MACARTHURCOOK A Member of AIMS Financial Group MACARTHURCOOK. Office Property Trust ANNUAL REPORT 2013 ARSN

Transcription

1 MACARTHURCOOK A Member of AIMS Financial Group MACARTHURCOOK Office Property Trust ANNUAL REPORT 2013

2 CONTENTS Directors Report 2 Auditor s Independence Declaration 6 Statement of Profit or Loss and other Comprehensive Income 7 Statement of Financial Position 8 Statement of Changes in Equity 9 Statement of Cash Flows 10 Notes to the Financial Statements 11 Directors Declaration 26 Independent Auditor s Report 27 1

3 AUDITORS INDEPENDENCE DECLARATION The Directors of MacarthurCook Real Estate Funds Limited (ACN and AFS Licence No ), the Responsible Entity of MacarthurCook Office Property Trust ("the Trust"), present their report together with the Financial Report of the Trust for the financial year ended 30 June The Responsible Entity s registered office and principal place of business is Level 16, Central Square, 323 Castlereagh Street, Sydney, NSW Directors The Directors of the Responsible Entity at any time during or since the end of the financial year are shown below. Directors were in office to the date of the report unless otherwise stated: Name, qualifications and independence status George Wang BE Executive Chairman Experience, special responsibilities and other directorships George is the founding CEO of AIMS Financial Group and an active participant in both the Australian and Chinese financial services industries. George came to Australia from China some 20 years ago and founded AIMS Financial Group two years later. Since inception, AIMS has evolved into a diversified financial services group, active in the areas of lending, securitisation, investment banking, real estate funds management and property, resources, high-tech and infrastructure investment. In the course of developing AIMS Financial Group into a significant financial services group in Australia, George has developed a strong skill base in the areas of lending, securitisation, real estate funds management, structured finance and innovative financial product development. George has developed an extensive business network in both Australia and China. In China, George is active in the Chinese financial sector. He is an advisor for a number of Chinese Government bodies and Government agencies. He holds the position of Deputy President of the International Trade Council of China, a constituent body of China Council for the Promotion of International Trade. In Australia, George is the President of the Australia-China Finance & Investment Council. As the President of Australia-China Finance & Investment Council, George has been laying the foundation for the financial bridge between Australia and China for many years. George was appointed as Director since 14 July 2009 and Executive Chairman since 7 August During the past three years has acted as a non-executive director or director of the following entities: - AIMS Financial Group - AIMS AMP Capital Industrial REIT - Asia Pacific Exchange Limited 2

4 AUDITORS INDEPENDENCE DECLARATION Name, qualifications and independence status Richard Nott AM BSc (Hons), MCom, MBA, MIRM Non-Executive Independent Director & Chairman of the Audit Committee Experience, special responsibilities and other directorships Richard Nott is a former General Manager and Chief Executive of CGU Lenders Mortgage Insurance Ltd, General Manager Corporate Banking at Standard Chartered Bank Australia Ltd, General Manager Banking and Associate Director at Australian Bank, plus a twenty six year career with National Australia Bank throughout Australia and England. Qualifications include a Bachelor of Science (Hons), Master of Business Administration, Master of Commerce and Master of Insurance and Risk Management. He is a Fellow of Australian and New Zealand Institute of Insurance and Finance, Chartered Insurance Institute (UK) and Chartered Institute of Bankers (UK), plus the Accounting, Chartered Secretaries, HR and Management Institutes. He is also a Senior Fellow and life member of FINSIA. For almost a decade Richard was President of the Australia-Britain Society and in recent years Chairman of the Australia-Britain Society Foundation. He is a member of the Cook Society and Fred Hollows Foundation. He was made a Member of the Order of Australia (AM) in Richard was appointed as a Non-Executive Independent Director and Chairman of the Audit Committee and on 5 August During the past three years has acted as a non-executive director or director of the following entities: - First American Title Insurance Company of Australia Limited - Four Hats Financial Services Pty Ltd - Mortgage Guarantee Insurance Corporation Australia - Prime Insurance Group - RHG Limited John Love BCom, MBA, MIRM, CPA Non-executive Independent Director John is currently the Chairman of Mortgage Guarantee Insurance Corporation Australia, and a Non-Executive Director, the Chairman and a Member of Audit, Governance & Risk Management Committee for The Australian Wine Society Co-operative Limited. He was previously the General Manager of an Australian mezzanine property finance company. John was also previously the Head of Corporate Banking Australia and Head of Credit at Standard Chartered Bank Australia Limited. Qualifications include a Bachelor of Commerce (Qld), a Master of Business Administration (AGSM) and a Master of Insurance and Risk Management (Deakin). In addition, he is a Certified Practicing Accountant, a Fellow of the Tax Institute of Australia, a Fellow of the Chartered Institute of Secretaries, a Fellow of FINSIA, a Fellow of the Australian Institute of Company Directors and a Fellow of the Australian Mutuals Institute. John was appointed as a Non-Executive Independent Director on 30 March During the past three years has acted as a non-executive director or director of the following entities: - Mortgage Guarantee Insurance Corporation Australia - The Australian Wine Society Co-operative Limited 3

5 AUDITORS INDEPENDENCE DECLARATION Principal Activities The Trust is a registered management investment scheme domiciled in Australia. The Trust continued its principal activity which is to hold and acquire investment properties for rental and capital gain returns. The Trust did not have any employees during the year. Results and Review of Operations The comprehensive loss attributable to unitholders for the year ended 30 June 2013 is $652,000 (2012: profit of $2,139,000). This is inclusive of an investment property downwards fair value adjustment of $1,602,000 and a gain on change in fair value of investment securities of $353,000. Distributions Paid or Recommended In respect of the financial year ended 30 June 2013, no distributions were paid or recommended. Significant Changes in State of Affairs Other than as noted in Results and Review of Operations, there were no significant changes in the state of affairs of the Trust which occurred during the financial year ended 30 June After Balance Date Events On 8 August 2013, an appeal of the decision of the first instance judgment of the litigation brought by APN Funds Management Limited against MacarthurCook Real Estate Funds Ltd as responsible entity of the MacarthurCook Office Property Trust was heard in the Victorian Court of Appeal. The Responsible Entity is currently awaiting judgment on the matter and will provide a further update to Unitholders once a final determination has been made by the Court. Other than the matter above, there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Responsible Entity of the Trust, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years. Future Developments, Prospects and Business Strategies Other than disclosed elsewhere in the report, further information about likely developments in the operations of the Trust and the expected results those operations have not been included in this report because disclosure of the information would be likely to result in unreasonable prejudice to the Trust. Environmental Issues The Trust s operations are not subject to any significant environmental regulation under Commonwealth, State or Territory legislation. Other relevant information The following is a list of other relevant information required to be reported under the Corporations Act 2001: Fees paid to the Responsible Entity refer to note 14 to the financial statements; Indemnifying Officers or Auditor Under the Trust s constitution, the Responsible Entity is indemnified out of the Trust s assets for any loss, damage expense or other liability incurred by it in properly performing or exercising any of its powers, duties or rights in relation to the Trust. Insurance premiums have been paid, during or since the end of the financial year for all of the directors of the Responsible Entity of the Trust. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. No indemnities have been given or insurance premiums paid, during or since the end of the financial year, for the auditor of the Trust. 4

6 AUDITORS INDEPENDENCE DECLARATION Auditor s Independence The auditor s independence declaration is set out on page 6 and forms part of the directors report for the financial year ended 30 June Signed in accordance with a resolution of the Directors of MacarthurCook Real Estate Funds Limited: Mr George Wang Executive Chairman Dated this 19 th day of September

7 MACARTHURCOOK OFFICE PROPERTY TRUST AUDITORS INDEPENDENCE DECLARATION 6

8 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Notes $'000 $'000 Rental Income 1,778 1,694 Outgoings paid (481) (427) Net rental income 1,296 1,267 Reinstatement of lease incentives Other income Net unrealised (loss) / gain in fair value of investment property (1,602) 940 Net unrealised gain in fair value of investment securities Interest income Net Investment Income 231 2,903 Finance costs (320) (390) Lease incentive amortisation (48) (50) Administrative expenses 5 (394) (129) Responsible Entity fees 14 (116) (109) Other expenses (5) (86) Total expenses (882) (764) Net Profit / (Loss) for the year attributable to unitholders (652) 2,139 Other comprehensive income for the year - - Total comprehensive Profit / (Loss) for the year attributable to unitholders (652) 2,139 The Statement of Profit or Loss and other Comprehensive Income is to be read in conjunction with the notes to the financial statements 7

9 STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2013 Notes $ '000 $ '000 Current assets Cash and cash equivalents 4 2,545 2,425 Trade and other receivables Prepayments Total current assets 2,959 2,936 Non-current assets Investment Property 8 10,350 11,700 Financial assets held at fair value through profit or loss 9 1, Total non-current assets 11,850 12,391 Total assets 14,810 15,327 Current liabilities Trade and other payables Interest bearing liabilities 11 5,542 - Total current liabilities 5, Non-current liabilities Interest bearing liabilities 11-5,452 Total non-current liabilities - 5,452 Total liabilities (excluding net assets attributable to unitholders) 5,767 5,633 Net assets attributable to unitholders 12 9,043 9,694 The Statement of Financial Position is to be read in conjunction with the notes to the financial statements 8

10 STATEMENT OF CHANGES IN EQUITY The Trust s net assets attributable to Unitholders are classified as a liability under AASB132 Financial Instruments: Presentation. As such the Trust has no equity, and no changes in equity have been presented for the current or comparative year. The Statement of Changes in Equity is to be read in conjunction with the notes to the financial statement 9

11 Notes $ '000 $ '000 Cash flows from operating activities Gross rent income 1,608 1,662 Other income received Interest received Payments to suppliers (733) (751) Net cash from operating activities 4 1,058 1,144 Cash flows from investing activities Payment for property improvements (252) - Payment for acquisition of investment securities (456) (564) Net cash (used in) investing activities (708) (564) Cash flows from financing activities Finance cost (230) (459) Net cash (used in) financing activities (230) (459) Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period 2,425 2,304 Cash and cash equivalents at end of period 4 2,545 2,425 The Statement of Cash Flows is to be read in conjunction with the notes to the financial statement 10

12 1. General Information These financial statements cover MacarthurCook Office Property Trust as an individual entity domiciled in Australia. The financial statements were authorised for issue by the Board of Directors 19 September Basis of preparation A) Going concern basis of preparation The financial statements have been prepared on a going concerns basis which contemplates continuity of normal business activities and the realisation of assets and settlement of liabilities in the ordinary course of business. For the reasons described below, there is material uncertainty whether the Trust will continue as a going concern. At balance date, the Trust has net current liabilities of approximately $2,808,000. The ability of the Trust to pay its debts is dependent on the renewal of the loan as disclosed in Note 11. Management is currently in discussions with the provider in relation to a renewal plan. The debt providers have not provided an opinion at this time, and intend to perform a detailed review on the facility closer to the expiry date in June Management will be working closely with the debt providers in achieving a positive outcome for all unitholders. At the date of this report and having considered the above factors, the directors of the Responsible Entity believe that the Trust will be able to continue as a going concern. B) Statement of compliance The financial statements are general purpose financial statements which have been prepared in accordance with Australian Accounting Standards issued by the Australian Accounting Standards Board (AASB) and the Corporations Act Compliance with Australian Accounting Standards ensures that the financial statements comply with the International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB). C) Basis of measurement The financial statements have been prepared on an accrual basis and are based on historical cost with the exception of financial assets and property investment assets, which are measured at fair value. D) Functional and presentation currency The Financial Report is presented in Australian dollars, which is the Trust s functional currency. The Trust is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998, as amended, and in accordance with that Class order, all financial information presented in Australian dollars has been rounded to the nearest thousand unless otherwise stated. E) Use of estimates and judgements In the application of the Trust s accounting policies, management is required to make judgments, estimates and assumptions about carrying values of assets and liabilities 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. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Accounting policies which are subject to significant accounting estimates and judgements at the reporting date and have a significant risk of causing material adjustments to the financial statements in the next annual reporting period include estimate of fair values of investment properties. 11

13 3. Significant accounting policies The accounting policies set out below have been applied in the preparation of the financial statements. A) Cash and cash equivalents Cash and cash equivalents in the statement of financial position consist of cash on hand, cash at bank and short-term deposits that are readily convertible into known amounts of cash. The Trust considers a short-term deposit to have a maturity of three months or less and be subject to an insignificant risk of change in value. For the purposes of the statement of cash flows, cash and cash equivalents consist of cash on hand and at bank, short-term deposits (as outlined above) net of any bank overdrafts. Bank overdrafts are included within interest bearing loans and borrowings in current liabilities. B) Trade and other receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less an allowance for impairment. Collectability of trade receivables is reviewed on an ongoing basis at an operating unit level. Individual debts that are known to be uncollectable are written off when identified. An impairment provision is recognised when there is objective evidence that the Trust may not be able to collect the receivable. Financial difficulties of the debtor, default payments or debts more than 60 days overdue are considered objective evidence of impairment. The amount of the impairment loss is the difference between the receivable carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The amount of impairment loss is recognised in the statement of comprehensive income. When a trade receivable for which an impairment allowance had been recognised before it becomes uncollectable in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against doubtful debt expense in the statement of comprehensive income. C) Financial instruments (i) Classification The Trust s investments are classified as loans and receivables, and financial instruments at fair value through profit or loss. They comprise: Financial instruments at fair value through profit or loss upon initial recognition Financial assets and financial liabilities designated at fair value through profit or loss at inception are those that are managed and their performance evaluated on a fair value basis in accordance with the Trust s documented investment strategy. The Trust s policy is for the responsible entity to evaluate the information about these financial assets on a fair value basis together with other related financial information. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities greater than 12 months after the reporting date which are classified as non-current assets. Loans and receivables are included in trade and other receivables and receivables in the statement of financial position. 12

14 3. Significant accounting policies (cont.) (ii) Recognition/derecognition The Trust recognises financial assets and financial liabilities on the date it becomes party to the contractual agreement (trade date) and recognises changes in fair value of the financial assets or financial liabilities from this date. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss is initially recognised at fair value and transaction costs are expensed in the statement of comprehensive income. Investments are derecognised when the right to receive cash flows from the investments have expired or the Trust has transferred substantially all risks and rewards of ownership. (iii) Measurement Financial assets and liabilities held at fair value through profit or loss Financial assets and liabilities held at fair value through profit or loss are measured initially and subsequently carried at fair value. Gains or losses arising from changes in the fair value of the 'financial assets at fair value through profit or loss' category are presented in the statement of comprehensive income within other income or other expenses in the period in which they arise. Loans and receivables Loan assets are measured initially at fair value plus transaction costs and subsequently amortised using the effective interest rate method, less impairment losses if any. Such assets are reviewed at each reporting date to determine whether there is objective evidence of impairment. If evidence of impairment exists, an impairment loss is recognised in the statement of comprehensive income as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the original effective interest rate. If in a subsequent period the amount of an impairment loss recognised on a financial asset carried at amortised cost decreases and the decrease can be linked objectively to an event occurring after the writedown, the write-down is reversed through the statement of comprehensive income. (iv) Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. 13

15 3. Significant accounting policies (cont.) D) Investment property Investment properties are initially recognised at cost including, any acquisition costs, in accordance with AASB 140. Investment properties are subsequently stated at fair value at each balance date with any gain or loss arising from a change in fair value recognised in the Statement of Comprehensive Income. Investment properties are comprised of land and buildings and plant and equipment held for the purpose of letting to produce rental income and for potential capital appreciation. Investment property is derecognised either when they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognised in the statement of comprehensive income in the year of retirement or disposal. Transfers are made to investment property when, and only when, there is a change in use, evidenced by ending of owner-occupation, commencement of an operating lease to another party or ending of construction or development. Transfers are made from investment property when, and only when, there is a change in use, evidenced by commencement of owner occupation or commencement of development with a view to sale. E) Leases The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership, but not the legal ownership, to the lessee. All other leases are classified as operating leases. (i) Trust as lessor Leases in which the Trust retains substantially all the risks and benefits of ownership of the leased asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised as an expense over the lease term on the same basis as rental income. Income from operating leases is recognised on a straight line basis over the term of the lease, unless another more systematic basis is more representative of the time pattern in which the benefit derived from the leased asset is diminished. (ii) Lease incentives Incentives such as cash, rent free periods or contributions towards lessee or lessor owned fit outs, may be provided to lessees to enter into an operating lease. These incentives are capitalised and amortised over the term of the lease as a reduction in rental income on a straight line basis. F) Trade and other payables Trade and other payables are carried at amortised cost due to their short term nature they are not discounted. They represent liabilities for goods and services provided to the Trust prior to the end of the financial year that are unpaid and arise when the Trust becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within 30 days of recognition. 14

16 3. Significant accounting policies (cont.) G) Interest bearing loans and borrowings All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Fees paid on the establishment of loan facilities that are yield related are included as part of the carrying amount of the loans and borrowings. Borrowings are classified as current liabilities unless the Trust has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Borrowings are removed from the statement of financial position when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in other income or finance cost. (i) Borrowing costs Borrowing costs are recognised as an expense when incurred, except to the extent that they are incurred in the acquisition or construction of qualifying assets. Borrowing costs directly associated with this asset would be capitalised (including any other associated costs directly attributable to the borrowing and temporary investment income earned on the borrowing). H) Provisions Provisions are recognised when the Trust has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Trust expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of comprehensive income net of any reimbursement. Provisions are measured at the present value of management's best estimate of the expenditure required to settle the present obligation at the reporting date using a discounted cash flow methodology. The risks specific to the provision are factored into the cash flows and as such a risk-free government bond rate relative to the expected life of the provision is used as a discount rate. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the time value of money and the risks specific to the liability. The increase in the provision resulting from the passage of time is recognised in finance costs. 15

17 3. Significant accounting policies (cont.) I) Investment income Income is recognised and measured at the fair value of the consideration received or receivable to the extent it is probable that the economic benefits will flow to the Trust and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: (i) Interest income Income is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. (ii) Rental income Rental income from investment properties is accounted for on a straight-line basis over the lease term. Contingent rental income is recognised as income in the periods in which it is earned. Lease incentives granted are recognised as an integral part of the total rental income. J) Income tax and other taxes (i) Income Taxes Under current income tax legislation the Trust is not liable to pay income tax provided that the taxable income and taxable realised gains are fully distributed to unitholders each year. (ii) Goods and Services Tax Revenues, expenses and assets are recognised net of the amount of GST except: when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and receivables and payables which are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority is classified as part of operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to the taxation authority. K) Applications and Redemptions Applications received for units in the Trust are recorded net of any entry fees payable prior to the issue of units in the Trust. Redemptions from the Trust are recorded gross of any exit fees payable after the cancellation of the units redeemed. The application and redemption prices are based on unit price accounting outlined in the Trust's constitution and product disclosure statement. This may differ from the accounting principles adopted in this Financial Report in the areas of fair value of investments and investment properties, treatment of borrowing costs and the timing of rental income. 16

18 L) Distributions In accordance with the Trust s constitution, the Trust distributes income adjusted for amounts determined by the Responsible Entity, to unitholders by cash or reinvestment. M) New accounting standards and interpretations Standards and Interpretations affecting the reported results of financial position There are no new and revised Standards and interpretations adopted in these financial statements affecting the reported results or financial position. Accounting Standards and Interpretations issued but not yet effective Australian Accounting Standards that have recently been issued or amended, and may be applicable to, but are not yet effective and have not been adopted by the Trust for the annual reporting period ending 30 June 2013, are outlined in the table below. The Trust does not intend to early adopt these standards and none of these is expected to have a significant impact on the financial statements of the Trust. Standard/Interpretation AASB 9 Financial Instruments, and the relevant amending standards AASB 12 Disclosure of Interests in Other Entities and AASB Amendments to Australian Accounting Standards arising from the consolidation and Joint Arrangements standards AASB 13 Fair Value Measurement and AASB Amendments to Australian Accounting Standards arising from AASB 13 AASB Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements AASB Amendments to Australian Accounting Standards Disclosures Offsetting Financial Assets and Financial Liabilities AASB Amendments to Australian Accounting Standards Offsetting Financial Assets and Financial Liabilities AASB Amendments to Australian Accounting Standards arising from Annual Improvements Cycle AASB Amendments to Australian Accounting Standards Transition Guidance and Other Amendments Effective for annual reporting periods beginning on or after Expected to be initially applied in the financial year ending 1 January June 2016 January June January June July June January June January June January June January June 2014 Ot 17

19 4. Cash and cash equivalents $ '000 $ '000 Cash at bank 2,545 2,425 2,545 2,425 Reconciliation of cash flows from operating activities $ '000 $ '000 Net (loss) / profit for the period (652) 2,139 Adjustments for: Borrowing costs Write off provisions - (33) Unrealised change in fair value of investment securities (353) (127) Unrealised change in fair value of investment property 1,602 (940) Change in trade and other receivables 97 (358) Change in trade and other payables Net cash used in operating activities 1,058 1, Administrative expenses $ $ Legal and professional Custody Registry General administrative The Trust has incurred legal expenses of approximately $259,000 in relation to the litigation brought by APN Funds Management Limited. Approximately $39,000 of the balance was outstanding at the date of the report. These expenses are considered to be once-off expenses in relation to the operating activities of the fund. 6. Trade and other receivables $ '000 $ '000 Tenant arrears 8 30 Other receivables Rent is payable in advance on the first day of each month. Late fees are levied on tenants if rent is not paid on time at the default rate specified in the lease compounding on the last day of each month. 18

20 7. Prepayments $ '000 $ '000 Prepayments 9 19 Lease incentives to be amortised Investment Property $ '000 $ '000 Reconciliation of carrying amounts Opening balance 11,700 10,760 Capital Improvements Fair value adjustments (1,602) 700 Estimate of selling expenses Closing Balance 10,350 11,700 Valuation Basis The fair value of the investment property as at 30 June 2013 is determined based on the directors assessment of current market conditions, the positioning of the property within the current market, and information provided by external property marketing agents. The valuation of investment property at fair value is based on the amount which the property could be expected to exchange between willing parties in an arm s length transaction, based on current prices in the market for similar properties in the same location and condition and subject to similar leases. The latest independent valuation was conducted as follows: Property Leichhardt Street, Spring Hill QLD Independent valuer Colliers International Valuation date Value $ Capitalisation rate 30 June ,350, % Leasing arrangements The investment property is leased to tenants under operating leases. The minimum lease payments receivable under the existing lease contracts are as follows: $ '000 $ '000 Not later than one year 1,170 1,871 Later than one year and not later than five years 2,122 2,886 Later than five years ,292 5,056 19

21 9. Financial assets held at fair value through profit or loss $ '000 $ '000 Listed property securities at fair value 1, $ '000 $ '000 Reconciliation Carrying amount at the beginning of the year Additions - cost Revaluation to fair value , Trade and other payables $ '000 $ '000 Trade and other payables Owing to Responsible Entity GST Payable Interest bearing liabilities $ '000 $ '000 Current liabilities Secured bank loans 5,500 - Amortised borrowing costs 42-5,542 - Non-current liabilities Secured bank loans - 5,452 The facility of $5,500,000 has been extended to 30 June The provider of the facility holds a fixed and floating charge over the assets of the Trust. Monthly interest payments are required to be made. 20

22 12. Net assets attributable to unitholders No. of Units $ No. of Units $ Retail Units '000 '000 '000 Opening balance 3,337 3,347 3,337 3,347 Closing balance 3,337 3,347 3,337 3,347 Wholesale Units Opening balance 25,917 25,842 25,917 25,842 Closing balance 25,917 25,842 25,917 25,842 Undistributed Income/(accumulated losses) $ '000 $ '000 Opening balance (19,494) (21,633) Decrease in net assets attributable to Unitholders (652) 2,139 (20,146) (19,494) No. of Units $ No. of Units $ '000 '000 '000 '000 Total closing balance 29,254 9,043 29,254 9,694 In accordance with the Trust s Constitution, each unit represents a right to an individual share in the Trust and does not extend to a right to the underlying assets of the Trust. Wholesale and Retail units rank equally and confer the right to distributions subject to sufficient income of the Trust being available for distribution. Wholesale and Retail units have no special rights to distributions from the Trust on winding up. Capital Risk Management Under the Constitution of the Trust the Responsible Entity has the discretion, from time to time, to offer Unitholders the opportunity to redeem their investments. Any offer is subject to capital being available. The Trust is currently closed to applications and redemptions. 21

23 13. Financial risk management and financial instruments Overview The Trust s principal financial instruments comprise receivables, payables, bank loans, cash and derivatives. The Trust has exposure to the following risks from its use of financial instruments: Credit risk Liquidity risk Market risk Financial risk and risk management network The board of directors of the Responsible Entity has overall responsibility for the establishment and oversight of the Trust s risk management network. The Trust s risk management policies, including those related to its investment activities is developed and monitored by an Audit and Risk Committee. In addition to the policies adopted by the Audit and Risk Committee, the Responsible Entity has in place compliance plan which outlines the processes that will ensure both Trust and Responsible Entity comply with the requirements of the Australian Securities and Investment Commission (ASIC). Credit risk Credit risk is the risk that a counter-party to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Trust. The Trust s management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit risk arises from the financial assets of the Trust, which comprise cash and cash equivalents, trade and other receivables and derivative instruments. The Trust s exposure to credit risk arises from potential default of the counter-party, with a maximum exposure equal to the carrying amount of these instruments. Exposure at balance date is addressed in each applicable note. Regarding trade receivables, subject to a tenant s financial standing most tenants, at the commencement of a lease, are required to provide security via means of a cash deposit or bank guarantee. This security is maintained in the Trust s control for the duration of the tenancy and reverts to the Trust in the event of default. To date the Trust has not incurred any losses due to the nonrecoverability of its receivables. The Trust does not hold any credit derivatives to offset its credit exposure. Liquidity risk Liquidity risk is the risk that the Trust will not be able to meet its financial obligations as they fall due. The Trust s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Trust s reputation. The following is the contractual maturity of financial liabilities. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Trust can be required to pay. 22

24 13. Financial risk management and financial instruments (cont.) 30 June 2013 Carrying amount Contractual cash flows 12 mths or less 1-5 years 5 years and more $ '000 $ '000 $ '000 $ '000 $ '000 Liabilities attributable to unitholders 9, ,043 Trade and other payables Interest bearing liabilities 5,542 5,795 5, ,810 6,020 6,020-9, June 2012 Carrying Contractual 12 mths 5 years and 1-5 years amount cash flows or less more $ '000 $ '000 $ '000 $ '000 $ '000 Liabilities attributable to unitholders 9, ,693 Trade and other payables Interest bearing liabilities 5,452 6, ,756-15,296 6, ,756-9,693 Market risk Market risk is the risk that changes in the market prices, such as interest rates and equity prices will affect the Trust s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. Interest rate risk The Trust s exposure to market interest rates relates primarily to the Trust s debt obligations. The level of debt is disclosed in note 11. A change of 100 basis points in interest rates at the reporting date would be increased (decreased) equity and profit or loss by the amounts below. This cash flow sensitivity analysis assumes that all other variables remain constant. $ '000 $ '000 Impact on profit before tax/equity +1.00% (100 basis points) % (100 basis points) (55) (55) Fair value hierarchy The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices) Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs) 23

25 13. Financial risk management and financial instruments (cont.) 30 June 2013 Level 1 Level 2 Level 3 Total $ '000 $ '000 $ '000 $ '000 Listed property securities 1, ,500 Level 1 Level 2 Level 3 Total 30 June 2012 $ '000 $ '000 $ '000 $ '000 Listed property securities Related parties Key management personnel compensation and unitholdings Mr George Wang, Mr Richard Nott and Mr John Love are directors of the Responsible Entity, MacarthurCook Real Estate Funds Limited, and deemed to be key management personnel. The key management personnel receive no compensation in relation to the management of the Trust. Responsible Entity Fees and other transactions MacarthurCook Real Estate Funds Limited, as Responsible Entity is entitled to management fees from the Trust during the financial year. Fees of approximately $116,000 (2012: $109,000) were paid to the Responsible Entity during the financial year. Management fees are charged at the rate of 0.95% (0.75% for wholesale class investors) per annum of the Gross Asset Value of the Trust, calculated quarterly. The following balances are outstanding at the end of the reporting period in relation to transactions with related parties: $ '000 $ '000 Current payables MacarthurCook Real Estate Funds Limited Units in the Trust held by related parties Details of holdings in the Trust by the Responsible Entity, other funds operated by the Responsible Entity and other related parties are set out below: Entity Relationship No. of units 000 MacarthurCook Fund Management Limited Related Entity MacarthurCook Diversified Property Income Fund Related Fund MacarthurCook Property Securities Fund Related Fund 10,258 10,258 MCK Management Pty Ltd Other Related Entity 1,141 1, Capital commitments and contingent liabilities The directors of the Responsible Entity are not aware of any potential liabilities, claims and capital commitments against the Trust as at balance date. 24

26 16. Subsequent events On 8 August 2013, an appeal of the decision of the first instance judgment of the litigation brought by APN Funds Management Limited against MacarthurCook Real Estate Funds Ltd as responsible entity of the MacarthurCook Office Property Trust was heard in the Victorian Court of Appeal. The Responsible Entity is currently awaiting judgment on the matter and will provide a further update to Unitholders once a final determination has been made by the Court. Other than the matter above, there has not been any other events of a material and unusual nature likely in the opinion of the Responsible Entity, to significantly affect the operations of the Trust, the results of the operations, or the state of affairs of the Trust, in future financial years. 17. Auditors remuneration $ $ Audit and other assurance services Audit and review of financial statements 14,200 10, Trust details The registered office and principal place of business of the Trust is: MacarthurCook Office Property Trust Level 16, 323 Castlereagh Street Sydney NSW

27 DIRECTORS DECLARATION The directors of the Responsible Entity for MacarthurCook Office Property Trust ( the Trust ) declare that: (a) the Financial Statements and Notes set out on pages 7 to 25 are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the financial position of the Trust as at 30 June 2013 and of its performance, as represented by the results of its operations and its cash flows, for the year ended on that date; and (ii) complying with Australian Accounting Standards, including the Australian Accounting Interpretations, and the Corporations Regulations 2001; and (b) the Financial Report also complies with International Financial Reporting Standards as disclosed in Note 2(a); and (c) there are reasonable grounds to believe that the Trust will be able to pay its debts as and when they become due and payable. Signed in accordance with a resolution of the Directors of the Responsible Entity made pursuant to s.295(5) of the Corporations Act Signed in accordance with a resolution of directors of the Responsible Entity. Mr George Wang Executive Chairman Dated this 19 th day of September

28 INDEPENDENT AUDITOR S REPORT 26

29 INDEPENDENT AUDITOR S REPORT 27