Mirvac Group
Annual Report 2020

Plain-text annual report

Mirvac Property Trust 2020 MIRVAC PROPERTY TRUST AND ITS CONTROLLED ENTITIES Annual Report For the year ended 30 June 2020 The consolidated entity comprises Mirvac Property Trust (ARSN 086 780 645) and its controlled entities. Index Directors' report Auditor’s independence declaration Consolidated financial statements Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements Directors' declaration Independent auditor’s report to the unitholders of Mirvac Property Trust Page 2 7 8 9 10 11 12 13 43 44 Mirvac Property Trust and its controlled entities Directors’ report For the year ended 30 June 2020 DIRECTORS’ REPORT The Directors of Mirvac Funds Limited (ABN 70 002 561 640, AFSL 233121), the Responsible Entity of Mirvac Property Trust (MPT or Trust), present their report, together with the consolidated report of MPT (ARSN 086 780 645) and its controlled entities (consolidated entity) for the year ended 30 June 2020. MPT and its controlled entities together with Mirvac Limited and its controlled entities form the stapled entity, Mirvac Group (Mirvac or Group). Responsible Entity The Responsible Entity of the Trust is Mirvac Funds Limited, an entity incorporated in New South Wales. The immediate parent entity of the Responsible Entity is Mirvac Woolloomooloo Pty Limited (ABN 44 001 162 205), incorporated in New South Wales, and its ultimate parent entity is Mirvac Limited (ABN 92 003 280 699), incorporated in New South Wales. Directors John Mulcahy The following persons were Directors of Mirvac Funds Limited during the whole of the year and up to the date of this report, unless otherwise stated: · · Susan Lloyd-Hurwitz · Christine Bartlett · Peter Hawkins · Jane Hewitt · James M. Millar AM · Samantha Mostyn · Peter Nash · John Peters (resigned on 19 November 2019) · Elana Rubin (resigned on 19 November 2019) Principal activities The principal continuing activities of the consolidated entity consist of property investment for the purpose of deriving rental income and investments in unlisted funds. There has been no significant change in the principal activities of the consolidated entity during the year. REVIEW OF OPERATIONS AND ACTIVITIES FINANCIAL, CAPITAL MANAGEMENT AND OPERATIONAL HIGHLIGHTS Notwithstanding the impact of the COVID-19 global pandemic, which began to create challenging operating conditions across the consolidated entity’s business from the third quarter, the consolidated entity has recorded a solid performance for the financial year ended 30 June 2020. The consolidated entity’s robust capital position entering into the pandemic, ensured it remained resilient in the face of significant disruption. Despite the economic and financial impacts of COVID-19, the consolidated entity continued to capitalise on strategic, value accretive, investment opportunities. This, together with a focus on our people and their ability to maintain productivity, mitigated the impact of COVID-19 on the consolidated entity and will support the recovery process. Key financial highlights for the year ended 30 June 2020: · · · · profit attributable to the stapled unitholders of MPT of $538.4 million (2019: $893.1 million); operating cash inflow of $372.2 million (2019: $434.8 million); distributions of $358.0 million (2019: $440.3 million), representing 9.1 cents per stapled unit (2019: 11.6 cents per stapled unit); and net tangible assets per stapled unit of $2.22, up from $2.17 (June 2019). Refer to the consolidated statement of financial position and notes to the consolidated financial statements, for the consolidated entity’s value of assets and basis used to value its assets. Key capital management highlights for the year ended 30 June 2020: The consolidated entity’s capital structure is monitored at the Group level. Key capital management highlights relating to the Group include: · · entered into $810.0 million of new debt facilities with maturities ranging from 3 to 4.5 years; reduced average borrowing costs at 4.0 per cent per annum (2019: 4.8 per cent), including margins and line fees; 2 Mirvac Property Trust and its controlled entities Directors’ report For the year ended 30 June 2020 FINANCIAL, CAPITAL MANAGEMENT AND OPERATIONAL HIGHLIGHTS (continued) Key capital management highlights for the year ended 30 June 2020 (continued): gearing of 22.8 per cent, at the lower end of the Group’s target range of 20 to 30 per cent; substantial liquidity of $14.0bn in cash and committed undrawn bank facilities; · · · weighted average debt maturity is 6.7 years (June 2019: 8.5 years); and · maintained an A- rating with a stable outlook from Fitch Ratings and A3 rating from Moody’s Investors Service (equivalent to A-). Key operational highlights for the year ended 30 June 2020: · · · investment property revaluations provided an uplift of $154.5 million for the 12 months to 30 June 2020; completed the sale of St Mary’s Village for $68.0 million in December 2019; 477 Collins Street, Melbourne: achieved practical completion, despite COVID-19 related restrictions and enhanced health and safety measures in place from March 2020. The building is now 96 per cent pre-leased; · · South Eveleigh, Sydney: achieved practical completion for The Foundry (Building 2) in May 2020, on schedule despite COVID-19 restrictions in place on site. This is the third building to be delivered at the precinct, following Axle (Building 1) and Yerrabingin House (Building 3), a community centre with Indigenous rooftop farm. Mirvac has also delivered a public realm including sports courts, an oval and skatepark, and retail, at the precinct. The project’s major tenant, Commonwealth Bank of Australia, has pre-committed to 100 per cent of office space for a 15‑year lease term; 80 Ann Street, Brisbane: construction has progressed and practical completion remains on track for the 30 June 2022 financial year. Suncorp has pre‑committed to over 39,600 square metres of office and retail space, representing approximately 66 per cent of the building’s total net lettable area (NLA), for a 10‑year term. 383 La Trobe Street, Melbourne: lodged a planning application for a new commercial precinct with 44,000 square metres of A-grade office space over 31 levels, accommodating up to 4,000 future workers once complete; 55 Pitt Street, Sydney: lodged a proposal for a new commercial tower with the potential to deliver approximately 60,000 square metres of premium commercial and retail space; · · · Toombul, Brisbane: completed a $43m, 4,500 square metre redevelopment delivering a new dining and entertainment precinct, anchored by Archie Brothers, Cirque Electriq and an upgraded cinema; and · Moonee Ponds Central, Melbourne: completed and opened a vibrant new dining destination and outdoor plaza with communal seating designed to servicing a rapidly growing and diversifying local population. Outlook and risks The consolidated entity’s diversified urban portfolio ensures it is well placed for the future. Rental cash flows are supported by a modern investment portfolio with strong metrics. This underpins the consolidated entity’s future distributions and drives positive return on invested capital. Office: The onset of the pandemic and recent shift to working from home for many white-collar industries is likely to result in both cyclical and structural changes for the office sector. Declining corporate profit and softer business confidence nearer term will impact net absorption of office space as it has done in past cycles, while the structural impacts on tenant demand will take some time to become clear. Various research indicates both the importance of the workplace for collaboration and culture building, which is especially important for onboarding. In addition, through the pandemic more research has come to light highlighting that both the propensity and ability to work from home differs markedly by both age and income, with young people and those in the lower income brackets experiencing more difficulties. As such, a hybrid model of both working from home and workplace is likely to be more common in future. While the expectations of office workers has changed, so too has the expectation of their employers. The demand for modern space offerings involves not just collaborative spaces, but ultimate flexibility for tenants in integrating systems and their preferred technology solutions which can vary widely from areas such as cyber security to air filtration. Of equal importance is rising demand from occupants for access to data on their tenancy in order to measure their environmental impact and optimise their space. These changing requirements of tenants are not easily achieved in older prime assets and are likely to result in better leasing outcomes for new, well located and technologically advanced office assets. Industrial: The pandemic has resulted in some positive structural tailwinds for the industrial sector, both from increased levels of online spending and some disruption to supply chain. This is likely to result in some increased inventory and space needs. Near term there are some headwinds for occupancy demand from some sectors given economic weakness and a slowdown in housing construction. However, Sydney is well placed to perform well given it is Australia’s largest city and undergoing multi-billion dollar, new road investment. Supply-side constraints are more prevalent in Sydney than other Australian cities and there is a significant volume of aged, inefficient stock. As such, a pipeline of well located, high quality precinct stock is likely to outperform. 3 Mirvac Property Trust and its controlled entities Directors’ report For the year ended 30 June 2020 FINANCIAL, CAPITAL MANAGEMENT AND OPERATIONAL HIGHLIGHTS (continued) Retail: The nearer term impact to retail will largely be driven by the direction of COVID-19 and the ability for community transmission to be contained. Higher frequency datasets provide clues to the future outlook. As restrictions were eased in Australia and around the world during May and June, visitation to physical retail outlets increased significantly. In locations where community transmission has been minimal for some time, the visitation and dwell time at retail destinations has been climbing higher with some in Australia back to or near their mid-February levels as of late July, according to Google Mobility. Also, expenditure patterns including from the Commonwealth Bank of Australia showed physical store spend recovered sharply in May, though the composition of spend by category has diverged. Households are likely to continue spending strongly on household goods during the pandemic, though large recoveries in spend for categories like restaurants and personal care have been evident once restrictions eased. Over the next year, higher unemployment and underemployment will constrain discretionary spending. In an environment of challenged leasing conditions, tenants are seeking access to large trade area populations in quality assets. Significant changes in the state of affairs Details of the state of affairs of the consolidated entity are disclosed within the Review of Operations and Activities section above. The impacts of the COVID-19 pandemic to the consolidated entity are outlined throughout the annual report and summarised under Note A - Basis of Preparation. Interests in the Trust Total ordinary stapled units issued Stapled units issued under Long-Term Incentive Plan (LTI) and Employee Incentive Scheme (EIS) Total stapled units issued 2020 No. units m 3,932.7 1.6 3,934.3 2019 No. units m 3,909.4 1.7 3,911.1 Refer to note E2 to the consolidated financial statements for the consolidated entity’s movements in stapled units during the financial year. This includes any stapled units issued and withdrawn during the financial year. Instruments held by Directors Particulars of Directors’ interests in the stapled securities of Mirvac or a related body corporate, are as follows: Mirvac stapled securities Director 105,172 John Mulcahy 4,402,940 Susan Lloyd-Hurwitz 55,172 Christine Bartlett 596,117 Peter Hawkins Jane Hewitt1 20,000 55,172 James M. Millar AM Samantha Mostyn2 48,705 Peter Nash3,4 33,448 Former Non-Executive Key Management Personnel (KMP) John Peters5 Elana Rubin6 1. Jane Hewitt joined the Board as a Non-Executive Director on 10 December 2018. - - Performance rights/rights to acquire stapled securities - 2,149,864 - - - - - - Interests in securities of related entities or related bodies corporate - - - - - - - - - - - - 2. Samantha Mostyn participates in the voluntary Non-Executive Director Fee Sacrifice Rights Plan. In addition to the above securities, she has 6,042 rights which will automatically be converted to Mirvac securities in the first trading window of the 30 June 2021 financial year which when added to her current securityholding will result in her exceeding the minimum securityholding requirement. Peter Nash joined the Board as a Non-Executive Director on 19 November 2018. Peter Nash participates in the voluntary Non-Executive Director Fee Sacrifice Rights Plan. In addition to the above securities, he has 7,551 rights which will automatically be converted to Mirvac securities in the first trading window of the 30 June 2021 financial year. John Peters ceased as a Non-Executive Director on 19 November 2019. Elana Rubin ceased as a Non-Executive Director on 19 November 2019. 3. 4. 5. 6. 4 Mirvac Property Trust and its controlled entities Directors’ report For the year ended 30 June 2020 Refer to note H3 to the consolidated financial statements for detailed information regarding Directors’ and key management personnel’s interest in the stapled securities of Mirvac including any options granted and exercised over unissued stapled securities. Fees paid to the Responsible Entity or its associates Fees paid to the Responsible Entity out of Trust property during the year were $31.6 million (2019: $20.2 million). Fees charged by the Responsible Entity represent recovery of costs. No fees were paid out of Trust property to the Directors of the Responsible Entity during the year. Fees paid to the Responsible Entity and its associates out of Trust property during the year are disclosed in note H4 to the consolidated financial statements. Net current asset deficiency As at 30 June 2020, the Trust was in a net current liability position of $195.4 million (2019: $422.3 million). The Trust repays its borrowings with excess cash, but had access to $734.0 million of unused borrowing facilities at 30 June 2020 (2019: $1,053.0 million). Accordingly, the Directors of the Responsible Entity expect that the Trust will have sufficient cash flows to meet all financial obligations as and when they fall due. Matters subsequent to the end of the year The consolidated entity acquired the remaining 50% interest of South Village, Kirrawee NSW retail centre from a related party of the Responsible Entity for $48.5m on 31 July 2020. In the event the COVID-19 pandemic impacts are more severe or prolonged than anticipated, this may have further adverse impacts on the recoverability and fair value of assets post 30 June 2020. The additional restrictions implemented in early August 2020 in Victoria as a result of the sudden increased number of COVID-19 cases has not had any significant impacts on the consolidated entity’s operations to date and is not expected to have a material impact on the recoverability or fair value of the consolidated entity’s assets. No other events have arisen since the end of the year which have significantly affected or may significantly affect the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in future years. Environmental regulations The consolidated entity and its business operations are subject to compliance with both Commonwealth and State environment protection legislation. The Board is satisfied that adequate policies and procedures are in place to ensure the consolidated entity’s compliance with the applicable legislation. In addition, the consolidated entity is also subject to the reporting requirements of the National Greenhouse and Energy Reporting Act 2007 and Building Energy Efficiency Disclosure Act 2010. The consolidated entity is not aware of any incidents that have resulted in material non-compliance with environmental regulations during the financial year. More information on Mirvac’s sustainability strategy, actions and performance for the year ended 30 June 2020 can be found in the 30 June 2020 Annual Report of the Group. Non-audit services From time to time, the consolidated entity may engage its external auditor, PricewaterhouseCoopers, to perform services additional to their statutory audit duties. Details of the amounts paid or payable to PricewaterhouseCoopers for audit and non- audit services provided during the year ended 30 June 2020 are set out in note H6 to the consolidated financial statements. In accordance with the advice received from the Audit, Risk & Compliance Committee (ARCC), the Board is satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001 and did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: · all non-audit services were reviewed by the ARCC to ensure they did not affect the impartiality and objectivity of the auditor; and none of the services undermined the general principles relating to auditor independence as set out in Accounting Professional & Ethical Standards 110 Code of Ethics for Professional Accountants, including reviewing or auditing the auditor’s own work, acting in a management or a decision-making capacity for the Trust, acting as advocate for the Trust or jointly sharing economic risk and rewards. · 5 Mirvac Property Trust and its controlled entities Directors’ report For the year ended 30 June 2020 Insurance of officers During the year, the Responsible Entity has not indemnified, or entered into any agreement indemnifying against a liability, any person who is or who has been an officer of the Responsible Entity of the Trust. No insurance premiums are paid for out of the assets of the Trust in regards to insurance cover provided to Mirvac Funds Limited. Auditor’s independence declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 7 and forms part of the Directors’ report. Rounding of amounts The amounts in the financial statements have been rounded off to the nearest tenth of a million (m) dollars in accordance with the ASIC Corporations Instrument 2016/191. This statement is made in accordance with a resolution of the Directors. Susan Lloyd-Hurwitz Director Sydney 20 August 2020 6 Auditor’s Independence Declaration As lead auditor for the audit of Mirvac Property Trust for the year ended 30 June 2020, I declare that to the best of my knowledge and belief, there have been: (a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Mirvac Property Trust and the entities it controlled during the period. Jane Reilly Partner PricewaterhouseCoopers Sydney 20 August 2020 PricewaterhouseCoopers, ABN 52 780 433 757 Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171 T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. 7 Mirvac Property Trust and its controlled entities Consolidated financial statements For the year ended 30 June 2020 CONTENTS CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows 9 10 11 12 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS A BASIS OF PREPARATION B RESULTS FOR THE YEAR B1 Segment information B2 Revenue B3 Expenses B4 Events occurring after the end of the year B5 Income tax C INVESTMENT ASSETS C1 Investment properties C2 Investments in joint ventures C3 Commitments D CAPITAL STRUCTURE AND RISKS D1 Capital management D2 Borrowings and liquidity D3 Financial risk management D4 Fair value measurement of financial instruments E EQUITY E1 Distributions E2 Contributed equity E3 Reserves 13 19 19 20 20 20 21 26 27 28 28 29 31 32 32 33 F OPERATING ASSETS AND LIABILITIES F1 Receivables F2 Other financial assets F3 Goodwill F4 Payables F5 Provisions G CONSOLIDATED ENTITY STRUCTURE G1 Controlled entities G2 Parent entity H OTHER DISCLOSURES H1 Contingent liabilities H2 Earnings per stapled unit H3 Key management personnel H4 Related parties H5 Reconciliation of profit to operating cash flow H6 Auditors’ remuneration 33 34 35 36 36 36 38 38 38 39 41 41 42 These financial statements cover the financial statements for the consolidated entity consisting of Mirvac Property Trust and its controlled entities. The financial statements are presented in Australian currency. The Responsible Entity of Mirvac Property Trust is Mirvac Funds Limited (ABN 70 002 561 640, AFSL 233121), a company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business are: Mirvac Funds Limited Level 28 200 George Street Sydney NSW 2000. A description of the nature of the consolidated entity’s operations and its principal activities is included in the Directors’ report on pages 2 to 6, both of which are not part of these financial statements. The financial statements were authorised for issue by the Directors on 20 August 2020. The Directors have the power to amend and reissue the financial statements. Through the use of the internet, the Trust has ensured that its corporate reporting is timely and complete. All press releases, financial reports and other information are available in the Investor Centre section on the Group’s website. 8 Mirvac Property Trust and its controlled entities Consolidated statement of comprehensive income For the year ended 30 June 2020 Revenue Other income Net revaluation gain from investment properties and investment properties under construction Share of net profit of joint ventures Gain on financial instruments Net gain on sale of assets Total other income Total revenue and other income Investment property expenses and outgoings Amortisation expenses Impairment loss on receivables Finance costs Responsible Entity fees Other expenses Profit before income tax Income tax expense Profit for the year attributable to stapled unitholders Other comprehensive income that may be reclassified to profit or loss Other comprehensive income for the year Total comprehensive income for the year attributable to stapled unitholders Earnings per stapled unit attributable to stapled unitholders Basic earnings per stapled unit Diluted earnings per stapled unit Note B2 C1 C2 B2 B3 B3 B3 H4 B5 H2 H2 2020 $m 693.8 154.5 30.9 7.6 18.4 211.4 905.2 182.8 53.6 41.5 52.9 31.6 4.4 538.4 - 538.4 2019 $m 663.5 523.3 17.3 5.1 - 545.7 1,209.2 180.7 39.4 - 72.4 20.2 3.4 893.1 - 893.1 - - 538.4 893.1 Cents 13.7 13.7 Cents 24.2 24.2 The above consolidated statement of comprehensive income (SoCI) should be read in conjunction with the accompanying notes. 9 Mirvac Property Trust and its controlled entities Consolidated statement of financial position As at 30 June 2020 Current assets Cash and cash equivalents Receivables Other assets Total current assets Non-current assets Investment properties Investments in joint ventures Other financial assets Intangible assets Total non-current assets Total assets Current liabilities Lease liabilities Payables Provisions Total current liabilities Non-current liabilities Lease liabilities Payables Borrowings Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained earnings Total equity attributable to the stapled unitholders Note F1 C1 C2 F2 F3 F4 F5 F4 D2 E2 E3 2020 $m 26.9 18.2 17.4 62.5 10,187.3 465.3 65.6 42.8 10,761.0 10,823.5 0.1 139.8 118.0 257.9 6.9 29.0 1,766.0 1,801.9 2,059.8 8,763.7 5,367.2 5.4 3,391.1 8,763.7 2019 $m 16.9 14.2 14.6 45.7 9,846.2 461.3 58.0 42.8 10,408.3 10,454.0 - 221.6 246.4 468.0 - 6.5 1,447.0 1,453.5 1,921.5 8,532.5 5,316.4 5.4 3,210.7 8,532.5 The above consolidated statement of financial position (SoFP) should be read in conjunction with the accompanying notes. 10 Mirvac Property Trust and its controlled entities Consolidated statement of changes in equity For the year ended 30 June 2020 Balance 30 June 2018 Profit for the year Other comprehensive income for the year Total comprehensive income for the year Transactions with owners in their capacity as owners Unit-based payments Expense recognised – Employee Exemption Plan (EEP) Long-term incentives (LTI) vested Legacy schemes vested Stapled units issued net of transaction costs Stapled unit buy-back Distributions Total transactions with owners in their capacity as owners Balance 30 June 2019 Profit for the year Other comprehensive income for the year Total comprehensive income for the year Transactions with owners in their capacity as owners Unit-based payments Expense recognised – EEP LTI vested Legacy schemes vested Stapled units issued net of transaction costs Distributions Total transactions with owners in their capacity as owners Balance 30 June 2020 Note Attributable to stapled unitholders Contributed equity $m 4,775.9 - - - Reserves $m 5.4 - - - Retained earnings $m 2,757.9 893.1 - 893.1 Total equity $m 7,539.2 893.1 - 893.1 E2 E2 E2 E2 E2 E1 E2 E2 E2 E2 E1 1.0 7.4 0.7 645.0 (113.6) - 540.5 5,316.4 - - - 0.9 9.6 0.6 39.7 - - - - - - - - - - - - (440.3) 1.0 7.4 0.7 645.0 (113.6) (440.3) - 5.4 (440.3) 3,210.7 100.2 8,532.5 - - - - - - - - 538.4 - 538.4 538.4 - 538.4 - - - - (358.0) 0.9 9.6 0.6 39.7 (358.0) 50.8 5,367.2 - 5.4 (358.0) 3,391.1 (307.2) 8,763.7 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 11 Note C2 B3 H5 D4 Mirvac Property Trust and its controlled entities Consolidated statement of cash flows For the year ended 30 June 2020 Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers (inclusive of GST) Interest received Distributions received from joint ventures Distributions received Interest paid Net cash inflows from operating activities Cash flows from investing activities Payments for investment properties Proceeds from sale of investment properties Proceeds from sale of controlled entity Proceeds from loans to unrelated parties Contributions to joint ventures Payments for acquisition of controlled entity, net of cash acquired Payments for financial assets Net cash outflows from investing activities Cash flows from financing activities Proceeds from loans from entities related to Responsible Entity Repayments of loans to entities related to Responsible Entity Proceeds from issue of stapled units Payments for equity raising costs Payments for stapled unit buy-back Principal elements of lease payments Distributions paid Net cash (outflows)/inflows from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year 2020 $m 632.3 (220.5) 411.8 - 27.9 1.8 (69.3) 372.2 (374.7) 130.3 - - (0.2) - - (244.6) 726.0 (407.0) 49.9 - - (0.1) (486.4) (117.6) 10.0 16.9 26.9 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. 2019 $m 718.1 (243.8) 474.3 0.1 43.5 1.8 (84.9) 434.8 (794.1) - 191.6 79.7 - (157.4) (13.0) (693.2) 1,403.5 (1,278.5) 663.9 (10.3) (113.6) - (416.5) 248.5 (9.9) 26.8 16.9 12 Mirvac Property Trust and its controlled entities Notes to the consolidated financial statements For the year ended 30 June 2020 A BASIS OF PREPARATION Mirvac Group – stapled securities A Mirvac Group stapled security comprises one Mirvac Limited share ‘stapled’ to one unit in the Trust to create a single listed security traded on the Australian Securities Exchange (ASX). The stapled securities cannot be traded or dealt with separately. Mirvac Limited (the deemed parent entity) and Mirvac Funds Limited (as Responsible Entity for MPT) have common directors and operate as Mirvac Group. Mirvac Limited and MPT have a Deed of Cooperation to recharge each other on a cost recovery basis, where permitted by law, to maintain the best interests of Mirvac as a whole. The stapled security structure will cease to operate on the first of: · Mirvac Limited or MPT resolving by special resolution in a general meeting, and in accordance with its Constitution, to terminate the stapled security structure; or · Mirvac Limited or MPT commencing winding up. The ASX reserves the right (but without limiting its absolute discretion) to remove entities with stapled securities from the official list if their securities cease to be stapled together, or either entity issues any equity securities of the same class which are not stapled. Mirvac Limited and MPT remain separate legal entities in accordance with the Corporations Act 2001. For accounting purposes, Mirvac Limited has been deemed the parent entity of Mirvac Group. Statement of compliance These consolidated financial statements are general purpose financial statements. They have been prepared in accordance with Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board, the Corporations Act 2001 and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Basis of preparation The consolidated entity is a for-profit entity for the purpose of preparing the financial statements. These financial statements have been prepared on a going concern basis, using historical cost conventions except for: · investment properties, investment properties under construction and other financial assets and financial liabilities which have been measured at fair value; and assets held for sale which are measured at lower of carrying value and fair value less costs to sell. · All figures in the financial statements are presented in Australian dollars and have been rounded off to the nearest tenth of a million dollars in accordance with ASIC Corporations Instrument 2016/191, unless otherwise indicated. 13 Mirvac Property Trust and its controlled entities Notes to the consolidated financial statements For the year ended 30 June 2020 Impact of COVID-19 on the consolidated entity The World Health Organization declared a global pandemic in March 2020 as a result of the novel coronavirus (COVID-19), the effects of this health crisis are continuing to unfold, and the extent of the social, medical and economic impacts worldwide are unknown. The consolidated entity has considered the impact of COVID-19 in preparing its financial report for the year. The critical accounting estimates and key judgements areas of the consolidated entity have required additional consideration, analysis and sensitivity due to the impact of COVID-19. Given the uncertainty of the extent of the pandemic, changes to the estimates and outcomes that have been applied in the measurement of the consolidated entity’s assets and liabilities may arise in the future. Other than adjusting events that provide evidence of conditions that existed at the end of the financial year, the impact of events that arise after the reporting period will be accounted for in future reporting periods. In the real estate sector, the pandemic has accelerated some trends already gaining momentum such as increased demand for online shopping, whilst other trends including the densification of office and living spaces have experienced the reverse as social distancing measures gain importance in the fight against the pandemic. The Government also introduced a National Cabinet Mandatory Code of Conduct for SME commercial tenants (the Code) which outlined a framework by which lessors and impacted tenants should negotiate in response to the pandemic. It is expected that the severity of the effects of the pandemic for the real estate sector will continue to be impacted as a result of the extent and duration of social distancing measures and specifically the impacts of the consolidated entity across the segments in which it operates, these are summarised below: Office & Industrial The return-to-office rate varies by state, with Victoria undergoing an extended lockdown from July 2020, and by employer, as workers are facing public transport challenges and social distancing challenges in the workplace. Some tenants are reassessing their office footprint in light of the work from home mandate and an opportunity to reduce costs as a result, however, to date the consolidated entity has not experienced a significant decline in demand for office space. The Industrial portfolio has benefited from the increase in online sales particularly for logistics and e- commerce tenants and as a whole the sector has exhibited a degree of resilience during the pandemic. Retail Supermarkets had experienced a surge in sales as a result of panic buying across the country and from people staying in rather than dining out. Conversely, Government mandated closures for some specific industries had resulted in a temporary cessation of trade for those retailers and others who voluntarily closed during the peak months of April through to June 2020. As a result of those closures and reduced patronage in the consolidated entity’s shopping centres, a number of retailers sought rental relief from the consolidated entity. The impact of COVID-19 increases the level of judgement required across a number of key areas for the consolidated entity, in particular the recognition and measurement of the assets of the consolidated entity. The COVID-19 assumptions and considerations for the critical accounting estimates and key judgements areas of the consolidated entity, are outlined in further detail in the following sections of this financial report: Revenue – Refer to Note B2 Investment in Joint Ventures – Refer to Note C3 Expenses – Refer to Note B3 Borrowings – Refer to Note D2 Investment Properties – Refer to Note C1 and C2 Expected Credit Loss – Refer to Note F1 Intangible Assets – Refer to Note F3 14 Mirvac Property Trust and its controlled entities Notes to the consolidated financial statements For the year ended 30 June 2020 Going Concern The consolidated entity has prepared an assessment of its ability to continue as a going concern, considering projected cash flow forecasts and other consolidated entity metrics and information for at least the next twelve months from the date of these financial statements, taking into consideration an estimation of the continued business impacts of COVID-19. This assessment assumes the consolidated entity will be able to continue trading and realise assets and discharge liabilities in the ordinary course of business for at least 12 months from the date of these financial statements. As of 30 June 2020, consolidated entity was in a net current liability position of $195.4 million. However, it had access to $734.0 million of unused borrowing facilities maturing in 3 years. As of 30 June 2020, the consolidated entity had $12.4 million of capital commitments. Further, various forecast scenarios indicate that the consolidated entity is expected to continue to operate, with headroom, within available liquidity levels and the terms of its debt facilities. Key to the forecasts are relevant assumptions regarding the business, the consolidated entity’s integrated model, the markets in which the consolidated entity operates in, the consolidated entity’s customers and tenants and its access to various sources of capital. These assumptions have been supported by the following: • the consolidated entity has cash of $26.9 million as at 30 June 2020 and has available undrawn debt facilities of $734.0 million; • the consolidated entity’s limited tenant and investment exposure to the severely impacted industries of hospitality, travel, accommodation and tourism; • the consolidated entity’s weighted average debt expiry is 6.7 years; • the consolidated entity’s gearing is monitored at the Group level and at 30 June 2020 is at 22.8%; • the consolidated entity does not expect any potential covenant breaches for a period of 12 months from the date of approval of these financial statements. Comparative Information Where necessary, comparative information has been restated to conform to the current year’s disclosures and are presentational in nature. These restatements had no impact to the reported net assets or profit for the year ended 30 June 2019. 15 Mirvac Property Trust and its controlled entities Notes to the consolidated financial statements For the year ended 30 June 2020 Critical accounting estimates and judgements The preparation of financial statements requires estimation and judgement. The areas involving a higher degree of estimation or judgement are discussed in the following notes: Revenue Investment properties Investments in joint ventures Note B2 C1 C2 Fair value measurement of financial instruments Goodwill Note D4 F3 New and amended standards adopted by the Trust This section explains the impact of the adoption of AASB 16 Leases on the consolidated entity’s financial statements and discloses the new accounting policies that have been applied from 1 July 2019. Accounting standard Nature of change Application Impact on financial statements AASB 16 Leases AASB 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases. This standard results in almost all leases being recognised on the consolidated SoFP of lessees, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term (less than 12 months) and low-value leases. The Trust has adopted AASB 16 retrospectively from 1 July 2019, but has not restated comparatives previous reporting period, as permitted under the specific transition provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening consolidated SoFP on 1 July 2019. Measurement of lease liabilities On adoption of AASB 16, the consolidated entity recognised lease liabilities in relation to leases which had previously been classified as ‘operating leases’ under the principles of AASB 117 Leases. These liabilities were measured at the present value of the remaining lease payments, which contained the following components: · · · fixed payments (including in-substance fixed payments), less any lease incentives receivable; variable lease payments that are based on an index (CPI) or a fixed rate as outlined in the lease, initially measured using the index (CPI) or fixed rate as at the commencement date; and lease payments with reasonably certain extension options. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the consolidated entity, the lessee’s incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions. The incremental borrowing rate is calculated by applying the interest rate on the consolidated entity’s external borrowings for a term near equivalent to the lease. If there are no borrowings that mature within a reasonable proximity of the lease term, indicative pricing of where the consolidated entity can price a new debt capital market issue for a comparative term will be used in the calculation. The weighted average incremental borrowing rate applied to the lease liabilities on 1 July 2019 was 4.08% per annum. Lease term The consolidated entity determines the lease term as the non-cancellable period of a lease together with both: · the periods covered by an option to extend the lease if it is reasonably certain to exercise that option; and periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option. · Practical expedients applied In applying AASB 16 for the first time, the consolidated entity has used the following practical expedients permitted by the standard: · applying a single discount rate to a portfolio of leases with reasonably similar 16 Mirvac Property Trust and its controlled entities Notes to the consolidated financial statements For the year ended 30 June 2020 · · · characteristics; accounting for operating leases with a remaining lease term of less than 12 months as at 1 July 2019 as short-term leases; excluding initial direct costs for the measurement of the right-of-use asset at the date of initial application; and using hindsight in determining the lease term where the contract contains options to extend or terminate the lease. The consolidated entity has also elected not to reassess whether a contract is, or contains, a lease at the date of initial application. Instead, for contracts entered into before the transition date the consolidated entity relied on its assessment made applying AASB 117 and Interpretation 4 Determining whether an Arrangement contains a Lease. Lessor accounting The adoption of AASB 16 did not have a significant impact on the accounting for assets held as lessor under operating leases. Financial statement impact on adoption at 1 July 2019 There is no 1 July 2019 opening retained earnings adjustment from the Trust’s adoption of AASB 16. The movements in the consolidated SoFP from the adoption of AASB 16 resulted from the Trust’s investment properties that are held as leasehold being grossed up for the lease liability recognised upon adoption as shown in the table below. The comparatives have not been restated due to the application of the modified retrospective approach. The difference between the operating lease commitments ($nil) at 30 June 2019 and the balance of the lease liabilities ($7.1m) recognised at 1 July 2019 reflects the inclusion of ground leases in lease liabilities. These were previously excluded from the operating lease commitments as they form part of investment properties. 17 Mirvac Property Trust and its controlled entities Notes to the consolidated financial statements For the year ended 30 June 2020 The following table shows the adjustments for AASB 16 as recognised for each individual financial statement line item. Line items that were not affected by the changes have been included within “all other”. Consolidated statement of financial position (extract) Current assets All other current assets Total current assets Non-current assets Investment properties All other non-current assets Total non-current assets Total assets Current liabilities Lease liabilities All other current liabilities Total current liabilities Non-current liabilities Lease liabilities All other non-current liabilities Total non-current liabilities Total liabilities Net assets Equity Retained earnings All other equity Total equity 30 June 2019 As originally presented $m Total AASB 16 impact $m 45.7 45.7 9,846.2 562.1 10,408.3 10,454.0 - 468.0 468.0 - 1,453.5 1,453.5 1,921.5 8,532.5 3,210.7 5,321.8 8,532.5 - - 7.1 - 7.1 7.1 0.1 - 0.1 7.0 - 7.0 7.1 - - - - 1 July 2019 Restated $m 45.7 45.7 9,853.3 562.1 10,415.4 10,461.1 0.1 468.0 468.1 7.0 1,453.5 1,460.5 1,928.6 8,532.5 3,210.7 5,321.8 8,532.5 Other amended standards and interpretations adopted by the consolidated entity for the year ended 30 June 2020 have not had a significant impact on the current period or any prior period and are not likely to have a significant impact on in future periods. The other amendments are listed below: · · · · AASB 2017-7 Amendments to Australian Accounting Standards – Long-term Interests in Associates and Joint Ventures AASB 2018-1 Amendments to Australian Accounting Standards – Annual Improvements 2015-2017 Cycle AASB 2018-2 Amendments to Australian Accounting Standards – Plan Amendment, Curtailment or Settlement Interpretation 23 Uncertainty over Income Tax Treatments and AASB 2017-4 Amendments to Australian Accounting Standards – Uncertainty over Income Tax Treatments There are no other standards that are not yet effective and that would be expected to have a material impact on the consolidated entity in the current or future reporting periods and on foreseeable future transactions. 18 Mirvac Property Trust and its controlled entities Notes to the consolidated financial statements For the year ended 30 June 2020 B RESULTS FOR THE YEAR This section explains the results and performance of the consolidated entity, including detailed breakdowns and analysis. B1 SEGMENT INFORMATION The consolidated entity is a single segment for reporting to the Executive Leadership Team (ELT). The ELT are the chief operating decision makers of the consolidated entity. The consolidated entity operates predominantly in Australia. No single customer in the current or prior year provided more than 10 per cent of the consolidated entity’s revenue. B2 REVENUE The consolidated entity’s revenue is principally property rental revenue. Property rental revenue comes from holding properties as investment properties and earning rental yields over time. Revenue is measured at the fair value of the consideration received or receivable, net of returns, trade allowances and duties and taxes paid. The consolidated entity recognises revenue for the following revenue stream: Investment property rental revenue The consolidated entity invests in properties for rental yields and capital appreciation. Rental revenue from investment properties is recognised on a straight-line basis over the lease term, net of any incentives. Modifications to the leases are accounted for as a new lease from the effective date of the modification, considering any prepaid or accrued lease payments relating to the original lease as part of the lease payments for the new lease. The consolidated entity also provides services to the lessees which primarily consist of general building management and operations in accordance with their lease agreements. Service income, representing the recovery of associated costs from the lessees, are recognised over time when the services are provided. As a result of COVID-19, the consolidated entity has or is in the process of granting rental relief to a number of its tenants across its operating segments of Retail and Office and Industrial. From mid-March 2020 the consolidated entity commenced a tenant focussed rental relief strategy to engage with its tenants to ascertain the estimated extent of relief the consolidated entity’s tenants would require in light of mandatory Government shut downs, increased social distancing measures and for the population to work from home if possible. Each tenant has had their rental relief request reviewed and considered on a case by case basis, with consideration given to the Code, if applicable, and each tenant’s specific circumstance. The types of relief provided have included rental abatements, rent free periods combined with lease extensions, rental payment deferrals or a combination of these. Accordingly, some judgement has been required to be applied in order to determine that the relief provided or proposed to be provided constitutes a lease modification under AASB 16 Leases. In considering the appropriate treatment for rental relief provided or expected to be provided, the Consolidated entity considered the following: i. ii. iii. if the lease amendment for the provision of relief by the lessor was executed on or before the reporting date; if the lease amendment for the provision of relief by the lessor is substantial such that the change in the scope of a lease, or the consideration for a lease, that was not part of the original terms and conditions of the lease has resulted in a lease modification, irrespective of whether the Code applies to the tenancy; and whether the application of AASB 9 Financial Instruments is more appropriate to recognise an expected credit loss for trade debtors at the reporting date or derecognise the debtor to the extent it will not be realised in the future. As a number of rental relief negotiations had not been finalised and amended leases executed by 30 June 2020, there was minimal impact to the amount of investment property rental revenue recognised for the year. Instead, the impact from the COVID-19 pandemic was recognised as an expense in accordance with AASB 9 Financial Instruments and ASIC guidance, a corresponding amount of $41.5m has been included within impairment loss on receivables. 19 Mirvac Property Trust and its controlled entities Notes to the consolidated financial statements For the year ended 30 June 2020 B2 REVENUE (continued) Revenue Lease revenue1 Service revenue Total property rental revenue Interest revenue Other revenue Total revenue Gain on financial instruments Net revaluation gain on units in unlisted funds Total gain on financial instruments 1. Includes straight-lining of lease revenue of $10.1 million (2019: $7.2 million). B3 EXPENSES Investment property expenses and outgoings 2020 $m 604.9 87.5 692.4 - 1.4 693.8 7.6 7.6 2019 $m 576.7 84.7 661.4 0.1 2.0 663.5 5.1 5.1 Investment property expenses relate to those costs which are required to be incurred to allow for the occupation and maintenance of investment properties in order to continue to earn rental revenue. Expenses include statutory levies, insurance and other property outgoings and are recognised on an accruals basis. Profit before income tax includes the following specific expenses: Interest paid Borrowing costs capitalised Total finance costs Bad debts expense Loss allowance on trade debtors Total impairment loss on receivables Net gain on sale of assets Net gain on sale of investment properties and investments Total gain on sale of assets B4 EVENTS OCCURRING AFTER THE END OF THE YEAR 2020 $m 69.3 (16.4) 52.9 5.1 36.4 41.5 18.4 18.4 2019 $m 84.9 (12.5) 72.4 - - - - - In the event the COVID-19 pandemic impacts are more severe or prolonged than anticipated, this may have further adverse impacts on the recoverability and fair value of assets post 30 June 2020. COVID-19The additional restrictions implemented in early August 2020 in Victoria as a result of the sudden increased number of cases has not had any significant impacts on the consolidated entity’s operations to date and is not expected to have a material impact on the recoverability or fair value of the consolidated entity’s assets. No other events have arisen since the end of the year which have significantly affected or may significantly affect the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in future years. B5 INCOME TAX The consolidated entity’s profit is earned by trusts which are not subject to taxation. Income from the trusts is instead attributed to unitholders who pay income tax at their marginal tax rates. Tax allowances for depreciation are distributed to the stapled unitholders as a tax deferred component of the distribution. 20 Mirvac Property Trust and its controlled entities Notes to the consolidated financial statements For the year ended 30 June 2020 C INVESTMENT ASSETS ………………………………………………………………………………………………… This section includes investment properties and investments in joint ventures. They represent the core assets of the business and drive the value of the consolidated entity. C1 INVESTMENT PROPERTIES The consolidated entity holds a property portfolio for long-term rental yields and capital appreciation. Depending on the specific arrangements for each property, they are classified as investment properties or properties held through joint ventures. Investment properties Investment properties are properties owned by the consolidated entity. Investment properties include investment properties under construction, which will become investment properties once construction is completed. The consolidated entity accounts for its investment properties at fair value and revaluations are recognised as other income. The fair value movements are non-cash and do not affect the consolidated entity’s distributable income. Judgement in fair value estimation Fair value is the price that would be received to sell an asset in an orderly transaction between market participants. Fair value is based on the highest and best use of an asset - for all of the consolidated entity’s property portfolio, the existing use is its highest and best use. As a result of the COVID-19 pandemic, assessing fair value as at the reporting date involved considering uncertainties around the underlying assumptions and inputs to fair value given the forward-looking nature of these assumptions. The uncertainty exists largely in the first two years of the valuation cash flow, and increases in investment properties with higher near-term expiry and with greater proportions of SME tenants due to the potential for increased vacancy in the market and the difficultly for SMEs to maintain turnover in the current environment. The COVID-19 pandemic has also created unprecedented economic uncertainty, in particular the absence of a significant level of market transactions which are ordinarily a key source of evidence for assessing the fair value of investment properties. Australia is navigating through the impact of the COVID-19 pandemic and the length of time it will take the measures implemented by the Government to manage the effects of COVID-19 on the broader economy and property markets, is still unknown. As such, the 30 June 2020 valuation process has been adjusted for the current period compared to the process that would typically be followed and adopted in more normalised market conditions. To assist with calculating reliable estimates, Mirvac uses independent valuers on a rotational basis. Approximately 25% of the portfolio is independently valued each year, with management internally estimating the fair value of the remaining properties using estimation techniques by suitably qualified personnel. As a result of a lack of market transactions and the uncertainty provided by COVID-19, the consolidated entity increased the level of independent valuations across its segments, particularly across the markets and asset types it invests in where the impacts from COVID-19 have been significant. As at 30 June 2020, the consolidated entity undertook independent valuations covering 42% of its investment property portfolio, by value and by number. The fair values are a best estimate but may differ to the actual sales price if the properties were to be sold. The key judgements for each valuation method are explained below: Market sales comparison: Utilises recent sales of comparable properties, adjusted for any differences including the nature, location and lease profile. Currently, market sales comparison information is not readily available and can be difficult to obtain to support any material movement in property yields across the sectors in which the consolidated entity has exposure. This is largely due to a lack of recent transaction activity in Australia as a result of the COVID-19 pandemic. Direct similar comparisons are typically difficult and will be more challenging to identify in the current environment. 21 Mirvac Property Trust and its controlled entities Notes to the consolidated financial statements For the year ended 30 June 2020 C1 INVESTMENT PROPERTIES (continued) Discounted cash flow (DCF): Projects a series of cash flows over the property’s life and a terminal value, discounted using a discount rate to give the present value. The projected cash flows incorporate expected rental income (based on contracts or market rates), operating costs, lease incentives, lease fees, capital expenditure, and a terminal value from selling the property. The terminal value is calculated by applying the terminal yield to the net market income. The discount rate is a market rate reflecting the risk associated with the cash flows, the nature, location and tenancy profile of the property relative to comparable investment properties and other asset classes. Capitalisation rate: The rate or yield at which the annual net income from an investment is capitalised to ascertain its capital value at a given date. The annual net income is based on contracted rents, market rents, operating costs and future income on vacant space. The capitalisation rate reflects the nature, location and tenancy profile of the property together with current market evidence and sales of comparable properties. The valuations undertaken by the consolidated entity’s independent experts consider the DCF methodology to be one of the most reliable valuation techniques to apply in the current environment, as this methodology allows the DCF calculation to capture the impact of the COVID-19 pandemic by adjusting the future cash flows for the expected tenant rental relief and also make assumptions on the extent and timing of recovery. This methodology is in contrast to the capitalisation approach, where cash flows are not adjusted for risk but, rather, risk is reflected in determining the discount rate. This discount rate inherently requires a more explicit consideration of the wider than normal range of possible future outcomes. The DCF methodology also requires an appropriate discount rate to be used whereby there is consistency between the risk factors inherent in the cash flows and the risk factors accounted for in the discount rate, without double counting of the same risk factors. This is because although it is considered more reliable to adjust the cash flow projections in order to consider specific risk factors in the DCF model, in the current circumstances it may not be practical to quantify the full impact in the cash flows alone. Accordingly, the consolidated entity has in most cases used a mid-point valuation which has involved the determination of fair value using both the DCF and capitalisation rate approaches and adopted a value that is between these two amounts. Investment properties under construction: There generally is not an active market for investment properties under construction, so fair value is measured using DCF or residual valuations. DCF valuations for investment properties under construction are as described above but also consider the costs and risks of completing construction and letting the property. Residual: Estimates the value of the completed project, less the remaining development costs which include construction, finance costs and an allowance for developer’s risk and profit. This valuation is then discounted back to the present value. Ground leases On adoption of AASB 16 on 1 July 2019, a lease liability reflecting the leasehold arrangements of investment properties needs to be separately disclosed in the consolidated SoFP and the carrying value of the investment properties is adjusted (i.e. increased) so that the net of these two amounts equals the fair value of the investment properties. The lease liabilities are calculated as the net present value of the future lease payments discounted at the incremental borrowing rate. At 30 June 2020, $7.1m of lease liabilities for ground leases has been recognised in the consolidated SoFP. Lease liabilities are subsequently measured by: > increasing the carrying amount to reflect interest on the lease liability; > reducing the carrying amount to reflect the lease payments made; and > remeasuring the carrying amount to reflect any reassessment or lease modifications. Some ground leases contain variable payment terms that are linked to sales generated. Variable lease payments that depend on sales are recognised in the consolidated SoCI in the period in which the condition that triggers those payments occurs. Interest on the lease liabilities and any variable lease payments not included in the measurement of the lease liabilities are recognised in the consolidated SoCI in the period in which they relate. 22 Mirvac Property Trust and its controlled entities Notes to the consolidated financial statements For the year ended 30 June 2020 C1 INVESTMENT PROPERTIES (continued) The key inputs and sensitivity to changes are explained below. Lease incentives The carrying amount of investment properties includes lease incentives provided to tenants. Lease incentives are deferred and recognised on a straight-line basis over the lease term as a reduction of property rental income and do not change under AASB16. Movements in investment properties Balance 1 July Adoption of AASB16 – ground leases Restated investment properties at 1 July 2019 Expenditure capitalised Acquisitions Disposals Transfer from joint venture Net revaluation gain from fair value adjustments Ground lease liability unwind Amortisation expenses Balance 30 June Total investment properties Total investment properties under construction Fair value measurement and valuation basis 2020 Total $m 9,846.2 7.1 9,853.3 398.6 - (130.5) - 154.5 (0.1) (88.5) 10,187.3 9,566.8 620.5 2019 Total $m 8,274.2 - 8,274.2 522.4 278.4 - 319.0 523.3 - (71.1) 9,846.2 9,321.5 524.7 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 the reporting date. Investment properties are measured as Level 3 financial instruments. Refer to note D4 for explanation of the levels of fair value measurement. The following are the unobservable inputs used in determining the fair value measurement of investment properties. Movement in any of the unobservable inputs is likely to have an impact on the fair value of investment property. The higher the net market income 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. Unobservable inputs Details Capitalisation rate The rate at which net market income is capitalised to determine the value of a property Discount rate The rate of return used to convert a monetary sum, payable or receivable in the future, into present value. This should reflect the opportunity cost of capital, that is, the required rate of return the capital can earn if put to other uses having regard to a similar risk profile. Terminal yield The capitalisation rate used to convert income into an indication of the anticipated value of the property at the end of the holding period when carrying out a discounted cash flow calculation. Market rate and growth rate The rent at which a tenancy could be leased 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. 23 Mirvac Property Trust and its controlled entities Notes to the consolidated financial statements For the year ended 30 June 2020 C1 INVESTMENT PROPERTIES (continued) The DCF, capitalisation rate and residual valuation methods all use unobservable inputs in determining fair value; ranges of the inputs are included below: Level 3 fair value $m Net market income $/sqm 10-year compound annual growth rate % Capitalisation rate % Terminal yield % Discount rate % Inputs used to measure fair value 6,375.4 878.7 2,933.2 5,890.1 839.1 3,117.0 312 – 1,573 102.5 – 486.0 304 – 1,439 300 - 1,531 117 - 470 206 - 1,374 2.64 - 3.97 2.77 - 3.05 2.03 - 3.53 3.10 - 4.00 2.92 - 3.47 2.50 - 4.04 4.63 - 6.75 4.84 - 6.50 4.75 - 8.75 4.88 - 7.25 5.25 - 7.00 5.00 - 9.00 6.25 - 7.25 6.25 - 7.50 6.50 - 9.50 4.75 - 6.50 4.88 - 6.75 4.50 - 8.00 5.00 - 7.50 5.13 - 7.00 4.75 - 8.25 6.25 - 7.75 6.75 - 7.38 6.50 - 9.50 Sector 2020 Office Industrial Retail 2019 Office Industrial Retail Movement in any of the unobservable inputs is likely to have an impact on the fair value of investment property. The higher the net market income 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. COVID-19 impacts on fair value measurement Whilst the current economic climate and the impacts of the COVID-19 pandemic are still unfolding and remain uncertain, the assessment undertaken to determine the fair value of the consolidated entity’s portfolio is based on the assumptions and analysis performed and outlined below. An evaluation of each investment property in the portfolio was undertaken considering the following factors: i) ii) Location and asset quality across the markets that the consolidated entity invests in; Capital expenditure including development and operational capital expenditure forecasts; Tenancy schedules: Tenancy schedules including all contractual lease information are used as the iii) basis of all forecasts and valuations, specifically the contracted cash flows from the tenants and including tenant size and weighted average lease expiry. Assets with long WALEs and a small number of large tenants are viewed as having the least risk in valuations; iv) date. Passing rent refers to contractual rent as at the valuation date; Market rents: Rents that could be achieved if tenancy was leased on the open market as at valuation v) assumptions; Growth rates and incentives: Ten-year forecasts for incentives and growth rates applied to future leasing vi) Downtime: Period of vacancy between leases on a tenancy; vii) the tenants operate in; and COVID-19 impact on the tenancies, in particular rental relief requested, ability to trade and industry that viii) discounted cash flow and terminal capitalisation income. Fair value inputs: Capitalisation rate, discount rate and terminal rate applied to capitalisation income, Following this evaluation on a property basis, the valuations have been calibrated on a portfolio basis, by segment, to ensure consistency in any assumptions such as in the modelling of leasing retention rates, incentives, downtime, growth, COVID-19 support adjustments and the expected recovery period where relevant. 24 Mirvac Property Trust and its controlled entities Notes to the consolidated financial statements For the year ended 30 June 2020 C1 INVESTMENT PROPERTIES (continued) Sensitivity Analysis Due to the significant judgement of fair value the COVID-19 pandemic presents, a sensitivity analysis has been undertaken to further stress test the consolidated entity’s assessment of the fair value at 30 June 2020. The following sensitivity analysis is based on a range of potential capitalisation rate and discount rate movements on a portfolio basis compared to the capitalisation rates and discount rates adopted by the consolidated entity at 30 June 2020, and are considered to be the key unobservable inputs that would be expected to have the most material impact on the fair values adopted if they moved. As noted in note C1 the base case was the fair value for each property as at reporting date, where primarily the midpoint of the DCF and capitalisation approaches were adopted. The stress testing performed was based on the same approach adopted for each property. the stress testing was based on softening both the capitalisation rate and terminal yield and the discount rate by 0.125% and 0.25%. The below table presents the outcome of the sensitivity analysis as the decrement to the fair value of the investment property portfolio (including JV but excluding investment property under construction and development assets), should the unobservable inputs move by the amount indicated. For example, a softening of 12.5bps of the capitalisation rate and terminal yield and the discount rate of 25bps across the investment property portfolio would have resulted in a decrement of $297.0m in the fair value presented as at 30 June 2020. Discount rate movement by 0% 0.125% 0.25% Future committed operating lease receipts Capitalisation rate and terminal yield movement by 0% - ($56.0m) ($99.0m) 0.125% ($200.0m) ($247.0m) ($297.0m) 0.25% ($395.0m) ($431.0m) ($473.0m) Property rental revenue is accounted for as operating leases. The revenue and expenses are recognised in the consolidated SoCI on a straight-line basis over the lease term. Payments for operating leases are made net of any lease incentives. The future receipts are shown as undiscounted contractual cash flows. Future operating lease receipts as a lessor Within one year Between one and five years Later than five years Total future operating lease receipts as a lessor 2020 $m 492.7 1,558.6 1,415.2 3,466.5 2019 $m 503.4 1,505.6 1,437.6 3,446.6 25 Mirvac Property Trust and its controlled entities Notes to the consolidated financial statements For the year ended 30 June 2020 C2 INVESTMENTS IN JOINT VENTURES A joint venture (JV) is an arrangement where the Trust has joint control over the activities and joint rights to the net assets. Refer to note G1 for details on how the Trust decides if it controls an entity. The Trust initially records its JVs at the cost of the investment and subsequently accounts for them using the equity method. Under the equity method, the Trust’s share of the JVs’ profit or loss is added to/deducted from the carrying amount each year. Distributions received or receivable are recognised by reducing the carrying amount of the JVs. When transactions between the Trust and its JVs create an unrealised gain, the consolidated entity eliminates the unrealised gain relating to the Trust’s proportional interest in the JVs. Unrealised losses are eliminated in the same way unless there is evidence of impairment, in which case the loss is realised. Judgement in testing for impairment of investments in JVs JVs are tested for impairment at the end of each year, and impaired if necessary, by comparing the carrying amount to the recoverable amount. The recoverable amount is calculated as the estimated present value of future distributions to be received from the JVs and from its ultimate disposal. JVs held by the consolidated entity primarily hold investments in investment property. As the accounting policies of the consolidated entity are consistently applied to the JVs, the impacts from COVID-19 pertaining to Investment property, outlined in note C1 also apply to the underlying assets of the JVs. Additionally, JVs have been assessed for their recoverability using COVID-19 impacted cashflows and assumptions. Their ability to continue as a going concern for at least 12 months post the date of this annual report has also been reviewed by assessing the cashflows, access to liquidity and impacts of COVID-19 to each JVs. Accordingly, at 30 June 2020, none of the consolidated entity’s investments in JVs is considered to be impaired (2019: none). All JVs are established or incorporated in Australia. 26 Mirvac Property Trust and its controlled entities Notes to the consolidated financial statements For the year ended 30 June 2020 C2 INVESTMENTS IN JOINT VENTURES (continued) The table below provides summarised financial information for those JVs that are significant to the Trust. The information below reflects the total amounts presented in the financial statements of the relevant JVs and not the Trust’s share. The information has been amended to reflect any unrealised gains or losses on transactions between the Trust and its JVs. Joynton North Property Trust and Tucker Box Hotel Group ceased to be investments in JVs by 30 June 2019. Mirvac 8 Chifley Trust Mirvac (Old Treasury) Trust Tucker Box Hotel Group Joynton North Property Trust 2020 $m 2019 2020 2019 $m Property investment $m $m Property investment 2020 $m 2019 $m Hotel investment 2020 $m 2019 $m Property investment Principal activities Summarised SoFP Cash and cash equivalents Other current assets Total current assets 2.3 0.6 2.9 2.0 1.2 3.2 5.8 1.1 6.9 5.7 1.1 6.8 Total non-current assets 474.8 479.0 455.8 443.6 Other current liabilities Total current liabilities Total non-current liabilities Net assets Trust’s share of net assets (%) Trust’s share of net assets ($m) Carrying amount in consolidated SoFP 3.1 3.1 3.3 3.3 6.8 6.8 6.7 6.7 - 474.6 - 478.9 - 455.9 - 443.7 50.0 50.0 50.0 50.0 237.3 239.4 228.0 221.9 237.3 239.4 228.0 221.9 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Mirvac 8 Chifley Trust Mirvac (Old Treasury) Trust Tucker Box Hotel Group Joynton North Property Trust Total 2020 $m 2019 $m 2020 $m 2019 $m 2020 $m 2019 $m 2020 $m 28.1 - - - - 22.6 22.6 50.0 11.3 2019 $m 25.7 - - - - 20.3 20.3 50.0 10.2 Summarised SoCI Revenue Interest income Depreciation and amortisation Interest expense Income tax expense Profit after tax Total comprehensive income/(loss) Trust’s share of profit/(loss) after tax (%) Trust’s share of profit/(loss) after tax ($m) Distributions received/receivable from JVs 46.6 - 47.4 - - - - 39.2 39.2 50.0 19.6 - - - 40.2 40.2 50.0 20.1 - - - - - - - - - (17.5) - - 6.9 0.1 (27.6) (27.6) 49.0 (13.6) 2.0 - 0.1 - - 1.2 1.2 49.9 - - - - - - - - - - 13.7 12.8 13.4 13.0 0.8 16.6 0.6 30.9 17.3 1.1 27.9 43.5 Capital expenditure commitments At 30 June 2020, the consolidated entity had no capital commitments approved but not yet provided for regarding its share of JVs (2019: nil). C3 COMMITMENTS At 30 June 2020, capital commitments on the consolidated entity’s investment property portfolio were $12.4m (2019: $27.8m). There were no investment properties pledged as security by the consolidated entity (2019: nil). 27 Total 2020 $m 2019 $m 8.1 1.7 9.8 7.7 2.3 10.0 930.6 922.6 9.9 9.9 - 930.5 10.0 10.0 - 922.6 465.3 461.3 465.3 461.3 2020 $m 74.7 - - - - 61.8 61.8 2019 $m 57.6 - 0.1 6.9 0.1 34.1 34.1 Mirvac Property Trust and its controlled entities Notes to the consolidated financial statements For the year ended 30 June 2020 D CAPITAL STRUCTURE AND RISKS This section outlines the market, credit and liquidity risks that the consolidated entity is exposed to and how it manages these risks. Capital comprises unitholders’ equity and net debt (borrowings less cash). D1 CAPITAL MANAGEMENT The consolidated entity’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, so that it can provide returns to unitholders and aim to address the market, credit and liquidity risks while also meeting the Group’s strategic objectives. The consolidated entity’s capital structure is monitored at the Group level. The Group seeks to maintain an investment grade credit rating of BBB+ to reduce the cost of capital and diversify its sources of debt capital. The Group’s target gearing ratio is between 20 and 30 per cent. If the Group wishes to change its gearing ratio, it could adjust its dividends/distributions, issue new equity (or buy back securities), or sell property to repay borrowings. At 30 June 2020, the Group was in compliance with all debt covenants. D2 BORROWINGS AND LIQUIDITY The consolidated entity borrows using loans from related parties. The consolidated entity has one loan facility from a related party. The total facility limit as at 30 June 2020 is $2,500.0 million (2019: $2,500.0 million) and can be drawn in Australian or US dollars. The facility expires on 18 December 2023. Interest accrues at the related party’s cost of financing from their borrowing facilities, calculated including associated derivative financial instruments. At 30 June 2020, the consolidated entity had $734.0 million of undrawn facilities available (2019: $1,053.0 million). 2020 Floating interest rate $m Fixed interest maturing in: Less than 1 year $m 2 to 5 years $m 1 to 2 years $m Over 5 years $m 2019 Fixed interest maturing in: Floating interest rate $m Less than 1 year $m Total $m 1 to 2 years $m 2 to 5 years $m Over 5 years $m Total $m Loans from related party 1,766.0 - - - - 1,766.0 1,447.0 - - - - 1,447.0 Borrowings are initially recognised at fair value, net of transaction costs. Borrowings are subsequently measured at amortised cost using the effective interest rate method. The fair value of borrowings is considered to approximate their carrying amount as the interest rates are variable. The table below details the carrying amount and fair value of borrowings of the Group. These amounts do not represent the facilities of the consolidated entity but are relevant to the consolidated entity as this profile determines the facilities used to calculate the related party’s cost of funds, which are then used as a basis for the interest on the consolidated entity’s borrowings from the related party. As part of its COVID-19 response the Group increased the amount of liquidity available via new undrawn bank debt facilities, and also extended the maturity date of some facilities that were due to expire within the next 15 months for a further 12 months. This effectively reduced the amount of debt that would need to be repaid in the next 2 years. Due to the wide-reaching impacts of COVID-19, many other companies also sought to extend their liquidity around the same time, which saw an increase in demand for credit facilities and pricing increases. As a result, credit availability did reduce however given Mirvac’s strong statement of financial position, banking relationships and credit rating, the Group was able to obtain approvals for these increased facilities in excess of what was required and the increased cost of the facilities was not significant. 28 Mirvac Property Trust and its controlled entities Notes to the consolidated financial statements For the year ended 30 June 2020 D2 BORROWINGS AND LIQUIDITY (continued) 2020 2019 Current $m - 200.0 200.0 - 200.0 Non- current $m 717.5 3,396.0 4,113.5 (14.0) 4,099.5 Total carrying amount $m 717.5 3,596.0 4,313.5 (14.0) 4,299.5 1,119.0 Total fair value Current $m $m Non- current $m 717.5 3,709.0 4,426.5 (14.0) 4,412.5 - - - - - - 3,448.4 3,448.4 (13.0) 3,435.4 Total carrying amount $m Total fair value $m - 3,448.4 3,448.4 (13.0) 3,435.4 1,292.1 - 3,486.0 3,486.0 (13.0) 3,473.0 Unsecured bank facilities Bank loans Bonds Total unsecured borrowings Prepaid borrowing costs Total borrowings Undrawn bank facilities The fair value of the bank loans is considered to approximate their carrying amount; although some loans have fixed interest rates, the impact is immaterial. The fair value of the bonds is calculated as the expected future cash flows discounted by the relevant current market rates. The following table sets out the Group’s net exposure to interest rate risk by maturity periods. These amounts do not represent the facilities of the consolidated entity but are relevant to the consolidated entity as this profile determines the facilities used to calculate the related party’s cost of funds, which is then used as a basis for the interest on the consolidated entity’s borrowings from the related party. Exposures arise predominantly from liabilities bearing variable interest rates as the Group intends to hold fixed rate liabilities to maturity. 2020 Floating interest rate $m Fixed interest maturing in: Less than 1 year $m 1 to 2 years $m 2 to 5 years $m Over 5 years $m 2019 Fixed interest maturing in: Floating interest rate $m Less than 1 year $m Total $m 1 to 2 years $m 2 to 5 years $m Over 5 years $m Total $m Bank loans Bonds Interest rate swaps Total 717.5 2,064.6 - 200.0 - - - 325.0 - 717.5 432.0 3,021.6 - 2,064.6 - - - 200.0 - 300.0 - - 547.0 3,111.6 (1,800.0) 982.1 300.0 500.0 400.0 800.0 400.0 1,125.0 300.0 732.0 3,739.1 - (1,800.0) 264.6 100.0 100.0 300.0 1,000.0 500.0 1,300.0 400.0 - 947.0 3,111.6 D3 FINANCIAL RISK MANAGEMENT The consolidated entity’s activities expose it to a variety of financial risks including market risk, credit risk and liquidity risk. The consolidated entity seeks to minimise the potential impact of these financial risks on financial performance, for example, by using derivative financial instruments to protect against interest rate and foreign exchange risk. Financial risk management is carried out by a central treasury department (Mirvac Group Treasury) under policies approved by the Board. The Board provides overall risk management principles and policies covering specific areas. Mirvac Group Treasury identifies, evaluates, reports and manages financial risks in close cooperation with the consolidated entity in accordance with Board policy. 29 Mirvac Property Trust and its controlled entities Notes to the consolidated financial statements For the year ended 30 June 2020 D3 FINANCIAL RISK MANAGEMENT (continued) A summary of the Group’s key risks identified, exposures and management of exposures is detailed in the table below: Risk Market risk - interest rate Market risk - foreign exchange Market risk - price Credit risk Definition The risk that the fair value or cash flows of financial instruments will fluctuate due to changes in market interest rates The risk that the fair value of a financial commitment, asset or liability will fluctuate due to changes in foreign exchange rates The risk that the fair value of other financial assets at fair value through profit or loss will fluctuate due to changes in the underlying share/unit price The risk that a counterparty will not make payments to the Mirvac as they fall due Management of exposures · Interest rate derivatives manage cash flow interest rate risk by converting floating rate borrowings to fixed or capped rates with target of 55 per cent. · Mirvac does not manage the fair value risk for debt instruments from interest rates, as it does not have an impact on the cash flows paid by the business. · Refer to note D2 for details on the interest rate exposure for borrowings. · Cross currency interest rate swaps to convert non- Australian dollar borrowings to Australian dollar exposures. These cross currency interest rate swaps have been designated as cash flow hedges with the movements in fair value recognised while they are still in an effective hedge relationship. · Foreign currency borrowings as a natural hedge for foreign operations. · The Group is exposed to minimal price risk and so does not manage the exposures. Exposures arising from · Borrowings issued at fixed rates and variable rates · Derivatives · Bonds denominated in other currencies · Receipts and payments which are denominated in other currencies · Other financial assets at fair value through profit or loss, with any resultant gain or loss recognised in other comprehensive income · Cash and cash equivalents · Receivables · Derivative financial assets · Setting credit limits and obtaining collateral as security (where appropriate). · Diversified trading spread across large financial institutions with investment grade credit ratings. · Regularly monitoring the exposure to each counterparty · Other financial assets and their credit ratings. Liquidity risk The risk that Mirvac will not be able to meet its obligations as they fall due · Payables · Borrowings · Derivative financial liabilities · Refer to note F1 for details on credit risk exposure on receivables. The Group deems the exposure to credit risk as not significant for all other classes of financial assets and liabilities. · Regular forecasts of the Group’s liquidity requirements. Surplus funds are only invested in highly liquid instruments. · Availability of cash, marketable securities and committed credit facilities. · Ability to raise funds through issue of new securities through placements or DRP. · Refer to note D2 for details of liquidity risk of the Group’s financing arrangements. Market risk - interest rate risk In relation to the Group, borrowings issued at variable rates expose Mirvac to cash flow interest rate risk. Borrowings issued at fixed rates expose Mirvac to fair value interest rate risk. Mirvac manages its cash flow interest rate risk by using interest rate derivatives, thereby maintaining fixed rate exposures within the policy range. Such interest rate derivatives have the economic effect of converting borrowings from floating rates to fixed or capped rates or vice versa. Sensitivity analysis This sensitivity analysis shows the impact on profit after tax and equity if Australian interest rates changed by 25 basis points (bp). Given the low interest environment that the consolidated entity is operating in and with official interest rates holding for the medium term, a 25bps movement is a more appropriate sensitivity to consider for 30 June 2020. Total impact on profit after tax and equity Changes in: Australian interest rates 2020 25 bp $m 25 bp $m 2019 50 bp $m 50 bp $m $3.3 m decrease $3.3 m increase $7.3m decrease $7.3m increase Based on current exposures, there is no material foreign exchange sensitivity in the consolidated entity. 30 Mirvac Property Trust and its controlled entities Notes to the consolidated financial statements For the year ended 30 June 2020 D3 FINANCIAL RISK MANAGEMENT (continued) Liquidity risk Maturities of financial liabilities The consolidated entity’s maturity of financial liabilities is provided in the following table. The amounts disclosed in the table are the contractual undiscounted cash flows: 2020 Maturing in: Payables Borrowings Lease liabilities Less than 1 year $m 139.8 71.6 1 to 2 years $m - 72.9 2 to 5 years $m - 1,876.9 Over 5 years $m - - Total $m 139.8 2,021.4 0.1 211.5 0.1 73.0 0.3 1,877.2 6.5 6.5 7.0 2,168.2 D4 FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS 2019 Maturing in: 1 to 2 years $m - 63.4 2 to 5 years $m - 1,613.0 Over 5 years $m - - Total $m 221.6 1,739.8 - 63.4 - 1,613.0 - - - 1,961.4 Less than 1 year $m 221.6 63.4 - 285.0 The consolidated entity measures various financial assets and liabilities at fair value which, in some cases, may be subjective and depend on the inputs used in the calculations. The different levels of measurement are described below: · · · Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2: not traded in an active market but calculated with significant inputs coming from observable market data; and Level 3: significant inputs to the calculation that are not based on observable market data (unobservable inputs). The consolidated entity holds no Level 1 or Level 2 financial instruments. The methods and assumptions used to estimate the fair value of financial instruments are as follows: Other financial assets Other financial assets include units in unlisted funds and loan notes. The carrying value of other financial assets is equal to the fair value; refer to note F2 for further details. Units in unlisted funds are traded in inactive markets. The fair value of investments that are not traded in an active market is determined by the unit price as advised by the trustee of the fund. The fair value of the security is determined based on the value of the underlying assets held by the fund. The assets of the fund are subject to regular external valuations. These valuations are based on discounted net cash inflows from expected future income and/or comparable sales of similar assets. Appropriate discount rates determined by the external valuer are used to determine the present value of the net cash inflows based on a market interest rate adjusted for the risk premium specific to each asset. The fair value is determined using valuation techniques that are not supported by prices from an observable market; so, the fair value recognised in the consolidated financial statements could change significantly if the underlying assumptions made in estimating the fair values were significantly changed. The following table summarises the financial instruments measured and recognised at fair value on a recurring a basis: 2020 2019 Note Level 1 $m Level 2 $m Level 3 $m Total $m Level 1 $m Level 2 $m Level 3 $m Total $m Financial assets carried at fair value Units in unlisted funds F2 - - - - 65.6 65.6 65.6 65.6 - - - - 58.0 58.0 58.0 58.0 31 Mirvac Property Trust and its controlled entities Notes to the consolidated financial statements For the year ended 30 June 2020 D4 FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS (continued) The following table presents a reconciliation of the carrying value of Level 3 instruments (excluding investment properties which are shown in note C1): 2020 Units in unlisted funds $m 2019 Units in unlisted funds $m Other financial assets $m 58.0 - 7.6 - 65.6 39.9 13.0 5.1 - 58.0 79.7 - - (79.7) - Balance 1 July Acquisitions Net revaluation gain on financial instruments Repayments Balance 30 June E EQUITY This section includes distributions, unitholders’ equity and reserves. It represents how the consolidated entity raised equity from unitholders in order to finance activities both now and in the future. … …………………… E1 DISTRIBUTIONS Half-yearly ordinary distributions paid/payable per stapled security were as follows: Distributions for the year ended 30 June 2020 31 December 2019 30 June 2020 Total distribution Distributions for the year ended 30 June 2019 31 December 2018 30 June 2019 Total distribution E2 CONTRIBUTED EQUITY Distribution Cents Date paid/payable Total amount $m 6.10 3.00 9.10 5.30 6.30 11.60 28 Feb 2020 14 Sep 2020 28 Feb 2019 30 Aug 2019 240.0 118.0 358.0 193.9 246.4 440.3 Ordinary units are classified as equity. Each ordinary unit entitles the holder to receive distributions when declared, and one vote per unit at securityholders’ meetings on polls and proceeds on wind up of the Trust in proportion to the number of units held. When new units or options are issued, the directly attributable incremental costs are deducted from equity. Movements in paid up equity Balance 1 July Stapled units issued under EEP Long-term performance plan, LTI and EIS stapled units converted, sold, vested or forfeited Legacy schemes vested Stapled unit issuance Stapled unit buy-back Balance 30 June 2020 2019 No. units m 3,909.4 0.3 6.9 0.2 15.9 - 3,932.7 Units $m 5,316.4 0.9 9.6 0.6 39.7 - 5,367.2 No. units m 3,707.6 0.4 6.7 0.3 252.5 (58.1) 3,909.4 Units $m 4,775.9 1.0 7.4 0.7 645.0 (113.6) 5,316.4 32 Mirvac Property Trust and its controlled entities Notes to the consolidated financial statements For the year ended 30 June 2020 E2 CONTRIBUTED EQUITY (continued) The number of stapled units issued as listed on the ASX at 30 June 2020 was 3,934.3 million (2019: 3,911.1million) which includes 1.6 million of stapled units issued under the LTI and EIS (2019: 1.7 million). Units issued to employees under the Mirvac LTI and EIS are accounted for as options and are recognised by the Group in the security-based payments reserve, not in contributed equity. E3 RESERVES Non-controlling interests (NCI) reserve The NCI reserve was used to record the discount received on acquiring the NCI in Mirvac Real Estate Investment Trust, a controlled entity of the consolidated entity, in December 2009. $m Balance 30 June 2019 Balance 30 June 2020 Capital reserve (1.4) (1.4) NCI reserve 6.8 6.8 Total reserves 5.4 5.4 F OPERATING ASSETS AND LIABILITIES F1 RECEIVABLES Receivables are initially recognised at fair value. Receivables are subsequently measured at amortised cost using the effective interest rate method, less provision for impairment if required. Due to the short-term nature of current receivables, their carrying amount (less loss allowance) is assumed to be the same as their fair value. The ECL of receivables is reviewed on an ongoing basis. The consolidated entity applies the simplified or general approach to measuring ECL as appropriate based on the different characteristics of each financial asset class. To measure the ECL, management has grouped together the consolidated entity’s receivables based on shared credit risk characteristics and the days past due. The consolidated entity uses judgement in making assumptions about risk of default and ECL rates and the inputs to the impairment calculation, based on the consolidated entity’s past history, existing market conditions and future looking estimates at the end of each reporting period. Receivables which are known to be uncollectable are written off. The consolidated entity has considered the impact on its trade debtors in light of increased credit risk resulting from the impacts of COVID-19. Trade debtors For trade debtors relating to Retail, Office and Industrial for investment property rental income, trade debtors have significantly increased as at 30 June 2020, as a result of COVID-19. Many of the consolidated entity’s tenants have experienced cash flow and financial difficulties due to mandatory closures, a halt on discretionary spending, employment instability and the general economic downturn. As a result, the Expected Credit Loss (ECL) which records a provision of uncollectable debts over the life of the lease with the debtor, has also significantly increased as at 30 June 2020. The calculation of the ECL considers the historical bad debt write offs which is specific to each segment, less collateral held and adjusted for specific known factors such as the financial situation of a tenant. Further, with the impact of COVID-19, the consolidated entity has extended the ECL provision as at 30 June 2020 for two key areas: 1. For tenants with rental relief deals pending, where the arrears are likely to be written off but the lease amendment was not executed by 30 June 2020 or the negotiations finalised, this amount is considered to be at risk and likely to be converted into an incentive in the future and a provision taken for this amount in full. In these cases, where the consolidated entity has no reasonable expectations of recovering all or part of the receivable, the receivable has been reduced with a corresponding expense recognised; and 2. For trade debtors which are net of rental relief and collateral held, consideration has been given to the following factors in order to assess the severity by which the tenant has been impacted by the pandemic on a high, medium or low basis and an increase in ECL provision recorded accordingly: > the industry in which the tenant operates and if this has been impacted by mandatory Government restrictions; > the size and legal structure of the tenant; > location and demographic information affecting the tenant; and > sales data, rental relief requests and other impacts on trading activities during the pandemic. 33 Mirvac Property Trust and its controlled entities Notes to the consolidated financial statements For the year ended 30 June 2020 F1 RECEIVABLES (continued) 2020 Loss allowance $m (35.7) - - (35.7) Gross $m 46.0 7.9 - 53.9 Net $m 10.3 7.9 - 18.2 Gross $m 5.7 8.1 2.9 16.7 2019 Loss allowance $m (2.5) - - (2.5) Net $m 3.2 8.1 2.9 14.2 Not past due 1 - 30 31 - 60 Days past due 61 - 90 91 - 120 Over 120 Total 7.0 - 11.0 - 15.7 (10.3) 2.6 (1.0) 13.5 (10.9) 1.0 (0.5) 11.5 (9.5) 0.6 (0.3) 3.2 (2.8) 0.4 (0.2) 3.0 (2.2) 1.1 (0.5) 53.9 (35.7) 16.7 (2.5) Trade receivables Accrued income Other receivables Total receivables Ageing 2020 Total receivables Loss allowance 2019 Total receivables Loss allowance Loss allowance Balance 1 July Amounts utilised for write-off of receivables Loss allowance recognised Balance 30 June 2020 $m (2.5) - (33.2) (35.7) 2019 $m (2.9) 0.4 - (2.5) The consolidated entity does not have any significant credit risk exposure to a single customer. The consolidated entity holds collateral over receivables of $158.9 million (2019: $159.9 million). The collateral held equals the carrying amount of the relevant receivables. The terms and conditions of the collateral are outlined in the lease agreements, however generally as a lessor, the consolidated entity has the right to call upon the collateral if a lessee breaches their lease. Refer to note D3 for further details on the consolidated entity’s exposure to, and management of, credit risk. F2 OTHER FINANCIAL ASSETS Units in unlisted funds The Trust may hold units in unlisted funds which do not give the Trust control, as explained in note G1, or significant influence, as explained in note C2. These units are accounted for at fair value. Distributions received are recognised in revenue and any changes in fair value are recognised in the gain or loss on foreign exchange and financial instruments in the consolidated SoCI. Units in unlisted funds are traded in inactive markets and therefore the fair value is estimated based on the value of the underlying assets held by the funds. The underlying assets of the funds are valued by external valuers based on market sales comparison and/or discounted cash flows. Refer to note C1 for details of these valuation methods. Impairment Recoverability of other financial assets is reviewed on the same basis as receivables. Refer to note F1 for details. Non-current Units in unlisted funds Total non-current other financial assets 2020 $m 65.6 65.6 2019 $m 58.0 58.0 34 Mirvac Property Trust and its controlled entities Notes to the consolidated financial statements For the year ended 30 June 2020 F3 GOODWILL Balance 1 July Balance 30 June Impairment testing 2020 $m 42.8 42.8 2019 $m 42.8 42.8 Goodwill is tested annually for impairment. For the purpose of assessing impairment, assets are grouped at the lowest levels for which goodwill is monitored for internal management purposes and allocated to cash generating units (CGU). The allocation is made to groups of CGU identified according to operating segments. An asset is impaired if the recoverable amount, calculated as the higher of value in use and the fair value less costs to sell, is less than its carrying amount. The consolidated entity has assessed whether the impact of COVID-19 has led to any impairment of assets, including intangibles which involves assessing the financial performance, including estimates of future cash flows and earnings of the CGUs and which may be significantly affected by the direct or indirect impacts of the pandemic. Indicators of impairment may include, but are not limited to, significant changes with an adverse effect on an entity that have taken place during the period, or will take place in the near future in the market or economic environment in which the entity operates; and the extent to which assets are used or are expected to be used. Where indicators of impairment were present at 30 June 2020, an assessment of the recoverable amount has been undertaken of the relevant intangible asset. As at 30 June 2020 no intangibles were impaired (2019: none). The CGU of the consolidated entity is investment property; the value in use is the discounted present value of estimated cash flows from net rental revenue that the CGU will generate. The cash flow projections are based on forecasts covering a 10-year period. AASB 136 Impairment of Assets recommends that cash flow projections should cover a maximum period of five years, unless a longer period can be justified. As the cash flow projections used for budgeting and forecasting are based on long- term, predictable and quantifiable leases, with renewal assumptions based on sector and industry experience, management is comfortable that a 10-year cash flow projection is more appropriate. The key assumptions used to determine the forecast cash flows include net market rent, capital expenditure, capitalisation rate, growth rate, discount rate and market conditions. The growth rate has been adjusted to reflect current market conditions and does not exceed the long-term average growth rate for the business in which the consolidated entity operates. The growth rate applied beyond the initial period is noted in the table below. The growth rate does not exceed the long-term average growth rate for each CGU. Mirvac Property Trust Growth rate 30 June 20201 % pa - Discount rate 30 June 2020 % pa 6.6 Growth rate 30 June 20191 % pa - Discount rate 30 June 2019 % pa 6.9 1. The value in use calculation is based on forecasts approved by management covering a 10-year period. No forecast growth rate is assumed as the value in use calculations are based on forecast cash flows from existing projects and investment properties. No intangible assets were impaired in 2020 (2019: nil). The Directors and management have considered reasonably possible changes to the key assumptions and have not identified any reasonably possible changes that could cause an impairment. 35 Mirvac Property Trust and its controlled entities Notes to the consolidated financial statements For the year ended 30 June 2020 F4 PAYABLES Payables are measured at amortised costs. Due to the short-term nature of current payables, their carrying amount is assumed to be the same as their fair value. For the majority of non-current payables, the carrying amount is also not significantly different to their fair value. Trade payables due more than 12 months after year end are classified as non-current. Current Trade payables Rent in advance Other accruals Other creditors Amounts due to entities related to Responsible Entity Total current payables Non-current Other creditors Total non-current payables F5 PROVISIONS Note H4 2020 $m 25.7 18.7 22.6 1.7 71.1 139.8 29.0 29.0 2019 $m 63.1 23.3 47.4 0.7 87.1 221.6 6.5 6.5 A provision is made for the amount of any distribution declared at or before the end of the year but not distributed by the end of the year. Refer to note E1 for further details. Distributions payable Balance 1 July Interim and final distributions declared Payments made Balance 30 June G CONSOLIDATED ENTITY STRUCTURE 2020 $m 246.4 358.0 (486.4) 118.0 2019 $m 222.6 440.3 (416.5) 246.4 This section provides information on how the consolidated entity’s structure affects its financial position and performance. G1 CONTROLLED ENTITIES Controlled entities The consolidated financial statements of the consolidated entity incorporate the assets, liabilities and results of all controlled entities. Controlled entities are all entities over which the consolidated entity has power to direct the activities of the entity and an exposure to and ability to influence its variable returns from its involvement with the entity. Controlled entities are fully consolidated from the date of control is obtained until the date that control ceases. Inter-entity transactions and balances are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of impairment of the assets transferred. 36 Mirvac Property Trust and its controlled entities Notes to the consolidated financial statements For the year ended 30 June 2020 G1 CONTROLLED ENTITIES (continued) Structured entities A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity. The consolidated entity considers that all funds and trusts in which it currently has an investment, or from which it currently earns income, to be structured entities. Depending on the consolidated entity’s power to direct the activities of the entity and its exposure to and ability to influence its own returns, it may consolidate the entity. In other cases, it may sponsor or have some form of exposure to a structured entity but not consolidate it. If the consolidated entity does not control a structured entity but has significant influence, it is treated as an associate. Refer to note C2. Funds and trusts The consolidated entity invests in a number of funds and trusts which invest in real estate as investment properties. The investees finance their operations through borrowings and through equity issues. The consolidated entity determines whether it controls or has significant influence over these funds and trusts as discussed above. The following entities were wholly owned and established in Australia and controlled by MPT as at the current year end: 10-20 Bond Street Trust 367 Collins Street Trust 367 Collins Street No. 2 Trust 380 St Kilda Road Trust1 477 Collins Street No. 1 Trust Australian Office Partnership Trust Eveleigh Trust James Fielding Trust Joynton North Property Trust Joynton Properties Trust Meridian Investment Trust No. 1 Meridian Investment Trust No. 2 Meridian Investment Trust No. 3 Meridian Investment Trust No. 4 Meridian Investment Trust No. 5 Meridian Investment Trust No. 6 Mirvac 90 Collins Street Trust Mirvac Allendale Square Trust Mirvac Ann Street Trust Mirvac Bay St Trust Mirvac Bourke Street No.1 Sub-Trust Mirvac Broadway Sub-Trust Mirvac Capital Partners 1 Trust Mirvac Collins Street No.1 Sub-Trust Mirvac Commercial No.3 Sub Trust Mirvac Commercial Trust1 Mirvac Group Funding No.2 Pty Limited Mirvac Group Funding No.3 Pty Limited Mirvac Hoxton Park Trust Mirvac Industrial No. 1 Sub-Trust Mirvac Kensington Trust2 Mirvac Kirrawee Trust No.1 Mirvac Kirrawee Trust No.2 Mirvac La Trobe Office Trust Mirvac Living Trust Mirvac Padstow Trust No.1 Mirvac Parramatta Sub-Trust No. 1 Mirvac Pitt Street Trust Mirvac Property Trust No.3 Mirvac Property Trust No.4 Mirvac Property Trust No.5 Mirvac Property Trust No.6 1. 2. One unit on issue held by Mirvac Limited as custodian for MPT. This entity was established during the year. Mirvac Property Trust No.7 Mirvac Real Estate Investment Trust Mirvac Retail Head Trust Mirvac Retail Sub-Trust No. 1 Mirvac Retail Sub-Trust No. 2 Mirvac Retail Sub-Trust No. 3 Mirvac Retail Sub-Trust No. 4 Mirvac Rhodes Sub-Trust Mirvac Rydalmere Trust No. 1 Mirvac Rydalmere Trust No. 2 Mirvac Smail Street Trust Mirvac Toombul Trust No. 1 Mirvac Toombul Trust No. 2 Old Treasury Holding Trust Springfield Regional Shopping Centre Trust The George Street Trust 37 Mirvac Property Trust and its controlled entities Notes to the consolidated financial statements For the year ended 30 June 2020 G2 PARENT ENTITY The financial information for the parent entity, MPT, has been prepared on the same basis as the consolidated financial statements. Parent entity Current assets Total assets Current liabilities Total liabilities Equity Contributed equity Reserves Retained earnings Total equity Profit for the year Total comprehensive income for the year 2020 $m 73.7 9,390.9 633.1 2,236.4 5,367.2 7.6 1,779.6 7,154.4 442.7 442.7 2019 $m 1,415.4 9,104.4 802.9 2,088.8 5,316.4 7.6 1,691.6 7,015.6 702.5 702.5 As outlined in note D2, MPT is a borrower under a loan facility from a related party of the Group. This related party mainly sources MPT’s funding needs from external debt facilities. MPT is party to a guarantee deed poll to guarantee the external debt of the related party. At 30 June 2020, the parent entity did not provide any other guarantees (2019: nil), have any contingent liabilities (2019: nil), or any capital commitments (2019: nil). H OTHER DISCLOSURES This section provides additional required disclosures that are not covered in the previous sections. H1 CONTINGENT LIABILITIES A contingent liability is a possible obligation that may become payable depending on a future event or a present obligation that is not probably to require payment/cannot be reliably measured. A provision is not recognised for contingent liabilities. The consolidated entity had contingent liabilities at 30 June 2020 in respect of the following: Health and safety claims The consolidated entity has no contingent liabilities relating to JVs (2019: nil). H2 EARNINGS PER STAPLED UNIT 2020 $m 0.2 2019 $m 0.2 Basic earnings per stapled unit (EPU) is calculated by dividing: · · the profit attributable to stapled unitholders; by the weighted average number of ordinary units (WANOU) outstanding during the year. Diluted EPU adjusts the WANOU to take into account the dilutive potential of ordinary securities from security-based payments. 38 Mirvac Property Trust and its controlled entities Notes to the consolidated financial statements For the year ended 30 June 2020 H2 EARNINGS PER STAPLED UNIT (continued) Earnings per stapled unit Basic EPU (cents) Diluted EPU (cents) Profit for the year attributable to stapled unitholders ($m) used to calculate basic and diluted EPU WANOU used in calculating basic EPU (m) WANOU used in calculating diluted EPU (m) H3 KEY MANAGEMENT PERSONNEL Key management personnel (KMP) compensation 2020 13.7 13.7 538.4 3,931.6 3,933.2 2019 24.2 24.2 893.1 3,695.8 3,697.7 KMP are employed by an entity controlled by Mirvac Limited. Payments made from the consolidated entity to Mirvac Limited and its controlled entities do not include any amounts directly attributable to the compensation of KMP. The total payments made to Mirvac Limited and its controlled entities are shown in note H4. Equity instrument disclosures relating to KMP Securityholdings The number of ordinary securities in Mirvac held during the year by each Executive KMP, including their personally-related parties, is set out below: Balance 1 July 2019 Changes Balance 30 June 2020 3,260,835 1,142,105 (544,497) 1,389,497 568,286 48,913 225,428 240,000 157,606 612,831 74,099 - 4,402,940 845,000 617,199 465,428 770,437 74,099 Value 30 June 2020 $ 9,554,380 1,833,650 1,339,322 1,009,979 1,671,848 160,795 Minimum securityholding guideline $ Date securityholding to be attained1 2,250,000 950,000 900,000 800,000 800,000 800,000 June 2021 June 2021 June 2021 June 2021 June 2021 May 2022 Executive KMP Susan Lloyd-Hurwitz Brett Draffen Shane Gannon Campbell Hanan Susan MacDonald Stuart Penklis2 1. Attainment date is based on the minimum securityholding requirement effective for the 30 June 2019 financial year. 2. Stuart Penklis has five years from the date he became an Executive KMP in May 2017, to build his securityholding to the expected level. Options No options (i.e. a right to acquire a security upon payment of an exercise price) were granted as remuneration during the year ended 30 June 2020 and no unvested or unexercised options are held by Executive KMP as at 30 June 2020. Performance rights held during the year The number of performance rights in Mirvac held during the year by each Executive KMP, including their personally-related parties, is set out below: Balance 1 July 2019 Rights issued Long-term Incentives Rights vested/forfeited relating to performance period ended 30 June 2020 Deferred Short-term Incentives (STI) Rights vested/ forfeited Rights issued Balance 30 June 2020 Executive KMP Susan Lloyd-Hurwitz Brett Draffen Shane Gannon Campbell Hanan Susan MacDonald Stuart Penklis 2,513,678 1,032,059 978,134 535,387 529,539 485,425 770,547 292,808 277,397 136,986 136,986 136,986 (1,061,320) (403,302) (382,076) (188,680) (188,680) (165,094) 124,797 80,154 76,095 59,862 59,862 59,862 (197,838) (127,195) (120,773) (95,084) (89,236) (74,099) 2,149,864 874,524 828,777 448,471 448,471 443,080 39 Mirvac Property Trust and its controlled entities Notes to the consolidated financial statements For the year ended 30 June 2020 H3 KEY MANAGEMENT PERSONNEL (continued) Details of the movement in the number and value of performance rights held by Executive KMP during the year are set out below: Executive KMP Plan Grant date Number of rights granted Value at grant date1 Susan Lloyd- Hurwitz Total Brett Draffen Total Shane Gannon Total Campbell Hanan Total Susan MacDonald Total Stuart Penklis Total STI LTI STI STI LTI STI STI LTI STI LTI STI STI LTI STI STI LTI STI LTI STI STI LTI STI STI LTI STI LTI STI STI LTI STI STI LTI STI LTI STI STI LTI STI STI LTI STI LTI STI STI LTI STI STI LTI 26 Sep 17 6 Dec 17 1 Oct 18 1 Oct 18 3 Dec 18 30 Sep 19 30 Sep 19 2 Dec 19 26 Sep 17 6 Dec 17 1 Oct 18 1 Oct 18 3 Dec 18 30 Sep 19 30 Sep 19 2 Dec 19 26 Sep 17 6 Dec 17 1 Oct 18 1 Oct 18 3 Dec 18 30 Sep 19 30 Sep 19 2 Dec 19 26 Sep 17 6 Dec 17 1 Oct 18 1 Oct 18 3 Dec 18 30 Sep 19 30 Sep 19 2 Dec 19 26 Sep 17 6 Dec 17 1 Oct 18 1 Oct 18 3 Dec 18 30 Sep 19 30 Sep 19 2 Dec 19 26 Sep 17 6 Dec 17 1 Oct 18 1 Oct 18 3 Dec 18 30 Sep 19 30 Sep 19 2 Dec 19 103,111 1,061,320 94,727 94,727 1,159,793 62,399 62,398 770,547 3,409,022 66,354 403,302 60,841 60,841 440,721 40,077 40,077 292,808 1,405,021 63,012 382,076 57,761 57,760 417,525 38,048 38,047 277,397 1,331,626 49,646 188,680 45,438 45,438 206,185 29,931 29,931 136,986 732,235 43,798 188,680 45,438 45,438 206,185 29,931 29,931 136,986 726,387 34,052 165,094 40,047 40,047 206,185 29,931 29,931 136,986 682,273 210,346 1,599,940 214,083 204,610 1,433,041 183,838 176,996 1,684,444 5,707,298 135,362 607,977 137,501 131,417 544,556 118,074 113,681 640,089 2,428,657 128,544 575,979 130,540 124,762 515,894 112,096 107,923 606,400 2,302,138 101,278 284,435 102,690 98,146 254,762 88,182 84,901 299,457 1,313,851 89,348 284,435 102,690 98,146 254,762 88,182 84,901 299,457 1,301,921 69,466 248,879 90,506 86,502 254,762 88,182 84,901 299,457 1,222,655 % of total grant 100.0% 43.4% 100% 100.0% 43.4% 100% 100.0% 43.4% 100% 100.0% 43.4% 100% 100.0% 43.4% 100% 100.0% 43.4% 100% Vesting date 26 Sep 19 30 Jun 20 30 Sep 19 30 Sep 20 30 Jun 21 30 Sep 20 30 Sep 21 30 Jun 22 26 Sep 19 30 Jun 20 30 Sep 19 30 Sep 20 30 Jun 21 30 Sep 20 30 Sep 21 30 Jun 22 26 Sep 19 30 Jun 20 30 Sep 19 30 Sep 20 30 Jun 21 30 Sep 20 30 Sep 21 30 Jun 22 26 Sep 19 30 Jun 20 30 Sep 19 30 Sep 20 30 Jun 21 30 Sep 20 30 Sep 21 30 Jun 22 26 Sep 19 30 Jun 20 30 Sep 19 30 Sep 20 30 Jun 21 30 Sep 20 30 Sep 21 30 Jun 22 26 Sep 19 30 Jun 20 30 Sep 19 30 Sep 20 30 Jun 21 30 Sep 20 30 Sep 21 30 Jun 22 Vested Number of rights 103,111 460,612 94,727 - - - - - 658,450 66,354 175,033 60,841 - - - - - 302,228 63,012 165,820 57,761 - - - - - 286,593 49,646 81,887 45,438 - - - - - 176,971 43,798 81,887 45,438 - - - - - 171,123 34,052 71,650 40,047 - - - - - 145,749 Value of rights Lapsed Number of rights 210,346 694,374 214,083 - - - - - 1,118,80 3 135,362 263,862 137,501 - - - - - 536,725 128,544 249,975 130,540 - - - - - 509,059 101,278 123,445 102,690 - - - - - 327,413 89,348 123,445 102,690 - - - - - 315,483 69,466 108,013 90,506 - - - - - 267,985 - 600,708 - - - - - - 600,708 - 228,269 - - - - - - 228,269 - 216,256 - - - - - - 216,256 - 106,793 - - - - - - 106,793 - 106,793 - - - - - - 106,793 - 93,444 - - - - - - 93,444 % of total grant 0.0% 56.6% 0.0% 0.0% 56.6% 0.0% 0.0% 56.6% 0.0% 0.0% 56.6% 0.0% 0.0% 56.6% 0.0% 0.0% 56.6% 0.0% Value of rights - 905,566 - - - - - - 905,566 - 344,115 - - - - - - 344,115 - 326,004 - - - - - - 326,004 - 160,990 - - - - - - 160,990 - 160,990 - - - - - - 160,990 - 140,866 - - - - - - 140,866 1. The calculation of the value of performance rights used the fair value as determined at the time of grant. For the LTI grants subject to Return On Invested Capital (ROIC) performance, the initial accounting treatment assumes 75 per cent vesting, which is reflected in the above valuation. 40 Mirvac Property Trust and its controlled entities Notes to the consolidated financial statements For the year ended 30 June 2020 H4 RELATED PARTIES The Responsible Entity The Responsible Entity of the Trust is Mirvac Funds Limited, an entity incorporated in New South Wales and ultimately controlled by Mirvac Limited. As outlined in the Explanatory Memorandum dated 4 May 1999, Mirvac Funds Limited charges MPT Responsible Entity fees on a cost recovery basis. Fees charged by Mirvac Funds Limited for the year ended 30 June 2020 were $31.6 million (2019: $20.2 million). Transactions with related parties Property rental revenue from entities related to Responsible Entity Fees paid to Responsible Entity Interest paid to entities related to Responsible Entity Property management fee expense paid to entities related to Responsible Entity Capital expenditure paid to entities related to Responsible Entity Sale of investment property to related party Amounts due to entities related to Responsible Entity Loans from entities related to Responsible Entity Note F4 D2 2020 $000 6,128 (31,610) (69,046) (24,527) (240,361) 80,500 71,099 1,766,000 2019 $000 4,848 (20,202) (84,947) (23,599) (323,540) - 87,080 1,447,000 Transactions between the consolidated entity and related parties were made on commercial terms and conditions. Transactions between Mirvac and its JVs were made on commercial terms and conditions. Distributions received from JVs were on the same terms and conditions that applied to other unitholders. H5 RECONCILIATION OF PROFIT TO OPERATING CASH FLOW For the purpose of presentation in the consolidated statement of cash flows, cash and cash equivalents include cash at bank and short-term deposits at call. Profit for the year attributable to stapled unitholders Net revaluation gain from investment properties and investment properties under construction Amortisation expenses Impairment loss on receivables Lease incentives and straight-lining of lease revenue Net gain on financial instruments Net gain on sale of assets Share of net profit of JVs net of distributions received Change in operating assets and liabilities (Increase)/decrease in receivables Increase in other assets (Decrease)/increase in payables Net cash inflows from operating activities 2020 $m 538.4 (154.5) 88.6 36.4 (40.4) (7.6) (18.4) (3.0) (40.1) (2.9) (24.3) 372.2 2019 $m 893.1 (523.3) 71.1 - (35.8) (5.1) - 26.2 1.6 (1.7) 8.7 434.8 41 Mirvac Property Trust and its controlled entities Notes to the consolidated financial statements For the year ended 30 June 2020 H5 RECONCILIATION OF PROFIT TO OPERATING CASH FLOW (continued) Net Debt Reconciliation Balance 1 July 2018 Net cash flow movements Other non-cash movements Balance 30 June 2019 Balance 1 July 2019 Recognised on adoption of AASB 16 Net cash flow movements Other non-cash items Balance 30 June 2020 H6 AUDITORS’ REMUNERATION Audit services Audit and review of financial reports Other assurance services Total auditors’ remuneration Current lease liabilities $m - - - - - 0.1 (0.1) 0.1 0.1 Non- current lease liabilities $m - - - - Non- current borrowings $m (1,322.0) (125.0) - (1,447.0) - 7.0 - (0.1) 6.9 (1,447.0) - (319.0) - (1,766.0) Total liabilities $m (1,322.0) (125.0) - (1,447.0) (1,447.0) 7.1 (319.1) - (1,759.0) Cash and cash equivalents $m 26.8 (9.9) - 16.9 16.9 - 10.0 - 26.9 Total $m (1,295.2) (134.9) - (1,430.1) (1,430.1) 7.1 (309.0) - (1,732.0) 2020 $000 $000 699.0 201.7 900.7 20191 $000 $000 639.0 159.2 798.2 1 2019 audit fee revised to reflect additional billing relating to the 30 June 2019 audit not agreed at the date of signing. 42 Mirvac Property Trust and its controlled entities Directors’ declaration For the year ended 30 June 2020 In the Directors’ opinion: (a) the financial statements and notes set out on pages 7 to 42 are in accordance with the Corporations Act 2001, including: (i) (ii) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and giving a true and fair view of the consolidated entity's financial position as at 30 June 2020 and of its performance for the financial year ended on that date; and (b) there are reasonable grounds to believe that the consolidated entity will be able to pay its debts as and when they become due and payable. The basis of preparation note confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The Directors have been given the declarations by the Chief Executive Officer/Managing Director and the Chief Financial Officer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the Directors. Susan Lloyd-Hurwitz Director Sydney 20 August 2020 43 Independent auditor’s report To the unitholders of Mirvac Property Trust Report on the audit of the financial report Our opinion In our opinion: The accompanying financial report of Mirvac Property Trust (the registered scheme, MPT or Trust) and its controlled entities (together the consolidated entity) is in accordance with the Corporations Act 2001, including: (a) giving a true and fair view of the consolidated entity's financial position as at 30 June 2020 and of its financial performance for the year then ended (b) complying with Australian Accounting Standards and the Corporations Regulations 2001. What we have audited The consolidated entity’s financial report comprises: ● ● ● ● ● ● the consolidated statement of financial position as at 30 June 2020 the consolidated statement of comprehensive income for the year then ended the consolidated statement of changes in equity for the year then ended the consolidated statement of cash flows for the year then ended the notes to the consolidated financial statements, which include significant accounting policies and other explanatory information the directors’ declaration. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. 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 believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the consolidated entity in accordance with the auditor independence requirements of 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 also fulfilled our other ethical responsibilities in accordance with the Code. PricewaterhouseCoopers, ABN 52 780 433 757 One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001 T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124 T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. 44 Our audit approach An audit is designed to provide reasonable assurance about whether the financial report is free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial report as a whole, taking into account the geographic and management structure of the consolidated entity, its accounting processes and controls and the industry in which it operates. Materiality Audit scope Key audit matters Amongst other relevant topics, we communicated the following key audit matters to the Audit, Risk and Compliance Committee: ● Fair value of investment properties ● Expected credit losses These are further described in the Key audit matters section of our report. For the purpose of our audit we used overall consolidated entity materiality of $18.6 million, which represents approximately 5% of the adjusted profit before tax of the consolidated entity. We applied this threshold, together with qualitative considerations, to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial report as a whole. We chose adjusted profit before tax of the consolidated entity because, in our view, it is the benchmark against which the performance of the consolidated entity is most commonly measured. Profit before tax is adjusted for fair value movements in investment property, unlisted equity investments and foreign exchange movements because they are significant non-cash items. We utilised a 5% threshold based on our professional judgement, noting it is Our audit focused on where the consolidated entity made subjective judgements; for example, significant accounting estimates involving assumptions and inherently uncertain future events. The consolidated entity owns and manages investment property assets across Sydney, Melbourne, Brisbane, Perth and Canberra. The accounting processes are structured around a consolidated entity finance function at its head office in Sydney. Our audit procedures were predominantly performed from Sydney, along with a number of property and development site visits being performed at various locations across the year. 45 within the range of commonly acceptable thresholds. 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 for the current period. The key audit matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Further, any commentary on the outcomes of a particular audit procedure is made in that context. Key audit matter How our audit addressed the key audit matter Fair value of investment properties (Refer to note C1) $10,187m Investment properties are recognised at fair value. The consolidated entity’s estimate of fair value of investment properties includes assumptions about unobservable inputs including future market and economic conditions which are inherently subject to the risk of change. The economic impact of the COVID-19 pandemic in Australia has increased the level of judgement and uncertainty in the assumptions used in determining the fair value of investment properties as described in note C1. At each reporting period, the Directors determine the fair value of the consolidated entity’s investment property portfolio having regard to the consolidated entity’s valuation policy which requires all properties to be externally valued by valuation experts at least once every two years. In the period between external valuations the Directors’ valuation is supported by internal valuation models. Fair value of investment properties was a key audit matter because: ● investment property balances are financially significant in the Consolidated Statement of Financial Position. ● the impact of changes in the fair value of investment properties can have a significant effect on the consolidated entity’s total comprehensive income. ● investment property valuations are inherently subjective due to the use of unobservable inputs in the valuation methodology. We performed tests of selected controls related to: ● the consolidated entity’s compliance with its policy to externally value all properties at least once in the last two years and to rotate valuation firms. ● the approval of the adopted fair values for all individual properties by the Directors of the Group. We agreed the fair values of all properties to the external valuation or internal valuation model (together, the ‘valuations’) and assessed the competency, capability and objectivity of the relevant external or internal valuer. We read recent independent property market reports to develop our understanding of the prevailing market conditions in which the Group invests. We engaged PwC valuation experts to join our discussions with several valuation firms to obtain an understanding and assess the appropriateness of the methodology used by each of the firms to address the increased market uncertainty related to COVID-19 impacting the valuations. We met with management to discuss the specifics of the property portfolio including, amongst other things, any significant leasing activity, capital expenditure and vacancies impacting the portfolio. We evaluated the completeness and accuracy of tenancy schedules used in the valuations on a sample basis to evaluate whether the relevant leasing information had been correctly input. We performed a risk assessment over the consolidated entity's investment property portfolio to 46 ● fair values are highly sensitive to changes in key assumptions. determine those properties at greater risk of fair value being materially misstated. Our risk assessment was informed by our understanding of each property, consideration of the results of the consolidated entity's estimate of fair value and our understanding of current market conditions including the impact of COVID-19. For those properties which were assessed as being at greater risk, we performed procedures to assess the reasonableness of key assumptions used in the consolidated entity’s assessment of fair value. In our audit procedures over the valuations we: ● Obtained the valuation and held discussions with management to develop an understanding of the basis for assumptions used. ● Assessed the appropriateness of the methodology adopted and the mathematical accuracy of the valuations. ● Assessed the reasonableness of the capitalisation rate, discount rate and market rents used in the valuation by comparing them against market data for comparable properties. ● Assessed the reasonableness of rental income data used in the valuation against rental income recorded in the general ledger in FY20 for each property. We also assessed the appropriateness of the consolidated entity’s disclosures against the requirements of Australian Accounting Standards, including the impact of COVID-19. Key audit matter How our audit addressed the key audit matter Expected credit losses (Refer to note F1) $36m The consolidated entity assesses the recoverability of trade receivables using an Expected Credit Loss (ECL) model. The consolidated entity has applied judgement in assessing the recoverability of the carrying value of gross tenant trade receivables, following the write off of receivables to the extent of contractually agreed rental relief at 30 June 2020. For pending rental relief at balance date, the consolidated entity has applied judgement to In our audit procedures over the ECL model we: ● Obtained the model and held discussions with management to develop an understanding of the methodology applied and basis for assumptions used in the models. ● Assessed the appropriateness of the methodology adopted including the treatment of agreed and pending rental relief and the mathematical accuracy of the model. ● We assessed the expected loss rates used in the consolidated entity’s model for 47 determine whether all or part of the associated receivables will be recovered. The consolidated entity has recognised the amount of rental relief expected to be contractually agreed in the future in the expected credit loss provision. Any remaining trade receivables were assessed for recoverability using the consolidated entity’s ECL model. The future impact of the COVID-19 pandemic on the consolidated entity’s tenants is uncertain and significant judgement was required to be exercised by the consolidated entity in calculating the ECL. This included judgement applied in determining: ● appropriate groupings of tenants by risk (‘risk category’); and ● the expected loss rate for each risk category. We considered measurement of ECL to be a key audit matter because of the extent of judgement involved. reasonableness against our understanding of the historical loss rates of the consolidated entity and the observed economic impact of COVID-19 on the industries in which the consolidated entity’s tenants operate. ● For a sample of tenant trade receivables, we evaluated the allocation of tenant trade receivables to the risk categories by comparing the consolidated entity’s assessed risk against our understanding of the tenant’s business including industry, location and size. We also assessed the appropriateness of the consolidated entity’s disclosures against the requirements of Australian Accounting Standards, including the impact of COVID-19. Other information The directors are responsible for the other information. The other information comprises the information included in the annual report for the year ended 30 June 2020 but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, 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. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, 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 financial report The directors of Mirvac Funds Limited, the responsible entity (the directors) are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the consolidated entity 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 consolidated entity or to cease operations, or have no realistic alternative but to do so. 48 Auditor’s responsibilities for the audit of the financial report Our objectives are 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 the Australian Auditing Standards 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 the financial report. A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our auditor's report. PricewaterhouseCoopers Jane Reilly Partner Joe Sheeran Partner Sydney 20 August 2020 49 158 MIRVAC GROUP – ANNUAL REPORT 2020Mirvac Group mirvac.com

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