and its controlled entities ( APD ) Appendix 4D Half Year Financial Report for the period ended 31 December 2015 Results for announcement to the market Half year ended 31 December 2015 Half year ended 31 December 2014 % Revenues from ordinary activities 24,808 14,896 66.5% Profit from ordinary activities after tax attributable to members 16,056 8,773 83.0% Loss from discontinued operations after tax attributable to members (101) (263) 61.6% Net profit for the period attributable to members 15,955 8,510 87.5% Net tangible assets per share 33.5 cents 23.0 cents Dividends Half year ended 31 December 2015 Half year ended 31 December 2014 Interim (cents per share); 100% franked amount 1.25 1.25 Record date for determining entitlement 16 March 2016 Payment date 12 April 2016 Details of any distribution reinvestment plan in operation Last date for receipt of an election notice for participation in any distribution reinvestment plan DRP implemented refer separate announcement to follow 17 March 2016 The further information required by the listing rules is included in the accompanying Half Year Financial Report. Refer to the Directors Report for an explanation of the operational and financial results of the Group. John Freemantle Company Secretary 23 February 2016
ABN 30 109 846 068 Financial report for the six months ended 31 December 2015
Directors report Directors report The directors of ( APN or the Group ) present herewith their report for the six months ended 31 December 2015. The names of the directors of the company during or since the end of the period are: Christopher Aylward Executive Chairman Timothy Slattery Executive Director Howard Brenchley Non-Executive Director Clive Appleton Independent Non-Executive Director (transitioned on 17 February 2016) Anthony (Tony) Young Independent Non-Executive Director (appointed on 17 December 2015) Review of Results and Operations Summary APN has reported a statutory net profit after tax of $16.0 million for the six-months ended 31 December 2015, up 87% when compared to the prior comparable period (pcp). Diluted statutory earnings per share from continuing and discontinued operations increased 33% from 4.03 cents to 5.37 cents. Total Funds under Management (FuM) increased 7% from 30 June 2015 to $2.4 billion as at 31 December 2015. The Group s balance sheet remains strong with net assets after minority interests totalling $106.5 million including cash of $11.9 million, co-investments in the Group s managed funds of $85.1 million (net of co-investments totalling $9.9 million (before tax) attributable to our joint venture partners), investment property (to seed new fund opportunities) of $23.9 million, offset by borrowings of $21.6 million. Operating Earnings 1 increased to $7.2 million (or 2.41 cents per share), an increase of 85% compared to the pcp. An analysis of the components of operating earnings after tax is as follows: Dec-2015 Dec-2014 Fund management fees 6,521 5,861 Performance and transaction fees 9,048 3,671 Asset and project management fees 1,706 905 Registry and other fees 1,208 1,165 Total net funds management income 18,483 11,602 Co-investment income 2,495 1,528 Total net income 20,978 13,130 Employment costs (5,209) (4,655) Occupancy costs (484) (566) Other costs (1,809) (1,421) Depreciation & amortisation (82) (34) Finance income / (expense) 430 (19) Minority interest (MI) share of operating earnings (before tax) (3,346) (1,054) Operating earnings before tax 10,478 5,381 Income tax expense (3,301) (1,502) Net Operating earnings after tax and MI 1 7,177 3,879 Other non-operating items, including income tax 8,778 4,631 Statutory profit after tax 15,955 8,510 1: Operating Earnings is an unaudited after tax measurement used by management as the key performance measurement of underlying performance of the Group. It adjusts for certain items recorded in the income statement including minority interests, discontinued operations (Europe) and the fair value movements on the Group s co-investments. Total net income for the 6 months to 31 December 2015 increased to $21.0 million from $13.1 million for the pcp. Net fund management fees increased 11%, while asset and project management fees increased 88% versus the pcp, reflecting the growth in FuM and the growing portfolio of direct property under management. Net performance and transaction fees increased substantially compared to the pcp, following Generation Healthcare REIT s material outperformance when compared to the S&P/ASX 300 AREIT Accumulation Index and the recognition of $1.0 million of profit share income from the sale and settlement of the Newmark APN Auburn Property Fund. APN continued its strategy of utilising its balance sheet capacity to increase its co-investment stakes and seed new fund opportunities, with distributions from co-investments increasing to $2.5 million and net income from assets earmarked for new funds contributing $0.4 million. 1
Directors report Operating costs increased by $0.9 million versus the pcp following the full vesting of shares under employee incentive arrangements, modest employment cost increases, executive search and related costs to secure a high calibre fund manager for Industria REIT and an increased investment in marketing and operations to position the Real Estate Securities business to compete for new investment mandates. Tight operating cost control remains a priority for the Group. Other non-operating items totalled $8.8 million for the period compared to $4.6 million in the pcp, primarily attributable to the mark to market gains from APN s co-investments in Generation Healthcare REIT and Industria REIT. Real Estate Securities Highlights Funds under management up 8% to $1.3 billion APN AREIT Fund exceeds $1.0 billion in FuM Over $13.0 million in APN AREIT Fund average monthly net inflows Real Estate Securities (RES) Funds under Management totalled $1.3 billion as at 31 December, up from $1.2 billion at 30 June 2015. This increase in FuM was achieved despite difficult market conditions, with the increased market volatility in domestic and global equity markets adversely impacting investors sentiment and therefore propensity to maintain or increase their exposure to the equity markets. Against this backdrop APN s suite of RES funds are ideally positioned to attract investment, with their focus on defensive, real estate backed, income streams. The APN REIT Fund continued to attract over $13.0 million in average net monthly inflows in this environment. Additional investment has been made by APN in the current period to positioning this business to compete for new investment mandates. APN s Property for Income Funds average net monthly outflows continue to decline following their return to full liquidity in July 2014. Generation Healthcare REIT Highlights Funds under management up 8% to $439 million Underlying net operating income up 28% to $10.8 million Outperformed the ASX/S&P A-REIT Accumulation index by 19.1% Commenced Casey Stage 2 and Frankston Private Hospital expansion projects Generation Healthcare REIT (GHC) Funds under Management increased from $407 million to $439 million as at 31 December following additional property acquisitions and increased property valuations. GHC s underlying net operating income increased 28% to $10.8 million compared to the pcp, with distributions to investors increasing 5.2% to 4.42 cents per unit. The total returns for GHC investors for the period (i.e. unit price movement, assuming the reinvestment of distributions) were 26.3%, materially in excess of the S&P/ASX AREIT Accumulation Index return of 7.2%. FY2016 forecast earnings guidance has been upgraded from 9.90 cents per unit to 10.10 cents per unit. Significant progress in delivering on GHC s circa $105 million organic growth pipeline has been achieved, with financial close and commencement of construction occurring at the Casey Stage 2 project and the Frankston Private Hospital expansion and the planning application for the circa $62 million Epworth Freemasons Clarendon Street expansion projects (a 50/50 joint venture with Epworth) being lodged in December. Industria REIT Highlights Funds under management up 5% to $425 million 22,300m 2 leasing transactions completed 7.50 cents per security distribution delivered NTA per security increased to $2.11 Industria REIT s (IDR) Funds under Management totalled $425 million at the period end, up from $406 million at 30 June 2015, following increased property valuations that are reflective of a continuation of the strong transactional property market conditions. IDR s security price performed well during the period, increasing to $2.14 as at 31 December, with investors to receive a 7.50 cents per security distribution for the period. Pleasingly, Funds from Operation for the period was stable at $10.5 million compared to $10.6 million for the pcp. Management s focus on the income of the Fund has delivered results during the period with the leasing momentum from 30 June being maintained. IDR s portfolio occupancy and weighted average lease term has been further enhanced to 94.5% and 5.3 years respectively and full year distribution guidance has been narrowed from 15.00 15.80 to 15.20 15.60 cents per security. 2
Directors report Direct Funds Highlights Funds under management steady at $204 million APN Steller Development Fund launched Increased property valuations across the portfolio Funds under Management totalled $204 million as at 31 December compared to $199 million at 30 June. The successful establishment of the $18.1 million APN Steller Development Fund in September 2015 and increases property valuations across the remaining direct funds have offset the reduction in FuM from the sale and settlement of the Newmark APN Auburn Property Fund. Plans continue for the launch of the APN Convenience Retail Property Fund, for which APN is currently warehousing three properties including a property to be leased to Masters (guaranteed by Woolworths). The launch of this fund has been temporarily deferred following the January 2016 announcement by Woolworths of its intention to exit its Home Improvements division. This deferral will enable time for the resolution of any potential uncertainty created for retail investors around this asset. In the current low interest rate environment, attractive risk-adjusted returns, including high monthly income yields to investors means the APN Convenience Retail Property Fund and other similar products are ideal for self-managed superannuation funds and other investors seeking commercial property investments with strong and regular income returns. Outlook The Australian economy continues to face significant headwinds, compounded by renewed concerns about global growth, banking systems and central bank policies, all contributing to significant domestic and global equity market volatility. The continued tightening of the availability and price of domestic bank funding has the potential to further impact growth prospects for the economy and property markets in the near term but may also provide opportunities for long term property investors. Notwithstanding this backdrop, the transaction market for commercial property has remained strong as investors continue to chase quality real estate for its potential to deliver sustainable and transparent cashflows in this low interest rate, low growth, low inflation environment. While A-grade real estate is expected to continue to be in demand, it is possible that value opportunities will start to present throughout the remainder of this calender year. Generally the leasing markets remain subdued, particularly in Western Australia and Queensland which are still suffering the effects of the severe downturn in the resources and associated services industries. New South Wales is showing early signs of modest improvement. While the increased volatility in the domestic and global equity markets has effected and delayed investors investment decisions, the exposure to the transparent cashflows offered by quality commercial real estate should become an increasingly attractive investment destination because of its defensive nature. APN, with its full service property and funds management platform, is well positioned to capitalise on this sentiment. Earnings Guidance Operating Earnings 1 has been upgraded from 2.00 to 2.30 to 3.20 to 3.50 cents per share for FY2016, following the continued strength in the underlying businesses and the material outperformance reported by Generation Healthcare REIT versus its benchmark. This upgraded Operating Earnings 1 guidance remains subject to the continuation of the current economic and regulatory environments. 3
Directors report Subsequent events Masters Home Improvement On 18 January 2016 Woolworths Limited announced its intention to take control of its Home Improvements joint venture to affect an orderly prospective sale or wind-up of the business (including Masters Home Improvement). The APN Convenience Retail Property Fund, a wholly owned subsidiary of the Group, acquired Lots 1 & 2, 190 198 Princes Highway, South Nowra, NSW (South Nowra) in July 2015. As part of this transaction, the Group entered into a guaranteed delivery contract with the developer to procure the construction of fully completed buildings leased to Masters Home Improvement (guaranteed by Woolworths Limited), Shell/Viva Energy, Hungry Jacks and Subway. The guaranteed delivery contract contains certain protections for the Group to mitigate development risk, including a Put Option allowing the Group to require the developer of the property to purchase South Nowra if the guaranteed delivery contract is terminated for any reason (other than due to the Group s default), or if the Masters Home Improvement Agreement for Lease is terminated. The purchase price payable by the developer is an amount equal to the total costs incurred by the Group for the acquisition and development of South Nowra so that the Group will be restored to its original position (i.e. as if it never acquired the Property). As at 31 December 2015, the Group has incurred expenditure totalling $19,512,000 (recorded as investment property under construction), partially financed by a finance facility drawn to $8,493,000. The remaining capital expenditure commitment is $13,547,000. There is no current financial impact arising from Woolworths announcement. Dividend Directors have declared an interim dividend of 1.25 cents per share. The dividend will be fully franked and paid on 12 April 2016 to investors registered on 16 March 2016. Except as outlined above, the directors have not become aware of any other significant matter or circumstances that has arisen since 31 December 2015, that has affected or may affect the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in subsequent years, which has not been covered in this report. Auditor s independence declaration The auditor s independence declaration is included on page 6 of the half-year report. Rounding off of amounts The company is a company of the kind referred to in ASIC Class Order 98/100, dated 10 July 1998, and in accordance with that Class Order amounts in the directors report and the half-year financial report are rounded off to the nearest thousand dollars, unless otherwise indicated. 4
Directors report Signed in accordance with a resolution of directors made pursuant to s.306(3) of the Corporations Act 2001. On behalf of the Directors Christopher Aylward Executive Chairman Melbourne, 23 February 2016 5
Deloitte Touche Tohmatsu ABN 74 490 121 060 550 Bourke Street Melbourne VIC 3000 GPO Box 78 Melbourne VIC 3001 Australia Tel: +61 3 9671 7000 Fax: +61 3 9671 7001 www.deloitte.com.au The Board of Directors 101 Collins Street MELBOURNE VIC 3000 23 February 2016 Dear Sirs Independence declaration In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of regarding the half-year financial reports. As lead audit partner for the review of the financial statements of for the half-year ended 31 December 2015, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the review; and (ii) any applicable code of professional conduct in relation to the review. Yours sincerely DELOITTE TOUCHE TOHMATSU Neil Brown Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited
Deloitte Touche Tohmatsu ABN 74 490 121 060 550 Bourke Street Melbourne VIC 3000 GPO Box 78 Melbourne VIC 3001 Australia Tel: +61 3 9671 7000 Fax: +61 3 9671 7001 www.deloitte.com.au Independent Auditor s Review Report to the Members of APN Property Group Limited We have reviewed the accompanying half-year financial report of, which comprises the condensed consolidated statement of financial position as at 31 December 2015, the condensed consolidated statement of profit or loss and other comprehensive income, the condensed consolidated statement of cash flows and the condensed consolidated statement of changes in equity for the half-year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information, and the directors declaration of the consolidated entity comprising the company and the entities it controlled at the end of the half-year or from time to time during the half-year as set out on pages 9 to 22. Directors Responsibility for the Half-Year Financial Report The directors of the company are responsible for the preparation of the half-year financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the half-year financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the half-year financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the consolidated entity s financial position as at 31 December 2015 and its performance for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001. As the auditor of, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report. A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Auditor s Independence Declaration In conducting our review, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of, would be in the same terms if given to the directors as at the time of this auditor s review report. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited
Conclusion Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of is not in accordance with the Corporations Act 2001, including: (a) giving a true and fair view of the consolidated entity s financial position as at 31 December 2015 and of its performance for the half-year ended on that date; and (b) complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001. DELOITTE TOUCHE TOHMATSU Neil A. Brown Partner Chartered Accountants Melbourne, 23 February 2016
Directors declaration Directors declaration The directors declare that: (a) (b) in the directors opinion, there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable; and in the directors opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the financial position and performance of the Group. Signed in accordance with a resolution of the directors made pursuant to s.303(5) of the Corporations Act 2001. On behalf of the Directors Christopher Aylward Executive Chairman Melbourne, 23 February 2016 9
Condensed consolidated statement of profit or loss and other comprehensive income Condensed consolidated statement of profit or loss and other comprehensive income for the half-year ended 31 December 2015 Consolidated Half-year ended Note 31 Dec 2015 31 Dec 2014 Continuing operations Revenue 3 24,808 14,896 Cost of sales (3,830) (1,766) Net revenue 20,978 13,130 Finance income 589 173 Administration expenses (7,585) (6,676) Impairment, fair value adjustments and business acquisition costs 4 14,410 4,667 Finance costs (159) (192) Profit before tax 28,233 11,102 Income tax expense (8,532) (1,093) Profit for the period from continuing operations 19,701 10,009 Discontinued operation (Loss)/Profit for the period from discontinued operations (102) (271) Profit for the period 19,599 9,738 Other comprehensive income, net of income tax Items that may be reclassified subsequently to profit or loss Exchange differences arising on translation of foreign operations 96 94 Other comprehensive income / (loss) for the period (net of income tax) 96 94 Total comprehensive income for the period 19,695 9,832 Profit / (Loss) attributable to: Equity holders of the parent 15,955 8,510 Non-controlling interests 3,644 1,228 19,599 9,738 Total comprehensive income / (loss) for the period: Equity holders of the parent 16,051 8,604 Non-controlling interests 3,644 1,228 19,695 9,832 Earnings per share From continuing and discontinued operations Basic (cents per share) 5.48 4.06 Diluted (cents per share) 5.37 4.03 From continuing operations Basic (cents per share) 5.51 4.18 Diluted (cents per share) 5.40 4.16 Notes to the financial statements are included on pages 14 to 22. 10
Condensed consolidated statement of financial position Condensed consolidated statement of financial position as at 31 December 2015 Consolidated 31 December 2015 30 June 2015 Note Current assets Cash and cash equivalents 11,919 20,343 Trade and other receivables 10,506 9,576 Total current assets 22,425 29,919 Non-current assets Investments in joint venture 2 2 Financial assets 8 94,984 65,603 Trade and other receivables 7,710 87 Property, plant and equipment 9 194 1,788 Investment Properties 10 23,937 Deferred tax assets 1,259 4,821 Intangible assets 6 4,032 4,052 Total non-current assets 132,118 76,353 Total assets 154,543 106,272 Current liabilities Trade and other payables 4,305 2,993 Borrowings 11 21,590 Current tax liabilities 1,638 250 Provisions 2,027 2,408 Total current liabilities 29,560 5,651 Non-current liabilities Trade payables and other payables 1,981 Provisions 1,308 1,343 Deferred tax liabilities 5,749 2,887 Total non-current liabilities 9,038 4,230 Total liabilities 38,598 9,881 Net assets 115,945 96,391 Equity Issued capital 7 101,875 101,832 Reserves 1,814 1,111 Retained earnings 2,838 (12,362) Equity attributable to equity holders of the parent 106,527 90,581 Non-controlling interests 9,418 5,810 Total equity 115,945 96,391 Notes to the financial statements are included on pages 14 to 22. 11
Condensed consolidated statement of changes in equity Condensed consolidated statement of changes in equity for the half-year ended 31 December 2015 Share capital Retained earnings Equitysettled employee benefits reserve Foreign currency translation reserve Total Attributable to equity holders of the parent Noncontrolling interest Total Balance at 1 Jul 2014 72,703 (22,164) 2,387 (1,694) 51,232 3,571 54,803 Profit for the period 8,510 8,510 1,228 9,738 Translation of foreign subsidiary company 94 94 94 Total comprehensive income for the period 8,510 8,604 1,228 9,832 Recognition of share-based payments 210 210 210 Balance at 31 Dec 2014 72,703 (13,654) 2,597 (1,600) 60,046 4,799 64,845 Balance at 1 Jul 2015 101,832 (12,362) 2,768 (1,657) 90,581 5,810 96,391 Profit for the period 15,955 15,955 3,644 19,599 Translation of foreign subsidiary company 96 96 96 Total comprehensive income for the period 15,955 96 16,051 3,644 19,695 Payment of dividends: - Equity holders of the parent (755) (755) (755) - Non-controlling interest (36) (36) Issue of ordinary shares under employee share gift plan 43 (43) Recognition of share-based payments 650 650 650 Balance at 31 Dec 2015 101,875 2,838 3,375 (1,561) 106,527 9,418 115,945 Notes to the financial statements are included on pages 14 to 22. 12
Condensed consolidated statement of cash flows Condensed consolidated statement of cash flows for the half-year ended 31 December 2015 Consolidated Half-year Ended Cash flows from operating activities Note 31 Dec 2015 31 Dec 2014 Receipts from customers 11,800 12,801 Payments to suppliers and employees (8,053) (8,339) Interest received 241 175 Distributions received 1,867 1,302 Interest and other costs of finance paid (159) (140) Income tax paid (769) (1,383) Net cash provided by operating activities 4,927 4,416 Cash flows from investing activities Payment for investment (15,037) (147) Payment for investment properties and property, plant and equipment (21,158) (59) Amount advanced to a related party (4) Proceeds on sale of investment 1,948 2,337 Deposits paid on behalf of new funds (1,185) Monies received in trust from investors 8,525 Net cash used in investing activities (34,247) 9,467 Cash flows from financing activities Proceeds from borrowings 21,590 Dividends paid: - Equity holders of the parent (755) - Non-controlling interests (36) Net cash provided by financing activities 20,799 Net increase / (decrease) in cash and cash equivalents (8,521) 13,883 Net effect of foreign exchange translations 97 95 Cash and cash equivalents at the beginning of the period 20,343 6,034 Cash and cash equivalents at the end of the period 11,919 20,012 Notes to the financial statements are included on pages 14 to 22. 13
Notes to the condensed consolidated financial statements Notes to the condensed consolidated financial statements 1. Significant accounting policies Statement of compliance The half-year financial report is a general purpose financial report prepared in accordance with the Corporations Act 2001 and AASB 134 Interim Financial Reporting. Compliance with AASB 134 ensures compliance with International Financial Reporting Standard IAS 34 Interim Financial Reporting. The half-year report does not include notes of the type normally included in an annual financial report and should be read in conjunction with the most recent annual financial report. Basis of preparation The condensed consolidated financial statements have been prepared on the basis of historical cost, except for the revaluation of certain non-current assets and financial instruments. Cost is based on the fair values of the consideration given in exchange for assets. 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, regardless of whether that price is directly observable or estimated using another valuation technique. All amounts are presented in Australian dollars, unless otherwise noted. The company is a company of the kind referred to in ASIC Class Order 98/100, dated 10 July 1998, and in accordance with that Class Order amounts in the directors report and the half-year financial report are rounded off to the nearest thousand dollars, unless otherwise indicated. The accounting policies and methods of computation adopted in the preparation of the half-year financial report are consistent with those adopted and disclosed in the Company s 2015 annual financial report, except for the impact of the Standards and Interpretations described below. These accounting policies are consistent with Australian Accounting Standards and with International Financial Reporting Standards. The Group has adopted all the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (the AASB) that are relevant to their operations and effective for the current reporting period. New and revised Standards and amendments thereof and Interpretations effective for the current reporting period that are relevant to the Group include: Standard AASB 2015-3 Amendments to Australian Accounting Standards arising from the Withdrawal of AASB 1031 Materiality The application of these amendments does not have any material impact on the disclosures or the amounts recognised in the Group's condensed consolidated financial statements. 14
Notes to the condensed consolidated financial statements 2. Segment information The Group s reportable segments are aligned to the categories of product managed by the Group and are as follows: Reportable segments Product type Fund Continuing operations Real Estate Open ended APN AREIT Fund Securities funds properties APN Property for Income Fund securities funds APN Property for Income Fund No. 2 APN Unlisted Property Fund APN Asian REIT Fund Healthcare Real Estate fund Industrial Real Estate fund Direct Real Estate funds Listed property trust Generation Healthcare REIT (GHC) Listed property trust Industria REIT (IDR) Fixed term Australian funds APN Property Plus Portfolio APN Regional Property Fund Newmark APN Auburn Property Fund APN Coburg North Retail Fund APN Steller Development Fund APN 541 St Kilda Road Fund (terminated) Wholesale funds Investment revenue Investment income received or receivable from coinvestments Discontinued operations European Real Estate funds De-listed property trust and fixed term European funds APN Development Fund No.2 APN Champion Retail Fund APN Euro Property Fund APN European Retail Property Group APN Poland Retail Fund (terminated) Information regarding these reportable segments is presented below. The accounting policies of the reportable segments are the same as the Group s accounting policies. 15
Notes to the condensed consolidated financial statements 2. Segment information (cont d) The following is an analysis of the Group s revenue and results by reportable operating segment for the periods under review: Segment revenue Segment net revenue 1 Segment profit Half-year ended Half-year ended Half-year ended 31 Dec 2015 31 Dec 2014 31 Dec 2015 31 Dec 2014 31 Dec 2015 31 Dec 2014 Continuing operations Real estate securities funds 5,260 5,488 4,377 4,055 1,812 1,292 Healthcare real estate fund 13,874 3,849 11,077 3,849 9,672 2,854 Industrial real estate fund 1,153 1,112 1,153 1,112 331 395 Direct real estate funds 2,026 2,919 1,876 2,586 1,130 1,896 Investment revenue 2,495 1,528 2,495 1,528 2,495 1,528 24,808 14,896 20,978 13,130 15,440 7,965 Unallocated revenue and expenses Finance income 589 173 Central administration (1,965) (1,477) Depreciation and amortisation (82) (34) Finance costs (159) (192) 13,823 6,435 Income tax expense (4,305) (1,818) Minority interest (2,341) (738) Net operating earnings after tax & MI 7,177 3,879 Gain from impairment, fair value adjustments and business acquisition costs before tax 14,410 4,667 Income tax expense (4,227) 725 Minority interest (1,304) (498) 8,879 4,894 From continuing operations 24,808 14,896 20,978 13,130 16,056 8,773 Discontinued operations European real estate funds 189 107 189 107 (52) (247) Income tax expense (50) (24) Minority interest 1 8 (101) (263) Total 24,977 15,003 21,167 13,237 15,955 8,510 1 Segment net revenue is segment revenue less direct costs. There were no intersegment sales during the half-year. Segment assets and liabilities Information on assets and liabilities for each reportable segment is not required to be disclosed as such information is not regularly provided to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance. 16
Notes to the condensed consolidated financial statements 3. Revenue Consolidated Half-year ended 31 Dec 31 Dec 2015 2014 Continuing operations Fund management fees 7,404 7,294 Performance and transaction fees 11,922 3,910 Asset and project management fees 1,779 999 Registry and other income 1,208 1,165 22,313 13,368 Distribution income 2,495 1,528 24,808 14,896 4. Results for the period Half-year ended Consolidated 31 Dec 2015 31 Dec 2014 (a) Profit/(loss) for the period has been arrived after charging / crediting the following gains and losses and other expenses: Share based payments expenses (650) (210) (b) Impairment, fair value adjustments and business acquisition costs: Profit/(loss) for the period includes the following impairment, fair value adjustments and business acquisition costs:- Change in fair value of financial assets designated as at fair value through profit or loss 14,460 4,764 Changes in unrealised fair value of investment properties (119) Business acquisition costs (74) Gain/(Loss) on disposal of investment 143 (97) 14,410 4,667 5. Dividends Half-year ended 31 Dec 2015 31 Dec 2014 Fully paid ordinary shares Cents per share Total Cents per share Total Recognised amounts Final dividend 0.25 755 Unrecognised amounts Interim dividend 1.25 3,903 1.25 2,763 Directors have declared a fully franked interim dividend of 1.25 cents per share for the period ended 31 December 2015 (2014: 1.25 cents per share, fully franked). This will be paid on 12 April 2016 to all shareholders registered on 16 March 2016. 17
Notes to the condensed consolidated financial statements 6. Intangible assets Consolidated Software Half-year ended Management rights Software work-inprogress Total Gross carrying amount Balance at 1 July 2014 4,127 640 122 4,889 Additions 3 3 Transfer 122 (122) Derecognised during the year (174) (174) Balance at 30 June 2015 3,953 765 4,718 Additions Balance at 31 December 2015 3,953 765 4,718 Accumulated amortisation / impairment losses Balance at 1 July 2014 (174) (636) (810) Depreciation expense (30) (30) Derecognised during the year 174 174 Balance at 30 June 2015 (666) (666) Depreciation expense (20) (20) Balance at 31 December 2015 (686) (686) Net book value At 30 June 2015 3,953 99 4,052 At 31 December 2015 3,953 79 4,032 7. Issued capital Consolidated No of shares 000 Balance at 1 Jul 2014 215,824 72,703 Share options issued under APN Property Group Employee Performance Securities Plan 5,250 Balance at 31 Dec 2014 221,074 72,703 Consolidated No of shares 000 Balance at 1 Jul 2015 302,090 101,832 Share issued under APN Property Group Employee Share Gift Plan 112 43 Balance at 31 Dec 2015 302,202 101,875 In November 2015, the Company issued 112,000 shares to eligible employees under the APN Property Group Employee Share Gift Plan (2014: Nil) At 31 December 2015, included in fully paid ordinary shares of 302,202,000 (2014: 221,074,000) are 11,296,000 (2014:11,362,000) treasury shares relating to the employee share option plan. 18
Notes to the condensed consolidated financial statements 8. Fair value of financial instruments (a) The directors consider that the carrying amount of financial assets and financial liabilities that are not measured at fair value in the financial statements approximate their fair value. (b) Fair value measurements recognised in the statement of financial position Financial assets at fair value through profit or loss Level 1 Level 2 Level 3 Total 31 December 2015 Co-investment in related parties 90,527 4,457 94,984 30 June 2015 Co-investment in related parties 64,456 1,147 65,603 There were no transfers between Level 1, 2 and 3 during the period. (c) Reconciliation of Level 3 fair value measurements Consolidated Fair value through profit or loss 31 Dec 2015 30 Jun 2015 Opening balance 1,147 4,871 - Realised loss in profit or loss (note 4) 8 (109) Purchases 3,302 72 Settlements (3,687) Closing balance 4,457 1,147 For financial instruments that are measured and carried at fair value, the Group uses the following to categorise the method used: - Level 1: the fair value is calculated from quoted prices (unadjusted) in active markets for identical assets or liabilities, and include listed property securities traded on the Australian Securities Exchange (ASX). - Level 2: the fair value is estimated from inputs other than quoted prices included in 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: the fair value is estimated from unobservable inputs and assumptions that may not necessarily be supported by prices from observable current market transactions. For the Group this includes investments in unlisted funds whose primary assets are direct property assets. 19
Notes to the condensed consolidated financial statements 9. Property, plant and equipment Leasehold Improvement at cost Plant and equipment at cost Consolidated Capital work-inprogress Property under construction Half-year ended Total Gross carrying amount Balance at 1 July 2014 423 1,216 181 1,820 Additions 3 64 1,577 1,644 Transfer 181 (181) Write-off / Disposal (17) (17) Balance at 30 June 2015 426 1,444 1,577 3,447 Additions 45 45 Transfer to Investment Properties (note 10) (1,577) (1,577) Balance at 31 December 2015 426 1,489 1,915 Accumulated amortisation / impairment losses Balance at 1 July 2014 (423) (1,157) (1,580) Depreciation expense (1) (80) (81) Write-off / Disposal 2 2 Balance at 30 June 2015 (424) (1,235) (1,659) Depreciation expense (1) (61) (62) Balance at 31 December 2015 (425) (1,296) (1,721) Net book value At 30 June 2015 2 209 1,577 1,788 At 31 December 2015 1 193 194 10. Investment Properties (a) Investment properties represent commercial property owned by the APN Convenience Retail Property Fund, a wholly owned subsidiary of the Group, for the purpose of deriving rental income and/or capital appreciation. (b) Reconciliation of carrying amount Consolidated Investment Half-year ended Investment Property (c) Property under construction (d) Total Carrying amount at 1 July 2015 Transfer from property, plant and equipment (note 9) 1,577 1,577 Additions 2,967 19,512 22,479 Transaction / acquisition costs written off as fair value adjustment (note 4) (119) (119) Carrying amount at 31 December 2015 4,425 19,512 23,937 (c) Investment property Fair value 31 December 2015 Latest Independent valuation date Commercial Property Ownership interest Valuer 126A, River Hills Road, Eagleby, QLD 100% 4,425 5 October 2015 Savills Secured by first ranking mortgage. Refer note 11 for details. (d) Lots 1 & 2, 190 198 Princes Highway, South Nowra, NSW, secured by first ranking mortgage. Refer note 11 for details. 20
Notes to the condensed consolidated financial statements 11. Borrowings Consolidated Half-year ended 31 Dec 31 Dec 2015 2014 Current financial liability: At amortised cost Unsecured short term loan (a) 5,000 Unsecured short term loan related party (a) (b) 5,000 Secured bank loans (c) 11,590 21,590 During the period, the Group entered into the following loans:- (a) Unsecured loans with a total aggregate limit of $10,000,000, fully drawn as at 31 December 2015. The loans are repayable on 18 November 2016 and incur interest at 8% p.a. for the first 6 months and 10%p.a. thereafter. (b) Loan provided by Holus Nominees Pty Limited, an entity controlled by the Executive Chairman of APN Property Group Limited, Christopher Aylward. (c) Secured bill acceptance/discount facilities:- Facility 1: On 27 October 2015, APN Convenience Retail Property Fund, a wholly owned subsidiary of the Group, entered into a 3 year $3,097,000 bill acceptance/discount facility secured against 126A, River Hills Road, Eagleby, QLD (refer note 10 for details). This facility is fully drawn as at 31 December 2015 and is subject to the following financial covenants: o o Loan to value ratio will not exceed 70% (reducing to 65% with quarterly principal repayment over three years) of the market value of the secured investment property; and Interest cover ratio will not fall below 2.0 times Facility 2: On 6 November 2015, APN Convenience Retail Property Fund, a wholly owned subsidiary of the Group, entered into a 3 year $22,750,000 bill acceptance/discount facility secured against Lots 1 & 2, 190 198 Princes Highway, South Nowra, NSW (refer note 10 for details). This facility is drawn to $8,493,000 as at 31 December 2015 and is subject to the following financial covenants: Construction facility: o Loan to development cost ratio will not exceed 75% of the development costs of the secured property under construction; and o Loan to value ratio will not exceed 70% of the market value of the secured investment property. Term facility (effective from construction completion): o Loan to value ratio will not exceed 70% (reducing to 65% with quarterly principal repayment over the remaining term to maturity) of the market value of the secured investment property; and o Interest cover ratio will not fall below 2.0 times There have been no other borrowings for the period ended 31 December 2015. 12. Commitments Since 30 June 2015, APN Convenience Retail Property Fund, a wholly owned subsidiary of the Group, has entered into a non-cancellable guaranteed delivery contract with a developer (refer note 10 for details) for the construction of commercial property at Lots 1 & 2, 190 198 Princes Highway, South Nowra, NSW. The commitment for capital expenditure contracted but not provided for at reporting date is $13,547,000. This amount is payable within one year (June 2015: $2,848,000 payable within one year) and is to be funded from the available undrawn limit under Facility 2 (refer note 11). 21
Notes to the condensed consolidated financial statements 13. Contingent assets and liabilities The Group provided leasing services to one of its managed funds and consequently was entitled to charge market based leasing fees amounting to $517,000 (2014: Nil). While APN Funds Management Limited remains the responsible entity of that managed fund, these fees will not be charged. Other than disclosed above, there is no change to contingent assets and liabilities during the period. 14. Subsequent events Masters Home Improvement On 18 January 2016 Woolworths Limited announced its intention to take control of its Home Improvements joint venture to affect an orderly prospective sale or wind-up of the business (including Masters Home Improvement). The APN Convenience Retail Property Fund, a wholly owned subsidiary of the Group, acquired Lots 1 & 2, 190 198 Princes Highway, South Nowra, NSW (South Nowra) in July 2015. As part of this transaction, the Group entered into a guaranteed delivery contract with the developer to procure the construction of fully completed buildings leased to Masters Home Improvement (guaranteed by Woolworths Limited), Shell/Viva Energy, Hungry Jacks and Subway. The guaranteed delivery contract contains certain protections for the Group to mitigate development risk, including a Put Option allowing the Group to require the developer of the property to purchase South Nowra if the guaranteed delivery contract is terminated for any reason (other than due to the Group s default), or if the Masters Home Improvement Agreement for Lease is terminated. The purchase price payable by the developer is an amount equal to the total costs incurred by the Group for the acquisition and development of South Nowra so that the Group will be restored to its original position (i.e. as if it never acquired the Property). As at 31 December 2015, the Group has incurred expenditure totalling $19,512,000 (recorded as investment property under construction), partially financed by a finance facility drawn to $8,493,000. The remaining capital expenditure commitment is $13,547,000. There is no current financial impact arising from Woolworths announcement. Dividend Since the balance date, the directors have declared a fully franked interim dividend of 1.25 cents per share for the period ended 31 December 2015, to be paid on 12 April 2016 to all shareholders registered on 16 March 2016. Other than disclosed above, the directors have not become aware of any other significant matter or circumstances that has arisen since 31 December 2015, that has affected or may affect the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in subsequent years, which has not been covered in this report. 22