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ANNUAL REPORT
2017/2018
IMPORTANT INFORMATION
ABOUT THIS REPORT
Welcome to National Storage REIT’s 2018 Annual Report which reports our performance for the financial year
1July 2017 – 30 June 2018.
The 2018 Reporting Suite includes:
Annual Report – a review of FY18 performance, strategy and governance
Financial Report – FY18 financial accounts and detailed financial performance
Sustainability Report – outlines NSR’s approach to sustainability based on the Global Reporting Initiatives
(GRI) G4 framework
The 2018 Reporting Suite is available online at www.nationalstorageinvest.com.au
National Storage Holdings Limited ACN 166 572 845 (“NSH” or the “Company”)
National Storage Property Trust ARSN 101 227 712 (“NSPT”)
together form the stapled entity National Storage REIT (“NSR” or the “Consolidated Group”)
RESPONSIBLE ENTITY OF NSPT
National Storage Financial Services Limited (NSFL)
ACN 600 787 246 AFSL 475 228
Level 23, 71 Eagle Street, Brisbane QLD 4000
DISCLAIMER
This is the Annual Report for National Storage REIT which comprises the combined assets and operations of National Storage Holdings Limited (ACN 166 572 845)
(“NSH”) and the National Storage Property Trust (ARSN 101 227 712) (“NSPT”). This report has been prepared by NSH and NSFL (ACN 600 787 246 AFSL 475 228) as
responsible entity for NSPT. National Storage REIT (ASX: NSR) currently has stapled securities on issue on the Australian Securities Exchange (“ASX”) each comprising one
unit in NSPT and one ordinary share in NSH (“Stapled Securities”).
The information contained in this report should not be taken as financial product advice and has been prepared as general information only without consideration of
your particular investment objectives, financial circumstances or particular needs. This report is not an invitation, offer or recommendation (express or implied) to apply
for or purchase or take any other action in respect of Stapled Securities.
This report contains forward‑looking statements and forecasts, including statements regarding future earnings and distributions. These forward‑looking statements and
forecasts are not guarantees of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond the control
of NSH and/or NSFL, and which may cause actual results or performance to differ materially from those expressed or implied by the forward‑looking statements and
forecasts contained in this report.
No representation is made that any of these statements or forecasts will come to pass or that any forecast result will be achieved. Similarly, no representation is given
that the assumptions upon which forward‑looking statements and forecasts may be based are reasonable. These forward‑looking statements and forecasts are based
on information available to NSH and/or NSFL as of the date of this report. Except as required by law or regulation (including the ASX Listing Rules) each of NSH and
NSFL undertake no obligation to update or revise these forward‑looking statements or forecasts.
Certain financial information in this report is prepared on a different basis to the Financial Report, which is prepared in accordance with Australian Accounting Stan-
dards. Any additional financial information in this report which is not included in the Financial Report was not subject to independent audit or review by Ernst & Young.
TABLE OF CONTENTS
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
03
CONTENTS
04
06
08
10
14
18
20
26
30
32
34
58
OUR BUSINESS
OUR FY18 PERFORMANCE
OUR STRATEGY
OUR PORTFOLIO
CHAIRMAN'S & MANAGING
DIRECTOR’S REPORT
INVESTMENT PARTNERS
THE YEAR IN REVIEW
BOARD OF DIRECTORS
SENIOR EXECUTIVES
CORPORATE GOVERNANCE
DIRECTORS' REPORT
FINANCIAL STATEMENTS
TABLE OF CONTENTS
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
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04
OUR BUSINESS
National Storage is one of Australasia’s largest
self‑storage providers, tailoring self‑storage solutions
to over 50,000 residential and commercial customers
at more than 135 storage centres across Australia
and New Zealand.
National Storage REIT is the only publicly listed fully
integrated owner and operator of self-storage
centres in Australasia.
The National Storage offering spans self‑storage,
business storage, records management, climate
controlled wine storage, vehicle storage, vehicle and
trailer hire, packaging, insurance and other value
added services.
Each National Storage centre reflects our
commitment to quality, convenience and service.
At National Storage, you can expect secure,
clean and modern premises and a wide range
of packaging materials on offer, together with a
team of professionals trained in the exacting task of
providing efficient storage.
OUR BUSINESS
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
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07
OUR FY18 PERFORMANCE at 30 June 2018
FINANCIAL HIGHLIGHTS
$139.6m
$145.8m
$51.4m
Total Revenue
IFRS profit
Underlying Earnings (1)
2 Same centre 30 June 2016
9.6cps
9.6cps
Underlying Earnings (1)
per Stapled Security
Distribution per
Stapled Security
FY17: $117.5m
FY17: $103.4m
FY17: $45.7m
FY17: 9.2cps
FY17: 9.2cps
19%
41%
12.5%
4.3%
4.3%
OPERATIONAL HIGHLIGHTS
135
Number of Centres
FY17: 116
703,000
Square Metres of
Net Lettable Area
FY17: 622,000
73,000
Number of Storage Units
FY17: 65,000
80.8%
Like for Like
Occupancy (2)
FY17: 77.5%
$220m
Like for Like Revenue
per Available Metre
(REVPAM)(2)
$1.43b
Assets Under
Management (AUM)
FY17: $212m
FY17: $1.16b
19
81,000
12%
3.3%
3.8%
23%
CAPITAL STRENGTH
$1.71b
Total Asset Value
38%
Gearing
4.7
Weight Average
Debt Tenor
FY17: $1.44b
FY17: 37%
FY17: 4.6
$273m
1%
0.1years
$1.51
Net Tangible Assets
per Stapled Security
FY17: $1.34
13%
1 Underlying earnings is a non‑IFRS measure
(unaudited)
2 Same centre 30 June 2016
OUR FY18 PERFORMANCE
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
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OUR STRATEGY
NSR’s objective is to deliver investors a
stable and growing income stream from
a diversified portfolio of high quality
self‑storage assets and to drive income
and capital growth through active asset
and portfolio management.
Asset Management
balance occupancy and
rate to achieve organic
growth and drive revenue
growth
leverage management
platform and economies of
scale to extract value
drive cost efficiencies
across the portfolio
09
Develop
multiple
revenue
streams to
maximise
returns
Acquisitions
execute high quality
acquisitions in a
fragmented industry
Product &Innovation
explore market
opportunities for revenue
generation
focus on digital
transformation
drive innovation and
sustainability at a product
and portfolio level
+
+
+
+
=
Portfolio,Development
& Centre Management
focus on development in markets
where acquisition is challenging
maximise portfolio potential
through expansion of
outperforming assets
align with investment partners
to execute development
opportunities
undertake portfolio recycling
opportunities to maximise value
Capital
Management
maintain an efficient
capital structure
OUR STRATEGY
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
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11
DARWIN
2
CENTRES
138
TOTAL
CENTRES
ADELAIDE
6
CENTRES
PERTH
20
CENTRES
OUR PORTFOLIO
The National Storage portfolio continues to grow
across Australia and New Zealand, with storage
centres well located in capital cities and regional
areas that exhibit drivers of storage demand.
As at the date of this Report.
OUR PORTFOLIO
NORTH QUEENSLAND
8
CENTRES
SUNSHINE COAST
5
CENTRES
BRISBANE
20
CENTRES
GOLD COAST
6
CENTRES
HUNTER &
CENTRAL COAST
6
CENTRES
SYDNEY
15
CENTRES
MELBOURNE
24
CENTRES
HOBART
4
CENTRES
4
CENTRES
CANBERRA
3
CENTRES
GEELONG
WELLINGTON
6
CENTRES
HAMILTON
2
CENTRES
5
CENTRES
CHRISTCHURCH
2
CENTRES
DUNEDIN
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
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PORTFOLIO STATISTICS
PORTFOLIO DIVERSIFICATION BY NLA
PORTFOLIO DIVERSIFICATION BY VALUE
31%
QLD
NSW
ACT
VIC
SA
WA
TAS
NT
NZ
4%
5%
2%
2%
12%
19%
15%
10%
26%
26%
17%
11%
QLD
NSW
ACT
VIC
SA
WA
TAS
NT
NZ
5%
5%
2%
2%
6%
FY18 PORTFOLIO COMPOSITION
NUMBER OF CENTRES
Freehold
Leasehold
Managed
Licensed
TOTAL
114
16
3
2
135
PORTFOLIO VALUATION
NSR Portfolio Value $1.43 billion
Weighted Average Cap Rate 7.34%
PORTFOLIO BY NLA
North Queensland
Sunshine Coast
Gold Coast
Brisbane
Sydney
Canberra
Melbourne
Geelong
Adelaide
Tasmania
Perth
Darwin
Central Coast NSW
Christchurch
Auckland
Hamilton
Wellington
Dunedin
TOTAL
JUNE
2018
45,200
23,100
37,500
112,300
80,900
27,900
115,100
12,400
35,500
13,200
104,800
15,200
12,300
18,100
-
7,400
18,600
23,800
703,300
OUR PORTFOLIO
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
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15
without undermining our robust existing rate
per square metre. This strong improvement in
occupancy takes our total centre occupancy
across the same centre portfolio* to approximately
81%. We are particularly pleased to see REVPAM
continuing to grow ‑ having increased from $212 to
$220 during FY18.
Our second key focus area lies in the continued
execution of our consolidation strategy through
acquisition of existing high quality storage centres
in key markets. In FY18 we acquired 19 storage
centres totalling $155m in value across existing and
new markets in both Australia and New Zealand.
These acquisitions have assisted in strengthening
our coverage in locations including Townsville,
Newcastle, Darwin, Gold Coast and Perth. These
important additions to our portfolio will provide
improved coverage for our network of residential
and business customers as well as synergies and
operating efficiencies to existing National Storage
centres in nearby locations. Our portfolio now sits at
138 centres, having more than doubled since our IPO
in December 2013.
Third, our development team has worked hard
to increase the pace of new developments and
expansions, with a number of new projects underway
across the entire portfolio. In this regard we now
have four “phase 1” developments at various stages
of construction (being Brooklyn, Bundall, Croydon
and Milton) with another 6 centres identified and
under planning for execution as part of phase 2, with
these phase 2 projects scheduled to commence
later this year. These ongoing development and
expansion activities will add approximately 50,000m2
of additional net lettable area to the portfolio in
areas of high storage demand, further consolidating
NSR’s position as a leader in these markets. We are
continuing to work with our joint venture partners
to explore new opportunities to add value to the
NSR portfolio and to maximise the value of our
assets. These projects, undertaken both on balance
sheet and through third party joint venture, seek
to balance NTA accretion and long term revenue
generation, driving growth in earnings per share.
Finally, we are utilising advances in technology
and innovation to continue to improve our business
efficiency and to enhance the customer experience
for our growing platform of more than 50,000 business
and residential storage customers. This year NSR has
introduced paperless move‑ins to more than half of
the centres in its portfolio, saving time and cost for
both customers and staff. We have also introduced
a new sales funnel designed to maximise conversion
of enquiries into sales. Our strong focus on data
analytics and revenue management, utilising the
most sophisticated resources available, continues to
*Excludes NZ portfolio and development assets.
CHAIRMAN’S & MANAGING
DIRECTOR’S REPORT
Now in our fifth year since listing in December 2013
National Storage REIT (“NSR”) has continued to
execute its core business plan with considerable
success, creating ongoing value accretion for its
security holders. As at June 30, 2018 our share price
has increased to over $1.64 per security, with a
distribution of 9.6 cps announced for FY2018. This
means that since its IPO NSR has provided a total
return for its original security holders of over 100%.
As at June 30, 2018 our market capitalisation had
increased to approximately $920 million, with total
assets under management approaching $1.5
billion all of which are significant achievements for
our company. Growth in underlying earnings has
increased for the period ending June 30, 2018 by 13%
to $51.4 million, supported by strong same centre
REVPAM growth of 4%.
We have made a number of advancements in FY18
spanning all four key focus areas of our business –
organic growth, acquisitions, developments and
technology / innovation.
First, in terms of organic growth, we have achieved
organic occupancy growth of 4% across the
portfolio, totalling 25,000m2 of new additional
occupied space. This growth has been achieved
CHAIRMAN & MANAGING DIRECTOR’S REPORT
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
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assist us to obtain an optimal mix of rate per square
metre and occupancy on a centre by centre basis.
Our prudent approach to capital management has
seen NSR undertake a major debt refinance in June
this year. With the support of all current financiers,
NSR’s overall facility has been increased from AU$617
million to AU$715 million, with average weighted
tenor increasing to 4.7 years. Financial covenants
in loan documentation have remained consistent
with ICR at 2 times cover and the gearing covenant
at 55%. The targeted gearing ratio range remains
between 25% and 40%.
NSR has released its second sustainability report –
noting a number of important achievements in FY18.
As foreshadowed in the 2017 report, NSR is nearing
completion of phase one of its solar PV program
(involving an initial tranche of 56 storage centres).
This has resulted in over 1.3MW of installed solar
panels, predicting a decreased electricity usage of
around 2GWh per year, or approximately $400,000 in
expected cost savings for FY19. Phase 2 of the solar
project rollout is close to activation with a further
40 sites to be completed in FY19. Upon completion
of phase 2 NSR will have over 100 storage centres
(including its pre‑existing installations) with solar PV.
This means NSR will be one of the largest privately
held multi‑site producers of solar electricity in
Australia.
NSR remains committed to its objectives of diversity
and gender equality at all levels of the organisation.
In its most recent WGEA report, NSR’s Australian
workforce comprised 53.5% females and over 27%
female representation across the management
team. Our team consistently delivers exceptional
outcomes across multiple areas of our business. Our
ongoing focus on our core values of “Teamwork,
Care and Excellence” mean that throughout our
organisation at all levels of the business, our team
remains committed to the continued growth and the
success of our enterprise.
Our brand development and exposure continues to
build with people viewing our brand during FY18 over
70 million times. We are fortunate to have ongoing
sponsorship arrangements with organisations of
the calibre of Richmond Football Club in the AFL,
Brisbane Broncos in the NRL and the Wellington
Hurricanes in the Super Rugby competition. We
are also pleased to be involved as sponsors of
cricket via the Big Bash League (“BBL”) through our
sponsorship of the Men's and Women's Brisbane Heat
teams in the BBL and WBBL. Our sponsorship of GWS
Netball and the Brisbane Broncos Women’s team
(the latter in its inaugural year of NRL competition)
demonstrates our broad commitment to sponsorship
activities across multiple platforms. We continue
our strong support for not‑for‑profit and charitable
organisations with more than 80 not‑for‑profit
organisations providing in excess of $3 million in
in‑kind support for these community initiatives.
The National Storage “success story” is borne out
of the hard work of a highly capable team of
individuals, including its senior executives, general
managers and a valued group of employees across
the whole organisation. We remain well placed to
capitalise on opportunities across the self-storage
industry. These include executing on the combined
strategies of continued organic growth, making
high quality acquisitions and value adding through
new development, expansion and redevelopment
opportunities. In addition, the implementation of
technological innovations is designed to further
drive scalability and efficiency out of the existing
business whilst continuing to improve both the
experiences of our employees and customers. These
initiatives will enable us to continue to develop
multiple revenue streams so as to deliver growing
returns for our investors.
These successes could not be achieved without the
ongoing support and guidance of our highly capable
Board and the relentless pursuit of excellence by the
entire National Storage team. We thank you all – you
are the heart and soul of our company. Finally, we are
deeply appreciative of the support we receive from
our valued security holders and we look forward to
working with you in the year ahead with a great sense
of anticipation and enthusiasm.
Yours sincerely
Laurence Brindle
Chairman
Andrew Catsoulis
Managing Director
*Excludes NZ portfolio and development assets
MANAGING DIRECTOR'S REPORT
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
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SPACER
In October 2017, National Storage invested in Spacer,
the online “Marketplace for Space”. National
Storage strives to be a leader in industry evolution
with its digital transformation and identified an
opportunity in partnering with Spacer given the
rapid growth of the sharing economy. The Spacer
platform is an online marketplace for storage,
parking and warehousing leveraging existing
infrastructure and assets. The investment was a
strategic decision to stay ahead of any impacts of
disruption and technology on the storage industry.
It also provides National Storage with additional
marketing benefits.
for a premium storage product, developing new
institutional grade assets with state-of-the-art facilities
and freehold tenure.
The strategy underpins APSF's mandate to
maximise absolute investment returns over the
investment term.
NSR's involvement serves to grow market share for
the National Storage brand. NSR provides assistance
and advice to the Fund on a range of matters
including site identification, selection and acquisition,
feasibility and input into design and development.
On completion of construction, assets are integrated
onto the National Storage operating platform and
managed as part of the National Storage portfolio.
NSR holds certain rights to purchase the assets upon
termination of the Fund, or earlier sale.
The existing centre of National Storage Albion
continued to be managed by NSR on behalf of APSF
during FY18 and is performing to expectations.
National Storage Kelvin Grove completed
construction and opened in November 2017. The
centre has achieved strong growth and is performing
well against expectations.
In the second half of FY18 NSR successfully
completed the acquisition of National Storage
Carrara from APSF.
APSF has a development permit and is about to
commence construction of a further centre at
Canterbury, Victoria. Canterbury is an inner‑city
suburb approximately 10km east of Melbourne’s
CBD. It is expected that this development will be
completed in early FY20.
LEYSHON GROUP
In March 2017, National Storage entered into
arrangements with long term investment partner
Leyshon Group to acquire a high‑quality site
on Bundall Road, Bundall on the Gold Coast.
Construction has commenced on a multi‑level
state‑of‑the‑art storage centre comprising 7,000m2
of net lettable area with completion expected in
early 2019. The remaining building that forms part of
the site houses approximately 1,800m2 and will be
enhanced and retained.
In January 2018, NSR furthered the arrangement with
Leyshon Group through the acquisition of a site at
Dorsey St, Milton in Brisbane’s inner‑west. The 1,862m2
site was acquired with development approval to
construct a multi‑level, state‑of‑the‑art self‑storage
facility comprising 4,600m2 net lettable area.
Construction has commenced and is expected to
be completed in early 2019.
INVESTMENT PARTNERS
National Storage continues to work with its
investment partners and potential new investment
partners to assess options for future acquisition,
development and redevelopment opportunities.
PERTH DEVELOPMENT PORTFOLIO
The Perth Development Portfolio is a construction
and management arrangement with one of Perth’s
leading self‑storage construction companies, Parsons
Group. This venture continues to reinforce the National
Storage brand as a prominent player in the Perth
market. Various sites in and around Perth have been
identified as part of the arrangement, whereby Parsons
Group constructs quality self‑storage centres branded
National Storage. The arrangement will see some
centres acquired by NSR on completion and others
managed by Parsons Group under the guidelines
of the National Storage operating platform. The
partnership to date has delivered centres at Jandakot,
Butler and Perth Airport. NSR acquired Jandakot and
Butler during FY17 and Perth Airport during FY18. A
further site at Yanchep has just been completed with
an additional centre under construction at Fremantle.
Other sites are currently in due diligence and planning
stages. NSR retains certain rights to purchase the assets
under this arrangement.
AUSTRALIA PRIME STORAGE FUND
NSR is a cornerstone investor in the Australia Prime
Storage Fund (APSF) with an equity interest of 24.9%.
APSF was established to facilitate the development
and ownership of premium self-storage centres in
select major cities around Australia. APSF focuses its
activity in inner city markets where there is demand
INVESTMENT PARTNERS
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
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21
to evolve in order to meet the challenges of
trading environments, and to optimise operating
performance. Partnerships with ParcelPoint,
Australia’s largest network of locations for parcel
collection, and U‑Haul, a leading national trailer
rental provider continue to work to drive foot traffic
and generate awareness of centres in local areas.
ParcelPoint locations increased from 92 to 107
during the year, with more than 37,000 collections
and returns. U‑Haul rented more than 1,400 trailers
from National Storage centres across Australia.
Ancillary income streams including packaging
sales, insurance and vehicle/trailer hire continue to
increase across FY18.
THE YEAR IN REVIEW
ASSET MANAGEMENT
Revenue per Available Square Metre (REVPAM) is
the key operational metric for the NSR portfolio.
The Operations Management Team maintain
a focus on driving REVPAM using a balanced
approach to rate per square metre and
occupancy growth on an individual centre and
unit type basis. At 30 June 2018, REVPAM on a
like‑for‑like basis (all owned centres at June 2017)
was $220/sqm (June 2017: $212/sqm). Occupancy
across the portfolio on a like‑for‑like basis increased
to 80.8% (June 2017: 77.5%).
A continued focus on active revenue management
delivered growth across FY18. The progressive
implementation of an advanced multiple signal
revenue management modelling system, together with
a storage specific data analytics platform continues
to deliver efficiencies and enhance scalability across
the operating platform. FY18 saw the introduction of
the value pricing module selling similar units at multiple
price points to price sensitive and service sensitive
customers, empowering customers to choose whether
they want to pay more to obtain a unit for which they
decide that they have greater preference.
Further enhancements were made to the
management structure across storage operations
over the FY18 period. As the portfolio continues
to grow, the NSR operating model continues
REGION
New South Wales
Morisset
North Wyong
New Zealand
Ngauranga
Te Rapa
Northern Territory
Darwin
Queensland
Carrara1
Hope Harbour
Milton (development site)
Marcoola
Robina
Townsville (5 Centres)
Victoria
Geelong
Mornington
Western Australia
Jandakot (Property)
Perth Airport1
Total2
1 Developing Centres
2 AUD/NZ 1.10
ACQUISITIONS
National Storage has successfully completed 19
acquisitions in FY18 and continues to pursue high
quality acquisitions across Australia and New
Zealand. The ability to acquire and integrate
strategic accretive acquisitions is one of National
Storage’s major competitive advantages and a
cornerstone of its growth strategy. This active growth
strategy also strengthens and scales the National
Storage operating platform which drives efficiencies
across the business.
NLA (Sqm)
PURCHASE PRICE
7,300
7,900
8,800
$11.9m
NZ$21.3m
$14.0m
45,200
$83.9m
7,300
$10.9m
11,000
87,500
$15.1m
$155.3m
THE YEAR IN REVIEW
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
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WINE ARK
Wine Ark, Australia’s largest wine storage provider is
part of the National Storage group and houses over
two million bottles of fine wine across 16 centres for
clients located in over thirty countries. There are few
businesses in Australia with more experience when it
comes to storing and managing premium wine.
Wine Ark’s growing customer base and calendar
of wine events, hosted in bespoke event spaces in
Alexandria NSW, Brisbane City QLD and Hawthorn
VIC, contributed to a 20% growth in wine sales across
the Wine Ark business. This increase in wine sales
continues to drive capacity into both managed
cellarage and private wine vaults.
Throughout FY18 Wine Ark continued to strengthen
its relationship and involvement in the greater
wine trade supporting the Wine Communicators
of Australia, Sommeliers Association of Australia,
Wine Australia and Commanderie de Bordeaux
(Australian Chapter).
During FY18 Wine Ark provided pivotal logistics on
behalf of Wine Australia for Vinexpo. Vinexpo Hong
Kong is the most influential wine and spirits trade
fair in the Asia Pacific. The three‑day show brought
together thousands of trade professionals from all
over the world, who assembled at the Hong Kong
Convention and Exhibition Centre to showcase
their products and educate buyers. This year,
Australia headlined the 20th anniversary event
as ‘Country of Honour’, with the largest‑ever
showcase of 151 exhibitors representing over 225
wine brands from 51 regions.
Wine Australia is the governing body of wine in
Australia and invests in research and development
(R&D), marketing, disseminating knowledge,
encouraging adoption and protecting the
reputation of Australian wine. Wine Australia
has centralised its wine storage, logistics and
consolidation requirements for Australian and
International Tasting activities within Wine Ark’s
national cellars. It is important for Wine Australia
to showcase Australian wine that has been stored
in optimum conditions to demonstrate the best of
Australian wine, its finest characters and vibrancy.
MARKETING & CUSTOMER EXPERIENCE
Growing awareness, engagement and conversion
were once again key drivers of the marketing
strategy in FY18.
The importance of delivering an engaging and user
friendly online experience has seen the business
invest in ongoing digital improvements, including the
development of a new online booking platform. Due
to launch in early FY19, this new booking process will
provide an enhanced customer journey, help drive
higher conversion rates and further improve data
security. Initial feedback from the trial phase of the
paperless booking project has been a significant
reduction in time spent at the initial sign up and a strong
uplift in customers choosing to set up autopay. As we
continue to implement paperless move‑ins across other
service related areas in operations, we will see more
improved customer experience resulting in much better
customer satisfaction and overall operations efficiency.
Year on year, the volume of traffic coming to the
National Storage website continues to grow. A
consistent focus on search engine optimisation
initiatives has resulted in further improvements in the
volume of traffic arriving on the website through
organic, rather than paid channels.
Our sponsorship portfolio continues to be an
important focus, driving above‑the‑line brand
awareness and differentiation in both Australia and
New Zealand.
The breadth of codes supported by National Storage
ensures we are reaching a broad demographic of
people and building a positive association with the
brand. A recent survey taken with sponsored team
fans shows that 69% of respondents were ‘very likely’
or ‘likely’ to purchase from a sponsor rather than a
non‑sponsor.
Keeping the customer at the forefront of all activity
has seen us once again achieve strong rankings
through independent review websites. In FY18 we
achieved a ranking of 8.7 out of 10, a slight uplift
from 8.6 out of 10 in FY17.
THE YEAR IN REVIEW
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
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25
In preparation for this report, the GRI Reporting Principles were incorporated into a review as follows:
• A review of stakeholders and associated engagement throughout the reporting year was conducted,
but not specifically for compilation of this report (GRI Principle ‘Stakeholder Inclusiveness’)
• Economic, social and environmental impacts of National Storage operations
were identified and reviewed (GRI Principle ‘Sustainability Context’)
• Economic, social and environmental impacts were assessed and ranked in terms
of risk to the organisation and stakeholders (GRI Principle ‘Materiality’)
• The GRI and other topics included in this report are those that have been identified as material
to National Storage and its stakeholders in FY18 (GRI Principle ‘Completeness’) and are:
ECONOMIC
SOCIAL
ENVIRONMENTAL
GENERAL
Economic Performance
Employment
Materials
Data Management Systems
Anti-Corruption
Anti‑Competitive Behaviour
Labour / Management
Relations
Occupational Health
and Safety
Energy
Emissions
Cyber Security
Governance / Shareholder
Rights
Access to Markets
Training and Education
Effluents and Waste
Technology / Connectivity
Maintenance of Investments
Land Remediation
Natural Hazards
Diversity and Equal
Opportunity
Non‑Discrimination
Local Communities
Customer Health and Safety
Customer Privacy
Socio-economic Compliance
Ageing population/Changing
demographics
Changes in consumer
expectations
SUSTAINABILITY
This year will see the release of National Storage’s second standalone sustainability report. The report can be
found online at www.nationalstorage.com.au and details performance across environmental, social and
governance aspects based on the Global Reporting Initiative framework.
The overall vision and strategy for National Storage is to ensure we set realistic and achievable goals whilst
ensuring rigorous and appropriate sustainability targets in the short, medium and long‑term. These targets are
designed to manage any potentially significant economic, environmental, and social impacts that National
Storage causes, contributes to, or that may be directly linked to our service delivery, products or as a result of
relationships with others, including our suppliers and communities.
NSR’s key stakeholders have been identified and prioritised according to the level of sustainability impact we
believe our operations have on their day to day activities, and, in turn, their sustainability impact on day to day
activities. These impacts span our identified material economic, social and environmental sustainability risks.
THE YEAR IN REVIEW
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
26
27
BOARD OF DIRECTORS
Laurence has extensive experience in funds
management, finance and investment. Until 2009
he was an executive with Queensland Investment
Corporation (QIC). During his twenty‑one years with
QIC he served in various senior positions including Head
of Global Real Estate where he was responsible for a
portfolio of $9 billion. Laurence was also a long term
member of QIC’s Investment Strategy Committee. He
provides advice to a number of investment institutions
on real estate investment and funds management
matters. Laurence holds a Bachelor of Engineering
(Honours) and a Bachelor of Commerce from the
University of Queensland, and a Master of Business
Administration from Cass Business School, London
where he graduated with distinction. He is a former
Chairman of the Shopping Centre Council of Australia
and a former director of Westfield Retail Trust and
Scentre Group, which owns, operates and develops
Westfield shopping centres in Australia and New
Zealand. Laurence is also currently the Non-executive
Chairman of the listed entity, Viva Energy REIT.
Laurence serves on the Audit and Risk Committees
and is Chairman of the Nomination and
Remuneration Committees.
Anthony is an experienced finance and business
executive with an extensive background in
banking and business management. Prior to
accepting his directorship with National Storage,
Anthony held numerous leadership roles with
a major trading bank principally in business,
corporate and institutional banking. He is actively
involved in the business community through Non‑
Executive Director and Advisory Board roles, and
finance advisory consultancies.
He is a Director of Queensland Symphony Orchestra
Pty Ltd, Chairman of Oncore Group Holdings Pty Ltd,
and a Director of EMvision Medical Devices Ltd.
Anthony has a Bachelor of Science (Mathematics)
from University of Adelaide and a Graduate Diploma
in Corporate Finance from Swinburne.
He is a Fellow of the Financial Services Institute of
Australasia, a Graduate of the Australian Institute of
Company Directors and a Fellow of the CEO Institute.
Anthony acts as Chairman of the Audit and Risk
Committees and is a member of the Nomination and
Remuneration Committees.
HOWARD BRENCHLEY
Independent Non-executive Director
BEc
STEVEN LEIGH
Independent Non-executive Director
Grad Dip Proj Mgmt
Howard has over 30 years’ involvement in the
Australian property industry, as an analyst, investor
and fund manager. He is now a professional
company director and consultant to the property
funds industry. Howard co‑founded Property
Investment Research Pty Ltd (PIR) in 1989, which
during the 1990s was considered a leading
researcher of both listed and unlisted property funds.
In 1998 Howard was instrumental in establishing
the funds management business of APN Property
Group Limited. During this period he was responsible
for the establishment and operations of a number
of funds investing both directly and indirectly in
real estate. Howard is currently a non‑executive
director of the ASX‑listed APN Property Group Limited
(APD) and is also a non‑executive director of APN
Funds Management Limited, responsible entity for
ASX‑listed Industria REIT (IDR) and Convenience Retail
REIT (CRR). Until July 2017, APN Funds Management
Limited was also responsible entity for Generation
Healthcare REIT (GHC).
Howard is a member of the Audit and Risk Committees.
Steven Leigh joined QIC Global Real Estate in 1991
and was a key member of the senior executive team
that acquired and created through development a
portfolio of high quality retail and commercial assets in
Australia, USA and the UK. Steven has had significant
experience in the wholesale funds management
business through various market cycles and conditions
and has a strong background in retail, commercial and
industrial property with a particular focus on shopping
centre acquisitions and redevelopments.
After time as the Managing Director of Trinity
Limited, and later Head of Australia for LaSalle
Investment Management, Steven re joined QIC as
Managing Director QIC Global Real Estate in 2012
where he is responsible for the group’s $12bn plus
property portfolio.
Steven was a certified practising valuer and holds a
Graduate Diploma in Project Management from the
Queensland University of Technology. Steven is an
associate member of the Australian Property Institute.
Steven is a member of the Remuneration and
Nomination Committees
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
LAURENCE BRINDLE
Independent Non-executive Chairman
BCom BE (Hons) MBA
ANTHONY KEANE
Independent Non-executive Director
BSc (Maths) GradDipCorpFin
BOARD OF DIRECTORS
28
29
Andrew is a qualified lawyer who has been admitted
to the Supreme Court of Queensland and the
Federal Court of Australia. He has had extensive
experience in the fields of finance, commercial and
property law during his tenure at major law firms
both in Australia and overseas. He is also a qualified
project manager and has considerable property
development experience both within the storage
industry and in broader markets.
A founder of the original National Storage business,
he has over 20 years of specific self‑storage industry
expertise including in the areas of acquisition,
development, integration and operation of
‘greenfield’ and developed self‑storage centres.
Andrew was instrumental in the successful acquisition
and integration of the original portfolio and led the
company through the IPO.
Claire was appointed as the principal company
secretary of National Storage on 26 November 2015
and was appointed Executive Director on 18 July
2017. She holds legal and international business
qualifications and is admitted as a solicitor of the
Supreme Court of Queensland. Claire has over ten
years’ experience in corporate and commercial law
in private practice, having practiced in the litigation,
resources and corporate areas of two large law firms.
Prior to joining National Storage, Claire spent four and
a half years as Corporate Counsel and Company
Secretary at Rio Tinto Coal Australia. During this time, in
addition to providing legal services to the business, she
was responsible for the corporate governance and
ASX compliance of one of Rio Tinto’s listed subsidiaries
as well as managing the corporate secretarial
responsibilities of approximately 60 subsidiaries within
the group and providing joint venture support. Claire
has also worked in corporate compliance with the
Australian Securities and Investments Commission.
Claire is a Graduate of the Australian Institute of
Company Directors and a Fellow of the Governance
Institute of Australia.
ANDREW CATSOULIS
Managing Director
BA, LLB, Grad Dip Project Mgmt (Hons)
CLAIRE FIDLER
Executive Director and Company Secretary
LLB (Honours) B Bus (Intl Bus) GAICD, FGIA
BOARD OF DIRECTORS
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
30
31
SENIOR EXECUTIVES
STUART OWEN
Chief Financial Officer
BBus, CPA, GAICD
Stuart joined National Storage in late 2014, with
extensive experience in the energy sector in coal and
gas fired power generation. He has held wide ranging
finance and commercial management roles, including
as Commercial Manager for Energy Developments
Limited. Prior to this, Stuart was commercial manager on
the delivery of a multi‑site gas fired power generation
project and micro LNG plant.
He has significant experience in project financing,
mergers and acquisitions and project development.
Stuart holds a Bachelor of Business, is a Certified
Practising Accountant and is a graduate of the
Australian Institute of Company Directors.
Patrick holds both legal and accounting
qualifications and is admitted as a solicitor of the
Supreme Court of Queensland. He has practiced as
a solicitor for over 18 years in both fields. During his
time in private practice, Patrick has had significant
experience in corporate, property, commercial,
taxation and transactional work. In addition to
private practice, Patrick held senior finance roles
and was the general counsel and company
secretary of the Super A‑Mart Group for over eight
years where he was extensively involved in the
operations of the company. Patrick was appointed
Chief Risk Officer of National Storage REIT in June
2016, in addition to his role as General Counsel and a
Company Secretary of NSR.
Patrick is a Fellow of the Governance Institute of
Australia.
PATRICK ROGERS
General Counsel and Chief Risk Officer
LLB, BBus (Accty), FGIA
SENIOR EXECUTIVES
Andrew Catsoulis
Managing Director
BA, LLB, Grad Dip Project Mgmt (Honours)
Claire Fidler
Executive Director and Company Secretary
LLB (Honours) BBus (Intl Bus) GAICD, FGIA
See page 28.
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
32
33
CORPORATE GOVERNANCE
The boards of NSH and NSFSL share the same
members. NSH and NSFSL have their own
constitutions. The relationship between NSH and the
Responsible Entity is governed by a Cooperation
Deed and Management Agreement. These
documents facilitate common processes and
governance for NSR. Through the Board Charter, the
NSH Board is charged with the function of providing
overall strategic guidance and effective oversight of
management of NSR.
GOVERNANCE FRAMEWORK
The NSH and Responsible Entity Boards and NSH
management are committed to high standards
of corporate governance and to ensure NSH
acts in the best interests of the Stapled Entity and
its Securityholders as a whole, balanced with its
broader community obligations. To achieve this, the
NSH Board has created a framework for managing
National Storage Group including internal controls
and a business risk management process. The
governance system is reviewed during each year
by the Company Secretary, Chief Risk Officer and
the Board to ensure that it reflects changes in the
law. In its ongoing commitment to solid corporate
governance, NSR further strengthened its enterprise
risk systems during FY18. The NSH Board’s obligations
are discharged through a number of mechanisms
including meetings and its committees. During the
financial year ended 30 June 2018, the NSH Board
has convened the following committees as part of its
corporate governance framework:
COMMITTEE
CHAIR
MEMBERS
Audit
Anthony Keane
Risk
Anthony Keane
Nomination
Laurence Brindle
Remuneration
Laurence Brindle
Laurence Brindle,
Howard Brenchley
Laurence Brindle,
Howard Brenchley
Anthony Keane,
Steven Leigh
Anthony Keane,
Steven Leigh
NSH committees are governed by their respective
Charters.
The NSH Policies provide for an Investment
Committee and a Diversity Committee. The Board
has determined that the Investment Committee and
Diversity Committee functions be undertaken by
the full Board at this time. An important component
of the NSR corporate governance structure is
the ASX Corporate Governance Principles and
Recommendations (the “ASX Recommendations”).
The NSH Board considers that as at the date of this
statement, the governance practices adopted
by NSR comply with the third edition of the ASX
Recommendations.
BOARD & MANAGEMENT RESPONSIBILITY
NSR’s compliance with the ASX Recommendations
are detailed in the NSR Corporate Governance
Statement, Appendix 4G and all NSR governance
Policies and Charters, full copies of which can be
found in the Governance section of the website at
www.nationalstorageinvest.com.au. NSFSL became
the responsible entity for the NSPT in November
2015. The majority of the board of NSFSL have been
determined to be external directors and therefore
a compliance committee has not been convened.
NSPT is a registered managed investment scheme
and the rights and obligations of the Responsible
Entity as a responsible entity of NSPT and NSPT
Unitholders are governed by the constitution of NSPT.
As the responsible entity of NSPT, the Responsible
Entity must comply with all obligations set out in
the constitution and the Corporations Act. The
Responsible Entity is also subject to duties including
duties to act in the best interests of NSPT Unitholders,
act honestly, exercise care and diligence, and treat
NSPT Unitholders of the same class equally. In order
to ensure compliance with the constitution and the
Corporations Act, the Responsible Entity has in place
a compliance plan which sets out the measures it will
apply in operating NSPT. The role of the NSH Board
is to provide overall strategic guidance for NSR and
effective oversight of management. It is responsible
for monitoring the financial performance of NSR and
the performance of the Managing Director and
senior executive team.
The NSH Board ensures the activities of NSR comply
with its constitutions, from which NSH Board derives
its authority to act, and with legal and regulatory
requirements. The responsibility for the daily
operation and management of NSR is delegated
to the Managing Director who undertakes this
task in accordance with the strategy, policies and
plans approved by the NSH Board. The Managing
Director has authority to subdelegate to the senior
management team.
BOARD COMPOSITION & INDEPENDENCE
The current NSH Board is comprised of six Directors,
being four non‑executive Directors (one of whom
is the Chairman), the Managing Director and an
Executive Director. Detailed information about
the Directors is set out on pages 26 ‑ 29. The NSH
Board considers that its current members have
an appropriate balance of skills, independence
and experience to discharge their obligations and
effectively chart the strategy of NSR. The NSH Board
considers that it is appropriate and in the best
interests of NSR and the stapled securityholders to
periodically review the size of the Board and its skill
set to ensure that it remains appropriate for NSR.
The Boards of NSH and NSFSL, as responsible entity,
consider that all of the current non‑executive
Directors, being the Chairman Mr Laurence Brindle,
Mr Anthony Keane, Mr Howard Brenchley and Mr
Steven Leigh to be independent.
COMPANY SECRETARIES
Ms Claire Fidler is the principal Company Secretary
of NSH and NSFSL. Mr Patrick Rogers is an additional
Company Secretary for each of NSH and NSFSL.
Detailed information on Ms Fidler and Mr Rogers is
contained on page 29 and 30 in this report.
RISK MANAGEMENT
NSR’s operations expose it to risks. A summary of
potential risks is set out on pages 39 and 40 of
this report.
Risks can be either of a controllable nature or of a
non‑controllable / less controllable nature. Examples
of controllable risks are systems, processes and staff
based risk. Non‑controllable or less controllable risks
are generally risks considered to be “external” to the
Company such as macroeconomic factors, financial,
regulatory or market risks. Assumption of operating risks
is undertaken through the risk management framework
which seeks to identify, control and minimise risk where
possible. NSR maintains a Risk Management Policy
which lays a foundation for the NSH Board and senior
management to manage risk and decision making
by officers of NSR. A copy of the Risk Management
Policy can be found on the website at www.
nationalstorageinvest.com.au. Senior management of
NSR and the NSH Board are committed to effective risk
management in the operation of NSR.
CORPORATE GOVERNANCE
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
35
KEY HIGHLIGHTS
Group
Total Revenue
IFRS profit after tax
Earnings per stapled security
Underlying earnings(1)
Underlying earnings per stapled security(1)
Net operating cashflow
Distribution per security
Portfolio
Number of Centres owned/managed & licenced (Total)
Like for like occupancy (2)
New Zealand occupancy
Like for like Revenue per available metre (REVPAM)(2)
Weighted Average Primary Cap Rate
Assets Under Management (AUM)(3)
Portfolio Valuation Uplift
Acquisitions / Centres(4,5)
NLA (sqm)
Balance Sheet
Total Assets(5)
Debt drawn(5)
Interest Rate Hedges(5)
Gearing
Weight average cost of debt
Weight average debt tenor (years)
NTA
Successfully completed $715m refinance
FY18
$139.6m
$145.8m
27.15cps
$51.4m
9.6cps
$77.0m
9.6cps
At June
2018
130/5 (135)
80.8%
84.7%
$220
7.30%
$1.43b
$112m
$155m/17
703,000
At June
2018
$1.71b
$600m
$319m
38%
3.8%
4.7
$1.51
FY17
$117.5m
$103.4m
20.70cps
$45.7m
9.2cps
$65.1m
9.2cps
At June
2017
113/3 (116)
77.5%
78.2%
$212
7.86%
$1.16b
$73m
$132m/11
622,000
At June
2017
$1.44b
$485m
$266m
37%
3.7%
4.6
$1.34
Change
19%
41%
31%
12.5%
4.3%
18%
4.3%
Change
17/2 (19)
3.3%
6.5%
3.8%
(0.56%)
23%
$39m
$23m/6
13%
Change
$273m
$115m
$53m
1%
0.1%
0.1
13%
PRINCIPAL ACTIVITIES
NSR is the first internally managed and fully integrated owner and operator of self-storage centres to be
listed on the ASX.
NSR is Australia's largest self-storage owner/operator, with 138 self-storage centres under operation,
management or licence, tailoring storage solutions to over 50,000 customers across Australia and New
Zealand. NSR has grown its portfolio of owned, managed and licenced centres from 62 centres in
December 2013 to 138 centres at the date of this Directors’ Report, with a further three centres
expected to settle by mid-September 2018. NSR now manages over 74,000 storage units across
approximately 713,000 sqm of net lettable area around Australia and New Zealand. Assets Under
Management (AUM) have increased to $1.43 billion as at 30 June 2018.
Of the 138 self-storage properties in the NSR portfolio, ownership is as follows:
•
•
•
•
117 self-storage centres owned by NSPT
16 self-storage centres operated as long-term leasehold centres (Leasehold Centres)
3 third party managed centres
2 licenced branding rights centres in New Zealand
The National Storage core product offering covers self-storage, business storage, hard stand/vehicle
storage and wine storage at National Storage’s climate controlled storage facilities branded “Wine
Ark” which operates dedicated self-access and managed cellars. Ancillary income streams are
derived from other related activities including packaging sales and vehicle/trailer hire.
1 Underlying earnings is a non-IFRS measure (unaudited), see table within Operating Results for reconciliation
2 Same centre 30 June 2017 (86 centres), excluding developing centres
3 Investment properties net of finance lease liability
4 Excluding transaction costs
5 NZD/AUD exchange rate of 1.10
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
DIRECTORS' REPORT
36
37
BUSINESS STRATEGY
CASH MANAGEMENT
NSR’s objective is to deliver investors a stable and growing income stream from a diversified portfolio of
high quality self-storage assets and to drive income and capital growth through active asset and
portfolio management (including the acquisition, development or redevelopment and portfolio
recycling of self-storage centres).
The key drivers of the business are:
•
•
Asset management – driving an appropriate balance between rental rate and occupancy
growth and actively pursuing other business development initiatives in complementary areas
such as wine storage, document storage and mini-logistics for SMEs;
Portfolio management – acquiring and integrating quality self-storage assets into the NSR
portfolio;
• Centre Management – effective operation of individual self-storage assets and the expansion
•
of the National Storage Centre Management platform (revenue from third parties);
Development management – development / refurbishment / redevelopment of new and
existing centres and actively managing portfolio recycling opportunities;
• Capital management – maintaining an appropriate and efficient capital structure with a focus
on risk minimisation and the development of long term sustainable and growing revenue
streams; and
Product and innovation – exploring opportunities for revenue generation across new sales
channels, digital strategies and ancillary product ranges.
•
Further details on these key business drivers can be found elsewhere in the National Storage 2018
Annual Report.
REVIEW AND RESULTS OF OPERATIONS
The Financial Statements of NSR are prepared in compliance with Australian Accounting Standards
and the requirements of the Corporations Act Cth 2001.
OPERATING RESULTS
IFRS Profit after tax for the Reporting Period was $145.8 million with EPS of 27.15 cents. Underlying
earnings(6), increased by 12.5% to $51.4 million. NSR also delivered solid growth of 4.3% in underlying
earnings(6) per stapled security to 9.6cps for the 2018 financial year.
IFRS Profit after tax
Plus tax expense/(benefit)
Plus business combination, restructure and other non-recurring costs
Plus contracted gain in respect of sale of investment property
Less fair value adjustment
Less finance lease diminution
Underlying Earnings(6)
FY18
$145.8m
($2.0m)
$1.3m
$2.7m
($92.4m)
($4.0m)
$51.4m
FY17
$103.4m
$4.2m
$17.0m
$1.5m
($76.8m)
($3.6m)
$45.7m
Total revenue rose by 19% to $1 39.6 million. Occupancy across the June 2018 portfolio (excluding
New Zealand and developing centres) increased to 80.8%, up from 77.5% at 30 June 2017. New
Zealand occupancy increase to 84.7%, up from 78.2% at 30 June 2017. These are pleasing results and
demonstrates that the continued focus on driving increased occupancy is delivering results. Revenue
per available metre (REVPAM) increased by 3.8% to $220/sqm from $2 12/sqm at June 2017 delivering
continued strong revenue growth.
Cash and cash equivalents as at 30 June 2018 were $21.3 million compared to $23.2 million at 30 June
2017. Net operating cashflow for the year increased to $77.0 million (2017: $65.1 million).
On 13 December 2017 NSR announced a fully underwritten $50 million institutional placement of new
stapled securities in NSR and a non-underwritten Security Purchase Plan (SPP) to eligible securityholders
in Australia and New Zealand. The purpose of the equity raising was to execute acquisition
opportunities and strengthen the NSR balance sheet. The SPP closed on 2 February 2018 raising a
further $9.5 million.
An interim distribution of 4.7 cents per stapled security ($25.8 million) was paid on 27 February 2018 with
an estimated final distribution of 4.9 cents per stapled security ($27.4 million) declared on 21 June 2018
with an estimated payment date of 29 August 2018, delivering a 4.3% increase in the total distribution
for the year to 9.6 cents per stapled security.
During the reporting period NSR once again offered the Distribution Reinvestment Plan (DRP) which
enables eligible securityholders to receive part or all of their distribution by way of securities rather than
cash.
For the December 2017 interim distribution approximately 18% of eligible securityholders (by number of
securities) elected to receive their distributions as securities totalling approximately $4.6million. The DRP
price was set at $1.4472 which resulted in 3,232,481 new securities being issued.
The June 2018 final distribution has seen approximately 23% of eligible securityholders (by number of
securities) elect to receive their distributions as securities totalling approximately $6.3million. The price
of the DRP securities will be determined on a 10-day volume weighted average market price (VWAP)
commencing on and including 6 August 2018 less a 2.0% discount.
NSR’s finance facilities are on a “Club” arrangement with a selection of major Australian banks and a
major Australian superannuation fund. The Consolidated Group’s borrowing facilities are AUD $605
million and NZD $121 million. As at the reporting date AUD equivalent of approximately $115 million was
undrawn and available. NSR actively manages its debt facilities and continues to increase when and
where required to ensure adequate capacity for future acquisitions and working capital requirements.
The weighted average debt tenor as at the reporting date is 4.7 years, up from 4.6 years as at 30 June
2017. NSR’s target gearing range remains 25%-40% to provide flexibility and the ability to act on
acquisition opportunities.
NSR maintains interest rate hedges in accordance with NSR’s hedging policy which is reviewed on a
regular basis. Additional interest rate hedges were entered into during the year to continue the
prudent management of NSR’s interest rate risks. As at the reporting date interest rate hedges totalling
A$763 million were in place with expiry dates ranging from 0.5 years to 8.5 years.
ACQUISITIONS AND INVESTMENTS
NSR considers its ability to acquire and integrate quality assets to be one of the key drivers of its growth
strategy. During the course of the Reporting Period, the dedicated acquisitions team continued to
identify, facilitate and transact on acquisitions that were considered appropriate for the portfolio.
The successful execution of NSR’s acquisition strategy has seen 20 new centres acquired to the date of
this Directors’ Report, valued at $168 million(7) with three additional centres valued at $42 million
expected to settle by mid-September 2018. Further, a combined process was undertaken by both
external valuers and the Directors to revalue the 30 June 2017 NSR owned centres as at 30 June 2018
(based on valuations and methodologies from independent valuers (m3 Property, Urbis and Landmark
White)), which yielded an increase in valuation of 9.6% from $1,168 million to $1,280 million.
6 Underlying earnings is a non-IFRS measure (unaudited)
DIRECTORS' REPORT FOR THE YEAR ENDED 30 JUNE 2018
7 Excluding transaction costs. Includes Jandakot freehold property and Milton development site.
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
38
Region
New South Wales
Morisset
North Wyong
New Zealand
Ngauranga
Te Rapa
Northern Territory
Darwin
Queensland
Carrara1
Hope Harbour
Milton (development site)
Marcoola
Robina
Townsville (5 Centres)
Victoria
Geelong
Mornington
Western Australia
Jandakot (Property)
Perth Airport1
Total2
1 - Developing Centres
2 - AUD/NZ 1.10
NLA (Sqm)
Purchase Price
7,300
$11.9m
7,900
NZ$21.3m
8,800
$14.0m
45,200
$83.9m
7,300
$10.9m
11,000
$15.1m
87,500
$155.3m
INVESTMENT IN JOINT VENTURES
NSR is a cornerstone investor in the Australian Prime Storage Fund (APSF or the fund) with an equity
interest of 24.9%. The fund was established to facilitate the development and ownership of premium
self-storage centres in major cities around Australia. NSR is entitled to a number of fees associated with
the provision of various services including acquisition, design and development, centre management
and fund support services. The fund has two operational centres at Albion and Kelvin Grove in South
East Queensland after having sold its Carrara centre to National Storage in February 2018. APSF has
been awarded development approval and is about to commence construction of a further centre at
Canterbury in Victoria.
In March 2017 NSR entered into arrangements with long term investment partner Leyshon Group to
acquire a high quality site on Bundall Road, Bundall on the Gold Coast. Construction has commenced
on a multi-level state-of-the-art storage centre comprising 7,000m2 of net lettable area, with completion
expected in early 2019. The remaining retail building that forms part of the site houses approximately
1,800m2 and will be enhanced and retained.
In January 2018, NSR furthered the arrangement with Leyshon Group through the acquisition of a site at
Dorey St, Milton in Brisbane’s inner-west. The 1,862m2 site was acquired with development approval to
construct a multi-level, state-of-the-art self-storage facility comprising 4,600m2 net lettable area.
Construction has commenced and is expected to be completed in early 2019.
NSR has been appointed to manage the Bundall and Milton projects and generates income from
providing a range of services including design and development, project management and corporate
administration.
LIKELY DEVELOPMENTS
NSR continues to utilise its position as Australia's first ASX listed, fully integrated, sector specific, self-
storage REIT to continue to bring quality independently owned storage centres across Australia and
New Zealand under NSR's ownership and/or management structure. In accordance with its stated
strategy, NSR continues to seek high-quality acquisition opportunities; to evaluate its existing portfolio for
development or re-development or portfolio recycling opportunities; and further develop and refine its
third party management offerings.
39
DIVIDENDS AND DISTRIBUTIONS
NSR has paid or declared distributions totalling 9.6 cents per stapled security for the Reporting Period,
comprising:
•
•
A final distribution of 4.9 cents per stapled security for the 6 months to 30 June 2018. The
distribution is expected to be paid on 29 August 2018 and is expected to contain a tax
deferred component.
A distribution of 4.7 cents per stapled security for the period 1 July 2017 to 31 December 2017
which was paid on 26 February 2018 which included a tax deferred component.
OPTIONS OVER STAPLED SECURITIES
No options over issued stapled securities or interests in a Controlled Entity have been granted in NSR
during the Reporting Period. There are no options in stapled securities outstanding as at the date of this
report.
ENVIRONMENTAL REGULATION
NSR’s operations are not regulated by any environmental law of the Commonwealth or a State or
Territory that is enacted specifically for NSR. However, as part of its operations, NSR must comply with
broader environmental laws. NSH management on behalf of NSR has in place procedures to identify
and ensure compliance with such laws including identifying and obtaining of necessary approvals,
consents or licences.
There have been no known material breaches during the Reporting Period of any environmental laws
to which NSR is subject.
ENVIRONMENTAL, ECONOMIC AND OTHER SUSTAINABILITY RISKS
NSR recognises that its operating activities and strategic goal of delivering securityholder growth and
returns expose it to potential risks. The identification, management and where possible elimination or
mitigation of those risks is a key operating function of NSR. NSR management takes a pro-active
approach to risk and the importance of a strong risk culture. This culture is instilled and lead by the
Board and the senior executive team so as to form a core tenet of the organisation.
Risk is managed centrally by management to minimise potential adverse effects on the financial
performance of NSR and protect long-term securityholder value, and its broader Corporate reputation.
The Chief Risk Officer is responsible for management of NSR’s risk function and in turn reports to the
Managing Director and the Risk Committee. The Risk Committee is charged with risk oversight and
reports to the full Board. The full Board is then actively involved in the ultimate review of and
determination of risk to within sensible tolerances.
Potential risks faced by NSR and its mitigation strategies include but are not limited to:
RISK
Strategic Risk - Poor development and or execution of business strategy by the executive
management team can lead to the risk of loss and or poor performance. To mitigate this risk,
strategies are developed by the relevant responsible executive or senior officer. These are then
reviewed and discussed, as appropriate, by other executive officers and approved by the
Managing Director. Strategic decisions of a significant nature are further put before the Board and
discussed in detail and require Board approval. The senior executive team meet a number of times
a year to discuss strategy and ensure that it remains current and appropriate. This allows
management to ensure it is employing strategies that are updated for changes in the operating
environment of the business.
Economic Conditions - Fluctuations in economic conditions including consumer confidence may
adversely impact upon demand for storage space. Material macroeconomic events occurring or
any significant trading downturns due to factors beyond the control of management have the
potential to negatively impact on forecast trading performance. The results of NSR’s operating
activities are dependent on the performance of the properties in which it invests and those it
manages on behalf of other parties. This performance in turn depends on economic factors; these
include economic growth rates, inflation rates and taxation levels. There are also industry and
location specific risks to consider, including competitor behaviour. NSR mitigates the potential
impacts of fluctuating economic conditions by seeking to maintain a strong and conservative
balance sheet and financial position.
Operational Risk - Risk of loss due to its overall operations and management of other risks exists as a
function of any operating business. NSR aims to ensure that the necessary processes, training and
supervision is in place and effected to eliminate such loss wherever possible. The risk of loss from
system failures is reduced through system backups and disaster recovery (contingency) procedures,
which aim to ensure the maintenance of NSR’s critical data availability.
DIRECTORS' REPORT FOR THE YEAR ENDED 30 JUNE 2018
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
40
41
RISK
General commercial property risks - Risks commonly associated with commercial property
investment apply equally to NSR, including levels of occupancy, capital expenditure requirements,
development and refurbishment risk, environmental or compliance issues, changes to government
and planning regulations, including zoning and damage caused by flood or other extreme weather
(to the extent that it is not or could not be insured against). NSR utilises a comprehensive due
diligence process when acquiring centres to mitigate or eliminate risk where possible.
Tenure - Storage agreements are typically month to month and there is no guarantee customers will
renew or that other customers will be found to take their place upon departure. To mitigate this risk,
customer relationships are carefully managed to maximise duration of stay and highly developed
marketing and management systems are in place to maximise conversion of new customer
enquiries.
Competition - Entry by new competing storage centres or discounting by existing storage centres
may adversely impact upon occupancy and rental rates on a centre specific basis. While there are
barriers to entry for new competition, NSR constantly monitors its competitors' activities to ensure
pricing and terms remain competitive.
Valuations - Valuations ascribed to NSR’s assets will be influenced by a number of ongoing factors
including supply and demand for self-storage centres and general property market conditions.
Valuations represent only the analysis and opinion of qualified experts at a certain point in time.
There is no guarantee that a property will achieve a capital gain on its sale or that the value of the
property will not fall as a result of the assumptions on which the relevant valuations are based
proving to be incorrect.
Property liquidity - Self storage centres are property based illiquid assets and subject to supply and
demand factors dependent upon prevailing market conditions. As a result it may not be possible for
NSR to dispose of assets in a timely or price accretive fashion should the need to do so arise.
Future acquisitions and expansions - NSR may consider opportunities to make further acquisitions of
self-storage assets. NSR may also develop and expand the lettable area at a number of NSR’s
centres. The rate at which NSR is able to expand will reflect market forces and the availability of
capital at the time. Forecast distributions may be affected by such actions. The risks faced by NSR in
relation to any future development projects will depend on the terms of the transaction at the time.
There can be no assurance that NSR will successfully identify, acquire and integrate further self-
storage assets, or successfully implement acquisitions on time and on budget. Furthermore, there is
no guarantee that any acquisition will perform as expected. Future acquisitions may also expose
NSR to unanticipated business risks and liabilities.
Personnel risk - NSR relies upon the expertise and experience of the senior management team. As a
consequence, if the services of key personnel were no longer available this may have an adverse
impact on the financial performance of NSR. However, NSR’s senior management team are
considered internally to be stable and committed and succession planning is undertaken
periodically by the NSH Board and Managing Director.
Interest rate fluctuations and derivative exposure - unfavourable movements in interest rates could
lead to increased interest expense to the extent that these rates are not hedged. NSR uses
derivative instruments to hedge a percentage of its exposure to interest rates however the interest
rate movements could still result in an adverse effect on financial performance.
Workplace health and safety - There is a risk that liability arising from occupational health and safety
matters at a property in NSR’s portfolio may be attributable to NSR as the registered proprietor. To
the extent that any liabilities may be incurred by NSR, this may impact upon the financial position
and performance of NSR (to the extent not covered by insurance). In addition, penalties may be
imposed upon NSR which may have an adverse impact on NSR. NSR has a dedicated focus on
Health and Safety including comprehensive reporting to assist in the mitigation or elimination of such
risks and keep our team members, customers and contractors safe.
Insurance risk - There is no certainty that appropriate insurance will be available for all risks on
acceptable commercial terms or that the cost of insurance premiums will not continue to rise. Some
risks are not able to be insured at acceptable premiums. Examples of losses that are generally not
insured against include war or acts of terrorism and natural phenomena. If any of NSR’s assets are
damaged or destroyed by an event for which NSR does not have cover, or a loss occurs which is in
excess of the insured amounts, NSR could incur a capital loss and lost income which could reduce
returns for holders of stapled securities. Any failure by the company or companies providing
insurance (or any reinsurance) may adversely affect NSR’s right of recovery under its insurance.
Funding - NSR’s ability to raise funds from either debt or equity sources in the future depends on a
number of factors, including the state of debt and equity markets, the general economic and
political climate and the performance, reputation and financial strength of NSR. Changes to any of
these underlying factors could lead to an increase in the cost of funding, limit the availability of
funding, and increase the risk that NSR may not be able to refinance its debt and/or interest rate
hedges before expiry or may not be able to refinance them on substantially the same terms as the
existing facility or hedge instruments. If alternative financing is not available, this could adversely
affect NSR’s ability to acquire new properties and to fund capital expenditure, and NSR may need to
realise assets at less than valuation, which may result in financial loss to NSR.
RISK
Leasehold interests - NSR holds lease agreements with certain third parties which allow it to operate
storage centres from these properties. Lease terms for these properties are typically long (greater
than 10 years). However, there is no guarantee that these lease arrangements will be able to be
renewed upon expiry or if so on suitable terms to NSR.
Environmental issues - Unforeseen environmental issues may affect the properties in the property
portfolio owned by NSR. These liabilities may be imposed irrespective of whether or not NSR is
responsible for the circumstances to which they relate. NSR may also be required to remediate sites
affected by environmental liabilities. The cost of remediation of sites could be substantial. If NSR is
not able to remediate the site properly, this may adversely affect its ability to sell the relevant
property or to use it as collateral for future borrowings. Material expenditure may also be required to
comply with new or more stringent environmental laws or regulations introduced in the future, for
example in relation to climate change.
Data Loss – during the course of effecting its operations, NSR is required to handle data from various
sources. As a result, there is the possibility that data could be either damaged or lost. This creates
the risk of potential legal exposure from both commercial third parties and regulators depending on
the nature and the extent of any possible loss or damage to the data.
DIRECTORS
NATIONAL STORAGE HOLDINGS LIMITED
The NSH Directors in office during the Reporting Period, or appointed prior to the date of this Directors’
Report, and continuing as at the date of this Directors’ Report are set out below.
NAME
POSITION
Laurence Brindle
Non-Executive Chairman (Appointed 1 November 2013)
Andrew Catsoulis
Managing Director (Appointed 1 November 2013)
Anthony Keane
Non-Executive Director (Appointed 1 November 2013)
Howard Brenchley
Non-Executive Director (Appointed 21 November 2014)
Steven Leigh
Claire Fidler
Non-Executive Director (Appointed 21 November 2014)
Executive Director (Appointed 18 July 2017)
NATIONAL STORAGE FINANCIAL SERVICES LIMITED (NSFSL)
NSFSL was appointed as responsible entity on 10 November 2015. The Directors of NSFSL in office during
the Reporting Period, or appointed prior to the date of this Directors’ Report, and continuing as at the
date of this Directors’ Report are set out below.
NAME
POSITION
Laurence Brindle
Non-Executive Chairman (appointed 18 July 2014)
Andrew Catsoulis
Managing Director (appointed 18 July 2014)
Anthony Keane
Non-Executive Director (appointed 18 July 2014)
Howard Brenchley
Non-Executive Director (appointed 8 September 2015)
Steven Leigh
Claire Fidler
Non-Executive Director (appointed 8 September 2015)
Executive Director (appointed 18 July 2017)
DIRECTORS' REPORT FOR THE YEAR ENDED 30 JUNE 2018
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
42
43
DIRECTORS’ QUALIFICATIONS, EXPERIENCE AND SPECIAL RESPONSIBILITIES
Boards of National Storage Holdings Limited and National Storage Financial Services Limited
Laurence Brindle, Independent Non-executive Chairman
BCom, BE (Hons), MBA
Laurence has extensive experience in funds management, finance and investment. Until 2009 he was
an executive with Queensland Investment Corporation (QIC). During his twenty-one years with QIC he
served in various senior positions including Head of Global Real Estate where he was responsible for a
portfolio of $9 billion. Laurence was also a long term member of QIC’s Investment Strategy Committee.
He provides advice to a number of investment institutions on real estate investment and funds
management matters. Laurence holds a Bachelor of Engineering (Honours) and a Bachelor of
Commerce from the University of Queensland, and a Master of Business Administration from Cass
Business School, London where he graduated with distinction. He is a former Chairman of the Shopping
Centre Council of Australia and a former director of Westfield Retail Trust and Scentre Group, which
owns, operates and develops Westfield shopping centres in Australia and New Zealand. Laurence is
also currently the Non-executive Chairman of the listed entity, Viva Energy REIT.
Laurence serves on the Audit and Risk Committees and is Chairman of the Nomination and
Remuneration Committees.
Andrew Catsoulis, Managing Director
BA, LLB, Grad Dip Proj Mgmt (Hons)
Andrew is a qualified lawyer who has been admitted to the Supreme Court of Queensland. He has
had extensive experience in the fields of finance, commercial and property law during his tenure at
major law firms both in Australia and overseas. He is also a qualified project manager and has
considerable property development experience both within the storage industry and in broader
markets. A founder of the original National Storage business, he has over 20 years of specific self-
storage industry expertise including in the areas of acquisition, development, integration and operation
of ‘greenfield’ and developed self-storage centres. Andrew was instrumental in the successful
acquisition and integration of the original pre-existing Group portfolio and led the Company through
the IPO and planned and negotiated the acquisition of the Southern Cross portfolio in 2016.
Anthony Keane, Independent Non-executive Director
BSc (Maths), Grad Dip Corp Fin
Anthony is an experienced finance and business executive with an extensive background in banking
and business management. Prior to accepting his directorship with National Storage, Anthony held
numerous leadership roles with a major trading bank principally in business, corporate and institutional
banking. He is actively involved in the business community through Non-Executive Director and Advisory
Board roles, and finance advisory consultancies. He is a Director of Queensland Symphony Orchestra
Pty Ltd, Chairman of Oncore Group Holdings Pty Ltd, and a Director of EMvision Medical Devices Ltd.
Anthony has a Bachelor of Science (Mathematics) from University of Adelaide and a Graduate
Diploma in Corporate Finance from Swinburne. He is a Fellow of the Financial Services Institute of
Australasia, a Graduate of the Australian Institute of Company Directors and a Fellow of the CEO
Institute.
Anthony acts as Chairman of the Audit and Risk Committees and is a member of the Nomination and
Remuneration Committees.
Howard Brenchley, Independent Non-executive Director
BEc
Howard has over 30 years’ involvement in the Australian property industry, as an analyst, investor and
fund manager. He is now a professional company director and consultant to the property funds
industry. Howard co-founded Property Investment Research Pty Ltd (PIR) in 1989, which during the
1990’s was considered a leading researcher of both listed and unlisted property funds.
In 1998 Howard was instrumental in establishing the funds management business of APN Property Group
Limited. During this period he was responsible for the establishment and operations of a number of
funds investing both directly and indirectly in real estate.
Howard is currently a non-executive director of the ASX-listed APN Property Group Limited (APD) and is
also a non-executive director of APN Funds Management Limited, responsible entity for ASX-listed
Industria REIT (IDR) and Convenience Retail REIT (CRR). Until July 2017, APN Funds Management Limited
was also responsible entity for Generation Healthcare REIT (GHC).
Howard is a member of the Audit and Risk Committees.
DIRECTORS' REPORT FOR THE YEAR ENDED 30 JUNE 2018
Steven Leigh, Independent Non-executive Director
Grad Dip Proj Mgmt
Steven joined QIC Global Real Estate in 1991 and was a key member of the senior executive team that
acquired and or created through development a portfolio of high quality retail and commercial assets
in Australia, USA and the UK. Steven has had significant experience in the wholesale funds
management business through various market cycles and conditions and has a strong background in
retail, commercial and industrial property with a particular focus on shopping centre acquisitions and
redevelopments.
After time as the Managing Director of Trinity Limited, and later Head of Australia for LaSalle Investment
Management, Steven re-joined QIC as Managing Director QIC Global Real Estate in 2012 where he is
responsible for the group’s $12bn plus property portfolio. Steven was a certified practising valuer and
holds a Graduate Diploma in Project Management from the Queensland University of Technology.
Steven is an associate member of the Australian Property Institute.
Steven is a member of the Remuneration and Nomination Committees.
Claire Fidler, Executive Director
LLB (Hons), B Bus (Int), GAICD, FGIA
Claire was appointed as an executive director on 18 July 2017 after acting as the principal company
secretary of National Storage since 26 November 2015. She holds legal and international business
qualifications and is admitted as a solicitor of the Supreme Court of Queensland. Claire has over 10
years’ experience in corporate and commercial law in private practice, having practiced in the
litigation, resources and corporate areas of two large law firms. Prior to joining National Storage, Claire
was Corporate Counsel and Company Secretary at Rio Tinto Coal Australia. During this time, in
addition to providing legal services to the business, she was responsible for the corporate governance
and ASX compliance of one of Rio Tinto’s listed subsidiaries as well as managing the corporate
secretarial responsibilities of over 50 subsidiaries within the group and providing joint venture
support. Claire has also worked in corporate compliance with the Australian Securities and Investments
Commission. Claire is a Graduate of the Australian Institute of Company Directors and a Fellow of the
Governance Institute of Australia.
DIRECTORSHIPS OF OTHER LISTED COMPANIES
Directorships of other listed companies held by current Directors in the three years immediately before
the end of the financial year are as follows:
NAME
Laurence Brindle
Howard Brenchley
COMPANY
Scentre Group (ASX:SCG)
Viva Energy REIT (ASX:VVR)
APN Property Group (ASX:APD)
APN Funds Management Limited,
responsible entity for:
Industria REIT (ASX:IDR)
Convenience Retail REIT (ASX:CRR)
And previously Generation Healthcare
REIT (ASX:GHC)
PERIOD OF DIRECTORSHIP
01/07/2014 – 07/05/2015
10/07/2016 - Current
1998 - Current
03/12/2013 - Current
27/12/2017 - Current
12/08/2011 – July 2017
DIRECTORS’ INTERESTS IN NSR SECURITIES
As at the date of this Directors’ Report, the interests of the Directors (including indirect interests) in the
stapled securities of NSR were:
DIRECTOR
Laurence Brindle
Anthony Keane
Andrew Catsoulis
Howard Brenchley
Steven Leigh
Claire Fidler
DIRECT
DIRECT
-
-
473,935
-
-
-
INDIRECT
1,342,120
158,235
12,927,845
50,000
81,900
8,938
TOTAL
1,342,120
158,235
13,401,780
50,000
81,900
8,938
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
44
DIRECTORS’ MEETINGS
The number of meetings of directors of NSH (including meetings of sub-committees of directors) held
during the Reporting Period and the number of meetings attended by each director were as follows:
DIRECTOR
BOARD
AUDIT
COMMITTEE
RISK
COMMITTEE
REMUNERATION
COMMITTEE
NOMINATION
COMMITTEE
Laurence Brindle
Anthony Keane
Andrew Catsoulis
Howard Brenchley
Steven Leigh
Claire Fidler
13 (13)
13 (13)
13 (13)
12 (13)
13 (13)
12 (13)
6 (6)
6 (6)
-
6 (6)
-
-
8 (8)
8 (8)
-
7 (8)
-
-
4 (4)
4 (4)
-
-
4 (4)
-
2 (2)
2 (2)
-
-
2 (2)
-
Notes:
1.
Figures in brackets indicate the number of meetings held whilst the director was in office or was
a member of the relevant Committee during the Reporting Period. Figures not in brackets
indicate the number of meetings or Committee meetings that the director attended.
2. Mr. Catsoulis and Ms Fidler attend Nomination, Remuneration, Risk and Audit Committee
3.
meetings by invitation.
The Company has an Investment Committee Charter to govern an Investment Committee.
The Board has determined that at this time, the full Board will act as the Investment Committee
and therefore there are no separate Investment Committee meetings noted.
COMPANY SECRETARY
NATIONAL STORAGE HOLDINGS LIMITED
NAME
APPOINTMENT DATE
Claire Fidler
26 November 2015
Patrick Rogers
1 November 2013
NATIONAL STORAGE FINANCIAL SERVICES LIMITED
NAME
APPOINTMENT DATE
Claire Fidler
26 November 2015
Patrick Rogers
18 July 2014
Claire Fidler
LLB (Hons), B Bus (Int), GAICD, FGIA
Refer to page 29.
Patrick Rogers
LLB, B Bus – Accounting, FGIA
Patrick holds both legal and accounting qualifications and is admitted as a solicitor of the Supreme
Court of Queensland. He has practiced as a solicitor for over 18 years in both fields. During his time in
private practice, Patrick has had significant experience in corporate, property, commercial, taxation
and transactional work. In addition to private practice, Patrick held senior finance roles and was the
general counsel and company secretary of the Super A-Mart Group for over 8 years. Patrick was
appointed Chief Risk Officer of NSR in June 2016 in addition to his role as General Counsel and
Company Secretary. Patrick is a Fellow of the Governance Institute of Australia.
45
CORPORATE GOVERNANCE
NSH and The Responsible Entity have their own respective Boards and constitutions. The relationship
between NSH and the Responsible Entity is governed by a Cooperation Deed and Management
Agreement that allows NSH to provide key services to NSFSL as Responsible Entity in exchange for a
monthly fee. These services include finance and administrative services, property management,
provision of staff and equipment.
The NSH and Responsible Entity Boards and NSH management are committed to achieving and
demonstrating to securityholders high standards of corporate governance and to ensure NSH acts in
the best interests of its securityholders balanced with its broader community obligations.
An important component of the NSR corporate governance structure is the 3rd edition of the ASX
Corporate Governance Principles and Recommendations (the “ASX Recommendations”). A more
detailed discussion of NSR’s Corporate Governance is found on pages 32 – 33 of the Annual Report
and a statement of the extent of NSR’s compliance with the ASX Recommendations can be viewed
on the NSR website at www.nationalstorageinvest.com.au. Full copies of all NSR governance policies
and Charters can also be found in the Governance section of the website.
INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS
The Company has agreed to indemnify all the Directors and executive officers of the Company and its
group entities to the extent permitted by law, for the amount of any liability, loss, cost, charge,
damage, expense or other liability suffered by the Director or executive officer as an officer of the
Company or group entity or as a result of having been an officer of the Company or any Group entity.
This includes any liability arising out of or in connection with any negligence, breach of duty, or breach
of trust (“Indemnity”).
However, the Indemnity does not extend to a claim in the nature of:
(a)
(b)
a challenge to any rejection of a Director’s claim by the provider of the Company’s insurance
cover; or
a cross-claim or a third-party claim for contribution or indemnity in, and results directly from, any
Proceedings in respect of which the Director has made a claim under the Indemnity.
Deeds of indemnity to effect the above have been formally entered into by the Company and each
of the Directors.
The Deeds of Indemnity require the Company to obtain a back to back indemnity to the Company
from the Responsible Entity out of the assets of the NSPT. This has been procured by the Company and
is in place. The back to back indemnity requires the Responsible Entity to indemnify the Company for
any liability under the Directors/officers indemnity to the extent that the Company is not able to meet
that obligation. The indemnity does not extend to any payment made or due as a result of a breach
by the Company of its obligations under a Director/officer indemnity or to any payment which the
Company makes voluntarily but is not due and payable under the terms of a Director/officer indemnity.
The total amount of insurance contract premiums paid for Directors and Officers insurance for NSR
(including subsidiary entities) during the Reporting Period was $268,802.
No insurance premiums are paid out of the assets of the NSPT in regards to insurance cover provided to
either the Responsible Entity or the auditors of the NSPT. So long as the officers of the Responsible Entity
act in accordance with the constitution and the law, the officers remain indemnified out of the assets
of the NSPT against losses incurred while acting on behalf of the NSPT. The auditors of the NSPT are in no
way indemnified out of the assets of the NSPT.
INDEMNIFICATION OF AUDITORS
To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young, as
part of the terms of its audit engagement agreement against claims by third parties arising from the
audit (for an unspecified amount). No payment has been made or claim received by NSR to indemnify
Ernst & Young during the Reporting Period or up to the date of this report.
DIRECTORS' REPORT FOR THE YEAR ENDED 30 JUNE 2018
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
46
47
REMUNERATION REPORT (AUDITED) – NSH GROUP
REMUNERATION GOVERNANCE
MESSAGE FROM THE BOARD
The NSH Board is committed to ensuring that its remuneration strategies are structured to support and
reinforce NSR’s overall business strategy. By linking the Short Term Incentive (“STI”) and Long Term
Incentive (“LTI”) (at risk remuneration) of executive remuneration to the drivers that support the business
strategy, the remuneration of executives is aligned with the creation of long-term value for
securityholders. The Board believes that the remuneration practices of NSR should fairly and
responsibly reward Key Management Personnel (“KMP”) having regard to their individual performance,
the performance of NSH and NSPT and the broader external environment as it relates to KMP reward.
The policy also aims to provide a platform for sustainable value creation for securityholders by
attracting and retaining quality KMP.
During the year there was a restructure of the responsibilities of the KMP following the redundancy of
the COO. Further details are provided below.
COVERAGE OF THIS REPORT
The following remuneration report has been prepared to provide information to NSR securityholders of
the remuneration details of the KMP of NSH involved in the management of NSH the NSPT.
Directors of the Responsible Entity do not receive any remuneration from the Responsible Entity in
respect to their roles with the Responsible Entity. However, the director fees paid by NSR take into
account the complexity involved and additional duties in the operation of the Responsible Entity as a
subsidiary of NSH and as part of the consolidated governance group. The Responsible Entity receives a
fee for management services rendered.
This information has been audited as required by section 308(3C) of the Act.
KMP are defined as “those persons having authority and responsibility for planning, directing and
controlling the major activities of NSH, the Consolidated Group and the NSPT, directly or indirectly,
including any director (whether executive or otherwise) of NSH.”
Key management personnel covered in this report are as follows:
NON-EXECUTIVE AND EXECUTIVE DIRECTORS
Laurence Brindle - Chairman (non-executive)
Andrew Catsoulis – Managing Director (executive)
Anthony Keane - Director (non-executive)
Howard Brenchley - Director (non-executive)
Steven Leigh - Director (non-executive)
Claire Fidler – Director & Company Secretary (executive)
KEY MANAGEMENT PERSONNEL – SENIOR EXECUTIVES
Peter Greer – Chief Operating Officer (COO)*
Stuart Owen – Chief Financial Officer (CFO)
Patrick Rogers – General Counsel and Chief Risk Officer (GC/CRO)
* The COO role was made redundant effective 31 December 2017 with the responsibilities previously undertaken by the COO
allocated across the balance of the executive team.
REMUNERATION COMMITTEE AND USE OF REMUNERATION CONSULTANTS
The Remuneration Committees’ activities are governed by its Charter, a copy of which is available at
www.nationalstorageinvest.com.au.
The responsibilities of the Remuneration Committee include:
•
Formulate and recommend remuneration policies to apply to the Company’s Managing
Director, senior executives and non-executive Directors;
Formulate the specific remuneration packages for senior executives (including base salary, STIs,
LTIs and other contractual benefits);
Review contractual rights of termination for senior executives;
Review the appropriateness of the Company’s succession planning policies;
Review management’s recommendation of the total proposed STI and LTI awards;
Administering the STI and LTI awards; and
Review management recommendations regarding the remuneration framework for the
company as a whole.
•
•
•
•
•
•
The deliberations of the Remuneration Committee, including any recommendations made on
remuneration issues, are considered by the NSH Board. In making its recommendations to the Board,
the Remuneration Committee takes into account advice from independent remuneration advisers on
trends in remuneration for KMP. The independent remuneration advisors consider a range of factors
including the specific responsibilities assumed by KMP. An independent consultant, Crichton
Associates, was engaged during the Reporting Period to assess the directors’ and senior executives’
current remuneration and remuneration structure and to provide a summary on market practice
relating to executive remuneration and remuneration structures. The advice did not constitute a
remuneration recommendation as defined in the Corporations Act Cth 2001. Crichton Associates were
paid $10,109 during the financial year.
The Remuneration Committee comprises three independent non-executive directors and is chaired by
Laurence Brindle. The Remuneration committee met four times during the Reporting Period.
PRINCIPLES USED TO DETERMINE THE NATURE AND AMOUNT OF REMUNERATION
The objective of the remuneration policy is to ensure that Group remuneration is competitive, reflects
responsibilities of the officers and ensures that NSR is able to attract and retain executives and directors
with the skills and capabilities required to sustainably deliver NSR’s objectives.
The remuneration of directors and senior executives is reviewed at least annually by the Remuneration
Committee and the full NSH Board. External analysis and advice is sought by the Committee, where
considered appropriate, to ensure that the remuneration for directors and senior executives is
competitive in the market place and appropriate for the organisation.
The policy seeks to align executive reward with the achievement of strategic objectives and the
creation of value for securityholders. The primary tenets of the policy are:
•
•
•
•
•
•
Attract and retain high quality executives and to reward the capabilities and experience
brought to NSR by those executives.
Total reward for key executives is to have a significant “at risk” component.
The “at risk” component for key executives is to include both short term incentives (“STI”) and
long term incentives (“LTI”) which have a strong focus on quantitative measures.
Provide industry competitive rewards linked to securityholder returns.
Provide recognition for contribution, complexity of role and responsibilities of the officer.
Remuneration policies and structures must be clear and transparent both to the executives and
Board of NSR and to securityholders.
DIRECTORS' REPORT FOR THE YEAR ENDED 30 JUNE 2018
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
48
49
TARGET MARKET POSITIONING
Total Annual Remuneration (TAR) is assessed against a broad comparator group and adjusted to
reflect factors such as the criticality of the role, experience, length of service and NSR’s positioning
within the group. The individual components of TAR, comprising Total Fixed Remuneration (TFR), STI and
LTI are individually assessed within this framework and structured to provide both short term and long
terms incentives to KMP that align with delivery of short term and long term value to securityholders.
When selecting the comparator group the data is collected from a combination of sources including
audited Remuneration Reports of the selected companies. It provides an appropriate pool of data
that is statistically relevant. This data is then assessed against NSR’s current size, industry positioning and
other relevant factors to determine the appropriate information against which to assess NSR’s
remuneration framework.
NSR PERFORMANCE
NSR has delivered its growth objectives over the reporting period including organic occupancy growth
across the portfolio of in excess of 25,000 square metres, the acquisition of $155 million in new storage
centres in addition to the successful completion of the $59.5 million capital raise undertaken by an
institutional placement and Security Purchase Plan. This continued the significant development of the
company and delivered sustained increases in earnings and assets under management by the
successful implementation of the Company’s strategy. This has been further enhanced through the
identification of development or expansion opportunities, of which NSR currently has 10 projects in
various stages of implementation.
The Company has established a track record of strong and consistent growth in underlying earnings(8),
net tangible assets (NTA) and total assets under management (AUM). Underlying earnings(1) per
stapled security have increased by 4.3% in the 12 months to 30 June 2018 over the corresponding
period to 30 June 2017, with increases in NTA of 13% to $1.51 per stapled security and AUM by 23% to
$1.43 billion. A consistent and considered approach to driving increased underlying earnings through a
combination of organic growth from existing assets as well as targeted EPS accretive acquisitions has
been instrumental in achieving this result.
Underlying Earnings Per Security
10.0
9.0
8.0
s
t
n
e
C
7.0
6.0
5.0
4.0
8.2
8.7
7.5
9.2
9.6
CY 14
FY15
FY16
FY17
FY18
NSR has maintained a distribution policy which targets distribution of 90% - 100% of underlying
earnings(1) to securityholders. During financial year 2018 NSR declared distributions totalling 9.6 cents
per stapled security, being at the upper end of the stated policy, delivering DPS yield of 5.8%, some 32%
above that of the A-REIT 200 average of 4.4%.
8 Underlying earnings is a non-IFRS measure (unaudited). See page 36 of Directors’ Report for reconciliation of underlying earnings
FY18 Distribution Yield
A-REIT 200
NSR
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
Source: Bloomberg. Market Data
NSR has delivered Total Shareholder Return “TSR” (a combination of share price growth and distributions
received by securityholders) over the past three years to 30 June 2018 of 19%.
NSR listed in December 2013 with an issue price of $0.98. From that time to 30 June 2018 the stapled
security price has increased by 68% with 30 June 2018 closing price of $1.65.
NSR Stapled Security Price
$
1.90
1.80
1.70
1.60
1.50
1.40
1.30
1.20
J
u
l
1
4
S
e
p
1
4
D
e
c
1
4
M
a
r
1
5
J
u
n
1
5
S
e
p
1
5
D
e
c
1
5
M
a
r
1
6
J
u
n
1
6
S
e
p
1
6
D
e
c
1
6
M
a
r
1
7
J
u
n
1
7
S
e
p
1
7
D
e
c
1
7
M
a
r
1
8
J
u
n
1
8
Mkt Cap
Share Price
1,000
900
800
700
600
500
400
300
200
100
-
m
$
'
Security price performance over the period 1 July 2014 to 30 June 2018 has shown a 32% increase. This
compares to an increase of 32% for the ASX A-REIT 200 index and 15% for the broader ASX 200 Index
over the same period.
DIRECTORS' REPORT FOR THE YEAR ENDED 30 JUNE 2018
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
50
51
NSR REMUNERATION FRAMEWORK
NON-EXECUTIVE DIRECTORS
Fees and payments to non-executive directors reflect the demands which are made on, and the
responsibilities of, the non-executive directors and their contribution towards the performance of NSR as
well as the complexity of the National Storage Property Trust, National Storage Financial Services
Limited and the operating business. The remuneration policy seeks to ensure that NSR attracts and
retains directors with appropriate experience and qualifications to oversee the operations of NSR on
behalf of the securityholders.
The number of meetings of directors is shown on page 44 of this report.
The Constitution of NSH specifies that the amount of the remuneration of the non-executive directors is
a yearly sum not exceeding the sum from time to time determined by the Company in general
meeting. Under the ASX Listing Rules, the total amount paid to all NSH non-executive directors for their
services must not exceed in aggregate in any financial year the amount fixed by NSH’s annual general
meeting. The amount approved by securityholders at the 2014 Annual General meeting is $900,000.
Annual NSH non-executive directors’ fees and Committee fees currently agreed to be paid by NSH
effective from 1 July 2018 are detailed below. Non-executive directors are not eligible to participate in
NSR’s incentive plan.
NON-EXECUTIVE DIRECTORS
BASE FEE
AUDIT AND RISK
COMMITTEE FEES
Laurence Brindlea.
Anthony Keaneb.
Steven Leigh
Howard Brenchley
$115,000
$115,000
$115,000
$25,000
-
$10,000
REMUNERATION
AND NOMINATION
COMMITTEE
FEES
TOTAL
$6,000
$6,000
-
$280,000
$146,000
$121,000
$125,000
a. Chairman and chair of the Remuneration and Nomination Committees and receives a single fee for all roles
b. Chair of the of Audit and Risk Committees
All NSH non-executive directors’ fees include superannuation at the required statutory rate.
KEY MANAGEMENT PERSONNEL - EXECUTIVE DIRECTOR AND SENIOR EXECUTIVES
All remuneration paid to executive directors and senior executives comprises four components:
• Base pay and benefits (including superannuation)
•
Short-term performance incentives
•
Long-term performance incentives
• Other remuneration (if applicable)
Base salary and benefits
The Managing Director and senior executives are paid a base salary that includes employer
contributions to superannuation funds. The remuneration of the Managing Director is reviewed annually
by the Remuneration Committee and Board. The remuneration of senior executives is reviewed
annually by the Managing Director who makes a recommendation to the Remuneration Committee.
The Committee then considers, but is not obliged to accept, the recommendation of the Managing
Director and takes whatever additional steps it determines appropriate to assess the senior executive
salaries.
There is no guarantee of base salary increases included in any executive director or senior executive
contracts or through the annual review process. The remuneration of all KMP was reviewed during the
year.
The Managing Director and senior executives can potentially be paid a bonus as part of their
remuneration. Whether such a bonus is paid and the amount of such a bonus is at the discretion of the
Remuneration Committee and the Board. Any bonuses paid would fall into the category of “other
remuneration”.
Service agreements
Remuneration and other terms of employment for the KMP senior executives are formalised in service
agreements. The service agreements specify the components of remuneration, benefits and notice
periods. Termination benefits are designed to fall within the limits relevant to the Corporations Act Cth
2001 such that they do not require securityholder approval. However, in addition, all executive
contracts make any such benefits subject to the Corporations Act Cth 2001, all other applicable laws
and where necessary securityholder approval. They also contain provisions which allow NSH to reduce
any such payments to ensure compliance with the law.
During the year a restructure of the KMP took place which included making redundant the role of Chief
Operating Officer (COO). As a result of this, the duties of the COO have been reallocated across the
remaining KMP with a consequent increase in responsibilities and/or workload for the KMP. As part of
this, Claire Fidler has moved from part-time to full-time and other KMP have taken on a broader
portfolio of responsibilities and direct reports.
The terms of employment for the KMP for the FY19 period are set out in the table below.
TERM OF
AGREEMENT AND
NOTICE PERIOD
BASE SALARY
INCLUDING
SUPERANNUATION*
TERMINATION PAYMENTS
NAME
Andrew
Catsoulis
Stuart Owen
No fixed term
6 months
No fixed term
6 months
$990,000
$495,000
• 6 months in lieu of notice if required by NSH.
• 6 months in the event of incapacity or illness.
• 6 months in lieu of notice if required by NSH.
• 6 months in the event of incapacity or illness.
• 1 months fixed remuneration plus 2 weeks for
each year of service – capped at 2 months
in the event of redundancy
• 6 months in lieu of notice if required by NSH.
• 6 months in the event of incapacity or illness.
• 1 months fixed remuneration plus 2 weeks for
each year of service – capped at 2 months
in the event of redundancy
• 6 months in lieu of notice if required by NSH.
• 6 months in the event of incapacity or illness.
• 1 months fixed remuneration plus 2 weeks for
each year of service – capped at 2 months
in the event of redundancy
Patrick Rogers
No fixed term
6 months
$375,000
Claire Fidler
No fixed term
6 months
$275,000
* Base salaries are annual salaries for the financial year commencing 1 July 2018. They are reviewed annually by the
Remuneration Committee. Actual salaries paid in the year ended 30 June 2018 are shown on page 54.
The composition of TAR for the year ending 30 June 2019 for KMP is detailed in the table below.
ROLE
MD
CFO
GC/CRO
CoSec
TFR
55.2%
62.2%
71.4%
78.6%
STI
22.4%
18.9%
14.3%
10.7%
LTI
22.4%
18.9%
14.3%
10.7%
Short and long term incentives
KMP senior executives may also be entitled to participate in the STI and LTI programs that are in place
from time to time. The incentive programs are at the discretion of the Board and do not constitute an
entitlement under the executive service agreements of the respective KMP. Total incentive programs
are assessed against a broad comparator group and adjusted to reflect factors such as the criticality
of the role, experience, length of service and NSR’s positioning within the comparator group including
the ASX A-REIT 200 index. The Board continually assesses the structure of the incentive plans and has
determined that at this point in time payments made under these plans will be paid in cash. The Board
considers that there is a sufficient nexus between the cash remuneration and the equity based
payments given the link between security price performance and TSR.
An independent consultant was engaged during the Reporting Period to assess the appropriateness of
the remuneration structure currently in place and to provide advice on market practice relating to
executive remuneration structures. The advice did not constitute a remuneration recommendation as
defined in the Corporations Act Cth 2001. After considering all the relevant information the Board has
determined that the existing short and long term incentive program is appropriate. The following
incentive program is effective from 1 July 2018.
DIRECTORS' REPORT FOR THE YEAR ENDED 30 JUNE 2018
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
52
53
Short Term Incentive (STI)
The STI contains four separate elements that will be assessed independently of the other elements. The
STI is an annual incentive and is to be paid in cash annually.
ELEMENT
Financial
Financial – Out
Performance*
Individual KPI’s
Strategic
PERCENTAGE
OF STI
CRITERIA
70%
10%
15%
15%
Achieve Underlying Earnings as determined by the Board
Exceeding Underlying Earnings targets
Individual performance criteria set in conjunction with MD / Board
Assessment in accordance with performance in the following
areas:
•
•
•
•
Implementation of major projects
Staff continuity
Risk Management
Innovation and enhancement of processes and procedures
Total
100% (Max)
* The Financial Out-Performance STI is only payable to the extent that the total STI payable does not exceed 100%.
The minimum STI payable is zero and maximum STI payable is $662,500 for FY19 in aggregate for all KMP.
Long Term Incentive (LTI)
The LTI criteria have been set so as to align the interests of KMP with those of securityholders. The LTI
contains two separate components which are independently tested:
ELEMENT
PERCENTAGE
OF LTI
CRITERIA
Total Shareholder
Return
Earnings Per Share
Growth
70%
30%
Minimum total shareholder return above the 50th percentile in
comparison to the ASX 200 A-REIT index. The LTI becomes payable
in accordance with the sliding scale below once the 50th percentile
hurdle is met.
Earnings per share growth of 5% per annum
For the purposes of determining the LTI attributable to Total Shareholder Return in any given period, the
following scale is applied:
NSR TSR v ASX 200 A-REIT INDEX
LTI PAYABLE
<50th percentile
50th percentile
>50th - <75th percentile
>= 75th percentile
0%
50%
Pro-rata from 50% - 100%
100%
The LTI is assessed over a rolling 3-year period and as such to be eligible for payment of the LTI, KMP
must have been employed by NSR for three years (or shorter period as determined by the Board). Post
three years’ service the LTI will be paid on an annual basis on the previous three years’ performance
against the pre-determined criteria.
The minimum LTI payable is zero and maximum LTI payable is $662,500 for FY19 in aggregate for all KMP.
Short and long term incentives in place during reporting period:
The KMP were eligible for payment of STI’s and LTI’s for the financial year ended 30 June 2018 in
accordance with the incentive program outlined in the 2017 Annual Report. The program is the same
as that outlined above.
The STI’s and LTI’s were agreed with the KMP to reward them for performance against both financial
and operational objectives. The minimum payable was zero and maximum payable was $1,040,000 for
FY18 in aggregate for all KMP.
The STI and LTI hurdles included:
1. Underlying earnings(9) exceeding 9.8 cents per security
2.
TSR over the three year period to 30 June 2018 being greater than the 50th percentile of the
comparator group (ASX A-REIT 200)
3. Rolling three-year compound EPS growth exceeding 5% (June 2018 target 9.5cps)
The Board has assessed the performance of the Company and the KMP against the performance
criteria and have determined that the following STI and LTI’s have been earned and are payable,
inclusive of statutory Superannuation amounts, for the period 1 July 2017 to 30 June 2018. In addition
to the formalised incentive scheme the Board deemed it appropriate to pay a one-off discretionary
bonus in relation to the delivery of aspects of the sustainability program and cost saving initiatives. This
is shown as Other Remuneration below.
INCENTIVE OFFICER
STI
LTI
Andrew Catsoulis (MD)
Stuart Owen (CFO)
Patrick Rogers (GC/CRO)
Claire Fidler (CoSec)
Total
AMOUNT
AMOUNT
$94,050
$32,175
$16,088
$7,313
$149,626
% %
AMOUNT
AMOUNT
EARNED
$99,000
29%
$33,000
29%
$16,500
29%
29%
$7,500
29% $156,000
% %
EARNED
30%
30%
30%
30%
30%
OTHER
REMUNERATION
$148,200
$50,900
$23,200
-
$222,300
TOTAL
$341,250
$116,075
$55,788
$14,813
$527,926
The Board continues to asses both short-term and long-term incentives against a strict set of criteria and
believes that delivering superior results to security holders is required for KMP to achieve full incentive
payments.
DIRECTORS' REPORT FOR THE YEAR ENDED 30 JUNE 2018
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
9 Underlying earnings is a non-IFRS measure (unaudited). See page 36 of Directors’ Report for reconciliation of underlying earnings
54
55
DETAILS OF REMUNERATION
The following tables set out details of the remuneration received by the Company’s KMP for the Reporting Period.
SALARY & FEES
SHORT TERM
INCENTIVE
(CASH)
2018
Non-executive directors
Laurence Brindle
Anthony Keane
Howard Brenchley
Steven Leigh
$
249,951
123,288
116,500
103,653
$
-
-
-
-
Executive directors
Andrew Catsoulis
Claire Fidler
Senior executives
Peter Greer *
Stuart Owen
Patrick Rogers
Total
900,448
203,673
221,233
6,678
396,201
405,264
297,054
2,796,032
-
75,868
35,879
339,658
* Mr Greer’s role was made redundant effective 31 December 2017
SHORT TERM
INCENTIVE
(NON-
MONETARY)
$
-
-
-
-
9,000
9,000
4,500
9,000
9,000
40,500
POST-EMPLOYMENT
EMPLOYMENT
BENEFITS
SUPERANNUATION
LONG TERM
INCENTIVE
(CASH)
LONG
SERVICE
LEAVE
TERMINATION
PAYMENTS
TOTAL
PERFORMANCE
RELATED
$
20,049
11,712
-
9,847
28,989
21,256
2,536
23,100
21,575
139,064
$
-
-
-
-
90,411
6,849
-
30,137
15,068
142,465
$
-
-
-
-
20,320
5,708
9,132
9,589
7,420
52,169
$
-
-
-
-
-
-
400,000
-
-
400,000
$
270,000
135,000
116,500
113,500
1,270,401
253,164
812,369
552,958
385,996
3,909,888
%
0%
0%
0%
0%
25%
5%
0%
19%
13%
2017
Non-executive directors
Laurence Brindle
Anthony Keane
Howard Brenchley
Steven Leigh
Executive director
Andrew Catsoulis
Senior executives
Peter Greer
Stuart Owen
Patrick Rogers
Claire Fidler
Total
SALARY & FEES
$
229,189
114,594
108,000
95,153
-
-
-
-
799,592
184,193
685,222
358,915
270,008
166,572
2,827,245
157,155
74,293
39,617
15,982
471,240
SHORT TERM
INCENTIVE
(CASH)
$
SHORT TERM
INCENTIVE (NON-
MONETARY)
$
POST-EMPLOYMENT
EMPLOYMENT
BENEFITS
SUPERANNUATION
$
LONG TERM
INCENTIVE
(CASH)
$
LONG
SERVICE
LEAVE
$
TOTAL
PERFORMANCE
RELATED
-
-
-
-
8,762
8,762
8,762
8,762
8,762
43,810
21,773
10,887
-
9,040
-
-
-
-
-
-
-
-
$
250,962
125,481
108,000
104,193
50,917
82,192
18,836
1,144,492
47,739
37,130
32,912
17,135
227,533
75,342
27,397
13,699
-
198,630
16,895
8,904
6,849
5,137
56,621
991,115
515,401
371,847
213,588
3,825,079
%
0%
0%
0%
0%
23%
23%
20%
14%
7%
SECURITY HOLDINGS OF DIRECTORS AND EXECUTIVES
The movement during the Reporting Period in the number of stapled securities, directly, indirectly or
beneficially held by Directors and KMP senior executives, including parties related to them, is as follows:
BALANCE
30 JUNE 2017
GRANTED AS
REMUNERATION
ON
EXERCISE
OF OPTIONS
ACQUIRED
BALANCE
30 JUNE 2018
Directors of NSH
Laurence Brindle
Anthony Keane
Andrew Catsoulis
Howard Brenchley
Steven Leigh
Claire Fidler
1,342,120
148,200
13,321,745
50,000
81,900
8,938
Executives of NSH
Peter Greer*
Stuart Owen
Patrick Rogers
Total
* Mr Greer ceased to be a KMP effective 31 December 2017
5,586,735
-
5,163
20,544,801
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10,035
80,035
-
-
-
-
-
-
90,070
1,342,120
158,235
13,401,780
50,000
81,900
8,938
-
-
5,163
15,048,136
RELATED PARTY TRANSACTIONS
There were no other transactions with KMP and their related parties during the reporting period.
DIRECTORS' REPORT FOR THE YEAR ENDED 30 JUNE 2018
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
56
57
This Directors’ Report is made on 21 August 2018 in accordance with a resolution of the Board of
Directors of National Storage Holdings Limited and is signed for and on behalf of the Directors.
Ernst & Young
111 Eagle Street
Brisbane QLD 4000 Australia
GPO Box 7878 Brisbane QLD 4001
Tel: +61 7 3011 3333
Fax: +61 7 3011 3100
ey.com/au
Laurence Brindle
Chairman
National Storage Holdings Limited
Brisbane
Andrew Catsoulis
Managing Director
National Storage Holdings Limited
Brisbane
This Directors’ Report is made on 21 August 2018 in accordance with a resolution of the Responsible
Entity and is signed for and on behalf of the Responsible Entity.
Auditor’s Independence Declaration to the Directors of National
Storage REIT
As lead auditor for the audit of National Storage REIT for the financial year ended 30 June 2018, I
declare 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 National Storage REIT and the entities it controlled during the financial
year.
Ernst & Young
Ric Roach
Partner
21 August 2018
DIRECTORS' REPORT FOR THE YEAR ENDED 30 JUNE 2018
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
59
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
For the year ended 30 June 2018
Revenue from storage rent
Revenue from sale of goods and services
Other revenue
Total revenue
Employee expenses
Premises costs
Cost of packaging and other products
Advertising and marketing
Other operational expenses
Finance costs
Share of profit of joint ventures and associates
Fair value adjustments
Business combination costs
Restructuring and other non-recurring costs
Consolidated Group
2018
$'000
2017
$'000
Notes
6
7
7
8
13
11.4
5
124,630
7,690
7,301
139,621
(24,746)
(16,064)
(1,799)
(5,313)
(11,433)
(28,912)
1,342
92,368
-
(1,310)
105,814
6,999
4,689
117,502
(22,472)
(13,284)
(1,433)
(2,683)
(7,994)
(24,160)
2,110
76,803
(13,837)
(2,971)
Profit before income tax
143,754
107,581
Income tax benefit / (expense)
9
2,019
(4,168)
Profit after tax
145,773
103,413
Profit for the year attributable to:
Members of National Storage Holdings Limited
Non-controlling interest (unitholders of NSPT)
1,771
144,002
145,773
7,147
96,266
103,413
Basic and diluted earnings per stapled security (cents)
20
27.15
20.70
The above Consolidated Statement of Profit or Loss should be read in conjunction with the
accompanying notes.
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
FINANCIAL STATEMENTS
60
61
CONSOLIDATED STATEMENT OF OTHER
COMPREHENSIVE INCOME
For the year ended 30 June 2018
Consolidated Group
2018
$'000
2017
$'000
Profit after tax
145,773
103,413
Other comprehensive income
Items that may be reclassified to profit or loss
Exchange differences on translation of foreign operations
Net (loss) / gain on cash flow hedges
Other comprehensive (loss) / income for the year, net of
tax
(370)
(2,028)
38
6,403
(2,398)
6,441
Total comprehensive income for the year
143,375
109,854
Total comprehensive income for the year attributable to:
Members of National Storage Holdings Limited
Unitholders of National Storage Property Trust
1,748
141,627
143,375
7,180
102,674
109,854
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2018
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Assets held for sale
Other current assets
Total current assets
Non-current assets
Trade and other receivables
Property, plant and equipment
Investment properties
Investment in joint ventures and associates
Intangible assets
Deferred tax assets
Other non-current assets
Total non-current assets
Total Assets
LIABILITIES
Current liabilities
Trade and other payables
Finance lease liability
Deferred revenue
Income tax payable
Provisions
Distribution payable
Other liabilities
Total current liabilities
Non-current liabilities
Borrowings
Finance lease liability
Provisions
Deferred tax liability
Other liabilities
Total non-current liabilities
Total Liabilities
Net Assets
EQUITY
Non-controlling interest (unitholders of NSPT)
Contributed equity
Other reserves
Retained earnings
Total Equity
Notes
10.1
10.2
11.1
11.2
10.3
10.2
11.3
11.4
13
11.5
9
10.3
10.4
10.7
11.6
11.7
17
10.6
10.5
10.7
11.7
9
10.6
14
15
Consolidated Group
2018
$'000
21,333
15,152
656
5,713
5,424
48,278
2017
$'000
23,166
11,340
600
5,713
4,309
45,128
601
1,024
1,592,798
18,125
46,005
1,019
2,099
1,661,671
110
1,229
1,330,878
10,591
45,536
525
3,328
1,392,197
1,709,949
1,437,325
12,318
4,446
12,584
1,142
1,930
27,396
3
59,819
596,410
156,942
1,513
606
4,380
759,851
8,778
4,504
11,585
314
2,188
23,594
166
51,129
481,770
163,851
1,331
3,368
3,259
653,579
819,670
704,708
890,279
732,617
813,558
66,128
(12)
10,605
890,279
664,627
59,145
11
8,834
732,617
The above Consolidated Statement of Other Comprehensive Income should be read in conjunction
with the accompanying notes.
The above Consolidated Statement of Financial Position should be read in conjunction with the
accompanying notes.
FINANCIAL STATEMENTS
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
62
63
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2018
Attributable to securityholders of National Storage REIT
Contributed
equity
$'000
Retained
earnings
$'000
Notes
Foreign
currency
translation
reserve
$'000
Non-
controlling
interest
$'000
Total
Equity
$'000
Balance at 1 July 2017
59,145
8,834
11
664,627
732,617
Profit for the year
Other comprehensive income
Total comprehensive income
Issue of stapled securities
through institutional and
retail placements
Issue of stapled securities
through distribution
reinvestment plan
Costs associated with issue
of stapled securities
Deferred tax on cost of
stapled securities
Distributions provided for or
paid
15
14
14
9
17
-
-
-
1,771
-
1,771
-
(23)
(23)
144,002
(2,375)
141,627
145,773
(2,398)
143,375
5,983
926
(166)
240
-
6,983
-
-
-
-
-
-
-
-
-
-
-
-
53,553
59,536
8,654
9,580
(1,476)
(1,642)
-
240
(53,427)
7,304
(53,427)
14,287
Balance at 30 June 2018
66,128
10,605
(12)
813,558
890,279
Balance at 1 July 2016
31,707
1,687
(22)
364,978
398,350
Profit for the year
Other comprehensive income
Total comprehensive income
15
-
-
-
7,147
-
7,147
-
33
33
96,266
6,408
102,674
103,413
6,441
109,854
Issue of stapled securities through
institutional and retail placement
Issue of stapled securities
through distribution
reinvestment plan
Issue of stapled securities through
vendor scrip issue
Costs associated with issue of
stapled securities
Distributions provided for or
paid
17
14
26,354
897
828
(641)
-
27,438
-
-
-
-
-
-
-
-
-
-
-
-
233,646
260,000
8,106
9,003
7,572
8,400
(5,608)
(6,249)
(46,741)
196,975
(46,741)
224,413
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 June 2018
Consolidated Group
2018
$’000
2017
$’000
Notes
Operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Income tax paid
Net cash flows from operating activities
Investing activities
Purchase of investment properties
Proceeds on sale of investment property
Acquisition of subsidiary and property portfolio, net of
cash acquired
Distribution received from associate investments
Return of capital on dissolution of joint venture
Improvements to investment properties
Development of investment property under construction
Purchase of property, plant and equipment
Purchase of intangible assets
Investments in associate and joint ventures
Net cash flows used in investing activities
Financing activities
Proceeds from issue of stapled securities
Transaction costs on issue of stapled securities
Distributions paid to stapled security holders
Proceeds from borrowings
Repayment of borrowings
Financing provided to joint venture
Payment of finance lease liabilities
Interest and other finance costs paid
Net cash flows from financing activities
Net (decrease) / increase in cash and cash equivalents
Net foreign exchange difference
Cash and cash equivalents at 1 July
Cash and cash equivalents at 30 June
10.1
5
13
11.3
13
14
18
10.1
150,094
(73,282)
265
(85)
76,992
(168,733)
6,820
-
1,016
-
(7,926)
(3,661)
(154)
(590)
(7,440)
(180,668)
59,536
(1,642)
(40,045)
195,222
(76,820)
-
(12,561)
(21,824)
101,866
(1,810)
(23)
23,166
21,333
125,923
(61,355)
683
(155)
65,096
(141,958)
1,600
(303,081)
-
9,950
(5,571)
-
(900)
(364)
(3,330)
(443,654)
260,000
(6,249)
(28,947)
409,291
(210,580)
(5,625)
(12,494)
(17,105)
388,291
9,733
59
13,374
23,166
Balance at 30 June 2017
59,145
8,834
11
664,627
732,617
The above Consolidated Statement of Changes in Equity should be read in conjunction with the
accompanying notes.
The above Consolidated Statement of Cashflows should be read in conjunction with the
accompanying notes.
FINANCIAL STATEMENTS
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
64
65
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2018
1.
CORPORATE INFORMATION
National Storage REIT (“the Group” or “NSR”) is a joint quotation of National Storage Holdings Limited
(“NSH” or “the Company”) and its controlled entities (“NSH Group”) and National Storage Property Trust
(“NSPT” or “the Trust”) and its controlled entities (“NSPT Group”) on the Australian Securities Exchange
(“ASX”).
The Constitutions of NSH and NSPT ensure that, for so long as the two entities remain jointly quoted, the
number of shares in the Company and the number of units in the Trust shall be equal and that the
shareholders and unitholders be identical. Both the Company and the Responsible Entity (National
Storage Financial Services Limited) of the Trust must at all times act in the best interest of NSR. The
stapling arrangement will continue until either the winding up of the Company or the Trust, or termination
by either entity.
The financial report of NSR for the year ended 30 June 2018 was approved on 21 August 2018, in
accordance with a resolution of the Board of Directors of NSH and the Board of Directors of National
Storage Financial Services Limited as the Responsible Entity for NSPT.
Current liabilities also include deferred revenue of $12.6m (2017: $11.6m) associated with prepaid storage
rentals which are not expected to result in a significant cash outflow. The Group also has available
funding facilities beyond 12 months of $115.3m (see note 16).
On this basis, the financial report has been prepared on a going concern basis as the Directors of NSH
believe the Group will continue to generate operating cash flows to meet all payment obligations in the
ordinary course of business.
(b) Compliance with IFRS
The consolidated financial statements of the Group comply with International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting Standards Board.
(c) Changes in accounting policy, disclosures, standards and interpretations
The accounting policies adopted are consistent with those of the previous financial year except as
detailed below.
The following new and amended standards relevant to the Group’s activities have been adopted for the
reporting period commencing 1 July 2017.
The nature of the operations and principal activities of the Group are described in the Directors' Report.
Reference
Title
Application
date of
standard
Application
date for
Group
AASB 2016-1 Amendments to Australian Accounting Standards –
1 January 2017 1 July 2017
Recognition of Deferred Tax Assets for Unrealised Losses
AASB 2016-2 Amendments to Australian Accounting Standards –
1 January 2017 1 July 2017
Disclosure Initiative: Amendments to AASB 107
AASB 2017-2 Amendments to Australian Accounting Standards –
1 January 2017 1 July 2017
Further Annual Improvements 2014-2016 Cycle
Adoption of these standards have had no material impact in the presentation or disclosures within the
financial statements and are not likely to affect future periods.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a)
Basis of preparation
These general purpose financial statements have been prepared in accordance with Australian
accounting standards and interpretations issued by the Australian Accounting Standards Board and the
Corporations Act 2001. The financial statements have been prepared on a historical cost basis, except
for selected non-current assets, financial assets and financial liabilities for which the fair value basis of
accounting has been applied. NSH is a for-profit entity for the purpose of preparing the financial
statements.
The financial statements are presented in Australian Dollars (“AUD”) and all values are rounded to the
nearest thousand dollars ($’000) unless otherwise stated (refer to note 2(y)).
The accounting policies applied by NSR in these financial statements are the same as the 30 June 2017
financial statements except for the accounting policies impacted by new or amended accounting
standards detailed in this note.
From 1 July 2017 the Group has elected to present only financial information relating to NSR within these
financial statements. In previous periods the Group has presented the NSPT Group results alongside those
of NSR. A separate financial report for the NSPT Group has also been prepared for the year ended 30
June 2018, this is available at www.nationalstorageinvest.com.au.
Deficiency of net current assets
As at 30 June 2018, the Group had an excess of current liabilities over current assets of $11.5m (2017:
$6.0m).
Accounting standard AASB 140 Investment Property requires the financial lease liability to be split
between current and non-current while the corresponding asset is classed as non-current. The Directors
have assessed that the excess value of the total investment property over the finance lease liability
reflects the positive position in both the immediate and long-term and that sufficient cash inflows from
operations will occur to enable all liabilities to be paid when due.
FINANCIAL STATEMENTS
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
66
67
Accounting standards and interpretations issued but not yet effective
Australian Accounting Standards and interpretations relevant to the Group’s operations, that have
recently been issued or amended but are not yet effective and have not been adopted by the Group
for the annual reporting period ended 30 June 2018 are outlined in the following table:
Application
date of
standard
Application
date for
Group
1 January
2018
1 July 2018
Reference
Title
Summary and impact on Group
financial report
AASB 9
Financial
Instruments
AASB 9 replaces AASB 139 ‘Financial
Instruments: Recognition and
Measurement’ and sets out the
requirements for recognising and
measuring financial assets, financial
liabilities and some contracts to buy or sell
non-financial items.
During the year, the Group has concluded
its assessment of the impact of adopting
this standard. This has focussed on the
nature of financial instruments held and
the way in which they are used. There are
three phases of the standard that have
been assessed:
(i) Classification and measurement
The standard adopts a principles based
approach to classify financial assets on the
basis of the business model within which
they are held and their contractual cash
flow characteristics. The Group anticipates
that the current classifications for financial
assets will be largely unchanged.
(ii) Impairment
The standard includes the requirement that
impairment models also consider the
expected credit losses on an entity’s
financial assets held at amortised cost and
commitments to extend credit. The Group
anticipates that this will not have a
material impact on the Group’s results
given the low exposure to counterparty
default risk as a result of the credit risk
management processes that are in place.
(iii) Hedge accounting
The standard does not materially change
the amounts recognised in relation to
existing hedging arrangements but does
simplify the requirements for measuring
hedge effectiveness, and thus the eligibility
conditions for hedge accounting. The
Group anticipates that there will be
minimal impact from adoption on the
current hedge accounting under AASB 139
adopted by the Group.
AASB 15
Revenue from
Contracts with
Customers
AASB 15 specifies the accounting
treatment for revenue arising from
contracts with customers (except for
1 January
2018
1 July 2018
Reference
Title
Summary and impact on Group
financial report
Application
date of
standard
Application
date for
Group
AASB 16
Leases
contracts within the scope of other
accounting standards such as leases or
financial instruments).
The core principle of AASB 15 is that an
entity recognises revenue to depict the
transfer of promised goods or services to
customers in an amount that reflects the
consideration to which the entity expects
to be entitled in exchange for those goods
or services.
The majority of the Group’s revenue has
application under other relevant standards
and therefore, application of AASB 15 does
not apply (rental income).
Other material revenue streams identified
within the Group are:
Revenue from sale of goods
Agency fees
Design and development fees
-
-
-
- Management fees
The Group has assessed the impact upon
application of AASB 15 to be immaterial to
the Group’s financial statements.
AASB 16 introduces a single lessee
accounting model and requires a lessee to
recognise assets and liabilities for all leases
with a term of more than 12 months with
the exception of low value assets. At the
commencement date of a lease, a lessee
will recognise a liability to make lease
payments (i.e. the lease liability) and an
asset representing the right to use the
underlying asset during the lease term (i.e.
the right-of-use asset). The initial
measurement includes payments to be
made in optional periods if the lessee is
reasonably certain to exercise an option to
extend the lease, or not to exercise an
option to terminate the lease.
Lessees will be required to separately
recognise the interest expense on the
lease liability and the depreciation
expense on the right-of-use asset. Lessees
will be required to remeasure the lease
liability upon the occurrence of certain
events (e.g. a change in the lease term).
The lessee will generally recognise the
amount of the remeasurement of the lease
liability as an adjustment to the right-of-use
asset.
Lessors continue to classify leases as
operating or finance, with AASB 16’s
approach to lessor accounting
substantially unchanged from AASB 117.
1 January
2019
1 July 2019
FINANCIAL STATEMENTS
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
68
69
Reference
Title
Summary and impact on Group
financial report
Application
date of
standard
Application
date for
Group
Reference
Title
Summary and impact on Group
financial report
Application
date of
standard
Application
date for
Group
The Group has conducted an assessment
of the impact of the new standard, in
relation to the Group’s current
commitments under operating leases as
detailed in note 19. Due to the relative size
of these commitments to the Group’s total
assets, adoption of AASB 16 is not
expected to have a material impact on
the Group’s financial statements. The
Group’s leasehold investment properties
will continue to be accounted for under
AASB140 and will be unaffected by the
application of AASB 16.
The amendments clarify certain
requirements in:
•
AASB 1 First-time Adoption of Australian
Accounting Standards – deletion of
exemptions for first-time adopters
AASB 12 Disclosure of Interests in Other
Entities – clarification of scope
AASB 128 Investments in Associates
and Joint Ventures – measuring an
associate or joint venture at fair value
AASB 140 Investment Property –
change in use.
1 January
2018
1 July 2018
1 January
2018
1 July 2018
The Interpretation clarifies that in
determining the spot exchange rate to use
on initial recognition of the related asset,
expense or income on the derecognition
of a non-monetary asset or non-monetary
liability relating to advance consideration,
the date of the transaction is the date on
which an entity initially recognises the non-
monetary asset or non-monetary liability
arising from the advance consideration.
1 January
2019
1 July 2019
The amendments clarify certain
requirements in:
•
AASB 3 Business Combinations and
AASB 11 Joint Arrangements -
previously held interest in a joint
operation
AASB 112 Income Taxes - income tax
consequences of payments on
financial instruments classified as
equity
AASB 123 Borrowing Costs - borrowing
costs eligible for capitalisation.
AASB 2017-1 Amendments to
Australian
Accounting
Standards –
Transfers of
Investments
Property, Annual
Improvements
2014-2016 Cycle
and Other
Amendments
AASB
Interpretation
22
Foreign Currency
Transactions and
Advance
Consideration
AASB 2018-1 Annual
Improvements to
IFRS Standards
2015-2017 Cycle
•
•
•
•
•
Uncertainty over
Income Tax
Treatments
AASB
Interpretation
23, and
relevant
amending
standards
The Interpretation clarifies the application
of the recognition and measurement
criteria in AASB 112 Income Taxes when
there is uncertainty over income tax
treatments. The Interpretation specifically
addresses:
• Whether an entity considers uncertain
tax treatments separately
1 January
2019
1 July 2019
•
•
•
The assumptions an entity makes
about the examination of tax
treatments by taxation authorities
How an entity determines taxable
profit, tax bases, unused tax losses,
unused tax credits and tax rates
How an entity considers changes in
facts and circumstances.
This Standard amends AASB 128
Investments in Associates and Joint
Ventures to clarify that an entity is required
to account for long-term interests in an
associate or joint venture, which in
substance form part of the net investment
in the associate or joint venture but to
which the equity method is not applied,
using AASB 9 Financial Instruments before
applying the loss allocation and
impairment requirements in AASB 128.
The revised Conceptual Framework
includes some new concepts, provides
updated definitions and recognition
criteria for assets and liabilities and clarifies
some important concepts including:
•
The objective of financial reporting
• Qualitative characteristics of useful
AASB 2017-7 Amendments to
Australian
Accounting
Standards –
Long-term
Interests in
Associates and
Joint Ventures
Conceptual
Framework for
Financial
Reporting and
relevant
amending
standards
Not yet
issued by the
AASB
1 January
2019
1 July 2019
1 January
2020
1 July 2020
•
financial information
Financial statements and the reporting
entity
The elements of financial statements
Recognition and derecognition
•
•
• Measurement
•
Presentation and disclosure
• Concepts of capital and capital
maintenance
The changes to the Conceptual
Framework may affect the application of
IFRS in situations where no standard applies
to a particular transaction or event.
AASB 2014-10 amends AASB 10
Consolidated Financial Statements and
AASB 128 to address an inconsistency
between the requirements in AASB 10 and
those in AASB 128, in dealing with the sale
or contribution of assets between an
investor and its associate or joint venture.
1 January
2022
1 July 2022
AASB 2014-10 Amendments to
Australian
Accounting
Standards – Sale
or Contribution of
Assets between
an Investor and
its Associate or
Joint Venture
FINANCIAL STATEMENTS
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
70
71
Basis of consolidation
The Financial Report of NSR as at 30 June 2018
comprises the consolidated financial statements
of the NSH Group and the NSPT Group.
The financial statements for the Group are
prepared on the basis that NSH was the acquirer
of NSPT. The non-controlling interest is
attributable to stapled security holders
presented separately in the statement of
comprehensive income and within equity in the
statement of financial position, separately from
parent shareholders’ equity.
Subsidiaries
Subsidiaries are all entities over which the Group
has control. The Group controls an entity when it
is exposed to, or has rights to, variable returns
from its involvement with the entity and has the
ability to affect those returns through the power
to direct the activities of the entity.
Consolidation of a subsidiary begins when the
Group obtains control over the subsidiary and
ceases when the Group loses control. The
acquisition method of accounting is used to
account for business combinations (see note 2
(g)).
Intercompany transactions, balances and
unrealised gains on transactions between group
entities are eliminated. Unrealised losses are also
eliminated unless the transaction provides
evidence of an impairment of the transferred
asset. Accounting policies of all subsidiaries are
consistent with the policies adopted by the
Group.
The Group treats transactions with non-
controlling interests that do not result in a loss of
control as transactions with equity owners of the
Group. A change in ownership interest results in
an adjustment between the carrying amounts of
the controlling and non-controlling interests to
reflect their relative interests in the subsidiary.
Any difference between the amount of the
adjustment to non-controlling interests and any
consideration paid or received is recognised in
a separate reserve within equity attributable to
owners of the parent entity.
Associates
Associates are all entities over which the Group
has significant influence but not control or joint
control. This is generally the case where the
Group holds between 20% and 50% of the
voting rights. Investments in associates are
accounted for using the equity method. The
Group has an associate investment that is
accounted for using the equity method.
Joint arrangements
Under AASB 11 Joint Arrangements, investments
in joint arrangements are classified as either joint
operations or joint ventures. The classification
depends on the contractual rights and
obligations of each investor, rather than the
legal structure of the joint arrangement.
The Group has a number of arrangements, one
where the Group’s equity interest exceeds 50%,
which are classified as joint ventures as all
parties are subject to a Securityholders
Agreement that has been contractually
structured such that the parties to the
agreement have equal representation on the
advisory board responsible for the overall
direction, supervision and decision making of
each entity.
Investments in joint ventures are accounted for
using the equity method.
Equity method
Under the equity method, the investment in an
associate or a joint venture is initially recognised
at cost. The carrying amount of the investment is
adjusted to recognise changes in the Group’s
share of net assets since the acquisition date.
Goodwill relating to the associate or joint
venture is included in the carrying amount of the
investment and is neither amortised nor
individually tested for impairment.
The statement of profit or loss reflects the
Group’s share of the results of operations of the
associate or joint venture. Any change in other
comprehensive income of those investees is
presented as part of the Group’s other
comprehensive income. In addition, when there
has been a change recognised directly in the
equity of the associate or joint venture, the
Group recognises its share of any changes,
when applicable, in the statement of changes
in equity. Unrealised gains and losses resulting
from transactions between the Group and the
associate or joint venture are eliminated to the
extent of the interest in the associate or joint
venture.
The aggregate of the Group’s share of profit or
loss from associates and joint ventures is shown
on the face of the consolidated statement of
profit or loss and represents profit or loss after tax
and non-controlling interests in the subsidiaries of
associates or joint ventures.
The financial statements of associates and joint
ventures are prepared for the same reporting
period as the Group. When necessary,
adjustments are made to bring the accounting
policies in line with those of the Group.
After application of the equity method, the
Group determines whether it is necessary to
recognise an impairment loss on its investment in
its associates or joint ventures. At each reporting
date, the Group determines whether there is
objective evidence that the investment in the
associate or joint venture is impaired. If there is
such evidence, the Group calculates the
amount of impairment as the difference
between the recoverable amount of the
associate or joint venture and its carrying value,
then recognises the loss as ‘Share of profit or loss
of joint ventures and associates’ in the
consolidated statement of profit or loss. Upon
loss of significant influence over an associate or
joint control over the joint venture, the Group
measures and recognises any retained
investment at its fair value. Any difference
between the carrying amount of the associate
or joint venture upon loss of significant influence
or joint control and the fair value of the retained
investment and proceeds from disposal is
recognised in profit or loss.
(d)
Revenue recognition
Revenue is recognised to the extent that it is
probable that the economic benefits will flow to
the Group and the revenue can be reliably
measured, regardless of when the payment is
received. Revenue is measured at the fair value
of the consideration received or receivable,
taking into account contractually defined terms
of payment and excluding taxes or duty. The
Group assesses its revenue arrangements
against specific criteria to determine if it is
acting as principal or agent. The specific
recognition criteria described below must also
be met before revenue is recognised.
Revenue from storage rent
Revenue from the provision of storage space is
recognised less any amount contractually
refundable to customers over the term of the
general agreement. The value of discounts
offered to customers at the end of an incentive
period is recognised over the expected rental
period.
Revenue from sale of goods
Revenue from the sale of goods is recognised
when the significant risks and rewards of
ownership have passed to the buyer, usually on
delivery of the goods.
Agency fees
The Group acts as an agent in the provision of
insurance services provided by a third party
insurance company to NSR’s storage rental
customers. The revenue is measured based on
the monthly amount received for these
transactions. Storage insurance revenue is
presented within revenue from sale of goods
and services whin the statement of profit or loss.
Design and development Fees
Revenue from the design, planning, and
development management of the construction
of storage facilities are recognised on the
fulfillment of contractual conditions, and the
achieve of project milestones.
Management fees
Revenue is recognised over the period in which
management services such as operational
services, facilities management, staff resourcing,
and financial management are provided to the
customer.
Interest income
Interest income is recognised using the effective
interest method. When a receivable is impaired,
the Group reduces the carrying amount to its
recoverable amount, being the estimated
future cash flow discounted at the original
effective interest rate of the instrument and
continues unwinding the discount as interest
income. Interest income on impaired loans is
recognised using the original effective interest
rate.
Other revenue
Other revenue is recognised to the extent that it
is probable that the economic benefits will flow
to the Group and the revenue can be reliably
measured.
(e)
Taxes
The Group comprises taxable and non-taxable
entities. A liability for current and deferred tax
expense is only recognised in respect of taxable
entities that are subject to income tax.
NSPT is a ‘flow through’ entity for Australian
income tax purposes and has elected into the
Attribution Managed Investment Trust (“AMIT”)
rules from 1 July 2017, such that the determined
tax components of NSPT will be taxable in the
hands of unitholders on an attribution basis.
FINANCIAL STATEMENTS
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
72
73
NSPT’s subsidiary National Storage New Zealand
Property Trust (“NSNZPT”) is an Australian
registered trust which owns investment property
in New Zealand. For New Zealand tax purposes
NSNZPT is classed as a unit trust and is subject to
New Zealand income tax.
Current income tax
Current income tax assets and liabilities are
measured at the amount expected to be
recovered or paid to the taxation authorities.
The tax rates and tax laws used to compute the
amount are those that are enacted or
substantively enacted at the reporting date in
the countries where the Group operates and
generates taxable income.
Current income tax relating to items recognised
directly in equity is recognised in equity and not
in the statement of profit or loss. Management
periodically evaluates positions taken in the tax
returns with respect to situations in which
applicable tax regulations are subject to
interpretation and establishes provisions where
appropriate.
Deferred tax
Deferred tax is provided using the liability
method, on temporary differences arising
between the tax bases of assets and liabilities
and their carrying amounts for financial
reporting purposes at the reporting date.
Deferred tax liabilities are recognised for all
taxable temporary differences, except:
• When the deferred tax liability arises from
the initial recognition of goodwill or an asset
or liability in a transaction that is not a
business combination and, at the time of
the transaction, affects neither the
accounting profit nor taxable profit or loss.
•
In respect of taxable temporary differences
associated with investments in subsidiaries,
associates and interest in joint
arrangements, when the timing of the
reversal of temporary differences can be
controlled and it is probable that the
temporary difference will not reverse in the
foreseeable future.
The deferred tax liabilities in relation to freehold
investment property measured at fair value is
determined assuming the property value will be
recovered entirely through a sale.
Deferred tax assets are recognised for all
deductible temporary differences, the carry
forward of unused tax credits and any unused
tax losses. Deferred tax assets are recognised to
the extent that it is probable that taxable profit
will be available against which the deductible
temporary differences, and the carry forward of
unused tax credits and unused tax losses can be
utilised, except:
• When the deferred tax asset relating to the
deductible temporary difference arises from
the initial recognition of an asset or liability
that is not a business combination and, at
the time of the transaction, affects neither
the accounting profit nor taxable profit or
loss.
•
In respect of deductible temporary
differences associated with investments in
subsidiaries, associates and interests in joint
arrangements, deferred tax assets are
recognised only to the extent that it is
probable that the temporary difference will
not reverse in the foreseeable future and
taxable profit will be available against
which the temporary differences can be
utilised.
The carrying amount of deferred tax assets is
reviewed at each reporting date and adjusted
to the extent that it is probable that sufficient
taxable profit will be available to allow all or
part of the deferred tax asset to be utilised.
Deferred tax assets and liabilities are measured
at the tax rates that are expected to apply in
the year when the asset is realised or the liability
is settled, based on the tax rates (and laws) that
have been enacted or substantially enacted at
the reporting date.
Deferred tax relating to items recognised
outside profit or loss is recognised outside profit
or loss. Deferred tax items are recognised in
correlation to the underlying transaction either
in other comprehensive income or directly in
equity.
Deferred tax assets and liabilities are offset if a
legally enforceable right to offset current tax
assets and liabilities exists and when the
deferred tax balances relate to the same
taxation authority.
Tax consolidation legislation
NSH and its wholly-owned Australian controlled
entities have implemented the tax consolidation
legislation. As a consequence, these entities are
taxed as a single entity and the deferred tax
assets and liabilities of these entities are set off in
the consolidated financial statements.
Accounting for the tax consolidation legislation
is only relevant for the individual financial
statements of the parent entity (head entity) in
the tax consolidated group, but not for the
consolidated financial statements.
Goods and services tax (“GST”)
Revenue, expenses, assets, and liabilities are
recognised net of the amount of GST, except:
• When the GST incurred on a sale or
purchase of assets is not payable or
recoverable from the taxation authority, in
which case the GST is recognised as part of
the revenue or expense item or part of the
cost of acquisition of the asset, as
applicable.
• When receivables and payables are stated
with the amount of GST included.
The net amount of GST recoverable from, or
payable to, the taxation authority is included as
part of receivables or payables in the statement
of financial position. Commitments and
contingencies are disclosed net of the amount
of GST recoverable from, or payable to, the
taxation authority.
Cash flows are included in the statement of
cash flows on a gross basis and the GST
component of cash flows arising from investing
and financing activities, which is recoverable
from, or payable to, the taxation authority is
classed as part of operating cash flows.
(f)
Foreign currencies
The Group’s consolidated financial statements
are presented in Australian dollars. For each
entity, the Group determines the functional
currency and items included in the financial
statements of each entity are measured using
that functional currency.
Transactions and balances
Transactions in foreign currencies are initially
recorded by the Group’s entities at their
respective functional currency spot rates at the
date the transaction first qualifies for
recognition. Monetary assets and liabilities
denominated in foreign currencies are
translated at the functional currency spot rates
of exchange at the reporting date.
Differences arising on settlement or translation of
monetary items are recognised in profit or loss
with the exception of monetary items that are
designated as part of the hedge of the Group’s
net investment of a foreign operation. These are
recognised in other comprehensive income until
the net investment is disposed of, at which time,
the cumulative amount is reclassified to profit or
loss. Tax charges and credits attributable to
exchange differences on those monetary items
are also recorded in other comprehensive
income.
Non-monetary items that are measured in terms
of historical cost in a foreign currency are
translated using the exchange rates at the
dates of the initial transactions. Non-monetary
items measured at fair value in a foreign
currency are translated using the exchange
rates at the date when the fair value is
determined.
The gain or loss arising on translation of non-
monetary items measured at fair value is treated
in line with the recognition of the gain or loss on
the change in fair value of the item (i.e.
translation differences on items whose fair value
gain or loss is recognised in other
comprehensive income or profit or loss are also
recognised in other comprehensive income or
profit or loss, respectively).
Group companies
On consolidation, the assets and liabilities of
foreign operations are translated into Australian
dollars at the rate of exchange prevailing at the
reporting date and their statements of profit or
loss are translated at exchange rates prevailing
at the dates of the transactions. The exchange
differences arising on translation for
consolidation are recognised in other
comprehensive income. On disposal of a
foreign operation, the component of other
comprehensive income relating to that
particular foreign operation is recognised in
profit or loss.
Any goodwill arising on the acquisition of a
foreign operation and any fair value
adjustments to the carrying amounts of assets
and liabilities arising on the acquisition are
treated as assets and liabilities of the foreign
operation and translated at the spot rate of
exchange at the reporting date.
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(g)
Business combinations and goodwill
Business combinations are accounted for using
the acquisition method. The cost of an
acquisition is measured as the aggregate of the
consideration transferred, which is measured at
acquisition date fair value, and the amount of
any non-controlling interests in the acquiree. For
each business combination, the Group elects
whether to measure the non-controlling interests
in the acquiree at fair value or at the
proportionate share of the acquiree’s
identifiable net assets. Acquisition related costs
are expensed as incurred and included in
business combination expenses in the statement
of profit or loss.
When the Group acquires a business, it assesses
the financial assets and liabilities assumed for
appropriate classification and designation in
accordance with the contractual terms,
economic circumstances and pertinent
conditions as at the acquisition date. This
includes the separation of embedded
derivatives in host contracts by the acquiree.
Any contingent consideration to be transferred
by the acquirer will be recognised at fair value
at the acquisition date. Contingent
consideration classified as an asset or liability
that is a financial instrument and within the
scope of AASB 139 Financial Instruments:
Recognition and Measurement, is measured at
fair value with the changes in fair value
recognised in the statement of profit or loss.
Goodwill is initially measured at cost (being the
excess of the aggregate of the consideration
transferred and the amount recognised for non-
controlling interests and any previous interest
held over the net identifiable assets acquired
and liabilities assumed). If the fair value of the
net assets acquired is in excess of the
aggregate consideration transferred, the Group
re-assesses whether it has correctly identified all
of the assets acquired and all of the liabilities
assumed and reviews the procedures used to
measure the amounts to be recognised at the
acquisition date. If the reassessment still results in
an excess of the fair value of net assets
acquired over the aggregate consideration
transferred, then the gain is recognised in profit
or loss.
After initial recognition, goodwill is measured at
cost less any accumulated impairment losses.
For the purpose of impairment testing, goodwill
acquired in a business combination is, from the
acquisition date, allocated to each of the
Group’s cash-generating units that are
expected to benefit from the combination,
irrespective of whether other assets or liabilities
of the acquiree are assigned to those units.
Where goodwill has been allocated to a cash-
generating unit (“CGU”) and part of the
operation within that unit is disposed of, the
goodwill associated with the disposed operation
is included in the carrying amount of the
operation when determining the gain or loss on
disposal. Goodwill disposed in these
circumstances is measured based on the
relative values of the disposed operation and
the portion of the CGU retained.
(h)
Leases
The determination of whether an arrangement is
a lease is based on the substance of the
arrangement at the inception of the lease. The
arrangement is, or contains, a lease if fulfilment
of the arrangement is dependent on the use of
a specific asset or assets and the arrangement
conveys a right to use the asset or assets, even if
that right is not explicitly specified in an
arrangement.
The Group leases properties which are classified
as investment properties (note 11.4). The Group
also leases office premises and items of plant
and equipment.
Leased investment properties and property,
plant and equipment
Leases of investment property and property,
plant and equipment, where the group as
lessee has substantially all the risks and rewards
of ownership, are classified as finance leases.
Leasehold investment property and property,
plant and equipment finance leases are
capitalised at the lease’s inception at the fair
value of the leased property.
The corresponding rental obligations, net of
finance charges, are included in other short-
term and long-term liabilities. Each lease
payment is allocated between the liability and
finance cost. The finance cost is charged to the
profit or loss over the lease period so as to
produce a constant periodic rate of interest on
the remaining balance of the liability for each
period. The investment properties acquired
under finance leases are carried at fair value.
Changes in value are presented in profit or loss.
The property, plant and equipment acquired
under finance leases is depreciated over the
asset’s useful life or over the shorter of the asset’s
useful life and the lease term if there is no
reasonable certainty that the Group will obtain
ownership at the end of the lease term.
Operating leases
Leases in which a significant portion of the risks
and rewards of ownership are not transferred to
the Group as lessee are classified as operating
leases (note 19). Payments made under
operating leases (net of any incentives received
from the lessor) are charged to profit or loss on a
straight-line basis over the period of the lease.
Group as lessor
Lease income from operating leases where the
group is a lessor is recognised in revenue less
any amount contractually refundable to
customers over the term of lease.
(i)
Cash and cash equivalents
Cash and cash equivalents in the statement of
financial position comprise cash at bank and on
hand and term deposits that are readily
convertible to known amounts of cash and
which are subject to an insignificant risk of
change in value.
For the purposes of the statement of cash flows,
cash and cash equivalents consist of cash and
term deposits as defined above.
(j)
Trade receivables
Trade receivables are recognised initially at fair
value and subsequently measured at amortised
cost using the effective interest method, less
provision for impairment (see note 10.2 for
further information about the Group’s
accounting for trade receivables and note 16
for a description of the group’s impairment
policies).
(k)
Inventories
Inventories are valued at the lower of cost and
net realisable value. Costs are assigned on a
first-in first-out basis. Net realisable value is the
estimated selling price in the ordinary course of
business, less the estimated costs necessary to
make the sale.
(l)
Financial assets
Initial recognition and measurement
Financial assets are classified, at initial
recognition, as financial assets at fair value
through profit or loss, loans and receivables,
held-to-maturity investments, and available-for-
sale financial assets.
All financial assets are recognised initially at fair
value, plus in the case of financial assets not
subsequently measured at fair value through
profit or loss, transaction costs that are
attributable to the acquisition of the financial
asset.
Subsequent measurement
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss
include financial assets held for trading and
financial assets designated upon initial
recognition at fair value through profit or loss.
Financial assets are classified as held for trading
if they are acquired for the purpose of selling or
repurchasing in the near term. Derivatives,
including separated embedded derivatives are
also classified as held for trading unless they are
designated as effective hedging instruments as
defined by AASB 139.
Loans and receivables
Loans and receivables are non-derivative
financial assets with fixed or determinable
payments that are not quoted in an active
market. After initial measurement, such financial
assets are subsequently measured at amortised
cost using the effective interest rate method,
less impairment. The losses arising from
impairment are recognised in the statement of
profit or loss in finance costs for loans and other
operational expenses for receivables.
Held-to-maturity investments
Non-derivative financial assets with fixed or
determinable payments and fixed maturities are
classified as held-to-maturity when the Group
has the positive intention and ability to hold
them to maturity. After initial measurement,
held-to-maturity investments are measured at
amortised cost using the effective interest rate,
less impairment.
Available-for-
for sale financial assets
for-
Available-for-sale financial assets include equity
investments and debt securities. Equity
investments classified as available-for-sale are
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those that are neither classified as held for
trading nor designated at fair value through
profit or loss. Debt securities in this category are
those that are intended to be held for an
indefinite period of time and that may be sold in
response to needs for liquidity or in response to
changes in the market conditions. The Group
currently has no available-for-sale financial
assets.
Derecognition
Financial assets are derecognised when the
rights to receive cash flows from the financial
assets have expired or have been transferred
and the Group has transferred substantially all
the risks and rewards of ownership. When
securities classified as available-for-sale are sold,
the accumulated fair value adjustments
recognised in other comprehensive income are
reclassified to profit or loss as gains and losses
from investment securities.
Impairment
The Group assesses at the end of each reporting
period whether there is objective evidence that
a financial asset or group of financial assets is
impaired. An impairment exists if one or more
events that has occurred since the initial
recognition of the asset (an incurred ‘loss
event’) has an impact on the estimated future
cash flows of the financial asset or the group of
financial assets that can be reliably estimated.
Financial assets carried at amortised cost
For loans and receivables and held to maturity
investments, the amount of the loss is measured
as the difference between the asset’s carrying
amount and the present value of estimated
future cash flows (excluding future credit losses
that have not been incurred) discounted at the
financial asset’s original effective interest rate.
The carrying amount of the asset is reduced and
the amount of the loss is recognised in profit or
loss. If a loan or held-to-maturity investment has
a variable interest rate, the discount rate for
measuring any impairment loss is the current
effective interest rate determined under the
contract. The Group may measure impairment
on the basis of an instrument’s fair value using
an observable market price.
If, in a subsequent period, the amount of the
impairment loss decreases and the decrease
can be related objectively to an event
occurring after the impairment was recognised
(such as an improvement in the debtor’s credit
rating), the reversal of the previously recognised
impairment loss is recognised in profit or loss.
Assets classified as available for sale
If there is objective evidence of impairment for
available-for-sale financial assets, the
cumulative loss (measured as the difference
between the acquisition cost and the current
fair value, less any impairment loss on that
financial asset previously recognised in profit or
loss) is removed from equity and recognised in
profit or loss.
Impairment losses on equity instruments that
were recognised in profit or loss are not reversed
through profit or loss in a subsequent period. If
the fair value of a debt instrument classified as
available-for-sale increases in a subsequent
period and the increase can be objectively
related to an event occurring after the
impairment loss was recognised in profit or loss,
the impairment loss is reversed through profit or
loss.
(m) Derivatives and hedging activities
The Group uses derivative financial instruments,
such as interest rate swaps and a net investment
hedge to hedge its foreign currency and interest
rate risks.
Derivatives are initially recognised at fair value
on the date a derivative contract is entered into
and are subsequently remeasured to their fair
value at the end of each reporting period. The
accounting for subsequent changes in fair value
depends on whether the derivative is
designated as a hedging instrument, and if so,
the nature of the item being hedged. The Group
designates certain derivatives as either:
•
•
•
Hedges of the fair value of recognised
assets or liabilities or a firm commitment (fair
value hedges);
Hedges of a particular risk associated with
the cash flows of recognised assets and
liabilities and highly probable forecast
transactions (cash flow hedges); or
Hedges of a net investment in a foreign
operation (net investment hedges).
The Group documents at the inception of the
hedging transaction the relationship between
hedging instruments and hedged items, as well
as its risk management objective and strategy
for undertaking various hedge transactions. The
Group also documents its assessment, both at
hedge inception and on an ongoing basis, of
whether the derivatives that are used in
hedging transactions have been and will
continue to be highly effective in offsetting
changes in fair values or cash flows of hedged
items.
The fair values of various derivative financial
instruments used for hedging purposes are
disclosed in note 10.8. Movements in the
hedging reserve in equity are shown in note 15.
The full fair value of a hedging derivative is
classified as a non-current asset or liability when
the remaining maturity of the hedged item is
more than 12 months; it is classified as a current
asset or liability when the remaining maturity of
the hedged item is less than 12 months. Trading
derivatives are classified as a current asset or
liability.
Fair value hedge
Changes in the fair value of derivatives that are
designated and qualify as fair value hedges are
recorded in profit or loss, together with any
changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk.
The gain or loss relating to the effective portion
of interest rate swaps hedging fixed rate
borrowings is recognised in profit or loss within
finance costs, together with changes in the fair
value of the hedged fixed rate borrowings
attributable to interest rate risk. The gain or loss
relating to the ineffective portion is recognised
in profit or loss within other income or other
expenses.
If the hedge no longer meets the criteria for
hedge accounting, the adjustment to the
carrying amount of a hedged item for which the
effective interest method is used is amortised to
profit or loss over the period to maturity using a
recalculated effective interest rate.
Cash flow hedge
The effective portion of changes in the fair value
of derivatives that are designated and qualify as
a cash flow hedge is recognised in other
comprehensive income and accumulated in
reserves in equity. The gain or loss relating to the
ineffective portion is recognised immediately in
profit or loss within finance income or finance
costs.
Amounts accumulated in equity are reclassified
to profit or loss in the periods when the hedged
item affects profit or loss (for instance when the
forecast sale that is hedged takes place). On
reclassification, the gain or loss relating to the
effective portion of interest rate swaps hedging
variable rate borrowings is recognised in profit or
loss within finance costs. However, when the
forecast transaction that is hedged results in the
recognition of a non-financial asset (for
example, inventory or fixed assets) the gains
and losses previously deferred in equity are
reclassified from equity and included in the
initial measurement of the cost of the asset. The
deferred amounts are ultimately recognised in
profit or loss as cost of goods sold in the case of
inventory, or as depreciation or impairment in
the case of fixed assets.
When a hedging instrument expires or is sold or
terminated, or when a hedge no longer meets
the criteria for hedge accounting, any
cumulative gain or loss existing in equity at that
time remains in equity and is recognised when
the forecast transaction is ultimately recognised
in profit or loss. When a forecast transaction is no
longer expected to occur, the cumulative gain
or loss that was reported in equity is immediately
reclassified to profit or loss.
Derivatives that do not qualify for hedge
accounting
Certain derivative instruments do not qualify for
hedge accounting. Changes in the fair value of
any derivative instrument that does not qualify
for hedge accounting are recognised
immediately in profit or loss and are included in
other income or other expenses.
(n)
Property, plant and equipment
Property, plant and equipment is stated at
historical cost less depreciation. Historical cost
includes expenditure that is directly attributable
to the acquisition of the items. Subsequent costs
are included in the asset’s carrying amount or
recognised as a separate asset, as appropriate,
only when it is probable that future economic
benefits associated with the item will flow to the
group and the cost of the item can be
measured reliably. The carrying amount of any
component asset is derecognised when
replaced. All repairs and maintenance are
charged to profit or loss during the reporting
period in which they are incurred.
Depreciation is calculated on a straight-line
basis over the estimated useful life of the assets
as follows:
•
•
Leasehold improvements - remaining length
of lease term
Plant and equipment - 2.5 to 20 years
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Each asset’s residual value and useful life is
reviewed, and adjusted if appropriate, at the
end of each reporting period.
accordance with the policy stated under
property, plant and equipment up to the date
of change in use.
An asset’s carrying amount is written down
immediately to its recoverable amount if the
asset’s carrying amount is greater than its
estimated recoverable amount (note 2(q)).
Gains and losses on disposals are determined by
comparing proceeds with carrying amount.
These are included in profit or loss.
(o)
Investment properties
Freehold investment properties
Investment properties are measured initially at
cost, including transaction costs. Subsequent to
initial recognition, investment properties are
stated at fair value, which reflects market
conditions at the reporting date. Gains or losses
arising from changes in the fair values of
investment properties are included in profit or
loss in the period in which they arise.
Fair values are determined by a combination of
independent valuations and Director valuations.
The independent valuations are performed by
an accredited independent valuer. Investment
properties are independently valued on a
rotational basis, every three years, unless the
underlying financing requires or the Directors
determine a more frequent valuation cycle. For
properties subject to an independent valuation
report the Directors verify all major inputs to the
valuation and review the results with the
independent valuer. The Director valuations are
completed by the NSH Group Board. The
valuations are determined using the same
techniques and similar estimates to those
applied by the independent valuer.
Investment properties are derecognised either
when they have been disposed of or when they
are permanently withdrawn from use and no
future economic benefit is expected from their
disposal. The difference between the net
disposal proceeds and the carrying amount of
the asset is recognised in the statement of profit
or loss in the period of derecognition.
Transfers are made to or from investment
property only when there is a change in use. For
a transfer from investment property to property,
plant and equipment the deemed cost for
subsequent accounting is the fair value at the
date of change in use. If property, plant and
equipment becomes an investment property,
the Group accounts for such property in
Leasehold investment properties
The NSH Group, as lessee, has properties under
operating leases that, in accordance with AASB
140 Investment Property, qualify for treatment as
investment properties. Under this treatment, for
each property, the present value of the
minimum lease payments is determined and
carried as a lease liability as if it were a finance
lease and the fair value of the lease to the NSH
Group is recorded each period as investment
property under an operating lease.
Gains or losses arising from changes in the fair
values of investment properties are included in
profit or loss in the period in which they arise,
including the corresponding tax effect. Fair
values are determined using the same valuation
process applied to freehold investment
property.
Lease payments are allocated between the
principal component of the lease liability and
interest expense so as to achieve a constant
rate of interest on the remaining balance of the
liability. Interest expense is recognised in finance
costs in the consolidated statements of profit
and loss and within payment of finance lease
liabilities within the consolidated statements of
cash flows.
(p)
Intangible assets
Intangible assets acquired separately are
measured on initial recognition at cost. The cost
of intangible assets acquired in a business
combination is their fair value at the date of
acquisition. Following initial recognition,
intangible assets are carried at cost less any
accumulated amortisation and accumulated
impairment losses. Internally generated
intangibles, excluding capitalised development
costs, are not capitalised and the related
expenditure is reflected in profit or loss in the
period in which the expenditure is incurred.
The useful lives of intangible assets are assessed
as either finite or indefinite. Intangible assets with
finite lives are amortised over the useful
economic life and assessed for impairment
whenever there is an indication that the
intangible asset may be impaired. The
amortisation period and the amortisation
method for an intangible asset with a finite
useful life are reviewed at least at the end of
each reporting period.
(q)
Impairment of assets
Changes in the expected useful life or the
expected pattern of consumption of future
economic benefits embodied in the asset are
considered to modify the amortisation period or
method, as appropriate, and are treated as
changes in accounting estimates and adjusted
on a prospective basis. The amortisation
expense on intangible assets with finite lives is
recognised in the statement of profit or loss as
the expense category that is consistent with the
function of the intangible assets.
Intangible assets with indefinite useful lives, such
as goodwill, are not amortised but are tested for
impairment at each reporting period, either
individually or at the CGU level. The assessment
of indefinite life is reviewed at each reporting
period to determine whether the indefinite life
continues to be supportable. If not, the change
in useful life from indefinite to finite is made on a
prospective basis. Gains or losses arising from
derecognition of an intangible asset are
measured as the difference between the net
disposal proceeds and the carrying amount of
the asset and are recognised in the statement
of profit or loss when the asset is derecognised.
Research costs are expensed as incurred.
Development expenditure on an individual
project is recognised as an intangible asset
when the Group can demonstrate:
•
•
•
•
•
The technical feasibility of completing the
intangible asset so that the asset will be
available for use or sale;
Its intention to complete and its ability and
intention to use or sell the asset;
How the asset will generate future
economic benefits;
The availability of resources to complete the
asset;
The ability to measure reliably the
expenditure during development.
Following initial recognition of the development
expenditure as an asset, the asset is carried at
cost less any accumulated amortisation and
accumulated impairment losses. Amortisation of
the asset begins when development is
complete and the asset is available for use. It is
amortised over the period of expected future
benefit. Amortisation is recorded in other
operational expenses. During the period of
development, the asset is tested for impairment
annually.
Goodwill and intangible assets that have an
indefinite useful life are not subject to
amortisation and are tested annually for
impairment or more frequently if events or
changes in circumstances indicate that they
might be impaired. Other assets are tested for
impairment whenever events or changes in
circumstances indicate that the carrying
amount may not be recoverable.
An impairment loss is recognised for the amount
by which the asset’s carrying amount exceeds
its recoverable amount. The recoverable
amount is the higher of an asset’s fair value less
costs of disposal and value in use. For the
purposes of assessing impairment, assets are
grouped at the lowest levels for which there are
separately identifiable cash inflows which are
largely independent of the cash inflows from
other assets or groups of assets (cash-generating
units). Non-financial assets other than goodwill
that have been impaired in previous periods are
reviewed for possible reversal of the impairment
at the end of each reporting period.
(r)
Trade and other payables
These amounts represent liabilities for goods and
services provided to the Group prior to the end
of financial year which are unpaid. The amounts
are unsecured and are usually paid within 30
days of recognition. Trade and other payables
are presented as current liabilities unless
payment is not due within 12 months after the
reporting period. They are recognised initially at
their fair value and subsequently measured at
amortised cost using the effective interest
method.
Payables to related parties are carried at the
principal amount. No interest is charged on
these payables.
(s)
Borrowings
Borrowings are initially recognised at fair value,
net of transaction costs incurred. Borrowings are
subsequently measured at amortised cost. Any
difference between the proceeds (net of
transaction costs) and the redemption amount
is recognised in profit or loss over the period of
the borrowings using the effective interest
method. Fees paid on the establishment of loan
facilities are recognised as transaction costs of
the loan to the extent that it is probable that
some or all of the facility will be drawn down. In
this case, the fee is deferred until the draw down
FINANCIAL STATEMENTS
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
80
81
occurs. To the extent there is no evidence that it
is probable that some or all of the facility will be
drawn down, the fee is capitalised as a
prepayment for liquidity services and amortised
over the period of the facility to which it relates.
Borrowings are removed from the balance sheet
when the obligation specified in the contract is
discharged, cancelled or expired. The
difference between the carrying amount of a
financial liability that has been extinguished or
transferred to another party and the
consideration paid, including any non-cash
assets transferred or liabilities assumed, is
recognised in profit or loss as other income or
finance costs.
Borrowings are classified as current liabilities
unless the group has an unconditional right to
defer settlement of the liability for at least 12
months after the reporting period.
(t)
Borrowing costs
Borrowing costs are recognised as an expense
when incurred unless they relate to the
acquisition, construction or production of a
qualifying asset or to upfront borrowing
establishment and arrangement costs, which
are deferred and amortised as an expense over
the life of the facility. Borrowing costs incurred
for the construction of any qualifying asset are
capitalised during the period of time that is
required to complete and prepare the asset for
its intended use or sale.
(u)
Provisions
Provisions are recognised when the Group has a
present obligation (legal or constructive) as a
result of a past event, it is probable that an
outflow of resources embodying economic
benefits will be required to settle the obligation
and a reliable estimate can be made of the
amount of the obligation. When the Group
expects some or all of a provision to be
reimbursed, the reimbursement is recognised as
a separate asset, but only when the
reimbursement is virtually certain. Provisions are
not recognised for future operating losses.
Provisions are measured at the present value of
management’s best estimate of the
expenditure required to settle the present
obligation at the end of the reporting period.
The discount rate used to determine the present
value is a pre-tax rate that reflects current
market assessments of the time value of money
and the risks specific to the liability. The increase
in the provision due to the passage of time is
recognised as interest expense.
The Group does not have a provision for legal
claims.
In accordance with lease agreements, the
Group must restore the leased premises in a
number of leasehold premises to its original
condition at lease expiry. A provision has been
recognised for the obligation to remove
leasehold improvements from the leased
premises (note 11.7).
The Group also holds an onerous lease provision
related to future lease payments payable on
former head office premises no longer occupied
by the Group.
(v)
Employee benefits
Short-term obligations
Liabilities for wages and salaries, including non-
monetary benefits, and accumulating annual
leave which are expected to be settled within
12 months of the reporting date are recognised
in respect of employees' services up to the
reporting date. They are measured at the
amounts expected to be paid when the
liabilities are settled.
Other long-term employee benefits obligations
The Group does not expect its long service
leave benefits to be settled wholly within 12
months of each reporting date. The Group
recognises a liability for long service leave
measured as the present value of expected
future payments to be made in respect of
services provided by employees up to the
reporting date using the projected unit credit
method. Consideration is given to previous
experience of employee departures, and
periods of service. Expected future payments
are discounted using market yields at the
reporting date on the applicable corporate
bonds with terms to maturity and currencies that
match, as closely as possible, the estimated
future cash outflows.
Retirement benefit obligations
All employees can direct the Group to make
contributions to a defined contribution plan of
their choice. Contributions to defined
contribution superannuation funds are
recognised as an expense as they become
payable. Prepaid contributions are recognised
as an asset to the extent that a cash refund or a
reduction in the future payments is available.
(w) Contributed equity
Issued and paid up capital is recognised at the
fair value of the consideration received by the
Group. Stapled securities are classified as equity.
Incremental costs directly attributable to the
issue of securities are shown in equity as a
deduction, net of tax, from the proceeds.
(x)
Dividends and distributions to
securityholders
The Group recognises a liability to make cash or
non-cash distributions to equity holders when
the distribution is authorised and is no longer at
the discretion of the Company or the
Responsible Entity. A corresponding amount is
recognised directly in equity.
Non-cash distributions are measured at the fair
value of the assets to be distributed with fair
value re-measurement recognised directly in
equity. Any difference between the carrying
amount of the liability and the carrying amount
of the assets distributed is recognised in the
statement of profit or loss.
(y)
Rounding of amounts
The Group is of a kind referred to in ASIC
Corporations (Rounding in Financial/Directors’
Reports) Instrument 2016/191, relating to the
‘rounding off’ of amounts in the financial
statements. Amounts in the financial statements
have been rounded off to the nearest thousand
dollars, or in certain cases, the nearest dollar.
(z)
Parent entity financial information
The financial information for the parent entity,
NSH, disclosed in note 22 has been prepared on
the same basis as the consolidated financial
statements, except as set out below.
Investments in subsidiaries
Investments in subsidiaries are accounted for at
cost in the financial statements of NSH.
Tax consolidation legislation
NSH and its wholly-owned entities have
implemented the tax consolidation legislation.
The head entity, NSH, and the controlled entities
that are in the tax consolidated group, account
for their own current and deferred tax amounts.
These tax amounts are measured as if each
entity in the tax consolidated group continues to
be a stand-alone tax payer in its own right.
In addition to its own current and deferred tax
amounts, NSH also recognises the current tax
liabilities (or assets) and the deferred tax assets
arising from unused tax losses and unused tax
credits assumed from controlled entities in the
tax consolidated group.
The entities have also entered into a tax funding
agreement under which the wholly-owned
entities fully compensate NSH for any current tax
payable assumed and are compensated by
NSH for any current tax receivable and deferred
tax assets relating to unused tax losses or unused
tax credits that are transferred to NSH under the
tax consolidation legislation. The funding
amounts are determined by reference to the
amounts recognised in the wholly-owned
entities' financial statements. The amounts
receivable/payable under the tax funding
agreement are due upon receipt of the funding
advice from the head entity. The head entity
may also require payment of interim funding
amounts to assist with its obligations to pay tax
instalments.
Assets or liabilities arising under tax funding
agreements with the tax consolidated entities
are recognised as current amounts receivable
from or payable to other entities in the Group.
(aa) Fair value measurement
The Group measure financial instruments, such
as derivatives, and non-financial assets such as
investment properties, at fair value at each
balance sheet date.
Fair value is the price that would be received to
sell an asset or paid to transfer a liability in an
orderly transaction between market participants
at the measurement date. The fair value
measurement is based on the presumption that
the transaction to sell the asset or transfer the
liability takes place either:
•
•
In the principal market for the asset or
liability; or
In the absence of a principal market, in the
most advantageous market for the asset or
liability.
The principal or the most advantageous market
must be accessible by the group.
The fair value of an asset or liability is measured
using the assumptions that market participants
FINANCIAL STATEMENTS
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
82
83
Director valuations, determined using the same
techniques and similar estimates to those
applied by the independent valuer. The key
assumptions used to determine the fair value of
the properties and the sensitivity analyses are
provided in note 11.8.
Impairment of non-financial assets – intangibles
An impairment exists when the carrying value of
an asset or CGU exceeds its recoverable
amount, which is the higher of its fair value less
costs to sell and its value in use. The fair value
less costs to sell calculation is based on the fair
value of the Group’s stapled securities as listed
on the Australian Securities Exchange which has
been assessed as one CGU, less costs of
disposal.
would use when pricing the asset or liability,
assuming that market participants act in their
economic best interest. A fair value
measurement of a non-financial asset takes into
account a market participant's ability to
generate economic benefits by using the asset
in its highest and best use or by selling it to
another market participant.
The Group uses valuation techniques that are
appropriate in the circumstances and for which
sufficient data is available to measure fair value,
maximising the use of relevant observable inputs
and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is
measured or disclosed in the financial
statements are categorised within the fair value
hierarchy, based on the lowest level input that is
significant to the fair value measurement as a
whole:
•
•
•
Level 1 — Quoted (unadjusted) market
prices in active markets for identical assets
or liabilities
Level 2 — Valuation techniques for which
the lowest level input that is significant to
the fair value measurement is directly or
indirectly observable
Level 3 — Valuation techniques for which
the lowest level input that is significant to
the fair value measurement is unobservable
For assets and liabilities that are recognised in
the financial statements on a recurring basis, the
Group determines whether transfers have
occurred between levels in the hierarchy by re-
assessing categorisation (based on the lowest
level input that is significant to the fair value
measurement as a whole) at the end of each
reporting period.
For further details on fair value refer to notes 10.8
and 11.8.
3.
SIGNIFICANT ACCOUNTING
JUDGEMENTS, ESTIMATES AND
ASSUMPTIONS
The preparation of the Group’s consolidated
financial statements requires management to
make judgements, estimates and assumptions
that affect the reported amounts of revenues,
expenses, assets and liabilities, and the
accompanying disclosures, and the disclosure
of contingent assets and liabilities. Uncertainty
about these assumptions and estimates could
result in outcomes that require a material
adjustment to the carrying amount of the assets
or liabilities affected in future periods.
Judgements
In the process of applying the Group’s
accounting policies, management has made
the following judgements, which have a
significant effect on the amounts recognised in
the consolidated financial statements:
Significant judgements
Acquisition of storage centre assets
For the acquisition of storage centres, the
Group’s policy is to review the nature of the
transaction and assess if the transaction should
be accounted for under AASB 3 Business
Combinations or AASB 140 Investment Properties
as a purchase of investment property.
The key assessment to be made is whether the
transaction constitutes a purchase of a
‘business’, if so it will be accounted for under
AASB3, as detailed in note 5. A substantial test of
a business purchase, is if in addition to ‘inputs’
acquired ie. the property, ‘processes’ such as
strategic, operational and resource
management process are also acquired.
If it is determined that the transaction does not
meet this definition, the transaction is
accounted for as a purchase of an asset under
AASB140, as an acquisition of a storage
centre(s) held for rental return and capital
appreciation.
For the year ended 30 June 2018, the Group has
assessed that all of its storage centre
acquisitions do not meet the definitions set out
in AASB 3 and are therefore accounted for as
purchases of investment property per AASB 140
as detailed in note 11.4.
Deferred income tax
Deferred tax assets are recognised by the
Group for unused tax losses to the extent that it
is probable that taxable profit will be available
against which the losses can be utilised.
Significant management judgement is required
to determine the amount of deferred tax assets
that can be recognised, based upon the likely
timing and the level of future taxable profits
together with future tax planning strategies.
The Group has tax losses which arose in Australia
and are available for offsetting against future
taxable profits of the NSH Australian tax group.
These losses are subject to the satisfaction of the
same business test and a reduced rate of
utilisation under the 'available fraction' rules. The
Group has assessed the expected utilisation
profile of these tax losses based upon
forecasted levels of future profits within the NSH
Australian tax consolidated group and have
recognised a deferred tax asset where it is
probable that there will be sufficient future
taxable profits in the Group against which this
deferred tax asset will be recovered. The Group
has not recognised a deferred tax asset on a
proportion of these losses where the future
utilisation of these is more uncertain.
Classification of joint arrangements
The NSPT Group holds a 25% interest in the
Bundall Storage Trust, and the NSH Group holds
a 25% interest in the Bundall Commercial Trust.
During the year the NSH Group also subscribed
to 83.3% of the units in FKS Investments No.2 Unit
Trust.
In each arrangement, investments are classified
as joint ventures as all parties are subject to a
Securityholders Agreement that has been
contractually structured such that the parties to
the agreement have equal representation on
the advisory board responsible for the overall
direction and supervision of each trust.
Estimates and assumptions
The key assumptions concerning the future and
other key sources of estimation uncertainty at
the reporting date, that have significant risk of
causing a material adjustment to the carrying
amounts of assets and liabilities within the next
financial year, are described below.
Assumptions and estimates are based on
parameters available when the consolidated
financial statements were prepared. Existing
circumstances and assumptions about the
future developments may change due to
market changes or circumstances arising
beyond the control of the Group. Such changes
are reflected in the assumptions when they
occur.
Revaluation of investment properties
The Group carries its investment properties at fair
value, with changes in fair value being
recognised in the statement of profit or loss
under fair value adjustments. Fair values are
determined by a combination of independent
valuations assessed on a rotational basis and
FINANCIAL STATEMENTS
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
84
85
4.
SEGMENT INFORMATION
The Group operates wholly within one business segment being the operation and management of
storage centres in Australia and New Zealand. The operating results presented in the statements of
profit or loss represent the same segment information as reported in internal management information.
The Managing Director, supported by the executive management team, is the Group’s chief operating
decision maker and monitors the operating results on a portfolio wide basis. Monthly management
reports are evaluated based the overall performance of NSR consistent with the presentation within the
consolidated financial statements. The Group’s financing (including finance costs and finance income)
are managed on a Group basis and not allocated to operating segments.
Geographic information
Revenue from external customers
Australia
New Zealand
Total
2018
$'000
2017
$'000
130,709
8,912
139,621
110,669
6,833
117,502
5.
BUSINESS COMBINATIONS
Business combination in the prior period
On 30 August 2016, National Storage (Operations) Pty Ltd, a subsidiary of the Group acquired 100% of
the share capital of Southern Cross Storage Operations Pty Ltd. National Storage Property Trust and
National Storage Southern Trust, subsidiaries of the Group, acquired the investment properties of
Southern Cross Storage Trust.
The assets and liabilities assumed as part of this transaction constituted those of a business. On this basis,
the Group determined that this transaction met the definition of a Business Combination and
accounted for this transaction following the requirements of AASB 3.
The acquisition secured long term ownership of strategically important assets which were
complementary to the Group’s pre-existing property portfolio and already integrated into the Group’s
operating platform.
Prior to completion the Group held a 10% interest in the Southern Cross Storage Group which consisted
of Southern Cross Operations Pty Ltd and Southern Cross Storage Trust. This resulted in a disposal of the
investment in a joint venture (see note 13).
The revenue information above is based on the location of storage centres.
Assets acquired and liabilities assumed
Geographic information
Non-current operating assets
Australia
New Zealand
Total
2018
$'000
2017
$'000
1,503,585
92,288
1,595,873
1,258,794
74,895
1,333,689
Non-current assets for this purpose consists of property, plant and equipment, investment properties
and intangible assets (excluding goodwill).
The Group has no individual customer which represents greater than 10% of total revenue.
The fair value of the identifiable assets and liabilities acquired of the Southern Cross Storage Group as
at the date of acquisition were:
Assets
Investment properties
Cash and cash equivalents
Trade and other receivables
Inventories
Deferred tax asset
Other current assets
Liabilities
Trade and other payables
Deferred revenue
Provisions
Total identifiable net assets at fair value
Goodwill arising on acquisition
Purchase consideration transferred
Notes
11.5
2017
$'000
267,096
1,261
219
138
1,039
241
269,994
(6,639)
(2,681)
(364)
(9,684)
260,310
30,195
290,505
The goodwill of $30.2m represented the premium attached to a portfolio purchase of investment
properties and the expected synergies arising from the acquisition.
There have been no changes to the provisional fair value of the assets and liabilities acquired at the
date of acquisition.
From the date of acquisition to 30 June 2017 Southern Cross Storage Operations Pty Ltd contributed
$23.1m of revenue and $2.2m of profit before tax to the Group.
FINANCIAL STATEMENTS
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
86
87
If the combination had taken place at the beginning of the prior period, and NSR had wholly owned
the Southern Cross Storage Group for the full year, NSR revenue for the financial year ended 30 June
2017 would have been $122m. Due to the terms and conditions agreed at inception of the venture, on
wind up the Group achieved a management performance fee equal to the profit of Southern Cross for
the period 1 July 2016 to the date of acquisition. Therefore, profit before tax for the Group, in the prior
year would have been unchanged.
(cid:51)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:71)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)
Cash and cash equivalents
Total consideration
Analysis of cash flows on acquisition
Transaction costs of the acquisition (included in cash flows from investing
activities)
Net cash acquired with the subsidiary (included in acquisition of
subsidiary and property portfolio, net of cash acquired per statement of
cashflows
2017
$'000
290,505
290,505
13,837
(1,261)
303,081
The acquisition had no elements of contingent consideration.
The Consolidated Group incurred transaction costs of $13.8m which were expensed and are included
within business combination costs in the income statement for the year end 30 June 2017.
6.
OTHER REVENUE
Other revenue
Interest revenue
Design, development and project management fees
Other revenue
Total other revenue
Notes
8
2018
$'000
757
2,465
4,079
7,301
2017
$'000
853
1,630
2,206
4,689
7.
EXPENSES AND OTHER INCOME
Other operational expenses
Insurance
Professional fees
Communications costs
Information technology costs
Bank charges
Motor vehicle expenses
Depreciation of non-current assets
Amortisation of intangible assets
Travel and entertainment
Foreign exchange losses
Other
Total other operational expenses
Employee expenses
Wages and salaries
Post-employment benefits
Other employee costs
Total employee expenses
Notes
11.3
11.5
2018
$'000
2,323
1,692
1,716
1,602
840
476
357
395
455
142
1,435
11,433
19,748
1,706
3,292
24,746
2017
$'000
1,894
1,354
1,259
924
701
373
309
266
459
14
441
7,994
17,635
1,621
3,216
22,472
Minimum lease payments recognised as an operating
lease expense
609
459
Fair value adjustments
Investment property – net gain
11.4
92,368
76,803
8.
FINANCE INCOME AND COSTS
Finance income
Bank interest
Interest income from related parties
Total finance income
Finance costs
Interest on borrowings
Finance charges on finance leases
Total finance costs
Notes
6
2018
$'000
251
506
757
2017
$'000
715
138
853
20,634
8,278
28,912
15,345
8,815
24,160
FINANCIAL STATEMENTS
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
88
9.
INCOME TAX
NSPT is a ‘flow through’ entity for Australian income tax purposes and has elected into the AMIT rules
from 1 July 2017, such that the determined tax components of NSPT will be taxable in the hands of
unitholders on an attribution basis. NSPT’s subsidiary National Storage New Zealand Property Trust
(“NSNZPT”) is an Australian registered trust which owns investment property in New Zealand. For New
Zealand tax purposes NSNZPT is classed as a unit trust and is subject to New Zealand income tax at a
rate of 28%. Future distributions from NSNZPT to NSPT may have attached Foreign Income Tax Offsets,
which when subsequently distributed by NSPT may be claimed by an Australian tax resident,
depending on their personal circumstances.
The major components of income tax expense / (benefit) for the years ended 30 June 2018 and 30
June 2017 are:
Consolidated statement of profit or loss
Current tax
Deferred tax
Total income tax (benefit) / expense
Notes
2018
$'000
1,365
(3,384)
(2,019)
2017
$'000
1,548
2,620
4,168
Consolidated statement of other comprehensive income
Deferred tax relating to items recognised in other comprehensive
income during the year
Cost of issuing share capital
Net (loss) / gain on revaluation of cash flow hedges
Deferred tax charged to other comprehensive income
15
(240)
(84)
(324)
-
24
24
Reconciliation of tax expense and the accounting profit multiplied
by Australia’s domestic tax rate for 2018 and 2017:
Profit from continuing operations
Deduct profit before tax from Trusts owning Australian property
Accounting profit before income tax
143,754
(141,015)
2,739
107,581
(96,248)
11,333
Tax at the Australian tax rate of 30% (2017 – 30%)
822
3,400
Non-assessable income
Adjustments in respect of previous years
Other non-deductible expenses
(Recognition) / derecognition of previously (unrecognised)/
recognised tax losses
Effect of lower tax rates in New Zealand
Income tax (benefit) / expense
(1,367)
(810)
66
(679)
(51)
(2,019)
(240)
27
581
371
29
4,168
89
Deferred tax expense included in income tax (benefit) / expense
comprises:
Increase in deferred tax assets
Increase in deferred tax liabilities
Deferred tax assets acquired in business combinations
Movement of deferred tax asset on carry forward losses shown in
current tax expense
Exchange variations
Movement in deferred tax asset recognised in other comprehensive
income
Total deferred tax (benefit) / expense
Deferred tax assets and liabilities
(cid:39)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)
The balance comprises temporary differences attributable to:
Lease liability
Employee benefits
Accrued expenses
Carry forward losses
Formation expenses
Make-good provision
Revaluation of cash flow hedges
Revaluation of investment property asset
Other
Total deferred tax assets
(cid:39)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:68)(cid:91)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)
The balance comprises temporary differences attributable to:
Prepayments
Other receivables
Revaluations of investment properties
Unrealised foreign exchange losses
Total deferred tax liabilities
Net deferred tax asset / (liability)
Reconciliation to statement of financial position
Deferred tax asset
Deferred tax liability
Net deferred tax asset / (liability)
2018
$'000
2017
$'000
(10,556)
7,301
-
(63,626)
66,458
1,039
(453)
-
(1,232)
5
324
(3,384)
(24)
2,620
190,473
528
349
1,644
200
333
130
1,634
49
195,340
181,333
620
602
1,973
10
164
50
-
31
184,783
12
232
194,677
6
194,927
9
47
187,555
15
187,626
413
(2,843)
1,019
(606)
413
525
(3,368)
(2,843)
The Group offsets tax assets and liabilities if it has a legally enforceable right to set off current tax assets
and current tax liabilities and the deferred tax asset and deferred tax liabilities relate to income taxes
levied by the same tax authority. The deferred tax balances above reflect NSH Group and NSNZPT’s tax
obligations and in some instances are calculated with reference to the tax base of balances that are
eliminated on group consolidation but still have a tax impact on a taxpayer basis.
The Group has total gross tax losses which arose in Australia of $10,947,456 (2017: $12,456,902). These
losses are available for offsetting against future taxable profits of the NSH Australian tax group. These
losses are subject to the satisfaction of the same business test and a reduced rate of utilisation under
the 'available fraction' rules. The Group has assessed the expected utilisation profile of these tax losses
and has recognised a deferred tax asset of $1,644,002 (2017: $1,418,148) on NSH Australian group tax
losses of $5,480,006 (2017: $4,727,160) on the basis it is probable that there will be sufficient future
taxable profits in the Group against which this deferred tax asset will be recovered (see note 3).
FINANCIAL STATEMENTS
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
90
91
The NSH Australian group also has gross tax losses of $5,467,450 (2017: $7,729,742) for which a deferred
tax asset has not been recognised, as the future utilisation of these losses is more uncertain.
The Group has utilised all tax losses which have arisen in New Zealand. In the prior year the Group
recognised a deferred tax asset of NZD $579,739 (AUD $554,926) on the basis it was probable that there
would be sufficient future taxable profits in National Storage Limited and National Storage New
Zealand Property Trust against which this deferred tax could have been recovered.
10.
FINANCIAL ASSETS AND FINANCIAL LIABILITIES
This note provides information about the Group’s current and non-current financial instruments
including:
•
•
•
An overview of all financial instruments held by the Group;
Specific information about each type of financial instrument;
Information about determining the fair value of the instruments, including areas of judgement,
estimates and other assumptions.
The Group hold the following financial instruments:
Financial assets
At amortised cost
Cash and cash equivalents
Trade and other receivables
Deposits
Derivatives used for hedging – at fair value through other
comprehensive income
T(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:86)
Financial liabilities
At amortised cost
Trade and other payables
Borrowings
Finance leases
Derivatives used for hedging – at fair value through other
comprehensive income
T(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)
Notes
2018
$'000
2017
$'000
10.1
10.2
10.3
21,333
15,753
1,074
38,160
23,166
11,450
631
35,247
10.3
2,186
3,328
40,346
38,575
10.4
10.5
10.7
12,318
600,348
161,388
774,054
8,778
484,615
168,355
661,748
10.6
4,383
3,425
778,437
665,173
The Group’s approach to financial risk management is discussed in note 16. The maximum exposure to
credit risk at the end of the reporting period is the carrying amount of each class of financial asset
mentioned above.
10.1. Cash and cash equivalents
Current assets
Cash on hand
Cash at bank
Total cash and cash equivalents
2018
$'000
2017
$'000
46
21,287
21,333
41
23,125
23,166
Cash flow reconciliation of net profit after tax to net cash flows from operations
Profit after income tax
Income tax (benefit) / expense
Profit before tax
Adjustments to reconcile profit before tax to net cash flows:
Depreciation and amortisation
Amortisation of intangible assets
Impairment of assets included within restructuring and other
non-recurring costs
Fair value adjustment to investment properties
Share of profit of joint venture
Finance income
Finance costs
Business combination costs
Changes in operating assets and liabilities:
Increase in receivables
Increase in inventories
(Increase) / decrease in other assets
Increase in payables
Increase in deferred revenue
Increase in provisions
Cash flows from operating activities
Interest received
Income tax paid
2018
$'000
145,773
(2,019)
143,754
2017
$'000
103,413
4,168
107,581
357
395
-
309
266
633
(92,368)
(1,342)
(757)
28,912
-
(76,803)
(2,110)
(853)
24,160
13,837
(3,579)
(56)
(1,472)
2,600
999
(631)
76,812
265
(85)
(3,518)
(89)
(991)
879
1,178
89
64,568
683
(155)
Net cash flows from operating activities
76,992
65,096
10.2.
Trade and other receivables
Current
Trade receivables
Provision for doubtful debts
Other receivables
Receivables from related parties
Non-current
Other receivables
Total current and non-current
Notes
18
2018
$'000
3,054
(23)
3,031
4,082
8,039
15,152
2017
$'000
2,291
(42)
2,249
2,390
6,701
11,340
601
110
15,753
11,450
FINANCIAL STATEMENTS
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
92
93
Classification as trade and other receivables
10.4.
Trade and other payables
Trade receivables are amounts due from customers for storage rental, goods sold or services performed
in the ordinary course of business. Loans and other receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active market. If collection is expected in
one year or less they are classified as current assets. If not, they are presented as non-current assets.
Impairment of receivables
The provision for impairment (doubtful debts) of receivables represents an estimate of trade debtors
that are not considered to be recoverable. At 30 June 2018 and 30 June 2017, the Group recognised a
provision for trade receivables relating to receivables acquired on the purchase of investment
properties and via a business combination where there are specific risks around recoverability. See
below for the movements in the provision for impairment of receivables in the Group.
At 1 July
Charge for the year
Recognised on acquisition of investment properties / business
combination
Utilised
At 30 June
The age of trade receivables not impaired was as follows:
0 to 3 months
3 to 6 months
Over 6 months
2018
$'000
42
-
79
(98)
23
2018
$'000
2,590
312
129
3,031
2017
$'000
-
-
238
(196)
42
2017
$'000
1,570
331
348
2,249
The carrying amounts of current receivables are assumed to be the same as their fair values, due to
their short-term nature. The fair value of non-current receivables approximates carrying value.
10.3. Other assets
Current
Deposits
Prepayments
Financial assets (derivatives)
Non-current
Financial assets (derivatives)
Total current and non-current
2018
$'000
1,074
4,263
87
5,424
2017
$'000
631
3,678
-
4,309
2,099
3,328
7,523
7,637
All derivatives have been designated as cash flow hedges. They are presented as current assets or
liabilities if they are expected to be settled within 12 months after the end of the reporting period.
The derivatives above relate to interest rate swaps held by the Group, for further details see note 10.5.
Current
Trade payables
Accrued expenses
Goods and services tax and employment taxes payable
Other payables
Total
2018
$'000
4,184
2,717
1,256
4,161
12,318
2017
$'000
530
5,951
1,301
996
8,778
Trade payables are unsecured and are usually paid within 30 days of recognition. Other payables and
accruals are paid when amounts fall due. The carrying amounts of trade and other payables are
assumed to be the same as their fair values, due to their short-term nature.
10.5.
Borrowings
Non-current
Bank finance facility
Non-amortised borrowing costs
Total borrowings
2018
$'000
2017
$'000
600,348
(3,938)
596,410
484,615
(2,845)
481,770
The Consolidated Group and NSPT Group has non-current borrowing facilities denominated in
Australian Dollars (“AUD”) and New Zealand Dollars (“NZD”).
The major terms of these agreements are as follows:
•
The facility limits are AUD $605m (2017: $455m) and NZD $121m (AUD $110.7m) (2017: NZD $96m
(AUD $91.5m)) of which AUD $520.3m (2017: $417.5m), and NZD $87.5m (AUD $80m) (2017: NZD
$70.5m (AUD $67.2m)) was drawn at the year end.
• Maturity dates on the facilities range from 23 July 2019 to 23 December 2026 (2017: 23 December
2019 to 23 December 2026).
All facilities are interest only facilities with any drawn balances payable at maturity.
The interest rate applied is the bank bill rate (BBSY) plus a margin depending on the gearing ratio.
At 30 June 2018 the Group’s weighted average interest margin is 1.75% (30 June 2017: 1.69%).
Security has been granted over the Group's freehold properties.
•
•
•
The Group has a bank overdraft facility with a limit of $3m that was undrawn at 30 June 2018 and 30
June 2017. During the year, the Group refinanced part of the existing debt facilities and increased its
club banking facilities by AUD $150m and NZD $25m.
The Group have complied with the financial covenants of their borrowing facilities during the 2018 and
2017 reporting periods (see note 17). The fair value of borrowings approximates carrying value. Details
of the exposure to risk arising from current and non-current borrowings are set out in note 16.
Interest rate swaps
The Group have AUD $270m (2017: $230m), and NZD $53.5m (AUD $48.9m) (2017: NZD $40m (AUD
$38.1m)) of current interest rate hedges and AUD $400m (2017: $180m), and NZD $100m (AUD $91.5m)
(2017: NZD $13.5m (AUD $12.9m)) of future interest rate hedges in place as at the end of the reporting
period with maturity dates ranging from 24 September 2018 to 23 September 2026 (2017: 22 December
2017 to 23 September 2026).
Under this arrangement the Group pays a fixed rate of interest of 2.25% (2017: 2.29%) and receives
interest at a variable rate equal to BBSY on the notional amount. The swaps are used to hedge the
FINANCIAL STATEMENTS
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
94
95
exposure to changes in cash flows arising from its secured variable interest rate loan and has been
designated as a cash flow hedge, recognised through other comprehensive income.
Hedge of net investments in foreign operations
Included in borrowings at 30 June 2018 was a borrowing of NZD $27.2m (AUD $24.9m) which has been
designated as a hedge of the net investments against the value of investment property held in New
Zealand (2017: NZD $23.1m, (AUD $22m)). This borrowing is being used to hedge the Group’s exposure
to the NZD foreign exchange risk on these investments. Gains or losses on the retranslation of this
borrowing are transferred to other comprehensive income to offset any gains or losses on translation of
the net investments in the subsidiaries. There is no hedge ineffectiveness in the years ended 30 June
2018 or 30 June 2017 recognised in the statement of profit or loss.
10.6. Other liabilities
Current
Financial liabilities (derivatives)
Non-current
Financial liabilities (derivatives)
Notes
2018
$’000
2017
$’000
10.8
3
166
10.8
4,380
3,259
Total current and non-current
4,383
3,425
For details on the classification of derivatives see note 10.3.
10.7.
Finance leases
The Group has finance leases for investment properties. These leases have terms of renewal but no
purchase options. Renewals are at the option of the specific entity that holds the lease. Future
minimum lease payments under finance lease contracts together with the present value of the net
minimum lease payments are as follows:
Consolidated Group
Within one year
After one year but not more than five
years
More than five years
Minimum lease payments
Future finance charges
Total
2018
2017
Minimum
payments
$'000
Present
value of
payments
$'000
Minimum
payments
$'000
Present
value of
payments
$'000
12,321
4,446
12,885
4,504
51,716
228,857
292,894
(131,506)
161,388
23,321
133,621
161,388
-
161,388
53,240
241,941
308,066
(139,711)
168,355
22,800
141,051
168,355
-
168,355
10.8.
Financial instruments fair value measurement
Fair value hierarchy
This note explains the judgements and estimates made in determining the fair values of the financial
instruments recognised in the financial statements, as detailed in notes 10.1 to 10.7. To provide an
indication about the reliability of the inputs used in determining fair value, financial instruments are
classified into the following three levels.
Level 1: The fair value of financial instruments traded in active markets (such as publicly traded
derivatives, and trading and available-for-sale securities) is based on quoted market prices at the end
of the reporting period. The quoted market price used for any financial assets held is the current bid
price. These instruments are included in level 1.
Level 2: The fair value of financial instruments that are not traded in an active market (for example,
over-the-counter derivatives) is determined using valuation techniques which maximise the use of
observable market data and rely as little as possible on entity-specific estimates. If all significant inputs
required to fair value an instrument are observable, the instrument is included in level 2.
Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is
included in level 3.
Specific fair valuation techniques used to determine fair values include:
•
The fair value of interest rate swaps is calculated as the present value of the estimated future cash
flows based on observable yield curves, adjusted for counterparty or own credit risk.
The resulting fair value estimates for interest rate swaps are included in level 2.
Notes
Level 1
$'000
Level 2
$'000
Level 3
$'000
Total
$'000
At 30 June 2018
Derivative used for hedging - interest
rate swap
Current financial assets
Non-current financial assets
Current financial liabilities
Non-current financial liabilities
At 30 June 2017
Derivative used for hedging - Interest
rate swap
Non-current financial assets
Current financial liabilities
Non-current financial liabilities
10.3
10.3
10.6
10.6
10.3
10.6
10.6
-
-
-
-
-
-
-
-
-
87
2,099
(3)
(4,380)
(2,197)
3,328
(166)
(3,259)
(97)
-
-
-
-
-
-
-
-
-
87
2,099
(3)
(4,380)
(2,197)
3,328
(166)
(3,259)
(97)
There were no transfers between levels of fair value hierarchy during the year ended 30 June 2018.
FINANCIAL STATEMENTS
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
96
97
11.
NON-FINANCIAL ASSETS AND LIABILITIES
11.3.
Property, plant and equipment
This note provides information about the Group’s non-financial assets and liabilities including:
•
•
•
An overview of all non-financial assets and liabilities held by the Group;
Specific information about each type of non-financial asset and non-financial liability;
Information about determining the fair value of the non-financial assets and liabilities, including
areas of judgement, estimates and other assumptions.
11.1.
Inventories
At cost
Accumulated depreciation
Total property, plant and equipment
2018
$'000
1,708
(684)
1,024
2017
$'000
1,748
(519)
1,229
2018
$’000
2017
$’000
Reconciliation of the carrying amounts for each class of property, plant and equipment at the
beginning and end of the current financial period are shown below:
Finished goods - at lower of cost and net realisable value
656
600
11.2. Assets held for sale
Current assets
Opening balance at 1 July
Items reclassified from freehold investment property
Disposals during the year
Total assets held for sale
Notes
2018
$'000
2017
$'000
11.4
5,713
4,400
(4,400)
5,713
-
5,713
-
5,713
On 21 December 2017, the Group entered into an agreement for the sale of the land and
development rights of an investment property in Brisbane, Queensland to the Bundall Storage Trust. The
Bundall Storage Trust is a related party (see note 13 and 18). The transaction settled on 29 March 2018.
This has resulted in a realised gain of $0.7m on the asset’s carrying value. This has been included within
fair value adjustments in the statement of profit or loss.
On 19 October 2016 in the prior period, the Group entered into a contractual agreement for the sale of
the land and buildings of the Croydon self-storage centre for $5.8m, less cost of sale of $0.1m. This
resulted in an unrealised gain of $0.8m from the asset’s carrying value within freehold investment
property at 30 June 2017. This was included within fair value adjustments in the statement of profit or loss
in the prior period. Due to unforeseen circumstances outside of the Group’s control the settlement has
been delayed. The asset remains classified as held for sale at fair value at 30 June 2018 and the sale is
expected to complete in the next 12 months.
Plant and equipment
Carrying amount at beginning of the year
Additions
Items reclassified as investment property
Depreciation
Impairment of assets on restructuring*
Effect of movement in foreign exchange
Carrying amount at end of the year
Notes
11.4
2018
$'000
1,229
154
-
(357)
-
(2)
1,024
2017
$'000
1,684
900
(464)
(309)
(592)
10
1,229
*Presented within restructuring costs in the consolidated statement of profit or loss.
FINANCIAL STATEMENTS
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
98
11.4.
Investment properties
Investment properties at valuation
Leasehold investment properties
Freehold investment properties
Investment property at cost
Freehold investment property under construction
Total investment properties
Notes
2018
$'000
2017
$'000
11.8
11.8
207,664
1,377,924
226,955
1,101,860
7,210
1,592,798
2,063
1,330,878
Leasehold investment properties
Opening balance at 1 July
Property acquired through business combinations*
Other property acquisitions
Improvements to investment properties
Items reclassified from freehold investment properties
Items reclassified to freehold investment properties
Disposal of leasehold investment property
Reassessment of lease terms
Finance lease diminution, presented as fair value adjustments
Net (loss) / gain from other fair value adjustments
Closing balance at 30 June
5
Freehold investment properties at valuation
Opening balance at 1 July
Property acquired through business combinations
Other property acquisitions
Property disposals
Improvements to investment properties
Items reclassified to leasehold investment properties
Items reclassified from leasehold investment properties
Items reclassified from property, plant and equipment
Items reclassified from freehold investment property
under construction
Items reclassified to assets held for sale
Net gain from fair value adjustments
Effect of movement in foreign exchange
Closing balance at 30 June
5
11.3
11.2
Freehold investment property under construction at cost
Opening balance at 1 July
Property acquisitions
Development costs
Items reclassified to freehold investment properties
Closing balance at 30 June
226,955
-
-
631
-
(2,000)
(2,140)
(2,476)
(4,020)
(9,286)
207,664
1,101,860
-
165,726
(280)
7,513
-
2,000
-
2,301
(4,400)
106,229
(3,025)
1,377,924
218,430
10,809
8,317
497
1,200
(4,303)
-
(10,823)
(3,586)
6,414
226,955
625,700
260,900
140,497
(1,600)
4,736
(1,200)
4,303
464
-
(5,713)
73,975
(202)
1,101,860
2,063
-
7,448
(2,301)
7,210
-
2,063
-
-
2,063
*Represents acquisition of leasehold investment property of $6,196,000 plus net gross up of $4,613,000 relating to the
adoption of investment property accounting under AASB 140.
99
Gains for the year in profit or loss (recognised in fair value
adjustments)
Realised gains
Realised losses – finance lease diminution of leasehold investment
property
Unrealised gains
2018
$'000
2017
$'000
2,751
750
(4,020)
93,637
92,368
(3,586)
79,639
76,803
Included within net gain from fair value adjustments is a realised gain of $2,040,000 relating to the
divestment of leasehold investment properties and a realised gain of $711,000 relating to the
contracted divestment of freehold investment properties during the year (30 June 2017: realised gain of
$750,000 and unrealised gain of $779,000).
11.5.
Intangible assets
Goodwill
Opening net book value
Arising through business combinations
Closing net book value
Other intangible assets
Opening net book value
Additions
Amortisation
Impairment charge
Closing net book value
Total intangible assets
Notes
2018
$'000
2017
$'000
5
7
43,954
-
43,954
13,759
30,195
43,954
1,582
864
(395)
-
2,051
889
1,000
(266)
(41)
1,582
46,005
45,536
Goodwill is an asset acquired through business combinations. As described in note 5, during the prior
year the Group recognised $30.2m of goodwill on the acquisition of Southern Cross Storage Group.
Impairment testing of goodwill
Goodwill has been allocated to the listed group (NSR). Management have determined that the listed
group, which is considered one operating segment (see note 4), is the appropriate CGU against which
to allocate these intangible assets owing to the synergies arising from combining the portfolios of the
NSH Group, NSPT Group, and Southern Cross Storage Group.
The recoverable amount of the listed group has been determined based on the fair value less costs of
disposal method using the fair value quoted on an active market. As at 30 June 2018, NSR had
559,107,042 stapled securities quoted on the Australian Securities Exchange at $1.64 per security
providing a market capitalisation of $916.9m. This amount is in excess of the carrying amount of the
Group’s net assets. Had the security price decreased by 2.5% the market capitalisation would still have
been in excess of the carrying amount.
FINANCIAL STATEMENTS
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
100
101
11.6. Deferred revenue
Recognised fair value measurements
Deferred rent revenue
2018
$'000
2017
$'000
12,584
11,585
In the Group, deferred rent revenue represents funds received in advance from customers for rental
storage.
11.7.
Provisions
Current
Onerous operating lease
Make good provision
Annual leave
Long service leave
Non-current
Make good provision
Onerous operating lease
Long service leave
Reconciliation of movement in make good provisions
Opening balance
Arising during the year
Unwinding of discount and changes in discount rates
Closing balance
2018
$'000
85
156
962
727
1,930
1,436
-
77
1,513
1,030
555
7
1,592
2017
$'000
353
-
1,069
766
2,188
1,030
67
234
1,331
990
364
(324)
1,030
The Group has recognised an onerous lease provision related to future operating lease payments
payable on former head office premises no longer occupied by the Group.
The Group is required to restore the leased premises in a number of leasehold properties to their original
condition at the end of lease term. A provision has been recognised for the present value of the
estimated expenditure required to remove any leasehold improvements.
11.8. Non-financial assets fair value measurement
The Group’s policy is to recognise transfers into and out of fair value hierarchy levels at the end of the
reporting period. There were no transfers between levels 1 and 2 for recurring fair value measurements
during the year. During the year ended 30 June 2018 the Group transferred $4.4m from level 3 to level 2
following the reclassification of an asset from freehold investment properties to assets held for sale as
detailed in note 11.2, this asset was then sold during the year.
In the prior year ended 30 June 2017 the Group transferred $5.7m from level 3 to level 2 following the
reclassification of an asset from freehold investment properties to assets held for sale as detailed in note
11.2.
Fair value measurements using significant observable inputs (level 2)
The fair value of assets held for sale is determined using valuation techniques which maximise the use of
observable market data. For the years ended 30 June 2018 and 30 June 2017, the Group has valued
assets classified as held for sale at the contractually agreed sales price less estimated cost of sale or
other observable evidence of market value.
Fair value measurements using significant unobservable inputs (level 3)
Valuation techniques used to determine level 3 fair values and valuation process
Investment properties, principally storage buildings, are held for rental to customers requiring self-
storage facilities. They are carried at fair value. Changes in fair values are presented in profit or loss as
fair value adjustments.
Fair values are determined by a combination of independent valuations and Director valuations. The
independent valuations are performed by an accredited independent valuer. Investment properties
are independently valued on a rotational basis every three years unless the underlying financing
requires a more frequent valuation cycle. For properties subject to an independent valuation report the
Directors verify all major inputs to the valuation and review the results with the independent valuer. The
Director valuations are completed by the NSH Group Board. The valuations are determined using the
same techniques and similar estimates to those applied by the independent valuer.
As in the previous financial year, the Group has elected to obtain the majority of its independent
valuation for a proportion of the portfolio at 30 June financial year end. This is consistent with the
valuation cycle applied by other real estate investment trusts.
The Directors’ valuations are applied to all investment properties which have not been valued by an
independent valuer in the preceding 12 months. The carrying value of investment properties which
have been independently valued within this timescale have been maintained at the independent
valuation, unless there is evidence of impairment.
The Group has classified its non-financial assets held at fair value into the three levels prescribed in note
10.8 to provide an indication about the reliability of inputs used to determine fair value.
The table below details the percentage of the number of investment properties subject to internal and
external valuations during the current and comparable reporting periods
Notes
Level 1
$'000
Level 2
$'000
Level 3
$'000
Total
$'000
At 30 June 2018
Assets held for sale
Leasehold investment properties
Freehold investment properties
At At 30 June 2017
Assets held for sale
Assets held for sale
Leasehold
Leasehold investment properties
Freehold investment properties
Freehold
11.2
11.4
11.4
11.2
11.4
11.4
-
-
-
-
-
-
-
-
5,713
-
5,713
5,713
-
-
5,713
-
207,664
1,377,924
1,585,588
5,713
207,664
1,377,924
1,591,301
-
226,955
1,101,860
1,328,815
5,713
226,955
1,101,860
1,334,528
Year ended 30 June 2018
Leasehold
Freehold
Year ended
Year ended 30 June 2017
Leasehold
Leasehol
Freehold
Freehold
External valuation %
Internal valuation %
60%
27%
15%
38%
40%
73%
85%
62%
The Group also obtained external valuations on 19 freehold investment properties acquired during the
year ended 30 June 2018 (year ended 30 June 2017: 12 freehold investment properties and 1 leasehold
investment property). These external valuations provide the basis of the Directors’ valuations applied to
FINANCIAL STATEMENTS
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
102
103
these properties at 30 June 2018 and 30 June 2017. Including these valuations 43% of freehold
investment properties, were subject to external valuations during the year (year ended 30 June 2017:
57% of freehold investment properties, and 31% of leasehold properties).
Valuation inputs and relationship to fair value
Description
Description
Valuation
technique
Significant unobservable
inputs
Range at 30
June 2018
Range at 30
June 2017
Investment
properties -
leasehold
Capitalisation
method
Primary capitalisation rate
Secondary capitalisation rate
Sustainable occupancy
Stabilised average EBITDA
7.8% to 45.0%
8.8% to 46.0%
80% to 95%
$365,213
9.3% to 26.0%
9.3% to 26.0%
76% to 93%
$383,476
Investment
properties -
freehold
Capitalisation
method
Primary capitalisation rate
6.5% to 8.3%
6.8% to 10.5%
Secondary capitalisation rate
Sustainable occupancy
Stabilised average EBITDA
7.0% to 9.5%
72% to 95%
$898,767
7.0% to 12.0%
75% to 95%
$910,463
Under the income capitalisation method, a property’s fair value is estimated based on the stabilised
average earnings before interest, tax, depreciation and amortisation (“EBITDA”) generated by the
property, which is divided by the capitalisation rate (the investor's required rate of return). The
capitalisation rate is derived from recent sales of similar properties.
The primary capitalisation rate is used to discount future cashflows to present value based upon an
investment property’s current occupancy and EBITDA. The secondary capitalisation rate is used to
discount to present value additional cashflows generated at sustainable occupancy and stabilised
average EBITDA. The secondary capitalisation rate is typically higher than the primary capitalisation
rate to reflect the additional risk associated with these cashflows.
The capitalisation rate adopted reflects the inherent risk associated with the property. For example, if
the lease expiry profile of a particular property is short, the capitalisation rate is likely to be higher to
reflect additional risk to income. The higher capitalisation rate then reduces the valuation of the
property.
The stabilised average EBITDA is derived from a property’s revenues less property operating expenses
adjusted for items such as average lease up costs, long-term vacancy rates, forecast non-recoverable
capital expenditures, management fees, straight-line rents and other non-recurring items. Generally, an
increase in stabilised average EBITDA will result in an increase in fair value of an investment property. An
increase in the vacancy rate will result in a reduction of the stabilised average EBITDA.
Investment properties are valued on a highest and best use basis. The current use of all of the
investment properties (self-storage) is considered to be the highest and best use.
The following tables present the sensitivity of the fair values of investment property to changes in input
assumptions.
At 30 June 2018:
Unobservable inputs
Primary capitalisation rate
Secondary capitalisation
rate
Sustainable occupancy
Stabilised average EBITDA
At 30 June 2017:
Leasehold
Freehold
Increase/
(decrease)
in inputput
Increase/
(decrease)
In fair value
$’000
Increase/
(decrease)
in input
Increase/ (decrease)
in fair value
$’000
1% / (1%)
(5,600) / 7,400
1% / (1%)
(165,546) / 218,802
2% / (2%)
(1,600) / 2,900
2% / (2%)
(37,357) / 62,981
5% / (5%)
5% / (5%)
5,100 / (4,200)
2,400 / (2,200)
5% / (5%)
5% / (5%)
101,181 / (83,464)
61,570 / (55,370)
Unobservable inputs
Leasehold
Freehold
Increase/
(decrease)
in input
in input
Increase/
(decrease)
In fair value
$’000
Increase/
(decrease)
in input
in input
Increase/ (decrease)
in fair value
$’000
Primary
Primary capitalisation rate
Secondary capitalisation
Secondary
raterate
Sustainable occupancy
Sustainable occupancy
Stabilised average EBITDA
Stabilised average EBIT
1% / (1%)
(3,200) / 5,290
1% / (1%)
(107,140) / 139,950
2% / (2%)
(1,220) / 3,320
2% / (2%)
(31,860) / 50,320
5% / (5%)
5% / (5%)
9,210 / (5,290)
2,210/ (2,720)
5% / (5%)
5% / (5%)
102,400 / (78,350)
46,080 / (46,350)
12.
INFORMATION RELATING TO SUBSIDIARIES
The holding entities
The ultimate holding company of the NSH Group is National Storage Holdings Limited. The holding entity
of the NSPT Group is National Storage Property Trust. These two entities are domiciled in Australia and
through a stapling agreement are jointly quoted on the ASX.
The consolidated financial statements of the Group as at 30 June 2018 include:
Name of controlled entity
Name of
Place of incorporation
Equity interest
National Storage (Operations) Pty Ltd
National Storage Financial Services Limited
Wine Ark Pty Ltd
Southern Cross Storage Operations Pty Ltd*
National Storage Investments Pty Ltd
National Storage Limited
National Storage Investment Trust
National Storage Victorian Property Trust
National Storage New Zealand Property
Trust**
National Storage Southern Trust
*
*Acquired on 30 August 2016
*Acquired on 30 August 2016
Australia
Australia
Australia
Australia
Australia
New Zealand
Australia
Australia
Australia
Australia
2018
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
2017
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
** NSNZPT is an Australian registered trust which holds investment property in New Zealand
FINANCIAL STATEMENTS
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
104
105
13.
INTEREST IN JOINT VENTURES AND ASSOCIATES
Interest in joint ventures
Opening balance at 1 July
Capital contribution / acquisition of shareholding in joint venture
Share of profit from joint ventures
Return of capital on dissolution of joint venture
Closing balance at 30 June
2018
$'000
1,980
5,392
60
-
7,432
2017
$'000
8,441
1,980
1,509
(9,950)
1,980
The NSPT Group holds a 25% (2017: 25%) interest in the Bundall Storage Trust, and the NSH Group holds a
25% interest in the Bundall Commercial Trust.
During the year ended 30 June 2018, the Group contributed a further $2.4m into the Bundall Storage
Trust as part of a capital raise. There was no change in the total share of the Group’s interest following
this investment.
On 29 March 2018, the Bundall Storage Trust purchased the land and development rights of an
investment property asset in Brisbane, Queensland from the Group for $4.4m. As at 30 June 2018 the
Bundall Storage Trust has two storage centre investment property assets under construction.
The Bundall Commercial Trust derives rental property income from the leasing of commercial units.
During the year ended 30 June 2018, the Group subscribed to 83.3% of the units in FKS Investments No.2
Unit Trust for $3m. FKS Investments No.2 Unit Trust subsequently purchased a storage centre investment
property asset in Queensland, Australia.
These investments are classified as joint ventures as all parties are subject to a Securityholders
Agreement that has been contractually structured such that the parties to the agreement have equal
representation on the advisory board responsible for the overall direction and supervision of each trust.
Neither the Bundall Storage Trust, Bundall Commercial Trust, or FKS Investments No.2 Unit Trust are listed
on any public exchange.
As described in note 5, on 30 August 2016 in the prior year, Group purchased the share capital of
Southern Cross Storage Operations Pty Ltd and the investment properties of Southern Cross Storage
Trust. Prior to completion the Consolidated Group and NSPT Group held a 10% interest in the Southern
Cross Storage Group which consisted of Southern Cross Storage Operations Pty Ltd and Southern Cross
Storage Trust. This resulted in a disposal of the investment in the joint venture.
As at 30 June 2018, the Bundall Storage Trust has contractual commitments in place for the construction
of two self-storage centres in Queensland, Australia. None of the Group’s other joint ventures have any
capital commitments at 30 June 2018. None of the Group’s joint ventures had any contingent liabilities
at 30 June 2018.
Interest in associates
Opening balance at 1 July
Capital contribution / acquisition of shareholding in associates
Share of profit from associates*
Distributions from associate
Closing balance at 30 June
2018
$'000
8,611
2,048
1,282
(1,248)
10,693
2017
$'000
6,660
1,350
601
-
8,611
*Included within share of profit from associates is $1,383,000 representing NSR’s share of fair value gains related to
investment properties held by joint ventures and associates (30 June 2017: $746,000).
The Group owns 24.9% (2017: 24.9%) of the Australia Prime Storage Fund (“APSF”). APSF is a partnership
with Universal Self Storage to facilitate the development and ownership of multiple premium grade self-
storage centres in select cities around Australia.
APSF is in the process of developing multiple storage centres in Australia. Once open the storage
centres operate under the National Storage brand and are managed by National Storage
(Operations) Pty Ltd. During the year the Group purchased a storage centre investment property asset
in Carrara, Queensland from APSF for $14m. At 30 June 2018 APSF has two operating centres in
Queensland, Australia, with a third asset under construction in Victoria, Australia.
During the year ended 30 June 2018 National Storage (Operations) Pty Ltd earned fees of $680,000
from APSF associated with the design, development, financing of the construction process, and
ongoing management of centres (see note 18) (30 June 2017: $389,000).
The Group also received or is entitled to distributions from APSF of $1,248,000, of which $232,000 is
outstanding as a receivable at 30 June 2018 (see note 18).
During the year, the Group acquired a 25.8% holding in Spacer Marketplaces Pty Ltd (“Spacer”).
Spacer operate online peer-to-peer marketplaces for self-storage and parking. Following additional
share issues this holding was diluted to 24.8% on 27 April 2018.
Neither associate had any contingent liabilities or capital commitments at 30 June 2018 or 30 June
2017.
14.
CONTRIBUTED EQUITY
Issued and paid up capital
Ordinary shares
Number of stapled securities on Issue
Opening balance at 1 July
Institutional and retail
placement
Distribution reinvestment plan
Scrip issue on investment property acquisition
Closing balance at 30
June
2018
$'000
2017
$'000
66,128
59,145
2018
No. of
stapled
securities
512,913,914
2017
No. of
stapled
securities
336,422,143
39,712,882
6,480,246
-
164,557,412
6,144,051
5,790,308
559,107,042
512,913,914
Capital raise
During the year, the Group undertook a fully underwritten $50m equity raising by way of a placement
to institutional and professional investors. This resulted in the issue of 33,333,334 new stapled securities.
The Group also raised a further $9.5m from a security purchase plan offered to existing
existing securityholders. This resulted in the issue of 6,379,548 new stapled securities.
Distribution reinvestment plan
During the year 6,480,246 (2017: 6,144,051) stapled securities were issued to security holders
participating in the Group’s Distribution Reinvestment Plan for consideration of $9.6m (2017: $9m). The
stapled securities were issued at the volume weighted average market price of the Group's stapled
securities over a period of 10 trading days less a 2% discount.
FINANCIAL STATEMENTS
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
106
107
Terms and conditions of contributed equity
Stapled securities
A stapled security represents one share in NSH and one unit in NSPT. Stapled securityholders have the
right to receive declared dividends from NSH and distributions from NSPT and are entitled to one vote
per stapled security at securityholders’ meetings. Holders of stapled securities can vote their shares and
units in accordance with the Corporations Act 2001, either in person or by proxy, at a meeting of either
NSH or NSPT. The stapled securities have no par value.
In the event of the winding up of NSH and NSPT, stapled securityholders have the right to participate in
the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on
stapled securities held. Ordinary stapled securityholders rank after all creditors in repayment of capital.
Security buy-back
There is no current on or off market buy-back.
15.
OTHER RESERVES
Foreign currency translation reserve
Opening balance at 1 July
Foreign exchange translation differences
Closing balance at 30 June
2018
$'000
11
(23)
(12)
2017
$'000
(22)
33
11
The financial statements for the Group are prepared on the basis that NSH was the acquirer of NSPT. On
this basis foreign currency translation reserve movements relating to the NSH Group are presented
within other reserves.
The movements below in foreign currency translation reserve and cashflow hedge reserve relating to
the NSPT Group are presented within non-controlling interest in the Group’s consolidated statement of
changes in equity.
Foreign currency translation reserve
Opening balance at 1 July
Net investment hedge
Foreign exchange translation differences
Closing balance at 30 June
Cash flow hedge reserve
Opening balance at 1 July
Revaluation of derivates
Taxation impact on revaluation
Closing balance at 30 June
NSPT Group
2018
$'000
2017
$'000
232
1,007
(1,354)
(115)
(45)
(2,112)
84
(2,073)
227
(103)
108
232
(6,448)
6,427
(24)
(45)
Other reserves
(2,188)
187
Taxation impact on revaluation applies only to cash flow hedges held in NSNZPT, a sub-trust of NSPT,
which is subject to New Zealand tax legislation. Deferred tax does not apply to any other cash flow
hedges held in the NSPT Group under current Australian tax legislation.
The hedging reserve is used to record gains or losses on derivatives that are designated as cash flow
hedges and recognised in other comprehensive income, as described in note 2(m). Amounts are
reclassified to profit or loss in the period when the associated hedged transaction takes place.
The cash flow hedge is included in non-controlling interest in the Consolidated Group and is not
classified within other reserves.
16.
FINANCIAL RISK MANAGEMENT
This note outlines the Group’s exposure to financial risks and how these risks could affect future financial
performance.
The Group’s overall risk management program focuses on the unpredictability of financial markets and
seeks to minimise potential adverse effects on the financial performance of the business. The Group use
derivative financial instruments such as interest rate swaps to hedge certain market risk exposures.
Risk management for the Group is carried out by the NSH Board and key management personnel of
NSH. The Board of Directors of NSH analyses, on behalf of the Group, interest rate exposure and
evaluates treasury management strategies in the context of the most recent economic conditions and
forecasts.
Derivatives
Derivatives are only used for economic hedging purposes and not as trading or speculative
instruments. The Group have the following derivative financial instruments:
Interest rate swaps designated as cash flow hedges
presented in:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net liability
Notes
10.3
10.3
10.6
10.6
2018
$'000
2017
$'000
87
2,099
(3)
(4,380)
(2,197)
-
3,328
(166)
(3,259)
(97)
Classification of derivatives
All derivatives have been designated as cash flow hedges. They are presented as current assets or
liabilities if they are expected to be settled within 12 months after the end of the reporting period.
The Group’s accounting policy for cash flow hedges is set out in note 2(m). For hedged forecast
transactions that result in the recognition of a non-financial asset, the Group has elected to include
related hedging gains and losses in the initial measurement of the cost of the asset.
Fair value measurement
For information about the methods and assumptions used in determining fair values of derivatives refer
to note 11.8.
Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate
because of changes in market prices. Market risk comprises of three types of risk: interest rate risk,
currency risk and other price risk, such as equity price and commodity risk. Financial instruments
affected by market risk include loans and borrowings, deposits, available-for-sale investments and
derivative financial instruments.
The sensitivity analysis in the following sections relate to the position as at 30 June 2018 and 30 June
2017. The sensitivity analysis has been prepared on the basis that the amount of net debt, the ratio of
fixed to floating interest rates of debt and derivatives and the proportion of financial instruments in
foreign currencies are all constant on the basis of hedge designations in place at 30 June 2018.
FINANCIAL STATEMENTS
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
108
109
The analysis excludes the impact of movements in market variables on provisions and the non-financial
assets and liabilities of foreign operations.
The following assumptions have been made in calculating sensitivity analysis:
•
•
The sensitivity of the relevant statement of profit or loss item is the effect of the assumed changes in
respective market risks. This is based on the financial assets held at 30 June 2018 and 30 June 2017
including the effect of hedge accounting.
The sensitivity of equity is calculated by considering the effect of any associated cash flow hedges
and hedges of a net investment in a foreign subsidiary at 30 June 2018 for the effects of the
assumed changes of the underlying risk.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate
because of changes in market interest rates. The Group’s exposure to the risk of changes in market
interest rates relate primarily to their long-term debt obligations with floating interest rates.
The Group manages its interest rate risk by having a balanced portfolio of fixed and variable rate loans
and borrowings. To manage this, the Group enters into interest rate swaps, in which it agrees to
exchange, at specified intervals, the difference between fixed and variable rate interest amounts
calculated by reference to an agreed-upon notional principal amount. At 30 June 2018, after taking
into account the effect of interest rate swaps, 52.9% (2017: 55.3%) of the Group’s borrowings are at a
fixed rate of interest.
Interest rate sensitivity
The following table demonstrates the sensitivity to a possible change in interest rates on the portion of
loans and borrowings affected, after the impact of hedge accounting. With all other variables held
constant, the Group’s profit before tax is affected through the impact on floating rate borrowings, as
follows:
Increase/ decrease
in basis points
Effect on profit
e tax
before tax
$'000
2018
Australian dollar dominated debt
New Zealand dollar dominated debt
Australian dollar dominated debt
New Zealand dollar dominated debt
2017
2017
Australian dollar dominated debt
Australian dollar dominated debt
New Zealand dollar dominated debt
New Zealand dollar dominated debt
AustrAustralian dollar dominated debt
New Zealand dollar dominated debt
New Zealand dollar dominated debt
+50
+50
-50
-50
+50
+50
-50
-50
(921)
(124)
921
124
(992)
(216)
992
216
The assumed movement in basis points for the interest rate sensitivity analysis is based on the currently
observable market environment.
Foreign currency risk
Foreign currency risk is the risk that the fair value of future cash flows of an exposure will fluctuate
because of changes in foreign exchange rates. The Group’s exposure to the risk of changes in foreign
exchange rates relates primarily to the Group’s operating activities (when revenue or expense is
denominated in a foreign currency), and the Group’s net investment in foreign subsidiaries.
The Group hedges its exposure to fluctuations on the translation into Australian dollars of its foreign
operations by holding net borrowings in foreign currencies.
Foreign currency sensitivity
The following tables demonstrate the sensitivity to a reasonably possible change in New Zealand Dollar
exchange rate with all other variables held constant. The impact on Group’s profit before tax is due to
changes in the fair value of monetary assets and liabilities. The impact on the Group’s pre-tax equity is
due to net investment hedges.
2018
2017
2017
Change in
NZD rate
+5%
-5%
+5%
-5%
Effect on profit
before tax
$'000
(82)
90
Effect on pre-
tax equity
$'000
(659)
527
52
(58)
(494)
481
The movement in the profit before tax is a result of a change in the fair value of the monetary assets
and liabilities denominated in NZD, where the functional currency of the entity is a currency other than
NZD.
The movement in pre-tax equity arises from changes in NZD borrowings (net of cash and cash
equivalents) in the hedge of net investments in New Zealand operations and cash flow hedges. These
movements will offset the translation of New Zealand operations’ net assets into AUD.
Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or
customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating
activities (primarily trade receivables) and from its financing activities, including deposits with banks
and other financial instruments.
Trade receivables
The exposure to credit risk for trade and other receivables is influenced mainly by the individual
characteristics of each customer. The Group’s customer credit risk is managed by requiring customers
to pay monthly rentals in advance. The Directors are of the opinion that customer credit risk is reduced
through a contractual lien over the contents stored in the rented units. The terms of the storage
agreement provide for the auction of the customer’s stored contents to recover any unpaid amounts.
Outstanding customer receivables are regularly monitored and any credit concerns highlighted to
senior management.
At 30 June 2018 and 30 June 2017 the Group has no significant concentrations of credit risk with respect
to trade receivables, whether through exposure to individual customers, specific industry sectors and/or
regions within Australia and New Zealand. As at 30 June 2018 a provision of $23,000 has been
recognised relating to the increased credit risk associated with customer balances acquired via the
acquisition of investment properties which were not subject to the same terms and conditions as the
Group’s storage agreement.
The Group’s maximum exposure to credit risk, is the carrying amount of those assets as indicated in the
statement of financial position. For a summary of the exposure to credit risk relating to receivables at
the end of the financial year refer to note 10.2.
Cash and cash equivalents
The Group’s credit risk on cash and cash equivalents is limited because the counterparties are banks
with high credit-ratings assigned by international credit-rating agencies. The maximum exposure to
credit risk for the components of the statement of financial position at 30 June 2018 and 30 June 2017 is
the carrying amounts as indicated in the statement of financial position.
FINANCIAL STATEMENTS
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
110
Guarantees
Credit risk also arises in relation to financial guarantees given to certain parties (refer to notes 19, 22,
and 23). Such guarantees are only provided in exceptional circumstances and are subject to specific
Board approval.
Liquidity risk
Liquidity risk is the risk that the group will not be able to meet its financial obligations as they fall due.
The objective of managing liquidity risk is to ensure, as far as possible, the group will always have
sufficient liquidity to meet its liabilities when they fall due, under both normal and stressed conditions.
NSH on behalf of the Group has established a number of policies and processes for managing liquidity
risk. These include:
• Continuously monitoring cash flows on a daily basis as well as forecasting cash flows on a medium
and long-term basis.
• Monitoring the maturity profiles of financial assets and liabilities in order to match inflows and
outflows.
• Maintaining adequate reserves and support facilities.
• Monitoring liquidity ratios and all constituent elements of working capital.
• Maintaining adequate borrowing and finance facilities.
Financing arrangements
The Group had access to the following undrawn borrowing facilities at the end of the reporting period:
Floating rate
Floating rate
Expiring within one year (bank overdraft)
Expiring beyond one year (loans)
2018
$'000
3,000
115,347
118,347
2017
$'000
3,000
61,844
64,844
The bank overdraft facilities may be drawn at any time and may be terminated by the bank without
notice. All other secured bank loans may be drawn at any time and is subject to an annual review.
Further details of the bank loans are detailed in note 10.5 and note 17.
Maturity of financial liabilities
The tables below summarises the maturity profile of the Group’s financial liabilities based on contractual
undiscounted payments. As amounts disclosed in the table are the contractual undiscounted cash
flows including future interest payments, these balances will not necessarily agree with the amounts
disclosed on the statement of financial position.
On
demand
$'000
Less than
3 months
$'000
3 to 12
months
$'000
1 to 5
years
$'000
Over 5
years
$'000
Total
$'000
At 30 June 2018
Non-derivatives
Trade and other
payables
Borrowings
Finance leases
Distribution payable
Total non-derivatives
Derivatives
Inflows
Outflows
Total derivatives
268
-
-
-
268
-
-
-
12,050
5,926
3,120
27,396
48,492
(110)
278
168
-
17,584
9,201
-
26,785
-
403,615
51,716
-
455,331
-
291,094
228,857
-
519,951
12,318
718,219
292,894
27,396
1,050,827
(42)
1,193
1,151
(1,057)
2,832
1,775
(1,181)
284
(897)
(2,390)
4,587
2,197
268
48,660
27,936
457,106
519,054
1,053,024
111
Total
$'000
8,778
571,266
308,067
23,594
911,705
On
demand
$'000
Less than
3 months
$'000
3 to 12
months
$'000
1 to 5
years
$'000
Over 5
years
$'000
NonNon-derivatives
Trade and other
Trade and other
payables
payables
Borrowings
Borrowings
Finance leases
Finance leases
Distribution payable
Distribution payable
Total non-derivatives
Total non
Derivatives
Derivatives
Inflows
Inflows
Outflows
Outflows
Total derivatives
Total derivatives
201
-
-
-
201
-
-
-
8,577
4,339
3,191
23,594
39,701
-
410
410
-
12,876
9,695
-
22,571
-
357,119
53,240
-
410,359
-
196,932
241,941
-
438,873
(70)
937
867
(1,445)
2,136
691
(2,215)
344
(1,871)
(3,730)
3,827
97
201
40,111
23,438
411,050
437,002
911,802
Changes in liabilities arising from financing activities
1 July
2017
$'000
166
3,259
Foreign
exchange
movement
$'000
Changes
in fair
value
$'000
Cash
Cash
flows
$'000
Other
$'000
30 June
2018
$'000
-
-
-
12
-
23,594
(40,045)
481,770
116,652
(2,668)
4,504
(4,490)
163,851
-
-
-
(163)
1,109
-
-
3
4,380
-
-
-
-
43,847
27,396
656
596,410
4,432
4,446
(6,909)
156,942
677,144
72,117
(2,656)
946
42,026
789,577
Derivative used for
hedging - interest rate
swap
Current financial liabilities
Non-current financial
liabilities
Distributions payable
Non-current interest-
bearing loans and
borrowings
Finance lease liabilities
Current finance lease
liabilities
Non-current finance lease
liabilities
Total liabilities from
financing activities
17.
CAPITAL MANAGEMENT
The Group’s objectives when managing capital are to safeguard its ability to continue as a going
concern, so that it can continue to provide returns to securityholders and to maintain an optimal
structure to reduce the cost of capital. The primary objective of the Group’s capital management is to
maximise value for the securityholder. The Responsible Entity has outsourced capital management for
the NSPT Group to NSH under a management agreement.
In order to achieve this objective, the Group’s capital management strategy aims to ensure that it
meets financial covenants attached to interest-bearing loans and borrowings. Breaches in meeting a
financial covenant would permit the lender to immediately call loans and borrowings. There have been
FINANCIAL STATEMENTS
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
112
113
no breaches in the financial covenants of any interest-bearing loans and borrowings in the current
period.
The Group manages its capital structure and makes adjustments in light of changes in economic
conditions and the requirements of its financial covenants. To maintain or adjust the capital structure,
the Group may adjust the distribution payment to securityholders, return capital to securityholders or
issue new securities.
The Group monitors capital using a gearing ratio, represented by net debt divided by total assets less
cash and short term deposits and finance lease liabilities. The Group’s target is to keep the gearing
ratio between 25% and 40%. Net debt includes borrowings, less cash and short-term deposits.
Interest bearing loans
Less: cash and short term deposits
Net debt
Total assets
Less cash and short term deposits
Less finance lease liabilities
Gearing ratio
Notes
10.5
10.1
10.7
2018
$'000
2017
$'000
600,348
(21,333)
579,015
484,615
(23,166)
461,449
1,709,949
(21,333)
(161,388)
1,527,228
1,437,325
(23,166)
(168,355)
1,245,804
38%
37%
(cid:47)(cid:82)(cid:68)(cid:81)(cid:3)(cid:70)(cid:82)(cid:89)(cid:72)(cid:81)(cid:68)(cid:81)(cid:87)(cid:86)
Financial covenants under the terms of the Group’s borrowing agreement require the Group to ensure
that the gearing ratio does not exceed 55% and the ratio of operating earnings before interest, tax,
depreciation and amortisation to finance costs must exceed a multiple of two. The Group has
complied with these covenants throughout the reporting period.
Dividends and distributions
Distributions have been made and declared as noted below.
NSPT interim distribution of 4.7 cents per unit paid on
26 February 2018 (2017: 4.6 cents per unit)
NSPT final distribution of 4.9 cents per unit payable
on 29 August 2018 (2017: 4.6 cents per unit)
Balance of distributions paid to pre-stapling unit holders
NSPT Group
2018
$'000
2017
$'000
25,826
23,147
27,396
23,594
205
53,427
-
46,741
There are no proposed distributions not recognised as a liability for the year ended 30 June 2018.
The Directors of NSH have not declared an interim or final dividend for the year ending 30 June 2018.
Franking credit balance
Franking credits available for subsequent financial
years based on a tax rate of 30% (2017: 30%)
2018
$'000
2017
$'000
1,453
1,376
The above amounts are calculated from the balance of the NSH franking account at the end of the
reporting period.
The NSPT Group does not have franking credits as distributions are paid from NSPT which is not liable to
pay income tax provided all taxable income is distributed.
18.
RELATED PARTY TRANSACTIONS
The following tables provide the total amount of transactions that have been entered into with related
parties for the relevant financial years.
Transactions with Related Parties
Southern Cross Storage
Operations Pty Ltd*
Southern Cross Storage Trust
Australia Prime Storage Fund
Bundall Commercial Trust
Bundall Storage Trust
Spacer Marketplaces Pty Ltd
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
Revenue
Revenue
from
from
related
related
parties
$
-
310,536
Purchases
from
related
parties
$
-
-
Amount
Amount
owed by by
related
related
parties
$
-
-
Amount
owed to
related
parties
$
-
-
-
100,000
679,568
388,941
339,428
456,772
972,006
398,391
-
-
-
-
-
-
-
-
-
-
307,471
221,115
4,173,414
3,494,272
3,558,114
2,985,891
-
-
18,896
-
-
-
-
-
-
-
-
-
-
-
-
-
*Southern Cross Storage Operations Pty Ltd is classified as a related party of the Group until 30 August 2016.
Terms and conditions of transactions with related parties
The sales to and purchases from related parties are made on terms equivalent to those that prevail in
arm’s length transactions.
As at 30 June 2018, National Storage Investments Pty Ltd, a subsidiary of NSH had receivables
outstanding of $3,037,500 with the Bundall Commercial Trust (2017: $3,037,500) and $2,587,500 with the
Bundall Storage Trust (2017: $2,587,500) relating to amounts drawn down under a facility agreement
between the entities. The facility agreement has a term of 5 years, and is interest bearing on
commercial rates. The receivables have been classed as a current receivable in the statement of
financial position as this receivable is expected to be repaid within 12 months of 30 June 2018. As at 30
June 2018, the Group also recognised receivables of $1,135,914 with the Bundall Commercial Trust
(2017: $456,772) and $970,614 with the Bundall Storage Trust (2017: $398,391) relating to other fees and
accrued interest outstanding at the year end.
All other outstanding balances at the year-end are unsecured and interest free. There have been no
guarantees provided or received for any related party receivables or payables. For the years ended 30
June 2018 and 30 June 2017, the Group has not recorded any impairment of receivables relating to
amounts owed by related parties.
FINANCIAL STATEMENTS
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
114
115
Key management personnel compensation
20.
EARNINGS PER STAPLED SECURITY (“EPS”)
Short-term employee benefits
Post-employment benefits
Long-term benefits
Termination benefits
Consolidated Group
2018
$'000
3,176
139
195
400
3,910
2017
$'000
3,342
228
255
-
3,825
The amounts disclosed in the table are the amounts recognised as an expense during the reporting
period relating to key management personnel. Detailed remuneration disclosures are provided in the
remuneration report which is included in the Directors’ Report.
19.
COMMITMENTS AND CONTINGENCIES
Capital commitments
As at 30 June 2018, the Group has contractual commitments in place for the construction of a self-
storage centre in Victoria, Australia (see note 11.4).
The Group also held a commitment with a third party, to supply and install solar panels on a significant
number of NSR storage centres for an estimated total cost of $2.7m. As at 30 June 2018, the Group had
incurred project costs of $2.3m which have been classified as freehold investment property. The Group
is committed to additional expenditure of $0.4m, to be paid on agreed milestones subject to the
completion of the project.
There was no other capital expenditure contracted for at the end of the reporting period but not
recognised as liabilities (30 June 2017: nil)
Non-cancellable operating leases
The Group leases offices and other equipment with terms expiring under various time periods.
Commitments for minimum lease payments in relation to non-cancellable operating leases are
payable as follows:
Within one year
Later than one year but not later than five years
Later than five years
Finance lease commitments
For details of finance lease commitments see note 10.7.
2018
$’000
690
1,108
199
1,997
2017
$’000
591
1,334
121
2,046
Contingent liabilities
For information about guarantees given by entities within the group, including the parent entity, see
notes 21 and 22.
Basic earnings per stapled security is calculated as net profit attributable to stapled security holders,
adjusted to exclude costs of servicing equity (other than distributions) divided by the weighted average
number of stapled securities on issue during the period under review.
Diluted earnings per stapled security adjust the figures used in the determination of basic earnings per
share to take into account:
•
•
The after tax effect of interest and other financing costs associated with dilutive potential stapled
securities; and
The weighted average number of additional stapled securities that would have been outstanding
assuming the conversion of all dilutive potential stapled securities.
Basic and diluted earnings per stapled security
Reconciliation of earnings used in calculating earnings per stapled
security
Net profit attributable to members
Weighted average number of securities for basic and diluted
earnings per stapled security
2018
cents
27.15
2017
cents
20.70
$’000
$’000
145,773
103,413
No. of
securities
No. of
securities
536,933,616
499,692,478
The weighted average number of securities for the year ending 30 June 2017 used to calculate basic
and diluted earnings per share has been restated for the effect of stapled securities issued in the
current year ending 30 June 2018 under the institutional and retail placement, distribution reinvestment
plan and vendor scrip issue.
21.
AUDITORS’ REMUNERATION
The auditor of the Group is Ernst & Young Australia.
Amounts received or due and receivable by Ernst & Young Australia for:
An audit or review of the financial report of the entity and any other
group entity
Other services in relation to the entity and any other group entity
Tax compliance
Assurance related
Other
Total auditors’ remuneration
2018
$
2017
$
519,900
525,342
49,725
-
24,695
594,320
50,350
145,976
34,037
755,705
FINANCIAL STATEMENTS
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
116
117
22.
INFORMATION RELATING TO THE PARENT ENTITIES
Summary financial information
The individual financial statements for NSH and NSPT, the parent entities, show the following aggregate
amounts:
Current assets
Total assets
Current liabilities
Total liabilities
Net assets
Issued capital
Cash flow hedge reserve
Foreign currency translation reserve
Retained earnings
(Loss) / profit after tax
Total comprehensive income
Distributions provided for or paid
Guarantees entered into by the parent entities
2018
$’000
102,999
110,556
(62,463)
(63,713)
46,843
64,382
-
-
(17,539)
46,843
(1,677)
(1,677)
-
NSH
2017
$’000
99,174
106,047
(60,203)
(64,508)
41,539
57,400
-
-
(15,861)
41,539
(7,205)
(7,205)
-
NSPT
2018
$’000
2017
$’000
163,235
1,320,767
(45,112)
(590,161)
730,606
178,600
1,084,372
(37,247)
(475,847)
608,525
604,200
(1,735)
180
127,961
730,606
543,470
76
(827)
65,806
608,525
62,155
114,778
(53,427)
34,726
87,703
(46,741)
The Group’s parent entities have provided financial guarantees in respect of bank overdrafts and loans
of subsidiaries amounting to $600.3m (2017: $484.6m), secured by registered mortgages over the
Group’s freehold investment properties of the subsidiaries.
The Group’s parent entities have also provided bank guarantees of $8.9m (2017: $8.1m) in the event of
lease payment default to third party lessors.
In addition, there are cross guarantees given by National Storage Holdings Limited, National Storage
(Operations) Pty Ltd and National Storage Pty Ltd as described in note 23. No deficiencies of assets exist
in any of these companies.
Contingent liabilities of the parent entities
The parent entity of Group did not have any contingent liabilities as at 30 June 2018 or 30 June 2017.
23.
DEED OF CROSS GUARANTEE
As at 30 June 2018, National Storage Holdings Limited, National Storage (Operations) Pty Ltd, Southern
Cross Storage Operations Pty Ltd and National Storage Pty Ltd are parties to a deed of cross guarantee
(30 June 2017: National Storage Holdings Limited, National Storage (Operations) Pty Ltd and National
Storage Pty Ltd) under which each company guarantees the debts of the others. By entering into the
deed, the wholly-owned entities have been relieved from the requirement to prepare a financial report
and Directors’ report under Class Order 98/1418 (as amended) issued by the Australian Securities and
Investments Commission.
Set out below is a consolidated statement of comprehensive income and statement of financial
position of the entities that are parties to a deed of cross guarantee.
Consolidated statement of comprehensive income
(Loss) / profit from continuing operations before income tax
Income tax benefit /(expense)
Profit after tax
Retained earnings at the beginning of the year
Dividends received
Retained earnings at the end of the year
Consolidated statement of financial position
Consolidated statement of financial position
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other current assets
Total current assets
Non-current assets
Trade and other receivables
Property, plant and equipment
Investment properties
Investments
Intangibles
Deferred tax asset
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Finance lease liability
Deferred revenue
Income tax payable
Provisions
Total current liabilities
Non-current liabilities
Borrowings
Finance lease liability
Provisions
Deferred tax liability
Total non-current liabilities
Total Liabilities
Net Assets
Equity
Contributed equity
Retained profits
Total equity
2018
$'000
(2,245)
2,929
684
5,627
1,000
7,311
2018
$'000
17,365
30,065
560
5,197
53,187
2017
$'000
8,203
(3,747)
4,456
1,171
-
5,627
2017
$'000
11,433
20,725
444
4,195
36,797
118
979
642,299
5,932
29,878
949
680,155
110
1,154
426,962
76,606
1,366
-
506,198
733,342
542,995
63,028
4,446
11,840
1,035
1,617
81,966
96,499
4,338
8,175
-
1,772
110,784
1,250
576,764
1,669
-
579,683
1,250
363,930
947
3,057
369,184
661,649
479,968
71,693
63,027
64,382
7,311
71,693
57,400
5,627
63,027
FINANCIAL STATEMENTS
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
118
119
24.
EVENTS AFTER REPORTING PERIOD
DIRECTORS’ DECLARATION
On 24 July 2018, the Group completed the acquisition of two storage centre assets in Beresfield and
Thornton, New South Wales for $5.5m.
On 25 July 2018, the Group completed the acquisition of a storage centre asset in Rutherford, New
South Wales for $7.3m.
Subsequent to 30 June 2018, The Group has entered into sale and purchase agreements for the
acquisition of three storage facilities for a combined purchase price of $42.3m. These are expected to
settle by mid-September 2018.
Contemporaneously with the release of this report the Group announced a $175m fully underwritten
capital raising.
In accordance with a resolution of the Directors of National Storage Holdings Limited, the
Directors state that:
1.
In the opinion of the Directors:
(a)
the financial statements and notes of the Group for the year ended 30 June 2018
are in accordance with the Corporations Act 2001, including:
i.
ii.
giving a true and fair view of the consolidated entity’s financial position as
at 30 June 2018 and of its performance for the year ended on that date;
and
complying with Accounting Standards and the Corporations Regulations
2001;
(b)
the financial statements and notes also comply with International Financial
Reporting Standards as disclosed in note 2(b); and
(c) with reference to note 2(a) in the financial statements, there are reasonable
grounds to believe that NSR will be able to pay its debts as and when they
become due and payable.
(d)
as at the date of this declaration, there are reasonable grounds to believe that
the members of the Closed Group identified in Note 23 will be able to meet any
obligations or liabilities to which they are or may become subject, by virtue of the
Deed of Cross Guarantee.
2.
This declaration has been made after receiving the declarations required to be made
to the Directors by the Chief Executive Officer and Chief Financial Officer in
accordance with section 295A of the Corporations Act 2001 for the financial year
ended 30 June 2018.
On behalf of the Board,
Laurence Brindle
Director
21 August 2018
Brisbane
Andrew Catsoulis
Managing Director
21 August 2018
Brisbane
FINANCIAL STATEMENTS
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
120
121
DIRECTORS’ DECLARATION
In accordance with a resolution of the Directors of National Storage Financial Services
Limited, the Responsible Entity states that:
1.
In the opinion of the Responsible Entity:
(a)
the financial statements and notes of the Group (to the extent they include a
component of NSPT) for the year ended 30 June 2018 are in accordance with
the Corporations Act 2001, including:
(i)
(ii)
giving a true and fair view of the NSR’s financial position (to the extent it
includes a component of NSPT) as at 30 June 2018 and of its performance
for the year ended on that date; and
complying with Accounting Standards and the Corporations Regulations
2001;
(b)
the financial statements and notes also comply with International Financial
Reporting Standards as disclosed in note 2(b); and
(c) with reference to note 2(a) in the financial statements, there are reasonable
grounds to believe that NSR (to the extent it includes a component of NSPT) will
be able to pay its debts as and when they become due and payable.
2.
This declaration has been made after receiving the declarations required to be made
to the Directors of National Storage Financial Services Limited by the Chief Executive
Officer and Chief Financial Officer of the NSR Group in accordance with section 295A
of the Corporations Act 2001 for the financial year ended 30 June 2018.
On behalf of the Responsible Entity,
Laurence Brindle
Chairman
21 August 2018
Brisbane
Andrew Catsoulis
Managing Director
21 August 2018
Brisbane
Ernst & Young
111 Eagle Street
Brisbane QLD 4000 Australia
GPO Box 7878 Brisbane QLD 4001
Tel: +61 7 3011 3333
Fax: +61 7 3011 3100
ey.com/au
Independent Auditor's Report to the Members of National Storage
REIT
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of National Storage REIT (the Company) and its subsidiaries
(collectively the Group), which comprises the consolidated statements of financial position as at 30
June 2018, the consolidated statements of profit or loss, consolidated statements of other
comprehensive income, consolidated statements of changes in equity and consolidated statements of
cash flows for the year then ended, notes to the financial statements, including a summary of
significant accounting policies, and the directors' declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations
Act 2001, including:
a)
giving a true and fair view of the consolidated financial position of the Group as at 30 June
2018 and of its consolidated financial performance for the year ended on that date; and
b)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
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 are independent of the Group 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 (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.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in
our audit of the financial report of the current year. These matters were addressed in the context of
our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide
a separate opinion on these matters. For each matter below, our description of how our audit
addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
Financial Report section of our report, including in relation to these matters. Accordingly, our audit
included the performance of procedures designed to respond to our assessment of the risks of
material misstatement of the financial report. The results of our audit procedures, including the
procedures performed to address the matters below, provide the basis for our audit opinion on the
accompanying financial report.
FINANCIAL STATEMENTS
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
122
123
1.
Investment property valuation
Why significant
How our audit addressed the key audit matter
2. Carrying value of goodwill
Approximately 93% of the Group’s total assets is
comprised of investment properties. These
assets are carried at fair value, which is assessed
by the directors with reference to either external
independent property valuations or internal
valuations, and based on market conditions
existing at reporting date.
This was considered a key audit matter due to
the number of judgments required in
determining fair value. These judgments include
assessing the capitalisation rates, sustainable
occupancy and stabilised average EBITDA
(earnings before interest, tax, depreciation and
amortisation).
Disclosure of investment properties and the
related significant judgments are included in
Notes 2 (o), 11.4, and 11.8 to the financial
report.
We obtained and evaluated a sample of both the
external independent valuations and the internal
valuations prepared by the Group. We performed the
following procedures:
• With the involvement of our real estate
valuation specialists, we assessed the
suitability of the valuation methodologies,
the competence, qualifications and
objectivity of both the Group’s internal
valuers and external valuation experts, and
the assumptions used in the valuations;
• Agreed a sample of the source data used in
the valuations to supporting tenancy
schedules;
•
Tested the mathematical accuracy of the
internal valuation model, including assessing
key valuation inputs with reference to those
applied by the external valuation experts
and current period market transactions and
perform sensitivity analysis over key
valuations inputs including the capitalisation
rates and sustainable occupancy; and
• We considered the adequacy of disclosures in
relation to the valuation methods and
principles disclosed in Note 2 (o) Summary of
significant accounting policies - Investment
properties, Note 11.4 Investment properties
and Note 11.8 Non-financial assets fair value
measurement.
Why significant
How our audit addressed the key audit matter
The goodwill balance of $43.9 million, relates to
the acquisition of portfolios of investment
properties purchased in previous periods. The
goodwill is tested for impairment annually.
No impairment charge has been recorded against
these balances in the current financial year as
disclosed in Note 11.5.
Impairment testing involves the application of
subjective judgment about future business
performance and the application of valuation
methodologies in accordance with Australian
Accounting Standards. Accordingly, this was
considered a key audit matter.
Our audit procedures included the following:
• We considered whether the impairment
testing methodology applied by the Group,
including the determination of cash
generating units to which goodwill was
allocated, met the requirements of Australian
Accounting Standards;
• We assessed the Group’s appropriateness in
respect of the determination of CGUs to
which the goodwill is allocated;
• We evaluated the suitability of the valuation
methodology and validated the inputs to
calculate the fair value less costs of disposal
as disclosed in note 11.5;
• We considered the adequacy of the
disclosures in Note 11.5 of the financial
report.
Information Other than the Financial Report and Auditor’s Report
The directors are responsible for the other information. The other information comprises the
information included in the National Storage REIT 2018 Annual Report, but does not include the
financial report and our auditor’s report thereon, with the exception of the Remuneration Report and
our related assurance opinion.
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, 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.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
FINANCIAL STATEMENTS
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
124
125
Responsibilities of the Directors for the Financial Report
The directors of the Company 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 Group’s ability to
continue as a going concern, disclosing, as applicable, matters relating to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the Audit of the Financial Report
Our 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 this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
judgment and maintain professional scepticism throughout the audit. We also:
•
•
•
•
•
Identify and assess the risks of material misstatement of the financial report, whether due to
fraud or error, design and perform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not
detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to
events or conditions that may cast significant doubt on the Group’s ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are required to draw attention in
our auditor’s report to the related disclosures in the financial report or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up
to the date of our auditor’s report. However, future events or conditions may cause the Group
to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the financial report represents the underlying transactions and events
in a manner that achieves fair presentation.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
FINANCIAL STATEMENTS
•
Obtain sufficient appropriate audit evidence regarding the financial information of the entities
or business activities within the Group to express an opinion on the financial report. We are
responsible for the direction, supervision and performance of the Group audit. We remain solely
responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing of
the audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated to the directors, we determine those matters that were of most
significance in the audit of the financial report of the current year and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter
should not be communicated in our report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits of such communication.
Report on the Audit of the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 46 to 55 of the directors' report for the
year ended 30 June 2018.
In our opinion, the Remuneration Report of National Storage REIT for the year ended 30 June 2018,
complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our
responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in
accordance with Australian Auditing Standards.
Ernst & Young
Ric Roach
Partner
Brisbane
21 August 2018
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
126
127
Unquoted equity securities
There are no unquoted securities.
(c) Substantial shareholders
Substantial securityholders, as at 13 July 2018, are set out below:
Name
Colonial First State Global Asset Management Property
Cohen & Steers Capital Management, Inc
Vanguard Investments Australia Ltd
Number
held
49,859,721
36,770,374
31,029,783
Percentage
8.92
6.58
5.55
(d) Voting rights
The voting rights attached to the ordinary fully paid stapled securities is one vote per stapled security.
ASX ADDITIONAL INFORMATION
Additional information required by the Australian Stock Exchange Ltd and not shown elsewhere in this
report is as follows. The information is current as at 31 July 2018 unless stated below:
(a) Distribution of equity securities
Analysis of numbers of ordinary fully paid stapled security holders by size of holding:
Holding
1
1,001
5,001
10,001
100,001
Total
- 1,000
- 5,000
- 10,000
- 100,000
- And over
Total
holders
698
1,157
1,026
1,871
113
4,865
There were 195 holders of less than a marketable parcel of stapled securities, representing 4,692 units.
(b) Equity security holders
Twenty largest quoted equity security holders
The names of the twenty largest holders of quoted equity securities are listed below:
Name
Stapled Securities
Number
held
Percentage
of issued
securities
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
National Nominees Limited
BNP Paribas Nominees Pty Ltd (Agency Lending DRP A/C)
BNP Paribas Noms Pty Ltd (DRP)
Storcat Pty Ltd (Andrew Catsoulis Family A/C)
Palomere Pty Ltd (Peter Edward Greer Family A/C)
Citicorp Nominees Pty Limited (Colonial First State Inv A/C)
Hooks Enterprises Pty Ltd (Hoeksema Superfund A/C)
AMP Life Limited
Alex Queensland Pty Ltd (Catsoulis Development A/C)
Mr Leendert Hoeksema & Mrs Aaltje Hoeksema
Leyshon Investments (Australia) Pty Ltd (Bryan Family Investment A/C)
Stowaway Self Storage Pty Ltd (Catsoulis Family A/C)
Brindle Super Pty Ltd (The Brindle Superfund A/C)
Bond Street Custodians Limited (ENH Property Securities A/C)
HSBC Custody Nominees (Australia) Limited – GSCO ECA
BNP Paribas Noms (NZ) Ltd
Green 9 Pty Ltd (Michael Berry Family A/C)
265,402,883
90,356,162
28,314,339
23,656,613
13,723,716
9,602,934
7,210,469
5,586,735
5,073,457
4,640,000
3,372,812
2,932,388
2,710,000
2,248,980
1,811,224
1,342,120
1,310,885
1,269,992
1,209,879
1,020,408
47.47
16.16
5.06
4.23
2.45
1.72
1.29
1.00
0.91
0.83
0.60
0.52
0.48
0.40
0.32
0.24
0.23
0.23
0.22
0.18
472,795,96
84.56
FINANCIAL STATEMENTS
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
128
129
ONLINE
UNPRESENTED CHEQUES
You can access your securityholding information via
link in the Investor Centre section of the corporate
website, www.nationalstorageinvest.com.au, or via
the Investor Centre link on registry website at www.
computershare.com.au.
To view your securityholding, you will need your
SRN/HIN and will be asked to verify your registered
postcode (inside Australia) or your country of
residence (outside Australia).
PHONE
You can confirm your holding balance, request
forms and access distribution and trading
information by phoning: 1300 850 505 (Australia
only) or calling +61 3 9946 4471 (outside Australia).
DISTRIBUTION DETAILS
Distributions are expected to be paid within 8 weeks
following the end of each semi‑annual distribution
period, which occur in June and December each year.
To ensure timely receipt of your distributions, please
consider the following:
Direct Credit
NSR encourages securityholders to receive
distribution payments by direct credit.
If you wish to register for direct credit or update your
payment details, log in to your holding online or
telephone the registry on 1300 850 505 for assistance.
If you believe you have unpresented cheques,
please contact the registry and request a search to
assist in recovering your funds.
If you wish to register for direct credit or update your
payment details, log in to your holding online or
telephone the registry on 1300 850 505 for assistance.
ANNUAL TAXATION STATEMENT AND TAX GUIDE
The Annual Taxation Statement and Tax Guide
are dispatched to securityholders in August each
year. A copy of the Tax Guide is available at www.
nationalstorageinvest.com.au.
INVESTOR FEEDBACK
If you have any fund specific queries or feedback
please telephone NSR Investor Relations on 1800
683 290. Please direct any complaints in writing
to NSR Company Secretary at GPO Box 3239,
Brisbane QLD 4001, Australia.
NSR CALENDAR
FEBRUARY
Half Year Results released
Distribution paid for six months ended 31 December
AUGUST
Full Year Results and Annual Report released
Distribution paid for the six months ended 30 June
Annual tax statements released
OCTOBER
TAX FILE NUMBER (TFN)
Notice of Annual General Meeting released
You are not required by law to provide your TFN,
Australian Business Number (ABN) or exemption
status. However, if you do not provide your TFN,
ABN or exemption, withholding tax at the highest
marginal rate for Australian resident members may
be deducted from distributions paid to you.
If you wish to update your TFN, ABN or exemption
status, log in to your holding online or telephone the
registry on 1300 850 505 for assistance.
NOVEMBER
Annual General Meeting
The dates listed above are indicative only and
subject to change.
INVESTOR RELATIONS
National Storage REIT is listed on the Australian
Securities Exchange under the code NSR.
NATIONAL STORAGE REIT SECURITIES
A stapled security comprises:
• one share in National Storage Holdings Limited;
and
• one unit in the National Storage Property Trust;
stapled and traded together as one stapled security.
SECURITIES REGISTRY
Computershare Investor Services Pty Limited
GPO Box 2975
Melbourne VIC 3001 Australia
Telephone: 1300 850 505 (Australia only)
International: +61 3 9946 4471
Facsimile: +61 3 9473 2500
Email: web.queries@computershare.com.au
CONTACT DETAILS
All changes of name, address, TFN, payment
instructions and document requests should be
directed to the registry.
ELECTRONIC INFORMATION
By becoming an electronic investor and registering
your email address, you can receive via email
notifications and announcements, distribution
statements, taxation statements and annual reports.
SECURE ACCESS TO YOUR SECURITYHOLDING
You will need to have your securityholder reference
number or holder identification number (SRN/HIN)
available to access your holding details.
INVESTOR RELATIONS
NATIONAL STORAGE REIT ANNUAL REPORT 2017/2018
130
CORPORATE DIRECTORY
National Storage Holdings Limited ACN 166 572 845 (“NSH” or the “Company”)
National Storage Property Trust ARSN 101 227 712 (“NSPT”)
together form the stapled entity National Storage REIT (“NSR” or the “Consolidated Group”)
RESPONSIBLE ENTITY OF NSPT
National Storage Financial Services Limited (NSFSL)
ACN 600 787 246 AFSL 475 228
Level 23, 71 Eagle Street, Brisbane QLD 4000
REGISTERED OFFICE
Level 23, 71 Eagle Street
Brisbane QLD 4000
PRINCIPAL PLACE OF BUSINESS
Level 23, 71 Eagle Street
Brisbane QLD 4000
SHARE REGISTRY
Computershare Investor Services Pty Limited
452 Johnston Street
Abbotsford VIC 3067
Stapled Securities are quoted on the Australian
Securities Exchange (ASX).
AUDITORS
Ernst & Young
111 Eagle Street
Brisbane QLD 4000
DIRECTORS
Laurence Brindle
Anthony Keane
Howard Brenchley
Steven Leigh
Andrew Catsoulis
Claire Fidler
COMPANY SECRETARY
Claire Fidler
Patrick Rogers
CORPORATE DIRECTORY
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