilise its asset management skills to enhance yield and/or add value. The management team has demonstrated an ability to adjust strategy and shift focus to take advantage of prevailing market conditions. The Fund has taken a measured, disciplined and value-based approach to portfolio growth, and has a proven track record of completing acquisitions. The portfolio has grown in value by 13 times since the Fund listed on the JSE, demonstrating the management team’s ability to identify and secure acquisitions. A$b 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 1.09 0.59 Mar-22 1.679 Oct-13 (JSE listing) 0.08 0.13 0.05 Mar-14 0.11 0.15 0.05 Sep-14 0.13 0.18 0.05 Mar-15 0.25 0.34 0.10 Sep-15 0.25 0.38 0.13 Mar-16 0.34 0.49 0.16 Mar-18 0.77 0.99 0.22 Mar-20 0.85 1.085 0.32 0.94 0.49 1.425 Sep-21 Sep-17 0.63 0.81 0.19 Sep-19 1.099 0.76 0.25 Mar-21 0.82 1.237 0.42 Mar-17 0.60 0.78 0.18 Mar-19 1.063 0.82 0.24 Sep-20 0.77 0.33 1.100 Sep-16 0.37 0.54 0.16 Sep-18 1.013 0.77 0.24 Office 2 3 4 6 6 7 8 11 12 12 12 13 13 12 12 12 14 14 Industrial 6 6 6 10 12 12 12 13 13 14 15 15 18 18 18 20 22 23 Total # of properties 8 9 10 16 18 19 20 24 25 26 27 28 31 30 30 32 36 37 Portfolio overview Strategy The Fund’s strategy is to invest in office, industrial and retail properties in major metropolitan cities or established commercial precincts in Australia and New Zealand and to grow its third party funds management platform The objectives of the Fund are to: • deliver income and capital returns to securityholders over time • grow and diversify its asset base • maintain a strong corporate governance framework The Fund’s investment philosophy, whether on balance sheet or for third party funds, focuses on making investment decisions based on sound underlying property fundamentals, enhancing the quality of the underlying real estate and identifying opportunities to unlock value through active asset management. The Fund adheres to this philosophy by utilising the skills of an experienced and well-connected management team with a presence in the Fund’s key geographies of Sydney, Melbourne and Brisbane, and through a commitment to sound balance sheet management. Focused property fundamentals • Sustainable revenue stream • Long-term focus • Location and quality of real estate • Strong tenants 01 Active asset management • Active hands-on asset management • Track record of leasing activity • High level of service to tenant base • Early engagement with tenants to improve portfolio WALE • Capital expenditure projects focused on achieving capital value uplift or income-generating improvements 03 Management team • Strong relationships with key stakeholders • Passionate and driven • Extensive industry experience • Specialists in local market 06 Trusted fund manager 04 • Track record in managing third party capital • Providing investment opportunities through unlisted real estate private equity funds, joint ventures and managed accounts • Skills and experience across multiple asset classes • Co-investment to promote alignment of interest Acquisition strategy for tenants • Purchasing quality assets • Right asset at the right price • Focus on properties that deliver affordable occupancy solutions • Focus on properties located near critical infrastructure 02 • • • Conservative but opportunistic balance sheet management Hedging strategy in place to mitigate downside risk Manage funding costs Balance sheet 05 / 9 / 8 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 / 11 / 10 The portfolio comprises 37 properties sectorially and geographically diversified and currently valued at A$1.679 billion. The Fund has focused on constructing a portfolio with the following characteristics: • strategically located industrial properties that typically provide longer term sustainable income • suburban office properties located in close proximity to key infrastructure such as main arterial roads and railway stations with affordable occupancy costs for tenants • CBD office properties in select markets with the opportunity to enhance income and/or capital value through active asset management Sectoral spread ACT NSW QLD SA WA VIC NT NZ 25% 19% 15% 10% 11% 10% 4% 6% 32% 19% 16% 10% 6% 3% 2% 12% ACT NSW QLD SA WA VIC NT NZ 31% 23% 14% 11% 7% 3% 2% 9% ACT NSW QLD SA WA VIC NT NZ Area Valuation Income Geographic spread NSW ACT QLD 4 5 4 2 6 3 1 NZ 23 14 Portfolio overview Continued 3 WA 2 SA 1 NT Office Industrial 41% 59% Office Industrial 70% 30% Office Industrial 65% 35% Area Valuation Income VIC 3 3 / 11 / 10 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 / 13 / 12 At the date of the annual report, the portfolio is 96.1% occupied with a WALE of 4.9 years1, 2 Review type1,2 Office 0% 7% 36% 49% 4% 3% 1% Fixed <2.5% Fixed 4.0% + Fixed 2.5–2.99% Fixed 3.5–3.99% Market review Fixed 3.0–3.49% CPI Industrial Fixed <2.5% Fixed 4.0% + Fixed 2.5–2.99% Fixed 3.5–3.99% Market review Fixed 3.0–3.49% CPI 2% 8% 64% 10% 11% 0% 5% Key expiries1,2 % FY23 Commonwealth of Australia 2.7 Ernst & Young 1.5 FY24 Probe Operations 1.9 Coil Steels 1.3 FY25 Carsales.com 3.8 Commonwealth of Australia 3.0 FY26 State Government of Victoria 2.2 Ricoh Australia 2.0 FY27 NZ Trade & Enterprise 1.2 Allied Pickfords 1.0 1. Weighted by gross property income. 2. Excludes signed HoAs. Since 1 April 2021, 49,627m2 of space has been contracted by way of signed leases or signed HoAs. At the date of the annual report only 8,621m² of space remains vacant, of which 1,763m2 is subject to signed HoAs. The management team is committed to managing upcoming vacancy and is actively engaged with all of the Fund’s tenants on a regular basis in this regard. Since 1 April 2021 the Fund has completed the following leasing transactions: SIGNED LEASES COUNT (#) AREA (M²) WALE (YEARS)1 WARR (%)1 Office Renewal 11 3,874 3.8 3.18 New Tenant 15 8,035 6.7 3.25 Total Office 26 11,909 5.8 3.22 Industrial Renewal 2 21,707 8.3 3.13 New Tenant 1 7,350 15.0 3.00 Total Industrial 3 29,057 9.4 3.11 Total Lease Signed 29 40,966 7.6 3.17 SIGNED HOAS COUNT (#) AREA (M²) WALE (YEARS)1 WARR (%)1 Office Renewal 1 763 3.0 3.50 New Tenant 3 3,260 6.8 3.19 Total Office 4 4,022 6.0 3.25 Industrial Renewal 1 4,639 5.0 3.75 New Tenant 0 0 0.0 0.00 Total Industrial 1 4,639 5.0 3.75 Total HOA Signed 5 8,661 5.6 3.47 Total 34 49,627 7.2 3.22 Lease expiry profile1, 2 0 5 10 15 20 25 30 35 40 3.9% 0.0% 3.9% 7.6% 9.7% 7.5% 17.2% 19.6% 7.1% 10.1% 4.6% 6.9% 18.0% 2.3% 9.7% 2.5% 3.0% 2.4% 21.9% 39.9% Office Industrial Total 2.1% FY23 FY24 FY25 FY26 FY27 FY28+ Vacant % Leasing activity Acquisitions and disposals The Fund continues to seek out value and focus its efforts on properties in established office or industrial precincts supported by key infrastructure and where the management team can optimise returns through active asset management. Since the beginning of the financial year the Fund has completed the acquisition of six properties for a combined value of A$286 million. The acquisitions were consistent with IAP’s strategy of acquiring good quality properties with strong tenant covenants and long lease terms. The Fund also completed the sale of 24 Wormald Street, Symonston ACT for A$36 million, 18% above book value. 57–83 MUDGEE ST, KINGSTON QLD 81 DUNHILL CRES, MORNINGSIDE QLD 38 SYDNEY AVE, FORREST ACT 34 SOUTHGATE AVE, CANNON HILL QLD 510 CHURCH ST, CREMORNE VIC 16 ASPIRATION CIRC, BIBRA LAKE WA Purchase price (A$) 14,320,0001 5,932,0002 73,750,000 36,000,0003 130,000,0004 26,000,000 Initial yield (%)5 5.73 6.02 5.13 5.00 4.66 5.80 Book value (A$)6 15,494,2307 6,500,000 77,500,000 20,819,9648 133,500,000 30,500,000 Capitalisation rate (%)6 4.75 4.50 5.00 5.00 4.50 5.50 Area (m²) 5,520 1,016 8,901 3,520 19,798 16,861 Occupancy (%)9 100 100 100 100 7610 100 WALE at acquisition (years)9 8.8 10.0 8.5 10.0 7.511 3.4 WARR (%)9 2.8 3.0 3.5 3.0 3.0 3.4 Key tenants Construction Sciences, Waco Kwikform 3M Australian National Audit Office, SRC Michael Hill Dentsu, Monash IVF, NDIS Firesafe Group, Wheel Pros, Sparrow Services 1. Represents “as if complete” value including land acquisition cost of A$3,050,000. 2. Represents “as if complete” value including land acquisition cost of A$1,252,000. 3. Represents “as if complete” value including land acquisition cost of A$3,897,000. 4. 50% share. 5. Pre transaction costs. 6. As at 31 March 2022 7. Represents “as is” value as at 31 March 2022. “As if complete” value as per the external valuation is A$17,200,000. 8. Represents “as is” value as at 31 March 2022. “As if complete” value as per the directors’ valuation is A$36,000,000. 9. Weighted by gross property income. 10. The vacant space on acquisition was subject to a 12-month gross rent guarantee provided by the vendor, the majority of which becomes non-refundable if tenants have not been secured and rent payments have not commenced by 1 March 2022. 11. Includes 12-month gross rent guarantee provided by the vendor. 510 CHURCH STREET, CREMORNE VIC / 13 / 12 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 / 15 / 14 Valuations During the year 34 properties were externally valued with all other properties subject to directors’ valuations Basis for valuation The basis of valuation of investment properties is fair value. Fair values are based on market values, being the price that would be received to sell an asset in an orderly transaction between market participants at balance date. IAP’s policy is to value investment properties at each reporting period, with independent valuations performed on a rotational basis to ensure each property is valued at least once every 24 months by an independent external valuer (in compliance with IAP’s debt facility). Where a property is not due for an independent valuation, internal valuations are undertaken at the end of reporting period. The valuation methods include the discounted cash flow method and income capitalisation method. External valuations External valuations were conducted for 34 properties in the portfolio for the second half of the year. External valuations were conducted by Colliers International, Urbis, Savills, Knight Frank and JLL who are all registered as Certified Practising Valuers with the Australian Property Institute. Directors’ valuations At 31 March 2022, there were three properties where fair value was based on directors’ valuations. At each reporting date, the directors update their assessment of the fair value of each property in accordance with the Fund’s valuation policy. Tenant base The Fund has maintained a diversified tenant base across both industries and tenant types, with no single tenant (excluding government tenants) accounting for more than 3.9% of the Fund’s income. The Fund’s limited exposure to tenants in the retail and consumer discretionary sectors, combined with a high proportion of the Fund’s tenants being government, listed or multinationals, means that the Fund has been able to navigate the impacts of the COVID-19 pandemic with minimal disruption. TOP 10 TENANTS1, 2 TOTAL Commonwealth of Australia 8.1% Carsales.com 3.9% Honeywell 2.9% Vulcan Steel 2.6% Michael Hill 2.6% CTI Freight Systems 2.5% Northline 2.4% State Government of Victoria 2.3% Pharmaxis 2.3% Milne Agrigroup 2.2% 31.9% TENANT TYPE1, 2 TOTAL OFFICE INDUSTRIAL Australian Corporate 21.9% 14.5% 38.2% Australian Listed 21.0% 17.1% 29.4% Foreign Listed 20.3% 23.2% 14.2% SME 8.4% 8.8% 7.5% Federal Government 7.3% 10.6% 0.0% Multinational 6.6% 6.1% 7.7% State Government 6.0% 7.3% 3.0% Foreign Government 4.3% 6.3% 0.0% Other 2.4% 3.6% 0.0% Not for Profit 1.8% 2.6% 0.0% 100% 100% 100% INDUSTRY TYPE1, 2 TOTAL OFFICE INDUSTRIAL Government 17.6% 24.2% 3.0% Technology 16.5% 22.3% 4.0% Industrials 14.2% 2.4% 39.9% Health Care 12.8% 15.4% 7.2% Financials/Professionals 12.3% 17.5% 1.1% Consumer Discretionary 7.2% 6.5% 8.7% Materials 6.6% 0.4% 20.3% Consumer Staples 5.9% 1.7% 15.1% Real Estate 3.3% 4.6% 0.6% Other 1.4% 2.0% 0.2% Retail 0.9% 1.4% 0.0% Communication Services 0.5% 0.8% 0.0% Energy 0.6% 0.9% 0.0% 100% 100% 100% 1. Weighted by gross property income. 2. Excludes signed HoAs. / 15 / 14 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 / 17 / 16 Third party funds management IAP’s third party funds management platform is focused on providing investment opportunities to wholesale investors through unlisted real estate private equity funds, joint ventures and separately managed accounts. The management team has a long and successful track record in managing third party capital—both institutional and high net worth—with unlisted funds management capabilities dating back to 2006. Since that time, the management team has managed a number of wholesale funds, numerous joint ventures and separate mandates. The management team has successfully deployed capital across a range of asset classes, including commercial office, industrial, residential, retail, hotel and self-storage as well as different strategies including core, value-add, opportunistic, development and both performing and distressed debt. Investors in our wholesale funds as well as our joint venture partners benefit from: • on-the-ground access with offices in Australia’s three largest cities • assets under management in all of Australia’s main commercial centres and in New Zealand • in-house property management, asset management and project management capabilities • diverse team skillset including both direct and indirect real estate activities • strong in-house legal, tax and execution skills IAP currently manages A$161 million of equity in the unlisted ITAP Fund and an additional A$262 million of third party funds as detailed below: ITAP FUND INVESTEC GROUP ASSETS Type Unlisted real estate opportunity fund Third party management of real estate portfolio FUM A$161m N/A Co-investment A$30m nil Start December 2019 December 2020 Term 7–8 years 4 years IAP role Investment manager and asset manager Asset manager Fees to IAP Investment management fee 0.38125% on equity under management Performance fee 20% over 8% hurdle (26.25% share) Asset management fee At market rates dependent on asset type Asset management fee A$700,000 per annum THE GROVE YARRAVILLE YOUNGHUSBAND Type Single asset syndication Single asset syndication Single asset syndication FUM A$33m A$83m $146m Co-investment By ITAP Fund, excluded from FUM above By ITAP Fund, excluded from FUM above By ITAP Fund, excluded from FUM above Start June 2019 October 2021 April 2022 Term 6–7 years 6–7 years 10 years IAP role Investment manager Manager Development manager Asset manager Investment manager Fees to IAP Investment management fee Management fee Performance fee Development management fee Asset management fee Performance fee Valuation summary The table below details the fair value movements of the Fund’s properties from 31 March 2021 to 31 March 2022, including the valuations adopted at the interim reporting date on 30 September 2021. MOVEMENT (%) PROPERTY FY22 HY22 FY21 FY22–HY22 FY22–FY21 47 Sawmill Circuit, Hume ACT E 17,050,000 E 14,000,000 D 12,700,000 21.8% 34.3% 57 Sawmill Circuit, Hume ACT E 18,400,000 E 15,400,000 E 13,900,000 19.5% 32.4% 24 Sawmill Circuit, Hume ACT E 17,900,000 E 17,600,000 E 14,500,000 1.7% 23.4% 44 Sawmill Circuit, Hume ACT E 19,600,000 E 15,500,000 D 10,500,000 26.5% 86.7% 2–8 Mirage Road, Direk SA E 12,700,000 D 9,100,000 D 8,750,000 39.6% 45.1% 30–48 Kellar Street, Berrinba QLD E 12,100,000 E 11,250,000 E 9,500,000 7.6% 27.4% 165 Newton Road, Wetherill Park NSW E 38,500,000 E 36,750,000 E 33,500,000 4.8% 14.9% 24 Spit Island Close, Newcastle NSW E 14,500,000 E 13,000,000 E 12,000,000 11.5% 20.8% 67 Calarco Drive, Derrimut VIC E 15,300,000 E 14,400,000 E 12,300,000 6.3% 24.4% 66 Glendenning Road, Glendenning NSW E 47,750,000 E 42,750,000 E 38,250,000 11.7% 24.8% 85 Radius Drive, Larapinta QLD E 25,500,000 E 23,650,000 E 19,500,000 7.8% 30.8% 54 Miguel Road, Bibra Lake WA E 44,250,000 E 36,000,000 E 33,000,000 22.9% 34.1% 24 Rodborough Road, Frenchs Forest NSW E 29,000,000 E 26,750,000 E 24,500,000 8.4% 18.4% 6–8 and 11 Siddons Way, Hallam VIC E 30,100,000 E 28,000,000 E 23,750,000 7.5% 26.7% 36–42 Hydrive Close, Dandenong South VIC E 29,250,000 E 28,500,000 E 25,700,000 2.6% 13.8% 103 Welshpool Road, Welshpool WA E 47,600,000 D 38,000,000 E 30,000,000 25.3% 58.7% 46–70 Grand Trunkway, Gillman SA E 34,500,000 E 30,000,000 E 29,000,000 15.0% 19.0% 16 Dawson Street, East Arm NT E 32,000,000 E 31,000,000 D 29,400,000 3.2% 8.8% 197 Belconnen Crescent, Brendale QLD E 21,000,000 E 19,450,000 D 11,600,000 8.0% 81.0% 131–153 Main Beach Road, Pinkenba QLD E 30,100,000 E 27,400,000 D 24,750,000 9.9% 21.6% Acquisitions/developments during period 57–83 Mudgee Street, Kingston QLD1 E 15,494,230 D 5,041,000 81 Dunhill Crescent, Morningside QLD E 6,500,000 D 2,800,000 16 Aspiration Circuit, Bibra Lake WA E 30,500,000 Total Industrial 589,594,230 486,341,000 417,100,000 21.23% 41.36% 449 Punt Road, Cremorne VIC E 72,500,000 E 64,000,000 E 61,500,000 13.3% 17.9% 35–49 Elizabeth Street, Richmond VIC E 113,000,000 D 108,750,000 E 104,500,000 3.9% 8.1% 2404 Logan Road, Eight Mile Plains QLD D 17,400,000 D 17,000,000 D 17,000,000 2.4% 2.4% 186 Reed Street, Greenway ACT D 26,100,000 D 25,250,000 D 25,250,000 3.4% 3.4% 21–23 Solent Circuit, Baulkham Hills NSW E 73,500,000 D 71,000,000 E 68,000,000 3.5% 8.1% 266 King Street, Newcastle NSW E 88,000,000 D 83,500,000 D 81,500,000 5.4% 8.0% 113 Wicks Road, Macquarie Park NSW E 36,000,000 E 35,000,000 E 33,000,000 2.9% 9.1% 324 Queen Street, Brisbane QLD E 89,500,000 D 82,500,000 D 79,000,000 8.5% 13.3% 20 Rodborough Road, Frenchs Forest NSW E 72,000,000 D 67,400,000 E 66,000,000 6.8% 9.1% 2 Richardson Place, North Ryde NSW E 115,500,000 D 114,500,000 E 110,000,000 0.9% 5.0% 100 Willis Street, Wellington NZ2 E 153,753,645 D 153,700,000 E 143,605,774 0.0% 7.1% Acquisitions/developments during period 38 Sydney Avenue, Forrest ACT E 77,500,000 D 75,600,000 34 Southgate Avenue, Cannon Hill QLD3 D 20,819,964 D 10,280,000 510 Church Street, Cremorne VIC E 133,500,000 Total Office 1,089,073,609 908,480,000 789,355,774 19.88% 37.97% TOTAL PORTFOLIO 1,678,667,839 1,394,821,000 1,206,455,774 20.35% 39.14% E External valuation D Directors’ valuation 1. Represents “as is” value as at 31 March 2022. “As if complete” value as per the external valuation is A$17,200.000. 2. Converted at a sport rate of 1.0796 at 31 March 2022. 3. Represents “as is” value as at 31 March 2022. “As if complete” value as per the directors’ valuation is A$36,000.000. Valuations Continued / 17 / 16 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 / 18 Investec Group assets IAP provides asset management services to Investec Group in respect of certain real estate assets in which Investec Group has an interest for which IAP receives an annual fee of A$700,000. Third party funds management Continued Equity committed A$3.0m Equity source ITAP Fund Type First mortgage Description Acquisition loan for self-storage development site Location Queensland Equity committed A$50.3m Equity source ITAP Fund Type Equity JV Description Repositioning of high quality retail centre in the Adelaide CBD Location South Australia Equity committed A$107.5m Equity source ITAP Fund and two third party mandates Type Equity JV Description Multi-stage infill residential development of townhouses, apartments and neighbourhood activity centre Location Victoria Equity committed A$25.1m Equity source ITAP Fund Type Equity JV Description Current B-grade office building with future value-add or development strategy Location New South Wales Equity committed A$37.5m Equity source ITAP Fund and two third party mandates Type Equity JV Description Residential land development in Melbourne growth area Location Victoria Equity committed A$158.3m Equity source ITAP Fund and two third party mandates Type Equity JV Description Multi-stage office project comprising heritage refurbishment, new build and supporting retail Location Victoria Assets under management IAP manages six assets across the ITAP Fund and various single asset mandates, as detailed below: Phillip Street | Office | Value-add/Development Younghusband | Office | Development Yarraville | Residential | Development The Grove | Residential | Development Rundle Place | Retail | Value-add Loganholme | Industrial | Self storage / 18 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Financial management 03 — / 21 NTA increased from $1.43 to $1.74 at 31 March 2022. The increase in NTA is largely related to the revaluation of investment properties. Gearing as at the reporting date is 30.1%, which is an increase of 2.3% since 31 March 2021. NTA per security A$1.74 (prior year A$1.43) 21.6% Gearing 30.1% (prior year 27.8%) 2.3% Funding cost 2.95% (prior year 2.84%) 11bps NTA bridge A$ 0.0 0.5 1.0 1.5 2.0 31 March 2021 1.43 31 March 2022 1.74 Property revaluations 0.25 MTM—derivatives and FX 0.05 Distributable income 0.10 Distributions paid/payable (0.09) Debt and swap expiry profile 0 50 100 150 200 FY32 FY31 FY30 FY29 FY28 FY27 FY26 FY25 FY24 FY23 FY22 Drawn Undrawn Fixed rate debt Swap A$m Balance sheet management NTA per security A$1.74 / 20 Key metrics FY22 FY21 Investment property (A$b) 1.679 1.237 Investments (A$m) 21 6 Total debt (A$m) 521 342 Gearing (%) 30.1 27.8 Funding cost (%) 2.95 2.84 Hedge position (%) 85.9 78.3 % of debt fixed (%) 28.8 43.9 WADE (years) 6.0 6.1 WASE (years) 6.8 7.0 Annual interest cover ratio/covenant (times) 6.8/2.0 6.6/2.0 Loan to value ratio/covenant (%) 31.0 28.2 FY22 highlights FFO 10.40 cps AFFO 9.77 cps Distributions 9.20 cps WADE 6.0 years WASE 6.8 years Hedged 85.9% Gearing 30.1% / 21 / 20 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 / 22 Funds from operations The Responsible Entity targets distributions of between 80% and 100% of the Fund’s FFO each year, and will report distributions as a percentage of FFO and AFFO. FFO is calculated in accordance with the Property Council Guidelines, determined by adjusting statutory net profit (under AAS) for non-cash and other items such as property revaluations, derivative mark-to-market impacts, amortisation of tenant incentives, gain/loss on sale of investment properties, straightline rental revenue adjustments, non-FFO tax expenses/benefits and other unrealised and one-off items. AFFO is calculated in accordance with the Property Council Guidelines, being FFO adjusted for maintenance capital expenditure, cash and cash equivalent incentives (including rent free incentives) given to tenants during the period and other one-off items which have not been adjusted in determining FFO. A reconciliation of the statutory profit to FFO and AFFO is set out below for the years ended 31 March 2022 and 31 March 2021. UNAUDITED A$,000 FY22 FY21 Profit after tax 266,324 110,7391 Adjusted for: IPF I interim results for the period to 30 September 2020 – 38,3442 IPF I profit for the period 1 October 2020 to 29 November 2020 – 10,3153 Total profit after tax 266,324 159,3984 Adjusted for Non-FFO tax 194 (2,957) Fair value adjustments (190,776) (110,740) Equity accounted adjustments (2,995) 707 Straight-line rental revenue adjustments (2,477) (1,208) Amortisation of incentives 1,631 1,376 (Profit)/Cost on sale of investment property (4,942) 2,013 Other one-off items 330 8,045 FFO 67,289 56,634 Maintenance capital expenditure (1,854) (1,833) Leasing fees and cash incentives (2,234) (2,004) AFFO 63,201 52,796 Weighted average securities 647,220 611,298 Basic and diluted earnings per security (cps) 41.15 26.08 FFO (cps) 10.40 9.26 AFFO (cps) 9.77 8.64 Distributions paid or provided for during the year (cps) 9.20 8.92 Distribution as a percentage of FFO (%) 88.5 96.3 Distribution as a percentage of AFFO (%) 94.2 103.3 Details about distribution components under the AMIT regime (only relevant for the full year distribution) including “Fund Payment” amounts (only relevant for foreign holders) and AMIT cost base adjustments are included in the distribution announcements and will also be made available on the website at irongategroup.com.au on or before the relevant distribution date. 1. As per the consolidated statement of profit or loss and other comprehensive income. 2. IPF I (then known as Investec Australia Property Fund) reviewed interim results for the six months to 30 September 2020. 3. The results of IPF I for the period 1 October 2020 to 29 November 2020, prior to the internalisation transaction and consolidation of IPF II and IPF I. 4. The consolidated comprehensive income of IPF I and IPF II for the period 1 April 2020 to 31 March 2021. / 22 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Environmental, social and governance 04 — / 25 / 24 IAP’s ESG report is available on the website at irongategroup.com.au FY22 highlights As this is the Fund’s first full reporting year since internalisation, our sustainability framework has seen substantial development. This work has resulted in a number of achievements, and we are pleased to present our key highlights for FY22. Social Governance Environmental Climate Active carbon neutral buildings 6 sites NABERS ratings 21 30 environmental risk audits carried out to align with the Task Force on Climate Related Disclosure generated from rooftop solar 663,345 kwh mapping net zero 2030 analytic points monitoring HVAC, electricity and water consumption 2,438 Voluntary modern slavery statement made in 2021 tier 1 suppliers surveyed for sustainability awareness and education 10 new policies implemented to support the ESG framework 3 First employee wellness survey issued 100% of employees responded Indoor air quality assessments have commenced at properties under operational control with positive results being identified businesses surveyed representing 76 3,952 occupants were very satisfied or satisfied with COVID-19 response 82% Continued to provide financial contributions to chosen charitable organisations 10–20 30–40 20–30 0–10 40+ Low Risk LOW HIGH MED NEGL SEVERE average employee satisfaction rating 100 85 savings in Scope 1 and Scope 2 emissions 906,377kg C02e Obtained independent certification of: • Quality Management System • Environmental Management System • Occupational Health and Safety System 14001 ISO 45001 ISO 9001 ISO / 25 / 24 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 / 27 / 26 Risk management Philosophy and approach The Board is responsible for the entire risk management process and the systems of internal control. The management team is responsible for identifying risks and implementing appropriate mitigation processes and controls. The Audit and Risk Committee, accountable to the Board, is responsible for establishing, reviewing and monitoring the process of risk management. The Audit and Risk Committee participates in the management team’s process of setting risk tolerance levels, formulating and implementing the risk management plan and reports on the plan adopted by the management team to the Board. The risk management objectives are to: • ensure the business operates within the Board stated risk appetite • support long-term sustainability by providing an established, independent framework for identifying, evaluating, monitoring and mitigating risk • set, approve and monitor adherence to risk parameters and limits and ensure they are implemented and adhered to consistently • aggregate and monitor exposure across risk classes • coordinate risk management activities across the business • give the Board reasonable assurance that the risks the business is exposed to are identified and, to the best extent possible, managed and controlled • establish appropriate risk committees, as mandated by the Board The risks set out in the table below, which may result in reduction of earnings and/or loss of value should they materialise, are of primary importance: RISK IMPACT MITIGATION STRATEGIC • Reputational • Investor uncertainty • Customer uncertainty • Management meetings • Quarterly Audit and Risk Committee and Board reporting • Budgeting and forecasting process • Crisis management control GOVERNANCE • Fund governance • Investment • Negative tax implications to investors • Financial loss • Reputational damage • Investor detriment • Potential regulatory sanctions • Board comprising independent directors • Board sign-off of investments • External audit and biannual review • External tax review on biannual distributions • Related party disclosure • JSE and ASX disclosure requirements • Sponsor oversight OPERATIONAL • Legal and regulatory • Technology • People • Outsourcing • Fraud • Conduct • Workplace health and safety • Fund tax status • Breach of regulation • ASIC sanctions/undertaking • Potential loss of licence • Financial loss • Reputational damage • Inefficient business processing • Internal and external fraud • Workplace health and safety • Quarterly Audit and Risk Committee and Board reporting • External audit and biannual review • Annual review of internal processes • Third party systems and IT support • SLAs for external technology providers • BCP/disaster recovery testing • Controls in place for payments and role segregation • Employee training • Policies and procedures • Review of tax and distribution calculations • Tax review as part of acquisition process MARKET/INVESTMENT • Investment governance—product selection/oversight • Adverse market conditions • Counterparty risk (failure) • Investment governance— valuation and pricing • Funding risk • Reduction in income • Reduction in portfolio value • Breach of covenants • Loss of investors • Lease documentation (contractual requirements) • Due diligence on tenant financials • Security under the leases (bank guarantees) • Arrears reporting • Biannual fair value assessment of portfolio against industry benchmarks • Requirement for external valuations every 24 months LIQUIDITY • Liquidity management— Responsible Entity level • Liquidity management— Fund level • Failure to meet constitutional requirements • Unable to pay debts when they fall due • Default on loans • Potential default under leases • Inability to pay distributions • Monthly cash flow forecasting • Covenant reporting • Adherence of Board mandated gearing levels Internal audit The Responsible Entity does not have an internal audit function however the Fund did engage an external consultant to conduct an internal audit as part of the ISO accreditation process. Further information on this process can be found in our Sustainability Report. The Audit and Risk Committee is responsible for establishing, reviewing and monitoring the process of risk management. The management team is responsible for the implementation of risk management and internal control processes on a continual basis and are subject to the oversight of the Audit and Risk Committee. External audit KPMG is the external auditor of the Fund. The independence of the external auditor is reviewed by the Audit and Risk Committee each year. The Audit and Risk Committee meets with the external auditor to review the scope of the external audit, budgets, the extent of non-audit services rendered and all other audit matters. The external auditor is invited to attend Audit and Risk Committee meetings and have access to the chairperson of the Audit and Risk Committee. Business rescue The Board will consider business rescue procedures or other turnaround mechanisms if the Fund becomes financially distressed. In this regard the Board will ensure the Fund’s solvency and liquidity are continuously monitored. Compliance Compliance risk is managed through internal policies and procedures, which include legal, regulatory and operational requirements relevant to the Fund. In addition to monitoring compliance with the provisions prescribed by the respective regulatory authorities, the Fund has a compliance plan which outlines its obligations as a registered Managed Investment Scheme established in accordance with the requirements of the Corporations Act. The compliance plan is audited annually. The key areas of focus for the year were: • conduct risk • managing compliance risk brought about by the arrangements necessitated by the COVID-19 pandemic • managing compliance risk brought about by regulatory change and other external influences • training and competency The key areas of focus for the next year are: • conduct risk • managing compliance risk brought about by regulatory change and other external influences • training and competency • ISO accreditation requirements of quality, environmental and work health and safety / 27 / 26 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 / 29 / 28 Directors of the Responsible Entity Richard Longes Independent non-executive chairperson Chairperson of the Nomination and Remuneration Committee Appointed: 28 February 2005 Professional experience Richard was a co-founder of Investec Wentworth (Pty) Ltd (formerly Wentworth Associates) and was previously a partner in the law firm, Freehills. He holds, or has held, positions with government advisory boards, including the review of the National Museum and the funds management committee for the IIF programme, and not for profit organisations. Richard is chair of Liberty Financial Group and formerly chair of Investa Office Fund, MLC Limited, GPT Group and Investec Australia Limited and a non-executive director of Metcash Limited, Boral Limited and Lend Lease Corporation Limited. Qualifications Bachelor of Arts; Bachelor of Laws; Master of Business Administration Graeme Katz Executive director and CEO Appointed: 31 March 2009 Professional experience Graeme joined the Investec Group to head up the Australian property business in 2006. Prior to that, he was general manager of investment sales at Mirvac Group where he was the key person and responsible officer for the Mirvac Group real estate licence dealing with their registered and unregistered schemes. Graeme is a director of a number of companies within the Irongate Group. He was previously a director of the Property Investors Association of Australia. Qualifications Bachelor of Social Science (Economics) Sally Herman Independent non-executive director Chairperson of the Audit and Risk Committee Member of the Nomination and Remuneration Committee Appointed: 24 July 2013 Professional experience Sally has had a long career in financial services in both Australia and the United States. In late 2010, she transitioned from an executive career to expand her non- executive portfolio. Prior to that, she had spent 16 years with the Westpac Group, running business units in most operating divisions of the Westpac Group, including the institutional bank, wealth management and the retail and business banking division. Sally is currently a non-executive director, sitting on both for-profit and not- for-profit boards, and is actively involved in the community, with a particular interest in the arts, education and human rights . Her other commercial boards are in the financial services, manufacturing and retail sectors and include four publicly listed companies—Premier Investments Limited, Breville Group Limited and Suncorp Limited. Sally is also a member of Chief Executive Women. Qualifications Bachelor of Arts; Graduate of the Australian Institute of Company Directors Georgina Lynch Independent non-executive director Member of the Audit and Risk Committee Member of the Nomination and Remuneration Committee Appointed: 1 July 2019 Professional experience Georgina has over 28 years’ experience in the financial services and property industry. She is currently the non-executive chairperson of Cbus Property, an independent non-executive director and member of the audit and risk committee of Waypoint REIT and Chair of the remuneration and nomination committee and an independent non-executive director and member of the remuneration and nomination committee and Risk and Responsible Investment Committee of Tassal Group Limited. She is also a non-executive Director of Evolve Housing. Georgina has significant global experience in corporate transactions, capital raisings, initial public offerings, funds management, corporate strategy and acquisitions and divestments. Qualifications Bachelor of Arts; Bachelor of Laws Stephen Koseff Independent non-executive director Member of Audit and Risk Committee Member of the Nomination and Remuneration Committee Appointed: 7 July 2014 Professional experience Stephen is the former chief executive officer of the Investec Group. Dual listed on the London Stock Exchange and the Johannesburg Stock Exchange. Stephen was with Investec for 39 years in various capacities and CEO from 1996 to 2018. In 2017, Stephen was awarded an Honorary Doctor of Commerce Degree by the University of the Witwatersrand. He is a former non-executive director of the South African Banking Association, The Bidvest Group Limited and the JSE limited, a former board member of Business Leadership South Africa, former non-executive director and chairman of the South African Banking Association, a former member of the Financial Markets Advisory Board and former chairman of the Independent Bankers Association. Stephen is the chairman of BidCorp Limited, Bud Group (Pty) Ltd, IEP Group (Pty) Ltd, Innovation Africa SA NPC, EDT Trust INL Investments (Pty) Ltd, co-chair of Youth Employment Service (YES), ArrowPoint Ltd (Australia) and a non-executive director of Investec Limited, Investec PLC, Irongate Funds Management Limited (Australia) and Bravo Transport Holdings Ltd. Qualifications Bachelor of Commerce (Chartered Accountant SA); Masters in Business Administration; Higher Diploma in Business Data Processing; Honorary Doctor of Commerce / 29 / 28 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 / 31 / 30 Remuneration report This Remuneration Report presents remuneration arrangements for KMP for the year ended 31 March 2022. The report has been prepared in accordance with the requirements of the ASX Listing Rules and the JSE Listings Requirements. The quantum and nature of the remuneration of directors and other KMP required under section 300A of the Corporations Act has been disclosed and will be subject to an advisory vote at the annual general meeting. Due to the structure of the Fund, the remuneration report is not required to be audited, and accordingly the Remuneration Report has not been audited. Letter from the chairperson of the Nomination and Remuneration Committee Dear securityholders, On behalf of the Nomination and Remuneration Committee and the Board, I am pleased to present this Remuneration Report which provides an overview of our FY22 remuneration structure and the outcomes and approach to FY23. FY22 has been a year of continued growth and success on delivering the Fund’s strategy. FY22 is the first full financial year operating under an internalised management structure. The transition out of the Investec Group was a streamlined process, with many efficiencies being realised. As outlined in the FY21 Remuneration Report, following a comprehensive review of the Fund’s remuneration policy, a more transparent reward framework aligned with best practice remuneration principles has been adopted and outlined in this Remuneration Report. At the end of March 2022, the Fund announced that it had entered into a scheme implementation agreement with Charter Hall PGGM Industrial Partnership No. 2 (CHPIP) under which CHPIP would acquire 100% of the units in Irongate Property Fund I (IPF I) and Charter Hall Holdings Pty Limited or its subsidiary would acquire 100% of the units in Irongate Property Fund II (IPF II) (Proposal). The Proposal is expected to be completed by mid-July 2022, but remains subject to various conditions including approval by securityholders. The remuneration implications of the Proposal will be dealt with in a separate scheme booklet which is expected to be considered by securityholders at extraordinary general meetings of IPF I and IPF II currently expected to be held in late June 2022. This Remuneration Report relates to FY22 and should be reviewed in this manner. The introduction of a market practice remuneration framework in FY22 has seen KMP being rewarded based on the performance of the Fund. The Fund’s security price increased by 41.5% between 31 March 2021 and 31 March 2022 and FFO growth of 12.3% achieved for FY22 are two of the targets on which KMP STI reward outcomes have been based. The Board notes that the Fund materially exceeded each of these benchmarks for FY22 and distributions were restrained by the limits placed under the scheme implementation agreement entered into in connection with the Proposal. More detail on the FY22 STI reward outcomes can be found in section 4 of the Remuneration Report. At our 2021 annual general meeting, we incurred a ‘first strike’ with 32.7% of votes cast against the adoption of the 2021 remuneration report. The Board takes this outcome very seriously, reviewing external feedback. This is addressed in section 5 of the Remuneration Report. The Remuneration Report has been prepared having regard to FY22 performance and in consideration of the position of the business going into FY23. The Nomination and Remuneration Committee has taken into account that should the Proposal proceed, management involvement is essential in the transition and remuneration has been tailored for this process. In particular, the Board has recognised that the financial incentives which applied to FY22 are for this reason not applicable to FY23 and accordingly the incentives have been structured on a basis to encourage staff to assist in implementation of the Proposal and to retain their services during a disruptive period. In the event that the Proposal is not approved it is proposed to re-implement incentives along the lines applicable to FY22. On behalf of the Board and Nomination and Remuneration Committee I hope you find this Remuneration Report informative. Yours sincerely Richard Longes Chairperson, Nomination and Remuneration Committee 1. Key Management Personnel (KMP) The KMP for FY22 were: Graeme Katz—Chief Executive Officer (CEO) Zach McHerron—Fund Manager Kristie Lenton—Chief Financial Officer (CFO) 2. Principles of remuneration for Executive KMP The Board recognises that the key to our ongoing success lies in retaining and attracting high performing people. Accordingly, following internalisation, the Nomination and Remuneration Committee undertook a comprehensive review of the Fund’s remuneration policy and underlying executive remuneration, supported by input on market practice insights and trends in relation to executive remuneration approaches from an external remuneration consultant. This review was undertaken in consideration of the new internalised management structure and to ensure our remuneration framework is aligned with the best practice remuneration principles. No remuneration recommendations were made by the remuneration consultant and the advice provided represents just one of many inputs the Nomination and Remuneration Committee uses to make remuneration decisions. It is important that there is good alignment between executive pay and securityholder value and that our remuneration framework is designed to link the Fund’s strategy and performance with the remuneration outcomes for executive KMP. Following its review of market practice and benchmarks, the Nomination and Remuneration Committee determined that adjustments to the structure of executive KMP remuneration, including the balance between fixed and ‘at risk’ pay components designed to encourage retention of executive KMP, were required to better align executive KMP with market benchmarks and securityholder expectations. Our remuneration framework is designed to support IAP’s strategy and is structured to link rewards to individual performance and the execution of the IAP’s strategy to sustainably grow distributions and long-term capital growth. This leads to the creation of securityholder value. Application of the remuneration framework for FY22 PURPOSE AND LINK TO STRATEGY PERFORMANCE MEASURES DELIVERY Total Fixed Remuneration (TFR) Set at a level to attract and retain suitably qualified and experienced executives capable of leading and delivering the strategy TFR is to be positioned between the 25th percentile to median of the REIT industry benchmark Base salary, statutory superannuation and other benefits Short-term incentives (STI) Rewards the achievement of annual targets aligned to the delivery of sustainable stakeholder outcomes A mix of financial outcome measures such as FFO and ROE balanced with measures of value drivers including customers, people and sustainability A mix of cash and deferred securities Long-term incentives (LTI) Aligns executive outcomes with long-term securityholder returns A mix of total return against an internal benchmark and total securityholder return versus ASX 300 A-REIT index Performance rights to Irongate securities subject to a three-year performance period Executive KMP are entitled to receive certain payments including the vesting of all unvested performance rights if the Fund decides to terminate a position without cause including through redundancy or takeover. 3. Executive remuneration policy and framework for FY22 To deliver the Fund’s strategy, the executive remuneration framework reflects the desire to attract and retain the best people. IAP’s executive remuneration framework is structured so that a substantial portion of remuneration is delivered as Irongate securities through STI and LTI. YEAR 1 YEAR 2 YEAR 3 Fixed Remuneration 100% cash Base Salary, Superannuation and Other Benefits STI 67% cash Cash 33% deferred Rights Deferred Rights LTI 100% Performance Rights 50% subject to relative total securityholder returns (TSR) growth 50% subject to total return / 31 / 30 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 / 33 / 32 4. Executive KMP remuneration framework for FY22 Executive KMP remuneration is structured to link rewards to individual performance and the execution of the Fund’s strategy to sustainably grow distributions and long-term capital growth. This leads to the creation of securityholder value. Short-term incentives Purpose To reward the achievement of annual targets aligned to the delivery of sustainable stakeholder outcomes. Value % OF FIXED PAY Target Maximum CEO 100% 100% Other executive KMP 50% 50% Individual STI awards are dependent on the Fund’s and individual performance measures based on the STI Corporate Scorecard approach which the Board uses to set Key Performance Indicators (KPIs) that are aligned to overall business strategy and key priorities. The performance measures in the STI Corporate Scorecard in FY22 are shown below: PERFORMANCE MEASURES REASONS FOR CHOOSING THIS MEASURE Financial outcomes (70%) FFO Key measure of progress against the strategy of delivering sustainable growth in earnings Non-financial outcomes (30%) • Execution of strategy • Organisational development • Culture • Engagement • Sustainability Drives focus on the delivery of the Group’s strategy whilst recognising that organisations with a diverse, inclusive and engaged workforce deliver superior returns Performance assessment Delivery of awards Given the scheme proposal, 100% of the STI was delivered in cash. Leaver provisions On voluntary termination or termination with cause or due to poor performance, all awards are forfeited. In the circumstances of death, disability, retirement, redundancy, takeover or mutually agreed separation, the Board has the discretion to retain deferred awards. Long term incentives Purpose To align executive outcomes with long-term securityholder returns to build business accountability and ownership. Instrument LTI awards are made in the form of performance rights to Irongate’s securities granted under the Irongate Performance Rights Plan. A performance right is a right to acquire, at no cost to the executive, one fully-paid Irongate security subject to certain performance and service conditions. No distributions are paid on performance rights. Value The maximum LTI opportunity for awards made to KMP in FY22 was 100% of TFR for the CEO and 50% for other executive KMP. Performance period The performance period for the FY22 awards is 1 April 2021 to 31 March 2024 Performance conditions RELATIVE TOTAL SECURITYHOLDER RETURN (rTSR) TOTAL RETURN Total securityholder return is defined as growth in security price over the performance period, expressed as a percentage and factoring in distributions being reinvested. The position of IAP will be assessed against the ASX 300 A-REIT index (Comparator Group) over the performance period. Total return means the change in NTA plus distributions over the performance period, divided by NTA at the commencement of the performance period. The Nomination and Remuneration Committee will have the ability to include or exclude certain items from the total return calculation where appropriate, to ensure there is no undue advantage, penalty or disincentive from undertaking certain activities. Vesting conditions Below 50th percentile 0% Below target Nil At 50th percentile 50% Equal to target 50% Between 50th percentile and 75th percentile Straight line pro rata vesting between 50% and 75% Between target and stretch Straight line pro rata between target and stretch Above 75th percentile 100% At or above stretch 100% Leaver provisions Reason for termination Treatment of unvested performance rights In the circumstances of death, disability, retirement, redundancy, takeover or mutually agreed separation At the discretion of the Board, performance rights may be retained or early vested All other circumstances Forfeited Retention scheme established by the Investec Group The KMP and a limited number of other employees participate in the retention scheme established by the Investec Group. An employee participating in the retention scheme is entitled to a retention payment which vests on two vesting dates, being 1 April 2022 and 1 April 2023. The payment under the retention scheme will be made in cash and will not involve the issue of securities in IAP or other financial products to the employees. The Fund agreed to assume the obligations of the Investec Group under the retention scheme in respect of the retention payments vesting on 1 April 2022 and 1 April 2023 as outlined in the explanatory memorandum associated with the internalisation of the management function. Generally, the employee must remain employed by the Fund as at each relevant vesting date, and satisfy the following performance conditions, for the retention payment to vest: • no formal conduct issues having been raised in relation to the employee; • IAP having maintained its brand and reputation within its target market; and • in the case of the CEO only, succession plans being in place for key people within the team. The Board has discretion to make a payment under the retention scheme in case of cessation of employment because of disability or death. 5. Our response to the first strike on the remuneration report At the 2021 AGM, 32.7% of securityholders voted against the FY21 Remuneration Report (a ‘First Strike’). The largest contributor to the votes against the FY21 Remuneration Report was from the largest securityholder, 360 Capital, who hold a 19.9% stake in IAP. Subsequent to the AGM, 360 Capital have made three non-binding indicative proposals to acquire all of the securities in IAP. The Board have consulted with proxy advisers, institutional investors, equity analysts and other stakeholders. The feedback received has been valuable and has been incorporated into the remuneration framework and disclosure of outcomes. 6. Group performance and executive KMP remuneration outcomes The table below summarises the Fund’s financial performance for FY22. MEASURE FY22 Earnings per security (cents) 41.19 FFO (cents per security) 10.40 AFFO (cents per security) 9.77 Distributions per security (cents) 9.20 Closing security price at 31 March 2022 ($) 1.91 The STI provides executive KMP with the opportunity to receive cash and equity based on a one-year performance period following an assessment against specified financial and non-financial performance conditions. Performance criteria for FY22 are set out below. MEASURE FY22 RESULT PERFORMANCE DETAIL Financial FFO 70% 70% FFO growth materially exceeded benchmark Non-financial • Execution of strategy • Organisational development • Culture • Engagement • Sustainability 30% 30% • 85% overall employee satisfaction rating • Six buildings achieved Carbon Neutral Certification during the reporting period • Published inaugural Modern Slavery Statement • Maintained a strong culture and kept entire team intact, despite corporate activity and remote working requirements Remuneration report Continued / 33 / 32 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 / 35 / 34 6.1 FY22 STI scorecard outcomes The table below shows the maximum in cash and short-term performance rights that each executive KMP could earn for FY22, and the actual results achieved. MAXIMUM FOR FY22 RESULT FOR FY22 TOTAL CASH SHORT TERM PERFORMANCE RIGHTS TOTAL CASH SHORT TERM PERFORMANCE RIGHTS NAMES $ $ $ $ $ $ Graeme Katz—CEO 615,000 615,000 – 615,000 615,000 – Zach McHerron—Fund Manager 205,000 205,000 – 205,000 205,000 – Kristie Lenton—CFO 192,500 192,500 – 192,500 192,500 – Total 1,012,500 1,012,500 – 1,012,500 1,012,500 – 6.2 FY22 long-term incentive outcomes The Fund has had an Employee Securities Plan (Plan) in place for all employees and the CEO as outlined in the explanatory memorandum associated with the internalisation of the management function. The Plan is designed to link employees’ remuneration with the long-term goals and performance of the Fund with the aim of consistently increasing total securityholder return. All securities or LTI performance rights issued under the LTI are issued on a zero-exercise price basis. LTI performance measures The performance measures for the LTI are reviewed in advance of each financial year by the Nomination and Remuneration Committee and the Board. ASX Listing Rules In accordance with ASX Listing Rule 10.14, the issue of any stapled securities or performance rights to the CEO is subject to securityholder approval. It is intended that approval for future issuances will be obtained at the Fund’s annual general meeting each year and, if approved, stapled securities or performance rights will be issued shortly after the relevant meeting. Hedging of performance rights by Executive KMP Under IAP’s Securities Trading Policy, persons eligible to be granted securities as part of their remuneration are prohibited from entering a transaction if the transaction effectively operates to hedge or limit the economic risk of securities allocated under the incentive plan during the period those securities remain unvested or subject to restrictions under the terms of the Plan. 7. Employment contracts and termination entitlements Each executive KMP member, including the CEO, has a formal contract. These contracts are of a continuing nature and have no fixed terms of service. There were no changes to the contracts for executive KMP in FY22. The key terms of the contracts for the CEO and other executive KMP members are summarised below: NOTICE PERIOD CONTRACT TERM EMPLOYEE GROUP TERMINATION PAYMENT1 Graeme Katz No fixed term 6 months 6 months 6 months Other KMP No fixed term 4 months 4 months 4 months 1. Payable if IAP terminates employee with notice, for reasons other than unsatisfactory performance. 8. Non-executive director fees There are currently four non-executive directors. An aggregate pool of $1,000,000 is available for the remuneration of non-executive Directors. Any increase in this amount is required to be approved by securityholders. The fees paid to non-executive directors for FY22 are set out below. A$ Richard Longes 125,000 Sally Herman 115,000 Georgina Lynch 100,000 Stephen Koseff 100,000 Total 440,000 8.1 Non-executive director securityholdings The number of securities held during the year by each non-executive director of the Responsible Entity, including their personally related parties, are set out below. BALANCE 1 APRIL 2021 ON MARKET PURCHASES ON MARKET DISPOSALS OTHER BALANCE 31 MARCH 2022 Richard Longes 121,819 – – – 121,819 Sally Herman 37,879 – – – 37,879 Georgina Lynch 67,493 – – – 67,493 Stephen Koseff 170,733 – – – 170,733 9. Statutory accounting tables LTI performance rights BALANCE AS AT 1 APRIL 2021 RIGHTS GRANTED RIGHTS LAPSED RIGHTS VESTED BALANCE AT 31 MARCH 2022 2022 KMP EXPENSES Graeme Katz—CEO – 415,540 – – 415,540 28,063 Zach McHerron—Fund Manager – 138,514 – – 138,514 29,885 Kristie Lenton—CFO – 130,068 – – 130,068 89,665 Total – 684,122 – – 684,122 147,603 Total executive KMP remuneration BASE SALARY STI CASH AWARD ANNUAL LEAVE SUPERANNUATION LONG SERVICE LEAVE TOTAL Graeme Katz—CEO FY22 589,400 615,000 18,523 23,100 9,823 1,255,846 FY21 186,096 110,000 14,315 7,231 2,4020 320,044 Zach McHerron—Fund Manager FY22 384,400 205,000 13,616 23,100 6,457 632,573 FY21 125,871 95,000 6,811 7,231 1,551 236,463 Kristie Lenton—CFO FY22 356,067 192,500 17,501 23,100 6,126 595,294 FY21 105,647 95,000 8,127 7,231 1,364 217,368 Total FY22 1,329,868 1,012,500 49,640 69,299 22,405 2,483,713 FY21 417,614 300,000 29,253 21,693 5,317 773,875 There were no non-monetary benefits or vesting of deferred STI and LTI plans during the financial year ended 31 March 2022. Remuneration report Continued / 35 / 34 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 / 36 This page has intentionally been left blank. / 36 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group consolidated financial statements prepared in accordance with the Corporations Act 2001 and ASX Listing Rules 05 — / 39 / 38 The directors of Irongate Funds Management Limited (ABN 93 071 514 246), the responsible entity (Responsible Entity) of Irongate Group (IAP or the Group), present their report together with the consolidated financial statements of the Group for the year ended 31 March 2022. Irongate Group is a stapled group consisting of Irongate Property Fund I (IPF I) and Irongate Property Fund II (IPF II). The financial statements of the Group comprise IPF I, IPF II and their respective controlled entities. IPF II was established on 3 September 2020 and stapled to IPF I on 27 November 2020. The implementation date of the management internalisation1 was 30 November 2020 prior to which the Group was known as Investec Australia Property Fund. Effective 7 December 2020, Investec Australia Property Fund changed its name to IPF I and Investec Australia Property Fund II changed its name to IPF II. IPF I was listed on the exchange operated by JSE Limited (JSE) on 23 October 2013, was listed on the exchange operated by ASX Limited (ASX) on 28 May 2019 and following this was dual primary listed on the ASX and JSE. Following the stapling of IPF I and IPF II, the Group continues to be dual primary listed on the ASX and JSE. The security code on both the JSE and the ASX is IAP and the ISIN is AU0000046005. Securities in IPF I and IPF II are quoted on both the JSE and the ASX and can be moved between the South African sub-register and the Australian sub-register. Securityholders can elect where their securities are traded by holding their security on either the South African sub-register or the Australian sub-register. Directors of the Responsible Entity The following persons were directors of the Responsible Entity during the period from 1 April 2021 up to the date of the annual report, unless otherwise stated: Richard Longes Independent non-executive chairperson Sally Herman Lead independent non-executive director and chairperson of the audit and risk committee of the board of the Responsible Entity (Audit and Risk Committee) Georgina Lynch Independent non-executive director Stephen Koseff Independent non-executive director Graeme Katz Executive director Details of Board and Audit and Risk Committee meetings held during the year and directors’ attendance are set out on page 24 of the Sustainability Report 2022. Directors of the Manager The following persons were directors of Irongate Property Management Pty Limited (Manager) during the period from 1 April 2021 up to the date of the annual report: Graeme Katz Executive director Zach McHerron Executive director Kristie Lenton Executive director Company secretary The company secretary for the period 1 April 2021 up to the date of the annual report was Lucy Spenceley. Details on the appointment and evaluation of company secretary by the Board are set out on page 24 of the Sustainability Report 2022. 1. A management internalisation is a transaction where a fund’s unitholders acquire the externally owned responsible entity (and other related management entities) that operate and manage the fund. Principal activities The principal activities of the Group are to invest in real estate assets and manage third-party capital and wholesale funds. Group objectives and investment philosophy The Group’s strategy is to invest in office, industrial and retail properties in major metropolitan cities or established commercial precincts in Australia and New Zealand. As a result of the internalisation transaction, IPF II provides investment and asset management services as part of a combined economic group consolidated with IPF I. The Group also provides investment and asset management services in relation to TAP. The objectives of the Group are to: • deliver income and capital returns to securityholders over time • grow and diversify its asset base • maintain a strong corporate governance framework The Group’s investment philosophy, whether on balance sheet or for third party funds, focuses on making investment decisions based on sound underlying property fundamentals, enhancing the quality of the portfolio and identifying opportunities to unlock additional value through active asset management. The Group adheres to this philosophy by utilising the skills of an experienced and well-connected management team with a presence in the Group’s key geographies of Sydney, Melbourne and Brisbane, and through a commitment to sound balance sheet management. Review of operations A detailed review of operations is included in the introduction from the chairperson and the CEO on page 3 of the annual report. Financial result For accounting purposes, IPF II has been identified as the parent of the consolidated group. IPF II was established on 3 September 2020 in preparation for the internalisation of the management function. IPF II was dormant between the date of establishment and the implementation date of 30 November 2020. The consolidation of IPF II and IPF I became effective on 30 November 2020 which is the implementation date of the internalisation transaction. The following table summarises the statutory profit for the year ended 31 March 2022 with the comparative result of prior year for period from 3 September 2020 to 31 March 2021. A$’000 1 APRIL 2021 TO 31 MARCH 2022 3 SEPTEMBER 2020 TO 31 MARCH 2021 Total revenue and other income 122,277 32,224 Total expenses (46,535) (21,952) Net operating income 75,742 10,272 Fair value adjustments 190,776 97,510 Profit before tax 266,518 107,782 Income tax benefits (194) 2,957 Profit after tax 266,324 110,739 As at 31 March 2022, the Group’s net tangible assets attributable to securityholders was A$1.74 (31 March 2021: A$1.43) per security. Interests of the Responsible Entity Prior to the internalisation transaction, the Responsible Entity had delegated the management of IPF I to the Manager, which was a wholly owned subsidiary of Investec Group (comprising Investec Limited and Investec plc, being the head entities of the dual listed companies structure, and each of their subsidiaries (Investec Group)). The Responsible Entity was not paid fees during the year. The following fees were paid to the Manager for the period from 1 April 2020 up to the date of the internalisation transaction on 30 November 2020: These fees are not reflected in the statement of profit or loss and other comprehensive income but it is reflected in the net assets of IPF I upon the stapling. Following the internalisation, the fees are paid to a controlled entity of IPF II and are eliminated on consolidation of the Group. A$ 2022 2021 Asset management fee – 3,808,008 Property management fee – 1,135,884 Property portfolio A detailed review of the property portfolio is included from page 10 of the annual report. Note 11 to the consolidated financial statements describes the basis for determining fair value of the Group’s properties. Outlook and guidance On 30 March 2022 the Group entered into a Scheme Implementation Agreement (SIA) with Charter Hall PGGM Industrial Partnership No. 2 (CHPIP) under which CHPIP would acquire 100% of the units in IPF I and Charter Hall Holding Pty Limited or its subsidiary would acquire 100% of units in IPF II (Proposal). As such the Group will not be providing guidance for FY23 at this time. However, if the Proposal does not proceed, further information will be provided. Subsequent events to reporting date There is no item, transaction or event of a material or unusual nature likely that have arisen since the end of the financial year up until the date of the annual report which would significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in subsequent years. Significant changes in state of affairs The Group entered into the SIA with CHPIP on 30 March 2022 in relation to the Proposal. The directors of the Responsible Entity have recommended the Proposal. The implementation of the Proposal is subject to IAP securityholders approving the Proposal by the requisite majorities at the meetings currently expected to be held in late June 2022. There were no other significant changes in the state of affairs of the Group that occurred during the period. Directors’ interest in securities The directors’ interest in securities is set out in Note 22 to the consolidated financial statements. Directors’ remuneration Directors’ remuneration is set out in the remuneration report on page 30 of the annual report, for the purpose of meeting the requirements of the ASX Listing Rules. Contracts with directors The Group has put in place contracts with the directors of the Responsible Entity and the employees of the Manager. The details are set out in the remuneration report (which has not been audited) on page 30 of the annual report. Corporate governance The Group’s corporate governance framework is set out from page 24 of the annual report. Audit and Risk Committee The Audit and Risk Committee comprising independent non-executive directors meets regularly with the management team and the external auditor to consider the nature and scope of the assurance activities and the effectiveness of the risk and control systems. Auditor KPMG has been appointed by the Responsible Entity as auditor of the Group. Subsidiaries The Group has a number of wholly-owned trusts which hold the Group’s property assets. Details of subsidiaries are set out in Note 23 to the consolidated financial statements. Major securityholders The Group’s major securityholders are set out on page 140 of the annual report. Insurance and indemnification of officers and auditors The Group has paid premiums in respect of a contract insuring all directors and officers of the Group and its related entities against certain liabilities incurred in that capacity. The insurance policies cover former directors and officers of the Responsible Entity. Disclosure of the nature of the liability covered by the insurance and premiums paid is subject to confidentiality requirements under the contract of insurance. The Responsible Entity has entered a deed of indemnity with each of its directors, Graeme Katz (Chief Executive Officer), Kristie Lenton (Chief Financial Officer), Zach McHerron (Fund Manager), Adam Broder (Third Party Capital) and Lucy Spenceley (Company Secretary) providing these persons with an indemnity, to the fullest extent permitted by law, against all losses and liabilities incurred in their respective role for the Group and its related entities. The deeds also require the Group to grant the indemnified person with access to certain Group documents and insure the indemnified persons. In addition, the Group’s and the Responsible Entity’s constitutions provide for the indemnity of officers of the Group/Responsible Entity or its related bodies corporate from liability incurred by a person in that capacity. Directors’ report / 39 / 38 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 / 41 / 40 Directors’ report Continued 1. In the opinion of the directors of Irongate Funds Management Limited, the responsible entity of Irongate Property Fund I and Irongate Property Fund II: (a) the consolidated financial statements and notes that are set out on pages 43 to 83 are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 31 March 2022 and of its performance, for the financial year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) there are reasonable grounds to believe that the Group will be able to pay their debts as and when they become due and payable. 2. The directors draw attention to Note 1.1 to the consolidated financial statements, which includes a statement of compliance with International Financial Reporting Standards. Signed in accordance with a resolution of the directors of Irongate Funds Management Limited: Dated at Sydney this 10th day of May 2022. Richard Longes Independent non-executive chairperson No indemnity payment has been made under any of the documents referred to above during, or since the end of, the financial year. The Group has not during or since the end of the financial year indemnified or agreed to indemnify an auditor of the Group or of any related body corporate against a liability incurred in their capacity as an auditor. Provision for non-audit service by auditor The Group may decide to employ the auditor, KPMG, on assignments in addition to their statutory audit duties. Details of the amounts paid to the auditor, which includes the amounts paid for non-audit services and other assurance services, are set out in Note 26 to the consolidated financial statements. Directors have considered the non-audit services and other assurance services provided by the auditor during the financial year. In accordance with advice received from the Audit and Risk Committee, the directors are satisfied that the provision of non-audit services is compatible with, and did not compromise, the general standard of auditor independence imposed by the Corporations Act2001 for the following reasons: • all non-audit services have been reviewed by the Audit and Risk Committee to ensure they do not impact the impartiality and objectivity of the auditor • none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants Environmental regulation As a landlord, the operations of the Group are subject to a range of environmental laws and regulations under Commonwealth, State and Territory law. However, the leases attaching to the majority of the properties owned by the Group require the tenant to use reasonable endeavours to prevent contamination at each site and indemnify the Group for any contamination caused by their operations. The Group’s operations are not subject to any significant environmental regulation under Commonwealth, State or Territory legislation. Rounding off The Group is of a kind referred to in ASIC Class Order 2016/191 dated 24 March 2016 and in accordance with that ASIC Class Order, amounts in the consolidated financial statements and directors’ report have been rounded off to the nearest thousand dollars, unless otherwise stated. Auditor’s independence declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act is set out on page 42 of the annual report. Additional financial report As a result of the Group being dual primary listed on both the JSE and ASX, the Group’s financial report for the year ended 31 March 2022 is required to be audited by auditors in both Australia and South Africa to meet the regulatory requirements in both jurisdictions. Due to the varying reporting requirements in Australia and South Africa, two sets of consolidated financial statements have been prepared, where the differences in the two are largely presentation driven. Both copies of the consolidated financial statements are included in the annual report. Signed in accordance with a resolution of the directors of the Responsible Entity. Richard Longes Independent non-executive chairperson Graeme Katz CEO 10 May 2022 10 May 2022 Directors’ declaration / 41 / 40 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 / 43 / 42 A$’000 NOTE 1 APRIL 2021 TO 31 MARCH 2022 03 SEPTEMBER 2020 TO 31 MARCH 2021 Property revenue 3 108,840 31,692 Interest income 14 12 Other income 5,486 1,227 Equity accounted profit/(loss) 2,995 (707) Total revenue and other income 117,335 32,224 Property expenses 4 (21,814) (7,330) Finance costs 8 (13,289) (3,017) Other operating expenses 5 (11,432) (3,890) Transaction costs 6 – (7,715) Total expenses (46,535) (21,952) Fair value adjustments 7 190,776 97,510 Profit on sale of investment property 4,942 – Profit before tax 266,518 107,782 Income tax (expense)/benefit 9 (194) 2,957 Profit after tax 266,324 110,739 Total comprehensive income attributable to: Owners of the Group (1,600) (7,395) Non-controlling interests 267,924 118,134 Total comprehensive income attributable 266,324 110,739 Basic and diluted earnings per security—Group (cents) 41.15 18.12 The Notes on pages 47 to 83 are an integral part of these consolidated financial statements. Auditor’s independence declaration Consolidated statement of profit or loss and other comprehensive income For the year ended 31 March 2022 42 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To the Directors of Irongate Funds Management Pty Ltd, the Responsible Entity of Irongate Group. I declare that, to the best of my knowledge and belief, in relation to the audit of Irongate Group consisting of Irongate Property Fund II (as the deemed parent presenting the stapled security arrangement of the Irongate Group), Irongate Property Fund I and their respective controlled entities for the financial year ended 31 March 2022 there have been: i. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and ii. no contraventions of any applicable code of professional conduct in relation to the audit. KPM_INI_01 KPMG Paul Thomas Partner Sydney 10 May 2022 PAR_SIG_01 PAR_NAM_01 PAR_POS_01 PAR_DAT_01 PAR_CIT_01 / 43 / 42 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 / 45 / 44 OWNERS OF THE GROUP CONTRIBUTED EQUITY RESERVES RETAINED EARNINGS TOTAL NON- CONTROLLING INTEREST TOTAL Balance as at 03 September 2020 – – – – – – Issue of capital 46,723 – – 46,723 – 46,723 Net assets of IPF I on stapling to IPF II – – – – 783,267 783,267 Total comprehensive income attributable to securityholders 03 September 2020 to 31 March 2021 – – (7,395) (7,395) 118,134 110,739 Distributions paid/payable to ordinary securityholders – – – – (27,696) (27,696) Balance at 31 March 2021 46,723 – (7,395) 39,328 873,705 913,033 Issue of capital 48,722 – – 48,722 48,722 97,444 Total comprehensive income attributable to securityholders – – (1,600) (1,600) 267,924 266,324 Other reserves – 179 – 179 – 179 Distributions paid/payable to ordinary securityholders – – – – (60,866) (60,866) Balance at 31 March 2022 95,445 179 (8,995) 86,629 1,129,485 1,216,114 The Notes on pages 47 to 83 are an integral part of these consolidated financial statements. A$’000 NOTES 2022 2021 ASSETS Non-current assets 1,765,565 1,285,909 Investment property 11 1,642,354 1,225,356 Investment property under development 12 36,314 11,600 Property, plant and equipment 753 661 Intangible assets 13 39,528 39,528 Equity accounted investments 14 20,579 5,807 Financial instruments held at fair value 25.6 23,274 – Deferred tax assets 9 2,763 2,957 Current assets 19,347 13,067 Cash and cash equivalents 16 9,200 7,405 Receivables and other assets 15 10,147 5,662 Total assets 1,784,912 1,298,976 EQUITY AND LIABILITIES Equity 1,216,114 913,033 Contributed equity—owners of the group 17 95,445 46,723 Retained earning—owners of the group (8,995) (7,395) Other reserves—owners of the group 179 – Non-controlling interests 18 1,129,485 873,705 Non-current liabilities 523,557 348,925 Long-term borrowings 19 516,979 339,063 Trade and other payables 20 6,578 9,026 Financial instruments held at fair value 25.6 – 836 Current liabilities 45,241 37,018 Trade and other payables 20 13,598 9,322 Distributions payable 10 31,643 27,696 Total equity and liabilities 1,784,912 1,298,976 Number of securities in issue—Group (‘000) 677,570 611,298 Weighted average number of securities in issue—Group (‘000) 647,220 611,298 Net tangible asset value per security—Group (A$)1 1.74 1.43 The Notes on pages 47 to 83 are an integral part of these consolidated financial statements. 1. Net tangible asset value per security is calculated by dividing net tangible assets by the number of securities in issue. Consolidated statement of financial position As at 31 March 2022 Consolidated statement of changes in equity For the year ended 31 March 2022 / 45 / 44 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 / 47 / 46 Corporate information Irongate Group was formed by stapling of two entities: Irongate Property Fund II (IPF II) and Irongate Property Fund I (IPF I or the Trust) which are collectively referred to as Irongate Group (the Group or IAP). IPF II was established on 3 September 2020 and stapled to IPF I on 27 November 2020. The implementation date of the management internalisation was 30 November 2020 prior to which the Group was known as Investec Australia Property Fund. Effective 7 December 2020, Investec Australia Property Fund changed its name to IPF I and Investec Australia Property Fund II changed its name to IPF II. The financial report of the Group for the year ended 31 March 2022 was authorised for issue in accordance with a resolution of the directors of the Responsible Entity on 10 May 2022. The Group is domiciled in Australia. The Responsible Entity is incorporated and domiciled in Australia. The nature of the operations and principal activities of the Group are described in the directors’ report. The registered office of the Responsible Entity is located at: Level 13, 95 Pitt Street Sydney NSW 2000 Australia Working capital management The Group utilises its monthly cash flows to pay down its debt facility whilst maintaining the facility limit. The Group will draw this cash back from the debt facility in order to pay the final distribution in June 2022. This results in the most efficient use of the Group’s cash flows. Going concern The financial statements have been prepared on a going concern basis. The Group has entered into the SIA with CHPIP in relation to the Proposal. The implementation of the Proposal is subject to IAP securityholders approving the Proposal by the requisite majorities at the meeting currently expected to be held in late June 2022. The directors of the Responsible Entity are recommending securityholders vote in favour of the Proposal in the absence of a superior proposal and subject to the independent expert concluding that the Proposal is fair and reasonable, and therefore in the best interests of IAP securityholders. If the Proposal is not successful, the Group will continue to operate on a going concern basis. Amongst a number of conditions under the Proposal, completion of the sale is subject to security holders approving the Proposal by the requisite majorities at the meetings currently expected to be held in late June 2022. Therefore as at 31 March 2022, there is no binding sale agreement in place or obligations under the Proposal identified by the Group. Accordingly no liability or provisions or contingent liabilities have been recognised in the financial statements. The Group is in a net current liability position of A$25.9 million as at 31 March 2022 (31 March 2021: A$24.0 million). The net current liability position is principally due to the final distribution declared. It is anticipated that it will be paid from the undrawn debt under the current loan facility (refer to Note 19 Borrowings). The Group has prepared a cashflow forecast 15 months from issuance of the financial statements which indicates that the Group is expected to have positive ongoing cashflows. Therefore notwithstanding the current liability position at 31 March 2022, the Group considers the going concern assumption to be appropriate and is confident that the Group will be able to pay all liabilities as and when they become due and payable. A$’000 NOTES 1 APRIL 2021 TO 31 MARCH 2022 03 SEPTEMBER 2020 TO 31 MARCH 2021 Cash flows from operating activities Rental income received 120,849 31,414 Other income received 6,081 785 Property expenses (33,087) (5,479) Operating expenses (14,676) (4,055) Cash generated from operations 79,167 22,665 Finance income received 16 12 Finance costs paid (14,840) (3,923) Distribution paid to securityholders (56,919) (26,832) Net cash from/(used in) operating activities 21 7,424 (8,078) Cash flows from investing activities Investment property acquired (231,002) (24,750) Investment property held under development acquired (6,947) (3,886) Acquisition costs and capital expenditure—Investment property (39,143) (4,369) Acquisition costs and capital expenditure—Investment property held under development (25,813) (4,698) Proceed on sale of investment property 35,442 – Management right acquired – (40,000) Transaction cost on internalisation – (7,715) Cash balance of IPF I on stapling to IPF II – 40,008 Equity accounted investment acquired (11,777) (6,514) Refundable deposit paid (3,000) – Net cash used in investing activities (282,240) (51,924) Cash flows from financing activities Borrowings raised 221,168 71,907 Repayment of loans (42,000) (4,500) Proceed from issue of securities 98,898 – Payment related to capital raising (1,455) – Net cash from financing activities 276,611 67,407 Net increase/(decrease) in cash and cash equivalents 1,795 7,405 Cash and cash equivalents at beginning of the year/period 7,405 – Cash and cash equivalents at end of the period 9,200 7,405 The Notes on pages 47 to 83 are an integral part of these consolidated financial statements. Consolidated statement of cash flows For the year ended 31 March 2022 Notes to the consolidated financial statements For the year ended 31 March 2022 / 47 / 46 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Notes to the consolidated financial statements For the year ended 31 March 2022 continued / 49 / 48 Rental income Revenue from investment property in terms of leases comprises gross rental income and recoveries of operating costs, net of goods and services tax (GST). Rental income is recognised in profit or loss on a straightline basis over the term of the rental agreement where the revenue under the lease terms is fixed and determinable. For leases where revenue is determined with reference to market reviews or inflationary measures, revenue is not straightlined and is recognised in accordance with lease terms applicable for the period. Recoverable outgoings Within the Group’s lease arrangements, certain services are provided to tenants (such as utilities, cleaning and maintenance) which are accounted for within IFRS 15 Revenues from contracts with customers. As the Group has the primary responsibility in delivering these services revenues are recognised on a gross basis. A portion of the consideration within the lease arrangements are allocated to revenue for the provision of services based on the standalone selling method. The service revenue is recognised over time as services are provided and based on the annual estimates, with the estimates reconciled at least annually. These are invoiced monthly based on an annual estimates basis. The consideration is due 30 days from the invoiced date. 1.5 Foreign currency translation Both the functional and presentation currency of IAP and its subsidiaries is Australian Dollars (A$). Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the reporting date. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. All exchange differences in the financial report are taken to profit or loss. 1.6 Lease incentives and commissions Any lease incentives provided to a tenant under the terms of a lease such as fit-outs or cash incentives are first capitalised to investment property and then recognised as an expense or reduction in revenue on a straightline basis over the term of the lease. Leasing commissions paid to agents on signing of lease agreements are recognised as an expense on a straightline basis over the term of the lease. 1.7 Finance income Finance income includes interest earned on cash invested with financial institutions which are recognised in the profit or loss on an accrual basis using the effective interest method. 1.8 Finance costs Finance costs include interest expense and other borrowing costs which are recognised in the profit or loss on an accrual basis using the effective interest method. 1.9 Earnings per unit Basic earnings per unit is determined by dividing the profit or loss of the Group by the weighted average number of units outstanding during the financial year. There are no instruments in issue that could potentially result in a dilution in earnings per unit in the future. 1.10 Financial instruments The Group recognises financial instruments when it becomes party to the contractual provisions of the instrument. Financial instruments are initially recognised at their fair value plus, for financial assets or financial liabilities not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial assets or financial liabilities. All other transaction costs are recognised in profit or loss immediately. Any gains or losses on these instruments arising from fair value adjustments, where appropriate, do not affect distributable earnings. The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability. The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expired. 1.10.1 Trade and other receivables Trade and other receivables are subsequently measured at amortised cost using the effective interest method, less any allowance under the expected credit loss (ECL) model. At each reporting period, the Group assesses whether financial assets carried at amortised cost are credit impaired. A financial asset is credit-impaired when one or more events that has a detrimental impact on the estimated future cash flows of the financial asset have occurred (as described below). The Group recognises loss allowances at an amount equal to lifetime ECL on trade and other receivables. Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets. Lifetime ECLs are the ECLs that result from all possible default events over the expected life of the trade receivables and are a probability-weighted estimate of credit losses. Credit losses are measured as the difference between cash flows due to the Group in accordance with the contract and the cash flows that the Group expects to receive. The Group analyses the age of outstanding receivable balances and applies historical default percentages adjusted for other current observable data as a means to estimate lifetime ECL, including: • significant financial difficulty of a tenant • default or delinquency by a tenant The Group also incorporates forward-looking information by considering economic data and market outlook views by external valuers. Debts that are known to be uncollectable are written off when identified. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or significant delinquency in payments (more than 90 days past due) are considered indicators that the trade receivable is impaired, given all these events would impact the estimated future cashflows of the Group’s trade receivables. The Group may write off financial assets which are still subject to enforcement activity when there is no reasonable expectation of recovery. 1. Accounting policies and basis of preparation 1.1 Basis of preparation 1.1.1 Statement of compliance The consolidated financial statements are general purpose financial statements which have been prepared in accordance with Australian Accounting Standards (AAS) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The consolidated financial statements comply with International Financial Reporting Standard (IFRS) adopted by the International Accounting Standards Board (IASB). 1.1.2 Cross stapling A stapled security comprises one IPF I unit ‘stapled’ to one unit in IPF II to create a single listed security traded on the ASX and the JSE. The stapled securities cannot be traded or dealt with separately. The stapled security structure will cease to operate on the first of: • IPF I or IPF II resolving by special resolution in a general meeting, and in accordance their respective constitutions, to terminate the stapled security structure; or • IPF I or IPF II commencing winding up. 1.1.3 Reporting entity In accordance with AASB 3 Business Combinations and AASB 10 Consolidated Financial Statements, one of the stapled entities is required to be identified as the parent entity for the purpose of preparing consolidated financial reports. In accordance with this requirement, IPF II has been identified as the parent entity of the consolidated group and deemed acquirer of IPF I in the stapling arrangement. The financial report includes consolidated financial statements for IPF II comprising IPF II and its controlled entities and IPF I and its controlled entities, for the year ended 31 March 2022. IPF I and IPF II are both Australian registered managed investment schemes under the Corporations Act 2001. Both IPF I and IPF II are for profit entities. 1.1.4 Basis of measurement The consolidated financial statements have been prepared on the historical cost basis except for the following material items in the statement of financial position: • derivative financial instruments are measured at fair value • investment property is measured at fair value • investments accounted as equity accounted investments 1.1.5 Functional and presentation currency The consolidated financial statements are presented in AUD (A$), which is IPF’s functional currency. IPF Is of a kind referred to in ASIC Class Order 2016/191 dated 24 March 2016 and in accordance with that ASIC Class Order, all financial information presented in A$ has been rounded to the nearest thousand unless otherwise stated. 1.1.6 Use of estimates and judgements The preparation of the consolidated financial statements in conformity with IFRS requires the board of the Responsible Entity to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or the period of the revision and future periods if the revision affects both current and future periods. Intangible assets acquired by the Group, which have a indefinite life are recognised initially at cost. Subsequent to initial recognition the recoverable amount is estimated at each reporting date. Refer to Note 13 to the consolidated financial statements for the information on best estimates on the recoverable amount of intangible assets. Derivative financial instruments are valued based on broker quotes and are tested for reasonableness at each reporting date. Estimation uncertainty at balance date, that may have a significant risk of resulting in a material adjustment to the carrying amounts of assets within the next financial year relates to the valuation of investment properties. Refer to Note 11 to the consolidated financial statements for information on best estimates used in the valuation of investment properties. 1.2 Basis of consolidation 1.2.1 Controlled entities The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of controlled entities are included in the consolidated financial statements from the date on which control commences until the date on which control ceases. All subsidiaries are 100% owned trusts and controlled by the Group with no restrictions. 1.2.2 Transactions eliminated on consolidation Intra-Group balances and transactions, and any unrealised income and expenses arising from intra-Group transactions, are eliminated. 1.3 Segmental reporting Determination and presentation of operating segments The Group has the following operating segments: • office properties • industrial properties • properties by location • property funds management The above segments are derived from the way the business of the Group is structured, managed and reported to the chief operating decision-makers. The Group manages its business in the office and industrial property sectors as well as the geographic property segments where resources are specifically allocated to each sector in achieving the Group’s stated objectives. Segment results include revenue and expenses directly attributable to a segment and the relevant portion of enterprise revenue and expenses that can be allocated on a reasonable basis to a segment. Segment assets comprise those assets that are directly attributable to the segment on a reasonable basis. Segment capital expenditure is the total cost incurred during the period on investment property in each segment. 1.4 Revenue recognition The Group recognises revenue that depict the transfer of promised good or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. / 49 / 48 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Notes to the consolidated financial statements For the year ended 31 March 2022 continued / 51 / 50 Unrealised gains arising from transactions with equity accounted investments are eliminated against the investment in the associate to the extent of the Group’s interest in the associate. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. Other movements in associates’ reserves are recognised directly in the Group’s consolidated reserves. 1.14 Lease agreements A finance lease is a lease that transfers substantially all of the risks and rewards incidental to ownership of an asset. An operating lease is a lease other than a financial lease. The Group is party to numerous lease agreements in the capacity as lessor of the investment properties. All agreements are operating leases. Where classified as operating leases, lease payable/receivable are charged/credited in the profit or loss on a straightline basis over the lease term. Contingent lease (if any) are accrued to the statement of profit or loss and other comprehensive income when incurred. Initial direct costs incurred in negotiating and arranging an operating lease are recognised in profit or loss over the term of the lease. 1.15 Lease agreements as lessee All leases are accounted for by recognising a lease liability and corresponding right-of-use asset with the exception of low value asset leases and short-term leases that run for less than twelve months, which are expensed on a straightline basis in the consolidated statement of profit and loss and other comprehensive income. Lease liabilities are initially measured at the present value of future lease payments, discounted using the interest rate of the Group’s incremental borrowing rate. Lease liabilities are subsequently increased by interest expense on lease liabilities and reduced by the lease payments. Lease modifications also have impact on the carrying amount of lease liabilities. Interest expense on the lease liabilities and any variable lease payments not included in the measurement of the lease liabilities are recognised in the consolidated statement of profit and loss and other comprehensive income in the period to which they relate. Right-of-use assets are initially measured at cost less depreciation and impairment and subsequently adjusted for any remeasurement of the lease liability. Cost includes the amount of the initial lease liability, adjusted for any related lease prepayments or incentives received, any initial indirect costs incurred and make good costs. Right-of-use assets that do not meet the definition of investment property are depreciated on a straightline basis from commencement date to the earlier of the end of lease term of its useful life. The lease term includes the periods of any options to extend only when considered reasonably certain to be exercised. 1.16 Property, plant and equipment Plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Such cost includes the cost of replacing parts that are eligible for capitalisation when the cost of replacing the parts in incurred. Similarly, when each major inspection is performed. Its cost is recognised in the carrying amount of plant and equipment as replacement only if it is eligible for capitalisation. Depreciation is provided on a prime cost value basis on all property, plant and equipment and is based on their useful lives. 2022 2021 Office furniture and equipment 5 to 10 years 5 to 10 years Computer equipment 3 to 5 years 3 to 5 years The assets’ residual values, useful lives and amortisation methods are reviewed, adjusted if appropriate, at each financial year end. 1.17 Provisions, contingent liabilities and contingent assets Provisions are liabilities of uncertain timing or amount, and are recognised as soon as the Group has a legal or constructive obligation which will lead to an outflow of economic resources to settle the obligation as a result of a past event and a reliable estimate can be made of the amount of the obligation. Contingent assets and contingent liabilities are not recognised. Provisions are measured by at the best estimate of expenditure to settle the present obligation. 1.18 Employee benefits Short-term benefits Short-term employee benefits obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount of past service provided by the employee and the obligation can be estimated reliably. Share-based payment arrangements The fair value of share-based payment awards granted to employees and KMP is recognised as an employee benefit expense over the period during which the services are performed. For market-based performance rights, the fair value is independently valued using a Monte Carlo simulation model that takes into account the exercise price, the term of the rights, impact of dilution, stapled security price at grant date, expected price volatility of the underlying stapled security, expected dividend yield and the risk-free interest rate for the term of the rights and market vesting conditions. The impact of any non-market vesting conditions (for example, profitability, changes in net tangible assets) are excluded. For non-market-based performance rights, the fair value is independently valued using a Black-Scholes-Merton model. The amount recognised as an expense is adjusted to reflect the number of rights expected to vest. Termination benefits Termination benefits for voluntary redundancies are recognised as an expense if the Group has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. If benefits are payable more than 12 months after the reporting period, the are discounted to their present value. 1.10.2 Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in fair value. Cash and cash equivalents are subsequently measured at amortised cost. 1.10.3 Trade and other payables Trade and other payables are subsequently measured at amortised cost using the effective interest method. Any gains or losses on derecognition of trade and other payables are recognised in profit or loss. 1.10.4 Derivative financial instruments The Group utilises derivative financial instruments to hedge its exposure to interest rate risk arising from its financing activities. The Group does not hold or issue derivative financial instruments for trading purposes. Derivatives are not designated as hedges for accounting purposes and are accounted for at fair value. After initial recognition, all derivative instruments are subsequently recorded in the statement of financial position at fair value, with gains and losses recognised in profit or loss. 1.10.5 Borrowings Long-term borrowings are subsequently measured at amortised cost using the effective interest method. Borrowings are classified as non-current unless they are repayable within 12 months. 1.11 Investment property When the Group acquires property or a group of properties either directly or by obtaining control of entities that own investment properties, an evaluation is performed as to whether such acquisitions should be accounted for as business combinations or asset acquisitions of investment properties. An acquisition is not considered to be a business combination if at the date of the acquisition of the entity/property, it does not meet the definition of a business (i.e. inputs, processes and outputs). In particular where the integrated activities (i.e. processes) deemed necessary to generate outputs are not present. Properties held by the Group which are held for rental income or capital appreciation are classified as investment properties. Investment properties are initially recognised at cost including transaction costs. Investment properties are subsequently measured at fair value, with fair value gains and losses recognised in profit or loss. Investment property consists of land and buildings, installed equipment that is an integral part of the building and land held to earn rental income. The fair value of investment property also includes components relating to lease incentives and straightline rental receivables. Costs incurred subsequent to initial acquisition are capitalised when it is probable that future economic benefits will flow to the Group those costs can be reliably measured. An investment property is classified as held for sale as it will be recovered principally through a sale transaction rather than through continuing use. The asset is available for sale in its present condition subject only to terms that are usual and customary for sales of such assets. Basis of valuation of property held for sale is conditional sales contract. The sale is considered to be highly probable and expected to settle within the next 12 months. A property interest under an operating lease is classified and accounted for as an investment property when it is held to earn rental income. Any such property interest under an operating lease classified as investment property is carried at fair value. Should any properties no longer meet the Group’s investment criteria and are sold, any profits or losses will be recognised in profit or loss. Investment property is maintained, upgraded and refurbished where necessary, in order to preserve or improve the capital value as far as it is possible to do so. Maintenance and repairs which neither materially add to the value of the properties nor prolong their useful lives are recognised in profit or loss as an expense. Independent valuations are obtained on a rotational basis, ensuring that every property is valued at least once every 24 months by an external independent valuer. The directors value the remaining properties that have not been independently valued semi-annually on an open market basis. Directors’ valuations are prepared by considering the aggregate of the net annual rental receivable from the properties and where relevant, associated costs, using the discounted cash flow method and the capitalisation rate method. The directors believe that their valuations accurately represent the fair value. Note 12 to the consolidated financial statements describes the basis for determining fair value of the Group’s properties. Gains or losses on subsequent measurement or disposals of investment properties (calculated as the difference between the net proceeds from disposal and the carrying amount) are recognised in profit or loss. Such gains or losses are excluded from the calculation and determination of distributable earnings. Investment properties under development are stated at fair value at each balance date. Fair value is assessed with reference to reliable estimate future cash flows, status of the development and the associated risk profile. Finance costs incurred on properties undergoing development are included in the cost of the development. 1.12 Intangible assets The management right acquired by the Group is accounted for as an intangible asset and are not amortised as they are assumed to have an indefinite life, given they are expected to be used beyond any foreseeable horizon where a platform of funds under management is being acquired which gives rise to contractual of other legal rights and they are routinely renewed at minimal cost and on broadly similar terms. Intangible assets are initially measured at cost. Subsequent expenditure on intangible assets is capitalised only if it is probable that it will increase the future economic benefits associated with the specific asset. Intangibles with an indefinite useful life are tested for impairment annually. After initial recognition, intangible assets are measured at cost less impairment losses, if any. Impairment losses are recognised to statement of profit or loss and other comprehensive income when incurred. 1.13 Investments accounted for using equity method The Group’s investments in associates are accounted for using the equity method of accounting in the consolidated financial statements. An associate is an entity in which the Group has significant influence but not control over the financial and operating polices. The financial statements include the Group’s share of income and expense of equity accounted investees from the date that significant influence commences until the date that significant influence ceases. Investments in associates are carried at the lower of the equity accounted carrying amount and the recoverable amount. When the Group’s share of losses exceeds its interest in an entity accounted investee, the carrying amount of that interest reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payment on behalf of the investee. Dividends from associates represent a return on the Group’s investment and, as such, are applied as a reduction to the carrying value of the investment. / 51 / 50 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Notes to the consolidated financial statements For the year ended 31 March 2022 continued / 53 / 52 1.22 Accounting standards applicable to the Group not yet effective AASB 2020-1 Classification of liabilities as current or non-current (Amendments to AASB101) Under existing AASB101 requirements, companies classify a liability as current when they do not have an unconditional right to defer settlement of the liability for at least twelve months after the end of the reporting period. As part of its amendments, the Board has removed the requirement for a right to be unconditional and instead, now requires that a right to defer settlement must have substance and exist at the end of the reporting period. The amendments are to be applied retrospectively from the effective date, 1 January 2023. AASB 2021-2 Amendment to Australian Accounting Standards— Disclosure of accounting policies (Amendments to AASB 101 and IFRS Practice Statement 2) Amendments to AASB 101 and an update to IFRS Practice Statement 2 helps companies provide useful accounting policy disclosures. Key amendments to AASB 101 include: • requiring companies to disclose their material accounting policies rather than their significant accounting policies; • clarifying that accounting policies related to immaterial transactions, other events or conditions are themselves immaterial and as such need not be disclosed; and • clarifying that not all accounting policies that relate to material transactions, other events or conditions are themselves material to a company’s financial statements. The amendments are effective from 1 January 2023 with earlier application permitted. AASB 2021-2 Amendment to Australian Accounting Standards— Definition of Accounting Estimates (Amendments to AASB 108) The amendments introduce a new definition for accounting estimates: clarifying that they are monetary amounts in the financial statements that are subject to measurement uncertainty. The amendments also clarify the relationship between accounting policies and accounting estimates by specifying that a company develops an accounting estimate to achieve the objective set out by an accounting policy. The amendments are effective for periods beginning on or after 1 January 2023, with earlier application permitted, and will apply prospectively to changes in accounting estimates and changes in accounting policies occurring on or after the beginning of the first annual reporting period in which the Group applies the amendments. AASB 2020-3 Amendments to Australian Accounting Standards— Annual Improvement 2018–2020 and Other Amendments Amendments to existing accounting standard, particularly in relation to: • AASB 9 Financial instruments—to clarify the fees an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. The amendments are effective for annual reporting periods beginning on or after 1 January 2022 with earlier application permitted. The Group has assessed each of the new accounting standards disclosed, and it is expected that the implementation of these new accounting standards will have minimal impact to the Group. 1.19 Taxation Taxation of the Group Securityholders may receive attribution managed investment trust (AMIT) distributions from the Group. IPF I Under current income tax legislation, IPF I (as a REIT, which is a flow-through structure) is not subject to Australian income tax on any of the net income derived by IPF I, provided that its activities are limited to deriving rental income from real property directly or indirectly held by the IPF I and deriving gains from sale of real property held for rental purposes; and it fully distributes its distributable income (as defined in the IPF I’s constitution), subject to amounts permitted to be retained, to investors year-on-year during or within three months after the relevant income year. Furthermore, IPF I and management arrangements are structured to meet the required criteria to be classified as an AMIT for Australian tax purposes. As an AMIT, IPF I will be required to withhold tax in Australia at a concessional rate of 15% on distributions to individual and institutional investors in South Africa (including distributions of capital gains) to the extent that it is not a ‘tax deferred distribution’, a distribution of interest income or non-Australian sourced income. A ‘tax deferred distribution’ is the excess of cash distributed over the securityholders’ proportionate share of the Australian taxable income of the IPF I. As the IPF I is an AMIT, the Responsible Entity will be required to withhold tax in Australia at 10% on Australian sourced interest income. The New Zealand sourced income is subject to the corporate tax rate in New Zealand of 28% and is not subject to Australian withholding tax. IPF II IPF II is considered to be a public trading trust and therefore it is taxed as a company under current income tax legislation and taxed at the corporate tax rate of 30%. Corporate tax paid by IPF II will generate franking credits, which should be available to distribute to Australian resident and foreign resident securityholders by way of franked dividends. To the extent a dividend is unfranked, a final withholding tax of 15% would generally apply from dividends paid to individual investors in South Africa. Income tax expense comprises current and deferred tax. Current and deferred tax are recognised in profit or loss except to the extent that they related to a business combination, or items recognised directly in equity or in other comprehensive income. Current and deferred tax Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted at reporting date, and any adjustment to tax payable in respect of prior year. Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss and taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that have been enacted by balance date and are expected to apply when the related deferred income asset is realised, or the deferred income tax liability is settled. Deferred income tax liabilities and assets—recognition Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax assets are reviewed each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred tax liabilities are recognised for all taxable temporary differences. Net deferred tax assets or liabilities Deferred tax assets and liabilities are offset when there is legally enforceable right to offset current tax assets and liabilities, when the deferred tax balances related to the same taxation authority and the Group intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Tax relating to equity items Current and deferred tax balances attributable to amount recognised directly in equity are recognised directly in equity. GST GST is a tax levied or imposed in Australia pursuant to the GST Act 1999 or otherwise on a supply. Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the consolidated statement of financial position are shown inclusive of GST. Cash flows are presented in the statement of cash flows on a gross basis, except for the GST components of investing and financing activities, which are disclosed as operating cash flows. 1.20 Unit capital Ordinary unit capital Units are classified as equity when the units are redeemable only at the Responsible Entity’s option, and any distributions are discretionary. The issued unit capital represents the amount of consideration received for units issued in IPF I and IPF II. Transaction costs of an equity transaction are accounted for as a deduction from equity. All securities are fully paid. The securityholders are entitled to receive distributions as declared from time-to-time and are entitled to one vote per stapled security at the annual general meeting of IAP. All securities rank equally with regard to IAP’s residual assets. 1.21 Impact of new standards, amendments and interpretations No new accounting standards, amendments or interpretations have come into effect for the year ended 31 March 2022 that materially affect the Group’s operations or reporting requirements. / 53 / 52 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Notes to the consolidated financial statements For the year ended 31 March 2022 continued / 55 / 54 2. Segment information The Group has determined the reportable segments to be on three separate segments, being office assets, industrial assets, and property funds management: 1. The Group’s investment properties are made up of office and industrial assets. This is the first segment basis determined to be relevant to report and is consistent with the sectoral spread disclosure of the portfolio in the Group’s property landscape (refer to Section 1 of the annual report—Overview). 2. The Group’s investment properties are geographically spread over the states of Australia and New Zealand. These disclosures are consistent with the geographical spread disclosure of the portfolio in the Group’s property landscape (refer to Section 1 of the annual report—Overview). 3. The property funds management segment comprises investment management services and property management services. The primary measure of performance of each operating segment is net property and other income. The Group’s operating segment results are reported monthly to the Group’s chief executive office, who is the chief operating decision maker. A$’000 OFFICE INDUSTRIAL PROPERTY FUNDS MANAGEMENT TOTAL Statement of profit or loss and other comprehensive income for year ended 31 March 2022 Revenue from external customers, excluding straightline rental revenue adjustment 74,078 32,285 – 106,363 Straightline rental revenue adjustment 1,082 1,395 – 2,477 Property revenue 75,160 33,680 – 108,840 Property expenses (16,825) (4,989) – (21,814) Net property income 58,335 28,691 – 87,026 Fair value adjustments—investment properties 52,166 110,084 – 162,250 Fair value adjustments—Investment property held under development – 3,554 – 3,554 Fair value adjustments—foreign currency revaluation 844 – – 844 Share of equity accounted profit – – 2,995 2,995 Total segment results 111,345 142,329 2,995 256,669 Other expenses (11,432) Profit on sale of investment property 4,942 Fair value adjustment on interest rate swaps 24,110 Fair value adjustment on foreign currency 18 Finance costs (13,289) Finance income 14 Other income 5,486 Profit before tax 266,518 Income tax (194) Profit after tax for year ended 31 March 2022 266,324 Statement of financial position extracts at 31 March 2022 Investment properties 1,068,254 574,100 – 1,642,354 Investment properties under development – 36,314 – 36,314 Equity accounted investments – – 20,579 20,579 Intangible assets – – 39,528 39,528 Other assets not managed on a segmental basis 46,137 Total assets as at 31 March 2022 1,784,912 This page has intentionally been left blank. / 55 / 54 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Notes to the consolidated financial statements For the year ended 31 March 2022 continued / 57 / 56 2. Segment information (continued) A$’000 VICTORIA QUEENSLAND SOUTH AUSTRALIA WESTERN AUSTRALIA NEW SOUTH WALES AUSTRALIAN CAPITAL TERRITORY NORTHERN TERRITORY NEW ZEALAND PROPERTY FUNDS MANAGEMENT TOTAL Statement of profit or loss and other comprehensive income for year ended 31 March 2022 Revenue from external customers, excluding straightline rental revenue adjustment 17,392 13,679 3,214 5,341 37,273 13,152 2,730 13,582 – 106,363 Straightline rental revenue adjustment 776 372 (131) 586 567 268 140 (101) – 2,477 Revenue 18,168 14,051 3,083 5,927 37,840 13,420 2,870 13,481 – 108,840 Property expenses (2,912) (3,278) (341) (1,046) (7,867) (1,757) (223) (4,390) – (21,814) Net property income 15,256 10,773 2,742 4,881 29,973 11,663 2,647 9,091 – 87,026 Fair value adjustments—investment properties 24,931 26,037 9,580 26,474 42,445 21,413 2,447 8,923 – 162,250 Fair value adjustments—Investment property held under development – 3,554 – – – – – – – 3,554 Fair value adjustments—foreign currency revaluation – – – – – – – 844 – 844 Share of equity accounted profit – – – – – – – – 2,995 2,995 Total segment results 40,187 40,364 12,322 31,355 72,418 33,076 5,094 18,858 2,995 256,669 Other expenses (11,432) Profit on sale of investment property 4,942 Fair value adjustment on interest rate swaps 24,110 Fair value adjustment on foreign currency 18 Finance costs (13,289) Finance income 14 Other income 5,486 Profit before tax 266,518 Income tax (194) Profit after tax for year ended 31 March 2022 266,324 Statement of financial position extracts at 31 March 2022 Investment properties 393,650 202,100 47,200 122,350 514,750 176,550 32,000 153,754 – 1,642,354 Investment properties under development – 36,314 – – – – – – – 36,314 Equity accounted investments – – – – – – – – 20,579 20,579 Intangible assets – – – – – – – – 39,528 39,528 Other assets not managed on a segmental basis 46,137 Total assets as at 31 March 2022 1,784,912 / 57 / 56 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Notes to the consolidated financial statements For the year ended 31 March 2022 continued / 59 / 58 2. Segment information (continued) A$’000 OFFICE INDUSTRIAL PROPERTY FUNDS MANAGEMENT TOTAL Statement of profit or loss and other comprehensive income for period 3 September to 31 March 2021 Revenue from external customers, excluding straightline rental revenue adjustment 21,657 9,527 – 31,184 Straightline rental revenue adjustment 253 255 – 508 Property revenue 21,910 9,782 – 31,692 Property expenses (5,946) (1,384) – (7,330) Net property income 15,964 8,398 – 24,362 Fair value adjustments—investment properties 45,255 49,104 – 94,359 Fair value adjustments—Investment property held under development – 3,016 – 3,016 Fair value adjustments—foreign currency revaluation (4,864) – – (4,864) Share of equity accounted profit – – (707) (707) Total segment results 56,355 60,518 (707) 116,166 Other expenses (3,890) Profit on sale of investment property (7,715) Fair value adjustment on interest rate swaps 3,360 Fair value adjustment on foreign currency 1,639 Finance costs (3,017) Finance income 12 Other income 1,227 Profit before tax 107,782 Income tax 2,957 Profit after tax for year ended 31 March 2021 110,739 Statement of financial position extract at 31 March 2021 Investment properties 819,856 405,500 – 1,225,356 Investment properties under development – 11,600 – 11,600 Equity accounted investments – – 5,807 5,807 Intangible assets – – 39,528 39,528 Other assets not managed on a segmental basis 16,685 Total assets as at 31 March 2021 1,298,976 This page has intentionally been left blank. / 59 / 58 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Notes to the consolidated financial statements For the year ended 31 March 2022 continued / 61 / 60 2. Segment information (continued) A$’000 VICTORIA QUEENSLAND SOUTH AUSTRALIA WESTERN AUSTRALIA NEW SOUTH WALES AUSTRALIAN CAPITAL TERRITORY NORTHERN TERRITORY NEW ZEALAND PROPERTY FUNDS MANAGEMENT TOTAL Statement of profit or loss and other comprehensive income for period 3 September to 31 March 2021 Revenue from external customers, excluding straightline rental revenue adjustment 5,169 2,964 1,056 1,667 12,100 3,112 902 4,214 – 31,184 Straightline rental revenue adjustment 155 10 (37) 79 273 (108) 62 74 – 508 Property revenue 5,324 2,974 1,019 1,746 12,373 3,004 964 4,288 – 31,692 Property expenses (1,098) (1,261) (98) (276) (2,470) (450) (54) (1,623) – (7,330) Net property income 4,226 1,713 921 1,470 9,903 2,554 910 2,665 – 24,362 Fair value adjustments—investment properties 22,529 117 3,387 5,318 40,580 9,950 238 12,240 – 94,359 Fair value adjustments—Investment property held under development – 3,016 – – – – – – – 3,016 Fair value adjustments—foreign currency revaluation – – – – – – – (4,864) – (4,864) Share of equity accounted profit (707) (707) Total segment results 26,755 4,846 4,308 6,788 50,483 12,504 1,148 10,041 (707) 116,166 Other expenses (3,890) Profit on sale of investment property (7,715) Fair value adjustment on interest rate swaps 3,360 Fair value adjustment on foreign currency 1,639 Finance costs (3,017) Finance income 12 Other income 1,227 Profit before tax 107,782 Income tax 2,957 Profit after tax for year ended 31 March 2021 110,739 Statement of financial position extracts at 31 March 2021 Investment properties 227,750 149,750 37,750 63,000 466,750 107,350 29,400 143,606 – 1,225,356 Investment properties under development – 11,600 – – – – – – – 11,600 Equity accounted investments – – – – – – – – 5,807 5,807 Intangible assets – – – – – – – – 39,528 39,528 Other assets not managed on a segmental basis 16,685 Total assets as at 31 March 2021 1,298,976 / 61 / 60 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Notes to the consolidated financial statements For the year ended 31 March 2022 continued / 63 / 62 7. Fair value adjustments A$’000 1 APRIL 2021 TO 31 MARCH 2022 03 SEPTEMBER 2020 TO 31 MARCH 2021 Fair value adjustments—investment properties 162,250 94,359 Fair value adjustments—investment property under development 3,554 3,016 Fair value adjustments—interest rate swaps 24,110 3,360 Fair value adjustments—foreign currency revaluation 862 (3,225) Total fair value adjustments 190,776 97,510 8. Finance costs A$’000 1 APRIL 2021 TO 31 MARCH 2022 03 SEPTEMBER 2020 TO 31 MARCH 2021 Finance costs on borrowings and derivatives (13,289) (3,017) Total finance costs (13,289) (3,017) Refer to Note 19 for details on borrowings. 9. Income tax The table below relates to income tax for the Group’s income tax paying entities. (a) Income tax (expenses)/benefit: A$’000 1 APRIL 2021 TO 31 MARCH 2022 03 SEPTEMBER 2020 TO 31 MARCH 2021 Current tax expenses – – Deferred tax (expense)/income (194) 2,957 Income tax expense in the statement of comprehensive income (194) 2,957 (b) Reconciliation of income tax expense to prima facie tax payable: A$’000 1 APRIL 2021 TO 31 MARCH 2022 03 SEPTEMBER 2020 TO 31 MARCH 2021 Profit before income tax expense 266,518 107,782 Prima facie tax expenses/(benefits) at 30% 79,955 32,335 Less: IPF I profit not subject to tax (77,879) (35,440) Tax effect of amounts not deductible/assessable in calculating income tax expense: Non-deductible entertainment expenses 5 2 Equity accounted profit (899) 212 Employee benefit (612) (99) Capital raising and set up cost (466) (96) Others 90 129 Income tax expense/(benefits) 194 (2,957) 3. Property revenue A$’000 1 APRIL 2021 TO 31 MARCH 2022 03 SEPTEMBER 2020 TO 31 MARCH 2021 Contracted rental income 92,820 27,198 Recoverable outgoings 13,543 3,986 Revenue, excluding straightline rental revenue adjustment 106,363 31,184 Straightline rental revenue adjustment 2,477 508 108,840 31,692 4. Property expenses A$’000 1 APRIL 2021 TO 31 MARCH 2022 03 SEPTEMBER 2020 TO 31 MARCH 2021 Statutory expenses (7,019) (2,600) Electricity (1,658) (533) Insurance (2,326) (988) Cleaning (1,374) (421) Building management (2,249) (770) Repairs & Maintenance (1,251) (332) Amortisation of fitout expenses (1,141) (259) Tenant rechargeable expenditure (476) (173) Air-conditioning (875) (189) Fire protection (617) (132) Lift and escalators (458) (177) Emergency Generators (399) (145) Leasing fee (491) (168) Legal and marketing expenses (323) (146) Non recoverable property expenses (457) (91) Other property expenses (700) (206) (21,814) (7,330) 5. Other operating expenses A$’000 1 APRIL 2021 TO 31 MARCH 2022 03 SEPTEMBER 2020 TO 31 MARCH 2021 Depreciation expenses (158) (37) Employee benefits expenses (7,402) (2,605) Other expenses (3,872) (1,248) (11,432) (3,890) 6. Transaction costs A$’000 1 APRIL 2021 TO 31 MARCH 2022 03 SEPTEMBER 2020 TO 31 MARCH 2021 Transaction cost on management internalisation – (7,715) Total transaction costs – (7,715) / 63 / 62 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Notes to the consolidated financial statements For the year ended 31 March 2022 continued / 65 / 64 10. Distribution per security PERIOD FOR DISTRIBUTION (A$’000) TOTAL DISTRIBUTION (A$’000) SECURITIES IN ISSUE (‘000) DISTRIBUTION PER SECURITY (A$ CENTS) Half year to 30 September 2021 29,223 645,312 4.53 Half year to 31 March 2022 31,643 677,570 4.67 Total distribution for FY2022 60,866 9.20 3 September 2020 to 31 March 2021 27,696 611,298 4.53 11. Investment property Investment properties held by the Group are accounted for as asset acquisitions when the integrated activities deemed necessary to generate outputs are not present at acquisition. The Group concluded that all the acquisition of properties in the current financial year were asset acquisitions. For recurring and non-recurring fair value measurements, the level of the fair value hierarchy within the fair value measurements are categorised in their entirety of level 3. (a) Valuation basis The basis of valuation of investment properties is fair value. Fair values are based on market values, being the price that would be received to sell an asset in an orderly transaction between market participants at measurement date. The Group’s policy is to value properties at each reporting period, with independent valuations performed on a rotational basis to ensure each property is valued at least once every 24 months by an independent external valuer (in compliance with the Group’s debt facility). Where a property is not due for an independent valuation, internal valuations are undertaken at the end of the reporting period. The valuation methods include the discounted cash flow (DCF) method and income capitalisation method. The mid-point is generally taken between the DCF and income capitalisation method. (b) Fair value assessment results External valuations External valuations were conducted for 33 investment properties in the portfolio for the second half of the year. External valuations were conducted by Colliers International, Urbis, Savills, Knight Frank and JLL who are all registered as Certified Practising Valuers with the Australian Property Institute. Director valuations As at 31 March 2022 there were two investment properties where fair value was based on directors’ valuations. At each reporting date, the directors update their assessment of the fair value of each property in accordance with the Group’s valuation policy. As at 31 March 2022, investment properties to the value of A$1,642.4 million (31 March 2021: A$1,225.4 million) is held as security under the syndicated facility agreement drawn down to a value of A$520.7 million (31 March 2021: A$341.5 million). All of the investment properties located in New South Wales, Victoria, South Australia, Queensland, Western Australia, Northern Territory and New Zealand are held under freehold interests. All of the properties located in the Australian Capital Territory are held under leasehold interests with the earliest termination date in 2088 and no lease payment obligations. Gains and losses recorded in profit or loss for recurring fair value measurements categorised within Level 3 of the fair value hierarchy amount to A$162.2 million (31 March 2021: A$94.4 million) and are presented in profit and loss in the line item ‘fair value adjustment’. 9. Income tax (continued) (c) Current tax expense A$’000 1 APRIL 2021 TO 31 MARCH 2022 03 SEPTEMBER 2020 TO 31 MARCH 2021 Current tax payable – – (d) Deferred tax expense A$’000 1 APRIL 2021 TO 31 MARCH 2022 03 SEPTEMBER 2020 TO 31 MARCH 2021 Deferred tax assets (176) 2,965 Deferred tax (liabilities) (18) (8) Net total (194) 2,957 (e) Reconciliation of deferred tax expense RECOGNISED IN OPENING BALANCE 01 APRIL 2021 PROFIT OR LOSS EQUITY BALANCE 31 MARCH 2022 Net deferred tax asset attributable to: Property, plant and equipment 2 7 – 9 Equity accounted investment 212 (37) – 175 Accrued expenses 1,035 302 – 1,337 Transaction costs 1,689 (421) – 1,268 Income tax loss carried forward 27 (27) – – 2,965 (176) – 2,789 Net deferred tax liabilities attributable to: Property, plant and equipment (8) (18) – (26) (8) (18) – (26) Net total 2,957 (194) – 2,763 RECOGNISED IN OPENING BALANCE 03 SEPTEMBER 2020 PROFIT OR LOSS EQUITY BALANCE 31 MARCH 2021 Net deferred tax asset attributable to: Property, plant and equipment – 2 – 2 Equity accounted investment – 212 – 212 Accrued expenses – 1,035 – 1,035 Transaction costs 1,689 – 1,689 Income tax loss carried forward – 27 – 27 2,965 2,965 Net deferred tax liabilities attributable to: Property, plant and equipment – (8) – (8) – (8) – (8) Net total – 2,957 – 2,957 / 65 / 64 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Notes to the consolidated financial statements For the year ended 31 March 2022 continued / 67 / 66 (c) Movement in investment properties’ carrying value A$’000 2022 2021 Cost 1,234,107 985,813 Accumulated fair value adjustment 391,298 225,073 Investment properties 1,625,405 1,210,886 Straightline rental revenue receivable 16,949 14,470 Carrying value 1,642,354 1,225,356 Movement in investment properties Opening balance 1,225,356 – IPF I balance on stapling to IPF II – 1,104,909 Acquisitions 231,002 24,750 Completion of property under development 17,682 – Property disposed (30,500) – Foreign currency revaluation on property 844 (4,864) Acquisition costs and capital expenditure 33,243 5,694 Fair value adjustment on revaluation of investment properties (refer to Note 7) 162,250 94,359 Straightline rental revenue adjustment 2,477 508 Carrying value at end of the year/period 1,642,354 1,225,356 (d) Valuation process The fair value for all investment properties A$1,642.4 million (2021: A$1,225.4 million) has been undertaken under the Level 3 fair value hierarchy, where unobservable inputs have been utilised in the valuation techniques. For all investment property that are measured at fair value, the current use of the property is considered the highest and best use. Valuation techniques used to derive Level 3 fair values The Group determines a property’s value within a range of reasonable fair value estimates and in making this assessment, considers information from a variety of sources including: • Current prices for comparable investment properties; • Discounted cash flows based on estimates of future cash flows; and • Capitalised income projections based on estimated net market income, and a capitalisation rate based on market analysis. Under the DCF approach, a property’s fair value is estimated by projecting a series of cash flows over a specified time horizon (typically 10 years) and discounting this cash flow, including the projected exit or terminal value, at a market-derived discount rate. Projected cash flows are derived from contracted or expected market rents, operating costs, lease incentives, capital expenditure and future income on vacant space. The net present value of the discounted cash flow represents the fair value of the property. The income capitalisation approach involves estimating the potential sustainable gross market income of a property from which annual outgoings are deducted to derive the net market income. Net market income is then capitalised in perpetuity at an appropriate market derived capitalisation rate (market yield). Appropriate capital adjustments are then made where necessary to reflect the specific cash flow profile and general characteristics of the property. At reporting date, the key assumptions used by the Group in determining fair value were as follows: INDUSTRIAL 31 MARCH 2022 31 MARCH 2021 Capitalisation rate 3.75–7.25% 4.50–7.75% Discount rate 5.00–7.50% 5.50–8.00% Terminal yield 4.00–7.50% 4.75–8.00% Rental growth rate 2.21–3.35% 1.95–3.29% OFFICE 31 MARCH 2022 31 MARCH 2021 Capitalisation rate 4.50–7.75% 5.50–8.00% Discount rate 5.75–7.75% 6.13–8.25% Terminal yield 4.63–8.00% 5.75–8.13% Rental growth rate 2.55–3.55% 2.15–3.51% Capitalisation rates Capitalisation rates are derived from the yields indicated by sales of comparable properties. It factors in risk with regard to a property’s location, quality, strength of the tenant covenant and length of secured cashflows. 11. Investment property (continued) PROPERTY PORTFOLIO A$’000 LATEST EXTERNAL VALUATION CONSOLIDATED CARRYING VALUE DATE VALUATION 2022 2021 INDUSTRIAL PORTFOLIO 47 Sawmill Circuit, Hume ACT 31-Mar-22 17,050 17,050 12,700 57 Sawmill Circuit, Hume ACT 31-Mar-22 18,400 18,400 13,900 24 Sawmill Circuit, Hume ACT 31-Mar-22 17,900 17,900 14,500 44 Sawmill Circuit, Hume ACT 31-Mar-22 19,600 19,600 10,500 2–8 Mirage Road, Direk SA 31-Mar-22 12,700 12,700 8,750 30–48 Kellar Street, Berrinba QLD 31-Mar-22 12,100 12,100 9,500 165 Newton Road, Wetherill Park NSW 31-Mar-22 38,500 38,500 33,500 24 Spit Island Close, Newcastle NSW 31-Mar-22 14,500 14,500 12,000 67 Calarco Drive, Derrimut VIC 31-Mar-22 15,300 15,300 12,300 66 Glendenning Road, Glendenning NSW 31-Mar-22 47,750 47,750 38,250 85 Radius Drive, Larapinta QLD 31-Mar-22 25,500 25,500 19,500 54 Miguel Road, Bibra Lake WA 31-Mar-22 44,250 44,250 33,000 24 Rodborough Road, Frenchs Forest NSW 31-Mar-22 29,000 29,000 24,500 6–8 and 11 Siddons Way, Hallam VIC 31-Mar-22 30,100 30,100 23,750 36–42 Hydrive Close, Dandenong South VIC 31-Mar-22 29,250 29,250 25,700 103 Welshpool Road, Welshpool WA 31-Mar-22 47,600 47,600 30,000 46–70 Grand Trunkway, Gillman SA 31-Mar-22 34,500 34,500 29,000 16 Dawson Street, East Arm NT 31-Mar-22 32,000 32,000 29,400 197 Belconnen Crescent, Brendale QLD 31-Mar-22 21,000 21,000 – 131–153 Main Beach Road, Pinkenba QLD 31-Mar-22 30,100 30,100 24,750 81 Dunhill Crescent, Morningside QLD 31-Mar-22 6,500 6,500 – 16 Aspiration Circuit, Bibra Lake WA 31-Mar-22 30,500 30,500 – OFFICE PORTFOLIO 449 Punt Road, Cremorne VIC 31-Mar-22 72,500 72,500 61,500 35–49 Elizabeth Street, Richmond VIC 31-Mar-22 113,000 113,000 104,500 2404 Logan Road, Eight Mile Plains QLD 30-Sep-20 17,500 17,400 17,000 186 Reed Street, Greenway ACT 30-Sep-20 25,750 26,100 25,250 21–23 Solent Circuit, Baulkham Hills NSW 31-Mar-22 73,500 73,500 68,000 266 King Street, Newcastle NSW 31-Mar-22 88,000 88,000 81,500 113 Wicks Road, Macquarie Park NSW 31-Mar-22 36,000 36,000 33,000 324 Queen Street, Brisbane QLD 31-Mar-22 89,500 89,500 79,000 20 Rodborough Road, Frenchs Forest NSW 31-Mar-22 72,000 72,000 66,000 2 Richardson Place, North Ryde NSW 31-Mar-22 115,500 115,500 110,000 100 Willis Street, Wellington NZ1 31-Mar-22 153,754 153,754 143,606 38 Sydney Avenue, Canberra ACT 31-Mar-22 77,500 77,500 – 510 Church Street, Cremorne VIC 31-Mar-22 133,500 133,500 – 24 Wormald Street, Symonston ACT2 31-Mar-21 30,500 – 30,500 Total Investment Properties 1,642,354 1,225,356 1. Converted at spot rate of 1.0796 at 31 March 2022. 2. Property disposed during the year. / 67 / 66 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Notes to the consolidated financial statements For the year ended 31 March 2022 continued / 69 / 68 (e) Uncertainty around property valuations The onset of COVID-19 saw real estate market activity in Australia impacted across many sectors resulting in limited transactional evidence from which to draw reliable valuation conclusions. 2021/2022 has seen investment activity across most Australian commercial markets recover to a substantial degree and the Group is satisfied that the available transactional evidence is adequately enables appropriate valuation analysis and conclusions. Despite this, markets continue to be heavily influenced by unprecedented global economic and political environments and in the event the impacts are more material or prolonged than anticipated, this may have further impact to the fair value of the Group’s property portfolio, and the future price achieved if a property is sold. (f) Contractual obligations/capital commitments At 31 March 2022, the Group included forecast cost associated with the aluminium cladding panel assessment and remediation for two properties in the portfolio (31 March 2021: 2) within the valuation of these properties rather than a separate provision. A$’000 2022 2021 449 Punt Road, Cremorne VIC 350 650 35–49 Elizabeth Street, Richmond VIC 350 1,200 700 1,850 There were no other significant contractual obligations or capital commitments relating to investment property as at 31 March 2022 (31 March 2021: Nil). (g) Leasing arrangements as lessor The Group leases office and industrial properties under operating leases. Contractual amounts due in terms of operating lease agreements are receivable as follows: 2022 2021 Minimus lease payments due to the Group under non-cancellable operating leases of investment property are receivable as follows: Less than 1 year 95,303 87,439 Between 1 and 2 years 85,496 81,900 Between 2 and 3 years 73,195 70,293 Between 3 and 4 years 52,177 60,497 Between 4 and 5 years 41,861 40,812 More than 5 years 177,036 105,973 525,068 446,914 Investment property comprises a number of commercial properties and industrial that are leased to third parties. The significant majority of leases are subject to annual rent reviews that are fixed or indexed to consumer prices. Subsequent renewals are negotiated with the lessee and historically, the average renewal period is five years. No contingent rents are charged. 12. Investment property held under development A$’000 2022 2021 Opening balance 11,600 – Acquisitions 6,947 3,886 Acquisition costs and capital expenditure 31,894 4,698 Completion of property under development (17,681) – Fair value adjustment 3,554 3,016 36,314 11,600 For the year ended 31 March 2022, the Group completed one development property (197 Belconnen Crescent, Brendale QLD) and held two investment properties (57–83 Mudgee Street, Kingston QLD and 34 Southgate Avenue, Cannon Hill QLD) for development. At the reporting date, the key assumptions (weighted average) used by the Group in determining fair value were as follows: A$’000 OFFICE INDUSTRIAL Capitalisation rate 5.00% 4.75% Discount rate 5.75% 5.75% Terminal yield 5.50% 5.13% Rental growth rate 2.90% 2.87% 11. Investment property (continued) Industrial The Australian industrial and logistics sector continued to see strong momentum in the occupier and investment markets as $18.2 billion of industrial assets transacted during calendar year 2021—more than three and a half times the average annual transaction activity for the last ten years. The large volume of sales activity experienced during the Group’s financial period ended 31 March 2022 has demonstrated the strength of the industrial market and the main driver for taking all 22 of the Group’s industrial properties for external valuation at 31 March 2022. At 31 March 2022, the weighted average capitalisation rate used in valuing the Group’s industrial portfolio firmed 103 basis points to 4.80% when compared to 31 March 2021. The industrial terminal cap rate firmed 104 basis points to 5.14% when compared to 31 March 2021. Office 2021 saw a rebound in investment activity as vendors and buyers were comforted by the greater certainty around tenant demand and leasing fundamentals. The increase in activity and depth of the buyer pool has seen yields continue to compress through 2021. The weighted average capitalisation rate used in valuing the Group’s office portfolio firmed 58 basis points to 5.54% when compared to 31 March 2021. The office weighted average terminal cap rate firmed 36 basis points to 5.82% when compared to 31 March 2021. Discount rates At 31 March 2022 discount rates utilised in the valuation of the Group’s property portfolio have tightened (i.e. lowered) by approximately 66 basis points to 6.09% when compared to 31 March 2021. The weighted average discount rate tightened 55 basis points to 6.22% for the office portfolio and 87 basis points to 5.84% for the industrial portfolio when compared to 31 March 2021. Market rental growth Market rental growth is the projected year on year change in market rent based on factors such as population growth, demand for space and expected supply and new developments within markets. A key driver of the DCF calculation outcome is market rental growth, where a property’s projected cash flow comprises of actual rental income, speculative rental income, and rental income growth. Market rent and rental growth have a material impact on the outcome of the terminal value calculation, as terminal market rent is a function of the current market rent and the 10 year CAGR. The terminal market rent is divided by the terminal capitalisation rate to determine the terminal value. At 31 March 2022, the market rental growth (10-year CAGR) utilised in the valuation of the Group’s property portfolio has increased by approximately 12 basis points to 3.11%, when compared to 31 March 2021. Significant unobservable inputs For all classes of investment property the significant unobservable inputs below are used to determine the fair value measurement of investment property at measurement date. Movement in any of the unobservable inputs is likely to have an impact on the fair value of investment property. The higher the market rent or 10-year compound annual growth rate, the higher the fair value. The higher the capitalisation rate, terminal yield or discount rate, the lower the fair value. The following significant unobservable inputs have been considered to determine the fair value of measurement at the end of the reporting year: Capitalisation rate Increases/(decreases) in the capitalisation rate would (decrease)/increase estimated fair value The rate at which net market income is capitalised to determine the value of a property. The rate is determined with regards to market evidence. Discount rate Increases/(decreases) in the discount rate would (decrease)/increase estimated fair value The rate of return used to convert a monetary sum, payable or receivable in the future, into present value. Theoretically it should reflect the opportunity cost of capital, that is, the rate of return the capital can earn if put to other uses having similar risk. The rate is determined with regards to market evidence Terminal yield Increases/(decreases) in the terminal yield would result in (decreases)/increases in the estimated fair value The capitalisation rate used to convert income into an indication of the anticipated value of the property at the end of the holding period when carrying out a discounted cash flow calculation. The rate is determined with regards to market evidence. Market rent and rental growth Increases/(decreases) in market rent and rental growth would increase/(decrease) estimated value The rent at which a space could be let in the market including rental growth in future years at the date of valuation. Market rent includes gross rent and net rent. Gross rent is where outgoings are incorporated in the rent being paid. Net market rent is where the owner recovers outgoings from the tenant on a pro-rata basis (where applicable). / 69 / 68 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Notes to the consolidated financial statements For the year ended 31 March 2022 continued / 71 / 70 15. Receivables and other assets During the year, the Group granted negligible rental relief to tenants in the form of rental waivers and rental deferrals as required for qualifying tenants under the National Cabinet’s Mandatory Code of Conduct for SME commercial leasing principles during the COVID-19 pandemic which has been given effect by state and territory legislation. For non-qualifying tenants the principles of the code were taken into account in the consideration of deferral requests. Deferrals granted have been agreed with tenants to be repaid over periods between October 2020 and January 2023. Consideration of the impact of COVID-19 on tenants has been incorporated into the assessment as at 31 March 2022 based on discussions held to date with each tenant and on any other information known about the tenant and/or their trading conditions. As at 31 March 2022, the Group had nil allowance for credit losses (31 March 2021: Nil). A$’000 2022 2021 Prepaid expenses 4,955 3,303 Trade debtors 702 1,185 Other receivable 3,000 – Sundry debtors 1,490 1,174 10,147 5,662 Other receivable relates to refundable deposit paid for an office development in Melbourne VIC, an investment which the Group manages on behalf of ITAP Fund and other third parties. The deposit will be reimbursed on the settlement of the transaction. 16. Cash and cash equivalents A$’000 2022 2021 Cash held on call account 9,200 7,405 Total cash and cash equivalents 9,200 7,405 17. Contributed equity A$’000 2022 2021 Issued On establishment 46,723 46,723 On completion security placement offer June 2021—34,013,605 fully paid ordinary securities 24,391 – On completion security placement offer December 2021—32,258,065 fully paid ordinary securities 24,331 – In issue at year end 95,445 46,723 Weighted average number of securities in issue 82,645 27,800 IPF II was established by IPF I making a capital distribution to the holders of units in IPF I (equal to A$0.0764 per IPF I unit), with such distribution being mandatorily applied by holders of IPF I units to subscribe for new units in IPF II of A$46.7 million. Issued capital comprises of ordinary units fully paid. The stapling of IPF I units to IPF II units in accordance with the IPF I and IPF II constitutions occurred on 27 November 2020. A stapled security comprises one unit in IPF I and one unit in IPF II. Holders of stapled securities are entitled to receive distributions as declared from time to time and are entitled to one vote per security at securityholders’ meetings. In the event of a winding up, securityholders rank after creditors and are fully entitled to any net proceeds of liquidation. The Group does not have authorised capital or par value in respect of the issued stapled securities. Refer to securityholder analysis included on pages 142 to 143 for further details on securityholders. 13. Intangible asset A$’000 2022 2021 Opening balance 39,528 – Additions – 39,528 Impairments – – Net carrying amount at 31 March 39,528 39,528 Intangible assets represent the management right platform acquired by IPF II. The intangible asset acquired has been determined to have an indefinite useful life and required to be tested for impairment annually. As at 31 March 2022, indicators of impairment were considered under IAS 36. As the recoverable amount is considered to be the acquisition cost, the intangible asset is not impaired. The valuation basis of the intangible asset to assess the fair value of the management right is the forecast EBITDA of IPF II multiplied by a market multiple. 14. Equity accounted investment The Group is committed to invest up to A$30 million in ITAP Fund (as at 31 March 2022, total committed equity is A$160.8 million (31 March 2021: A$140.0 million)). This represents 18.7% (31 March 2021: 21.4%) of the total equity of ITAP Fund and also the Group’s shareholding interest at balance date. As at 31 March 2022, A$18.3 million (31 March 2021: A$6.5 million) has been contributed. ITAP Fund is an unlisted Australian opportunity fund which was launched in December 2019. ITAP Fund seeks to invest in opportunistic real estate transactions in Australia and New Zealand with a shorter-term investment horizon than more passive investments, including value add and real estate backed debt opportunities which require more active management. The Group has been contracted to perform investment and asset management services to ITAP Fund. As at 31 March 2022, total fee received or receivable from ITAP Fund is A$1.2 million (31 March 2021: Nil). A$’000 2022 2021 Opening balance 5,807 – Equity contributions 11,777 6,514 Share of equity accounted profit/loss 2,995 (707) Net carrying amount 20,579 5,807 ITAP 2022 2021 Current assets 27,118 5,667 Non-current assets 90,999 28,766 Current liabilities 7,813 7,334 Non-current liabilities 24,388 8,685 Net assets 85,916 18,414 Shareholder loan 24,388 8,685 Net assets adjusted by shareholder loan 110,304 27,099 Revenue 19,634 215 Other comprehensive income – – Net profit/(loss) for the year ended 31 March 16,050 (3,298) % of ownership 18.66% 21.43% Net assets attributable to IAP 20,579 5,807 Equity contribution by IAP 18,291 6,514 Share of equity accounted profit/(loss) 2,995 (707) / 71 / 70 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Notes to the consolidated financial statements For the year ended 31 March 2022 continued / 73 / 72 19. Borrowings A$’000 TRANCHE EXPIRY DATE INTEREST RATE 2022 2021 Loans—secured—bank debt ANZ Facility—Tranche G 01-Apr-27 BBSY + 1.5500%1 20,000 20,000 ANZ Facility—Tranche H 01-Sep-26 BBSY + 1.5500%1 75,000 75,000 ANZ Facility—Tranche I 31-Mar-26 BBSY + 1.5500%1 25,000 25,000 Westpac Facility—Tranche N 28-Mar-28 BBSY + 1.4500%1 55,000 55,000 Westpac Facility—Tranche P 30-Nov-27 BBSY + 1.7000%1 29,940 16,514 Westpac Facility—Tranche Q 31-Mar-26 BBSY + 1.5500%1 22,500 – Westpac Facility—Tranche R 31-Mar-26 BBSY + 1.5500%1 47,500 – Westpac Facility—Tranche S 29-Dec-28 BBSY + 1.6750%1 36,742 – Westpac Facility—Tranche T 15-Dec-28 BBSY + 1.6750%1 59,000 – Westpac Facility—PGIM 22-Dec-29 3.4% 150,000 150,000 Total long-term borrowings—secured 520,682 341,514 Capitalised loan establishment costs (3,703) (2,451) Total value of interest-bearing borrowings 516,979 339,063 Movement in borrowings Opening balance 341,514 – IPF I balance on stapling to IPF II – 274,107 Interest charged 13,289 3,017 Interest paid (13,289) (3,017) Additional borrowing acquired 221,168 71,907 Repayments (42,000) (4,500) Closing balance at the end of the year 520,682 341,514 The Group’s LVR2 was 30.10% as at 31 March 2022. (31 March 2021: 26.88%) At 31 March 2022 the approved facility limit of the loan facility was A$625.0 million (31 March 2021: A$435.0 million) with A$104.3 million undrawn, (31 March 2021: A$93.5 million) The Group’s policy is to hedge at least 75% of interest rate risk. At the balance date, 85.9% (31 March 2021: 78.3%) of borrowings were hedged using interest rate swaps, locking in a blended rate (including margin and line fees) of 2.95% (31 March 2021: 2.84%) for a weighted average term of 6.0 years, (31 March 2021: 6.1 years) 1. Varies based on gearing levels. 2. LVR is a non-IFRS measure. 18. Non-controlling interest Under AAS, stapled entities are required to separately identify equity attributable to the parent entity from equity attributable to other entities stapled to the parent. The equity attributable to other entities (IPF I) stapled to the parent (IPF II) is presented as non-controlling interests in the statement of financial position of the Group. The following table summarises the information relating to IPF I that has material NCI. IPF I (A$’000) 2022 2021 NCI percentage 100% 100% Non-current assets 1,701,942 1,236,956 Current assets 11,974 10,393 Non-current liabilities 554,448 345,307 Current liabilities 29,983 28,337 Net assets 1,129,485 873,705 Issued capital 698,401 649,679 Retained earnings 431,084 224,026 Net assets attributable to NCI 1,129,485 873,705 Revenue 108,840 31,704 Profit 267,924 118,134 OCI – – Total comprehensive income 267,924 118,134 Profit allocated to NCI 267,924 118,134 OCI allocated to NCI – – Cash flows from operating activities 2,293 (7,487) Cash flows from investment activities (229,590) (51,140) Cash flow from financing activities 227,890 24,707 Net increase (decrease) in cash and cash equivalents 593 (31,220) / 73 / 72 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Notes to the consolidated financial statements For the year ended 31 March 2022 continued / 75 / 74 22. Key management personnel (KMP) compensation A$’000 2022 2021 Short-term employee benefits 1,630 717 Other long-term employee benefits 72 35 Post-employment benefits 69 22 1,771 774 Individual Directors’ and KMP compensation disclosures Information regarding individual Directors’ and KMP compensation and equity instruments disclosure is provided in the remuneration report within the Annual Report. Movements in securities The movement during the reporting period in the number of ordinary securities in IAP held directly, indirectly or beneficially, by each key management person, including their related parties, is as follows: HELD AT 31 MARCH 2021 PURCHASES SALES HELD AT 31 MARCH 2022 Directors Graeme Katz 270,296 – – 270,296 Richard Longes1 121,819 – – 121,819 Sally Herman 37,879 – – 37,879 Georgina Lynch2 67,493 – – 67,493 Stephen Koseff3 170,733 – – 170,733 There have been no changes in these holdings since the end of the reporting period. The related party transaction in relation to the RE is set out in the Directors’ report on page 39. 1. Through Gemnet Pty Ltd. 2. Through G Lynch Investments Pty Ltd. 3. Through Sheryl Koseff and SK Employee Trust. 20. Trade and other payables A$’000 2022 2021 Security deposits 1,212 581 Income received in advance 3,756 4,246 Lease liabilities 562 532 Employee entitlement 1,048 3,250 Other payables – 417 Trade and other payables—non-current 6,578 9,026 Accrued expenses 1,488 3,502 Trade creditors 296 1,181 Lease liabilities 133 107 Income received in advance 4,967 2,924 GST payable 808 510 Employee entitlement 4,096 – Other payables 1,810 1,098 Trade and other payables—current 13,598 9,322 21. Reconciliation of cash flows from operating activities A$’000 2022 2021 Profit before tax for the period 266,518 107,782 Adjusted for: Fair value adjustments—investment properties (162,250) (94,359) Fair value adjustments—investment property under development (3,554) (3,016) Fair value adjustments—derivatives (24,110) (3,360) Fair value adjustments—foreign currency revaluation (862) 3,225 Straightline rental revenue adjustment (2,477) (508) Profit on disposal of investment property (4,942) – Working capital movement Change in trade and other receivables 166 (5,138) Change in trade and other payables 593 7,746 Change in capital expenses (1,744) (2,040) Transaction cost on management internalisation – 7,715 Share of equity accounted (profit)/loss (2,995) 707 Distributions paid (56,919) (26,832) Net cash from operating activities 7,424 (8,078) / 75 / 74 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Notes to the consolidated financial statements For the year ended 31 March 2022 continued / 77 / 76 INTERTRUST LOAN BALANCE NAME OF ENTITY COUNTRY OF INCORPORATION CLASS OF UNITS EQUITY HOLDING 2022 2021 Irongate Property Sub Trust No.27 Australia Ordinary 100% 15,192 – Irongate Property Sub Trust No.28 Australia Ordinary 100% 334 – Irongate Property Sub Trust No.29 Australia Ordinary 100% 143 – Irongate Property Sub Trust No.30 Australia Ordinary 100% 3,065 – Irongate Property Sub Trust No.31 Australia Ordinary 100% (8,668) – Irongate Property Sub Trust No.32 Australia Ordinary 100% – – Irongate Property Sub Trust No.33 Australia Ordinary 100% – – Irongate Property Sub Trust No.34 Australia Ordinary 100% – – Irongate Property Sub Trust No.35 Australia Ordinary 100% – – 24. Parent entity disclosures A$’000 2022 2021 The parent of the Group is Irongate Property Fund II Result of parent entity Net loss for the period (449) (5,998) Other comprehensive income – – Total comprehensive income for the period (449) (5,998) Financial position of parent entity Current assets 6 – Non-current assets 88,992 41,245 Total assets 88,998 41,245 Current liabilities – (520) Non-current liabilities – – Total liabilities – (520) Net assets 88,998 40,725 Total equity of parent entity comprising of: Contributed equity 95,445 46,723 Retained earnings (6,447) (5,998) Total equity 88,998 40,725 23. Group entities The consolidated financial statements incorporate the assets, liabilities and results of the following controlled entities in accordance with the accounting policy described in Note 1.2. All subsidiaries are established in Australia and are 100% owned trusts and controlled by the parent entity with no restrictions. IPF I and IPF II enter into transactions with its wholly owned trusts. These transactions mainly involve the payment of distributions between trusts and lending of funds between the trusts. Intertrust loans are repayable upon demand, unsecured and non-interest bearing. INTERTRUST LOAN BALANCE NAME OF ENTITY COUNTRY OF INCORPORATION CLASS OF UNITS EQUITY HOLDING 2022 2021 Held directly by IPF II Irongate Property Holdings Pty Limited Australia Ordinary 100% – – Irongate Property Management Trust Australia Ordinary 100% (48,196) 520 Irongate Funds Management Limited Australia Ordinary 100% – – Irongate Property Management Pty Limited Australia Ordinary 100% – – Irongate Property No.1 Pty Limited Australia Ordinary 100% – – Irongate Property No.2 Pty Limited Australia Ordinary 100% – – Irongate Templewater No.1 Pty Limited Australia Ordinary 100% – – Irongate Templewater No.2 Pty Limited Australia Ordinary 100% – – Held directly by IPF I Irongate Property Hold Trust No.1 Australia Ordinary 100% (73,640) (54,003) Irongate Property Sub Trust No.1 Australia Ordinary 100% 3,439 3,848 Irongate Property Sub Trust No.2 Australia Ordinary 100% (6,299) (5,503) Irongate Property Sub Trust No.3 Australia Ordinary 100% (3,665) (3,155) Irongate Property Sub Trust No.4 Australia Ordinary 100% (1,521) 427 Irongate Property Sub Trust No.5 Australia Ordinary 100% (1,545) (1,501) Irongate Property Sub Trust No.6 Australia Ordinary 100% 15,722 75,347 Irongate Property Sub Trust No.7 Australia Ordinary 100% 77 87 Irongate Property Sub Trust No.8 Australia Ordinary 100% (420) (110) Irongate Property Sub Trust No.9 Australia Ordinary 100% (442) (358) Irongate Property Sub Trust No.10 Australia Ordinary 100% (3,775) (2,697) Irongate Property Sub Trust No.11 Australia Ordinary 100% (1,661) (360) Irongate Property Sub Trust No.12 Australia Ordinary 100% 148 165 Irongate Property Sub Trust No.13 Australia Ordinary 100% (310) (271) Irongate Property Sub Trust No.14 Australia Ordinary 100% (2,009) (2,258) Irongate Property Sub Trust No.15 Australia Ordinary 100% (2,016) (974) Irongate Property Sub Trust No.16 Australia Ordinary 100% (6,137) (3,706) Irongate Property Sub Trust No.17 Australia Ordinary 100% 393 506 Irongate Property Sub Trust No.18 Australia Ordinary 100% (5,645) (4,228) Irongate Property Sub Trust No.19 Australia Ordinary 100% (7,010) (3,911) Irongate Property Sub Trust No.20 Australia Ordinary 100% 305 445 Irongate Property Sub Trust No.21 Australia Ordinary 100% 35,508 242 Irongate Property Sub Trust No.22 Australia Ordinary 100% (4,727) 695 Irongate Property Sub Trust No.23 Australia Ordinary 100% (43) 31 Irongate Property Sub Trust No.24 Australia Ordinary 100% (5,352) (5,361) Irongate Property Sub Trust No.25 Australia Ordinary 100% 1,466 1,759 Irongate Property Sub Trust No.26 Australia Ordinary 100% 2,139 – / 77 / 76 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Notes to the consolidated financial statements For the year ended 31 March 2022 continued / 79 / 78 AS AT 31 MARCH 2021 A$’000 MEASURED AT FAIR VALUE THROUGH PROFIT/LOSS NON-FINANCIAL INSTRUMENTS AMORTISED COST TOTAL ASSETS Non-current assets Investment property 1,225,356 – – 1,225,356 Investment property under development 11,600 – – 11,600 Property, plant and equipment – 661 – 661 Intangible assets – 39,528 – 39,528 Equity accounted investment – 5,807 – 5,807 Deferred tax assets – 2,957 – 2,957 Current assets Cash and cash equivalents – – 7,405 7,405 Trade and other receivables – – 5,662 5,662 Total assets 1,236,956 48,953 13,067 1,298,976 LIABILITIES Non-current liabilities Long-term borrowings – – 339,063 339,063 Financial instruments held at fair value 836 – – 836 Trade and other payables – – 9,026 9,026 Current liabilities Trade and other payables – – 9,322 9,322 Distribution payable – – 27,696 27,696 Total liabilities 836 – 385,107 385,943 Cash and cash equivalents; trade and other receivables; trade and other payables are measured at amortised cost and approximate fair value. The fair value of “ long term borrowings at amortised cost” has been estimated by market interest rate at each year end. Other non-financial instruments are tested for impairment on an annual basis. 25. Financial Risk and capital management 25.1 Total financial and non-financial assets and liabilities The table below sets out the Group’s accounting classification of each class of financial and non-financial asset and liability and their fair values at 31 March 2022. AS AT 31 MARCH 2022 A$’000 MEASURED AT FAIR VALUE THROUGH PROFIT/LOSS NON-FINANCIAL INSTRUMENTS AMORTISED COST TOTAL ASSETS Non-current assets Investment property 1,642,354 – – 1,642,354 Investment property under development 36,314 – – 36,314 Property, plant and equipment – 753 – 753 Intangible assets – 39,528 – 39,528 Equity accounted investment – 20,579 – 20,579 Deferred tax assets – 2,763 – 2,763 Financial instruments held at fair value 23,274 – – 23,274 Current assets Cash and cash equivalents – – 9,200 9,200 Trade and other receivables – – 10,147 10,147 Total assets 1,701,942 63,623 19,347 1,784,912 LIABILITIES Non-current liabilities Long-term borrowings – – 516,979 516,979 Financial instruments held at fair value – – – – Trade and other payables – – 6,578 6,578 Current liabilities Trade and other payables – – 13,598 13,598 Distribution payable – – 31,643 31,643 Total liabilities – – 568,798 568,798 / 79 / 78 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Notes to the consolidated financial statements For the year ended 31 March 2022 continued / 81 / 80 b. Details of changes in valuation techniques There have been no significant changes in valuation techniques during the year under review c. Significant transfers between Level 1, Level 2 and Level 3 There have been no transfers between Level 1, Level 2 and Level 3 during the year. Derivative financial instruments consist of interest rate hedging instruments. Interest rate hedging instruments are valued based on broker quotes and are tested for reasonableness by discounting future cash flows using an observable market interest rate curve at the dates when the cash flows will take place. 25.3 Other financial risk management considerations The financial instruments of the Group consist mainly of cash and cash equivalents, including deposits with banks, borrowings, derivative instruments, trade and other receivables and trade and other payables. The Group purchases or issues financial instruments in order to finance operations and to manage the interest rate risks that arise from these operations and the source of funding. The Group has exposure to the following risks from its use of financial instruments: • Credit risk • Liquidity risk • Market risk The board of the Responsible Entity has overall responsibility for the establishment and oversight of the Group’s risk management framework. The board of the Responsible Entity has established the Audit and Risk Committee, which is responsible for developing and monitoring the Group’s risk management policies. The Audit and Risk Committee reports regularly to the board of the Responsible Entity on its activities. The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Audit and Risk Committee oversees how management monitors compliance with the Group’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Audit and Risk Committee is assisted in its oversight role by Investec Internal Audit, which undertake both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit and Risk Committee. 25.4 Credit risk Credit risk is the risk of financial loss to the Group if a client or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from derivatives, as well as trade and other receivables. There is no significant concentration of credit risk as exposure is spread over a large number of counterparties. Exposure to credit risk The carrying amount of financial assets represents the maximum credit exposure. The table below shows the maximum exposure to credit risk for the components of the statement of financial position, including derivatives. AT 31 MARCH A$'000 2022 2021 Cash and cash equivalents 9,200 7,405 Receivables and other assets 10,147 5,662 Financial instruments—Interest rate swaps 23,274 – Total on-balance sheet exposure 42,621 13,067 Contingent liabilities, committed facilities and others – – Total gross credit exposures 42,621 13,067 Where financial instruments are recorded at fair value the amounts shown above represent the current credit risk exposure but not the maximum risk exposure that could arise in the future as a result of changes in values. The Group has derivative financial instruments held with major Australian banks, Westpac and ANZ, which are considered high quality financial institutions. The credit risk of financial instruments has not increased significantly since initial recognition. The Group applies the lifetime ECL model to manage the credit risk of financial assets carried at amortised cost in accordance with the accounting policy described in Note 1.10.1 to the consolidated financial statements. Historical evidence suggests that there is an insignificant ECL, and there is no forward-looking information that indicates potential impairment of receivables. The Group has determined that no ECL is required to be recognised as at 31 March 2022. (31 March 2021: Nil). 25.2 Fair value hierarchy—financial instruments In the case of financial instruments whose carrying amount is not the same as their theoretical fair value. The fair value has been calculated as follows: a. The fair value of “long term borrowings at amoritsed cost” has been estimated by marketing interest rate at year end. For financial instruments whose carrying amount is equivalent to their fair value, the measurement processes used are defined as follows: Level 1—quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2—inputs other than quoted prices included within Level 1 that are observable for the assets and liabilities, either directly (i.e. as prices) or indirectly (i.e. derived from prices) Level 3—inputs for the assets and liabilities that are not based on observable market data (unobservable inputs) FAIR VALUE FAIR VALUE AND CARRYING AMOUNT A$’000 CARRYING AMOUNT LEVEL 1 LEVEL 2 LEVEL 3 TOTAL As at 31 March 2022 Financial assets not measured at fair value Cash and cash equivalents 9,200 – – – – Receivables and other assets 10,147 – – – – 19,347 – – – – Financial liabilities not measured at fair value Trade and other payables 20,176 – – – – Distribution payable 31,643 – – – – Long term borrowings 516,979 – 513,015 – 513,015 568,798 – 513,015 – 513,015 Financial assets measured at fair value Interest rate swaps 23,274 – 23,274 – 23,274 23,274 – 23,274 – 23,274 FAIR VALUE FAIR VALUE AND CARRYING AMOUNT A$’000 CARRYING AMOUNT LEVEL1 LEVEL2 LEVEL3 TOTAL As at 31 March 2021 Financial assets not measured at fair value Cash and cash equivalents 7,405 – – – – Receivables and other assets 5,662 – – – – 13,067 – – – – Financial liabilities not measured at fair value Trade and other payables 18,348 – – – – Distribution payable 27,696 – – – – Long term borrowings 339,063 – 352,018 – 352,018 385,107 – 352,018 – 352,018 Financial liabilities measured at fair value Interest rate swaps 836 – 836 – 836 836 – 836 – 836 / 81 / 80 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Notes to the consolidated financial statements For the year ended 31 March 2022 continued / 83 / 82 25.6 Derivatives Derivative instruments are used to hedge the Group’s exposure to any increases in interest rates on variable rate loans. Interest rate swap contracts are entered into whereby the Group hedges out its variable rate obligation to provide a maximum fixed rate obligation. Details of the interest rate fixed for variable swap instruments are as follows: FINANCIAL INSTITUTION NOTIONAL AMOUNT $’000 FAIR VALUE $’000 START DATE END DATE FIXED RATE 31 March 2022 Australia and New Zealand Banking Group 30,000 1,136 24-Dec-19 24-Dec-24 1.06% Westpac Banking Corporation 20,000 1,135 22-Mar-21 24-Mar-25 0.64% Westpac Banking Corporation 67,303 5,030 11-Dec-17 12-Dec-26 2.58% Westpac Banking Corporation 70,000 5,770 21-Jun-21 21-Jun-27 1.18% Westpac Banking Corporation 110,000 10,203 15-Dec-21 15-Dec-31 1.92% Total 297,303 23,274 FINANCIAL INSTITUTION NOTIONAL AMOUNT $’000 FAIR VALUE $’000 START DATE END DATE FIXED RATE 31 March 2021 Australia and New Zealand Banking Group 30,000 (592) 24-Dec-19 24-Dec-24 1.06% Westpac Banking Corporation 20,000 (5) 22-Mar-21 24-Mar-25 0.64% Westpac Banking Corporation 67,303 (239) 11-Dec-17 12-Dec-26 2.58% Total 117,303 (836) 25.7 Capital Management In terms of its Constitution, the Group’s gearing ratio must not exceed 60%. The Group is funded partly by unit capital and partly by external borrowings. In terms of its covenants entered into during the year, the Group is committed to a maximum value of external borrowings of 55% of the value of investment property and investment assets. In practice, the Group aims to keep gearing levels between 30% and 40% over the long term. At 31 March 2022, the nominal value of borrowings less cash equivalents was equal to 30.09% (31 March 2021: 26.88%) of the value of investment properties and equity accounted investments. The Board’s policy is to maintain a strong capital base, comprising its securityholders’ interest, so as to promote investor, creditor and market confidence and to sustain future development of the business. It is the Group’s stated purpose to deliver medium to long-term sustainable growth in distributions per unit. Distributable income is distributed on a six monthly basis. The Board monitors the level of distributions to securityholders. There were no changes in the Group’s approach to capital management during the year. The Group is not subject to externally imposed capital requirements. 26. Remuneration of auditors The following fees were paid of payable for services provided by auditors of Group during the year. All audit and tax services were provided by KPMG. A$ 1 APRIL 2021 TO 31 MARCH 2022 03 SEPTEMBER 2021 TO 31 MARCH 2021 Auditor’s remuneration—audit fee 314,584 301,169 Auditor’s remuneration—tax compliance 160,000 163,720 Non audit service cost for internalisation transaction – 2,011,501 474,584 2,476,390 27. Subsequent events There is no other item, transaction or event of a material or unusual nature likely that have arisen since the end of the financial year up until the date of the annual report which would significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in subsequent years. 25.5 Market risk (a) Interest rate risk The Group is exposed to interest rate risk and adopts a policy of ensuring that at least 75% of its exposure to changes in interest rates on borrowings is on a fixed basis. This is achieved by entering into variable for fixed rate swap instruments. All such transactions are carried out within the guidelines set by the Audit and Risk Committee. As a consequence, the Group is exposed to fair value interest rate risk in respect of the fair value of its interest rate financial instruments, which will not have an impact on distributions. Short-term receivables and payables and investments are not directly exposed to interest rate risk. The potential market risk to the Group arises from changes of interest rate. This relates to its floating debt facility. At 31 March 2022, 85.9% (31 March 2021: 78.3%) of the Group’s interest rate exposure was hedged. The principle outstanding amount of floating debt facility is A$73.4 million (31 March 2021: A$144.7 million). Therefore, for the year ended 31 March 2022, a 1% increase/decrease in interest rates on the variable rate borrowings would have an immaterial impact on the Group’s profit, assuming all other variables remain constant. (b) Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s policy is to seek to minimise its exposure to liquidity risk by balancing its exposure to interest rate risk and to refinancing risk. In effect the Group seeks to borrow for as long as possible at the lowest acceptable cost. The Group regularly reviews the maturity profile of its financial liabilities and will seek to avoid concentration of maturities through the regular replacement of facilities, and by using a selection of maturity dates. The tables below set out the maturity analysis of the Group’s financial liabilities based on the undiscounted contractual cash flows. Cash flows are monitored on a monthly basis to ensure that cash resources are adequate to meet the funding requirements of the Group. AS AT 31 MARCH 2022 A$’000 WITHIN 1 YEAR 1–2 YEARS 2–5 YEARS OVER 5 YEARS TOTAL CARRYING VALUE Long-term borrowings1 10,955 10,985 220,718 348,695 591,353 520,682 Trade and other payables 13,598 4,637 1,587 354 20,176 20,176 Distributions payable 31,643 – – – 31,643 31,643 Total liabilities 56,196 15,622 222,305 349,049 643,172 572,501 AS AT 31 MARCH 2021 A$’000 WITHIN 1 YEAR 1–2 YEARS 2–5 YEARS OVER 5 YEARS TOTAL CARRYING VALUE Long-term borrowings1 7,758 7,758 195,691 169,156 380,363 341,514 Trade and other payables 9,322 4,931 2,601 1,494 18,348 18,348 Distributions payable 27,696 – – – 27,696 27,696 Total liabilities 44,776 12,689 198,292 170,650 426,407 387,558 The table below outlines the Group’s LVR2 at the end of the period. A$’000 2022 2021 Investment property 1,642,354 1,225,356 Investment property held under development 36,314 11,600 Equity accounted investment (EAI) 20,579 5,807 Total 1,699,247 1,242,763 Carrying value of interest bearing borrowing 520,682 341,514 Less: Cash and cash equivalents (9,200) (7,405) Net value of borrowing 511,482 334,109 Current ratio of interest bearing borrowings to value of property and EAI (%) 30.10 26.88 1. Cash flows in relation to long term borrowings take into account interest payments and the effect of interest rate swaps. 2. LVR is a non-IFRS measure. / 83 / 82 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 / 85 / 84 Independent auditor’s report 84 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. Independent Auditor’s Report To the stapled securityholders of Irongate Group Opinion We have audited the Financial Report of Irongate Property Fund II (IPF II) as deemed parent presenting the stapled security arrangement of the Irongate Group (the Stapled Group Financial Report). In our opinion, the accompanying Stapled Group Financial Report is in accordance with the Corporations Act 2001, including: • giving a true and fair view of the Stapled Group’s financial position as at 31 March 2022 and of its financial performance for the year ended on that date; and • complying with Australian Accounting Standards and the Corporations Regulations 2001. The Financial Report of the Stapled Group comprises: • Consolidated statement of financial position as at 31 March 2022 • Consolidated statement of profit or loss and other comprehensive income, Consolidated statement of changes in equity, and Consolidated statement of cash flows for the year then ended • Notes including a summary of significant accounting policies (collectively referred to as Financial Statements) • Directors’ Declaration. The Irongate Group (The Stapled Group) consists of Irongate Property Fund II (IPF II), Irongate Property Fund I (IPF I) and the entities they controlled at the year-end or from time to time during the financial year. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Stapled Group, Irongate Property Fund II, Irongate Funds Management Pty Limited (the Responsible Entity) in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with these requirements. 85 Key Audit Matters Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Report of the current period. This matter was addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on this matter. Valuation of investment property ($1,642m) Refer to accounting policy note 1.11 and note 11 of the Financial Report The key audit matter How the matter was addressed in our audit The valuation of investment property is a key audit matter as they are significant in value (being 92% of total assets). The properties being valued at fair value increased the judgement applied by us when evaluating evidence available in light of the COVID-19 pandemic. The Stapled Group approached the uncertainty risk using internal methodologies and the use of external valuation experts. We focused on the significant forward looking assumptions the Stapled Group applied in external and internal valuation models with considerations of the impact of COVID-19 including: • Discount rates: these are complicated in nature and differ due to the asset classes, geographies and characteristics of individual investment properties; • Capitalisation rates (cap rates): reflects the yield that an investor would look to recover their investment in a particular class of asset; and • Forecast cash flows including: market rental income and leasing assumptions. Our procedures included: • Understanding the Stapled Group’s process regarding the valuation of investment property, including specific considerations of the impact of COVID-19; • Assessing the Stapled Group’s methodologies used in the valuations of investment property for consistency with accounting standards and Group policies; • Assessing the scope, competence and objectivity of external experts engaged by the Stapled Group and internal valuers; • For the total portfolio, taking into account the asset classes, geographies and characteristics of individual investment properties, we assessed the appropriateness of adopted discount and cap rates and market rental income through comparison to market analysis published by industry experts, recent market transactions, other market data points available, inquiries with the Stapled Group and historical performance of the investment properties; • Assessing the appropriateness of the Stapled Group’s leasing assumptions against each property’s actual rental income, weighted average lease expiry and actual vacancy levels; • Checking a sample of actual rental income, weighted average lease expiries and vacancy levels within both internal and external valuations to tenancy schedules as per lease agreements; and • Assessing the disclosures in the financial report including checking the sensitivity analysis calculations, using our understanding obtained from our testing, against accounting standard requirements. This was considered in light of the impact of COVID-19 on the portfolio. / 85 / 84 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 / 87 / 86 Independent auditor’s report Continued 86 Other Information Other Information is financial and non-financial information in Irongate Group’s annual reporting which is provided in addition to the Financial Report and the Auditor’s Report. The Directors of Irongate Funds Management Pty Ltd (the Responsible Entity) are responsible for the Other Information. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit opinion or any form of assurance conclusion thereon. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of the Directors for the Financial Report The Directors of the Responsible Entity are responsible for: • preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 • implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error • assessing the Stapled Group’s ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Stapled Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objective is: • to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and • to issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Report. 87 A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our Auditor’s Report. KPM_INI_01 KPMG Paul Thomas Partner Sydney 10 May 2022 / 87 / 86 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 / 88 This page has intentionally been left blank. / 88 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group consolidated financial statements prepared in accordance with the regulatory requirements under JSE Listings Requirements 06 — / 91 / 90 The directors, whose names are stated below, hereby confirm that: (a) the annual financial statements set out on pages 101 to 141, fairly present in all material respects the financial position, financial performance and cash flows of the issuer in terms of IFRS; (b) no facts have been omitted or untrue statements made that would make the annual financial statements false or misleading; (c) internal financial controls have been put in place to ensure that material information relating to the issuer and its consolidated subsidiaries have been provided to effectively prepare the financial statements of the issuer; and (d) the internal financial controls are adequate and effective and can be relied upon in compiling the annual financial statements, having applied the combined assurance model pursuant to principle 15 of the King Code. Where we are not satisfied, we have disclosed to the audit committee and the auditors the deficiencies in design and operational effectiveness of the internal financial controls and any fraud that involves directors and have taken the necessary remedial action. Signed by the CEO and the CFO Graeme Katz Chief Executive Officer Kristie Lenton Chief Financial Officer Dated at Sydney 10 May 2022 Dated at Sydney 10 May 2022 Directors’ responsibility on financial controls The directors of Irongate Funds Management Limited (ABN 93 071 514 246), the responsible entity (Responsible Entity) of Irongate Group (IAP or the Group) are responsible for the preparation and fair presentation of the consolidated financial statements of the Group. The consolidated financial statements comprise the: • consolidated statement of profit or loss and other comprehensive income for the year 01 April 2021 to 31 March 2022 • consolidated statement of financial position at 31 March 2022 • consolidated statement of changes in equity for the year 01 April 2021 to 31 March 2022 • consolidated statement of cash flows for the year 01 April 2021 to 31 March 2022 • notes to the consolidated financial statements, which include a summary of significant accounting policies and other explanatory notes • in accordance with International Financial Reporting Standards (IFRS), the constitution of the Funds, the JSE Listings Requirements and the requirements of the Corporations Act 2001 (Cth) (Corporations Act). The directors of the Responsible Entity are also responsible for such internal controls as they determine necessary to enable the preparation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error, and for maintaining adequate accounting records and an effective system of risk management. The directors of the Responsible Entity have made an assessment of the ability of the Group to continue as a going concern and have no reason to believe that the business will not be a going concern in the year ahead. The external auditor is responsible for reporting on whether the consolidated financial statements are fairly presented in accordance with the applicable financial reporting framework. The consolidated financial statements of the Group, as identified in the first paragraph, were approved under authority of the board of the Responsible Entity on 10 May 2022 and are signed on their behalf by: Richard Longes Independent non-executive chairperson Graeme Katz CEO Dated at Sydney 10 May 2022 Dated at Sydney 10 May 2022 Directors’ responsibility statement / 91 / 90 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 / 93 / 92 The directors of Irongate Funds Management Limited (ABN 93 071 514 246), the responsible entity (Responsible Entity) of Irongate Group (IAP or the Group), present their report together with the consolidated financial statements of the Group for the year ended 31 March 2022. Irongate Group is a stapled group consisting of Irongate Property Fund I (IPF I) and Irongate Property Fund II (IPF II). The financial statements of the Group comprise IPF I, IPF II and their respective controlled entities. IPF II was established on 3 September 2020 and stapled to IPF I on 27 November 2020. The implementation date of the management internalisation1 was 30 November 2020 prior to which the Group was known as Investec Australia Property Fund. Effective 7 December 2020, Investec Australia Property Fund changed its name to IPF I and Investec Australia Property Fund II changed its name to IPF II. IPF I was listed on the exchange operated by JSE Limited (JSE) on 23 October 2013, was listed on the exchange operated by ASX Limited (ASX) on 28 May 2019 and following this was dual primary listed on the ASX and JSE. Following the stapling of IPF I and IPF II, the Group continues to be dual primary listed on the ASX and JSE. The security code on both the JSE and the ASX is IAP and the ISIN is AU0000046005. Securities in IPF I and IPF II are quoted on both the JSE and the ASX and can be moved between the South African sub-register and the Australian sub-register. Securityholders can elect where their securities are traded by holding their security on either the South African sub-register or the Australian sub-register. Directors of the Responsible Entity The following persons were directors of the Responsible Entity during the period from 1 April 2021 up to the date of the annual report, unless otherwise stated: Richard Longes Independent non-executive chairperson Sally Herman Lead independent non-executive director and chairperson of the audit and risk committee of the board of the Responsible Entity (Audit and Risk Committee) Georgina Lynch Independent non-executive director Stephen Koseff Independent non-executive director Graeme Katz Executive director Details of Board and Audit and Risk Committee meetings held during the year and directors’ attendance are set out on page 24 of the Sustainability Report 2022. Directors of the Manager The following persons were directors of Irongate Property Management Pty Limited (Manager) during the period from 1 April 2021 up to the date of the annual report: Graeme Katz Executive director Zach McHerron Executive director Kristie Lenton Executive director Company secretary The company secretary for the period 1 April 2021 up to the date of the annual report was Lucy Spenceley. Details on the appointment and evaluation of company secretary by the Board are set out on page 24 of the Sustainability Report 2022. 1. A management internalisation is a transaction where a fund’s unitholders acquire the externally owned responsible entity (and other related management entities) that operate and manage the fund. Principal activities The principal activities of the Group are to invest in real estate assets and manage third-party capital and wholesale funds. Group objectives and investment philosophy The Group’s strategy is to invest in office, industrial and retail properties in major metropolitan cities or established commercial precincts in Australia and New Zealand. As a result of the internalisation transaction, IPF II provides investment and asset management services as part of a combined economic group consolidated with IPF I. The Group also provides investment and asset management services in relation to TAP. The objectives of the Group are to: • deliver income and capital returns to securityholders over time • grow and diversify its asset base • maintain a strong corporate governance framework The Group’s investment philosophy, whether on balance sheet or for third party funds, focuses on making investment decisions based on sound underlying property fundamentals, enhancing the quality of the portfolio and identifying opportunities to unlock additional value through active asset management. The Group adheres to this philosophy by utilising the skills of an experienced and well-connected management team with a presence in the Group’s key geographies of Sydney, Melbourne and Brisbane, and through a commitment to sound balance sheet management. Review of operations A detailed review of operations is included in the introduction from the chairperson and the CEO on page 3 of the annual report. Financial result For accounting purposes, IPF II has been identified as the parent of the consolidated group. IPF II was established on 3 September 2020 in preparation for the internalisation of the management function. IPF II was dormant between the date of establishment and the implementation date of 30 November 2020. The consolidation of IPF II and IPF I became effective on 30 November 2020 which is the implementation date of the internalisation transaction. The following table summarises the statutory profit for the year ended 31 March 2022 with the comparative result of prior year for period from 3 September 2020 to 31 March 2021. A$’000 1 APRIL 2021 TO 31 MARCH 2022 3 SEPTEMBER 2020 TO 31 MARCH 2021 Total revenue and other income 122,277 32,224 Total expenses (46,535) (21,952) Net operating income 75,742 10,272 Fair value adjustments 190,776 97,510 Profit before tax 266,518 107,782 Income tax benefits (194) 2,957 Profit after tax 266,324 110,739 As at 31 March 2022, the Group’s net tangible assets attributable to securityholders was A$1.74 (31 March 2021: A$1.43) per security. Directors’ report Report of the audit and risk committee The audit and risk committee of the board of the Responsible Entity (Audit and Risk Committee) has pleasure in submitting this report to securityholders as recommended by the King IV Report on Corporate Governance for South Africa 2016 (King IV Code). The Audit and Risk Committee is satisfied that it has considered and discharged its responsibilities in terms of its mandate and charter, the King IV Code and the Corporations Act. As the Group comprising Stapled Securities comprising Irongate Property Fund I and Irongate Property Fund II, who are both Australian registered managed investment schemes under the Corporations Act it has Australian reporting obligations. The Group is required to lodge audited Group consolidated financial statements and the consolidated financial statements of Irongate Property Fund I with the Australian Securities and Investments Commission. This is in addition to the Group’s reporting obligations in South Africa. The Audit and Risk committee is satisfied that the Fund has discharged all of its reporting obligations in Australia and South Africa. The Audit and Risk Committee carried out its duties by inter alia, reviewing the following: • financial management reports • external audit reports • management’s risk assessment • compliance reports Significant matters the Audit and Risk Committee has considered this year in relation to the consolidated financial statements are: • audit quality • audit independence • valuation of investment properties • related party transactions • borrowing classifications, derivatives and debt covenants • going concern The abovementioned information, together with interaction with the external and internal auditors, management and other invitees attending meetings in an ex officio capacity, enabled the Audit and Risk Committee to conclude that the risk management process and systems of internal financial control have been designed and were operating effectively during the financial period. The Audit and Risk Committee is satisfied: • its members have the requisite financial skills and experience to contribute to its deliberations • with the independence and effectiveness of the external auditor, including the provision on non-audit services and compliance with the Group’s policy in this regard • the Responsible Entity has complied with the JSE Listings Requirements and the principles of the King IV Code applicable to the Group • it considered and approved that audit fee payable to the external auditors in respect of the audit for the year ended 31 March 2022 as well as their terms of engagement and scope of the audit • that the appointment of the external auditor is in compliance with the Corporations Act and the JSE Listings Requirements • with the effectiveness of the internal audit function and that the system of internal financial control in all key material aspects is effective and provides reasonable assurance that the financial records may be relied upon for the preparation of the consolidated financial statements • with the expertise and experience of the chief financial officer and the overall adequacy and appropriateness of the finance function The Audit and Risk Committee, having fulfilled the oversight role regarding the reporting process and the annual report, recommends for approval by the board of the Responsible Entity, the annual report and the consolidated financial statements for the year ended 31 March 2022. Sally Herman Chairperson Dated at Sydney 10 May 2022 / 93 / 92 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 / 95 / 94 No indemnity payment has been made under any of the documents referred to above during, or since the end of, the financial year. The Group has not during or since the end of the financial year indemnified or agreed to indemnify an auditor of the Group or of any related body corporate against a liability incurred in their capacity as an auditor. Provision for non-audit service by auditor The Group may decide to employ the auditor, KPMG, on assignments in addition to their statutory audit duties. Details of the amounts paid to the auditor, which includes the amounts paid for non-audit services and other assurance services, are set out in Note 26 to the consolidated financial statements. Directors have considered the non-audit services and other assurance services provided by the auditor during the financial year. In accordance with advice received from the Audit and Risk Committee, the directors are satisfied that the provision of non-audit services is compatible with, and did not compromise, the general standard of auditor independence imposed by the Corporations Act 2001 for the following reasons: • all non-audit services have been reviewed by the Audit and Risk Committee to ensure they do not impact the impartiality and objectivity of the auditor • none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants. Environmental regulation As a landlord, the operations of the Group are subject to a range of environmental laws and regulations under Commonwealth, State and Territory law. However, the leases attaching to the majority of the properties owned by the Group require the tenant to use reasonable endeavours to prevent contamination at each site and indemnify the Group for any contamination caused by their operations. The Group’s operations are not subject to any significant environmental regulation under Commonwealth, State or Territory legislation. Rounding off The Group is of a kind referred to in ASIC Class Order 2016/191 dated 24 March 2016 and in accordance with that ASIC Class Order, amounts in the consolidated financial statements and directors’ report have been rounded off to the nearest thousand dollars, unless otherwise stated. Additional financial report As a result of the Group being dual primary listed on both the JSE and ASX, the Group’s financial report for the year ended 31 March 2022 is required to be audited by auditors in both Australia and South Africa to meet the regulatory requirements in both jurisdictions. Due to the varying reporting requirements in Australia and South Africa, two sets of consolidated financial statements have been prepared, where the differences in the two are largely presentation driven. Both copies of the consolidated financial statements are included in the annual report. Signed in accordance with a resolution of the directors of the Responsible Entity. Richard Longes Independent non-executive chairperson Graeme Katz CEO 10 May 2022 10 May 2022 Interests of the Responsible Entity Prior to the internalisation transaction, the Responsible Entity had delegated the management of IPF I to the Manager, which was a wholly owned subsidiary of Investec Group (comprising Investec Limited and Investec plc, being the head entities of the dual listed companies structure, and each of their subsidiaries (Investec Group)). The Responsible Entity was not paid fees during the year. The following fees were paid to the Manager for the period from 1 April 2020 up to the date of the internalisation transaction on 30 November 2020: These fees are not reflected in the statement of profit or loss and other comprehensive income but it is reflected in the net assets of IPF I upon the stapling. Following the internalisation, the fees are paid to a controlled entity of IPF II and are eliminated on consolidation of the Group. A$ 2022 2021 Asset management fee – 3,808,008 Property management fee – 1,135,884 Property portfolio A detailed review of the property portfolio is included from page 10 of the annual report. Note 11 to the consolidated financial statements describes the basis for determining fair value of the Group’s properties. Outlook and guidance On 30 March 2022 the Group entered into a Scheme Implementation Agreement (SIA) with Charter Hall PGGM Industrial Partnership No. 2 (CHPIP) under which CHPIP would acquire 100% of the units in IPF I and Charter Hall Holding Pty Limited or its subsidiary would acquire 100% of units in IPF II (Proposal). As such the Group will not be providing guidance for FY23 at this time. However, if the Proposal does not proceed, further information will be provided. Subsequent events to reporting date There is no item, transaction or event of a material or unusual nature likely that have arisen since the end of the financial year up until the date of the annual report which would significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in subsequent years. Significant changes in state of affairs The Group entered into the SIA with CHPIP on 30 March 2022 in relation to the Proposal. The directors of the Responsible Entity have recommended the Proposal. The implementation of the Proposal is subject to IAP securityholders approving the Proposal by the requisite majorities at the meetings currently expected to be held in late June 2022. There were no other significant changes in the state of affairs of the Group that occurred during the period. Directors’ interest in securities The directors’ interest in securities is set out in Note 22 to the consolidated financial statements. Directors’ remuneration Directors’ remuneration is set out in the remuneration report on page 30 of the annual report, for the purpose of meeting the requirements of the JSE Listings Requirements. Contracts with directors The Group has put in place contracts with the directors of the Responsible Entity and the employees of the Manager. The details are set out in the remuneration report (which has not been audited) on page 30 of the annual report. Corporate governance The Group’s corporate governance framework is set out from page 24 of the annual report. Audit and Risk Committee The Audit and Risk Committee comprising independent non-executive directors meets regularly with the management team and the external auditor to consider the nature and scope of the assurance activities and the effectiveness of the risk and control systems. Auditor KPMG has been appointed by the Responsible Entity as auditor of the Group. Subsidiaries The Group has a number of wholly-owned trusts which hold the Group’s property assets. Details of subsidiaries are set out in Note 23 to the consolidated financial statements. Major securityholders The Group’s major securityholders are set out on page 140 of the annual report. Insurance and indemnification of officers and auditors The Group has paid premiums in respect of a contract insuring all directors and officers of the Group and its related entities against certain liabilities incurred in that capacity. The insurance policies cover former directors and officers of the Responsible Entity. Disclosure of the nature of the liability covered by the insurance and premiums paid is subject to confidentiality requirements under the contract of insurance. The Responsible Entity has entered a deed of indemnity with each of its directors, Graeme Katz (Chief Executive Officer), Kristie Lenton (Chief Financial Officer), Zach McHerron (Fund Manager), Adam Broder (Third Party Capital) and Lucy Spenceley (Company Secretary) providing these persons with an indemnity, to the fullest extent permitted by law, against all losses and liabilities incurred in their respective role for the Group and its related entities. The deeds also require the Group to grant the indemnified person with access to certain Group documents and insure the indemnified persons. In addition, the Group’s and the Responsible Entity’s constitutions provide for the indemnity of officers of the Group/Responsible Entity or its related bodies corporate from liability incurred by a person in that capacity. Directors’ report Continued / 95 / 94 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 / 97 / 96 Independent auditor’s report KPMG Inc Telephone +27 (0)11 647 7111 KPMG Crescent Fax +27 (0)11 647 8000 85 Empire Road, Parktown, 2193 Docex 472 Johannesburg Private Bag 9, Parkview, 2122, South Africa Web http://www.kpmg.co.za/ Independent Auditor’s Report To the stapled securityholders of Irongate Group Report on the audit of the consolidated financial statements Opinion We have audited the consolidated financial statements of Irongate Group (the stapled group) set out on pages 101 to 141, which comprise the consolidated statement of financial position as at 31 March 2022, and the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, segmental analysis and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Irongate Group as at 31 March 2022, and its consolidated financial performance and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the consolidated financial statements section of our report. We are independent of the stapled group in accordance with the Independent Regulatory Board for Auditors’ Code of Professional Conduct for Registered Auditors (IRBA Code) and other independence requirements applicable to performing audits of financial statements in South Africa. We have fulfilled our other ethical responsibilities in accordance with the IRBA Code and in accordance with other ethical requirements applicable to performing audits in South Africa. The IRBA Code is consistent with the corresponding sections of the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (including International Independence Standards). We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Valuation of investment property Refer to accounting policy note 1.11 and note 11 to the consolidated financial statements Key audit matter How the matter was addressed in our audit The valuation of investment property (A$1 642 million) is a key audit matter as investment property represents a significant asset on the consolidated statement of financial position at year end. The properties being valued at fair value increased the judgement applied by us when evaluating evidence available in light of the COVID-19 pandemic. The stapled group approached the uncertainty risk with regard to the determination of fair value by using internal methodologies and the use of external independent valuers. We focused on the significant forward looking assumptions the stapled group applied in external and internal valuation models with particular considerations to the impact of COVID-19 including: • discount rates: these are complicated in nature and differ due to the asset classes, geographies and characteristics of individual investment properties; • capitalisation rates (cap rates): reflects the yield that an investor would look to recover their investment in a particular class of asset; and • forecast cash flows including market rental income and leasing assumptions. Our audit procedures included the following: • We assessed the stapled group’s process regarding the valuation of investment property, including specific considerations of the impact of COVID-19; • We assessed the stapled group’s methodologies used in the valuations of investment property for consistency with accounting standards and the stapled group’s policies; • We assessed the scope, competence and objectivity of the external independent valuers engaged by the stapled group and internal valuers; • For the total portfolio, taking into account the asset classes, geographies and characteristics of individual investment properties, we assessed the appropriateness of adopted discount and cap rates and market rental income through comparison to market analysis published by industry experts, recent market transactions, other market data points available, inquiries with the stapled group and historical performance of the investment properties; • We assessed the appropriateness of the stapled group’s leasing assumptions against each property’s actual rental income, weighted average lease expiry and actual vacancy levels; • We agreed a sample of actual rental income, weighted average lease expiries and vacancy levels within both internal and external valuations to tenancy schedules as per lease agreements; / 97 / 96 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 / 99 / 98 Independent auditor’s report Continued Valuation of investment property Refer to accounting policy note 1.11 and note 11 to the consolidated financial statements Key audit matter How the matter was addressed in our audit Due to the significant judgement and assumptions applied by the directors, the involvement of external independent valuers, the significance of the balance and the work effort from the audit team, the valuation of investment property was considered a key audit matter. • We assessed the disclosures in the consolidated financial statements including checking the sensitivity analysis calculations, using our understanding obtained from our testing, against accounting standards requirements. This was considered in light of the impact of COVID-19 on the portfolio. Other information The directors are responsible for the other information. The other information comprises the information included in the document titled "Irongate Group Annual Report 2022| Integrated annual report and consolidated financial statements". The other information does not include the consolidated financial statements and our auditor’s report thereon. Our opinion on the consolidated financial statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements, or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the consolidated financial statements The directors are responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the directors are responsible for assessing the stapled group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the stapled group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the stapled group's internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. • Conclude on the appropriateness of the directors' use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the stapled group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the stapled group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. / 99 / 98 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 / 101 / 100 Consolidated statement of profit or loss and other comprehensive income For the year ended 31 March 2022 A$’000 NOTE 1 APRIL 2021 TO 31 MARCH 2022 03 SEPTEMBER 2020 TO 31 MARCH 2021 Property revenue 2 108,840 31,692 Interest income 14 12 Other income 5,486 1,227 Equity accounted profit/(loss) 2,995 (707) Total revenue and other income 117,335 32,224 Property expenses 3 (21,814) (7,330) Finance costs 7 (13,289) (3,017) Other expenses 4 (11,432) (3,890) Transaction costs 5 – (7,715) Total expenses (46,535) (21,952) Fair value adjustments 6 190,776 97,510 Profit on sale of investment property 4,942 – Profit before tax 266,518 107,782 Income tax (expense)/benefit 8 (194) 2,957 Profit after tax 266,324 110,739 Total comprehensive income attributable to: Owners of the Group (1,600) (7,395) Non-controlling interests 267,924 118,134 Total comprehensive income attributable 266,324 110,739 Basic and diluted earnings per security—Group (cents) 41.15 18.12 The Notes on pages 108 to 139 are an integral part of these consolidated financial statements. Independent auditor’s report Continued • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on other legal and regulatory requirements In terms of the IRBA Rule published in Government Gazette Number 39475 dated 4 December 2015, we report that KPMG Inc. has been the auditor of Irongate Group for two years. We also report that KPMG Inc. was previously the auditor of Investec Australia Property Fund for seven years. KPMG Inc. Registered Audit Per Tracy Middlemiss Registered Auditor Chartered Accountant (SA) Director 10 May 2022 / 101 / 100 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 / 103 / 102 Consolidated statement of changes in equity For the year ended 31 March 2022 OWNERS OF THE GROUP CONTRIBUTED EQUITY RESERVES RETAINED EARNINGS TOTAL NON- CONTROLLING INTEREST TOTAL Balance as at 03 September 2020 – – – – – – Issue of capital 46,723 – – 46,723 – 46,723 Net assets of IPF I on stapling to IPF II – – – – 783,267 783,267 Total comprehensive income attributable to securityholders 03 September 2020 to 31 March 2021 – – (7,395) (7,395) 118,134 110,739 Distributions paid/payable to ordinary securityholders – – – – (27,696) (27,696) Balance at 31 March 2021 46,723 – (7,395) 39,328 873,705 913,033 Issue of capital 48,722 – – 48,722 48,722 97,444 Total comprehensive income attributable to securityholders – – (1,600) (1,600) 267,924 266,324 Other reserves – 179 – 179 – 179 Distributions paid/payable to ordinary securityholders – – – – (60,866) (60,866) Balance at 31 March 2022 95,445 179 (8,995) 86,629 1,129,485 1,216,114 The Notes on pages 108 to 139 are an integral part of these consolidated financial statements. Consolidated statement of financial position As at 31 March 2022 A$’000 NOTES 2022 2021 ASSETS Non-current assets 1,765,565 1,285,909 Investment property 11 1,642,354 1,225,356 Investment property under development 12 36,314 11,600 Property, plant and equipment 753 661 Intangible assets 13 39,528 39,528 Equity accounted investments 14 20,579 5,807 Financial instruments held at fair value 25.6 23,274 – Deferred tax assets 8 2,763 2,957 Current assets 19,347 13,067 Cash and cash equivalents 16 9,200 7,405 Receivables and other assets 15 10,147 5,662 Total assets 1,784,912 1,298,976 EQUITY AND LIABILITIES Equity 1,216,114 913,033 Contributed equity—owners of the group 17 95,445 46,723 Retained earning—owners of the group (8,995) (7,395) Other reserves—owners of the group 179 – Non-controlling interests 18 1,129,485 873,705 Non-current liabilities 523,557 348,925 Long-term borrowings 19 516,979 339,063 Trade and other payables 20 6,578 9,026 Financial instruments held at fair value 25.6 – 836 Current liabilities 45,241 37,018 Trade and other payables 20 13,598 9,322 Distributions payable 9 31,643 27,696 Total equity and liabilities 1,784,912 1,298,976 Number of securities in issue—Group (‘000) 677,570 611,298 Weighted average number of securities in issue—Group (‘000) 647,220 611,298 Net tangible asset value per security—Group (A$)1 1.74 1.43 The Notes on pages 108 to 139 are an integral part of these consolidated financial statements. 1. Net tangible asset value per security is calculated by dividing net tangible assets by the number of securities in issue. / 103 / 102 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 / 105 / 104 The Group has determined the reportable segments to be on three separate segments, being office assets, industrial assets, and property funds management: 1. The Group’s investment properties are made up of office and industrial assets. This is the first segment basis determined to be relevant to report and is consistent with the sectoral spread disclosure of the portfolio in the Group’s property landscape (refer to Section 1 of the annual report—Overview). 2. The Group’s investment properties are geographically spread over the states of Australia and New Zealand. These disclosures are consistent with the geographical spread disclosure of the portfolio in the Group’s property landscape (refer to Section 1 of the annual report—Overview). 3. The property funds management segment comprises investment management services and property management services. The primary measure of performance of each operating segment is net property and other income. The Group’s operating segment results are reported monthly to the Group’s chief executive office, who is the chief operating decision maker. A$’000 OFFICE INDUSTRIAL PROPERTY FUNDS MANAGEMENT TOTAL Statement of profit or loss and other comprehensive income for year ended 31 March 2022 Revenue from external customers, excluding straightline rental revenue adjustment 74,078 32,285 – 106,363 Straightline rental revenue adjustment 1,082 1,395 – 2,477 Property revenue 75,160 33,680 – 108,840 Property expenses (16,825) (4,989) – (21,814) Net property income 58,335 28,691 – 87,026 Fair value adjustments—investment properties 52,166 110,084 – 162,250 Fair value adjustments—Investment property held under development – 3,554 – 3,554 Fair value adjustments—foreign currency revaluation 844 – – 844 Share of equity accounted profit – – 2,995 2,995 Total segment results 111,345 142,329 2,995 256,669 Other expenses (11,432) Profit on sale of investment property 4,942 Fair value adjustment on interest rate swaps 24,110 Fair value adjustment on foreign currency 18 Finance costs (13,289) Finance income 14 Other income 5,486 Profit before tax 266,518 Income tax (194) Profit after tax for year ended 31 March 2022 266,324 Statement of financial position extracts at 31 March 2022 Investment properties 1,068,254 574,100 – 1,642,354 Investment properties under development – 36,314 – 36,314 Equity accounted investments – – 20,579 20,579 Intangible assets – – 39,528 39,528 Other assets not managed on a segmental basis 46,137 Total assets as at 31 March 2022 1,784,912 Segmental analysis A$’000 NOTES 1 APRIL 2021 TO 31 MARCH 2022 03 SEPTEMBER 2020 TO 31 MARCH 2021 Cash flows from operating activities Rental income received 120,849 31,414 Other income received 6,081 785 Property expenses (33,087) (5,479) Operating expenses (14,676) (4,055) Cash generated from operations 79,167 22,665 Finance income received 16 12 Finance costs paid (14,840) (3,923) Distribution paid to securityholders (56,919) (26,832) Net cash from/(used in) operating activities 21 7,424 (8,078) Cash flows from investing activities Investment property acquired (231,002) (24,750) Investment property held under development acquired (6,947) (3,886) Acquisition costs and capital expenditure—Investment property (39,143) (4,369) Acquisition costs and capital expenditure—Investment property held under development (25,813) (4,698) Proceed on sale of investment property 35,442 – Management right acquired – (40,000) Transaction cost on internalisation – (7,715) Cash balance of IPF I on stapling to IPF II – 40,008 Equity accounted investment acquired (11,777) (6,514) Refundable deposit paid (3,000) – Net cash used in investing activities (282,240) (51,924) Cash flows from financing activities Borrowings raised 221,168 71,907 Repayment of loans (42,000) (4,500) Proceed from issue of securities 98,898 – Payment related to capital raising (1,455) – Net cash from financing activities 276,611 67,407 Net increase/(decrease) in cash and cash equivalents 1,795 7,405 Cash and cash equivalents at beginning of the year/period 7,405 – Cash and cash equivalents at end of the period 9,200 7,405 The Notes on pages 108 to 139 are an integral part of these consolidated financial statements. Consolidated statement of cash flows For the year ended 31 March 2022 / 105 / 104 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 / 107 / 106 A$’000 VICTORIA QUEENSLAND SOUTH AUSTRALIA WESTERN AUSTRALIA NEW SOUTH WALES AUSTRALIAN CAPITAL TERRITORY NORTHERN TERRITORY NEW ZEALAND PROPERTY FUNDS MANAGEMENT TOTAL Statement of profit or loss and other comprehensive income for year ended 31 March 2022 Revenue from external customers, excluding straightline rental revenue adjustment 17,392 13,679 3,214 5,341 37,273 13,152 2,730 13,582 – 106,363 Straightline rental revenue adjustment 776 372 (131) 586 567 268 140 (101) – 2,477 Revenue 18,168 14,051 3,083 5,927 37,840 13,420 2,870 13,481 – 108,840 Property expenses (2,912) (3,278) (341) (1,046) (7,867) (1,757) (223) (4,390) – (21,814) Net property income 15,256 10,773 2,742 4,881 29,973 11,663 2,647 9,091 – 87,026 Fair value adjustments—investment properties 24,931 26,037 9,580 26,474 42,445 21,413 2,447 8,923 – 162,250 Fair value adjustments—Investment property held under development – 3,554 – – – – – – – 3,554 Fair value adjustments—foreign currency revaluation – – – – – – – 844 – 844 Share of equity accounted profit – – – – – – – – 2,995 2,995 Total segment results 40,187 40,364 12,322 31,355 72,418 33,076 5,094 18,858 2,995 256,669 Other expenses (11,432) Profit on sale of investment property 4,942 Fair value adjustment on interest rate swaps 24,110 Fair value adjustment on foreign currency 18 Finance costs (13,289) Finance income 14 Other income 5,486 Profit before tax 266,518 Income tax (194) Profit after tax for year ended 31 March 2022 266,324 Statement of financial position extracts at 31 March 2022 Investment properties 393,650 202,100 47,200 122,350 514,750 176,550 32,000 153,754 – 1,642,354 Investment properties under development – 36,314 – – – – – – – 36,314 Equity accounted investments – – – – – – – – 20,579 20,579 Intangible assets – – – – – – – – 39,528 39,528 Other assets not managed on a segmental basis 46,137 Total assets as at 31 March 2022 1,784,912 Segmental analysis Continued / 107 / 106 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 / 109 / 108 This page has intentionally been left blank. A$’000 OFFICE INDUSTRIAL PROPERTY FUNDS MANAGEMENT TOTAL Statement of profit or loss and other comprehensive income for period 3 September to 31 March 2021 Revenue from external customers, excluding straightline rental revenue adjustment 21,657 9,527 – 31,184 Straightline rental revenue adjustment 253 255 – 508 Property revenue 21,910 9,782 – 31,692 Property expenses (5,946) (1,384) – (7,330) Net property income 15,964 8,398 – 24,362 Fair value adjustments—investment properties 45,255 49,104 – 94,359 Fair value adjustments—Investment property held under development – 3,016 – 3,016 Fair value adjustments—foreign currency revaluation (4,864) – – (4,864) Share of equity accounted profit – – (707) (707) Total segment results 56,355 60,518 (707) 116,166 Other expenses (3,890) Profit on sale of investment property (7,715) Fair value adjustment on interest rate swaps 3,360 Fair value adjustment on foreign currency 1,639 Finance costs (3,017) Finance income 12 Other income 1,227 Profit before tax 107,782 Income tax 2,957 Profit after tax for year ended 31 March 2021 110,739 Statement of financial position extract at 31 March 2021 Investment properties 819,856 405,500 – 1,225,356 Investment properties under development – 11,600 – 11,600 Equity accounted investments – – 5,807 5,807 Intangible assets – – 39,528 39,528 Other assets not managed on a segmental basis 16,685 Total assets as at 31 March 2021 1,298,976 Segmental analysis Continued / 109 / 108 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 / 111 / 110 A$’000 VICTORIA QUEENSLAND SOUTH AUSTRALIA WESTERN AUSTRALIA NEW SOUTH WALES AUSTRALIAN CAPITAL TERRITORY NORTHERN TERRITORY NEW ZEALAND PROPERTY FUNDS MANAGEMENT TOTAL Statement of profit or loss and other comprehensive income for period 3 September to 31 March 2021 Revenue from external customers, excluding straightline rental revenue adjustment 5,169 2,964 1,056 1,667 12,100 3,112 902 4,214 – 31,184 Straightline rental revenue adjustment 155 10 (37) 79 273 (108) 62 74 – 508 Property revenue 5,324 2,974 1,019 1,746 12,373 3,004 964 4,288 – 31,692 Property expenses (1,098) (1,261) (98) (276) (2,470) (450) (54) (1,623) – (7,330) Net property income 4,226 1,713 921 1,470 9,903 2,554 910 2,665 – 24,362 Fair value adjustments—investment properties 22,529 117 3,387 5,318 40,580 9,950 238 12,240 – 94,359 Fair value adjustments—Investment property held under development – 3,016 – – – – – – – 3,016 Fair value adjustments—foreign currency revaluation – – – – – – – (4,864) – (4,864) Share of equity accounted profit – – – – – – – – (707) (707) Total segment results 26,755 4,846 4,308 6,788 50,483 12,504 1,148 10,041 (707) 116,166 Other expenses (3,890) Profit on sale of investment property (7,715) Fair value adjustment on interest rate swaps 3,360 Fair value adjustment on foreign currency 1,639 Finance costs (3,017) Finance income 12 Other income 1,227 Profit before tax 107,782 Income tax 2,957 Profit after tax for year ended 31 March 2021 110,739 Statement of financial position extracts at 31 March 2021 Investment properties 227,750 149,750 37,750 63,000 466,750 107,350 29,400 143,606 – 1,225,356 Investment properties under development – 11,600 – – – – – – – 11,600 Equity accounted investments – – – – – – – – 5,807 5,807 Intangible assets – – – – – – – – 39,528 39,528 Other assets not managed on a segmental basis 16,685 Total assets as at 31 March 2021 1,298,976 Segmental analysis Continued / 111 / 110 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 / 113 / 112 1. Accounting policies and basis of preparation 1.1 Basis of preparation 1.1.1 Statement of compliance The annual financial statements are prepared in accordance with and compliance with International Financial Reporting Standards, as issued by the IASB, its interpretations adopted by the IASB, the SAICA Financial Reporting Guide as issued by the Accounting Practices Committee and Financial pronouncements as issued by Financial Reporting Standards Council and the JSE Listing Requirements. 1.1.2 Cross stapling A stapled security comprises one IPF I unit ‘stapled’ to one unit in IPF II to create a single listed security traded on the ASX and the JSE. The stapled securities cannot be traded or dealt with separately. The stapled security structure will cease to operate on the first of: • IPF I or IPF II resolving by special resolution in a general meeting, and in accordance their respective constitutions, to terminate the stapled security structure; or • IPF I or IPF II commencing winding up. 1.1.3 Reporting entity In accordance with IFRS 3 Business Combinations and IFRS 10 Consolidated Financial Statements, one of the stapled entities is required to be identified as the parent entity for the purpose of preparing consolidated financial reports. In accordance with this requirement, IPF II has been identified as the parent entity of the consolidated group and deemed acquirer of IPF I in the stapling arrangement. The financial report includes consolidated financial statements for IPF II comprising IPF II and its controlled entities and IPF I and its controlled entities, for the year ended 31 March 2022. IPF I and IPF II are both Australian registered managed investment schemes under the Corporations Act 2001. Both IPF I and IPF II are for profit entities. 1.1.4 Basis of measurement The consolidated financial statements have been prepared on the historical cost basis except for the following material items in the statement of financial position: • derivative financial instruments are measured at fair value • investment property is measured at fair value • investments accounted as equity accounted investments 1.1.5 Functional and presentation currency The consolidated financial statements are presented in AUD (A$), which is IPF’s functional currency. IPF is of a kind referred to in ASIC Class Order 2016/191 dated 24 March 2016 and in accordance with that ASIC Class Order, all financial information presented in A$ has been rounded to the nearest thousand unless otherwise stated. 1.1.6 Use of estimates and judgements The preparation of the consolidated financial statements in conformity with IFRS requires the board of the Responsible Entity to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or the period of the revision and future periods if the revision affects both current and future periods. Intangible assets acquired by the Group, which have a indefinite life are recognised initially at cost. Subsequent to initial recognition the recoverable amount is estimated at each reporting date. Refer to Note 13 to the consolidated financial statements for the information on best estimates on the recoverable amount of intangible assets. Derivative financial instruments are valued based on broker quotes and are tested for reasonableness at each reporting date. Estimation uncertainty at balance date, that may have a significant risk of resulting in a material adjustment to the carrying amounts of assets within the next financial year relates to the valuation of investment properties. Refer to Note 11 to the consolidated financial statements for information on best estimates used in the valuation of investment properties. 1.2 Basis of consolidation 1.2.1 Controlled entities The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of controlled entities are included in the consolidated financial statements from the date on which control commences until the date on which control ceases. All subsidiaries are 100% owned trusts and controlled by the Group with no restrictions. 1.2.2 Transactions eliminated on consolidation Intra-Group balances and transactions, and any unrealised income and expenses arising from intra-Group transactions, are eliminated. Corporate information Irongate Group was formed by stapling of two entities: Irongate Property Fund II (IPF II) and Irongate Property Fund I (IPF I or the Trust) which are collectively referred to as Irongate Group (the Group or IAP). IPF II was established on 3 September 2020 and stapled to IPF I on 27 November 2020. The implementation date of the management internalisation was 30 November 2020 prior to which the Group was known as Investec Australia Property Fund. Effective 7 December 2020, Investec Australia Property Fund changed its name to IPF I and Investec Australia Property Fund II changed its name to IPF II. The financial report of the Group for the year ended 31 March 2022 was authorised for issue in accordance with a resolution of the directors of the Responsible Entity on 10 May 2022. The Group is domiciled in Australia. The Responsible Entity is incorporated and domiciled in Australia. The nature of the operations and principal activities of the Group are described in the directors’ report. The registered office of the Responsible Entity is located at: Level 13, 95 Pitt Street Sydney NSW 2000 Australia Working capital management The Group utilises its monthly cash flows to pay down its debt facility whilst maintaining the facility limit. The Group will draw this cash back from the debt facility in order to pay the final distribution in June 2022. This results in the most efficient use of the Group’s cash flows. Going concern The financial statements have been prepared on a going concern basis. The Group has entered into the SIA with CHPIP in relation to the Proposal. The implementation of the Proposal is subject to IAP securityholders approving the Proposal by the requisite majorities at the meetings currently expected to be held in late June 2022. The directors of the Responsible Entity are recommending securityholders vote in favour of the Proposal in the absence of a superior proposal and subject to the independent expert concluding that the Proposal is fair and reasonable, and therefore in the best interests of IAP securityholders. If the Proposal is not successful, the Group will continue to operate on a going concern basis. Amongst a number of conditions under the Proposal, completion of the sale is subject to security holders approving the Proposal by the requisite majorities at the meetings currently expected to be held in late June 2022. Therefore as at 31 March 2022, there is no binding sale agreement in place or obligations under the Proposal identified by the Group. Accordingly no liability or provisions or contingent liabilities have been recognised in the financial statements. The Group is in a net current liability position of A$25.9 million as at 31 March 2022 (31 March 2021: A$24.0 million). The net current liability position is principally due to the final distribution declared. It is anticipated that it will be paid from the undrawn debt under the current loan facility (refer to Note 19 Borrowings). The Group has prepared a cashflow forecast 15 months from issuance of the financial statements which indicates that the Group is expected to have positive ongoing cashflows. Therefore notwithstanding the current liability position at 31 March 2022, the Group considers the going concern assumption to be appropriate and is confident that the Group will be able to pay all liabilities as and when they become due and payable. Notes to the consolidated financial statements For the year ended 31 March 2022 / 113 / 112 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Notes to the consolidated financial statements For the year ended 31 March 2022 continued / 115 / 114 1.10.1 Trade and other receivables Trade and other receivables are subsequently measured at amortised cost using the effective interest method, less any allowance under the expected credit loss (ECL) model. At each reporting period, the Group assesses whether financial assets carried at amortised cost are credit impaired. A financial asset is credit-impaired when one or more events that has a detrimental impact on the estimated future cash flows of the financial asset have occurred (as described below). The Group recognises loss allowances at an amount equal to lifetime ECL on trade and other receivables. Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets. Lifetime ECLs are the ECLs that result from all possible default events over the expected life of the trade receivables and are a probability-weighted estimate of credit losses. Credit losses are measured as the difference between cash flows due to the Group in accordance with the contract and the cash flows that the Group expects to receive. The Group analyses the age of outstanding receivable balances and applies historical default percentages adjusted for other current observable data as a means to estimate lifetime ECL, including: • significant financial difficulty of a tenant • default or delinquency by a tenant The Group also incorporates forward-looking information by considering economic data and market outlook views by external valuers. Debts that are known to be uncollectable are written off when identified. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or significant delinquency in payments (more than 90 days past due) are considered indicators that the trade receivable is impaired, given all these events would impact the estimated future cashflows of the Group’s trade receivables. The Group may write off financial assets which are still subject to enforcement activity when there is no reasonable expectation of recovery. 1.10.2 Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in fair value. Cash and cash equivalents are subsequently measured at amortised cost. 1.10.3 Trade and other payables Trade and other payables are subsequently measured at amortised cost using the effective interest method. Any gains or losses on derecognition of trade and other payables are recognised in profit or loss. 1.10.4 Derivative financial instruments The Group utilises derivative financial instruments to hedge its exposure to interest rate risk arising from its financing activities. The Group does not hold or issue derivative financial instruments for trading purposes. Derivatives are not designated as hedges for accounting purposes and are accounted for at fair value. After initial recognition, all derivative instruments are subsequently recorded in the statement of financial position at fair value, with gains and losses recognised in profit or loss. 1.10.5 Borrowings Long-term borrowings are subsequently measured at amortised cost using the effective interest method. Borrowings are classified as non-current unless they are repayable within 12 months. 1.11 Investment property When the Group acquires property or a group of properties either directly or by obtaining control of entities that own investment properties, an evaluation is performed as to whether such acquisitions should be accounted for as business combinations or asset acquisitions of investment properties. An acquisition is not considered to be a business combination if at the date of the acquisition of the entity/property, it does not meet the definition of a business (i.e. inputs, processes and outputs). In particular where the integrated activities (i.e. processes) deemed necessary to generate outputs are not present. Properties held by the Group which are held for rental income or capital appreciation are classified as investment properties. Investment properties are initially recognised at cost including transaction costs. Investment properties are subsequently measured at fair value, with fair value gains and losses recognised in profit or loss. Investment property consists of land and buildings, installed equipment that is an integral part of the building and land held to earn rental income. The fair value of investment property also includes components relating to lease incentives and straightline rental receivables. Costs incurred subsequent to initial acquisition are capitalised when it is probable that future economic benefits will flow to the Group those costs can be reliably measured. An investment property is classified as held for sale as it will be recovered principally through a sale transaction rather than through continuing use. The asset is available for sale in its present condition subject only to terms that are usual and customary for sales of such assets. Basis of valuation of property held for sale is conditional sales contract. The sale is considered to be highly probable and expected to settle within the next 12 months. A property interest under an operating lease is classified and accounted for as an investment property when it is held to earn rental income. Any such property interest under an operating lease classified as investment property is carried at fair value. Should any properties no longer meet the Group’s investment criteria and are sold, any profits or losses will be recognised in profit or loss. Investment property is maintained, upgraded and refurbished where necessary, in order to preserve or improve the capital value as far as it is possible to do so. Maintenance and repairs which neither materially add to the value of the properties nor prolong their useful lives are recognised in profit or loss as an expense. Independent valuations are obtained on a rotational basis, ensuring that every property is valued at least once every 24 months by an external independent valuer. The directors value the remaining properties that have not been independently valued semi-annually on an open market basis. Directors’ valuations are prepared by considering the aggregate of the net annual rental receivable from the properties and where relevant, associated costs, using the discounted cash flow method and the capitalisation rate method. The directors believe that their valuations accurately represent the fair value. Note 12 to the consolidated financial statements describes the basis for determining fair value of the Group’s properties. Gains or losses on subsequent measurement or disposals of investment properties (calculated as the difference between the net proceeds from disposal and the carrying amount) are recognised in profit or loss. Such gains or losses are excluded from the calculation and determination of distributable earnings. Investment properties under development are stated at fair value at each balance date. Fair value is assessed with reference to reliable estimate future cash flows, status of the development and the associated risk profile. Finance costs incurred on properties undergoing development are included in the cost of the development. 1.3 Segmental reporting Determination and presentation of operating segments The Group has the following operating segments: • office properties • industrial properties • properties by location • property funds management The above segments are derived from the way the business of the Group is structured, managed and reported to the chief operating decision-makers. The Group manages its business in the office and industrial property sectors as well as the geographic property segments where resources are specifically allocated to each sector in achieving the Group’s stated objectives. Segment results include revenue and expenses directly attributable to a segment and the relevant portion of enterprise revenue and expenses that can be allocated on a reasonable basis to a segment. Segment assets comprise those assets that are directly attributable to the segment on a reasonable basis. Segment capital expenditure is the total cost incurred during the period on investment property in each segment. 1.4 Revenue recognition The Group recognises revenue that depict the transfer of promised good or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Rental income Revenue from investment property in terms of leases comprises gross rental income and recoveries of operating costs, net of goods and services tax (GST). Rental income is recognised in profit or loss on a straightline basis over the term of the rental agreement where the revenue under the lease terms is fixed and determinable. For leases where revenue is determined with reference to market reviews or inflationary measures, revenue is not straightlined and is recognised in accordance with lease terms applicable for the period. Recoverable outgoings Within the Group’s lease arrangements, certain services are provided to tenants (such as utilities, cleaning and maintenance) which are accounted for within IFRS 15 Revenues from contracts with customers. As the Group has the primary responsibility in delivering these services revenues are recognised on a gross basis. A portion of the consideration within the lease arrangements are allocated to revenue for the provision of services based on the standalone selling method. The service revenue is recognised over time as services are provided and based on the annual estimates, with the estimates reconciled at least annually. These are invoiced monthly based on an annual estimates basis. The consideration is due 30 days from the invoiced date. 1.5 Foreign currency translation Both the functional and presentation currency of IAP and its subsidiaries is Australian Dollars (A$). Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the reporting date. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. All exchange differences in the financial report are taken to profit or loss. 1.6 Lease incentives and commissions Any lease incentives provided to a tenant under the terms of a lease such as fit-outs or cash incentives are first capitalised to investment property and then recognised as an expense or reduction in revenue on a straightline basis over the term of the lease. Leasing commissions paid to agents on signing of lease agreements are recognised as an expense on a straightline basis over the term of the lease. 1.7 Finance income Finance income includes interest earned on cash invested with financial institutions which are recognised in the profit or loss on an accrual basis using the effective interest method. 1.8 Finance costs Finance costs include interest expense and other borrowing costs which are recognised in the profit or loss on an accrual basis using the effective interest method. 1.9 Earnings per unit Basic earnings per unit is determined by dividing the profit or loss of the Group by the weighted average number of units outstanding during the financial year. There are no instruments in issue that could potentially result in a dilution in earnings per unit in the future. 1.10 Financial instruments The Group recognises financial instruments when it becomes party to the contractual provisions of the instrument. Financial instruments are initially recognised at their fair value plus, for financial assets or financial liabilities not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial assets or financial liabilities. All other transaction costs are recognised in profit or loss immediately. Any gains or losses on these instruments arising from fair value adjustments, where appropriate, do not affect distributable earnings. The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability. The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expired. / 115 / 114 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Notes to the consolidated financial statements For the year ended 31 March 2022 continued / 117 / 116 1.18 Employee benefits Short-term benefits Short-term employee benefits obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount of past service provided by the employee and the obligation can be estimated reliably. Share-based payment arrangements The fair value of share-based payment awards granted to employees and KMP is recognised as an employee benefit expense over the period during which the services are performed. For market-based performance rights, the fair value is independently valued using a Monte Carlo simulation model that takes into account the exercise price, the term of the rights, impact of dilution, stapled security price at grant date, expected price volatility of the underlying stapled security, expected dividend yield and the risk-free interest rate for the term of the rights and market vesting conditions. The impact of any non-market vesting conditions (for example, profitability, changes in net tangible assets) are excluded. For non-market-based performance rights, the fair value is independently valued using a Black-Scholes-Merton model. The amount recognised as an expense is adjusted to reflect the number of rights expected to vest. Termination benefits Termination benefits for voluntary redundancies are recognised as an expense if the Group has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. If benefits are payable more than 12 months after the reporting period, the are discounted to their present value. 1.19 Taxation Taxation of the Group Securityholders may receive attribution managed investment trust (AMIT) distributions from the Group. IPF I Under current income tax legislation, IPF I (as a REIT, which is a flow-through structure) is not subject to Australian income tax on any of the net income derived by IPF I, provided that its activities are limited to deriving rental income from real property directly or indirectly held by the IPF I and deriving gains from sale of real property held for rental purposes; and it fully distributes its distributable income(as defined in the IPF I’s constitution), subject to amounts permitted to be retained, to investors year-on-year during or within three months after the relevant income year. Furthermore, IPF I and management arrangements are structured to meet the required criteria to be classified as an AMIT for Australian tax purposes. As an AMIT, IPF I will be required to withhold tax in Australia at a concessional rate of 15% on distributions to individual and institutional investors in South Africa (including distributions of capital gains) to the extent that it is not a ‘tax deferred distribution’, a distribution of interest income or non-Australian sourced income. A ‘tax deferred distribution’ is the excess of cash distributed over the securityholders’ proportionate share of the Australian taxable income of the IPF I. As the IPF I is an AMIT, the Responsible Entity will be required to withhold tax in Australia at 10% on Australian sourced interest income. The New Zealand sourced income is subject to the corporate tax rate in New Zealand of 28% and is not subject to Australian withholding tax. IPF II IPF II is considered to be a public trading trust and therefore it is taxed as a company under current income tax legislation and taxed at the corporate tax rate of 30%. Corporate tax paid by IPF II will generate franking credits, which should be available to distribute to Australian resident and foreign resident securityholders by way of franked dividends. To the extent a dividend is unfranked, a final withholding tax of 15% would generally apply from dividends paid to individual investors in South Africa. Income tax expense comprises current and deferred tax. Current and deferred tax are recognised in profit or loss except to the extent that they related to a business combination, or items recognised directly in equity or in other comprehensive income. Current and deferred tax Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted at reporting date, and any adjustment to tax payable in respect of prior year. Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss and taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that have been enacted by balance date and are expected to apply when the related deferred income asset is realised, or the deferred income tax liability is settled. Deferred income tax liabilities and assets—recognition Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax assets are reviewed each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred tax liabilities are recognised for all taxable temporary differences. Net deferred tax assets or liabilities Deferred tax assets and liabilities are offset when there is legally enforceable right to offset current tax assets and liabilities, when the deferred tax balances related to the same taxation authority and the Group intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. 1.12 Intangible assets The management right acquired by the Group is accounted for as an intangible asset and are not amortised as they are assumed to have an indefinite life, given they are expected to be used beyond any foreseeable horizon where a platform of funds under management is being acquired which gives rise to contractual of other legal rights and they are routinely renewed at minimal cost and on broadly similar terms. Intangible assets are initially measured at cost. Subsequent expenditure on intangible assets is capitalised only if it is probable that it will increase the future economic benefits associated with the specific asset. Intangibles with an indefinite useful life are tested for impairment annually. After initial recognition, intangible assets are measured at cost less impairment losses, if any. Impairment losses are recognised to statement of profit or loss and other comprehensive income when incurred. 1.13 Investments accounted for using equity method The Group’s investments in associates are accounted for using the equity method of accounting in the consolidated financial statements. An associate is an entity in which the Group has significant influence but not control over the financial and operating polices. The financial statements include the Group’s share of income and expense of equity accounted investees from the date that significant influence commences until the date that significant influence ceases. Investments in associates are carried at the lower of the equity accounted carrying amount and the recoverable amount. When the Group’s share of losses exceeds its interest in an entity accounted investee, the carrying amount of that interest reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payment on behalf of the investee. Dividends from associates represent a return on the Group’s investment and, as such, are applied as a reduction to the carrying value of the investment. Unrealised gains arising from transactions with equity accounted investments are eliminated against the investment in the associate to the extent of the Group’s interest in the associate. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. Other movements in associates’ reserves are recognised directly in the Group’s consolidated reserves. 1.14 Lease agreements A finance lease is a lease that transfers substantially all of the risks and rewards incidental to ownership of an asset. An operating lease is a lease other than a financial lease. The Group is party to numerous lease agreements in the capacity as lessor of the investment properties. All agreements are operating leases. Where classified as operating leases, lease payable/receivable are charged/credited in the profit or loss on a straightline basis over the lease term. Contingent lease (if any) are accrued to the statement of profit or loss and other comprehensive income when incurred. Initial direct costs incurred in negotiating and arranging an operating lease are recognised in profit or loss over the term of the lease. 1.15 Lease agreements as lessee All leases are accounted for by recognising a lease liability and corresponding right-of-use asset with the exception of low value asset leases and short-term leases that run for less than twelve months, which are expensed on a straightline basis in the consolidated statement of profit and loss and other comprehensive income. Lease liabilities are initially measured at the present value of future lease payments, discounted using the interest rate of the Group’s incremental borrowing rate. Lease liabilities are subsequently increased by interest expense on lease liabilities and reduced by the lease payments. Lease modifications also have impact on the carrying amount of lease liabilities. Interest expense on the lease liabilities and any variable lease payments not included in the measurement of the lease liabilities are recognised in the consolidated statement of profit and loss and other comprehensive income in the period to which they relate. Right-of-use assets are initially measured at cost less depreciation and impairment and subsequently adjusted for any remeasurement of the lease liability. Cost includes the amount of the initial lease liability, adjusted for any related lease prepayments or incentives received, any initial indirect costs incurred and make good costs. Right-of-use assets that do not meet the definition of investment property are depreciated on a straightline basis from commencement date to the earlier of the end of lease term of its useful life. The lease term includes the periods of any options to extend only when considered reasonably certain to be exercised. 1.16 Property, plant and equipment Plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Such cost includes the cost of replacing parts that are eligible for capitalisation when the cost of replacing the parts in incurred. Similarly, when each major inspection is performed. Its cost is recognised in the carrying amount of plant and equipment as replacement only if it is eligible for capitalisation. Depreciation is provided on a prime cost value basis on all property, plant and equipment and is based on their useful lives. 2022 2021 Office furniture and equipment 5 to 10 years 5 to 10 years Computer equipment 3 to 5 years 3 to 5 years The assets’ residual values, useful lives and amortisation methods are reviewed, adjusted if appropriate, at each financial year end. 1.17 Provisions, contingent liabilities and contingent assets Provisions are liabilities of uncertain timing or amount, and are recognised as soon as the Group has a legal or constructive obligation which will lead to an outflow of economic resources to settle the obligation as a result of a past event and a reliable estimate can be made of the amount of the obligation. Contingent assets and contingent liabilities are not recognised. Provisions are measured by at the best estimate of expenditure to settle the present obligation. / 117 / 116 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Notes to the consolidated financial statements For the year ended 31 March 2022 continued / 119 / 118 2. Property revenue A$’000 1 APRIL 2021 TO 31 MARCH 2022 03 SEPTEMBER 2020 TO 31 MARCH 2021 Contracted rental income 92,820 27,198 Recoverable outgoings 13,543 3,986 Revenue, excluding straightline rental revenue adjustment 106,363 31,184 Straightline rental revenue adjustment 2,477 508 108,840 31,692 3. Property expenses A$’000 1 APRIL 2021 TO 31 MARCH 2022 03 SEPTEMBER 2020 TO 31 MARCH 2021 Statutory expenses (7,019) (2,600) Electricity (1,658) (533) Insurance (2,326) (988) Cleaning (1,374) (421) Building management (2,249) (770) Repairs & Maintenance (1,251) (332) Amortisation of fitout expenses (1,141) (259) Tenant rechargeable expenditure (476) (173) Air-conditioning (875) (189) Fire protection (617) (132) Lift and escalators (458) (177) Emergency Generators (399) (145) Leasing fee (491) (168) Legal and marketing expenses (323) (146) Non recoverable property expenses (457) (91) Other property expenses (700) (206) (21,814) (7,330) 4. Other expenses A$’000 1 APRIL 2021 TO 31 MARCH 2022 03 SEPTEMBER 2020 TO 31 MARCH 2021 Depreciation expenses (158) (37) Employee benefits expenses (7,402) (2,605) Other expenses (3,872) (1,248) (11,432) (3,890) 5. Transaction costs A$’000 1 APRIL 2021 TO 31 MARCH 2022 03 SEPTEMBER 2020 TO 31 MARCH 2021 Transaction cost on management internalisation – (7,715) Total transaction costs – (7,715) Tax relating to equity items Current and deferred tax balances attributable to amount recognised directly in equity are recognised directly in equity. GST GST is a tax levied or imposed in Australia pursuant to the GST Act 1999 or otherwise on a supply. Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the consolidated statement of financial position are shown inclusive of GST. Cash flows are presented in the statement of cash flows on a gross basis, except for the GST components of investing and financing activities, which are disclosed as operating cash flows. 1.20 Unit capital Ordinary unit capital Units are classified as equity when the units are redeemable only at the Responsible Entity’s option, and any distributions are discretionary. The issued unit capital represents the amount of consideration received for units issued in IPF I and IPF II. Transaction costs of an equity transaction are accounted for as a deduction from equity. All securities are fully paid. The securityholders are entitled to receive distributions as declared from time-to-time and are entitled to one vote per stapled security at the annual general meeting of IAP. All securities rank equally with regard to IAP’s residual assets. 1.21 Impact of new standards, amendments and interpretations No new accounting standards, amendments or interpretations have come into effect for the year ended 31 March 2022 that materially affect the Group’s operations or reporting requirements. 1.22 Accounting standards applicable to the Group not yet effective Classification of liabilities as current or non-current (Amendments to IAS1) Under existing IAS1 requirements, companies classify a liability as current when they do not have an unconditional right to defer settlement of the liability for at least twelve months after the end of the reporting period. As part of its amendments, the Board has removed the requirement for a right to be unconditional and instead, now requires that a right to defer settlement must have substance and exist at the end of the reporting period. The amendments are to be applied retrospectively from the effective date, 1 January 2023. Disclosure of accounting policies (Amendments to IAS 1 and IFRS Practice Statement 2) Amendments to IAS 1 and an update to IFRS Practice Statement 2 helps companies provide useful accounting policy disclosures. Key amendments to IAS 1 include: • requiring companies to disclose their material accounting policies rather than their significant accounting policies; • clarifying that accounting policies related to immaterial transactions, other events or conditions are themselves immaterial and as such need not be disclosed; and • clarifying that not all accounting policies that relate to material transactions, other events or conditions are themselves material to a company’s financial statements. The amendments are effective from 1 January 2023 with earlier application permitted. Definition of accounting estimates (Amendments to IAS 8) The amendments introduce a new definition for accounting estimates: clarifying that they are monetary amounts in the financial statements that are subject to measurement uncertainty. The amendments also clarify the relationship between accounting policies and accounting estimates by specifying that a company develops an accounting estimate to achieve the objective set out by an accounting policy. The amendments are effective for periods beginning on or after 1 January 2023, with earlier application permitted, and will apply prospectively to changes in accounting estimates and changes in accounting policies occurring on or after the beginning of the first annual reporting period in which the Group applies the amendments. Annual Improvements to IFRS Standards 2018–2020 Amendments to existing accounting standard, particularly in relation to: • IFRS 9 Financial instruments—to clarify the fees an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. The amendments are effective for annual reporting periods beginning on or after 1 January 2022 with earlier application permitted. The Group has assessed each of the new accounting standards disclosed, and it is expected that the implementation of these new accounting standards will have minimal impact to the Group. / 119 / 118 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Notes to the consolidated financial statements For the year ended 31 March 2022 continued / 121 / 120 (d) Deferred tax expense A$’000 1 APRIL 2021 TO 31 MARCH 2022 03 SEPTEMBER 2020 TO 31 MARCH 2021 Deferred tax assets (176) 2,965 Deferred tax (liabilities) (18) (8) Net total (194) 2,957 (e) Reconciliation of deferred tax expense RECOGNISED IN OPENING BALANCE 01 APRIL 2021 PROFIT OR LOSS EQUITY BALANCE 31 MARCH 2022 Net deferred tax asset attributable to: Property, plant and equipment 2 7 – 9 Equity accounted investment 212 (37) – 175 Accrued expenses 1,035 302 – 1,337 Transaction costs 1,689 (421) – 1,268 Income tax loss carried forward 27 (27) – – 2,965 (176) – 2,789 Net deferred tax liabilities attributable to: Property, plant and equipment (8) (18) – (26) (8) (18) – (26) Net total 2,957 (194) – 2,763 RECOGNISED IN OPENING BALANCE 03 SEPTEMBER 2020 PROFIT OR LOSS EQUITY BALANCE 31 MARCH 2021 Net deferred tax asset attributable to: Property, plant and equipment – 2 – 2 Equity accounted investment – 212 – 212 Accrued expenses – 1,035 – 1,035 Transaction costs – 1,689 – 1,689 Income tax loss carried forward – 27 – 27 – 2,965 – 2,965 Net deferred tax liabilities attributable to: Property, plant and equipment – (8) – (8) – (8) – (8) Net total – 2,957 – 2,957 6. Fair value adjustments A$’000 1 APRIL 2021 TO 31 MARCH 2022 03 SEPTEMBER 2020 TO 31 MARCH 2021 Fair value adjustments—investment property 162,250 94,359 Fair value adjustments—property held under development 3,554 3,016 Fair value adjustments—interest rate swaps 24,110 3,360 Fair value adjustments—foreign currency revaluation 862 (3,225) Total fair value adjustments 190,776 97,510 7. Finance costs A$’000 1 APRIL 2021 TO 31 MARCH 2022 03 SEPTEMBER 2020 TO 31 MARCH 2021 Finance costs on borrowings and derivatives (13,289) (3,017) Total finance costs (13,289) (3,017) Refer to Note 19 for details on borrowings 8. Income tax The table below relates to income tax for the Group’s income tax paying entities. (a) Income tax (expense)/benefit: A$’000 1 APRIL 2021 TO 31 MARCH 2022 03 SEPTEMBER 2020 TO 31 MARCH 2021 Current tax expenses – – Deferred tax (expense)/income (194) 2,957 Income tax benefits in the statement of comprehensive income (194) 2,957 (b) Reconciliation of income tax expense to prima facie tax payable: A$’000 1 APRIL 2021 TO 31 MARCH 2022 03 SEPTEMBER 2020 TO 31 MARCH 2021 Profit before income tax expense 266,518 107,782 Prima facie tax expenses/(benefits) at 30% 79,955 32,335 Less: IPF I profit not subject to tax (77,879) (35,440) Tax effect of amounts not deductible/assessable in calculating income tax expense: Non-deductible entertainment expenses 5 2 Equity accounted profit (899) 212 Employee benefit (612) (99) Capital raising and set up cost (466) (96) Others 90 129 Income tax expense/(benefits) 194 (2,957) (c) Current tax expense A$’000 1 APRIL 2021 TO 31 MARCH 2022 03 SEPTEMBER 2020 TO 31 MARCH 2021 Current tax payable – – / 121 / 120 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Notes to the consolidated financial statements For the year ended 31 March 2022 continued / 123 / 122 11. Investment property Investment properties held by the Group are accounted for as asset acquisitions when the integrated activities deemed necessary to generate outputs are not present at acquisition. The Group concluded that all the acquisition of properties in the current financial year were asset acquisitions. For recurring and non-recurring fair value measurements, the level of the fair value hierarchy within the fair value measurements are categorised in their entirety of level 3. (a) Valuation basis The basis of valuation of investment properties is fair value. Fair values are based on market values, being the price that would be received to sell an asset in an orderly transaction between market participants at measurement date. The Group’s policy is to value properties at each reporting period, with independent valuations performed on a rotational basis to ensure each property is valued at least once every 24 months by an independent external valuer (in compliance with the Group’s debt facility). Where a property is not due for an independent valuation, internal valuations are undertaken at the end of the reporting period. The valuation methods include the discounted cash flow (DCF) method and income capitalisation method. The mid-point is generally taken between the DCF and income capitalisation method. (b) Fair value assessment results External valuations External valuations were conducted for 33 investment properties in the portfolio for the second half of the year. External valuations were conducted by Colliers International, Urbis, Savills, Knight Frank and JLL who are all registered as Certified Practising Valuers with the Australian Property Institute. Director valuations As at 31 March 2022 there were two investment properties where fair value was based on directors’ valuations. At each reporting date, the directors update their assessment of the fair value of each property in accordance with the Group’s valuation policy. As at 31 March 2022, investment properties to the value of A$1,642.4 million (31 March 2021: A$1,225.4 million) is held as security under the syndicated facility agreement drawn down to a value of A$520.7 million (31 March 2021: A$341.5 million). All of the investment properties located in New South Wales, Victoria, South Australia, Queensland, Western Australia, Northern Territory and New Zealand are held under freehold interests. All of the properties located in the Australian Capital Territory are held under leasehold interests with the earliest termination date in 2088 and no lease payment obligations. Gains and losses recorded in profit or loss for recurring fair value measurements categorised within Level 3 of the fair value hierarchy amount to A$162.2 million (31 March 2021: A$94.4 million) and are presented in profit and loss in the line item ‘fair value adjustment’. 9. Distribution per security PERIOD FOR DISTRIBUTION (A$’000) TOTAL DISTRIBUTION (A$’000) SECURITIES IN ISSUE (‘000) DISTRIBUTION PER SECURITY (A$ CENTS) Half year to 30 September 2021 29,223 645,312 4.53 Half year to 31 March 2022 31,643 677,570 4.67 Total distribution for FY2022 60,866 9.20 3 September 2020 to 31 March 2021 27,696 611,298 4.53 10. Basic and diluted earnings per security A$’000 1 APRIL 2021 TO 31 MARCH 2022 01 APRIL 2021 TO 31 MARCH 2021 Reconciliation of basic earnings to headline earnings Profit for the period 266,324 110,739 Less: net fair value adjustment—investment property (refer to Note 6) (162,250) (94,358) Less: net fair value adjustment—investment property held under development (refer to Note 6) (3,554) (3,016) Less: Share of equity accounted profit/(loss) 2,995 (707) Headline earnings attributable to securityholders 103,515 12,658 Cents Cents Basic and diluted earnings per unit—Group 41.15 18.12 Basic and diluted headline earnings per unit—Group 15.28 2.07 Units in issue at the end of the year (‘000) 677,570 611,298 Weighted average number of units in issue (‘000) 647,220 611,298 Reconciliation of weighted average number of units in issue: Units at the beginning of the year 611,298 611,298 Weighted average number of unit in issue 647,220 611,298 Headline earnings is profit for the period adjusted for fair value adjustments on investment property. Headline earnings are a measure of the Group’s earnings based solely on operational activities and in the case of the Group will exclude fair value adjustments and profits or losses on sale of properties. As required by the JSE Listing requirements headline earnings per unit is calculated using Circular 1/2021. / 123 / 122 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Notes to the consolidated financial statements For the year ended 31 March 2022 continued / 125 / 124 (c) Movement in investment properties’ carrying value A$’000 2022 2021 Cost 1,234,107 985,813 Accumulated fair value adjustment 391,298 225,073 Investment properties 1,625,405 1,210,886 Straightline rental revenue receivable 16,949 14,470 Carrying value 1,642,354 1,225,356 Movement in investment properties Opening balance 1,225,356 – IPF I balance on stapling to IPF II – 1,104,909 Acquisitions 231,002 24,750 Completion of property under development 17,682 – Property disposed (30,500) – Foreign currency revaluation on property 844 (4,864) Acquisition costs and capital expenditure 33,243 5,694 Fair value adjustment on revaluation of investment properties (refer to Note 6) 162,250 94,359 Straightline rental revenue adjustment 2,477 508 Carrying value at end of the year/period 1,642,354 1,225,356 (d) Valuation process The fair value for all investment properties A$1,642.4 million (2021: A$1,225.4 million) has been undertaken under the Level 3 fair value hierarchy, where unobservable inputs have been utilised in the valuation techniques. For all investment property that are measured at fair value, the current use of the property is considered the highest and best use. Valuation techniques used to derive Level 3 fair values The Group determines a property’s value within a range of reasonable fair value estimates and in making this assessment, considers information from a variety of sources including: • Current prices for comparable investment properties; • Discounted cash flows based on estimates of future cash flows; and • Capitalised income projections based on estimated net market income, and a capitalisation rate based on market analysis. Under the DCF approach, a property’s fair value is estimated by projecting a series of cash flows over a specified time horizon (typically 10 years) and discounting this cash flow, including the projected exit or terminal value, at a market-derived discount rate. Projected cash flows are derived from contracted or expected market rents, operating costs, lease incentives, capital expenditure and future income on vacant space. The net present value of the discounted cash flow represents the fair value of the property. The income capitalisation approach involves estimating the potential sustainable gross market income of a property from which annual outgoings are deducted to derive the net market income. Net market income is then capitalised in perpetuity at an appropriate market derived capitalisation rate (market yield). Appropriate capital adjustments are then made where necessary to reflect the specific cash flow profile and general characteristics of the property. At reporting date, the key assumptions used by the Group in determining fair value were as follows: INDUSTRIAL 31 MARCH 2022 31 MARCH 2021 Capitalisation rate 3.75–7.25% 4.50–7.75% Discount rate 5.00–7.50% 5.50–8.00% Terminal yield 4.00–7.50% 4.75–8.00% Rental growth rate 2.21–3.35% 1.95–3.29% OFFICE 31 MARCH 2022 31 MARCH 2021 Capitalisation rate 4.50–7.75% 5.50–8.00% Discount rate 5.75–7.75% 6.13–8.25% Terminal yield 4.63–8.00% 5.75–8.13% Rental growth rate 2.55–3.55% 2.15–3.51% 11. Investment property (continued) PROPERTY PORTFOLIO A$’000 LATEST EXTERNAL VALUATION CONSOLIDATED CARRYING VALUE DATE VALUATION 2022 2021 INDUSTRIAL PORTFOLIO 47 Sawmill Circuit, Hume ACT 31-Mar-22 17,050 17,050 12,700 57 Sawmill Circuit, Hume ACT 31-Mar-22 18,400 18,400 13,900 24 Sawmill Circuit, Hume ACT 31-Mar-22 17,900 17,900 14,500 44 Sawmill Circuit, Hume ACT 31-Mar-22 19,600 19,600 10,500 2–8 Mirage Road, Direk SA 31-Mar-22 12,700 12,700 8,750 30–48 Kellar Street, Berrinba QLD 31-Mar-22 12,100 12,100 9,500 165 Newton Road, Wetherill Park NSW 31-Mar-22 38,500 38,500 33,500 24 Spit Island Close, Newcastle NSW 31-Mar-22 14,500 14,500 12,000 67 Calarco Drive, Derrimut VIC 31-Mar-22 15,300 15,300 12,300 66 Glendenning Road, Glendenning NSW 31-Mar-22 47,750 47,750 38,250 85 Radius Drive, Larapinta QLD 31-Mar-22 25,500 25,500 19,500 54 Miguel Road, Bibra Lake WA 31-Mar-22 44,250 44,250 33,000 24 Rodborough Road, Frenchs Forest NSW 31-Mar-22 29,000 29,000 24,500 6–8 and 11 Siddons Way, Hallam VIC 31-Mar-22 30,100 30,100 23,750 36–42 Hydrive Close, Dandenong South VIC 31-Mar-22 29,250 29,250 25,700 103 Welshpool Road, Welshpool WA 31-Mar-22 47,600 47,600 30,000 46–70 Grand Trunkway, Gillman SA 31-Mar-22 34,500 34,500 29,000 16 Dawson Street, East Arm NT 31-Mar-22 32,000 32,000 29,400 197 Belconnen Crescent, Brendale QLD 31-Mar-22 21,000 21,000 – 131–153 Main Beach Road, Pinkenba QLD 31-Mar-22 30,100 30,100 24,750 81 Dunhill Crescent, Morningside QLD 31-Mar-22 6,500 6,500 – 16 Aspiration Circuit, Bibra Lake WA 31-Mar-22 30,500 30,500 – OFFICE PORTFOLIO 449 Punt Road, Cremorne VIC 31-Mar-22 72,500 72,500 61,500 35–49 Elizabeth Street, Richmond VIC 31-Mar-22 113,000 113,000 104,500 2404 Logan Road, Eight Mile Plains QLD 30-Sep-20 17,500 17,400 17,000 186 Reed Street, Greenway ACT 30-Sep-20 25,750 26,100 25,250 21–23 Solent Circuit, Baulkham Hills NSW 31-Mar-22 73,500 73,500 68,000 266 King Street, Newcastle NSW 31-Mar-22 88,000 88,000 81,500 113 Wicks Road, Macquarie Park NSW 31-Mar-22 36,000 36,000 33,000 324 Queen Street, Brisbane QLD 31-Mar-22 89,500 89,500 79,000 20 Rodborough Road, Frenchs Forest NSW 31-Mar-22 72,000 72,000 66,000 2 Richardson Place, North Ryde NSW 31-Mar-22 115,500 115,500 110,000 100 Willis Street, Wellington NZ1 31-Mar-22 153,754 153,754 143,606 38 Sydney Avenue, Canberra ACT 31-Mar-22 77,500 77,500 – 510 Church Street, Cremorne VIC 31-Mar-22 133,500 133,500 – 24 Wormald Street, Symonston ACT2 31-Mar-21 30,500 – 30,500 Total Investment Properties 1,642,354 1,225,356 1. Converted at spot rate of 1.0796 at 31 March 2022. 2. Property disposed during the year. / 125 / 124 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Notes to the consolidated financial statements For the year ended 31 March 2022 continued / 127 / 126 (e) Uncertainty around property valuations The onset of COVID-19 saw real estate market activity in Australia impacted across many sectors resulting in limited transactional evidence from which to draw reliable valuation conclusions. 2021/2022 has seen investment activity across most Australian commercial markets recover to a substantial degree and the Group is satisfied that the available transactional evidence is adequately enables appropriate valuation analysis and conclusions. Despite this, markets continue to be heavily influenced by unprecedented global economic and political environments and in the event the impacts are more material or prolonged than anticipated, this may have further impact to the fair value of the Group’s property portfolio, and the future price achieved if a property is sold. (f) Contractual obligations/capital commitments At 31 March 2022, the Group included forecast cost associated with the aluminium cladding panel assessment and remediation for two properties in the portfolio (31 March 2021: 2) within the valuation of these properties rather than a separate provision. A$’000 2022 2021 449 Punt Road, Cremorne VIC 350 650 35–49 Elizabeth Street, Richmond VIC 350 1,200 700 1,850 There were no other significant contractual obligations or capital commitments relating to investment property as at 31 March 2022 (31 March 2021: Nil) (g) Leasing arrangements as lessor The Group leases office and industrial properties under operating leases. Contractual amounts due in terms of operating lease agreements are receivable as follows: 2022 2021 Minimus lease payments due to the Group under non-cancellable operating leases of investment property are receivable as follows: Less than 1 year 95,303 87,439 Between 1 and 2 years 85,496 81,900 Between 2 and 3 years 73,195 70,293 Between 3 and 4 years 52,177 60,497 Between 4 and 5 years 41,861 40,812 More than 5 years 177,036 105,973 525,068 446,914 Investment property comprises a number of commercial properties and industrial that are leased to third parties. The significant majority of leases are subject to annual rent reviews that are fixed or indexed to consumer prices. Subsequent renewals are negotiated with the lessee and historically, the average renewal period is five years. No contingent rents are charged. 12. Investment property under development A$’000 2022 2021 Opening balance 11,600 – Acquisitions 6,947 3,886 Acquisition costs and capital expenditure 31,894 4,698 Completion of property under development (17,681) – Fair value adjustment 3,554 3,016 36,314 11,600 For the year ended 31 March 2022, the Group completed one development property (197 Belconnen Crescent, Brendale QLD) and held two investment properties (57–83 Mudgee Street, Kingston QLD and 34 Southgate Avenue, Cannon Hill QLD) for development. At the reporting date, the key assumptions (weighted average) used by the Group in determining fair value were as follows: A$’000 OFFICE INDUSTRIAL Capitalisation rate 5.00% 4.75% Discount rate 5.75% 5.75% Terminal yield 5.50% 5.13% Rental growth rate 2.90% 2.87% 11. Investment property (continued) Capitalisation rates Capitalisation rates are derived from the yields indicated by sales of comparable properties. It factors in risk with regard to a property’s location, quality, strength of the tenant covenant and length of secured cashflows. Industrial The Australian industrial and logistics sector continued to see strong momentum in the occupier and investment markets as $18.2 billion of industrial assets transacted during calendar year 2021—more than three and a half times the average annual transaction activity for the last ten years. The large volume of sales activity experienced during the Group’s financial period ended 31 March 2022 has demonstrated the strength of the industrial market and the main driver for taking all 22 of the Group’s industrial properties for external valuation at 31 March 2022. At 31 March 2022, the weighted average capitalisation rate used in valuing the Group’s industrial portfolio firmed 103 basis points to 4.80% when compared to 31 March 2021. The industrial terminal cap rate firmed 104 basis points to 5.14% when compared to 31 March 2021. Office 2021 saw a rebound in investment activity as vendors and buyers were comforted by the greater certainty around tenant demand and leasing fundamentals. The increase in activity and depth of the buyer pool has seen yields continue to compress through 2021. The weighted average capitalisation rate used in valuing the Group’s office portfolio firmed 58 basis points to 5.54% when compared to 31 March 2021. The office terminal cap rate firmed 36 basis points to 5.82% when compared to 31 March 2021. Discount rates At 31 March 2022 discount rates utilised in the valuation of the Group’s property portfolio have tightened (i.e. lowered) by approximately 66 basis points to 6.09% when compared to 31 March 2021. The weighted average discount rate tightened 55 basis points to 6.22% for the office portfolio and 87 basis points to 5.84% for the industrial portfolio when compared to 31 March 2021. Market rental growth Market rental growth is the projected year on year change in market rent based on factors such as population growth, demand for space and expected supply and new developments within markets. A key driver of the DCF calculation outcome is market rental growth, where a property’s projected cash flow comprises of actual rental income, speculative rental income, and rental income growth. Market rent and rental growth have a material impact on the outcome of the terminal value calculation, as terminal market rent is a function of the current market rent and the 10 year CAGR. The terminal market rent is divided by the terminal capitalisation rate to determine the terminal value. At 31 March 2022, the market rental growth (10-year CAGR) utilised in the valuation of the Group’s property portfolio has increased by approximately 12 basis points to 3.11%, when compared to 31 March 2021. Significant unobservable inputs For all classes of investment property the significant unobservable inputs below are used to determine the fair value measurement of investment property at measurement date. Movement in any of the unobservable inputs is likely to have an impact on the fair value of investment property. The higher the market rent or 10-year compound annual growth rate, the higher the fair value. The higher the capitalisation rate, terminal yield or discount rate, the lower the fair value. The following significant unobservable inputs have been considered to determine the fair value of measurement at the end of the reporting year: Capitalisation rate Increases/(decreases) in the capitalisation rate would (decrease)/increase estimated fair value The rate at which net market income is capitalised to determine the value of a property. The rate is determined with regards to market evidence. Discount rate Increases/(decreases) in the discount rate would (decrease)/increase estimated fair value The rate of return used to convert a monetary sum, payable or receivable in the future, into present value. Theoretically it should reflect the opportunity cost of capital, that is, the rate of return the capital can earn if put to other uses having similar risk. The rate is determined with regards to market evidence Terminal yield Increases/(decreases) in the terminal yield would result in (decreases)/increases in the estimated fair value The capitalisation rate used to convert income into an indication of the anticipated value of the property at the end of the holding period when carrying out a discounted cash flow calculation. The rate is determined with regards to market evidence. Market rent and rental growth Increases/(decreases) in market rent and rental growth would increase/(decrease) estimated value The rent at which a space could be let in the market including rental growth in future years at the date of valuation. Market rent includes gross rent and net rent. Gross rent is where outgoings are incorporated in the rent being paid. Net market rent is where the owner recovers outgoings from the tenant on a pro-rata basis (where applicable). / 127 / 126 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Notes to the consolidated financial statements For the year ended 31 March 2022 continued / 129 / 128 15. Receivables and other assets During the year, the Group granted negligible rental relief to tenants in the form of rental waivers and rental deferrals as required for qualifying tenants under the National Cabinet’s Mandatory Code of Conduct for SME commercial leasing principles during the COVID-19 pandemic which has been given effect by state and territory legislation. For non-qualifying tenants the principles of the code were taken into account in the consideration of deferral requests. Deferrals granted have been agreed with tenants to be repaid over periods between October 2020 and January 2023. Consideration of the impact of COVID-19 on tenants has been incorporated into the assessment as at 31 March 2022 based on discussions held to date with each tenant and on any other information known about the tenant and/or their trading conditions. As at 31 March 2022, the Group had nil allowance for credit losses (31 March 2021: Nil). A$’000 2022 2021 Prepaid expenses 4,955 3,303 Trade debtors 702 1,185 Other receivable 3,000 – Sundry debtors 1,490 1,174 10,147 5,662 Other receivable relates to refundable deposit paid for a office development in Melbourne VIC, an investment which the Group manages on behalf of ITAP Fund and other third parties. The deposit will be reimbursed on the settlement of transaction. 16. Cash and cash equivalents A$’000 2022 2021 Cash held on call account 9,200 7,405 Total cash and cash equivalents 9,200 7,405 17. Contributed equity A$’000 2022 2021 Issued On establishment 46,723 46,723 On completion security placement offer June 2021—34,013,605 fully paid ordinary securities 24,391 – On completion security placement offer December 2021—32,258,065 fully paid ordinary securities 24,331 – In issue at year end 95,445 46,723 Weighted average number of securities in issue 82,645 27,800 IPF II was established by IPF I making a capital distribution to the holders of units in IPF I (equal to A$0.0764 per IPF I unit), with such distribution being mandatorily applied by holders of IPF I units to subscribe for new units in IPF II of A$46.7 million. Issued capital comprises of ordinary units fully paid. The stapling of IPF I units to IPF II units in accordance with the IPF I and IPF II constitutions occurred on 27 November 2020. A stapled security comprises one unit in IPF I and one unit in IPF II. Holders of stapled securities are entitled to receive distributions as declared from time to time and are entitled to one vote per security at securityholders’ meetings. In the event of a winding up, securityholders rank after creditors and are fully entitled to any net proceeds of liquidation. The Group does not have authorised capital or par value in respect of the issued stapled securities. Refer to securityholder analysis included on pages 142 to 143 for further details on securityholders. 13. Intangible asset A$’000 2022 2021 Opening balance 39,528 – Additions – 39,528 Impairments – – Net carrying amount at 31 March 39,528 39,528 Intangible assets represent the management right platform acquired by IPF II. The intangible asset acquired has been determined to have an indefinite useful life and required to be tested for impairment annually. As at 31 March 2022, indicators of impairment were considered under IAS 36. As the recoverable amount is considered to be the acquisition cost, the intangible asset is not impaired. The valuation basis of the intangible asset to assess the fair value of the management right is the forecast EBITDA of IPF II multiplied by a market multiple. 14. Equity accounted investment The Group is committed to invest up to A$30 million in ITAP Fund (as at 31 March 2022, total committed equity is A$160.8 million (31 March 2021: A$140.0 million)). This represents 18.7% (31 March 2021: 21.4%) of the total equity of ITAP Fund and also the Group’s shareholding interest at balance date. As at 31 March 2022, A$18.3 million (31 March 2021: A$6.5 million) has been contributed. ITAP Fund is an unlisted Australian opportunity fund which was launched in December 2019. ITAP Fund seeks to invest in opportunistic real estate transactions in Australia and New Zealand with a shorter-term investment horizon than more passive investments, including value add and real estate backed debt opportunities which require more active management. The Group has been contracted to perform investment and asset management services to ITAP Fund. As at 31 March 2022, total fee received or receivable from ITAP Fund is A$1.2 million (31 March 2021: Nil). A$’000 2022 2021 Opening balance 5,807 – Equity contributions 11,777 6,514 Share of equity accounted profit/loss 2,995 (707) Net carrying amount 20,579 5,807 ITAP 2022 2021 Current assets 27,118 5,667 Non-current assets 90,999 28,766 Current liabilities 7,813 7,334 Non-current liabilities 24,388 8,685 Net assets 85,916 18,414 Shareholder loan 24,388 8,685 Net assets adjusted by shareholder loan 110,304 27,099 Revenue 19,634 215 Other comprehensive income – – Net profit/loss for the year ended 31 March 16,050 (3,298) % of ownership 18.66% 21.43% Net assets attributable to IAP 20,579 5,807 Equity contribution by IAP 18,291 6,514 Share of equity accounted profit/(loss) 2,995 (707) / 129 / 128 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Notes to the consolidated financial statements For the year ended 31 March 2022 continued / 131 / 130 19. Borrowings A$’000 TRANCHE EXPIRY DATE INTEREST RATE 2022 2021 Loans—secured—bank debt ANZ Facility—Tranche G 01-Apr-27 BBSY + 1.5500%1 20,000 20,000 ANZ Facility—Tranche H 01-Sep-26 BBSY + 1.5500%1 75,000 75,000 ANZ Facility—Tranche I 31-Mar-26 BBSY + 1.5500%1 25,000 25,000 Westpac Facility—Tranche N 28-Mar-28 BBSY + 1.4500%1 55,000 55,000 Westpac Facility—Tranche P 30-Nov-27 BBSY + 1.7000%1 29,940 16,514 Westpac Facility—Tranche Q 31-Mar-26 BBSY + 1.5500%1 22,500 – Westpac Facility—Tranche R 31-Mar-26 BBSY + 1.5500%1 47,500 – Westpac Facility—Tranche S 29-Dec-28 BBSY + 1.6750%1 36,742 – Westpac Facility—Tranche T 15-Dec-28 BBSY + 1.6750%1 59,000 – Westpac Facility—PGIM 22-Dec-29 3.4% 150,000 150,000 Total long-term borrowings—secured 520,682 341,514 Capitalised loan establishment costs (3,703) (2,451) Total value of interest-bearing borrowings 516,979 339,063 Movement in borrowings Opening balance 341,514 – IPF I balance on stapling to IPF II – 274,107 Interest charged 13,289 3,017 Interest paid (13,289) (3,017) Additional borrowing acquired 221,168 71,907 Repayments (42,000) (4,500) Closing balance at the end of the year 520,682 341,514 The Group’s LVR2 was 30.10% as at 31 March 2022. (31 March 2021: 26.88%) At 31 March 2022 the approved facility limit of the loan facility was A$625.0 million (31 March 2021: A$435.0 million) with A$104.3 million undrawn, (31 March 2021: A$ 93.5 million) The Group’s policy is to hedge at least 75% of interest rate risk. At the balance date, 85.9% (31 March 2021: 78.3%) of borrowings were hedged using interest rate swaps, locking in a blended rate (including margin and line fees) of 2.95% (31 March 2021: 2.84%) for a weighted average term of 6.0 years, (31 March 2021: 6.1 years). 1. Varies based on gearing levels. 2. LVR is a non-IFRS measure. 18. Non-controlling interest Under AAS, stapled entities are required to separately identify equity attributable to the parent entity from equity attributable to other entities stapled to the parent. The equity attributable to other entities (IPF I) stapled to the parent (IPF II) is presented as non-controlling interests in the statement of financial position of the Group. The following table summarises the information relating to IPF I that has material NCI. IPF I (A$’000) 2022 2021 NCI percentage 100% 100% Non-current assets 1,701,942 1,236,956 Current assets 11,974 10,393 Non-current liabilities 554,448 345,307 Current liabilities 29,983 28,337 Net assets 1,129,485 873,705 Issued capital 698,401 649,679 Retained earnings 431,084 224,026 Net assets attributable to NCI 1,129,485 873,705 Revenue 108,840 31,704 Profit 267,924 118,134 OCI – – Total comprehensive income 267,924 118,134 Profit allocated to NCI 267,924 118,134 OCI allocated to NCI – – Cash flows from operating activities 2,293 (7,487) Cash flows from investment activities (229,590) (51,140) Cash flow from financing activities 227,890 24,707 Net increase (decrease) in cash and cash equivalents 593 (31,220) / 131 / 130 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Notes to the consolidated financial statements For the year ended 31 March 2022 continued / 133 / 132 22. Key management personnel (KMP) compensation A$’000 2022 2021 Short-term employee benefits 1,630 717 Other long-term employee benefits 72 35 Post-employment benefits 69 22 1,771 774 Individual Directors’ and KMP compensation disclosures Information regarding individual Directors’ and KMP compensation and equity instruments disclosure is provided in the remuneration report within the Annual Report. Movements in securities The movement during the reporting period in the number of ordinary securities in IAP held directly, indirectly or beneficially, by each key management person, including their related parties, is as follows: HELD AT 01 APRIL 2021 PURCHASES SALES HELD AT 31 MAR 2022 Directors Graeme Katz 270,296 – – 270,296 Richard Longes1 121,819 – – 121,819 Sally Herman 37,879 – – 37,879 Georgina Lynch2 67,493 – – 67,493 Stephen Koseff3 170,733 – – 170,733 There have been no changes in these holdings since the end of the reporting period. The related party transaction in relation to the RE is set out in the Directors’ report on page 90. 1. Through Gemnet Pty Ltd. 2. Through G Lynch Investments Pty Ltd. 3. Through Sheryl Koseff and SK Employee Trust. 20. Trade and other payables A$’000 2022 2021 Security deposits 1,212 581 Income received in advance 3,756 4,246 Lease liabilities 562 532 Employee entitlement 1,048 3,250 Other payables – 417 Trade and other payables—non-current 6,578 9,026 Accrued expenses 1,488 3,502 Trade creditors 296 1,181 Lease liabilities 133 107 Income received in advance 4,967 2,924 GST payable 808 510 Employee entitlement 4,096 – Other payables 1,810 1,098 Trade and other payables—current 13,598 9,322 21. Reconciliation of cash flows from operating activities A$’000 2022 2021 Profit before tax for the period 266,518 107,782 Adjusted for: Fair value adjustments—investment property (162,250) (94,359) Fair value adjustments—investment property under development (3,554) (3,016) Fair value adjustments—derivatives (24,110) (3,360) Fair value adjustments—foreign currency revaluation (862) 3,225 Straightline rental revenue adjustment (2,477) (508) Profit on disposal of investment property (4,942) – Working capital movement Change in trade and other receivables 166 (5,138) Change in trade and other payables 593 7,746 Change in capital expenses (1,744) (2,040) Transaction cost on management internalisation – 7,715 Share of equity accounted (profit)/loss (2,995) 707 Distributions paid (56,919) (26,832) Net cash from operating activities 7,424 (8,078) / 133 / 132 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Notes to the consolidated financial statements For the year ended 31 March 2022 continued / 135 / 134 23. Group entities (continued) INTERTRUST LOAN BALANCE NAME OF ENTITY COUNTRY OF INCORPORATION CLASS OF UNITS EQUITY HOLDING 2022 2021 Irongate Property Sub Trust No.27 Australia Ordinary 100% 15,192 – Irongate Property Sub Trust No.28 Australia Ordinary 100% 334 – Irongate Property Sub Trust No.29 Australia Ordinary 100% 143 – Irongate Property Sub Trust No.30 Australia Ordinary 100% 3,065 – Irongate Property Sub Trust No.31 Australia Ordinary 100% (8,668) – Irongate Property Sub Trust No.32 Australia Ordinary 100% – – Irongate Property Sub Trust No.33 Australia Ordinary 100% – – Irongate Property Sub Trust No.34 Australia Ordinary 100% – – Irongate Property Sub Trust No.35 Australia Ordinary 100% – – 24. Parent entity disclosures A$’000 2022 2021 The parent of the Group is Irongate Property Fund II Result of parent entity Net loss for the period (448) (5,998) Other comprehensive income – – Total comprehensive income for the period (448) (5,998) Financial position of parent entity Current assets 6 – Non-current assets 88,992 41,245 Total assets 88,998 41,245 Current liabilities – (520) Non-current liabilities – – Total liabilities – (520) Net assets 88,998 40,725 Total equity of parent entity comprising of: Contributed equity 95,445 46,723 Retained earnings (6,447) (5,999) Total equity 88,998 40,725 23. Group entities The consolidated financial statements incorporate the assets, liabilities and results of the following controlled entities in accordance with the accounting policy described in Note 1.2. All subsidiaries are established in Australia and are 100% owned trusts and controlled by the parent entity with no restrictions. IPF I and IPF II enter into transactions with its wholly owned trusts. These transactions mainly involve the payment of distributions between trusts and lending of funds between the trusts. Intertrust loans are repayable upon demand, unsecured and non-interest bearing. INTERTRUST LOAN BALANCE NAME OF ENTITY COUNTRY OF INCORPORATION CLASS OF UNITS EQUITY HOLDING 2022 2021 Held directly by IPF II Irongate Property Holdings Pty Limited Australia Ordinary 100% – – Irongate Property Management Trust Australia Ordinary 100% (48,196) 520 Irongate Funds Management Limited Australia Ordinary 100% – – Irongate Property Management Pty Limited Australia Ordinary 100% – – Irongate Property No.1 Pty Limited Australia Ordinary 100% – – Irongate Property No.2 Pty Limited Australia Ordinary 100% – – Irongate Templewater No.1 Pty Limited Australia Ordinary 100% – – Irongate Templewater No.2 Pty Limited Australia Ordinary 100% – – Held directly by IPF I Irongate Property Hold Trust No.1 Australia Ordinary 100% (73,640) (54,003) Irongate Property Sub Trust No.1 Australia Ordinary 100% 3,439 3,848 Irongate Property Sub Trust No.2 Australia Ordinary 100% (6,299) (5,503) Irongate Property Sub Trust No.3 Australia Ordinary 100% (3,665) (3,155) Irongate Property Sub Trust No.4 Australia Ordinary 100% (1,521) 427 Irongate Property Sub Trust No.5 Australia Ordinary 100% (1,545) (1,501) Irongate Property Sub Trust No.6 Australia Ordinary 100% 15,722 75,347 Irongate Property Sub Trust No.7 Australia Ordinary 100% 77 87 Irongate Property Sub Trust No.8 Australia Ordinary 100% (420) (110) Irongate Property Sub Trust No.9 Australia Ordinary 100% (442) (358) Irongate Property Sub Trust No.10 Australia Ordinary 100% (3,775) (2,697) Irongate Property Sub Trust No.11 Australia Ordinary 100% (1,661) (360) Irongate Property Sub Trust No.12 Australia Ordinary 100% 148 165 Irongate Property Sub Trust No.13 Australia Ordinary 100% (310) (271) Irongate Property Sub Trust No.14 Australia Ordinary 100% (2,009) (2,258) Irongate Property Sub Trust No.15 Australia Ordinary 100% (2,016) (974) Irongate Property Sub Trust No.16 Australia Ordinary 100% (6,137) (3,706) Irongate Property Sub Trust No.17 Australia Ordinary 100% 393 506 Irongate Property Sub Trust No.18 Australia Ordinary 100% (5,645) (4,228) Irongate Property Sub Trust No.19 Australia Ordinary 100% (7,010) (3,911) Irongate Property Sub Trust No.20 Australia Ordinary 100% 305 445 Irongate Property Sub Trust No.21 Australia Ordinary 100% 35,508 242 Irongate Property Sub Trust No.22 Australia Ordinary 100% (4,727) 695 Irongate Property Sub Trust No.23 Australia Ordinary 100% (43) 31 Irongate Property Sub Trust No.24 Australia Ordinary 100% (5,352) (5,361) Irongate Property Sub Trust No.25 Australia Ordinary 100% 1,466 1,759 Irongate Property Sub Trust No.26 Australia Ordinary 100% 2,139 – / 135 / 134 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Notes to the consolidated financial statements For the year ended 31 March 2022 continued / 137 / 136 AS AT 31 MARCH 2021 A$’000 MEASURED AT FAIR VALUE THROUGH PROFIT/LOSS NON-FINANCIAL INSTRUMENTS AMORTISED COST TOTAL ASSETS Non-current assets Investment property 1,225,356 – – 1,225,356 Investment property under development 11,600 – – 11,600 Property, plant and equipment – 661 – 661 Intangible assets – 39,528 – 39,528 Equity accounted investment – 5,807 – 5,807 Deferred tax assets – 2,957 – 2,957 Current assets Cash and cash equivalents – – 7,405 7,405 Trade and other receivables – – 5,662 5,662 Total assets 1,236,956 48,953 13,067 1,298,976 LIABILITIES Non-current liabilities Long-term borrowings – – 339,063 339,063 Financial instruments held at fair value 836 – – 836 Trade and other payables – – 9,026 9,026 Current liabilities Trade and other payables – – 9,322 9,322 Distribution payable – – 27,696 27,696 Total liabilities 836 – 385,107 385,943 Cash and cash equivalents; trade and other receivables; trade and other payables are measured at amortised cost and approximate fair value. The fair value of “long term borrowings at amortised cost” has been estimated by market interest rate at each year end. Other non-financial instruments are tested for impairment on an annual basis. 25. Financial risk and capital management 25.1 Total financial and non-financial assets and liabilities The table below sets out the Group’s accounting classification of each class of financial and non-financial asset and liability and their fair values at 31 March 2022 AS AT 31 MARCH 2022 (A$’000) MEASURED AT FAIR VALUE THROUGH PROFIT/LOSS NON-FINANCIAL INSTRUMENTS AMORTISED COST TOTAL ASSETS Non-current assets Investment property 1,642,354 – – 1,642,354 Investment property under development 36,314 – – 36,314 Property, plant and equipment – 753 – 753 Intangible assets – 39,528 – 39,528 Equity accounted investment – 20,579 – 20,579 Financial instruments held at fair value 23,274 – – 23,274 Deferred tax assets – 2,763 – 2,763 Current assets Cash and cash equivalents – – 9,200 9,200 Trade and other receivables – – 10,147 10,147 Total assets 1,701,942 63,623 19,347 1,784,912 LIABILITIES Non-current liabilities Long-term borrowings – – 516,979 516,979 Financial instruments held at fair value – – – – Trade and other payables – – 6,578 6,578 Current liabilities Trade and other payables – – 13,598 13,598 Distribution payable – – 31,643 31,643 Total liabilities – – 568,798 568,798 / 137 / 136 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Notes to the consolidated financial statements For the year ended 31 March 2022 continued / 139 / 138 25.3 Fair value hierarchy—financial instruments (continued) b. Details of changes in valuation techniques There have been no significant changes in valuation techniques during the year under review c. Significant transfers between Level 1, Level 2 and Level 3 There have been no transfers between Level 1, Level 2 and Level 3 during the year. Derivative financial instruments consist of interest rate hedging instruments. Interest rate hedging instruments are valued based on broker quotes and are tested for reasonableness by discounting future cash flows using an observable market interest rate curve at the dates when the cash flows will take place. 25.3 Other financial risk management considerations The financial instruments of the Group consist mainly of cash and cash equivalents, including deposits with banks, borrowings, derivative instruments, trade and other receivables and trade and other payables. The Group purchases or issues financial instruments in order to finance operations and to manage the interest rate risks that arise from these operations and the source of funding. The Group has exposure to the following risks from its use of financial instruments: • Credit risk • Liquidity risk • Market risk The board of the Responsible Entity has overall responsibility for the establishment and oversight of the Group’s risk management framework. The board of the Responsible Entity has established the Audit and Risk Committee, which is responsible for developing and monitoring the Group’s risk management policies. The Audit and Risk Committee reports regularly to the board of the Responsible Entity on its activities. The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Audit and Risk Committee oversees how management monitors compliance with the Group’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Audit and Risk Committee is assisted in its oversight role by Investec Internal Audit, which undertake both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit and Risk Committee. 25.4 Credit risk Credit risk is the risk of financial loss to the Group if a client or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from derivatives, as well as trade and other receivables. There is no significant concentration of credit risk as exposure is spread over a large number of counterparties. Exposure to credit risk The carrying amount of financial assets represents the maximum credit exposure. The table below shows the maximum exposure to credit risk for the components of the statement of financial position, including derivatives. AT 31 MARCH A$'000 2022 2021 Cash and cash equivalents 9,200 7,405 Receivables and other assets 10,147 5,662 Financial instruments—Interest rate swaps 23,274 – Total on-balance sheet exposure 42,621 13,067 Contingent liabilities, committed facilities and others – – Total gross credit exposures 42,621 13,067 Where financial instruments are recorded at fair value the amounts shown above represent the current credit risk exposure but not the maximum risk exposure that could arise in the future as a result of changes in values. The Group has derivative financial instruments held with major Australian banks, Westpac and ANZ, which are considered high quality financial institutions. The credit risk of financial instruments has not increased significantly since initial recognition. The Group applies the lifetime ECL model to manage the credit risk of financial assets carried at amortised cost in accordance with the accounting policy described in Note 1.10.1 to the consolidated financial statements. Historical evidence suggests that there is an insignificant ECL amount, and there is no forward-looking information that indicates potential impairment of receivables. The Group has determined that no ECL is required to be recognised as at 31 March 2022. (31 March 2021: Nil) 25.2 Fair value hierarchy—financial instruments In the case of financial instruments whose carrying amount is not the same as their theoretical fair value. The fair value has been calculated as follows: a. The fair value of “long term borrowings at amortised cost” has been estimated by marketing interest rate at year end. For financial instruments whose carrying amount is equivalent to their fair value, the measurement processes used are defined as follows: Level 1—quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2—inputs other than quoted prices included within Level 1 that are observable for the assets and liabilities, either directly (i.e. as prices) or indirectly (i.e. derived from prices) Level 3—inputs for the assets and liabilities that are not based on observable market data (unobservable inputs) FAIR VALUE FAIR VALUE AND CARRYING AMOUNT A$’000 CARRYING AMOUNT LEVEL 1 LEVEL 2 LEVEL 3 TOTAL As at 31 March 2022 Financial assets not measured at fair value Cash and cash equivalents 9,200 – – – – Receivables and other assets 10,147 – – – – 19,347 – – – – Financial liabilities not measured at fair value Trade and other payables 20,176 – – – – Distribution payable 31,643 – – – – Long term borrowings 516,979 – 513,015 – 513,015 568,798 – 513,015 – 513,015 Financial assets measured at fair value Interest rate swaps 23,274 – 23,274 – 23,274 23,274 – 23,274 – 23,274 FAIR VALUE FAIR VALUE AND CARRYING AMOUNT A$’000 CARRYING AMOUNT LEVEL 1 LEVEL 2 LEVEL 3 TOTAL As at 31 March 2021 Financial assets not measured at fair value Cash and cash equivalents 7,405 – – – – Receivables and other assets 5,662 – – – – 13,067 – – – – Financial liabilities not measured at fair value Trade and other payables 18,348 – – – – Distribution payable 27,696 – – – – Long term borrowings 339,063 – 352,018 – 352,018 385,107 – 352,018 – 352,018 Financial liabilities measured at fair value Interest rate swaps 836 – 836 – 836 836 – 836 – 836 / 139 / 138 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Notes to the consolidated financial statements For the year ended 31 March 2022 continued / 141 / 140 25.6 Derivatives Derivative instruments are used to hedge the Group’s exposure to any increases in interest rates on variable rate loans. Interest rate swap contracts are entered into whereby the Group hedges out its variable rate obligation to provide a maximum fixed rate obligation. Details of the interest rate fixed for variable swap instruments are as follows: FINANCIAL INSTITUTION NOTIONAL AMOUNT $’000 FAIR VALUE $’000 START DATE END DATE FIXED RATE 31 March 2022 Australia and New Zealand Banking Group 30,000 1,136 24-Dec-19 24-Dec-24 1.06% Westpac Banking Corporation 20,000 1,135 22-Mar-21 24-Mar-25 0.64% Westpac Banking Corporation 67,303 5,030 11-Dec-17 12-Dec-26 2.58% Westpac Banking Corporation 70,000 5,770 21-Jun-21 21-Jun-27 1.18% Westpac Banking Corporation 110,000 10,203 15-Dec-21 15-Dec-31 1.92% Total 297,303 23,274 FINANCIAL INSTITUTION NOTIONAL AMOUNT $’000 FAIR VALUE $’000 START DATE END DATE FIXED RATE 31 March 2021 Australia and New Zealand Banking Group 30,000 (592) 24-Dec-19 24-Dec-24 1.06% Westpac Banking Corporation 20,000 (5) 22-Mar-21 24-Mar-25 0.64% Westpac Banking Corporation 67,303 (239) 11-Dec-17 12-Dec-26 2.58% Total 117,303 (836) 25.7 Capital Management In terms of the constitutions of IPF I and IPF II, the Group’s gearing ratio must not exceed 60%. The Group is funded partly by unit capital and partly by external borrowings. In terms of its covenants entered into during the year, the Group is committed to a maximum value of external borrowings of 55% of the value of investment property and investment assets. In practice, the Group aims to keep gearing levels between 30% and 40% over the long term. At 31 March 2022, the nominal value of borrowings less cash equivalents was equal to 30.10% (31 March 2021: 26.88%) of the value of investment properties and equity accounted investments. The board of the Responsible Entity is committed to maintaining a strong capital base, comprising its securityholders’ interests, so as to promote investor, creditor and market confidence and to sustain future development of the business. It is the Group’s stated purpose to deliver medium to long-term sustainable growth in distributions per security. Distributable income is distributed on a six monthly basis. The board of the Responsible Entity monitors the level of distributions to securityholders. There were no changes in the Group’s approach to capital management during the year. The Group is not subject to externally imposed capital requirements. 26. Remuneration of auditors The following fees were paid of payable for services provided by auditors of Group during the year. All audit and tax services were provided by KPMG. A$ 1 APRIL 2021 TO 31 MARCH 2022 03 SEPTEMBER 2021 TO 31 MARCH 2021 Auditor’s remuneration—audit fee 314,584 301,169 Auditor’s remuneration—tax compliance 160,000 163,720 Non audit service cost for internalisation transaction – 2,011,501 474,584 2,476,390 27. Subsequent events There is no other item, transaction or event of a material or unusual nature likely that have arisen since the end of the financial year up until the date of the annual report which would significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in subsequent years. 25.5 Market risk (a) Interest rate risk The Group is exposed to interest rate risk and adopts a policy of ensuring that at least 75% of its exposure to changes in interest rates on borrowings is on a fixed basis. This is achieved by entering into variable for fixed rate swap instruments. All such transactions are carried out within the guidelines set by the Audit and Risk Committee. As a consequence, the Group is exposed to fair value interest rate risk in respect of the fair value of its interest rate financial instruments, which will not have an impact on distributions. Short-term receivables and payables and investments are not directly exposed to interest rate risk The potential market risk to the Group arises from changes of interest rate. This relates to its floating debt facility. At 31 March 2022, 85.9% (31 March 2021: 78.3%) of the Group’s interest rate exposure was hedged. The principle outstanding amount of floating debt facility is A$73.4 million (31 March 2021: A$144.7 million). Therefore, for the year ended 31 March 2022, a 1% increase/decrease in interest rates on the variable rate borrowings would have an immaterial impact on the Group’s profit, assuming all other variables remain constant. (b) Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s policy is to seek to minimise its exposure to liquidity risk by balancing its exposure to interest rate risk and to refinancing risk. In effect the Group seeks to borrow for as long as possible at the lowest acceptable cost. The Group regularly reviews the maturity profile of its financial liabilities and will seek to avoid concentration of maturities through the regular replacement of facilities, and by using a selection of maturity dates. The tables below set out the maturity analysis of the Group’s financial liabilities based on the undiscounted contractual cash flows. Cash flows are monitored on a monthly basis to ensure that cash resources are adequate to meet the funding requirement of the Group. AS AT 31 MARCH 2022 (A$’000) WITHIN 1 YEAR 1–2 YEARS 2–5 YEARS OVER 5 YEARS TOTAL CARRYING VALUE Long-term borrowings1 10,955 10,985 220,718 348,695 591,353 520,682 Trade and other payables 13,598 4,637 1,587 354 20,176 20,176 Distributions payable 31,643 – – – 31,643 31,643 Total liabilities 56,196 15,622 222,305 349,049 643,172 572,501 AS AT 31 MARCH 2021 (A$’000) WITHIN 1 YEAR 1–2 YEARS 2–5 YEARS OVER 5 YEARS TOTAL CARRYING VALUE Long-term borrowings1 7,758 7,758 195,691 169,156 380,363 341,514 Trade and other payables 9,322 4,931 2,601 1,494 18,348 18,348 Distributions payable 27,696 – – – 27,696 27,696 Total liabilities 44,776 12,689 198,292 170,650 426,407 387,558 The table below outlines the Group’s LVR2 at the end of the period. A$’000 2022 2021 Investment property 1,642,354 1,225,356 Investment property held under development 36,314 11,600 Equity accounted investment (EAI) 20,579 5,807 Total 1,699,247 1,242,763 Carrying value of interest bearing borrowing 520,682 341,514 Less: Cash and cash equivalents (9,200) (7,405) Net value of borrowing 511,482 334,109 Current ratio of interest bearing borrowings to value of property and EAI (%) 30.10 26.88 1. Cash flows in relation to long term borrowings take into account interest payments and the effect of interest rate swaps. 2. LVR is a non-IFRS measure. / 141 / 140 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Notes to the consolidated financial statements For the year ended 31 March 2022 continued / 142 This page has intentionally been left blank. / 142 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Other information 07 — / 145 / 144 The number of securityholders holding less than a marketable parcel of 260 securities (based on the 22 April 2022 closing price of A$1.92) is detailed below. In accordance with the ASX Listing Rules, a “marketable parcel” is “…a parcel of securities of not less than A$500…”. OWNERSHIP OF LESS THAN A$500 NUMBER OF SECURITYHOLDINGS NUMBER OF SECURITIES IN ISSUE VALUE (A$) ASX1 111 1,634 3,137 JSE2 724 21,060 40,225 Total 43,362 Directors’ interest in securities DIRECTORS’ INTEREST IN SECURITIES BALANCE AT 22 APRIL 2022 BALANCE AT 16 APRIL 2021 Executive director Graeme Anthony Katz 270,296 270,296 Non-executive directors Richard Longes3 121,819 121,819 Stephen Koseff4 170,733 170,733 Georgina Lynch5 67,493 67,493 Sally Herman 37,879 37,879 Samuel Ronald Leon (resigned 30 November 2020) 1,965,000 2,300,000 Total 2,633,220 2,968,220 There has been no change in directors’ interests in securities since 22 April 2022 and the date of signing the annual report. SECURITY STATISTICS 31 MARCH 2022 31 MARCH 2021 JSE Closing market price (ZAR) Year end 20.77 14.79 High 21.50 16.48 Low 14.21 11.66 Market capitalisation in ZAR 4,717,436,659 4,803,000,084 Daily average volume of securities traded 778,902 891,982 Securities in issue 227,127,427 324,746,456 ASX Closing market price (A$) Year end 1.91 1.35 High 1.94 1.44 Low 1.31 1.01 Market capitalisation in A$ 860,344,845 386,844,698 Daily average volume of securities traded 931,832 1,034,301 Securities in issue 450,442,327 286,551,628 Total securities in issue 677,569,754 611,298,084 1. Closing price on ASX in A$ as at 22 April 2022. 2. Closing price on JSE in A$ as at 22 April 2022. 3. Through Gemnet Pty Ltd. 4. Through Sheryl Koseff and SK Employee Trust. 5. Through G Lynch Investments Pty Ltd. Securityholder information Top 20 securityholders as at 22 April 2022 RANK NAME NUMBER OF SECURITIES HELD % OF ISSUED CAPITAL 1 360 Capital IG Pty. Ltd. 135,417,787 19.99 2 Public Investment Corporation (SOC) Limited 54,553,770 8.05 3 Vanguard Investments Australia Ltd. 31,646,098 4.67 4 Martin Currie Australia 22,267,585 3.29 5 Sesfikile Capital (Pty) Ltd 20,373,311 3.01 6 J.P. Morgan Securities Australia Ltd. 17,586,987 2.60 7 Maso Capital Partners Limited 17,543,810 2.59 8 The Vanguard Group, Inc. 16,377,026 2.42 9 BlackRock Investment Management (Australia) Ltd. 12,398,149 1.83 10 First Sentier Investors 12,230,543 1.81 11 Millennium Capital Management (Singapore) Pte Ltd 11,905,779 1.76 12 BlackRock Institutional Trust Company, N.A. 11,859,465 1.75 13 Meago Asset Managers (Pty) Ltd. 10,976,166 1.62 14 State Street Global Advisors Australia Ltd. 9,267,533 1.37 15 Milford Asset Management Ltd. 8,916,323 1.32 16 Old Mutual Investment Group (South Africa) (Pty) Limited 8,249,319 1.22 17 J.P. Morgan Securities plc 7,315,003 1.08 18 Eskom Pension and Provident Fund 7,046,084 1.04 19 First Sentier Investors Realindex Pty Ltd. 6,706,745 0.99 20 Investec Wealth and Investment Management Pty Ltd 6,658,877 0.98 Total 429,296,360 63.36 Total remaining securityholders balance 248,273,394 36.64 Spread of securityholders as at 22 April 2022 SECURITYHOLDER SPREAD NUMBER OF SECURITYHOLDINGS % OF TOTAL SECURITYHOLDERS NUMBER OF SECURITIES IN ISSUE % OF ISSUED CAPITAL 1–5,000 2,218 48.70 3,312,793 0.49 5,001–10,000 679 14.91 5,225,779 0.77 10,001–50,000 1,144 25.12 26,601,753 3.93 50,001–100,000 213 4.68 15,525,185 2.29 100,001 securities and over 300 6.59 626,904,244 92.52 Total 4,554 100 677,569,754 100 Public/non-public securityholders as at 22 April 2022 NUMBER OF SECURITYHOLDINGS % OF TOTAL SECURITYHOLDERS NUMBER OF SECURITIES IN ISSUE % OF ISSUED CAPITAL Non-Public Unitholdings 7 0.15 138,168,563 20.39 Director Holdings 6 0.13 2,750,776 0.41 Strategic Holder 1 0.02 135,417,787 19.99 Public Unitholders 4,547 99.85 539,401,191 79.61 Total 4,554 100 677,569,754 100 There is currently only one class of securities, being ordinary securities, and there are no securities currently held in escrow. All of the Fund’s securities are quoted on the ASX and JSE and no other stock exchanges. The Fund does not currently have any security buy-back plans in place. / 145 / 144 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 / 147 / 146 Glossary of terms A$ means Australian dollars. AAS means Australian Accounting Standards. AFFO means adjusted funds from operations, calculated in line with the Property Council Guidelines, being FFO adjusted for maintenance capital expenditure, cash and cash equivalent incentives (including rent free incentives) given to tenants during the period and other one-off items which have not been adjusted in determining FFO. AMIT means an attribution managed investment trust as defined in section 276-10 of the Income Tax Assessment Act 1997 (Cth). ASIC means Australian Securities and Investments Commission. ASX means ASX Limited and, where applicable, the Australian securities exchange operated by ASX Limited. ASX Guidelines means the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations, as amended from time to time. ASX Listing Rules means the listing rules of the ASX, and other rules of the ASX which are applicable to the Fund while the Fund is listed on the ASX, as amended from time to time. Audit and Risk Committee means the audit and risk committee of the Board. Board means the board of directors of the Responsible Entity. bps means basis points. CBD means central business district. CEO means chief executive officer. CFO means chief financial officer. Corporations Act means the Corporations Act 2001 (Cth). CPI means the All Groups Consumer Price Index, as issued by the Australian Bureau of Statistics as a general indicator of the rate of change in prices paid for consumer goods and services. cps means cents per security. ESG means environmental, social and governance. FFO means funds from operations calculated in accordance with the Property Council Guidelines, determined by adjusting statutory net profit (under AAS) for non-cash and other items such as property revaluations, derivative mark-to-market impacts, amortisation of tenant incentives, gain/loss on sale of investment properties, straightline rental revenue adjustments, non-FFO tax expenses/benefits and other unrealised one-off items. FUM means funds under management. FY means the financial year ending 31 March in the relevant year. gearing means interest bearing liabilities (excluding debt establishment costs) less cash divided by the total value of investment properties. GRESB means Global Real Estate Sustainability Benchmark for ESG performance. HoA means heads of agreement. HY means the half year ending 30 September in the relevant year. IAP or Fund means Irongate Group, comprising IPF I and IPF II. Investec Group means Investec Limited and Investec Plc, being the head entities of the dual listed companies structure comprising the Investec Group, and each of their subsidiaries. IPF I means Irongate Property Fund I (ARSN 162 067 736). IPF II means Irongate Property Fund II (ARSN 644 081 309). ITAP Fund means a fund comprised of Templewater Australia Property I L.P., Templewater Australia Property Fund I Head Trust and various sub trusts that have been established, or may be established, from time to time. Corporate information Irongate Group ISIN: AU0000046005 Irongate Property Fund I Established on 12 December 2012 in Australia and registered on 6 February 2013 with ASIC as a Managed Investment Scheme (ARSN 162 067 736). Registered on 23 August 2013 as a foreign collective investment scheme authorised to solicit investments from members of the public in South Africa in terms of the Collective Investment Schemes Control Act 45 of 2002. Irongate Property Fund II Established on 3 September 2020 in Australia and registered on 9 September 2020 with ASIC as a Managed Investment Scheme (ARSN 644 081 309). On 12 October 2020, the Register of Collective Investment Schemes exempted Irongate Property Fund II from the requirement to obtain approval for solicitation of investments as a foreign collective investment scheme in terms of section 65(1) of the Collective Investment Schemes Control Act 45 of 2002. Security code JSE: IAP ASX: IAP Website address www.irongategroup.com.au Responsible Entity Irongate Funds Management Limited (ACN 071 514 246 AFSL 290 909) Level 13 95 Pitt Street Sydney NSW 2000 Australia Directors of the Responsible Entity Richard Longes# (Non-executive chairperson) Sally Herman# (Non-executive lead independent) Georgina Lynch# (Non-executive) Stephen Koseff (Non-executive) Graeme Katz (Executive) # Independent Company secretary of the Responsible Entity Lucy Spenceley (BA (Hons)) Registered office and postal address of the Responsible Entity Level 13 95 Pitt Street Sydney NSW 2000 Australia Local representative office 2nd Floor 100 Grayston Drive Sandown Sandton 2196 Transfer secretaries JSE Computershare Investor Services Proprietary Limited Rosebank Towers 15 Biermann Avenue Rosebank Johannesburg 2196 (PO Box 61051 Marshalltown 2107) South Africa ASX Computershare Investor Services Pty Limited GPO Box 2975 Melbourne VIC 3001 Australia Phone (within Australia): 1300 850 505 Phone (outside Australia):+61 (0)3 9415 4000 Fax: +61 (0)3 9473 2500 Email: webqueries@computershare.com.au Sponsor The Corporate Finance division of Investec Bank Limited 2nd Floor 100 Grayston Drive Sandown Sandton 2196 (PO Box 785700 Sandton 2146) South Africa Custodian Perpetual Corporate Trust Limited (ACN 000 341 533) Level 12 123 Pitt Street Sydney NSW 2000 Australia Investor relations Telephone: +61 2 7906 2000 Email: ir@irongategroup.com.au Preparer The annual report and consolidated financial statements have been prepared under the supervision of the CFO, Kristie Lenton CA. / 147 / 146 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 / 149 / 148 This page has intentionally been left blank. JSE means JSE Limited and, where applicable, the exchange operated by JSE Limited in accordance with its licence under the Financial Markets Act, No. 19 of 2012 of South Africa. JSE Listings Requirements means the listings requirements of the JSE, as amended from time to time. King IV Code means the King IV Report on Corporate Governance for South Africa 2016. KMP means key management personnel. LTI means long term incentive. m² means square metres. Managed Investment Scheme means a managed investment scheme that has been registered by ASIC as a managed investment scheme under Chapter 5C of the Corporations Act. Manager means Irongate Property Management Pty Limited. MTM means mark to market. NABERS means national Australian built environment rating system. NAV means net asset value. Nomination and Remuneration Committee means the nomination and remuneration committee of the Board. NTA means net tangible assets. Property Council Guidelines means version 2 of the Property Council of Australia’s Voluntary Best Practice Guidelines for Disclosing FFO and AFFO, published in December 2017 and available at www.propertycouncil.com.au. REIT means real estate investment trust. Remuneration Report means the remuneration report on pages 30 to 35 of the annual report. Responsible Entity means the responsible entity of the Fund, being Irongate Funds Management Limited. Sponsor means Investec Bank Limited, a member of the Investec Group. STI means short term incentive. WACR means the average capitalisation rate across the Fund’s portfolio or group of properties, weighted by property valuation. WADE means the weighted average expiry of the Fund’s debt facilities. WALE means the average lease term remaining to expiry across the Fund’s portfolio or a property or group of properties, weighted by gross property income. WARR means the average rent review across the Fund’s portfolio or a property or group of properties, weighted by gross property income. WASE means the weighted average expiry of the Fund’s interest rate swaps. ZAR means South African rand. Glossary of terms Continued / 149 / 148 Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Irongate Group Integrated Annual Report and Consolidated Financial Statements 2022 Integrated Annual Report and Consolidated Financial Statements 2022 Irongate Group Section 01 Section 02 Section 03 Section 04 Section 05 Section 06 Section 07 Sydney Level 13, 95 Pitt Street NSW 2000 +61 2 7906 2000 info@irongategroup.com.au Melbourne Brisbane irongategroup.com.au