Premium Properties Limited (Registration number 1994/003601/06) Annual Financial Statements for the year ended 31 August 2016

Transcription

1 Annual Financial Statements for the year ended 31 August 2016

2 Index The reports and statements set out below comprise the annual financial statements presented to the shareholder: Index Page Directors' Responsibilities and Approval 3 Independent Auditor's Report 4-5 Directors' Report 6-7 Statements of Financial Position 8 Statements of Profit or Loss and Other Comprehensive Income 9 Statements of Changes in Equity 10 Statements of Cash Flows 11 Accounting Policies

3 Annuai Financial Statements for the year ended 31 August 2016 Directors' Responsibilities and Approval The directors are required in terms of the Companies Act of South Africa, 71 of 2008, (the Act) to maintain adequate accounting records and are responsible for the content and integrity of the annual financial statements and related financial information included in this report. It is their responsibility to ensure that the annual financial statements fairly present the state of affairs of the group and company (hereinafter referred to as the group), as at the end of the financiai year and the results of its operations and cash flows for the period then ended, in conformity with Internationa! Financial Reporting Standards and the Act. The external auditors are engaged to express an independent opinion on the annual financial statements. The annual financial statements are prepared in accordance with International Financial Reporting Standards and the Act and are based upon appropriate accounting policies consistently applied and supported by reasonable and prudent judgements and estimates. The annual financial statements have been audited in compliance with section 29(1) of the Companies Act of South Africa, 71 of The directors acknowledge that they are ultimately responsible for the system of internal financial control established by the group and place considerable importance on maintaining a strong control environment. To enable the directors to meet these responsibilities, the board sets standards for internal control aimed at reducing the risk of error or loss in a cost effective manner. The standards include the proper delegation of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties to ensure an acceptable level of risk. These controls are monitored throughout the group and all employees are required to maintain the highest ethical standards in ensuring the group's business is conducted in a manner that in all reasonable circumstances is above reproach. The focus of risk management in the group is on identifying, assessing, managing and monitoring all known forms of risk across the group. While operating risk cannot be fully eliminated, the group endeavours to minimise it by ensuring that appropriate infrastructure, controls, systems and ethical behaviour are applied and managed within predetermined procedures and constraints. The directors are of the opinion, based on the information and explanations given by management, that the system of internal control provides reasonable assurance that the financial records may be relied on for the preparation of the annual financial statements. However, any system of internal financial control can provide only reasonable, and not absolute, assurance against material misstatement or loss. The directors have reviewed the group's cash flow forecast and in the light of this review and the current financial position, they are satisfied that the group has access to adequate resources to continue in operational existence for the foreseeable future. The external auditors are responsible for independently auditing and reporting on the group's annual financial statements. The anvual financial statements have been examined by the group's external auditors and their report is presented on pa^s 4 to 5. Th hnuai financial statements set out on pages 6 to 52, which h^e Men prepared on the going concern basis, were ap ed by the hoard on 22 February 2017, and were signed on a'f by: JP Wi pnicl AK Stein Certifi pany secretary In term^of SGctiop/88(2)(e) of the Companies Act, I certify that Premium Properties Limited has lodged with the Companies and IntJlegltrafMoperty Commission of South Africa all the returns required of a company by the Companies Act and that all suctrfeturrig'appear to he true, correct and up to date. itize Greeff City Property Administration Proprietary Limited Company Secretary 22 February

4 Deloitte. Deloitte & louche Registered Auditors Audit - Gauteng www,deioitte.com Buildings 1 and 2 Deloitte Place The Woodlands Woodlands Drive Woodmead Sandton Private Bag X6 Gaiio Manor 2052 South Africa Docex 10 Johannesburg Riverwaik Office Park, Block B 41 Matroosberg Road Ashiea Gardens X6 Pretoria, 0081 PC Box Hatfield 0028 South Africa Docex 6 Pretoria Tel: +27 (0) SOOO Fax:+27 (0) S111 Tel: +27(0) Fax:+27 (0) INDEPENDENT AUDITOR'S REPORT TO THE SHAREHOLDER OF PREMIUM PROPERTIES LIMITED Report on the Financial Statements We have audited the consolidated and separate financial statements of Premium Properties Limited set out on pages 8 to 52, which comprise the statements of financial position as at 31 August 2016, and the statements of profit or loss and other comprehensive Income, statements of changes In equity and statements of cash flows for the year then ended, and the notes, comprising a summary of significant accounting policies and other explanatory Information. Directors' Responsibility for the Financial Statements The company's directors are responsible for the preparation and fair presentation of these consolidated and separate financial statements In accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa, and for such Internal control as the directors determine Is necessary to enable the preparation of consolidated and separate financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility Is to express an opinion on these consolidated and separate financial statements based on our audit. We conducted our audit In accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit Involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment. Including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers Internal control relevant to the entity's preparation and fair presentation of the financial statements 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 entity's Internal control. An audit also Includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained Is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated and separate financial statements present fairly. In all material respects, the consolidated and separate financial position of Premium Properties Limited as at 31 August 2016, and Its consolidated and separate financial performance and consolidated and separate cash flows for the year then ended In accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa. National Executive: *LL Bam Chief Executive Officer *TMM Jor(Jan Deputy Chief Executive Officer *Mj Jarvis Chief Operating Officer *GM Pinnock Audit *N Sing Risk Advisory *NB KaderTax TP Pillay Consulting SGwaia BPaaS *K Black Clients & Industries *JK Mazzocco Talent & Transformation *MJ Comber Reputation & Risk *TJ Brown Chairman of the Board A full list of partners and directors is available on request * Partner and Registered Auditor B-BBEE rating: Level 2 contribution in terms of the DTI Generic Scorecard as per the amended Codes of Good Practice Associate of Deloitte Africa, a Member of Deloitte Touche Tohmatsu Limited

5 other reports required by the Companies Act As part of our audit of the consolidated and separate financial statements for the year ended 31 August 2016, we have read the Directors' Report and the Company Secretary's Certificate for the purpose of identifying whether there are material inconsistencies between these reports and the audited financial statements. These reports are the responsibility of the respective preparers. Based on reading these reports we have not identified material inconsistencies between these reports and the audited consolidated and separate financial statements. However, we have not audited these reports and accordingly do not express an opinion on these reports. Report on Other Legal and Regulatory Requirements In terms of the Independent Regulatory Board for Auditors (IRBA) Rule published in Government Gazette Number dated 04 December 2015, we report that Deloitte & Touche has been the auditor of Premium Properties Limited for 2 years. Deloitte & Touche Registered Auditor Per: P Kleb Partner 22 February

6 Directors' Report The directors have pleasure in submitting their report on the annual financial statements of Premium Properties Limited for the year ended 31 August Nature of business Premium Properties Limited was incorporated in South Africa in 1994 with investments in retail, commercial, industrial and residential properties and deriving income from the rental of its properties and its investments. The company is a wholly owned subsidiary of Octodec Investments Limited, a REIT listed under the "Financials - Real Estate Floldings" sector on the JSE. Details of their compliance with Corporate Governance can be found in the Integrated Report of Octodec Investments Limited. The group and company operates in South Africa. There have been no material changes to the nature of the group and company's business from the prior year. 2. Review of financial results and activities The annual financial statements have been prepared in accordance with International Financial Reporting Standards, the SAIGA Financial Reporting Guides as issued by the Accounting Practices Committee, Financial Pronouncements as issued by the Financial Reporting Standards Council and the requirements of the Companies Act of South Africa, 71 of 2008, (the Act). The accounting policies have been applied consistently compared to the prior year. Full details of the financial position, results of operations and cash flows of the group and company are set out in these annual financial statements. 3. Share capital There have been no changes to the authorised or issued share capital during the year under review. 4. Dividends The group and company's dividend policy is to consider a final dividend in respect of each financial year. The dividends already declared and paid to the shareholder during the year are as reflected in the attached statement of changes in equity, once the appropriate approval was granted by the board of directors. 5. Directorate The directors in office at the date of this report are as follows: Directors JP Wapnick AK Stein P Kruger There have been no changes to the directorate for the year under review. 6. Interests In subsidiaries and associates Details of material interests in subsidiaries and associates are presented in the consolidated annual financial statements in notes 5 and 6. The interest of the group and company in the profits and losses of its subsidiaries and associates for the year ended 31 August 2016 are as follows: Subsidiaries Centpret Properties Proprietary Limited Centuria 369 Proprietary Limited Landjack Properties Proprietary Limited Savyon Buildings Proprietary Limited Associates IPS Investments Proprietary Limited 2016 R ' (95)

7 Directors' Report 7. Events after the reporting period The directors are not aware of any material event which occurred after the reporting date and up to the date of this report. 8. Going concern The directors believe that the group and company have adequate financial resources to continue in operation for the foreseeable future and accordingly the consolidated annual financial statements have been prepared on a going concern basis. The directors have satisfied themselves that the group and company are in a sound financial position and that they have access to sufficient borrowing facilities to meet their foreseeable cash requirements. The directors are not aware of any new material changes that may adversely impact the group and company. The directors are also not aware of any material non compliance with statutory or regulatory requirements or of any pending changes to legislation which may affect the group and company. 9. Auditors Deloitte & Touche continued as auditors for the group and company in At the AGM, the shareholder will be requested to reappoint Deloitte & Touche as the independent external auditors of the company and to confirm Mr Patrick Kleb as the designated lead audit partner for the 2017 financial year. 10. Secretary The company secretary is City Property Administration Proprietary Limited. Postal address Business address PO Box 15 Pretoria Du Toit Street Pretoria Management contract and administration The group and company's investment properties continue to be managed (in terms of an agreement) by City Property Administration Proprietary Limited, the entire share capital of which is effectively owned by the Wapnick family. 12. Audit committee The company does not have its own audit committee as the audit committee of the holding company, Octodec Investments Limited, oversees Premium Properties Limited and its subsidiaries. The shareholders are referred to the audit committee report included in the holding company's financial statements. 7

8 Annual Financial Statements for ttie year ended 31 August 2016 Statements of Financial Position as at 31 August 2016 Group Company Note(s) Assets Non-Current Assets Investment property Straight-line rental income accrual Tenant installations and lease costs Plant and equipment Investments in subsidiaries Investment in associate Loans to group companies Loan to holding company Derivative financial instruments Current Assets Trade and other receivables Cash and cash equivalents Non-current assets held for sale Total Assets Equity and Liabilities Equity Stated capital Non- distributable reserve Distributable reserve Liabilities Non-Current Liabilities Loan from holding company Borrow/ings Deferred tax Derivative financial instruments Current Liabilities Borrowings Trade and other payables Bank overdraft Total Liabilities Total Equity and Liabilities

9 Statements of Profit or Loss and Other Comprehensive Income Group Company Note(s) R '000 R '000 Revenue Other income Operating expenses ( ) ( ) (45 691) (45 693) Operating profit Investment revenue Fair value changes Income from equity accounted investments Finance costs 21 ( ) ( ) ( ) ( ) Profit before taxation Taxation 22 (1 981) (6 041) - - Profit for the year Other comprehensive income Total comprehensive income for the year

10 Statements of Changes in Equity Stated capital Non - distributable Distributable reserve Total equity reserve Group Balance at 01 September 2014 Profit for the year Transfer of debenture premium and share premium to stated capital Transfer of fair value changes to investment properties Transfer of fair value changes to interest rate derivatives Dividends paid Transfer of fair value changes to reserves of associate ( ) (10 644) ( ) (58 176) ( ) Balance at 01 September Profit for the year Transfer of fair value changes to investment properties ( ) Transfer of fair value changes to interest rate derivatives (10 437) Transfer of capital profit on disposal of Investment property (1 124) Dividends paid ( ) ( ) Transfer of fair value changes to reserves of associate (25 044) Balance at 31 August Note(s) Company Balance at 01 September 2014 Profit for the year Transfer of debenture premium and share premium to stated capital Transfer of fair value changes to Investment properties Transfer of fair value changes to Interest rate derivatives Dividends paid (36 864) (10 644) ( ) ( ) Balance at 01 September Profit for the year Transfer of fair value changes to Investment properties (10 720) Transfer of fair value changes to Interest rate derivatives (10 437) Dividends paid ( ) ( ) Balance at 31 August Note(s)

11 Statements of Cash Flows Group Company Note(s) R '000 R '000 R '000 R '000 Cash flows from operating activities Cash generated from operations Interest income Dividends received Finance costs ( ) ( ) ( ) ( ) Dividends paid 24 ( ) ( ) ( ) ( ) Net cash utilised in operating activities (65 855) (88 103) (64 025) ( ) Cash flows from investing activities Purchase of plant and equipment 4 (1) Acquisition/redevelopment of investment property 2 ( ) ( ) (7 866) (16 409) Disposal of investment property Loans advanced to subsidiaries - - ( ) ( ) Net movement in loan to associate Tenant installation and lease cost capitalised (3 670) (19 082) - (5 133) Disposal of tenant installations and lease costs Disposal of assets to fellow subsidiary Dividend income from equity accounted investments Net cash (utilised in)/from investing activities (69 373) ( ) Cash flows from financing activities Proceeds from borrowings Repayment of borrowings ( ) - ( ) - Repayment of loan from holding company - ( ) - ( ) Proceeds from loan from holding company Net cash from/(utilised in) financing activities ( ) ( ) Total cash movement for the year ( ) ( ) Cash/(overdraft) at the beginning of the year (9 346) (9 352) Total cash/(overdraft) at end of the year (9 346) (9 352) 11

12 Accounting Policies 1. Presentation of annual financial statements The annual financial statements have been prepared in accordance with International Financial Reporting Standards, the SAIGA Financial Reporting Guides as issued by the Accounting Practices Committee, Financial Pronouncements as issued by the Financial Reporting Standards Council and the Act, and have been rounded to the nearest thousand (). The annual financial statements have been prepared on the historical cost basis, except for the measurement of investment property and certain financial instruments at fair value, and incorporate the principal accounting policies set out below. The accounting policies adopted and methods of computation are consistent with those applied in the financial statements of the previous year. 1.1 Consolidation Basis of consolidation The group accounts for business combinations by applying the acquisition method as at the acquisition date and measures goodwill as the fair value of the consideration transferred including the recognised amount of any non-controlling interest in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured at the acquisition date. The group controls an entity when it has power over the entity it is exposed to, or has rights to variable returns from its involvement with the entity and has the ability to affect those through its power over the entity. The acquisition date is the date on which control is transferred to the acquirer. Judgement is applied in determining the acquisition date and determining whether control is transferred from one party to another. Consideration transferred includes the fair values of the assets transferred, liabilities incurred by the group to the previous owners of the acquiree, and equity interests issued by the group. Consideration transferred also includes the fair value of any contingent consideration. A contingent liability of the acquiree is assumed in a business combination only if such a liability represents a present obligation and arises from a past event, and its fair value can be measured reliably. The group measures any non-controlling interest at its proportionate interest in the identifiable net assets of the acquiree. Transaction costs that the group incurs in connection with a business combination, such as finder's fees, legal fees, due diligence fees, and other professional and consulting fees, are expensed as incurred, except transaction costs associated with the issue of debt or equity interests, which are set off against stated capital in the year of the acquisition. Goodwill and gain on bargain purchase Goodwill arising on the acquisition of a business is carried at cost, as established at the date of acquisition of the business, iess accumulated impairment losses, if any. Goodwill is not amortised but is tested on an annual basis for impairment. If goodwill is assessed to be impaired, that impairment is not subsequently reversed. On disposal of a subsidiary, attributable goodwill is included in the determination of the profit or loss on disposal. If the cost of the acquisition is less than the fair value of the net asset value of the subsidiary, the difference is recognised directly in the statement of profit and loss as a gain on bargain purchase. Investments in associates An associate is an entity over which the group has significant influence and which is neither a subsidiary nor a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. An investment in associate is accounted for using the equity method, except when the investment is classified as held-for-sale in accordance with IFRS 5 Non-current assets held-for-sale and discontinued operations. Under the equity method, investments in associates are carried in the consolidated statement of financial position at cost adjusted for post-acquisition changes in the group's share of net assets of the associate, less any impairment losses. Losses in an associate in excess of the group's interest in that associate are recognised only to the extent that the group has incurred a legal or constructive obligation to make payments on behaif of the associate. 12

13 Accounting Policies 1.1 Consolidation (continued) Any goodwill on acquisition of an associate is included in the carrying amount of the investment, however, a gain on acquisition is recognised immediately in profit or loss. Profits or losses on transactions between the group and an associate are eliminated to the extent of the group's interest therein. When the group reduces its level of significant influence or loses significant influence, the group proportionately reclassifies the related items which were previously accumulated in equity through other comprehensive income to profit or loss as a reclassification adjustment. In such cases, if an investment remains, that investment is measured to fair value, with the fair value adjustment being recognised in profit or loss as part of the gain or loss on disposal. In the company's financial statements, investments in associate are carried at cost less any accumulated impairment losses. Investments in subsidiaries Subsidiaries are those entities controlled by the group. The financial results of subsidiaries' are included in the consolidated financial statements from the date that control commences until the date that control ceases. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. Transactions which result in changes in ownership levels, where the group has control of the subsidiary both before and after the transaction, are regarded as equity transactions and are recognised directly in the statement of changes in equity. The difference between the fair value of the consideration paid or received and the movement in non-controlling interest for such transactions is recognised in equity attributable to the owners of the parent. Where a subsidiary is disposed of and a non-controlling shareholding is retained, the remaining investment is measured to fair value with the adjustment to fair value recognised in profit or loss as part of the gain or loss on disposal of the controlling interest. Investments in subsidiaries are stated in the company's financial statements at cost, less any impairment losses. 13

14 Accounting Policies 1.2 Significant judgements and sources of estimation uncertainty Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events, and are believed to be reasonable under the circumstances. Actuai results may differ from these estimates. Areas in which estimates and judgements are made include the following: Investment property In the application of the accounting policies which are described in note 2, management is required to make judgements, estimates and assumptions about the fair vaiue of investment properties that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Plant and equipment The group reviews the estimated useful life of the plant and equipment at the end of each reporting period. Judgements regarding the existence of impairment indicators are based on operational performance of the assets. Future events could cause management to conclude that impairment indicators exist. An estimate is made of the residual amount the group would receive currently for the asset if the asset was already of the age and condition expected at the end of its useful life. If this changes from the prior period, the depreciation charge is adjusted prospectively. Useful lives of assets are reviewed annually. If these change from the prior period, the depreciation charge is adjusted prospectively. The group uses the following indicators to determine useful lives: - Expected usage of assets - Expected physical wear and tear - Technical or commercial obsolescence Trade receivables Trade receivables are initially recognised at fair value and subsequently measured at amortised cost, with gains or losses being recognised in profit or loss. An estimate is made for credit iosses based on a review of ali outstanding amounts at yearend. Derivatives The fair vaiues of interest rate swaps are calculated based on the present value of future estimated cash flows, taking into account judgements, estimates and assumptions made by management. Provisions Provisions are required to be recorded when the group has a present legal or constructive obligation as a result of past events, for which it is probabie that an outflow of economic benefits will occur, and where a reliable estimate can be made of the amount of the obiigation. Best estimates, being the amount that the group would rationally pay to settle the obligation, are reoognised as provisions at the reporting date. Fair value estimation The fair value of investment properties are determined using current rentals, expected market rentals, maintenance requirements and appropriate capitalisation rates. These valuations are regularly compared to aotual transactions by the group and those obtained by the market. Market rentals are determined by reference to current market rentals for similar buildings in the same location and condition. The fair vaiue of financial instruments that are not traded in an active market is determined by using valuation techniques. The group uses a variety of methods and makes assumptions that are based on market conditions existing at the end of each reporting period. Quoted market prices or dealer quotes for similar instruments are used for long-term debt. Other techniques, such as estimated discounted oash flows, are used to determine fair vaiue for the remaining financial instruments. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows. Deferred taxation Deferred tax assets are raised to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused tax credits can be utilised. An assessment of future taxable profit is performed at every reporting date, in the form of future cash flows using a suitable growth rate. Business combination versus asset acquisition The directors have assessed the properties acquired and have concluded that, in their view, these acquisitions are property acquisitions in terms of IAS 40 and are therefore accounted for in terms of that standard. In the opinion of the directors, these 14

15 Accounting Policies 1.2 Significant judgements and sources of estimation uncertainty (continued) properties did not constitute a "business" as defined in terms of IFRS 3, as there were no adequate processes identified within these properties to warrant classification as a business. 1.3 Investment property Investment properties are properties held to earn rentals and/or for capital appreciation. Investment properties are recognised as an asset when, and only when, it is probable that the future economic benefits that are associated with the investment properties will flow to the entity, and the cost of the investment properties can be measured reliably. Investment properties are initially recognised at cost, including transaction costs. Subsequent to initial recognition, investment properties are measured at fair value. A gain or loss arising from a change in fair value is recognised in profit or loss and transferred to a non-distributable reserve in the statement of changes in equity in the period in which it arises. Subsequent refurbishing expenditure relating to investment properties that have been recognised is added to the carrying amount of the investment properties when it is probable that future economic benefits, in excess of the originally assessed standard of performance of the existing investment properties, will flow to the entity. All other subsequent expenditure is expensed in the period in which it is incurred. Properties under development comprise the cost of the land and development and are stated at fair value. If the fair value cannot be reasonably determined, it is stated at cost and is not depreciated. Investment properties are derecognised on disposal or when it is permanently withdrawn from use and no future economic benefits are expected from its disposal. The gain or loss on disposal of investment properties is calculated as the difference between the net disposal proceeds and the carrying amount of the investment properties and is recognised in profit and loss for the period and transferred to the non-distributable reserve in the period in which it arises. Investment properties erected on land secured by means of long-term land leases are classified as investment properties. Fair value At the reporting date all investment properties are measured at fair value as determined by management. The investment committee considers the valuations to determine the appropriateness of the valuation techniques and inputs used for fair value measurements. The valuation process is reviewed by both the investment committee of the holding company and the board of directors of the holding company at each reporting period. In estimating the fair value of investment properties, the group uses market-observable data to the extent it is available. Independent valuations are obtained on a rotational basis to determine the reasonableness of the directors' portfolio valuation, ensuring that every property is independently valued every three years. Non-current assets held-for-sale A non-current asset is classified as held-for-sale if It is expected that its carrying amount will be recovered principally through sale rather than through continuing use, it is available for immediate sale and the sale is highly probable to occur within one year. For the sale to be highly probable, the appropriate level of management must be committed to a plan to sell the asset. On initial classification as held-for-sale, generally, non-current assets are measured at the lower of the carrying amount and fair value less costs to sell, with any adjustments taken to profit or loss (or other comprehensive income in the case of a revalued asset). The same applies to gains and losses on subsequent re-measurement. However, investment property within the scope of IAS 40, continues to be measured in accordance with that standard. Impairment losses subsequent to classification of assets as held-for-sale are recognised in profit or loss. Increases in fair value less costs to sell assets that have been classified as held-for-sale are recognised In profit or loss to the extent that the increase is not in excess of any cumulative impairment loss previously recognised in respect of the asset. Assets classified as held-forsale are not depreciated. Non-current assets held-for-sale are presented separately from other assets and liabilities on the statement of financial position. Prior periods are not reclassified. 15

16 Accounting Policies 1.4 Plant and equipment Plant and equipment are recognised at cost less accumulated depreciation and accumulated impairment losses. The cost of an item of plant and equipment is recognised as an asset when it is probable that future economic benefits associated with the item will flow to the entity and the cost of the item can be measured reliably. Subsequent expenditure relating to an item of plant and equipment that has already been recognised is added to the carrying amount of the asset to the extent that it is probable that future economic benefits, in excess of the originally assessed standard of performance of the existing asset, will flow to the entity. The residual value and the useful life of each asset are reviewed at each financial year-end. Each part of an item of plant and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately. Depreciation is based on the cost of the asset less its residual value and recognised on a straight-line basis, over the current estimated useful lives of the assets. The estimated useful lives of the assets for the current and comparative periods are: Item Average useful life Air-conditioning equipment 6 years Security equipment 5-6 years Lifts 12 years Parking equipment 5 years The gain or loss arising from the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the statement of profit and loss and other comprehensive income. 1.5 Non-distributable reserve Realised profits on the disposal of investment properties, although legally distributable, are transferred to a non-distributable reserve, as it is the group's policy to regard such profits as not being available for distribution. Gains and losses on revaluation of investment property and on interest rate derivatives, net of deferred tax as appiicable, are similariy transferred to a nondistributable reserve as are revaluation reserves by associates. 1.6 Financial Instruments Financial assets Financial assets are classified into the following specified categories: Financial assets at fair value through profit or loss Held-to-maturity investment Loans and receivables Available-for-sale financial assets Financial liabilities at fair value through profit or loss Financial liabilities measured at amortised cost The classification depends on the nature and purpose of the financial instruments and is determined by management at the time of initial recognition. Financial liabilities Financial liabilities are classified as either financial liabilities at 'FVTPL' or 'other financial liabilities.' Other financial liabilities (inciuding borrowings and trade and other payables) are subsequently measured at amortised cost using the effective interest method. initial recognition and measurement Financial instruments are recognised initially when the group becomes a party to the contractual provisions of the instruments. 16

17 Accounting Policies 1.6 Financial instruments (continued) Financial assets and liabilities are initially measured at fair value. All transaction costs directly attributable to the acquisition or issue of financial assets and liabilities (other than financial assets and financial liabilities at fair value through profit and loss) are added to or deducted from the cost of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial instruments at fair value through profit or loss are expensed immediately in profit and loss. Derecognition The group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the entity is recognised as a separate asset or liability. The group derecognises a financial liability when its contractual obligations are discharged, cancelled or expired. Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables (including loans, trade and other receivables and cash and cash equivalents) are measured at amortised cost using the effective interest method, less any impairment, except for short-term receivables where the effect of discounting is immaterial. An estimate is made for credit losses based on a review of all outstanding amounts at year-end. Doubtful debts are written off to profit or loss during the year in which they are identified. Interest earned on loans, trade receivables and cash and cash equivalents is recognised on an accrual basis using the effective interest method. Financial liabilities Other financial liabilities (including borrowings and trade and other payables) are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, except for short-term payments where the effect of discounting is immaterial. Derivative financiai instruments The group uses derivative financial instruments to manage its exposure to interest rate risk arising from its financing activities. In accordance with the treasury policy of the holding company, the group does not hold or issue derivative financial instruments for trading purposes. However, as the hedge relationship is not designated as a hedge for accounting purposes, the derivatives are accounted for as trading instruments. Derivative financial instruments are initially recognised at fair value at the date the derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognised in profit or loss and other comprehensive income. The fair value of interest rate swaps is the estimated amount that the entity would receive or pay to terminate the swap at the reporting date, taking into account current interest rates and the current creditworthiness of the swap counterparties. Impairment of financial assets Financial assets, other than those at fair value through profit and loss, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected. Objective evidence of impairment for a portfolio of receivables includes the group's past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the tolerance credit period of 60 days, as well as observable changes in local economic conditions that result in default on receivables. An estimate is made for credit losses based on a review of all outstanding amounts at year-end. Doubtful debts are written off to profit or loss during the year in which they are identified. A reversal of an impairment of financial assets at amortised cost is recognised immediately in profit or loss. 17

18 Accounting Policies 1.6 Financial instruments (continued) Fair value measurement The group measures financial instruments, such as derivatives and investment properties, at fair value at each reporting date. The fair values of financial instruments measured at amortised cost are disclosed, should it be determined that the carrying value of these instruments does not reasonably approximate their fair value at each reporting date. The fair value hierarchy reflects the significance of the inputs used in making fair value measurements. The level within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. The different levels have been defined as follows: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2: Input other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices) Level 3: Input for the asset or liability that is not based on observable market data (unobservable input) 1.7 Taxation Current tax assets and liabilities Current and deferred tax expenses are recognised in profit and loss, except when they relate to items that are recognised in other comprehensive income or directly In equity, in which case, the current and deferred tax expenses are also recognised in other comprehensive income or directly in equity respectively. Where current tax or deferred tax expenses arise from the initial accounting for a business combination, the tax effect is included In the accounting for the business combination. Current tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from 'profit before tax' as reported in the consolidated statement of profit and loss and other comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The group's current tax is calculated using tax rates that have been enacted by the end of the reporting period. 18

19 Accounting Policies 1.7 Taxation (continued) Deferred tax Deferred tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for ail deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Deferred tax is not accounted for if it arises from the initial recognition of an asset or liability in a transaction other than a business combination, that at the time of the transaction, affects neither accounting nor taxable profit or loss. Deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred tax is not calculated on timing differences of those assets and liabilities that when reversed will be distributed to shareholders. Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the period-end and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax liabilities are provided on taxable temporary differences arising from investments in subsidiaries, associates, joint ventures and joint arrangements, except where the group is able to control the reversal of the temporary difference and that it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognised on deductible temporary differences arising from investments in subsidiaries, associates, joint ventures and joint arrangements only to the extent that it is probable the temporary difference will reverse in the future and there is sufficient taxable profit available against which the temporary difference can be utilised. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on the same taxable entity where there is an intention to settle the balances on a net basis. 1.8 Leases A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. All other leases are classified as operating leases. The group as lessor - operating leases Contractual rental income is recognised on a straight-line basis over the period of the lease term and rental income based on a percentage of turnover is recognised when due and the amount can be measured reliably. An adjustment is made to contractual rental income earned to bring to account in the current period the difference between the rental income to which the group is currently entitled and the rental for the period calculated on a straight-line basis. Income from leases is disclosed under revenue in the statement of profit and loss and other comprehensive income. Initial direct costs incurred in negotiating and arranging operating leases are added to the carrying amount of the leased asset and recognised as an expense over the lease term on the same basis as the lease income. These include tenant installation costs and commission paid in respect of the securing of leases. The group as lessee Operating lease payments, which are based on a percentage of rental income, are charged to the statement of profit and loss and other comprehensive income, in the year in which it is incurred. 19

20 Annual Financiai Statements for the year ended 31 August 2016 Accounting Policies 1.9 Impairment of non-financial assets At each reporting date the group assesses whether there is any indication that an asset may be impaired. If any such indication exists, the group estimates the recoverable amount of the asset. If it is not possibie to estimate the recoverable amount of the individual asset, the recoverable amount of the cash-generating unit to which the asset belongs is determined. The recoverabie amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell, and its value in use. If the recoverable amount of an asset is iess than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. That reduction is an impairment loss. An impairment loss of assets carried at cost less any accumulated depreciation or amortisation is recognised immediately in profit or ioss. Any impairment loss of a revalued asset is treated as a revaluation decrease. An entity assesses at each reporting date whether there is any indication that an impairment ioss recognised in prior periods for assets other than goodwiil may no longer exist or may have decreased. If any such indication exists, the recoverable amounts of those assets are estimated. A reversal of an impairment loss of assets carried at cost less accumulated depreciation or amortisation other than goodwill is recognised immediately in profit or ioss. Any reversal of an impairment loss of a revalued asset is treated as a revaiuation increase Share capital and equity An equity instrument is any contract that evidences a residuai interest in the assets of an entity after deducting all of its iiabilities Provisions Provisions are recognised when the group has a present iegal or constructive obligation as a resuit of a past event which will probably result in an outflow of economic benefits that can be reasonably estimated. The amount of a provision is the present value of the expenditure expected to be required to settie the obligation Revenue Rental income and recoveries Revenue is measured at the fair value of the consideration received or receivabie. Revenue comprises revenue from rental income and operating cost recoveries and excludes value added taxation. Rentai income is recognised on the straight-line basis over the lease term and recoveries are recognised on the accrual basis. Turnover-based rental is recognised when it is due in terms of the iease agreement and the amount can be measured reliably. Income from investments Interest income is recognised on a time proportion basis that takes into account the effective yield on the asset. Dividends are recognised when the shareholder's right to receive payment has been established and the amount of income can be measured reliably Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised as an expense in the period in which they are incurred. 20