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Abridged report for the year ended 31 March 2019
Investec Australia Property Fund
Registered in Australia in terms of ASIC (ARSN 162 067 736)
Registered in terms of the Collective Investment Schemes Control
Act No. 45 of 2003
Share code: IAP
ISIN: AU60INL00018
ABRIDGED REPORT FOR THE YEAR ENDED 31 MARCH 2019
DIRECTORS' RESPONSIBILITY STATEMENT
The directors of IPL are responsible for the preparation and fair
presentation of the consolidated annual financial statements of
IAPF (also referred to as the Fund or Group).
The consolidated annual financial statements comprise the:
- Consolidated statement of profit or loss and other
comprehensive income for the year ended 31 March 2019
- Consolidated statement of financial position at 31 March 2019
- Consolidated statement of changes in equity for the year ended
31 March 2019
- Consolidated statement of cash flows for the year ended 31
March 2019
- Notes to the financial statements, which include a summary of
significant accounting policies and other explanatory notes
- Directors' report
in accordance with IFRS, the constitution of the Fund, the JSE
Listings Requirements and the requirements of the Act.
The directors of IPL are also responsible for such internal controls
as they determine necessary to enable the preparation of financial
statements that are free from material misstatement, whether due
to fraud or error, and for maintaining adequate accounting records
and an effective system of risk management.
The directors of IPL have made an assessment of the ability of
the Fund to continue as a going concern and have no reason to
believe that the business will not be a going concern in the year
ahead.
The external auditor is responsible for reporting on whether the
annual financial statements are fairly presented in accordance with
the applicable financial reporting framework.
Approval of the Fund's consolidated annual financial statements
The consolidated annual financial statements of the Fund, as
identified in the first paragraph, were approved under authority of
the board of IPL on 3 May 2019 and are signed on their behalf by:
RA Longes GA Katz
Chairman Chief executive officer
Dated at Sydney Dated at Sydney
3 May 2019 3 May 2019
REPORT OF THE AUDIT AND RISK COMMITTEE
The audit and risk committee has pleasure in submitting this report
to unitholders as recommended by King IV.
The activities of the audit and risk committee (the
committee), which comprises three independent non-
executive directors, are determined by its charter and
mandate as set out on page 29.
The committee is satisfied that it has considered and discharged
its responsibilities in terms of its mandate and charter, King IV and
the Act.
As the Fund is a registered managed investment scheme under the
Act it has Australian reporting obligations. The Fund is required to
lodge audited financial statements with the ASIC. This is in addition
to the Fund's reporting obligations in South Africa. The committee
is satisfied that the Fund has discharged all of its reporting
obligations in Australia and South Africa.
The committee carried out its duties by inter alia, reviewing the
following:
- financial management reports;
- external audit reports;
- management's risk assessment; and
- compliance reports.
Significant matters the committee has considered this year in
relation to the financial statements are:
- audit quality;
- audit independence;
- valuation of investment properties;
- related party transactions;
- borrowing classifications, derivatives and debt covenants; and
- going concern.
The abovementioned information, together with interaction with
the external and internal auditors, management and other invitees
attending meetings in an ex officio capacity, enabled the committee
to conclude that the risk management process and systems of
internal financial control have been designed and were operating
effectively during the financial period.
The committee is satisfied:
- its members have the requisite financial skills and experience to
contribute to its deliberations;
- with the independence and effectiveness of the external auditor,
including the provision on non-audit services and compliance
with the Fund's policy in this regard;
- IPL as RE of the Fund has complied with the JSE Listings
Requirements and the principles of King IV applicable to the
Fund;
- it considered and approved that audit fee payable to the
external auditors in respect of the audit for the year ended 31
March 2019 as well as their terms of engagement and scope of
the audit;
- that the appointment of the external auditor is in compliance
with the Act and the JSE Listings Requirements;
- with the effectiveness of the internal audit function and that the
system of internal financial control in all key material aspects is
effective and provides reasonable assurance that the financial
records may be relied upon for the preparation of the annual
financial statements; and
- with the expertise and experience of the chief financial officer
and the overall adequacy and appropriateness of the finance
function.
The committee, having fulfilled the oversight role regarding the
reporting process and the integrated report, recommends for
approval by the board of directors of IPL, the integrated report and
the annual financial statements for the year ended 31 March 2019.
Sally Herman
Chairperson
Audit and risk committee
Sydney
3 May 2019
DIRECTORS' REPORT
The directors of IPL, the RE of the Fund, present their report together
with the consolidated financial statements of the Group comprising
the Fund and its controlled entities, for the year ended 31 March 2019
and the auditor's report thereon.
The Fund is an Australian-domiciled REIT which is registered as
a managed investment scheme in Australia under the Act and is
subject to regulatory oversight by ASIC.
The Fund was listed on the JSE on 23 October 2013 under the
'Real Estate Holdings and Development' sector of the JSE under
share code: IAP and ISIN: AU60INL0018.
Perpetual Corporate Trust Limited is the custodian of the Fund.
Issued unit capital
The unit capital of the Fund is 478 802 454 ordinary units. The
Fund's ordinary units are listed on the JSE. Details of the unit
capital are set out in note 13 to the financial statements.
Responsible entity
The registered office and principal place of business of IPL and the
Fund is Level 23, Chifley Tower, 2 Chifley Square, Sydney, NSW
2000.
The directors of IPL during or since the end of the financial period
are set out in the table below:
Full name Capacity
Richard Anthony Longes (Australian) Chairperson and independent non-executive director
Stephen Koseff (South African) Non-executive director
Samuel Ronald Leon (South African) Non-executive director
Graeme Anthony Katz (Australian) Executive director
Sally Herman (Australian) Lead independent non-executive director
Hugh Martin (Australian) Independent non-executive director
Details on directors' experience is set out in the Directorate section of this report. Details of Board meetings are set out in
the Corporate Governance section of this report.
Principal activities
The principal activities of the Fund are to invest in high quality
commercial real estate assets to derive rental income and capital
growth.
The Fund did not have any employees during the year.
Review of operations
A detailed review of operations is included in the CEO report.
Results
The net profit of the Fund is presented in the statement of profit or
loss and other comprehensive income. The net profit for the year
ended 31 March 2019 is AUD 53 099 283.
The net assets of the Fund are AUD 621 477 206 at 31 March
2019. This equates to a net asset value of AUD 1.30 per unit.
Distributions
Unitholders were given notice of a final distribution declaration
number 11 of:
- 5.18 AUD cents per unit pre-withholding tax
- 4.75 AUD cents per unit post-withholding tax
for the six months ended 31 March 2019. Withholding tax of
0.42528 AUD cents per unit will be withheld from the distribution
paid to non-Australian unitholders. This is regarded as a foreign
distribution for South African unitholders.
Unitholders were given notice of a special distribution declaration
number 12 of:
- 1.59 AUD cents per unit pre-withholding tax
- 1.46 AUD cents per unit post-withholding tax
for the period 1 April 2019 to 27 May 2019
Withholding tax of 0.13452 AUD cents per unit will be withheld
from the distribution paid to non-Australian unitholders. This is
regarded as a foreign distribution for South African unitholders.
Refer to section 6 of this report for further details on distributions.
Performance
The full year distribution growth is 2.0% pre-withholding tax and
1.2% post-withholding tax.
The effective tax rate for the year is 8.10834% compared to
7.95895% for the prior year which has impacted the lower growth
rate in the post-WHT distribution.
The effective tax rate has been impacted by a reduction in the
depreciation shield, from 39% in FY18 to 34% in FY19 along with
an antecedent distribution in FY18 not subject to tax not recurring
in FY19.
The performance of the Fund is a result of the successful
implementation of the Fund's strategy, namely:
- delivering stable income growth;
- engaging in active property management; and
- efficiently managing the balance sheet and interest rates.
Interests of IPL
IPL has delegated the management of the Fund to IPML. IPL was not paid any fees during the period. The following fees were paid to IPML
during the period:
AUD 2019 2018
Asset management fee 5 761 459 5 119 830
Property management fee* 1 305 528 1 281 754
* IPML has been contracted to perform property management services. IPML has sub-contracted certain of these services to third party property managers
who receive a fee from IPML.
Significant changes in the state of affairs
There have been no significant changes in the nature of the Fund's
activities during the period.
Likely developments
The Fund will continue to pursue its strategy of investing in high
quality commercial real estate assets that are well located in major
metropolitan cities or established commercial precincts in Australia.
In pursuing this strategy IPL intends to fulfil the objectives of the
fund being:
- to grow and diversify the Fund's asset base with further
investments offering attractive income and capital growth
profiles which will also spread investment risk;
- to offer unitholders growth in income and capital appreciation
across a sectorally diversified portfolio; and
- to maintain a strong corporate governance framework to ensure
the interests of unitholders are protected.
To achieve these objectives, IPL intends to pursue the following
strategies:
- focus on property fundamentals;
- acquire quality commercial real estate with the following
characteristics:
- medium to long-term lease profiles;
- situated in well-located commercial precincts;
- limited or no short-term capex requirements;
- contracted rental growth; and
- sustainable income supported by strong tenant covenants;
- leverage off IPL's on-the-ground presence in Australia and
existing relationships with key players in the industry to source
growth opportunities;
- maximise property performance through pro-active asset
management, property management and leasing; and
- implement appropriate debt and equity funding strategies and
adopt a prudent interest rate hedging policy.
Directors' interests in units
The directors' interest in units is set out in note 17 of
the financial report on page 63.
Directors' remuneration
No fees are paid by the Fund to the directors or officers of IPML.
Directors of IPL who are employees or directors of other entities
within the Investec Group are not remunerated for their services
as directors of IPL. The remuneration of any independent, non-
associated and non-executive director appointed to the Board is
limited to the reimbursement of reasonable expenses incurred by
such person for purposes of attending Board meetings and the
appropriate director's fees, unless IPL determines otherwise.
In respect of the independent, non-associated and non-executive
directors, fees and expenses are reimbursed out of the Fund.
Accordingly, directors' remuneration for the year to 31 March 2019 was as follows:
Provident
Salary pension
(including Fees for fund and
For the period to 31 March 2019 emoluments Directors' other medical aid
AUD'000 paid by IAL) fees services contributions Bonuses Total
Directors
Richard Longes(1) - 37 - - - 37
Stephen Koseff(2) - 13 - - - 13
Sam Leon(2) - 19 - - - 19
Graeme Katz(3) 155 - - - - 155
Sally Herman(4) - 56 - - - 56
Hugh Martin(4) - 45 - - - 45
Total 155 170 - - - 325
(1) Apportionment of directors' fees paid by IAL that are attributable to the Fund. Richard Longes is not separately remunerated for his services as a director
of IPL as he is remunerated by IAL for his services as a director of IAL. An estimate of attributable fees has been provided based on market related non-
executive director and chairperson fees and proportion of time allocated to IAPF. Mr Longes is not remunerated out of the Fund.
(2) Stephen Koseff and Sam Leon receive fees for their services to the Investec Group and are not separately remunerated for their services as directors of
IPL. An estimate of attributable fees has been provided based on market related non-executive directors' fees and proportion of time allocated to the Fund,
however these directors are not remunerated out of the Fund.
(3) Graeme Katz is not separately remunerated for his services as chief executive officer and director of IPL as he is remunerated by IAL. The amount disclosed
represents an allocation of his remuneration commensurate with his role as an executive director of IPL but is not a cost to the Fund.
(4) Sally Herman and Hugh Martin are independent, non-associated and non-executive directors of IPL and their remuneration is apportioned between all
funds managed by IPL based on gross asset value. Ms. Herman is also remunerated for her role as chairperson of the audit and risk committee.
Directors' remuneration for the year to 31 March 2018 was as follows:
Provident
Salary pension
(including Fees for fund and
For the period to 31 March 2018 emoluments Directors' other medical aid
AUD'000 paid by IAL) fees services contributions Bonuses Total
Directors
Richard Longes(1) - 37 - - - 37
Stephen Koseff(2) - 13 - - - 13
Sam Leon(2) - 19 - - - 19
Graeme Katz(3) 155 - - - - 155
Sally Herman(4) - 56 - - - 56
Hugh Martin(4) - 45 - - - 45
Total 155 170 - - - 325
(1) Apportionment of directors' fees paid by IAL that are attributable to the Fund. Richard Longes is not separately remunerated for his services as a director
of IPL as he is remunerated by IAL for his services as a director of IAL. An estimate of attributable fees has been provided based on market related non-
executive director and chairperson fees and proportion of time allocated to IAPF. Mr Longes is not remunerated out of the Fund.
(2) Stephen Koseff and Sam Leon receive salaries as employees of Investec Group subsidiaries and are not separately remunerated for their services as
directors of IPL. An estimate of attributable fees has been provided based on market related non-executive directors' fees and proportion of time allocated
to the Fund, however these directors are not remunerated out of the Fund.
(3) Graeme Katz is not separately remunerated for his services as chief executive officer and director of IPL as he is remunerated by IAL. The amount disclosed
represents an allocation of his remuneration commensurate with his role as an executive director of IPL but is not a cost to the Fund.
(4) Sally Herman and Hugh Martin are independent, non-associated and non-executive directors of IPL and their remuneration is apportioned between all
funds managed by IPL based on gross asset value. Ms. Herman is also remunerated for her role as chairperson of the audit and risk committee.
Corporate governance
The Fund's corporate governance statement and governance
framework are set out on page 28 of this report.
Audit and risk committee
The audit and risk committee comprising independent non-
executive directors meets regularly with the senior management of
IPML and the external auditors to consider the nature and scope
of the assurance activities and the effectiveness of the risk and
control systems.
Further details on the role and responsibility of the
audit and risk committee are set out on page 29 of
this report.
Auditors
KPMG have been appointed by IPL as auditors of the Fund.
Contracts
The Fund does not have any contracts with directors of IPL.
Subsidiaries
The Fund has a number of wholly owned trusts which hold the
Fund's property assets. Details of subsidiaries are set out in note
18 of the financial statements.
Major unitholders
The largest unitholders of the Fund are set out on page 78.
Accounting policies and disclosure
Accounting policies are set having regard to commercial practice
and comply with applicable Australian law and IFRS.
These policies are set out in note 1 of the financial
report on page 50 of this report.
Financial instruments
Detailed information on the Fund's risk management
process and policy can be found in the risk
management report on page 32 of this report.
Information on the Fund's use of derivatives can be
found in note 22 of the financial report on page 65 of
this report.
Management and administration
The Fund is managed by IPML which is a wholly owned subsidiary
of IAPHPL. IPML provides fund management services and
property management services to the Fund under the terms of
a management agreement. IPML has in turn outsourced certain
of the property management services to property management
companies, namely Knight Frank Australia Pty Ltd, MaxiServ
Pty Limited, Norwest Commercial and Industrial Real Estate Pty
Limited, Honeywell Limited, Kiwi Property, Abacus Property Group
and MMJ Real Estate.
Environmental regulation
The Fund's operations are not subject to any significant
environmental regulation under Commonwealth, State or
Territory legislation.
Events subsequent to reporting date
During the year the Fund received unitholder approval to pursue
an ASX listing and associated capital raising. A product disclosure
statement dated on or around the same date as this report will be
issued in relation to ASX listing and associated capital raise.
There is no other item, transaction or event of a material and
unusual nature likely, in the opinion of IPL, to affect significantly the
operations of the Fund, the results of these operations, or the state
of affairs of the Fund, in future financial years.
Indemnities and insurance premiums for officers or auditors
Indemnification
Under the Fund's constitution IPL, including its officers and
employees, is indemnified out of the Fund's assets for any loss,
damage, expense or other liability incurred by it in properly
performing or exercising any of its powers, duties or fights in
relation to the Fund.
The Fund has not indemnified any auditor of the Fund.
Insurance premiums
No insurance premiums are paid out of the Fund's assets in
relation to insurance cover for IPL, its officers and employees or the
auditors of the Fund.
Rounding off
The Fund is of a kind referred to in ASIC Class Order 2016/191
dated 24 March 2016 and in accordance with that ASIC Class
Order, amounts in the financial report and directors' report have
been rounded off to the nearest thousand dollars, unless otherwise
stated.
This report is made with a resolution of the directors of IPL.
RA Longes GA Katz
Sydney Sydney
3 May 2019 3 May 2019
INDEPENDENT AUDITOR'S REPORT TO THE
UNITHOLDERS OF INVESTEC AUSTRALIA PROPERTY FUND
Report on the audit of the consolidated financial statements
Opinion
We have audited the consolidated financial statements of Investec
Australia Property Fund (the Group) set out on pages 42 to 72,
which comprise the consolidated statement of financial position as at
31 March 2019, and the consolidated statement of profit or loss and
other comprehensive income, the consolidated statement of changes
in equity and the consolidated statement of cash flows for the year
then ended, segmental analysis and notes to the financial statements,
including a summary of significant accounting policies.
In our opinion, the consolidated financial statements present fairly, in
all material respects, the consolidated financial position of Investec
Australia Property Fund as at 31 March 2019, and its consolidated
financial performance and consolidated cash flows for the year then
ended in accordance with International Financial Reporting Standards.
Basis for opinion
We conducted our audit in accordance with International Standards
on Auditing (ISAs). Our responsibilities under those standards are
further described in the Auditor's Responsibilities for the Audit of
the Consolidated Financial Statements section of our report. We
are independent of the Group in accordance with the Independent
Regulatory Board for Auditors Code of Professional Conduct for
Registered Auditors (IRBA Code) and other independence requirements
applicable to performing audits of financial statements in South Africa.
We have fulfilled our other ethical responsibilities in accordance with
the IRBA Code and in accordance with other ethical requirements
applicable to performing audits in South Africa. The IRBA Code
is consistent with the International Ethics Standards Board for
Accountants Code of Ethics for Professional Accountants (Parts A and
B). We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the consolidated
financial statements of the current period. These matters were
addressed in the context of our audit of the consolidated financial
statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
The key audit matter
Valuation of investment property
Refer to accounting policy note 1.10 and notes 10 and 22.3 of the
financial statements
The Group has investment property amounting to AUD1 063 million
included in the Consolidated statement of financial position at year
end, which represented a significant asset for the Group.
Valuation of the investment property is an area of significant
judgement. Independent valuations were obtained in the current
year from external independent valuers.
The fair value calculations are prepared considering the aggregate
of the net annual rent receivable from the properties and, where
relevant, associated costs, using the discounted cash flow (DCF)
method and the income capitalisation method.
Due to the significant judgement applied by the directors, the
involvement of external experts, the significance of the balance and
the work effort from the audit team, the valuation of investment
property was considered a key audit matter.
How the matter was addressed in our audit
Our audit procedures in respect of the external valuations, which
comprise 100% of the valuations in the current year, included the
following:
- For investment property, we selected a sample of properties
which either were new acquisitions, showed significant
valuation movement or were identified through discussions
with management. For the properties selected, we challenged
the key judgements and assumptions included in the external
independent valuers reports by comparing and corroborating
the key assumptions to external market data, individual property
performance, historical trends of the valuations of these properties
and consistency of these based on our knowledge of the market.
- We challenged the key judgements and assumptions included
in the external independent valuers reports by comparing and
corroborating the key assumptions to external market data
and our understanding of the market and individual property
performance;
- We evaluated the competence, independence and experience of
the external independent valuers.
- We evaluated the consistency of the valuation methodology
applied and the appropriateness thereof to the relevant
accounting standards and Group policy.
- We evaluated the appropriateness of the capitalisation rate method
used by the valuers in the context of the current market.
Other information
The directors are responsible for the other information. The other information comprises all information included in the Annual Report. Other
information does not include the consolidated financial statements and our auditor's report thereon.
Our opinion on the consolidated financial statements does not cover the other information and we do not express an audit opinion or any
form of assurance conclusion thereon.
In connection with our audit of the consolidated financial
statements, our responsibility is to read the other information and,
in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our
knowledge obtained in the audit, or otherwise appears to be
materially misstated. If, based on the work we have performed,
we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing
to report in this regard.
Responsibilities of the directors for the consolidated financial
statements
The directors are responsible for the preparation and fair
presentation of the consolidated financial statements in
accordance with International Financial Reporting Standards and
for such internal control as the directors determine is necessary to
enable the preparation of consolidated financial statements that are
free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the directors
are responsible for assessing the Group's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless
the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the consolidated
financial statements
Our objectives are to obtain reasonable assurance about whether
the consolidated financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to
issue an auditor's report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs will always detect
a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these
consolidated financial statements.
As part of an audit in accordance with ISAs, we exercise
professional judgement and maintain professional scepticism
throughout the audit. We also:
- Identify and assess the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks,
and obtain audit evidence that is sufficient and appropriate
to provide a basis for our opinion. The risk of not detecting a
material misstatement resulting from fraud is higher than for
one resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of
internal control.
- Obtain an understanding of internal control relevant to the audit
in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Group's internal control.
- Evaluate the appropriateness of accounting policies used
and the reasonableness of accounting estimates and related
disclosures made by the directors.
- Conclude on the appropriateness of the directors' use of the
going concern basis of accounting and based on the audit
evidence obtained, whether a material uncertainty exists related
to events or conditions that may cast significant doubt on the
Group's ability to continue as a going concern. If we conclude
that a material uncertainty exists, we are required to draw
attention in our auditor's report to the related disclosures in the
consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based
on the audit evidence obtained up to the date of our auditor's
report. However, future events or conditions may cause the
Group to cease to continue as a going concern.
- Evaluate the overall presentation, structure and content of the
consolidated financial statements, including the disclosures,
and whether the consolidated financial statements represent
the underlying transactions and events in a manner that
achieves fair presentation.
- Obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business activities within
the Group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision
and performance of the Group audit. We remain solely
responsible for our audit opinion.
We communicate with the directors regarding, among other
matters, the planned scope and timing of the audit and significant
audit findings, including any significant deficiencies in internal
control that we identify during our audit.
We also provide the directors with a statement that we
have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships
and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with the directors, we determine
those matters that were of most significance in the audit of the
consolidated financial statements of the current period and are
therefore the key audit matters. We describe these matters in our
auditor's report unless law or regulation precludes public disclosure
about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report
because the adverse consequences of doing so would reasonably
be expected to outweigh the public interest benefits of such
communication.
Report on other legal and regulatory requirements
In terms of the IRBA Rule published in Government Gazette
Number 39475 dated 4 December 2015, we report that KPMG
Inc. has been the auditor of Investec Australia Property Fund for
five years.
KPMG Inc.
Per Tracey Middlemiss
Chartered Accountant (SA)
Registered Auditor
Director
3 May 2019
KPMG Crescent
85 Empire Road
Parktown
Johannesburg
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
For the year ended 31 March
AUD'000 Notes 2019 2018
Revenue, excluding straight-line rental revenue adjustment 88 539 75 451
Straight-line rental revenue adjustment 930 2 146
Revenue 2 89 469 77 597
Property expenses 3 (18 226) (13 897)
Net property income 71 243 63 700
Other operating expenses 4 (6 951) (6 177)
Operating profit 64 292 57 523
Fair value adjustments 5 3 184 61 225
Finance costs 6 (14 636) (10 700)
Finance income 7 94 117
Other income 165 40
Total comprehensive income attributable to unitholders 53 099 108 205
Basic and diluted earnings per unit (cents) 9 11.09 24.04
The Notes on pages 55 to 72 are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 March
AUD'000 Notes 2019 2018
Assets
Non-current assets 1 069 211 987 663
Investment property 10 1 062 767 986 696
Financial instruments held at fair value 22 6 444 967
Current assets 14 200 10 976
Cash and cash equivalents 12 7 792 7 218
Trade and other receivables 11 6 408 3 758
Total assets 1 083 411 998 639
EQUITY AND LIABILITIES
Equity 621 477 617 363
Contributed equity 13 515 203 515 203
Retained earnings 106 274 102 160
Non-current liabilities 401 614 350 614
Long-term borrowings 14 375 163 342 431
Trade and other payables 15 5 265 6 187
Financial instruments held at fair value 22 21 186 1 996
Current liabilities 60 320 30 662
Borrowings 14 28 635 -
Trade and other payables 15 6 898 6 335
Distribution payable 8 24 787 24 327
Total equity and liabilities 1 083 411 998 639
Number of units in issue ('000) 478 802 478 802
Net asset value per unit (AUD)* 1.30 1.29
* Net asset value per unit is calculated by dividing net asset by the number of unit in issue.
The Notes on pages 55 to 72 are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Total
For the year ended 31 March 2019 Contributed Retained unitholders'
AUD'000 equity earnings interest
Balance at 1 April 2017 466 879 38 789 505 668
Total comprehensive income attributable to unitholders - 108 205 108 205
Issue of ordinary units 51 540 -- 51 540
Distributions paid/payable to ordinary unitholders (3 216) (44 834) (48 050)
Balance at 31 March 2018 515 203 102 160 617 363
Total comprehensive income attributable to unitholders 53 099 53 099
Issue of ordinary units - -
Distributions paid/payable to ordinary unitholders (48 985) (48 985)
Balance at 31 March 2019 515 203 106 274 621 477
The adjustment made to retained earnings on the impact of applying IFRS 9 and IFRS 15 is NIL
The Notes on pages 55 to 72 are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 March
AUD'000 Notes 2019 2018
Cash flows from operating activities
Rental income received 87 349 73 395
Property expenses (17 241) (14 166)
Fund expenses (9 836) (6 177)
Security deposits received/(refunded) 763 (798)
Cash generated from operations 61 035 52 254
Finance income received 95 117
Finance costs paid (15 064) (10 443)
Distribution paid to unitholders (48 186) (45 179)
Net cash (used in)/from operating activities 16 (2 120) (3 251)
Cash flows from/(used in) investing activities
Investment property acquired (54 394) (134 920)
Acquisition costs and capital expenditure (4 706) (4 379)
Net cash outflow used in investing activities (59 100) (139 299)
Cash flows from financing activities
Borrowings raised 78 294 109 313
Repayment of loans (16 500) (15 200)
Proceeds from issue of units - 52 054
Payment related to capital raising - (515)
Net cash inflow from financing activities 61 794 145 652
Net increase in cash and cash equivalents 574 3 103
Cash and cash equivalents at beginning of the period 7 218 4 116
Cash and cash equivalents at end of the period 12 7 792 7 218
The Notes on pages 55 to 72 are an integral part of these consolidated financial statements.
SEGMENTAL ANALYSIS
The Fund has determined the reportable
segments to be on two separate segments,
as follows:
1. The Fund's investment properties
are made up of office and industrial
assets. This is the first segment basis
determined to be relevant to report
and is consistent with the sectoral
spread disclosure of the portfolio in
the Fund's property landscape (refer
to Section 1 of the annual report
- Overview of Investec Australia
Property Fund).
2. The Fund's investment properties
are geographically spread over the
states of Australia and New Zealand.
This is the second segment basis
determined to be relevant to report
and is consistent with the geographical
spread disclosure of the portfolio in
the Fund's property landscape (refer
to Section 1 of the annual report
- Overview of Investec Australia
Property Fund).
For the year ended 31 March 2019
AUD'000 Office Industrial Total
Statement of profit or loss and other comprehensive income 2019
Revenue from external customers, excluding straight-line rental revenue adjustment 67 680 20 859 88 539
Straight-line rental revenue adjustment 295 635 930
Revenue 67 975 21 494 89 469
Property expenses (15 698) (2 528) (18 226)
Net property income 52 277 18 966 71 243
Statement of financial position extracts at 31 March 2019
Investment property balance 1 April 2018 770 922 215 774 986 696
Acquisitions 29 750 19 450 49 200
Foreign currency revaluation on property 2 515 - 2 515
Acquisition costs and capital expenditure 7 004 1 186 8 190
Straight-line rental revenue receivable 375 635 1 010
Fair value adjustments 12 301 2 855 15 156
Investment property at 31 March 2019 822 867 239 900 1 062 767
Other assets not managed on a segmental basis 20 644
Total assets as at 31 March 2019 1 083 411
Austra-
New lian
For the year ended 31 March 2019 Queens- South Western South Capital New
AUD'000 Victoria land Australia Australia Wales Territory Zealand Total
Statement of profit or loss and
other comprehensive income 2019
Revenue from external customers,
excluding straight-line rental revenue
adjustment 14 306 17 952 1 034 2 566 33 807 7 094 11 780 88 539
Straight-line rental revenue adjustment 21 307 (26) 221 704 (47) (250) 930
Revenue 14 327 18 259 1 008 2 787 34 511 7 047 11 530 89 469
Property expenses (2 491) (3 649) (70) (335) (6 916) (1 061) (3 704) (18 226)
Net property income 11 836 14 610 938 2 452 27 595 5 986 7 826 71 243
Statement of financial position extracts at 31 March 2019
Investment property balance
1 April 2018 167 700 203 150 9 401 29 000 388 351 69 623 119 471 986 696
Acquisitions 19 450 - - - - 29 750 - 49 200
Acquisition costs and capital
expenditure 1 554 908 10 17 3 922 1 520 259 8 190
Foreign currency revaluation on
property - - - - - - 2 515 2 515
Straight-line rental revenue receivable 21 307 (26) 221 704 (47) (170) 1 010
Fair value adjustments 12 775 2 485 (134) 262 (1 126) 52 842 15 156
Investment property at
31 March 2019 201 500 206 850 9 251 29 500 391 851 100 898 122 917 1 062 767
Other assets not managed on a
segmental basis 20 644
Total assets as at 31 March 2019 1 083 411
For the year ended 31 March 2018
AUD'000 Office Industrial Total
Statement of profit or loss and other comprehensive income 2018
Revenue from external customers, excluding straight-line rental revenue adjustment 57 453 17 998 75 451
Straight-line rental revenue adjustment 2 279 (133) 2 146
Revenue 59 732 17 865 77 597
Property expenses (11 814) (2 083) (13 897)
Net property income 47 918 15 782 63 700
Statement of financial position extracts at 31 March 2018
Investment property balance 1 April 2017 597 151 182 199 779 350
Acquisitions 112 137 22 000 134 137
Foreign currency revaluation on purchase 3 745 - 3 745
Acquisition costs and capital expenditure 4 420 1 629 6 049
Straight-line rental revenue receivable 2 279 (133) 2 146
Fair value adjustments 51 190 10 079 61 269
Investment property at 31 March 2018 770 922 215 774 986 696
Other assets not managed on a segmental basis 11 943
Total assets as at 31 March 2018 998 639
Austra-
New lian
For the year ended 31 March 2018 Queens- South Western South Capital New
AUD'000 Victoria land Australia Australia Wales Territory Zealand Total
Statement of profit or loss and
other comprehensive income 2016
Revenue from external customers,
excluding straight-line rental revenue
adjustment 11 741 17 580 996 2 398 32 519 6 708 3 509 75 451
Straight-line rental revenue adjustment 51 702 8 286 1 162 (219) 156 2 146
Revenue 11 792 18 282 1 004 2 684 33 681 6 489 3 665 77 597
Property expenses (2 140) (3 674) (66) (264) (5 818) (975) (960) (13 897)
Segment results 9 652 14 608 938 2 420 27 863 5 514 2 705 63 700
Statement of financial position extracts at 31 March 2018
Investment property balance
1 April 2017 128 500 195 150 9 601 27 300 349 501 69 298 - 779 350
Acquisitions 22 000 - - - - - 112 137 134 137
Foreign currency revaluation on
purchase - - - - - - 3 745 3 745
Acquisition costs and capital
expenditure 2 527 2 116 - 44 1 047 - 315 6 049
Straight-line rental revenue receivable 51 702 8 286 1 162 (219) 156 2 146
Fair value adjustments 14 622 5 182 (208) 1 370 36 641 544 3 118 61 269
Investment property at
31 March 2018 167 700 203 150 9 401 29 000 388 351 69 623 119 471 986 696
Other assets not managed on a
segmental basis 11 943
Total assets as at 31 March 2018 998 639
The Notes on pages 55 to 72 are an integral part of these consolidated financial statements.
NOTES TO THE FINANCIAL STATEMENTS
Corporate information
The financial report of IAPF for the year ended 31 March 2019 was
authorised for issue in accordance with a resolution of the directors
of IPL (the RE) on 3 May 2019.
IAPF is domiciled in Australia. IPL is incorporated and domiciled in
Australia.
The nature of the operations and principal activities of IAPF are
described in the Director's Report.
The registered office of IPL is located at:
Level 23
The Chifley Tower
2 Chifley Square
Sydney NSW 2000
Australia
Reporting entity
IAPF is an Australian registered managed investment scheme
under the Act. IAPF is a for profit entity. The consolidated financial
statements of the Fund as at and for the year ended 31 March
2019 comprise the Fund and its subsidiaries (together referred to
as 'the Group').
Working capital management
The Fund utilises its monthly cash flows to pay down its debt
facility whilst maintaining the facility limit. The Fund will draw this
cash back from the debt facility in order to pay its final distribution
and special distribution in May 2019. This results in the most
efficient use of the Fund's strong cash flows. The current undrawn
facility limit is AUD 26.3mn and the Fund has the ability to draw on
this unconditionally.
Going concern
The Fund is in a net current liability position of AUD 46mn as at
31 March 2019. The net current liability position is principally due
to the final distribution declared and borrowings which are due for
repayment on 12 March 2020. It is anticipated that these will be
paid from proceeds from the capital raising outlined in Note 21
and Section 1 of this report. Under an alternative proposal, the
Fund will extend the term of the current borrowings. Management
has prepared two separate cashflow forecasts, based on these
two scenarios, which reflect that the Fund will be able to meet its
commitments as they become due. Management has therefore
prepared the financial statements on a going concern basis.
1. Accounting policies
1.1 Basis of preparation
1.1.1 Statement of compliance
The annual financial statements are prepared in
accordance with and compliance with International
Financial Reporting Standards and the SAICA Financial
Reporting Guides as issued by the Accounting Practices
Committee and Financial pronouncements as issued by
Financial Reporting Standards Council.
1.1.2 Basis of measurement
The consolidated financial statements have been prepared
on the historical cost basis except for the following material
items in the statement of financial position:
- derivative financial instruments are me assured at fair
value; and
- investment property is measured at fair value.
The financial statements are prepared on the going
concern basis and the accounting policies set out below
have been applied consistently by the Fund.
1.1.3 Functional and presentation currency
These consolidated financial statements are presented in
AUD, which is IAPF's functional currency.
IAPF is of a kind referred to in ASIC Class Order 2016/191
dated 24 March 2016 and in accordance with that
ASIC Class Order, all financial information presented in
AUD has been rounded to the nearest thousand unless
otherwise stated.
1.1.4 Use of estimates and judgements
The preparation of the consolidated financial statements
in conformity with IFRS requires the board to make
judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets
and liabilities, income and expenses. The estimates
and associated assumptions are based on historical
experience and various other factors that are believed to
be reasonable under the circumstances, the results of
which form the basis of making judgements about carrying
values of assets and liabilities that are not readily apparent
from other sources. 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 the period
of the revision and future periods if the revision affects both
current and future periods.
The key area in which estimates are applied relates to
the valuation of investment properties. Refer to note 10
for information on best estimates used in the valuation of
investment properties.
1.2 Basis of consolidation
1.2.1 Controlled entities
The group controls an entity when it is exposed to, or has
rights to, variable returns from its involvement with the
entity and has the ability to affect those returns through
its power over the entity. The financial statements of
controlled entities are included in the consolidated financial
statements from the date on which control commences
until the date on which control ceases.
All subsidiaries are 100% owned trusts and controlled by
the group with no restrictions.
1.2.2 Transactions eliminated on consolidation
Intra-group balances and transactions, and any
unrealised income and expenses arising from intra-group
transactions, are eliminated.
1.3 Segmental reporting
Determination and presentation of operating segments
The Group has the following operating segments:
- office properties; and
- industrial properties.
The above segments are derived from the way the
business of the Group is structured, managed and
reported to the chief operating decision-makers. The
Group manages its business in the office and industrial
property sectors where resources are specifically allocated
to each sector in achieving the Group's stated objectives.
Segment results include revenue and expenses directly
attributable to a segment and the relevant portion of
enterprise revenue and expenses that can be allocated
on a reasonable basis to a segment. Segment assets
and liabilities comprise those assets and liabilities that are
directly attributable to the segment on a reasonable basis.
Segment capital expenditure is the total cost incurred
during the period on investment property in each segment.
1.4 Revenue recognition
Revenue consists of rental income measured at the fair
value of consideration received or receivable.
Revenue is recognised when it can be reliably measured
and it is probable that the economic benefits will flow to
the Group.
Revenue from investment property in terms of leases
comprises gross rental income and recoveries of operating
costs, net of GST. Rental income is recognised in profit
or loss on a straight-line basis over the term of the rental
agreement where the revenue under the lease terms is
fixed and determinable. For leases where revenue is
determined with reference to market reviews, inflationary
measures or other variables, revenue is not straight-
lined and is recognised in accordance with lease terms
applicable for the period.
The Group recovers the costs associated with general
building and tenancy operation from lessees in accordance
with lease agreements. These are invoiced monthly based
on an annual estimates basis. The consideration is due
30 days from the invoiced date. Recoverable outgoings
revenue is recognised over time, based on the annual
estimates, with the estimates reconciled at least annually.
1.5 Lease incentives and commissions
Any lease incentives provided to a tenant under the
terms of a lease such as fit-outs or rent free periods are
recognised as an expense or reduction in revenue on a
straight-line basis over the term of the lease.
Leasing commissions paid to agents on signing of lease
agreements are recognised as an expense on a straight-
line basis over the term of the lease.
1.6 Finance income
Finance income includes:
- interest earned on cash invested with financial
institutions which are recognised in the profit or loss on
an accrual basis using the effective interest method.
1.7 Finance costs
Finance costs include:
- interest expense and other borrowing costs which are
recognised in the profit or loss on an accrual basis
using the effective interest method; and
- net gain and losses on financial instruments measured
at fair value through profit or loss.
1.8 Earnings per unit
Basic earnings per unit is determined by dividing the profit
or loss of the group by the weighted average number of
units outstanding during the financial year.
There are no instruments in issue that could potentially
result in a dilution in earnings per unit in the future.
Headline earnings is profit for the period adjusted for
certain remeasurements such as investment property
fair value adjustments. As required by the JSE Listings
Requirements headline earnings per unit is calculated
using Circular 4/2018.
1.9 Financial instruments
The Fund recognises financial instruments when it
becomes party to the contractual provisions of the
instrument.
Financial instruments are initially recognised at their fair
value plus, for financial assets or financial liabilities not
at fair value through profit or loss, transaction costs that
are directly attributable to the acquisition or issue of the
financial assets or financial liabilities. All other transaction
costs are recognised in profit or loss immediately.
Any gains or losses on these instruments arising from
fair value adjustments, where appropriate, do not affect
distributable earnings.
The Fund derecognises a financial asset when the
contractual rights to the cash flows from the asset expire,
or it transfers the rights to receive the contractual cash
flows on the financial asset in a transaction in which
substantially all the risks and rewards of ownership of the
financial asset are transferred. Any interest in transferred
financial assets that is created or retained by the Fund
is recognised as a separate asset or liability. The Fund
derecognises a financial liability when its contractual
obligations are discharged, cancelled or expired.
1.9.1 Trade and other receivables
Trade and other receivables are subsequently measured at
amortised cost using the effective interest method, less any
allowance under the expected credit loss ("ECL") model.
At each reporting period, the Group assesses whether
financial assets carried at amortised cost are credit-
impaired. A financial asset is credit-impaired when one
or more events that has a detrimental impact on the
estimated future cash flows of the financial asset have
occurred.
The Group recognises loss allowances at an amount
equal to lifetime ECL on trade and other receivables.
Loss allowances for financial assets measured
at amortised cost are deducted from the gross carrying
amount of the assets.
Lifetime ECLs are the ECLs that result from all possible
default events over the expected life of the trade
receivables and are a probability-weighted estimate of
credit losses. Credit losses are measured as the difference
between cash flows due to the Group in accordance with
the contract and the cash flows that the Group expects
to receive. The Group analyses the age of outstanding
receivable balances and applies historical default
percentages adjusted for other current observable data as
a means to estimate lifetime ECL, including:
- significant financial difficulty of a tenant; or
- default or delinquency by a tenant.
Debts that are known to be uncollectable are written off
when identified.
1.9.2 Cash and cash equivalents
Cash and cash equivalents comprise cash balances and
call deposits. Cash equivalents are short-term, highly
liquid investments that are readily convertible to known
amounts of cash and which are subject to an insignificant
risk of change in fair value. Cash and cash equivalents are
subsequently measured at amortised cost.
1.9.3 Trade and other payables
Trade and other payables are subsequently measured
at amortised cost using the effective interest method.
Any gains or losses on derecognition of trade and other
payables are recognised in profit or loss.
1.9.4 Derivative financial instruments
The Group utilises derivative financial instruments to hedge
its exposure to interest rate risk arising from its financing
activities. The Fund does not hold or issue derivative
financial instruments for trading purposes. Derivatives are
not designated as hedges for accounting purposes and
are accounted for at fair value. After initial recognition, all
derivative instruments are subsequently recorded in the
statement of financial position at fair value, with gains and
losses recognised in profit or loss.
1.9.5 Borrowings
Long-term borrowings are subsequently measured
at amortised cost using the effective interest method.
Borrowings are classified as non-current unless they are
repayable within 12 months.
1.10 Investment property
Properties held by the Group which are held for rental
income are classified as investment properties. Investment
properties are initially recognised at cost including
transaction costs. Investment properties are subsequently
measured at fair value, with fair value gains and losses
recognised in profit or loss. Investment property consists
of land and buildings, installed equipment that is an
integral part of the building and land held to earn rental
income. The fair value of investment property also includes
components relating to lease incentives and straight-line
rental receivables. Costs incurred subsequent to initial
acquisition are capitalised when it is probable that future
economic benefits will flow to the Group those costs can
be reliably measured.
A property interest under an operating lease is classified
and accounted for as an investment property when it is
held to earn rental income. Any such property interest
under an operating lease classified as investment property
is carried at fair value.
Should any properties no longer meet the Group's
investment criteria and are sold, any profits or losses will
be recognised in profit or loss.
Investment property is maintained, upgraded and
refurbished where necessary, in order to preserve or
improve the capital value as far as it is possible to do so.
Maintenance and repairs which neither materially add to
the value of the properties nor prolong their useful lives are
recognised in profit or loss as an expense.
Independent valuations are obtained on a rotational basis,
ensuring that every property is valued at least once every
24 months by an external independent valuer.
The directors value the remaining properties that have not
been independently valued annually on an open market
basis. Directors' valuations are prepared by considering
the aggregate of the net annual rental receivable from the
properties and where relevant, associated costs, using
the discounted cash flow method and the capitalisation
method. The directors are confident that their valuations
accurately represent the fair value.
Gains or losses on subsequent measurement or disposals
of investment properties are recognised in profit or loss.
Such gains or losses are excluded from the calculation and
determination of distributable earnings.
1.11 Rental agreements
A finance lease is a lease that transfers substantially all of
the risks and rewards incidental to ownership of an asset.
An operating lease is a lease other than a financial lease.
The Group is party to numerous rental agreements in the
capacity as lessor of the investment properties. All rental
agreements are operating leases.
Where classified as operating leases, rentals payable/
receivable are charged/credited in the profit or loss on a
straight-line basis over the lease term. Contingent rentals
(if any) are accrued to the statement of profit or loss and
other comprehensive income when incurred.
Initial direct costs incurred in negotiating and arranging an
operating lease are recognised in profit or loss over the
term of the lease.
1.12 Provisions, contingent liabilities and contingent
assets
Provisions are liabilities of uncertain timing or amount,
and are recognised as soon as the Fund has a legal or
constructive obligation which will lead to an outflow of
economic resources to settle the obligation as a result
of a past event and a reliable estimate can be made of
the amount of the obligation. Contingent assets and
contingent liabilities are not recognised.
Provisions are measured by at the best estimate of
expenditure to settle the present obligation.
1.13 Taxation
Under current income tax legislation, the Fund (as a
REIT, which is a flow-through structure) is not subject to
Australian income tax on any of the net income derived by
the Fund, provided that its activities are limited to deriving
rental income from real property directly or indirectly held
by the Fund and deriving gains from sale of real property
held for rental purposes; and it fully distributes its net
income (subject to amounts permitted to be retained)
to investors year-on-year during or within three months
after the relevant income year.
Furthermore, the Fund and management arrangements
are structured to meet the required criteria to be classified
as an Attribution Managed Investment Trust for Australian
tax purposes. As an Attribution Managed Investment Trust,
the Fund will be required to withhold tax in Australia at a
concessional rate of 15% on distributions to individual and
institutional investors in South Africa (including distributions
of capital gains) to the extent that it is not a 'tax deferred
distribution', a distribution of interest income or non-
Australian sourced income.
A 'tax deferred distribution' is the excess of cash
distributed over the investors' proportionate share of the
Australian taxable income of the Fund.
As an Attribution Managed Investment Trust IPL as RE
of the Fund will be required to withhold tax in Australia
at 10% on Australian sourced interest income and 15%
on other Australian sourced income to investors in South
Africa.
The New Zealand sourced income is subject to the
corporate tax rate in New Zealand of 28%, and is not
subject to Australian withholding tax.
1.14 Unit capital
1.14.1 Ordinary unit capital
Units are classified as equity when the units are
redeemable only at IPL's option, and any distributions
are discretionary. The issued unit capital represents the
amount of consideration received for units issued by IAPF.
Transaction costs of an equity transaction are accounted
for as a deduction from equity. All units are fully paid. The
unitholders are entitled to receive distributions as declared
from time-to-time and are entitled to one vote per unit at
the annual general meeting of IAPF. All units rank equally
with regard to IAPF's residual assets.
1.15 New accounting standards adopted by the
Group
The Group applied the following accounting standards
amendments that became mandatory for the first time
during the reporting period:
IFRS 9
accounting standards adopted by the Group
IFRS 9 sets out requirements for recognising and
measuring financial assets, financial liabilities and some
contracts to buy or sell non-financial items. This standard
replaces IFRS 139 Financial Instruments: Recognition and
Measurement.
(a Classification - Financial assets and financial liabilities
IFRS 9 contains a new classification and measurement
approach for financial assets that reflects the business
model in which assets are managed and their cash
flow characteristics. IFRS 9 contains three principal
classification categories for financial assets: measured at
amortised cost, fair value through other comprehensive
income (FVOCI) and fair value through profit and loss
(FVTPL). The standard eliminates the existing IFRS 139
categories of held to maturity, loans and receivables and
available for sale. Loans and receivables are classified
and measured at amortised cost. The Group holds these
assets in order to collect contractual cash flows, and the
contractual terms are solely payments of outstanding
principal and interest on the principal outstanding.
The standard requires all financial liabilities to be
subsequently classified at amortised cost, except in
certain circumstances, of which none apply to the Group.
Accordingly, there is no change in the classification of the
Group's payables and borrowings on adoption of IFRS 9.
IFRS 15
IFRS 15 applies to all contracts with customers to deliver
goods or services as part of the entity's ordinary course
of business excluding insurance contracts, financial
instruments and leases, which are addressed by other
standards. It replaces existing revenue recognition
guidance, including IFRS 18 Revenue and IAS 11
Construction Contracts and contains a single model that
applies to contracts with customers and two approaches
to recognising revenue: at a point in time or over time.
The model features a contract-based give-step analysis of
transactions to determine whether, how much and when
revenue is recognised.
(a) Classification and measurement of revenue
Revenue is recognised over time if:
- The customer simultaneously receives and consumes
the benefits as the entity performs;
- The customer controls the asset as the entity creates
or enhances it; or
- The seller's performance does not create an asset for
which the seller has an alternative use and there is a
right to payment for the performance to date.
Where the above criteria are not met, revenue is
recognised at a point in time.
In the notes to the financial statements, the Group has
disaggregated income for the current and comparative
financial period to disclose recoveries revenue. Based on
the Group's assessment of when performance obligations
are satisfied, there is no change in the timing of revenue
recognition when comparing to the previous accounting
policy, other than the change in terminology. Under IFRS
15, recoveries revenue will be recognised over time.
(b) Transition
Changes in the accounting policies resulting from the
adoption of IFRS 15 have been applied retrospectively.
There has been no impact on the Group's previously
reported financial position as a result of the adoption of
IFRS 15.
1.16 Accounting standards applicable to the Group
not yet effective
This standard introduces a single, on-balance sheet
accounting model for leases and is effective for annual
reporting periods on or after 1 January 2019. A lessee
recognises a right-of-use asset representing its obligation
to make lease payments.
Lessor accounting remains similar to the current standard
- i.e. lessors continue to classify leases as finance or
operating leases. At the Group operations involve leasing
of investment properties, as a lessor, it is expected that the
changes will have minimal impact to the Group.
1.17 Changes in accounting policy
The Group has consistently applied the accounting
policies set out in note 1 to all periods presented in these
consolidated financial statements.
There is no new standards and amendments to standards,
including any consequential amendments to other
standards has been adopted by the Group.
For the period ended 31 March
AUD'000 2019 2018
2. Revenue
Contracted rental income 77 474 65 665
Recoverable outgoings 11 065 9 786
Revenue, excluding straight-line rental revenue adjustment 88 539 75 451
Straight-line rental revenue adjustment 930 2 146
89 469 77 597
For the period ended 31 March
AUD'000 2019 2018
3. Property expenses
Statutory expenses (5 876) (3 405)
Electricity (1 694) (1 771)
Insurance (1 142) (549)
Cleaning (1 264) (1 005)
Building management (2 277) (1 979)
Repairs and maintenance (1 019) (733)
Amortisation of fitout expenses (957) (922)
Tenant rechargeable expenditure (724) (815)
Air-conditioning (814) (626)
Fire protection (432) (401)
Lift and escalators (444) (358)
Leasing fee (330) (345)
Other property expenses (1 253) (988)
(18 226) (13 897)
For the period ended 31 March
AUD'000 2019 2018
4. Other operating expenses
Asset management fee (5 761) (5 120)
Fund operating costs
Auditors' remuneration* (331) (303)
Audit fee (203) (210)
Tax compliance fees (128) (93)
Directors' fees (101) (101)
Legal and consulting fees (244) (180)
Other fund expenses (514) (473)
(6 951) (6 177)
* All audit and tax services were provided by KPMG.
For the period ended 31 March
AUD'000 2019 2018
5. Fair value adjustments
Fair value adjustments - investment property 15 178 61 269
Fair value adjustments - interest rate swaps (13 714) (2 305)
Fair value adjustments - foreign currency revaluation 1 720 2 261
Total fair value adjustment 3 184 61 225
For the period ended 31 March
AUD'000 2019 2018
6. Finance costs
Interest paid on borrowings (14 636) 10 700)
Total finance costs (14 636) 10 700)
Refer to note 14 for details on borrowings
For the period ended 31 March
AUD'000 2019 2018
7. Finance income
Interest received from banks 94 117
Total finance income 94 117
For the period ended 31 March
AUD'000 2019 2018
8. Distribution per unit
Profit for the period 53 099 108 205
Less: Straight-line rental revenue adjustment (930) (2 146)
Fair value adjustments (3 184) 61 225)
Antecedent distribution - 3 216
Distributable earnings 48 985 48 050
Reconciliation of distribution per unit
Final distribution for the year to 31 March
Distributable earnings 48 985 48 050
Less: interim distribution paid 24 198 23 723
Final distribution (pre withholding tax) 24 787 24 327
Withholding tax paid/payable to the Australian Taxation Office (2 036) (1 705)
Income tax paid/payable to the New Zealand Inland Revenue Office - (366)
Final distribution (post withholding tax) 22 751 22 256
Units in issue at 31 March ('000) 478 802 478 802
Final distribution per unit (cents) (pre withholding tax) 5.18 5.08
Interim distribution per unit (cents) (pre withholding tax) 5.05 4.95
Total distribution per unit (cents) (pre withholding tax) 10.23 10.03
Final distribution per unit (cents) (post withholding tax) 4.75 4.65
Interim distribution per unit (cents) (post withholding tax) 4.65 4.64
Total distribution per unit (cents) (post withholding tax) 9.40 9.29
Withholding tax
The blended withholding tax rate for the total distribution is 8.10834%.
For the period ended 31 March
AUD'000 2019 2018
9. Earnings per unit
Reconciliation of basic earnings to headline earnings
Profit for the period 53 099 108 205
Less: Net fair value adjustment - investment property (15 178) (61 269)
Headline earnings attributable to unitholders 37 921 46 936
Cents Cents
Basic and diluted earnings per unit 11.09 24.04
Basic and diluted headline earnings per unit 7.92 10.43
Units in issue at the end of the year ('000) 478 802 478 802
Weighted average number of units in issue ('000) 478 802 450 084
Reconciliation of weighted average number of units in issue:
Units at the beginning of the year 478 802 435 588
Share buy back ('000) - (2 124)
Rights offer ('000) - 16 620
Headline earnings is profit for the period adjusted for fair value adjustments on investment property. Headline earnings are a
measure of the Fund's earnings based solely on operational activities and in the case of the Fund will exclude fair value adjustments
and profits or losses on sale of properties. As required by the JSE Listings Requirements headline earnings per unit is calculated
using Circular 4/2018.
For the period ended 31 March
AUD'000 2019 2018
10. Investment property
Cost 941 582 881 779
Accumulated fair value adjustment 110 516 95 256
Investment properties 1 052 098 977 035
Straight-line rental revenue receivable 10 669 9 661
Carrying value 1 062 767 986 696
Movement in investment properties
Balance at beginning of year 986 696 779 350
Acquisitions 49 200 134 137
Foreign currency revaluation on property 2 515 3 745
Acquisition costs and capital expenditure 8 190 6 049
Fair value adjustment on revaluation of investment properties 15 156 61 269
Straight-line rental revenue adjustment 1 010 2 146
Carrying value at end of the year 1 062 767 986 696
Property to the value of AUD 1 062.8mn is held as security under the syndicated debt facility currently drawn down to a value
of AUD 405.4 mn.
All of the investment properties located in New South Wales, Victoria, Western Australia, New Zealand, South Australia and
Queensland are held under freehold interests. All of the properties located in the Australian Capital Territory are held under leasehold
interests terminating in 2101. These are classified as operating leases.
Gains and losses recorded in profit or loss for recurring fair value measurements categorised within level 3 of the fair value hierarchy
amount to AUD 15.2 mn and are presented in profit and loss in the line item 'fair value adjustment'.
Refer to Note 22.3 for further disclosure regarding the fair value of investment property.
Consolidated
Latest external valuation carrying value
Property Portfolio
AUD'000 Date Valuation 2019
10. Investment property (continued)
Industrial Portfolio
47 Sawmill Circuit, Hume ACT 30 September 2018 11 400 11 400
57 Sawmill Circuit, Hume ACT 30 September 2018 10 350 10 350
24 Sawmill Circuit, Hume ACT 30 September 2018 9 900 9 900
44 Sawmill Circuit, Hume ACT 30 September 2018 11 300 11 300
2-8 Mirage Road, Direk SA 30 September 2018 9 250 9 250
30-48 Kellar Street, Berrinba QLD 30 September 2018 8 350 8 350
165 Newton Road, Wetherill Park NSW 30 September 2018 23 450 23 450
24 Spit Island Close, Newcastle NSW 30 September 2018 10 000 10 000
67 Calarco Drive, Derrimut VIC 30 September 2018 9 700 9 700
66 Glendenning Road, Glendenning NSW 30 September 2018 25 600 25 900
85 Radius Drive, Larapinta QLD 30 September 2018 18 000 18 000
54 Miguel Road, Bibra Lake WA 30 September 2018 29 500 29 500
24 Rodborough Road, Frenchs Forest NSW 30 September 2018 21 000 21 000
6-8 and 10 Siddons Way, Hallam VIC 30 September 2018 22 350 22 350
36-42 Hydrive Close, Dandenong South VIC 30 September 2018 19 450 19 450
Office Portfolio
449 Punt Road, Cremorne VIC 31 March 2019 57 000 57 000
35-49 Elizabeth Street, Richmond VIC 31 March 2019 93 000 93 000
2404 Logan Road, Eight Mile Plains QLD 30 September 2018 20 000 20 000
186 Reed Street, Greenway ACT 30 September 2018 28 200 28 200
757 Ann Street, Fortitude Valley QLD 30 September 2018 85 000 85 000
21-23 Solent Circuit, Baulkham Hills NSW 30 September 2018 59 000 59 000
266 King Street, Newcastle NSW 30 September 2018 75 000 75 000
113 Wicks Road, Macquarie Park NSW 30 September 2018 26 500 26 500
324 Queen Street, Brisbane QLD 30 September 2018 75 500 75 500
20 Rodborough Road, Frenchs Forest NSW 30 September 2018 61 000 61 000
2 Richardson Place, North Ryde NSW 30 September 2018 90 000 90 000
100 Willis Street, Wellington NZ* 30 September 2018 123 397 122 917
24 Wormald Street, Symonston ACT 8 February 2019 29 750 29 750
Total Investment Properties 1 062 767
* Converted at spot rate of 1.04135 at 31 March 2019.
Refer to property selection and property portfolio disclosed on pages 16 to 20 of this report for further details of investment
properties held.
(A) Valuation basis
The basis of the valuation of investment properties is fair value. The fair values are based on market values, being the price that
would be received to sell an asset in an orderly transaction between market participants at the measurement date.
External valuations were conducted for all of the properties in the portfolio during the year. External valuations were conducted by
Colliers International, Urbis, Savills, Knight Frank, Janes Lang LaSalle, LandMark White and CBRE who are all registered as Certified
Practising Valuers with the Australian Property Institute.
The Fund determines a property's value within a range of reasonable fair value estimates and in making this assessment, considers
information from a variety of sources including:
- Current prices for comparable investment properties;
- Discounted cash flows based on estimates of future cash flows; and
- Capitalised income projections based on estimated net market income, and a capitalisation rate based on market analysis.
The key assumptions used are as follows:
2019 2018
Capitalisation rate 6.59% 6.70%
Discount rate 7.50% 7.62%
Rental growth rate 3.32% 3.18%
The above are weighted average rates based on fair value.
(B) Uncertainty around property valuations
The fair value of investment property has been assessed to reflect market conditions at the end of the reporting period. While
this represents the best estimate of fair value as at the balance sheet date, future changes in key assumptions may mean that if
investment property is sold in the future the prices achieved may be higher or lower than the most recent valuations.
(C) Contractual obligations/capital commitments
At 31 March 2019 there were no significant contractual obligations or capital commitments relating to investment property
(31 March 2018: Nil).
(D) Leasing arrangements
AUD'000 2019 2018
The Fund leases office and industrial properties under operating leases.
Contractual amounts due in terms of operating lease agreements
Less than 1 year 85 224 82 399
Between 1 and 5 years 241 271 240 112
More than 5 years 102 763 79 281
429 258 401 792
Investment property comprises a number of commercial properties and industrial that are leased to third parties. All leases are
subject to with annual rent reviews that are fixed or indexed to consumer prices (CPI). Subsequent renewals are negotiated with the
lessee and historically, the average renewal period is 5 years. No contingent rents are charged.
(E) Direct operating expenses
During the year, all direct operating expenses related to income generating properties.
For the period ended 31 March
AUD'000 2019 2018
11. Trade and other receivables
Prepaid expenses 2 384 2 176
Capitalised incentives 132 212
Sundry debtors 3 892 1 371
6 408 3 758
For the period ended 31 March
AUD'000 2019 2018
12. Cash and cash equivalents
Cash held on call account 7 792 7 218
Total cash and cash equivalents 7 792 7 218
For the period ended 31 March
AUD'000 2019 2018
13. Contributed equity
Issued
On establishment - 22 000 000 fully paid ordinary units; par value $1.00 22 000 22 000
On listing - 112 685 000 fully paid ordinary units; par value $1.00 112 685 112 685
On completion of renounceable rights offer Oct 2014 - 111 896 298 fully paid ordinary units;
par value $1.09 121 501 121 501
On completion of renounceable rights offer Feb 2016 - 59 566 747 fully paid ordinary units;
par value $1.01 59 964 59 964
On completion of renounceable rights offer Mar 2017 - 108 004 819 fully paid ordinary units;
par value $1.33 143 462 143 462
Distribution re-investment plan Nov 2015 - 6 393 331 fully paid ordinary units; par value $1.07 6 815 6 815
Distribution re-investment plan Jun 2016 - 9 818 121 fully paid ordinary units; par value $1.22 12 008 12 008
Distribution re-investment plan Dec 2016 - 5 223 526 fully paid ordinary units; par value $1.36 7 111 7 111
Share buy back - 6 330 842 fully paid ordinary units; par value $1.26 (8 000) (8 000)
On completion unit placement offer Nov 2017 - 49 545 454 fully paid ordinary units;
par value $1.21 60 055 60 055
Fund establishment costs capitalised to contributed equity (7 211) (7 211)
Antecedent distributions paid (15 187) (15 187)
In issue at year end 515 203 515 203
Refer to unitholder analysis included on pages 78 and 79 of this report for further details on unitholders.
For the period ended 31 March Tranche expiry
AUD'000 date Interest rate 2019 2018
14. Borrowings
Loans - secured - bank debt
Westpac Facility - Tranche A - Restructured 10 December 2019 BBSY + 1.275%* - 48 240
Westpac Facility - Tranche B - Restructured 31 March 2020 BBSY + 1.275%* - 45 000
Westpac Facility - Tranche C - Restructured 29 April 2020 BBSY + 1.275%* - 15 000
Westpac Facility - Tranche D - Restructured 20 August 2020 BBSY + 1.275%* - 15 500
Westpac Facility - Tranche E - Restructured 16 October 2020 BBSY + 1.275%* - 28 000
ANZ Facility - Tranche G 30 June 2022 BBSY + 1.3500%* 20 000 20 000
ANZ Facility - Tranche H 01 December 2022 BBSY + 1.3500%* 75 000 75 000
ANZ Facility - Tranche I 07 March 2023 BBSY + 1.4500%* 19 000 21 000
ANZ and Westpac Facility - Tranche J - Restructured 18 October 2022 BBSY + 1.4500%* - 30 000
ANZ and Westpac Facility - Tranche K - Restructured 07 December 2022 BBSY + 1.5000%* - 45 880
Westpac Facility - Tranche M 28 September 2021 BBSY + 1.4500%* 50 000 -
Westpac Facility - Tranche N 28 March 2023 BBSY + 1.5500%* 101 740 -
28 September
ANZ and Westpac Facility - Tranche O 2023 BBSY + 1.6000%* 111 039 -
ANZ Facility - Tranche P 12 March 2020 BBSY + 1.1000%* 28 635 -
Total long-term borrowings - secured 405 414 343 620
Capitalised loan establishment costs (1 616) (1 189)
Total value of interest-bearing borrowings 403 798 342 431
Movement in borrowings
Balance at beginning of year 343 620 249 007
Interest charged 14 636 10 700
Interest paid (14 636) (10 700)
Additional borrowing acquired 61 794 94 613
Closing balance at the end of the year 405 414 343 620
* Varies based on gearing levels.
The Fund's LVR was 38.14% as at 31 March 2019 (31 March 2018: 34.83%).
At 31 March 2019 the approved facility limit of the loan facility was AUD 431.74mn with AUD 26.33mn undrawn.
The Fund's policy is to hedge at least 75% of interest rate risk. At year end, 77.5% of borrowings were hedged using interest rate
swaps, locking in a blended rate (including margin and line fees) of 3.75% for a weighted average 3.6 year term.
For the period ended 31 March
AUD'000 2019 2018
15. Trade and other payables
Security deposits 757 640
Income received in advance 2 389 3 514
Other payables 2 119 2 034
Trade and other payables - non current 5 265 6 187
Accrued expenses 2 228 1 750
Trade creditors 460 554
Income received in advance 2 040 1 080
GST payable 1 551 1 407
Other payables 619 1 544
Trade and other payables - current 6 898 6 335
For the period ended 31 March
AUD'000 2019 2018
16. Reconciliation of cash flows from operating activities
Profit for the period 53 099 108 205
Adjusted for:
Fair value adjustments - investment property (15 178) (61 269)
Fair value adjustments - derivatives 13 714 2 305
Fair value adjustments - foreign currency revaluation (1 720) (2 261)
Straight-line rental revenue adjustment (930) (2 146)
Working capital movement
Change in trade and other receivables (1 935) (1 268)
Change in trade and other payables (984) (1 638)
Distributions paid (48 186) (45 179)
Net cash from operating activities (2 120) (3 251)
17. Related party transactions
Responsible entity (RE)
The RE of the Fund is IPL. IPL is a wholly owned subsidiary of IAPHPL
Manager
The Manager of the Fund is IPML. IPML is a wholly owned subsidiary of IAPHPL. IPML provides fund management services and
property management services to the Fund.
IPL's and IPML's ultimate Australian parent entity is IAPHPL. Its ultimate parent is Investec Plc, incorporated in the United Kingdom.
Investec Plc and Investec Limited and their subsidiary companies together comprise the Investec group of companies (Referred to
as the Investec Group).
From time to time, the Fund enters into transactions or arrangements with Investec Group. These transactions are described below.
These are entered into on normal commercial terms.
Transactions with related parties
For the period ended 31 March
AUD'000 2019 2018
Payments to Investec Group and its subsidiaries:
Investec Property Management Pty Limited - subsidiary
Asset management fee 5 761 5 120
Property management fee* 1 306 1 282
Leasing fee - 494
Investec Bank Limited - parent company
Sponsor fee 24 29
Capital raising fees and listing costs 63 473
Investec Bank plc - parent company
Interest on swaps - 896
Investec Australia Limited - subsidiary
Interest on swaps 828 393
Amounts owing to related parties
Investec Property Management Pty Limited - subsidiary
Asset management fee payable 547 433
* IPML has been contracted to perform property management services. IPML has sub-contracted this to third party property managers who receive
this fee from IPML.
** Asset management fee is billed monthly and payable within 30 days. Outstanding balances with related parties are to be settled within one month
of the reporting date. No security has been given.
Key management personnel (KMP)
IAPF does not employ any personnel in its own right. However it is required to have an incorporated RE to manage its activities.
The RE is considered the KMP of the Fund. Furthermore IPL as RE of the Fund has sub-contracted the management of IAPF to the
Manager which is also considered KMP. The directors of IPL are Richard Longes (Chairperson), Sam Leon, Stephen Koseff, Graeme
Katz, Sally Herman and Hugh Martin. The directors of the Manager are Graeme Katz, Zach McHerron and Kristie Lenton.
KMP compensation
Directors of IPL who are employees or directors of entities within the Investec Group are not remunerated for their services as
directors of IPL. The remuneration of any independent, non-associated and non-executive director appointed to the Board is
limited to the reimbursement of reasonable expenses incurred by such person for purposes of attending Board meetings and the
appropriate director's fees, unless the IPL determines otherwise. In respect of the independent, non-associated and non-executive
directors, fees and expenses are reimbursed out of the Fund.
Individual directors' compensation disclosures
Information regarding individual directors' compensation disclosure is provided in the Directors' Report.
Movements in securities
The movement during the reporting period in the number of ordinary units in IAPF held directly, indirectly or beneficially, by each key
management person, including their related parties, is as follows:
Held at Held at
31 Mar 2018 Purchases Sales 31 Mar 2019
Directors
Sam Leon 4 000 000 - - 4 000 000
Graeme Katz 229 296 - - 229 296
There have been no changes in these holdings since the end of the reporting period.
18. Group entities
The consolidated financial statements incorporate the assets, liabilities and results of the following controlled entities in accordance
with the accounting policy described in Note 1.2.
All subsidiaries are 100% owned trusts and controlled by the group with no restrictions.
IAPF enters into transactions with its wholly owned trusts. These transactions mainly involve the payment of distributions between
trusts and lending of funds between the trusts. Intertrust loans are repayable upon demand, unsecured and non-interest bearing.
Name of entity Country of incorporation Class of units Equity holding
Investec Australia Hold Trust No. 1 Australia Ordinary 100%
Investec Australia Sub Trust No. 1 Australia Ordinary 100%
Investec Australia Sub Trust No. 2 Australia Ordinary 100%
Investec Australia Sub Trust No. 3 Australia Ordinary 100%
Investec Australia Sub Trust No. 4 Australia Ordinary 100%
Investec Australia Sub Trust No. 5 Australia Ordinary 100%
Investec Australia Sub Trust No. 6 Australia Ordinary 100%
Investec Australia Sub Trust No. 7 Australia Ordinary 100%
Investec Australia Sub Trust No. 8 Australia Ordinary 100%
Investec Australia Sub Trust No. 9 Australia Ordinary 100%
Investec Australia Sub Trust No. 10 Australia Ordinary 100%
Investec Australia Sub Trust No. 11 Australia Ordinary 100%
Investec Australia Sub Trust No. 12 Australia Ordinary 100%
Investec Australia Sub Trust No. 13 Australia Ordinary 100%
Investec Australia Sub Trust No. 14 Australia Ordinary 100%
Investec Australia Sub Trust No. 15 Australia Ordinary 100%
Investec Australia Sub Trust No. 16 Australia Ordinary 100%
Investec Australia Sub Trust No. 17 Australia Ordinary 100%
Investec Australia Sub Trust No. 18 Australia Ordinary 100%
Investec Australia Sub Trust No. 19 Australia Ordinary 100%
Investec Australia Sub Trust No. 20 Australia Ordinary 100%
Investec Australia Sub Trust No. 21 Australia Ordinary 100%
For the period ended 31 March
AUD'000 2019 2018
19. Parent entity disclosures
As at, and throughout the period ending 31 March 2019 the parent of the Group was Investec
Australia Property Fund.
Result of parent entity
Profit for the period 54 378 49 660
Total comprehensive income for the period 54 378 49 660
Financial position of parent entity at period end
Current assets 4 415 918
Total assets 596 459 589 516
Current liabilities 6 205 1 485
Total liabilities 77 175 71 009
Net assets 519 284 518 507
Total equity of parent entity comprising of:
Contributed equity 515 203 515 203
Retained earnings 4 081 3 304
Total equity 519 284 518 507
For the period ended 31 March
AUD'000 2019 2018
20. Net asset value
Units in issue at end of year 478 802 478 802
Net asset value per unit (AUD) 1.30 1.29
Net asset value per unit is calculated by dividing the net asset value (being total assets minus total liabilities) by the units in issue at
year end.
21. Subsequent events
During the year the Fund received unitholder approval to pursue an ASX listing and associated capital raising. A product disclosure
statement dated on or around the same date as this report will be issued in relation to ASX listing and associated capital raising.
There is no other item, transaction or event of a material and unusual nature likely, in the opinion of IPL, to affect significantly the
operations of the Fund, the results of those operations, or the state of affairs of the Fund, in future financial years.
Non-
As at 31 March 2019 Measured financial Amortised
AUD'000 at fair value instruments cost Total
22. Financial risk and capital management
22.1 Total financial and non-financial
assets and liabilities
The table below sets out the Fund's accounting classification of
each class of financial and non-financial asset and liability and
their fair values at 31 March 2019
ASSETS
Non-current assets
Investment property - 1 062 767 - 1 062 767
Financial instrument held at fair value 6 444 - - 6 444
Current assets
Cash and cash equivalents - - 7 792 7 792
Trade and other receivables - - 6 408 6 408
Total assets 6 444 1 062 767 14 200 1 083 411
LIABILITIES
Non-current liabilities
Long-term borrowings - - 375 163 375 163
Financial instruments held at fair value 21 186 - - 21 186
Trade and other payables - - 5 265 5 265
Current liabilities
Borrowings - - 28 635 28 635
Trade and other payables - - 6 898 6 898
Unitholders for distributions - - 24 787 24 787
Total liabilities 21 186 - 440 748 461 934
Non-
As at 31 March 2018 Measured financial Amortised
AUD'000 at fair value instruments cost Total
22. Financial risk and capital management
(continued)
22.1 Total financial and non-financial
assets and liabilities (continued)
The table below sets out the Fund's accounting classification of
each class of financial and non-financial asset and liability and
their fair values at 31 March 2018
ASSETS
Non-current assets
Investment property - 986 696 - 986 696
Financial instrument held at fair value 967 - - 967
Current assets
Cash and cash equivalents - - 7 218 7 218
Trade and other receivables - - 3 758 3 758
Total assets 967 986 696 10 976 998 639
LIABILITIES
Non-current liabilities
Long-term borrowings - - 342 431 342 431
Financial instruments held at fair value 1 996 - - 1 996
Trade and other payables - - 6 187 6 187
Current liabilities
Trade and other payables - - 6 335 6 335
Unitholders for distributions - - 24 327 24 327
Total liabilities 1 996 - 379 280 381 276
1. In all cases the amortised cost approximates fair value on the basis that:
- the amortised cost reflects known credit risk; or
- credit risk is not significant and the financial assets and financial liabilities are either short term or subject to market based
variable interest.
22.2 Fair value hierarchy - financial instruments
In the case of financial instruments whose carrying amount is not the same as their fair value. The fair value has been calculated
as follows:
a. The fair value of "long term borrowings at amortised cost" has been estimated by discounting effective interest rate at each
year end.
For financial instruments whose carrying amount is equivalent to their fair value, the measurement processes used are 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 assets and liabilities, either directly
(i.e. as prices) or indirectly (i.e. derived from prices)
Level 3 - inputs for the assets and liabilities that are not based on observable market data (unobservable inputs).
Fair value
Fair value and carrying amount Carrying
AUD'000 amount Level 1 Level 2 Level 3 Total
For the year ended 31 March 2019
Financial assets not measured at fair value
Cash and cash equivalents 7 792 - - - -
Trade and other receivables 6 408 - - - -
14 200 - - - -
Financial assets not measured at fair value
Interest rate swaps 6 444 - 6 444 - 6 444
Financial instruments held at fair value 6 444 - 6 444 - 6 444
Financial liabilities not measured at fair value
Trade and other payables 36 950 - - - -
Long-term borrowings 403 798 - 378 989 - 378 989
440 748 - 378 989 - 378 989
Financial liabilities measured at fair value
Interest rate swaps 21 186 - 21 186 21 186
21 186 - 21 186 - 21 186
For the year ended 31 March 2018
Financial assets not measured at fair value
Cash and cash equivalents 7 218 - - - -
Trade and other receivables 3 758 - - - -
10 976 - - - -
Financial assets not measured at fair value
Interest rate swaps 967 - 967 - 967
967 - 967 - 967
Trade and other payables 36 849
Long-term borrowings 342 431 - 327 983 - 327 983
379 280 - 327 983 - 327 983
Financial liabilities measured at fair value
Interest rate swaps 1 996 - 1 996 - 1 996
1 996 - 1 996 - 1 996
b. Details of changes in valuation techniques
There have been no significant changes in valuation techniques during the year under review.
c. Significant transfers between level 1, level 2 and level 3
There have been no significant transfers between level 1, level 2 and level 3 during the period.
Derivative financial instruments consist of interest rate hedging instruments. Interest rate hedging instruments are valued based on
broker quotes and are tested for reasonableness by discounting future cash flows using an observable market interest rate curve at
the dates when the cash flows will take place.
22.3 Fair value hierarchy - investment property
For all investment property that is measured at fair value, the current use of the property is considered the highest and best use.
Properties are valued under the income capitalisation method and DCF method.
Under the income capitalisation method a property's fair value is estimated based on the normalised net operating income
generated by the property, which is divided by the capitalisation rate.
Under the DCF method a property's fair value is estimated using explicit assumptions about the benefits and liabilities of ownership
over the asset's life including an exit or terminal value. This involves the projection of a series of cash flows and to this an
appropriate, market-derived discount rate is applied to establish the present value of the income stream.
Valuation techniques used to derive level 3 fair values
For all classes of investment property the significant unobservable inputs listed below are used in the income capitalisation method
to determine the fair value measurement at the end of the reporting period.
Significant unobservable inputs Relationship between unobservable inputs and fair value measurement
Net passing rent Increases/(decreases) in net passing rent would increase/(decrease) estimated fair value
Gross market rent Increases/(decreases) in gross market rent would increase/(decrease) estimated fair
value
Net market rent Increases/(decreases) in net market rent would increase/(decrease) estimated fair value
Capitalisation rate Increases/(decreases) in the capitalisation rate would (decrease)/increase estimated fair
value
Discount rate Increases/(decreases) in the discount rate would (decrease)/increase estimated fair value
Terminal yield Increases/(decreases) in the terminal yield would result in (decreases)/increases in the
estimated fair value
The table above includes the following descriptions and definitions relating to key unobservable inputs made in determining
fair value:
Net passing rent The contracted amount for which a property or space within a property is leased at the
time of the valuation. In a net rent, the owner recovers outgoings from the tenant on a
pro rata basis (where applicable).
Gross market rent The gross rent at which space could be let in the market conditions prevailing at the date
of valuation.
Net market rent The net rent at which space could be let in the market conditions prevailing at the date of
valuation. In a net rent, the owner recovers outgoings from the tenant on a pro-rata basis
(where applicable).
Capitalisation rate The rate at which net market income is capitalised to determine the value of a property.
The rate is determined with regards to market evidence.
Discount rate The rate of return used to convert a monetary sum, payable or receivable in the future,
into present value. Theoretically it should reflect the opportunity cost of capital, that is,
the rate of return the capital can earn if put to other uses having similar risk The rate is
determined with regards to market evidence.
Terminal yield The capitalisation rate used to convert income into an indication of the anticipated value
of the property at the end of the holding period when carrying out a discounted cash flow
calculation. The rate is determined with regards to market evidence.
The following significant unobservable inputs have been considered to determine the fair value of measurement at the end of the
reporting year.
a. Expected market rental growth weighted average 3.32%.
b. Void periods average six months after the end of each lease.
c. Void periods average six months after the end of each lease.
d. Weighted average cap rate of 6.59%.
Generally, a change in the assumption made for the capitalisation rate is accompanied by a directionally similar change in the
terminal yield. The capitalisation rate forms part of the income capitalisation approach and the terminal yield forms part of the
DCF approach.
When calculating the income capitalisation approach, the net market rent has a strong interrelationship with the adopted
capitalisation rate given the methodology involves assessing the total net market income receivable from the property and
capitalising this in perpetuity to derive a capital value.
When assessing a DCF, the discount rate and terminal yield have a strong interrelationship in deriving at a fair value given the
discount rate will determine the rate in which the terminal value is discounted to the present value.
Measured at fair value
Total gain or
(loss) in the
For the year ended 31 March 2019 period in
AUD'000 Level 1 Level 2 Level 3 profit or loss
Total assets
Investment property
Office - - 822 867 12 301
Industrial - - 239 900 2 855
Total non-financial assets - - 1 062 767 15 156
Measured at fair value
Total gain or
(loss) in the
For the year ended 31 March 2018 period in
AUD'000 Level 1 Level 2 Level 3 profit or loss
Total assets
Investment property
Office - - 770 922 51 190
Industrial - - 215 774 10 079
Total non-financial assets - - 986 696 61 269
a. Details of changes in valuation techniques
There have been no significant changes in valuation techniques during the year under review.
b. Significant transfers between level 1, level 2 and level 3
There have been no transfers between hierarchy levels.
All gains and losses recorded in profit or loss for recurring fair value measurements categorised within level 3 of the fair value
hierarchy are attributable to changes in unrealised gains or losses relating to investment property held at the end of the
reporting period.
Refer to the reconciliation of investment property provided under note 10 which facilitates full IFRS 13 compliance in combination
with the disclosure in this note.
22.4 Other financial risk management considerations
The financial instruments of the Fund consist mainly of cash and cash equivalents, including deposits with banks, borrowings,
derivative instruments, trade and other receivables and trade and other payables. The Fund purchases or issues financial
instruments in order to finance operations and to manage the interest rate risks that arise from these operations and the source
of funding.
The Fund has exposure to the following risks from its use of financial instruments:
- credit risk
- liquidity risk
- market risk
The Board has overall responsibility for the establishment and oversight of the Fund's risk management framework. The Board has
established the audit and risk committee, which is responsible for developing and monitoring the Fund's risk management policies.
The audit and risk committee reports regularly to the Board on its activities.
The Fund's risk management policies are established to identify and analyse the risks faced by the Fund, to set appropriate risk
limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to
reflect changes in market conditions and the Fund's activities.
The audit and risk committee oversees how management monitors compliance with the Fund's risk management policies and
procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Fund. The audit and
risk committee is assisted in its oversight role by Investec Internal Audit, which undertake both regular and ad hoc reviews of risk
management controls and procedures, the results of which are reported to the audit and risk committee.
22.5 Credit risk
Credit risk is the risk of financial loss to the Fund if a client or counterparty to a financial instrument fails to meet its contractual
obligations, and arises principally from cash and cash equivalents, as well as trade and other receivables. There is no significant
concentration of credit risk as exposure is spread over a large number of counterparties.
a. Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure.
The Fund applies the lifetime ECL model to manage the credit risk of financial assets carried at amortised cost in accordance with
the accounting policy described in Note 1.9.1.
22.6 Market risk
a. Interest rate risk
The Fund is exposed to interest rate risk and adopts a policy of ensuring that at least 75% of its exposure to changes in interest
rates on borrowings is on a fixed basis. This is achieved by entering into variable for fixed rate swap instruments. All such
transactions are carried out within the guidelines set by the audit and risk committee. As a consequence, the Fund is exposed
to fair value interest rate risk in respect of the fair value of its interest rate financial instruments, which will not have an impact on
distributions. Short-term receivables and payables and investments are not directly exposed to interest rate risk.
At 31 March 2019, 77.5% of the Fund's interest rate exposure was hedged. Therefore, for the year ended 31 March 2019, a
1% increase/decrease in interest rates on the variable rate borrowings would have an immaterial impact on the Fund's profit,
assuming all other variables remain constant.
b. Liquidity risk
Liquidity risk is the risk that the Fund will not be able to meet its financial obligations as they fall due. The Fund's policy is to seek to
minimise its exposure to liquidity risk by balancing its exposure to interest rate risk and to refinancing risk. In effect the Fund seeks to
borrow for as long as possible at the lowest acceptable cost. The Fund regularly reviews the maturity profile of its financial liabilities
and will seek to avoid concentration of maturities through the regular replacement of facilities, and by using a selection of maturity
dates.
The tables below set out the maturity analysis of the Fund's financial liabilities based on the undiscounted contractual cash flows.
For the year ended
31 March 2019 Within 1 Over 5 Carrying
AUD'000 year 1 - 2 years 2 - 5 years years Total value
Long-term borrowings(1) 42 144 12 697 398 448 - 453 289 403 798
Trade and other payables 6 898 1 740 893 2 631 12 162 12 162
Distributions payable 24 787 - - - 24 787 24 787
Total liabilities 73 829 14 437 399 341 2 631 490 238 440 747
For the year ended
31 March 2018 Within 1 Over 5 Carrying
AUD'000 year 1 - 2 years 2 - 5 years years Total value
Long-term borrowings(1) 11 103 103 880 264 408 - 379 391 342 431
Trade and other payables 6 335 2 148 1 773 2 266 12 522 12 522
Distributions payable 24 327 - - - 24 327 24 327
Total liabilities 41 765 106 028 266 181 2 266 416 240 379 280
(1) Cash flows in relation to long-term borrowings take into account interest payments and the effect of interest rate swaps.
Cash flows are monitored on a monthly basis to ensure that cash resources are adequate to meet the funding requirements of the
Fund. Subsequent to year end in terms of covenants with its lenders, the nominal value of interest-bearing borrowings may not
exceed 50% of the value of investment property (including investment property reclassified as held for sale):
For the year ended 31 March
AUD'000 2019 2018
Value of investment property 1 062 767 986 696
Carrying value of interest bearing borrowing 405 414 343 620
Current ratio of interest bearing borrowings to value of investment property (%) 38.14 34.83
22.7 Derivatives
Derivative instruments are used to hedge the Fund's exposure to any increases in interest rates on variable rate loans. Interest rate
swap contracts are entered into whereby the Fund hedges out its variable rate obligation to provide a maximum fixed rate obligation.
Details of the interest rate fixed for variable swap instruments are as follows:
Amount Fixed rate
Financial institution AUD'000 Start date End date %
31 March 2019
Investec Bank plc 30 435 25 June 2016 25 February 2024 2.44%
Investec Bank plc 60 870 25 June 2016 25 February 2026 2.57%
Investec Bank plc 30 435 25 June 2016 25 February 2025 2.51%
Investec Bank plc 55 000 01 December 2016 25 December 2023 2.18%
Westpac Banking Corporation 20 000 01 March 2017 01 March 2022 2.35%
Australia and New Zealand Banking Group 25 000 20 October 2017 20 October 2024 2.46%
Australia and New Zealand Banking Group 12 500 20 October 2017 20 October 2025 2.54%
Australia and New Zealand Banking Group 12 500 20 October 2017 20 October 2027 2.68%
Westpac Banking Corporation 67 303 11 December 2017 12 December 2024 2.30%
Westpac Banking Corporation 55 000 14 March 2019 25 December 2023 2.38%
Westpac Banking Corporation 30 435 14 March 2019 25 February 2024 2.41%
Westpac Banking Corporation 30 435 14 March 2019 25 February 2025 2.53%
Westpac Banking Corporation 60 870 14 March 2019 25 February 2026 2.66%
Westpac Banking Corporation 20 000 14 March 2019 01 March 2022 2.00%
Westpac Banking Corporation 12 500 14 March 2019 20 October 2025 2.61%
Westpac Banking Corporation 25 000 14 March 2019 20 October 2024 2.49%
Westpac Banking Corporation 12 500 14 March 2019 20 October 2027 2.81%
22.8 Capital management
In terms of its constitution, the Group's gearing ratio must not exceed 60%. The Fund is funded partly by unit capital and partly by
external borrowings.
In terms of its covenants entered into during the year, the Group is committed to a maximum value of external borrowings of 50% of
the value of investment property and investment assets. In practice, the Group aims to keep gearing levels between 30% and 40%
over the long term. At 31 March 2019, the nominal value of borrowings was equal to 38.1% of the value of investment property.
The Board's policy is to maintain a strong capital base, comprising its unitholders' interest, so as to promote investor, creditor and
market confidence and to sustain future development of the business. It is the Fund's stated purpose to deliver medium to long-
term sustainable growth in distributions per unit. Distributable income is distributed on a six monthly basis. The Board monitors the
level of distributions to unitholders. There were no changes in the Fund's approach to capital management during the year. The Fund
is not subject to externally imposed capital requirements.
DISTRIBUTION ANNOUNCEMENT
Final distribution
Notice is hereby given of a final distribution declaration number 11 of:
- 5.17708 AUD cents per unit pre-WHT
- 4.75180 AUD cents per unit post-WHT
for the six months ended 31 March 2019. Tax of 0.42528 AUD cents or 8.21465% per unit will be withheld from the distribution paid to non-
Australian unitholders.
The salient dates relating to the distribution are as follows:
2019
Exchange rate to convert the distribution to ZAR and announced on SENS(1) by 11h00 Monday, 13 May
Last day to trade cum distribution Tuesday, 21 May
Units to trade ex distribution Wednesday, 22 May
Distribution amount transferred to South Africa Friday, 24 May
Record date Friday, 24 May
Distribution posted/paid to certificated unitholders Monday, 27 May
(1) Exchange rate calculated on Monday, 13 May 2019.
Units may not be dematerialised or rematerialised between commencement of trade Wednesday, 22 May 2019 and close of trade on Friday, 24 May 2019, both
dates inclusive.
This distribution includes a "Fund Payment" amount of 2.87611 AUD cents per unit, pursuant to Subdivision 12-H of Schedule 1 of the
Taxation Administration Act 1953 and relates to the period ending 31 March 2019.
The Fund declares that it is an Attribution Managed Investment Trust for the purposes of 12-H of Schedule 1 of the Taxation Administration
Act 1953, in respect of the income year ended 31 March 2019.
Total distribution
Fund payment (subject to fund payment withholding) 2.87611
Interest income (subject to other non-resident withholding) 0.13138
Foreign income (subject to New Zealand corporate tax) 0.96321
Tax deferred 1.20638
Total cash distribution 5.17708
The above information has been included in the notice solely to assist other entities with Australian withholding tax obligations that may arise
in respect of any amounts distributed to non-Australian residents.
Special distribution
Notice is hereby given of a special distribution declaration number 12 of:
- 1.59380 AUD cents per unit pre-WHT
- 1.45928 AUD cents per unit post-WHT
for the period from 1 April 2019 to 27 May 2019. Tax of 0.13452 AUD cents or 8.43980% per unit will be withheld from the distribution paid
to non-Australian unitholders. The special distribution relates to the period from 1 April 2019 to 27 May 2019 being the period prior to the
proposed ASX listing and allotment of new units under the associated capital raise. For further information on the ASX listing and where to
obtain a product disclosure statement in connection with the capital raising, please see page 88 of this report.
The salient dates relating to the distribution are as follows:
2019
Exchange rate to convert the distribution to ZAR and announced on SENS1 by 11h00 Monday, 13 May
Last day to trade cum distribution Tuesday, 21 May
Units to trade ex distribution Wednesday, 22 May
Distribution amount transferred to South Africa Friday, 24 May
Record date Friday, 24 May
Distribution posted/paid to certificated unitholders Monday, 27 May
(1) Exchange rate calculated on Monday, 13 May 2019
Units may not be dematerialised or rematerialised between commencement of trade Wednesday, 22 May 2019 and close of trade on Friday, 24 May 2019, both
dates inclusive.
This distribution includes a "Fund Payment" amount of 1.08026 AUD cents per unit, pursuant to Subdivision 12-H of Schedule 1 of the
Taxation Administration Act 1953 and relates to the period ending 31 March 2020.
The Fund declares that it is an Attribution Managed Investment Trust for the purposes of 12-H of Schedule 1 of the Taxation Administration
Act 1953, in respect of the income year ended 31 March 2020.
Total distribution
Fund payment (subject to fund payment withholding) 1.08026
Interest income (subject to other non-resident withholding) 0.00000
Foreign income (subject to New Zealand corporate tax) 0.00015
Tax deferred 0.51339
Total cash distribution 1.59380
The above information has been included in the notice solely to assist other entities with Australian withholding tax obligations that may arise
in respect of any amounts distributed to non-Australian residents.
General unitholder tax information
The Fund and its management arrangements are structured to meet the required criteria to be classified as an Attribution Managed
Investment Trust for Australian tax purposes. As an Attribution Managed Investment Trust, IPL as RE of the Fund will be required to withhold
tax on Australian sourced income at a concessional rate of 15% on distributions to individual and institutional unitholders in South Africa.
The New Zealand sourced income is subject to the corporate tax rate in New Zealand of 28%, and is not subject to Australian withholding
tax.
The effect of these taxes on the Fund's distribution for the period from 1 October 2018 to 31 March 2019 has been reduced to 8.21465%,
equivalent to 0.42528 AUD cents per unit, through certain deductions such as depreciation. Thus, tax of 0.42528 AUD cents per unit will be
withheld from the distribution accruing to unitholder and will be paid to the Australian Taxation Office for Australian sourced income and the
New Zealand Inland Revenue Office for New Zealand sourced income.
The effect of these taxes on the Fund's distribution for the period from 1 April 2019 to 27 May 2019 has been reduced to 8.43980%,
equivalent to 0.13452 AUD cents per unit, through certain deductions such as depreciation. Thus, tax of 0.13452 AUD cents per unit will be
withheld from the distribution accruing to unitholder and will be paid to the Australian Taxation Office for Australian sourced income and the
New Zealand Inland Revenue Office for New Zealand sourced income.
South African unitholder tax implications
The distributions are regarded as a foreign distribution for South African unitholders.
The distributions comprise gross income, and are to be taxed as such, in the hands of South African investors. The pre tax distributions
are to be included in an investors' taxable income and subject to normal tax in full. Tax paying unitholders will be able to claim a rebate
equivalent to 8.21465% per unit for the distribution for the period 1 October 2018 to 31 March 2019 and 8.43980% per unit for the
distribution for the period 1 April 2019 to 27 May 2019 against tax paid in Australia and New Zealand. Non-tax paying unitholders will not be
entitled to claim a rebate.
By order of the Board
Investec Property Limited
Company Secretary
3 May 2019
Sponsor
Investec Bank Limited
Date: 03/05/2019 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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