ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 2017 GARDA DIVERSIFIED PROPERTY FUND (GDF) ARSN

Transcription

1 ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE GARDA DIVERSIFIED PROPERTY FUND (GDF) ARSN

2

3 CONTENTS 01 DIRECTORS REPORT 4 02 AUDITOR S INDEPENDENCE DECLARATION STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME STATEMENT OF FINANCIAL POSITION STATEMENT OF CHANGES IN EQUITY STATEMENT OF CASH FLOWS NOTES TO THE FINANCIAL STATEMENTS CORPORATE GOVERNANCE STATEMENT UNITHOLDER INFORMATION DIRECTORS DECLARATION INDEPENDENT AUDITOR S REPORT CORPORATE DIRECTORY 44 GARDA DIVERSIFIED PROPERTY FUND ANNUAL FINANCIAL REPORT 30 JUNE 3

4 01 DIRECTORS REPORT The Directors of GARDA Capital Limited, the responsible entity of GARDA Diversified Property Fund (Fund), provide this report together with the financial statements of the Fund, for the year ended 30 June and the auditor s report thereon. INFORMATION ON DIRECTORS OF THE RESPONSIBLE ENTITY The Directors of GARDA Capital Limited at any time during or since the end of the financial year and up to the date of this report are: Mr Matthew Madsen Executive Chairman and Managing Director Mr Mark Hallett Non-Executive Director Mr Philip Lee Non-Executive Director Mr Leylan Neep Executive Director Mr David Usasz Independent Chairman (Resigned 31 January ) Mr Madsen, the Managing Director of GARDA Capital Limited, was appointed as Executive Chairman following the resignation of Mr Usasz on 31 January. Remuneration disclosures for the directors of the responsible entity are disclosed in GARDA Capital Limited s financial statements. INTERESTS IN THE UNITS AND OPTIONS OF THE FUND AND RELATED BODIES CORPORATE At 30 June and at the date of this report, the interest of the directors in the units of GARDA Diversified Property Fund are: DIRECTORS OF GARDA CAPITAL LIMITED UNITS AT 30 JUNE UNITS AT DATE OF REPORT Mr Matthew Madsen 143, ,794 Mr Mark Hallett 3,000 3,000 Mr Philip Lee 50,000 50,000 Mr Leylan Neep - - Mr David Usasz 1 205, ,000 1 The 205,000 units disclosed for David Usasz were those units owned at the date of his resignation, being 31 January. The directors of the responsible entity hold no options or rights over interests in the Fund. PRINCIPAL ACTIVITY The Fund invests in commercial and industrial properties and other assets in accordance with the provisions of the Fund s constitution. There were no significant changes in the nature of the Fund s activities during the year. REVIEW AND RESULTS OF OPERATIONS A net profit of $20.1 million was generated during the year, an increase of $2.2 million compared to prior year profit of $17.9 million. The net profit increase is primarily as a result of an increase in lease revenue of $2.8 million, largely due to the additional revenue from the acquisition of an industrial property in Mackay in August. During the year, the Fund s total assets increased to $200.6 million from $156.4 million, an increase of $44.2 million. The increase was largely due to the Mackay acquisition for $29.5 million, and an increase in the portfolio valuations. Net tangible assets for the year ended 30 June are $1.21 per unit, an increase of $0.08 per unit on prior year NTA per unit of $1.13. Total liabilities increased to $64.7 million from $50.4 million, an increase of $14.3 million due to net drawdowns on the senior debt facility to fund the balance of capital activity during the period. Total unitholders equity at 30 June was $135.9 million, an increase of $29.9 million on the prior year s balance of $106.0 million, which was reflective of the $20.0 million in proceeds from a private placement in December, and the Fund s net profit of $20.1 million less amounts distributed to unitholders of $10.1 million. 4 GARDA DIVERSIFIED PROPERTY FUND ANNUAL FINANCIAL REPORT 30 JUNE

5 DIRECTORS REPORT CONTINUED. REVIEW AND RESULTS OF OPERATIONS CONTINUED. The key financial highlights for the year ended 30 June include: FFO of $10.7 million, representing a 18.2% increase on the prior year FFO of $9.1 million; Profit attributable to unitholders of $20.1 million, an increase of $2.2 million from the prior period; Distributions of $10.1 million, representing 9.4 cents per unit, in line with full year guidance; Net tangible assets (NTA) per unit of $1.21 (30 June : $1.13 per unit), representing a 7.1% increase and uplift of $0.08 per unit; and An ASX closing price at 30 June of $1.12 per unit, an uplift of 9.3% from $1.025 per unit at 30 June. The key operational highlights for the year ended 30 June include: An acquisition of a modern industrial distribution facility for $29.5 million in Mackay; A $19.0 million uplift in independent valuations of the portfolio; Successful completion of a $20.0 million private placement at an 8% premium to 5 day VWAP; Continued execution of the capital improvements program, largely focused on the Cairns, Box Hill and Richmond assets with $6.3 million in value accretive spend completed across the assets; A divestment of modern commercial office building in Eagle Farm, Brisbane for $23.0 million; The acquisition of two industrial facilities located in Pinkenba, Brisbane (Trade Coast) for $19 million and Wacol Brisbane for $35.25 million, both on a fund through basis with construction expected to be completed in April 2018 and June 2018 respectively; and Increased sector diversification which will be 60% office 40% industrial (by property value) upon completion of construction of the two industrial facilities. In accordance with Australian Accounting Standards, net profit includes a number of non-cash adjustments including fair value movements in asset and liability values. Funds from operations (FFO) 1 is a global financial measure of real estate operating performance after finance costs and taxes, and is adjusted for certain non-cash items. The responsible entity considers FFO to be a measure that reflects the underlying performance of the Fund. The following table reconciles between profit attributable to unitholders and FFO: Net profit for the year attributable to unitholders 20,121 17,864 Net (gain)/loss on financial liabilities held at fair value through profit and loss (499) 1,127 Fair value movement in investment properties (9,517) (10,093) Loss on sale of investment properties Incentive amortisation and rent straight-line Funds From Operations (FFO) 10,728 9,076 Distribution paid and payable 10,124 8,497 FFO per unit 2 (represented in cents per unit) Distribution payout ratio 94.4% 93.6% FFO is a measure which is not calculated in accordance with International financial reporting standards and has not been audited or reviewed by the auditor of GARDA Diversified Property Fund. FFO of $10.7 million was generated during the period representing an increase of $1.6 million from the prior year (: $9.1 million). The increase in FFO is mainly as a result of additional lease revenue during the year following the acquisition of the Mackay industrial property in August and the lower rent free incentive levels in the current year in comparison to prior year. 1 FFO comprises net profit/loss after tax attributable to unitholders calculated in accordance with Australian Accounting Standards and adjusted for: property revaluations, impairments, amortisation of certain tenant incentives, gain/loss on sale of certain assets, straight-line rent adjustments, and one-off items. 2 Numbers of units is based on the weighted average units on issue for the respective period. GARDA DIVERSIFIED PROPERTY FUND ANNUAL FINANCIAL REPORT 30 JUNE 5

6 DIRECTORS REPORT CONTINUED. REVIEW AND RESULTS OF OPERATIONS CONTINUED. The Fund generated positive operational cash flows of $9.6 million for the year (: positive $8.9 million). Net gain on fair value of derivative financial instruments of $0.5 million (: loss $1.1 million) is as a result of mark to market valuation of interest rate swap contracts on the loan facility totalling $45.6 million. Investment Property Valuations At 30 June, the Fund held nine investment properties totalling $188.1 million in value. Full independent valuations were conducted on investment properties (excluding investment properties under construction) during June and adopted as at 30 June for the properties. (See note 7 for further detail). On a like for like property basis, independent valuations have increased by 12.4% for the properties held at 30 June. On 26 August, the Fund settled an acquisition on a modern industrial distribution facility for $29.5 million. The property, located in Mackay s primary industrial suburb of Paget, is leased to Wesfarmers subsidiary, Blackwoods, until 2029, providing GDF with the benefit of a Weighted Average Lease Expiry (WALE) in excess of 12 years. On 5 June, the Fund exchanged contracts for the sale of The Circuit, Eagle Farm for $23.0 million, representing a 2.7% premium to the previous independent valuation of $22.4 million. Settlement subsequently occurred on 9 June. On 6 June, the Fund exchanged contracts for $35.25 million to acquire, from partners The GPT Group and Metroplex, a new industrial and office facility located in the Metroplex Westgate Wacol industrial park in Brisbane. Volvo Group Australia have pre-committed to a 10 year lease for what will be their new Australian head office and service centre. Costs of $0.9 million have been incurred and construction is anticipated to complete in June On 14 June, the Fund exchanged contracts for $19.0 million to acquire an industrial facility in Brisbane s popular Australia Trade Coast Precinct. The freehold property is located at Main Beach Road, Pinkenba, adjoining the Brisbane Airport. Land has been settled for $8.0 million and construction is anticipated to complete in April INVESTMENT PROPERTIES 7-19 Lake Street, Cairns 45,000 41,000 Land at Grafton Street, Cairns 3,000 1, Diesel Drive, Mackay 29, Benjamin Place, Lytton 8,800 8,600 B2, 747 Lytton Road, Murarrie 14,100 14, Varsity Parade, Varsity Lakes 12,800 12, Elgar Rd, Box Hill 25,000 19, Swan Street, Richmond 41,000 33, The Circuit, Brisbane Airport - 22,400 Total Investment Properties at independent valuation 179, ,100 Value accretive additions post independent valuation Investment Properties Under Construction Lot 2001 Metroplex Westgate, Wacol Main Beach Road, Pinkenba 8,000 - Total Investment Properties 188, ,527 Leasing During the year, the responsible entity was able to execute new leases and existing renewals across 9,200m², representing approximately 17% of the portfolio s total net lettable area of 54,399m² and including three of the Fund s key tenants. Portfolio occupancy remained stable at 94% (: 92%) whilst leases executed and capital transactions contributed towards the significant increase to the portfolio weighted average lease expiry (WALE) to 5.6 years (: 2.9 years). 6 GARDA DIVERSIFIED PROPERTY FUND ANNUAL FINANCIAL REPORT 30 JUNE

7 DIRECTORS REPORT CONTINUED. REVIEW AND RESULTS OF OPERATIONS CONTINUED. Capital Expenditure During the financial year approximately $6.3 million in capital expenditure was completed. The Responsible Entity will continue its capital improvements program during Legal proceedings The responsible entity is continuing its claim against the valuer of a building in Canberra previously owned by the Fund. It relates to the difference between the historic acquisition and sale prices of a warehouse in Canberra, and a loss of opportunity. The valuer is defending the claim. The matter is on the court-managed list, and did not settle during a compulsory mediation process, and the matter will be listed for trial. A trial would likely not be held until early 2018 at the earliest. Any loss which arose on the disposal has been dealt with in prior financial years, and any successful outcome will be of positive benefit to the financial position of GDF. The directors do not have a view on the quantum of any possible recovery, and consequently no provision has been made in the accounts. DISTRIBUTIONS PAID OR RECOMMENDED Distributions payable throughout the financial year totalled $10.1 million (: $8.5 million), representing a distribution of 9.4 cents per unit. This represents a distribution payout ratio of 94.4% of FFO, in line with the Fund s target payout ratio range. As at 30 June, a distribution declared of $2.6 million in relation to the June quarter remained payable, and is expected to be paid on 23 August. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS In the opinion of the responsible entity there were no significant changes in the state of affairs of the Fund that occurred during the financial year. EVENTS AFTER STATEMENT OF FINANCIAL POSITION DATE In July, the responsible entity entered into an agreement to extend two tranches totalling $63.3 million worth of the Fund s debt facilities (Facilities) with St. George Bank for a further two years. The Facilities were originally due to expire in June 2018, however as a result of the extension will now expire on 30 June The Fund s other tranches of debt of approximately $20.3 million are due to expire on 30 June 2019, resulting in a weighted average expiry of 2.8 years. Further to the Facilities extension and as part of the Fund s continued conservative capital management strategy, in August the responsible entity has extended the term and quantum of the Fund s interest rate hedges with St. George Bank. Under the new terms, the current fixed interest rate swaps totalling $45.6 million at a rate of 2.69% due to expire in July 2019 have been increased to a new 5 year swap contract totalling $60.0 million at a rate of 2.68% expiring in July There are no other significant matters or circumstances that have arisen since the end of the financial period that have significantly affected or may significantly affect the operations of the Fund, the results of those operations or the state of affairs of the Fund, in future financial years. FUTURE DEVELOPMENTS, PROSPECTS AND BUSINESS STRATEGIES Strategy The Fund s objective remains unchanged, to provide sustainable and secure distributable income derived from investments in commercial offices in city and suburban markets as well as industrial facilities along the eastern seaboard of Australia. Through a combination of asset acquisitions and divestments, the Fund will continue to grow, balance and diversify the portfolio resulting in a combination of industrial and commercial property assets that include both longer WALE passive assets and also assets requiring active management where the responsible entity will seek to achieve higher income and increase valuations. GARDA DIVERSIFIED PROPERTY FUND ANNUAL FINANCIAL REPORT 30 JUNE 7

8 DIRECTORS REPORT CONTINUED. FUTURE DEVELOPMENTS, PROSPECTS AND BUSINESS STRATEGIES CONTINUED. The Fund s key objectives for financial year 2018 (FY18) include: Leasing 1. Address remaining lease expiry s due in FY18 and also the 2019 financial year expiries; 2. Reduce vacancy in the portfolio with a specific focus on Cairns; 3. Ensure the delivery of the Pinkenba and Wacol industrial facility fund through acquisitions; 4. Continue to review capital transactions to diversify the current portfolio and reduce reliance upon individual tenants (concentration risk); 5. Deliver the capital improvements program; and 6. Assess appropriate capital management options to facilitate possible future acquisitions and manage gearing levels. 9,200m² of space has been renewed or newly leased during the financial year, representing 17% of the approximate 54,200m² current portfolio net lettable area. At risk income from impending lease expiries for FY18 is now 11% of Fund income. This relates to two tenancies including 1,595m² that will become available at Richmond in February 2018 and 1,988m² that will become available in April 2018 at Murarrie when Spotless will vacate. The timing of these expiries substantially lessens the impact of these expiries on FY18 Fund income. Vacancy and lost income across the portfolio is predominantly in Cairns (81% occupied) with minor impact from both the Varsity Lakes and Murarrie assets. The execution of the capital improvements program in Cairns continues to reposition and increase the building offer to tenants which it is expected will assist in leasing. Capital Transactions and LVR The Wacol and Pinkenba acquisitions will result in loan to value ratio (LVR) increasing to a modest level of 42% by 30 June 2018 (expected interest cover ratio: 4 times). The responsible entity will consider various capital management options to facilitate possible further acquisitions and to manage gearing levels. ENVIRONMENTAL ISSUES The Fund s operations were not subject to any significant environmental regulations under either Commonwealth or State legislation. However, the directors believe that the Fund has adequate systems in place for the management of its environmental requirements and is not aware of any breach of those environmental requirements as they apply to the Fund. OPTIONS No options over interests in the Fund were granted during or since the end of the financial year and there were no options outstanding at the date of this report. FEES PAID TO AND INTERESTS HELD IN THE FUND BY THE RESPONSIBLE ENTITY OR ITS ASSOCIATES Fees paid to the responsible entity and its associates or directors out of Fund property during the year are disclosed in note 15 of the financial statements. The number of interests in the Fund held by the responsible entity or its associates as at the end of the financial year are disclosed in note 15 of the financial statements. INTERESTS IN THE FUND The movement in units on issue in the Fund during the year is disclosed in note 12 of the financial statements. The value of the Fund s assets and liabilities is disclosed in the statement of financial position and derived using the basis set out in note 2 of the financial statements. INDEMNIFICATION AND INSURANCE OF DIRECTORS, OFFICERS AND AUDITOR Since commencement the Fund has not indemnified or made a relevant agreement for indemnifying against a liability, any person who is or has been an officer of the responsible entity or an auditor of the Fund. 8 GARDA DIVERSIFIED PROPERTY FUND ANNUAL FINANCIAL REPORT 30 JUNE

9 DIRECTORS REPORT CONTINUED. INDEMNIFICATION AND INSURANCE OF DIRECTORS, OFFICERS AND AUDITOR CONTINUED. The responsible entity has paid insurance premiums in respect of their officers for liability and legal expenses for the year ended 30 June. Such insurance contracts insure against certain liability (subject to specified exclusions) for persons who are or have been directors or executive officers of the responsible entity. Details of the nature of the liabilities covered or the amount of the premium paid has not been included, as such disclosure is prohibited under the terms of the contract. The Fund has not indemnified its auditor. PROCEEDINGS ON BEHALF OF THE FUND No person has applied for leave of Court to bring proceedings on behalf of the Fund or intervene in any proceedings to which the Fund is a party for the purposes of taking responsibility on behalf of the Fund for all or any part of those proceedings. ROUNDING The Fund is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors Reports) Instrument /191 and therefore the amounts contained in this report and in the financial report have been rounded to the nearest $1,000, or in certain cases, to the nearest dollar. NON-AUDIT SERVICES Non-audit services in the form of regulatory services were provided by the Fund s auditor (BDO Audit Pty Ltd) during the year, refer to note 16 for details. The board of directors of GARDA Capital Limited as the responsible entity are satisfied that the provision of nonaudit services during the year by the auditor is compatible with the general standard of independence for auditors imposed by the Corporations Act AUDITOR S INDEPENDENCE DECLARATION The Auditor s Independence Declaration forms part of the Directors Report and can be found on page 10. This report is signed in accordance with a resolution of the board of directors of GARDA Capital Limited, the responsible entity of GARDA Diversified Property Fund. Mr Matthew Madsen Executive Chairman 23 August GARDA DIVERSIFIED PROPERTY FUND ANNUAL FINANCIAL REPORT 30 JUNE 9

10 02 AUDITOR S INDEPENDENCE DECLARATION Under section 307C of the Corporations Act 2001 Tel: Fax: Level 10, 12 Creek St Brisbane QLD 4000 GPO Box 457 Brisbane QLD 4001 Australia DECLARATION OF INDEPENDENCE BY T R MANN TO THE DIRECTORS OF GARDA CAPITAL LIMITED AS RESPONSIBLE ENTITY OF GARDA DIVERSIFIED PROPERTY FUND As lead auditor of GARDA Diversified Property Fund for the year ended 30 June, I declare that, to the best of my knowledge and belief, there have been: 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and 2. No contraventions of any applicable code of professional conduct in relation to the audit. T R Mann Director BDO Audit Pty Ltd Brisbane, 23 August BDO Audit Pty Ltd ABN is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN , an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees. 10 GARDA DIVERSIFIED PROPERTY FUND ANNUAL FINANCIAL REPORT 30 JUNE

11 03 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the year ended 30 June NOTE Revenue 4 19,935 17,106 Property expenses 5 (5,219) (4,823) Trust level expenses 5 (2,004) (1,558) Finance costs 5 (2,453) (1,745) Net gain/(loss) on financial instrument held at fair value through profit and loss (1,127) Fair value movement in investment properties 7 9,517 10,093 Net loss on sale of investment properties (154) - Impairment of receivables - (82) Profit for the year 20,121 17,864 Other comprehensive income for the year - - Total comprehensive income for the year attributable to: Owners of GARDA Diversified Property Fund 20,121 17,864 Basic and diluted profit per unit attributable to the unitholders of GARDA Diversified Property Fund Basic and diluted profit per unit (cents per unit) The Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the Notes to the Financial Statements. GARDA DIVERSIFIED PROPERTY FUND ANNUAL FINANCIAL REPORT 30 JUNE 11

12 04 STATEMENT OF FINANCIAL POSITION For the year ended 30 June NOTE ASSETS Current assets Cash and cash equivalents 18 11,389 2,526 Trade and other receivables 6 1, Total current assets 12,544 2,844 Non-current assets Investment properties 7 188, ,527 Total non-current assets 188, ,527 Total assets 200, ,371 LIABILITIES Current liabilities Trade and other payables 8 1,475 1,481 Distribution payable 11 2,640 2,121 Borrowings 9 42,600 - Total current liabilities 46,715 3,602 Non-current liabilities Tenant security deposits Borrowings 9 17,103 45,380 Derivative financial instrument ,127 Total non-current liabilities 18,026 46,781 Total liabilities 64,741 50,383 Net assets 135, ,988 NET ASSETS ATTRIBUTABLE TO UNITHOLDERS Issued units , ,848 Accumulated losses (91,863) (101,860) Total equity 135, ,988 The Statement of Financial Position should be read in conjunction with the Notes to the Financial Statements. 12 GARDA DIVERSIFIED PROPERTY FUND ANNUAL FINANCIAL REPORT 30 JUNE

13 05 STATEMENT OF CHANGES IN EQUITY For the year ended 30 June ISSUED UNITS ACCUMULATED LOSSES TOTAL Balance at 1 July ,152 (111,227) 99,925 Comprehensive income Profit for the year - 17,864 17,864 Other comprehensive income Total comprehensive income for the year - 17,864 17,864 Transactions with owners Distributions paid or provided for - (8,497) (8,497) Unit buy-back (3,304) - (3,304) Total transactions with owners (3,304) (8,497) (11,801) Balance at 30 June 207,848 (101,860) 105,988 Balance at 1 July 207,848 (101,860) 105,988 Comprehensive income Profit for the year - 20,121 20,121 Other comprehensive income Total comprehensive income for the year - 20,121 20,121 Transactions with owners Unit Issue 20,000-20,000 Equity transaction costs (82) - (82) Distributions paid or provided for - (10,124) (10,124) Total transactions with owners 19,918 (10,124) 9,794 Balance at 30 June 227,766 (91,863) 135,903 The Statement of Changes in Equity should be read in conjunction with the Notes to the Financial Statements. GARDA DIVERSIFIED PROPERTY FUND ANNUAL FINANCIAL REPORT 30 JUNE 13

14 06 STATEMENT OF CASH FLOWS For the year ended 30 June NOTE Cash flows from operating activities Rent and outgoings received 20,938 18,897 Cash payments in the course of operations (8,215) (7,495) Interest received Finance costs (2,375) (1,695) GST paid (762) (842) Net cash provided by operating activities 18 9,647 8,889 Cash flows from investing activities Payments for investment property improvements (6,059) (2,637) Payments for leasing fees and lease incentives (547) (269) Payments for acquisition of properties under construction (9,534) - Payments for acquisition of investment properties (31,540) - Proceeds from the sale of investment properties 22,333 - Net cash used in investing activities (25,347) (2,906) Cash flows from financing activities Proceeds of borrowings 39,000 3,000 Repayment of borrowings (24,750) - Distributions paid (9,605) (6,386) Units bought back including brokerage costs - (3,304) Capital raised 20,000 - Equity transaction costs (82) - Net cash provided by/(used in) financing activities 24,563 (6,690) Net increase/(decrease) in cash held 8,863 (707) Cash at the beginning of the financial year 2,526 3,233 Cash at the end of the financial year 18 11,389 2,526 The Statement of Cash Flows should be read in conjunction with the Notes to the Financial Statements. 14 GARDA DIVERSIFIED PROPERTY FUND ANNUAL FINANCIAL REPORT 30 JUNE

15 07 NOTES TO THE FINANCIAL STATEMENTS NOTE 1 GENERAL INFORMATION Introduction GARDA Diversified Property Fund (Fund) for the year ended 30 June is a listed property trust settled and domiciled in Australia. The Fund is a for-profit entity for the purpose of preparation of these financial statements. GARDA Capital Limited is the responsible entity of GARDA Diversified Property Fund. Operations and principal activities The Fund invests in commercial and industrial properties and other associated assets in accordance with the provisions of the Fund s constitution. Currency The financial report is presented in Australian dollars. The Fund is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors Reports) Instrument /191 and therefore the amounts contained in this report and in the financial report have been rounded to the nearest $1,000, or in certain cases, to the nearest dollar. Registered office The registered office of GARDA Diversified Property Fund is situated at Level 21, 12 Creek Street, Brisbane Qld Authorisation of financial report The financial report was authorised for issue on 23 August by the directors. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Australian Accounting Interpretations and the Corporations Act Compliance with IFRS The financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. Historical cost convention These financial statements have been prepared under the historical cost convention, except for financial assets and liabilities (including derivative instruments) and investment properties. Key judgement Going Concern The Fund was in a net current asset deficiency position as at 30 June by $34.2 million. The deficiency was primarily as a result of borrowings of $42.6 million being classified as current liabilities due to certain tranches of the original three year St. George loan expiring on 23 June On 26 July, the Fund received approval by St. George for these tranches of the overall facility to be extended to 30 June 2020, with the other tranches due to expire in June The directors of GARDA Capital Limited, the responsible entity of GARDA Diversified Property Fund, are of the reasonable opinion that the Fund will be able to meet its liabilities as and when they fall due. Accounting policies a. Income Tax Under current income tax legislation, the Fund is not liable to taxation provided the taxable income is distributed in full to unitholders. GARDA DIVERSIFIED PROPERTY FUND ANNUAL FINANCIAL REPORT 30 JUNE 15

16 NOTES TO THE FINANCIAL STATEMENTS CONTINUED. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED. b. Revenue & Other Income Revenue is measured at the fair value of the consideration received or receivable. Lease income from operating leases is recognised in income on a straight-line basis over the lease term. Rental revenue not received at reporting date is reflected in the statement of financial position as a receivable or if paid in advance, as rent in advance (unearned income). Lease incentives granted are considered an integral part of the total revenue and are recognised as a reduction in rental income over the term of the lease, on a straight-line basis. Contingent rents based on the future amount of a factor that changes other than with the passage of time, including turnover rents and CPI linked rental increases, are only recognised when contractually due. Outgoings recovered are recognised on an accrual basis and represent the portion of property expenses that are recoverable from the tenants. Interest revenue is recognised using the effective interest rate method which, for floating rate financial assets, is the rate inherent in the instrument. c. Expenses Property expenses Property expenses consist of rates, taxes and other property outgoings in relation to the investment properties. Responsible entity s remuneration Refer to note 15 for details of the responsible entity s remuneration. Custodian s remuneration The Custodian received remuneration of $72,200 (: $70,815) for its services during the year. d. Investment Properties Investment properties consists of properties held for long-term rental yields and/ or capital appreciation and property that is being constructed or developed for future use as investment property. Investment properties are initially recognised at cost including transaction costs. Subsequent to initial recognition, investment properties are carried at fair value, which is measured using a capitalisation approach and the discounted cash approach as the primary valuation methods. Gains and losses arising from changes in fair values of investment properties are included in profit or loss as part of other income in the year in which they arise. Subsequent development and refurbishment costs (other than repairs and maintenance) are capitalised to the investment property when they result in an enhancement in the future economic benefits of the property. In relation to development properties under construction for future use as investment property, where reliably measureable, fair value is determined based on the fair value of the property on the assumption it had already been completed at the valuation date (using the methodology outlined above) less costs still required to complete the project. e. Financial Instruments Initial Recognition & Measurement Financial assets and financial liabilities are recognised when the entity becomes a party to the contractual provisions to the instrument. For financial assets, this is equivalent to the date that the Fund commits itself to either the purchase or the sale of the asset (i.e. trade date accounting is adopted). Financial instruments are initially measured at fair value plus transaction costs, except where the instrument is classified at fair value through profit or loss, in which case transaction costs are expensed to profit or loss immediately. Classification and Subsequent Measurement Finance instruments are subsequently measured at either fair value, amortised cost using the effective interest rate method, or cost. 16 GARDA DIVERSIFIED PROPERTY FUND ANNUAL FINANCIAL REPORT 30 JUNE

17 NOTES TO THE FINANCIAL STATEMENTS CONTINUED. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED. Amortised cost is the amount at which the financial asset or financial liability is measured at initial recognition less principal repayments and any reduction for impairment, and adjusted for any cumulative amortisation of the difference between that initial amount and the maturity amount calculated using the effective interest method. The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) through the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carrying amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying value with a consequential recognition of an income or expense item in profit or loss. Loans and Receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost. Trade receivables are recognised at original invoice amounts less any provision for impairment and are generally due for settlement within 30 days. Collectability of loans and receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off by reducing the carrying amount directly. A provision for impairment of trade receivables is raised when there is objective evidence that the Fund will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation and default or delinquency in payments (more than 90 days overdue) are considered indicators that the receivable may be impaired. Financial Liabilities Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised cost. Derivative Financial instruments The Fund used a derivative financial instrument (interest rate swap) during the year to hedge its risks associated with interest rate fluctuations on the bank loans. The following accounting policy has been adopted by the directors to determine the accounting for the derivative financial instruments: Derivatives are initially measured at fair value on the date of a derivative contract is entered into and are subsequently measured at fair value at each reporting date. The net fair value of derivative financial instruments outstanding at the balance date is recognised in the statement of financial position as either financial asset or liability. Accounting option as per AASB 139: Financial Instruments: Recognition and Measurement to classify the interest rate swap as a cash flow hedge has not been used and accordingly these are classified as at fair value through profit or loss, and the change in the fair value of the derivative financial instruments recognised in the statement of profit and loss. f. Fair Values Fair values may be used for financial and non-financial asset and liability measurement as well as sundry disclosures. 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. It is based on the presumption that the transaction 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. The principal or most advantageous market must be accessible to, or by, the Fund. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their best economic interest. The fair value measurement of a non-financial asset takes into account the market participant s ability to generate economic benefits by using the asset at its highest and best use or by selling it to another market participant that would use the asset at its highest and best use. In measuring fair value, the Fund uses valuation techniques that maximise the use of observable inputs and minimise the use of unobservable inputs. GARDA DIVERSIFIED PROPERTY FUND ANNUAL FINANCIAL REPORT 30 JUNE 17

18 NOTES TO THE FINANCIAL STATEMENTS CONTINUED. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED. Assets and liabilities measured at fair value are classified, into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are reviewed each reporting date and transfers between levels are determined based on a reassessment of the lowest level input that is significant to the fair value measurement. For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either not available or when the valuation is deemed to be significant. External valuers are selected based on market knowledge and reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an analysis is undertaken, which includes a verification of the major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data. g. Impairment of Non-Financial Assets At each reporting date, the Fund reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset s fair value less costs to sell and value in use, is compared to the asset s carrying value. Any excess of the asset s carrying value over its recoverable amount is expensed to the statement of comprehensive income. Impairment testing is performed annually for goodwill and intangible assets with indefinite lives. Where it is not possible to estimate the recoverable amount of an individual asset, the Fund estimates the recoverable amount of the cash-generating unit to which the asset belongs. h. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less. i. Finance costs Finance costs include interest, amortisation of discounts, or premiums relating to borrowings and amortisation of ancillary costs incurred in connection with arrangements of borrowings. Interest payments in respect of financial instruments classified as liabilities are included in finance costs. Loan establishment costs are offset against financial liabilities under the effective interest method and amortised over the term of the facility to which they relate. j. Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST. Cash flows are presented in the statement of cash flows on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. k. Lease Incentives Lease incentives are capitalised and are recognised as a reduction of rental income on a straight-line basis over the lease term. Rent abatements are recognised over the life of the rent abatement period. Initial direct leasing costs incurred in negotiating and arranging operating leases are recognised as an asset in the statement of financial position and are amortised as an expense on a straight-line basis over the lease term. l. Comparative Figures When required by accounting standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. 18 GARDA DIVERSIFIED PROPERTY FUND ANNUAL FINANCIAL REPORT 30 JUNE

19 NOTES TO THE FINANCIAL STATEMENTS CONTINUED. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED. m. Leases The Fund leases its investment properties under agreements where the trust retains substantially all the risks and benefits associated with the investment properties. Accordingly, such arrangements are classified as operating leases and amounts received under such agreements are accounted for in accordance with the fund s accounting policy for revenue. n. Distributions to Unitholders Provision is made for the amount of any distribution declared, being appropriately authorised and no longer at the discretion of the responsible entity, on or before the end of the financial year but not distributed as at balance date. o. Unitholders Funds Ordinary units are classified as unitholders funds. Incremental costs directly attributable to the issue of new units are shown in equity as a deduction from the proceeds received. p. Earnings per Unit ( EPU ) Basic earnings per unit is calculated by dividing: the profit attributable to owners of the Fund, excluding any costs of servicing equity other than ordinary units by the weighted average number of ordinary units outstanding during the financial year, adjusted for bonus elements in ordinary units issued during the year. Diluted earnings per unit adjusts the figures used in the determination of basic earnings per unit to take into account: the after income tax effect of interest and other financing costs associated with dilutive potential ordinary units, and the weighted average number of additional ordinary units that would have been outstanding assuming the conversion of all dilutive potential ordinary units. q. Rounding of amounts The Fund has applied the relief available to it under ASIC Corporations (Founding in Financial/Directors Reports) Instrument /191 and accordingly, amounts in the financial statements have been rounded off to the nearest $1,000, or in certain cases, the nearest dollar. r. Borrowings All loans and 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 loans and borrowings using the effective interest method. Fees paid for establishing loan facilities are recognised as transaction costs if it is probable that some or all of the facility will be drawn down, and deferred until the draw down occurs. If it is not probable that the facility will be drawn down, fees are capitalised as prepayments for liquidity services and amortised over the period to which the facility relates. Borrowings are derecognised from the statement of financial position when the obligation specified in the contract has been discharged, cancelled or expires. The difference between the carrying amount of the borrowing derecognised and the consideration paid is recognised in profit or loss as other income or finance costs. Where the terms of a borrowing are renegotiated and the group issues equity instruments to a creditor to extinguish all or part of a borrowing, the equity instruments issued as part of the debt for equity swap are measured at the fair value of the equity instruments issued, unless the fair value cannot be measured reliably, in which case, they are measured at the fair value of the debt extinguished. The difference between the carrying amount of the debt extinguished and the fair value of the equity instruments issued is recognised as a gain or loss in profit or loss. GARDA DIVERSIFIED PROPERTY FUND ANNUAL FINANCIAL REPORT 30 JUNE 19

20 NOTES TO THE FINANCIAL STATEMENTS CONTINUED. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED. s. Financial liabilities designated at fair value through profit or loss Recognition/derecognition The Fund recognises financial liabilities on the date it becomes party to the contractual agreement (trade date) and recognises changes in the fair value of the financial liabilities from this date. Financial liabilities are derecognised when the Fund has transferred substantially all of the risks and rewards of ownership. Measurement At initial recognition, the Fund measures a financial liability at its fair value. Transaction costs of financial liability carried at fair value through profit or loss are expensed in the profit or loss. Subsequent to initial recognition, all financial liabilities at fair value through profit or loss are measured at fair value. Gains and losses arising from changes in the fair value of the financial liabilities at fair value through profit or loss category are presented in profit or loss within net gains/(losses) on financial instruments held at fair value through profit or loss in the period in which they arise. The best evidence of the fair value of the financial liability at fair value through profit or loss at initial recognitions is the transaction price, i.e. the fair value of the consideration given or received. However, in some cases the initial estimate of the fair value of the financial liability at fair value through profit or loss on initial recognition may be different from its transaction. If the estimated fair value is evidenced by comparison with other observable current markets transactions in the same financial instrument (without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets, then the difference is recognised in profit or loss on initial recognition of the instrument. In other cases, the fair value at initial recognition is considered to the transaction price and the difference is not recognised in profit or loss immediately but is recognised over the life of the instrument on an appropriate basis or when the instrument is redeemed, transferred or sold, or the fair value becomes observable. Gains and losses arising from changes in the fair value of the financial liabilities at fair value through profit or loss category are presented in profit or loss within net gains/(losses) on financial instruments held at fair value through profit or loss in the period in which they arise. t. Significant Accounting Estimates, Judgements and Assumptions The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the accounting policies. The directors of the responsible entity evaluate estimates and judgments incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on historical experiences and the best available current information on current trends and economic data, obtained both externally and within the Fund. These estimates and judgements made assume a reasonable expectation of future events but actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision effects only that period or in the period and future periods if the revision affects both current and future periods. There were no key assumptions during the year which required estimates and/or judgements with the exception of the following: Key assumptions investment property valuation The Fund makes key assumptions in determining the fair value of its investment property portfolio as at balance date. The assumptions thought to bear the most significant impact on the adopted fair value of each of the Fund s investment properties are disclosed in note 7, together with the carrying amount of each investment property asset measured at fair value. u. Adoption of New and Revised Accounting Standards and Interpretations The Fund applied, for the first time, certain standards and amendments which are effective for annual periods beginning on or after 1 July. The nature and the impact of each new standard and/or amendment was not significant. 20 GARDA DIVERSIFIED PROPERTY FUND ANNUAL FINANCIAL REPORT 30 JUNE

21 NOTES TO THE FINANCIAL STATEMENTS CONTINUED. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED. v. New and Amended Accounting Standards and Interpretations Not Yet Adopted Certain new accounting standards and interpretations have been published that are not mandatory for 30 June reporting periods and have not been early adopted by the Fund. The Fund s assessment of the impact of these new standards and interpretations is set out below. NEW/REVISED PRONOUNCEMENTS NATURE OF CHANGE APPLICATION DATE TO THE FUND AASB 9 Financial Instruments (December 2014) The AASB has issued the complete AASB 9. The new standard includes revised guidance on the classification and measurement of financial assets, including a new expected credit loss model for calculating impairment, and supplements the new general hedge accounting requirements previously published. This supersedes AASB 9 (issued in December 2009-as amended) and AASB 9 (issued in December 2010). 30 June 2019 IMPACT TO THE FUND The Fund does not foresee any significant impact to the net profit and net assets as a result of applying this new accounting standard. AASB 15 Revenue from Contracts with Customers The standard contains a single model that applies to contracts with customers and two approaches to recognising revenue: at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognised. 30 June 2019 The Fund has not performed its assessment of the potential impacts of this accounting standard. AASB 16 (issued February ) AASB 16 eliminates the operating and finance lease classifications for lessees currently accounted for under AASB 117 Leases. It instead requires an entity to bring most leases onto its balance sheet in a similar way to how existing finance leases are treated under AASB 117. An entity will be required to recognise a lease liability and a right of use asset in its balance sheet for most leases. There are some optional exemptions for leases with a period of 12 months or less and for low value leases. Lessor accounting remains largely unchanged from AASB June 2020 The Fund is yet to fully assess the impact of the new accounting standard. NOTE 3 DISTRIBUTIONS Distributions paid or provided for by the Fund from unit capital September quarter distribution 2.35 cents per unit (: 2.25 cents per unit) (2,204) (2,162) December quarter distribution 2.35 cents per unit (: 2.25 cents per unit) (2,640) (2,114) March quarter distribution 2.35 cents per unit (: 2.25 cents per unit) (2,640) (2,110) June quarter distribution 2.35 cents per unit (: 2.25 cents per unit) (2,640) (2,111) (10,124) (8,497) Distributions declared for the quarter ended 30 June of $2.64 million but not paid until after year end has been provided for. NOTE 4 REVENUE Rental income and other revenue 21,263 18,604 Interest revenue Leasing fees amortised (322) (304) Leasing incentives amortised (1,067) (1,218) 19,935 17,106 GARDA DIVERSIFIED PROPERTY FUND ANNUAL FINANCIAL REPORT 30 JUNE 21