CENTURIA OFFICE REIT - Annual Report 2017

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26 September 2017

Dear Securityholder,

Thank you for your investment in and continued support of Centuria Metropolitan REIT during the 2017 financial year. It is my pleasure to enclose a copy of Centuria Metropolitan REIT’s 2017 annual report for your review.

I’m proud to lead the team of experienced real estate executives who manage the REIT’s portfolio of metropolitan office properties around Australia. It is our privilege and pleasure to serve you, as we continue to actively manage the portfolio and generate value throughout the property cycle.

This year has seen the REIT “come of age“, with key milestones being the merger with Centuria Urban REIT in June 2017 and the subsequent inclusion in Australia’s S&P ASX 300 Index in September 2017.

Furthermore, Australia’s metropolitan real estate markets continue to demonstrate strong fundamentals, with significant government infrastructure works generating increased demand from office occupiers. At the same time, the emergence of high density residential hubs are leading to existing office accommodation being replaced by residential apartments.

These two factors have led to increased tenant demand and a reduction in metropolitan office supply – a situation we believe will persist for a number of years, which should underpin growing and predictable returns to CMA securityholders.

Our portfolio is “fit for purpose”, offering office accommodation that is well suited to businesses located in Australia’s metropolitan markets. We will continue to seek opportunities to improve the quality of the portfolio to ensure Centuria Metropolitan REIT remains as Australia’s leading ASX-listed metropolitan office investment entity.

I hope you enjoy reading Centuria Metropolitan REIT’s 2017 Annual Report and look forward to keeping you updated on our performance as the year progresses.

Yours sincerely,

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Nicholas Blake Trust Manager Centuria Metropolitan REIT

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Centuria Metropolitan REIT Annual Report 2017

Centuria Metropolitan REIT 438-517 KINGSFORD SMITH DRIVE, HAMILTON, QLD Annual Report 2017

60 MARCUS CLARKE STREET, CANBERRA, ACT

About Centuria Metropolitan REIT

Centuria Property Funds Limited (CPFL), a wholly-owned subsidiary of Centuria Capital Group (CNI), is the Responsible Entity for the ASX-listed Centuria Metropolitan REIT (CMA).

CMA is Australia’s largest ASX-listed metropolitan office REIT and is included in the S&P/ASX 300 Index[ 1] . CMA owns a portfolio of 18 high quality metropolitan assets with a total value of $760 million[ 2] located in key metropolitan locations throughout Australia.

CPFL, combined with Centuria Property Funds No. 2 Limited (CPF2L), the Responsible Entity for the ASX-listed Centuria Industrial REIT (CIP), has $3.4 billion[ 3] of funds under management in 16 unlisted property funds, one open-ended diversified property fund and two listed REITs.

CNI is an ASX-listed specialist investment manager with $4.2 billion[ 3] in funds under management.

Further information can be found on our website www.centuria.com.au/metropolitan-reit

Centuria Capital Group

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$4.2b
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Funds Under Management

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Listed funds Unlisted funds Investment Bonds
$1.8b $1.6b $0.8b
Industrial REIT Metropolitan REIT Centuria Diversified Centuria Guardian
(CIP) (CMA) Property Fund Life Friendly Society
+
$998m 16 fixed-term funds $353m $446m
4
$779m
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All references to S&P/ASX 300 Index inclusion are effective from start of trade on Monday 18 September 2017.
Includes post 30 June 2017 acquisitions and Williams Landing, VIC, as if complete.
Includes post 30 June 2017 acquisitions as if complete at 21 August 2017.
Funds under management includes $8.2 million of cash and $6.4 million of goodwill as at 30 June 2017.

Centuria Metropolitan REIT Annual Report 2017 01

Key financial metrics

Financial performance in line with guidance

Centuria Metropolitan REIT delivered a strong FY17 result, with key metrics continuing to strengthen since listing in December 2014. CMA delivered on its earnings and distribution guidance and is positioned to continue do so in the year ahead.

CMA reported a statutory net profit of $37.7 million for FY17 and distributable earnings[ 1] of $22.8 million, representing 19.0 cps.

CMA paid annual distributions totaling 17.5 cps in equal quarterly installments during the year, delivering on CMA securityholders’ desire for predictable and growing income.

CMA’s NTA increased 14 cps, or 6.4%, to $2.32 per security at 30 June 2017, and CMA’s gearing remains conservative at 29.5% at 30 June, and reducing further to 27.4% post 30 June[ 2] .

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$22.8m 19.0cps 17.5cps
Distributable earnings [ 1] Distributable earnings [ 1] Distributions per security
per security
$760m $2.32 $37.7m
Portfolio value [ 3] NTA per security [ 4 ] Statutory net profit
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See definitions on page 52.
30 June 2017 pro-forma adjusted for the acquisitions and capital raising that were announced on 13 July 2017.
Includes post 30 June 2017 acquisitions and Williams Landing, VIC, as if complete.
As at 30 June 2017. Pro-forma NTA adjusted for the acquisitions and capital raising that was announced on 13 July 2017 is $2.29 per security.

Centuria Metropolitan REIT Annual Report 2017

Letter from the Chairman

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The past year has been a transformational one for CMA. Since first listing in December 2014, the portfolio expanded from eight assets valued at $182.9 million to 18 assets valued at $760 million.[ 1]

Dear CMA securityholders,

Peter Done Chairman Centuria Property Funds Limited

I am delighted to introduce the 2017 Annual Report for Centuria Metropolitan REIT (CMA).

The past year has been a transformational one for CMA. Since first listing in December 2014, the portfolio expanded from eight assets valued at $182.9 million to 18 assets valued at $760 million[ 1] . In the same period, CMA has delivered a strong total return of 41.5%[ 2] , outperforming the S&P/ASX 300 Index which returned 31.8%[ 2] over the same period[ 3] .

In FY17, CMA delivered a strong statutory net profit of $37.7 million and distributable earnings[ 4] of 19.0 cents per security (cps), which was at the upper end of guidance. We have also seen net tangible assets (NTA) increase to $2.32 per security[ 5] , up 14 cps or 6.4%.

During the year CMA paid total distributions totaling 17.5 cps in equal quarterly instalments.

CMA’s market capitalisation now comfortably sits above $500 million, which has seen the REIT rewarded with S&P/ASX 300 Index inclusion commencing 18 September 2017.

FY17 operational highlights include:

Improved portfolio occupancy to 97.3% as at 30 June. Post 30 June, this further improved to 98.2%[ 6]
Significant leasing success with 41 leases across 20,321 sqm
Increase in portfolio value to $610 million at 30 June, up $234.9 million[ 7] due to:
The merger with Centuria Urban REIT (CUA), valued at $210 million
Strong property fundamentals and active asset management increasing property valuations by $24.9 million
Portfolio WACR firmed to 7.19% (40 basis points improvement from 30 June 2016)
Post 30 June acquisitions further increased portfolio value to $760 million[ 1]
Portfolio weighted average lease expiry (WALE) of 3.9 years as at 30 June. Post 30 June, this improved to 4.5 years.

Includes post 30 June 2017 acquisitions and Williams Landing, VIC, as if complete.

Past performance is not indicative of future performance. See Disclaimers on page 52 for further information on the calculation of total return figures.

Source: UBS performance update, as at 21 August 2017.

See definitions on page 52.

As at 30 June 2017. Pro-forma NTA adjusted for the acquisitions and capital raising that was announced on 13 July 2017 is $2.29 per security.
Updated occupancy and WALE includes post-30 June leasing activity. Occupancy is weighted by area and WALE is weighted by gross income.
Like-for-like valuation increase from FY16 excluding 14 Mars Road, Lane Cove, NSW and including CUA portfolio.

Centuria Metropolitan REIT Annual Report 2017 03

Letter from the Chairman

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9 HELP STREET, CHATSWOOD NSW
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During the year, CMA also undertook a number of strategic transactions, including the simplification of CMA’s corporate structure, the merger with CUA, an asset disposition, and three asset acquisitions – two of which occurred post 30 June 2017.

On 29 June 2017 CMA exchanged contracts on 2 Kendall Street, Williams Landing, Victoria. This building is currently under construction, and will be leased to Target Australia for 10 years from completion.

The two post 30 June acquisitions, valued at $91.8 million, were in line with strategy and represented the REIT’s first investment into the Western Australian market. To support the acquisitions, CMA successfully completed a $90 million capital raising, increasing market capitalisation to more than $500 million.

In Australia’s metropolitan office markets, superior asset selection, active asset management and close relationships with tenants are the cornerstones of success. CMA represents an opportunity for investors to gain exposure to an investment-grade portfolio managed by hands-on professional managers, specialised in generating value throughout the property cycle.

In line with strategy, CMA will continue to seek opportunities to extract maximum value from its portfolio through various asset management and repositioning initiatives.

We will also continue to pursue quality, fit-for-purpose metropolitan real estate that complements our existing portfolio, while keeping a disciplined approach to value and capital management. We have reduced gearing to 27.4%, which provides significant debt headroom to pursue attractive opportunities and fund the current acquisition pipeline.

We appreciate your ongoing support of CMA and look forward to a positive financial year ahead in 2018.

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CMA is in a strong position to continue to deliver predictable and growing returns to security holders. For FY18, we have confirmed distributable earnings guidance of 18.6 cps and distribution guidance of 18.1 cps – an increase of 3.4% from the prior year’s distribution. CMA’s forecast distribution yield is a strong 7.3%[ 1] .

Peter Done Chairman, Centuria Property Funds Limited

Based on FY18 forecast distribution 18.1 cps and the closing CMA security price of $2.49 as at 12 September 2017.

04 Centuria Metropolitan REIT Annual Report 2017

Operating update

Maximising income and value growth

CMA’s portfolio is well positioned to ensure occupancy and income continue to be maximised.

Active leasing is core to CMA Leasing remains at the core of CMA’s business and underpins the portfolio’s ability to deliver predictable and growing earnings for securityholders.

Solid investment portfolio growth The total value of CMA’s portfolio at 30 June 2017 was $610 million, an increase of 4.2%[ 1] over the preceding 12 months. The weighted average capitalisation rate for the portfolio firmed 40 basis points to 7.19% at 30 June 2017.

In the period to 30 June 2017, CMA executed 41 leases across 20,321 square metres (sqm) representing 15.5% of the portfolio net lettable area (NLA). This comprised 9,979 sqm of new leases and 10,324 sqm of renewals.

CMA’s portfolio has since increased in value to $760 million, taking into account transactions that occurred early in the new financial year which are detailed in this report.

This included 30 lease transactions involving areas less than 500 square meters, highlighting the benefit of Centuria’s integrated property management platform.

There continues to be strong investment demand for quality, well-leased metropolitan assets. Coupled with robust market fundamentals and our active asset management approach, this continues to drive valuation growth.

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1 RICHMOND ROAD, KESWICK SA
44 HAMPDEN ROAD, ARTARMON NSW
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Leasing momentum continued post 30 June 2017. Taking into account the post 30 June 2017 lease transactions, CMA’s portfolio occupancy and WALE has improved to 98.2% and 4.5 years, respectively.

Particularly pleasing is the outcome at 1 Richmond Road, Keswick, SA. Following a minor refurbishment in Q4 CY16, the majority of the 4,680 sqm of space expiring by 30 June 2017 was leased in two separate transactions to new tenants: DCNS Australia and SA Power. These deals, totaling 4,043 sqm, will ensure continuity of income from this asset and demonstrate our ability to create value through asset repositioning in more challenging markets.

Forward expiries remain manageable with 4.7% of the portfolio (by gross income) expiring in FY18.

Earnings growth well supported Tenant diversity and contractual rental growth has continued to deliver robust earnings. CMA’s top 10 tenants are institutional grade and account for 48% of gross rental revenues. Rental growth in the portfolio is supported by 94% of leases containing average fixed rental reviews of 3.6% per annum.

Like-for-like valuation increase from FY16 excluding 14 Mars Road, Lane Cove, NSW and including CUA portfolio.

Centuria Metropolitan REIT Annual Report 2017 05

Operating update

Strategic transactions

CMA’s investment strategy is to acquire quality metropolitan assets in markets where competing supply is constrained.

Corporate simplification

On 15 March 2017, CMA securityholders unanimously approved the corporate simplification of CMA.

The benefits of the corporate simplification included a streamlining of financial reporting requirements, ongoing cost savings and operational efficiencies, and delivering a simpler structure that may facilitate future acquisitions.

The corporate simplification was successfully implemented on 22 March 2017.

Sale of 14 Mars Road, Lane Cove, NSW

On 31 March 2017 CMA completed the sale of 14 Mars Road, Lane Cove, NSW to the incumbent tenant, Cochlear Limited, for $26.0 million[ 1] . This transaction generated a 21% premium to the 30 June 2016 book value and a property IRR of 23.8% over CMA’s ownership period.

Merger with Centuria Urban REIT

On 29 June 2017 CMA merged with the ASX-listed Centuria Urban REIT (CUA) by way of a scheme of arrangement. This was overwhelmingly supported by both CMA and CUA investors.

The acquisition combined two highly complementary portfolios to provide securityholders with an enhanced investment proposition, and is in line with CMA’s strategy to invest in metropolitan office markets across Australia.

In addition to being accretive to FY18 distributable earnings, the benefits of the acquisition included a material increase in CMA’s investment portfolio of 54% to over $600 million, enhanced portfolio and tenant diversification and improved trading liquidity and market capitalisation.

Acquisition of 2 Kendall Street, Williams Landing, VIC

Acquisition of 42-46 Colin Street, West Perth, WA

On 29 June 2017, CMA exchanged contracts on 2 Kendall Street, Williams Landing, Victoria to acquire a 12,919 sqm asset. The property is 100% pre-leased to Target Australia for 10 years from completion (expected Q1 CY19).

On 1 August 2017, CMA acquired 42-46 Colin Street, West Perth, WA for $33.6 million[ 1] . The 8,439 sqm asset is 100% leased, with Insurance Australia Group the major occupier.

The asset was acquired on an initial yield of 8.7% with a WALE of 4.5 years, which has subsequently improved to 5.2 years.

The asset was acquired for an on-completion value of $58.2 million[ 1] , reflecting a 6.5% initial yield. CMA paid $2.9 million at exchange, with the balance of $55.3 million due on completion.

Inclusion in the S&P/ASX 300 Index

CMA entered the S&P/ASX 300 Index at the commencement of trading on 18 September 2017. Inclusion in this index will enhance CMA’s relevance within the Australian equity market and should generate increased institutional investor interest.

The asset is currently under construction by Cedar Woods Properties, an ASX-listed developer established in 1987.

The S&P/ASX 300 Index includes up to 300 of Australia’s largest ASX listed entities by float-adjusted market capitalisation and provides a widely used benchmark for many general equities and real estate specific institutional investors.

Acquisition of 144 Stirling Street, Perth, WA

On 1 August 2017, CMA acquired 144 Stirling Street, Perth, WA for $58.2 million[ 1] . The 11,042 sqm asset is 100% leased to the WA Government (WA Police) and international consultancy firm Hatch & Associates.

The inclusion of CMA in the S&P/ASX 300 Index is an important milestone for the REIT and we are very pleased to have reached this point, having done so with the continued and valued support of our loyal securityholders.

The asset was acquired on an initial yield of 9.2% with a WALE of 3.9 years.

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144 STIRLING STREET, PERTH, WA 42-46 COLIN STREET, WEST PERTH, WA
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Before transaction costs.

06 Centuria Metropolitan REIT Annual Report 2017

2 Kendall Street, Williams Landing, VIC

This 12,919 sqm property, acquired in June 2017, is 100% pre-leased to Target Australia for 10 years from completion, expected Q1 CY19.

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2 KENDALL STREET, WILLIAMS LANDING, VIC
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Operating update

Disciplined capital management

Conservative capital management is a core philosophy of CMA’s investment proposition to ensure our balance sheet remains strong.

We have conservative gearing and debt facilities sourced from multiple lenders, with staggered maturities ensuring appropriate debt diversification.

Debt profile

At 30 June 2017 CMA had debt facilities totalling $260 million, with a weighted average expiry of 3.4 years, and drawn borrowings totalling $189.5 million, with an “all in” interest cost of 3.9% and 54.9% of debt hedged.

At 30 June 2017, gearing was 29.5% with pro-forma gearing reducing to 27.4%, taking into account the acquisitions and capital raising announced on 13 July 2017.

Capital raising

On 13 July 2017, CMA announced a fully underwritten $90 million capital raising at $2.35 per security that was well supported by both existing and new securityholders. The proceeds from the capital raising were used to fund the acquisitions of 144 Stirling Street, Perth WA and 42-46 Colin Street, West Perth, WA.

Centuria Capital Group supported the capital raising, taking up their full entitlement under the offer. Centuria Capital Group is the largest securityholder in CMA, owning a combined $93 million[ 1] of securities on issue, which ensures a strong ongoing alignment of interest between the manager and CMA securityholders.

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54 MARCUS CLARKE STREET, CANBERRA, ACT
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The Centuria Listed Property Team

Centuria Capital Limited (CNI) and its affiliates. CPFL is a wholly owned subsidiary of CNI.

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Back (L-R): Ross Lees, CIP Trust Manager; Nicholas Collishaw, CEO Listed Property Funds
Nicholas Blake, CMA Trust Manager.
Front (L-R): Hengky Widjaja, Trust Analyst; Scott Creelman, Financial Controller – Property Funds.
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08 Centuria Metropolitan REIT Annual Report 2017

Strategy & guidance

Strategy

CMA’s strategy remains appropriate for the current interest rate/low growth environment. Investment in quality Australian metropolitan assets located in established suburban and fringe CBD markets – particularly those where competing supply is being withdrawn for alternate uses – should continue to provide a basis for secure and predictable income with the opportunity for capital growth in excess of inflation.

CMA will continue to actively manage its portfolio with an emphasis on tenant retention to ensure income and occupancy are maximised, coupled with asset repositioning strategies that may generate additional capital upside for securityholders.

CMA acquires metropolitan assets with stable and secure income streams that can be further enhanced through active asset management and repositioning strategies. CMA intends to grow through acquisitions that provide meaningful benefits to securityholders. We will continue to pursue the acquisition of quality, fit for purpose metropolitan real estate while keeping a disciplined approach to value and capital management.

Guidance

CMA’s distributable earnings guidance for FY18 is 18.6 cps.

CMA’s distribution guidance for FY18 has been increased to 18.1 cents per stapled security, a 3.4% increase on FY17 distributions. This represents a strong distribution yield of 7.6%. Distributions will continue to be paid in equal quarterly instalments of 4.525 cps.

FY17 results

Financial snapshot				FY17	FY16
Statutory proft/(loss)			$m	37.7	44.8
Distributable earnings1			$m	22.8	22.0
Distributable earnings per security			cps	19.0	18.4
Distributable earnings yield2			%	7.6	8.6
Distribution			$m	20.9	20.3
Distribution per security			cps	17.5	17.0
Balance sheet metrics				FY17	FY16
Investment properties			$m	610.0	398.7
Total assets			$m	629.0	415.6
Total liabilities			$m	208.5	155.4
Net assets			$m	420.5	260.1
Stapled securities on	issue		m	178.2	119.4
NTA per stapled security			$	2.32	2.18
Gearing3			%	29.5	33.2
Portfolio Snapshot		Post 30 June 17	4	FY17	FY16
Number of assets	#	18		15	13
Book value	$m	760.0		610.0	398.7
WACR	%	7.17		7.19	7.86
NLA	sqm	163,411	131,011		112,653
Occupancy5	%	97.8		97.3	97.2
FY18 expiries6	%	4.7		6.0	6.6
WALE6	yrs	4.3		3.9	3.9

Distributable earnings is a financial measure which is not prescribed by Australian Accounting Standard (AAS) and represents the profit under AAS adjusted for specific non-cash and significant items. The Directors consider that distributable earnings reflect the core earnings of CMA.

Based on CMA closing price of $2.50 per security as at 30 June 2017 and $2.14 per security at 30 June 2016.

Gearing is defined as total borrowings less cash divided by total assets less cash and goodwill.

Includes post 30 June 2017 acquisitions and Williams Landing, VIC, as if complete. Exclude post 30 June leasing activity. 5. By area.
Weighted by gross income.

Centuria Metropolitan REIT Annual Report 2017 09

Portfolio overview[ 1]

Portfolio positioned to ensure income and value continue to grow

Geographic diversification (by value)

Tenant composition (by income)

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22% NSW 22% ASX Listed
34% VIC 9% Listed company
10% QLD 9% Multinational
16% WA 1% Government
12% ACT 28% National
6% SA 30% Other
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Weighted average lease expiry (WALE)

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50 (%) 47.9%
40
30
20 16.9%
14.4% 13.9%
10
4.7%
2.2%
0
Vacant FY18 FY19 FY20 FY21 FY22+
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Top 10 tenants (by gross income)

Insurance Australia Limited
Target Australia2			6.3%
Austar Entertainment Pty Limited			6.0%
Bluescope Steel Limited		5.0%
Hatch	4.1%
Minister for Works (WA Police)	4.0%
GE Capital Finance Australasia	3.7%
Domino’s Pizza Ltd	3.5%
Minister for Infrastructure	3.4%
Department Housing & Public Works (QCAA)	3.4%

All portfolio metrics on this page include post 30 June 2017 acquisitions and Williams Landing, VIC, as if complete. 2. Upon completion, expected Q1 CY19.

10 Centuria Metropolitan REIT Annual Report 2017

Portfolio profile

NSW

QLD

WA

9 Help Street, Chatswood 203 Pacific Highway, St Leonards 44 Hampden Road, Artarmon 3 Carlingford Road, Epping 13 Ferndell Street, Granville

ACT

35 Robina Town Centre Drive, Robina

555 Coronation Drive, Brisbane 438-517 Kingsford Smith Drive, Hamilton 154 Melbourne Street, South Brisbane 149 Kerry Road, Archerfield

VIC

144 Stirling St, Perth 42-46 Collins Street, West Perth

SA

1 Richmond Road, Keswick 131-139 Grenfell Street, Adelaide

54 Marcus Clarke Street, Canberra 60 Marcus Clarke Street, Canberra

576 Swan Street, Richmond 2 Kendall St, Williams Landing

NT QLD

WA 34% NSW 12% SA 6% 22% ACT 10% VIC

16% TAS

Centuria Metropolitan REIT Annual Report 2017 11

Meet the Directors

From left to right: Matthew Hardy, Peter Done, Jason Huljich and Darren Collins

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12 Centuria Metropolitan REIT Annual Report 2017

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Centuria Metropolitan REIT Annual Report 2017 13

Financial Statements

	Page
Directors’ report	15
Auditor’s independence declaration	19
Consolidated statement of proft or loss and other
comprehensive income	20
Consolidated statement of fnancial position	21
Consolidated statement of changes in equity	22
Consolidated statement of cash fows	23
Notes to the fnancial statements	24
Directors’ declaration	46
Independent auditor’s report	47
Corporate governance statement	50
Additional ASX information	51

14 Centuria Metropolitan REIT Annual Report 2017

Directors’ Report

The directors of Centuria Property Funds Limited, the Responsible Entity of Centuria Metropolitan REIT (‘CMA’) present their report, together with the consolidated financial report of the Trust and its subsidiaries (‘the Trust’) for the year ended 30 June 2017 and the independent auditor’s report thereon.

DIRECTORS OF THE RESPONSIBLE ENTITY

The directors of Centuria Property Funds Limited during or since the end of the financial year are:

Name	Position	Appointed	Resigned
Peter Done	Non-Executive	05 Dec 2007	Continuing
	Chairman
Jason Huljich	Executive	30 Mar 2001	Continuing
	Director
Matthew Hardy	Non-Executive	04 Jul 2013	Continuing
	Director
Darren Collins	Non-Executive	10 Mar 2015	Continuing
	Director

The company secretaries of Centuria Property Funds Limited during or since the end of the financial year are:

Name	Appointed	Resigned
James Lonie	16 Jun 2017	Continuing
Charisse Nortje	21 Feb 2017	16 Jun 2017

The relevant interest of each director in the securities in the Trust as at the date of this report are:

Director	Securities held
Jason Huljich	3,174
Peter Done	75,000
Matthew Hardy	17,080
Darren Collins	20,000
	115,254

No director holds a right or option over interests in the Trust. No options over any issued or unissued securities in the Trust have been issued to any director.

There are no contracts to which any director is a party to under which a director is entitled to a benefit and/or confers a right to call for or be delivered interests in the Trust.

The following table sets out the directorships of other Australian listed companies held by the directors during the three years immediately before the end of the financial year:

Director	Company	Appointed	Resigned
Jason Huljich	Centuria Capital	28 Nov 2007	Continuing
	Limited
Peter Done	Centuria Capital	28 Nov 2007	Continuing
	Limited
Matthew Hardy	Not applicable
Darren Collins	Not applicable

PRINCIPAL ACTIVITIES

The Trust is a registered managed investment scheme domiciled in Australia.

The principal activity of the Trust in the course of the financial year is to invest funds in accordance with its investment objectives and guidelines as set out in the current Product Disclosure Statement (‘PDS’) dated 11 November 2014, with the key asset category being investment property.

The Trust did not have any employees during the financial year.

SIGNIFICANT CHANGE IN THE STATE OF AFFAIRS

In the opinion of the Responsible Entity there were no significant changes in the state of affairs of the Trust that occurred during the financial year.

REVIEW OF OPERATIONS

Results

The results of the operations of the Trust are disclosed in the consolidated statement of profit or loss and other comprehensive income of these financial statements. The Trust’s profit from continuing operations for the year ended 30 June 2017 was $37,689,000 (2016: $44,785,000 profit).

As at 30 June 2017, the Trust’s Net Tangible Assets (‘NTA’) has increased by 14 cents per security (‘cps’), or 6.4%, to $2.32 per security.

Investment property valuations

The total value of the Trust’s portfolio as at 30 June 2017 was $610 million, an increase of 4.2% on a like for like basis.

The weighted average capitalisation rate for the portfolio firmed 40 basis points, on a like for like basis, excluding 14 Mars Road, Lane Cove, to 7.19% as at 30 June 2017.

Leasing and occupancy

The Trust secured 41 leases across 20,321 square metres (‘sqm’) representing 15.5% of the portfolio’s Net Lettable Area (‘NLA’) in the year ended 30 June 2017. This comprised of 22 new leases across 9,979 sqm and 19 renewals across 10,342 sqm. The leasing and occupancy risk for the year ending 30 June 2018 has been substantially reduced with only 4.7% of the portfolio expiring in the next financial year.

As at 30 June 2017, the Weighted Average Lease Expiry (‘WALE’) of the portfolio was 3.9 years and the occupancy rate was 97.3%.

Capital management

As at 30 June 2017, the Trust had a multi-bank debt facility totalling $260.0 million with a weighted average expiry of 3.4 years. Drawn borrowings totalled $189.5 million, with an all in interest cost of 3.9% and 54.9% of the drawn debt hedged. The Trust’s gearing at 30 June 2017 was 29.5%.

Merger with Centuria Urban REIT

On 3 March 2017, the Responsible Entity announced a merger proposal with Centuria Urban REIT (“CUA”), of which it already owned an 8.76% interest, by way of acquiring 100% of the remaining units. On 14 June 2017, the unitholders of CUA voted to approve the merger, from which point the Trust is taken to have control over CUA. The Trust completed the acquisition of the remaining units effective 29 June 2017.

Centuria Metropolitan REIT Annual Report 2017 15

Directors’ Report

Outlook

The Responsible Entity’s strategy and ongoing focus remains unchanged. Management continue to focus on actively managing the Trust’s portfolio, with an emphasis on tenant retention to ensure income and occupancy are maximised. This is coupled with the ongoing strategy to acquire quality ‘fit for purpose’ metropolitan real estate assets delivering stable and secure income streams.

The Trust’s 2018 financial year distributable earnings guidance is approximately 18.6 cps. The 2018 financial year distribution guidance is 18.1 cps which will be paid in equal quarterly instalments.

Distributions

Distributions paid or payable in respect of the financial year were:

	30 Jun 2017 30 Jun 2016
	Cents per unit $’000 Cents per unit $’000
September quarter December quarter March quarter June quarter	4.375 5,225 4.25 5,075 4.375 5,224 4.25 5,075 4.375 5,224 4.25 5,075 4.375 5,224 4.25 5,074
	17.50 20,897 17.00 20,299
Allocation between stapled entities: CMR1 CMR2	13.38 15,971 8.98 10,728 4.12 4,926 8.98 10,728
	17.50 20,897 17.00 20,299

Key dates in connection with the 30 June 2017 distribution are:

Event	Date
Ex-distribution date	27 Jun 17
Record date	28 Jun 17
Distribution payment date	28 Jul 17

The distributable earnings of 19.0 cps are at the upper end of the 2017 financial year guidance range of 18.7 – 19.0 cps. The table below provides a reconciliation from the statement of profit or loss and other comprehensive income to the distributable earnings for the year:

for the year:
	30 Jun 2017
	$’000
Net proft for the year	37,689
Adjustments:
Net (gain) on fair value of investment properties	(17,180)
Net (gain) on fair value of derivative fnancial instruments	(1,420)
Straight-lining of rental income	(1,366)
Net (gain) on fair value of investments in listed trusts	(884)
Lease incentives funded by vendors on property acquisitions	538
Business combination transaction costs	4,263
Corporate simplifcation costs	428
Amortisation of leasing fees	356
Amortisation of borrowing costs	367
Distributable earnings for the period	22,791

16 Centuria Metropolitan REIT Annual Report 2017

ENVIRONMENTAL REGULATION

The Trust’s operations are not subject to any significant environmental regulation under Commonwealth, State or Territory legislation.

OPTIONS GRANTED

No options were granted over unissued securities in the Trust during or since the end of the financial year.

No unissued securities in the Trust were under option as at the date of this report.

No securities were issued in the Trust during or since the end of the financial year as a result of the exercise of an option over unissued securities in the Trust.

EVENTS SUBSEQUENT TO BALANCE DATE

On the 6th of July 2017, the Trust terminated its existing $104,000,000 interest rate swaps and entered two new swap contracts for $100,000,000 at a weighted average fixed rate of 2.18%. In addition, on the 28th of July 2017 a further $40,000,000 swap contract was entered into at a rate of 2.22%.

On the 13th of July 2017, the Responsible Entity announced an Equity Raise of approximately $90,000,000 comprising of a $25,000,000 institutional placement and an offer to raise approximately $65,000,000 through a non-renounceable entitlement offer. The issue price of $2.35 per new security represented a 2.5% discount to CMA’s closing price of $2.41 on 12 July 2017. The new securities issued will rank equally with existing securities and will be entitled to the full distribution for the quarter ended 30 September 2017. All new equity has now been received and new securities allotted.

On the 1st of August 2017, the Trust settled on two new commercial office assets in Perth, Western Australia. The properties are located at 42-46 Colin Street & 144 Stirling Street, and were acquired for $33,600,000 and $58,200,000 respectively.

There are no other matters or circumstances which have arisen since the end of the period and the date of this report, in the opinion of the Responsible Entity, which significantly affect the operations of the Fund, the results of those operations, or the state of affairs of the Fund, in future financial years.

INDEMNIFYING OFFICERS OR AUDITORS

Indemnification

Under the Trust’s constitution the Responsible Entity, including its officers and employees, is indemnified out of the Trust’s assets for any loss, damage, expense or other liability incurred by it in properly performing or exercising any of its powers, duties or rights in relation to the Trust.

The Responsible Entity has not indemnified or agreed to indemnify any auditor or other officer of the Trust, or any related body corporate.

Insurance premiums

The Responsible Entity has paid insurance premiums in respect of directors’ and officers’ liability and legal expense insurance contracts, for current and former directors and officers, including senior executives of the Responsible Entity.

TRUST INFORMATION IN THE DIRECTORS’ REPORT

Responsible Entity interests

The following fees were paid or payable to the Responsible Entity and related parties during the financial year:

	30 Jun 2017	30 Jun 2016
	$	$
Leasing fees	575,531	135,250
Management fees	2,385,042	1,984,964
Custodian fees	4,438	–
Fund recoveries	38,865	–
Property management fees	477,359	340,229
Development fees	134,915	205,931
Other professional fees	16,902	34,362
	3,633,052	2,700,736

The Responsible Entity and/or its related parties have held securities in the Trust during the financial year as outlined in Note 21 to the financial statements.

Centuria Metropolitan REIT Annual Report 2017 17

Directors’ Report

Other Trust information

The number of securities in the Trust issued and redeemed during the financial year, and the balance of issued securities at the end of the financial year are disclosed in Note 15 to the financial statements.

The recorded value of the Trust’s assets as at the end of the financial year is disclosed in the consolidated statement of financial position as “Total assets” and the basis of recognition and measurement is included in the notes to the financial statements.

AUDITOR’S INDEPENDENCE DECLARATION

The auditor’s independence declaration is set out on page 19 and forms part of the directors’ report for year ended 30 June 2017.

ROUNDING OFF OF AMOUNTS

The scheme is a scheme of the kind referred to in ASIC Corporations (Rounding in Financials/Directors’ Reports) Instrument 2016/191, dated 24 March 2016, and in accordance with that Corporations Instrument amounts in the directors’ report and the financial statements are rounded off to the nearest thousand dollars, unless otherwise indicated.

Signed in accordance with a resolution of the board of directors of Centuria Property Funds Limited made pursuant to s.298(2) of the Corporations Act 2001.

Peter Done

Director

==> picture [101 x 82] intentionally omitted <==

Jason Huljich Director

Dated at Sydney this 14th day of August 2017.

18 Centuria Metropolitan REIT Annual Report 2017

Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001

To the Directors of Centuria Property Funds Limited, the Responsible Entity of Centuria Metropolitan REIT

I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended 30 June 2017 there have been:

i. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and
ii. no contraventions of any applicable code of professional conduct in relation to the audit.

KPMG

Nigel Virgo Partner Sydney 14 August 2017

KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

Liability limited by a scheme approved under Professional Standards Legislation.

Centuria Metropolitan REIT Annual Report 2017

Consolidated statement of profit or loss and other comprehensive income For the year ended 30 June 2017

		30 Jun 2017	30 Jun 2016
	Note	$’000	$’000
Revenue
Rent and recoverable outgoings		41,385	39,536
Other income
Interest income		115	77
Net gain on fair value of investment properties after write-down of stamp
duty and other transaction costs	8	17,180	23,246
Gain on fair value of investments held at fair value through proft or loss	9	884	–
Gain on fair value of derivative fnancial instruments		1,420	–
Other income		14
Expenses
Net loss on fair value of listed investments held at fair value through proft
or loss after transaction costs	9	–	(113)
Loss on fair value of derivative fnancial instruments		–	(2,373)
Rates, taxes and other property outgoings		(9,302)	(8,153)
Finance costs	4	(5,863)	(4,427)
Management fees	21	(2,385)	(1,985)
Professional fees		(787)	(657)
Transaction costs		(4,263)	–
Other expenses		(709)	(366)
Proft from continuing operations for the year		37,689	44,785
Net proft for the year		37,689	44,785
Other comprehensive income
Total comprehensive income for the year		37,689	44,785
Net proft attributable to:
Members of the Parent		27,309	26,676
Non-controlling interest – CMR2	16	10,380	18,109
		37,689	44,785
Total comprehensive income attributable to:
Members of the Parent		27,309	26,676
Non-controlling interest – CMR2		10,380	18,109
		37,689	44,785
Basic and diluted earnings per CMA security
Securities on issue (cents per security)	6	31.48	37.52
Basic and diluted earnings per CMR1 unit
Units on issue (cents per unit)	6	22.81	22.35

The above consolidated statement of profit and loss and other comprehensive income should be read in conjunction with the accompanying notes.

20 Centuria Metropolitan REIT Annual Report 2017

As at 30 June 2017

Consolidated statement of financial position

		30 Jun 2017	30 Jun 2016
	Note	$’000	$’000
Assets
Current assets
Cash and cash equivalents	18	8,187	4,911
Trade and other receivables	7	1,127	377
Investments held at fair value through proft or loss	9	–	11,113
Prepayments		490	432
Total current assets		9,804	16,833
Non-current assets
Investment properties	8	609,950	398,730
Goodwill	10	6,356	–
Other assets	11	2,912	–
Total non-current assets		619,218	398,730
Total assets		629,022	415,563
Liabilities
Current liabilities
Trade and other payables	12	18,753	11,225
Derivative fnancial instruments	14	1,988	–
Total current liabilities		20,741	11,225
Non-current liabilities
Borrowings	13	187,742	141,090
Derivative fnancial instruments	14	–	3,106
Total non-current liabilities		187,742	144,196
Total liabilities		208,483	155,421
Net assets		420,539	260,142
Equity
Issued capital	15	397,637	129,328
Retained earnings		22,902	11,564
Non-controlling interest – CMR2	16	–	119,250
Total equity		420,539	260,142

The above consolidated statement of financial position should be read in conjunction with the accompanying notes.

Centuria Metropolitan REIT Annual Report 2017 21

Consolidated statement of changes in equity

For the year ended 30 June 2017

			Retained
			earnings/	Non-
		Issued	(accumulated	controlling	Total
		capital	losses)	interest	equity
	Note	$’000	$’000	$’000	$’000
Balance at 1 July 2015		129,110	(4,384)	110,530	235,256
Net proft for the year		–	26,676	18,109	44,785
Total comprehensive income for the year		–	26,676	18,109	44,785
Distributions reinvested	15 & 16	265	–	229	494
Equity raising costs	15 & 16	(47)	–	(47)	(94)
Distributions to security holders	5	–	(10,728)	(9,571)	(20,299)
Balance at 30 June 2016		129,328	11,564	119,250	260,142
Net proft for the year		–	27,309	10,380	37,689
Total comprehensive income for the year		–	27,309	10,380	37,689
CMR2 applications – 22 Mar 2017	15 & 16	124,704	–	–	124,704
CUA unitholder applications – 29 Jun 2017	15 & 16	144,142	–	–	144,142
Total applications for the year		268,846	–	–	268,846
Redemptions	15 & 16	–	–	(124,704)	(124,704)
Equity raising costs	15 & 16	(537)	–	–	(537)
Distributions to security holders	5	–	(15,971)	(4,926)	(20,897)
Balance at 30 June 2017		397,637	22,902	–	420,539

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

22 Centuria Metropolitan REIT Annual Report 2017

Consolidated statement of cash flows

For the year ended 30 June 2017

		30 Jun 2017	30 Jun 2016
	Note	$’000	$’000
Cash fows from operating activities
Receipts from customers		43,150	41,310
Payments to suppliers		(16,158)	(14,310)
Distributions received		414	–
Interest received		115	81
Interest paid		(5,516)	(4,175)
Net cash generated by operating activities	18	22,005	22,906
Cash fows from investing activities
Proceeds from sale of investment properties		26,000	–
Payments for investment properties		(8,863)	(49,916)
Proceeds from sale of investments held at fair value through proft or loss		11,202	–
Payments for investments held at fair value through proft or loss		(599)	(10,800)
Purchase of subsidiaries		(27,251)	–
Transaction costs		(587)	–
Net cash used in investing activities		(98)	(60,716)
Cash fows from fnancing activities
Payments to procure issued units		–	(356)
Distributions paid		(20,748)	(20,181)
Proceeds from borrowings		3,675	57,417
Payments to procure borrowings		(1,214)	(432)
Payments for derivative fnancial instruments		(344)	–
Net cash (used in)/generated by fnancing activities		(18,631)	36,448
Net increase/(decrease) in cash and cash equivalents		3,276	(1,362)
Cash and cash equivalents at beginning of fnancial year		4,911	6,273
Cash and cash equivalents at end of fnancial year	18	8,187	4,911

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.

Centuria Metropolitan REIT Annual Report 2017 23

Notes to the consolidated financial statements For the year ended 30 June 2017

Note	Note	Page
1.	General information	25
2.	Signifcant accounting policies	25
3.	Revenue	27
4.	Expenses	27
5.	Distributions	28
6.	Earnings per unit/stapled security	28
7.	Trade and other receivables	29
8.	Investment properties	29
9.	Investments held in listed trusts	32
10.	Acquisitions of subsidiaries	33
11.	Other assets	34
12.	Trade and other payables	34
13.	Borrowings	35
14.	Derivatives	36
15.	Issued capital – CMR1	36
16.	Non-controlling interest – CMR2	37
17.	Contingent assets, liabilities and commitments	37
18.	Cash and cash equivalents	38
19.	Auditor’s remuneration	39
20.	Financial instruments	39
21.	Related parties	43
22.	Events subsequent to reporting date	45
23.	Parent entity disclosures	45
24.	Additional information	45

24 Centuria Metropolitan REIT Annual Report 2017

ABOUT THE REPORT

1. GENERAL INFORMATION

Centuria Metropolitan REIT is a registered managed investment scheme under the Corporations Act 2001 and domiciled in Australia. The principal activity of the Trust is disclosed in the directors’ report.

Statement of compliance

The consolidated financial statements are general purpose financial statements which have been prepared in accordance with the Corporations Act 2001, Australian Accounting Standards including Interpretations, and complies with other requirements of the law.

The financial statements and notes of the Trust comply with International Financial Reporting Standards (‘IFRS’) issued by the International Accounting Standards Board (‘IASB’).

For the purposes of preparing the financial statements, the Trust is a for-profit entity.

The financial report was authorised for issue in accordance with a resolution of the board of directors of Centuria Property Funds Limited, the Responsible Entity, on 14 August 2017.

Basis of preparation

The financial statements have been prepared on the basis of historical cost, except for certain non-current assets and financial instruments that are measured at fair value, as explained in the accounting policies set out below.

Going concern

The financial report has been prepared on a going concern basis, which assumes continuity of normal business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business.

Net current liability position

The directors of the Responsible Entity note that the Trust is in a net current liability position of $10,100,000 as at 30 June 2017. Given the Trust has the ability to drawdown funds from its available facility to fund working capital requirements and also the future cash generating potential of the Trust, the directors expect the Trust will be able to pay its debts as and when they fall due.

After taking into account all available information, the directors have concluded that there are reasonable grounds to believe the basis of preparation of the financial report on a going concern basis is appropriate.

Rounding of amounts

The Trust is a scheme of the kind referred to in ASIC Corporations (Rounding in Financials/Directors’ Reports) Instrument 2016/191, dated 24 March 2016, and in accordance with that Corporations Instrument amounts in the directors’ report and the financial statements are rounded off to the nearest thousand dollars, unless otherwise indicated.

Functional and presentation currency

The financial statements are presented in Australian dollars, which is the Trust’s functional currency.

2. SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Trust and entities controlled by the Trust. Control is achieved where the Trust is exposed to, or has rights to, the variable returns from its involvement with an entity and has the ability to affect these returns through its power over the entity.

The Trust accounts for business combinations using the acquisition method when control is transferred to the Trust. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. When the Trust loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related non-controlling interests and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the date on which control commences until the date on which control ceases.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the consolidated group. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.

Non-controlling interests in the net assets attributable to security holders of consolidated subsidiaries are identified separately from the Trust’s security holders. Non-controlling interests are measured at their proportionate share of the acquiree’s identifiable net assets at the date of acquisition.

i. Stapled scheme

Centuria Metropolitan REIT was established for the purpose of facilitating a relationship between Centuria Metropolitan REIT No.1 (“CMR1”) and Centuria Metropolitan REIT No.2 (“CMR2”). The Trust was formed by stapling units in CMR1 and CMR2. Whilst stapled, security holders in the Trust were entitled to an equal interest in each stapled entity within the Trust.

As at 22 March 2017, the units in CMR1 were de-stapled to the units in CMR2 and CMR1 acquired the units in CMR2. Whilst stapled, the Trust was required to appoint a parent under the stapling arrangement. CMR1 was appointed parent of the Trust. On the basis that there was no ownership interest between the entities involved in the stapling arrangement for the period the units were stapled, the net assets and profit or loss of CMR2 are disclosed separately as a non-controlling interest during this period.

ii. Subsidiaries

The consolidated financial statements include the assets, liabilities and results of Centuria Metropolitan Property Trust, Centuria Urban REIT and CMR2. Subsidiaries are entities controlled by the Trust in accordance with AASB 10. Control exists when an investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The financial statements of subsidiaries are included in the financial report from the date that control commences until the date that control ceases.

Centuria Metropolitan REIT Annual Report 2017 25

Notes to the consolidated financial statements For the year ended 30 June 2017

ABOUT THE REPORT

2. SIGNIFICANT ACCOUNTING POLICIES CONTINUED

(a). Basis of consolidation continued

ii. Subsidiaries continued

The Trust uses the purchase method of accounting to account for the acquisition of subsidiaries. Intercompany transactions, balances and recognised gains on transactions between Trust entities are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Trust.

(b) Adoption of new and revised accounting standards

In the current year, the Trust has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board that are relevant to its operations and effective for the current reporting year. New and revised Standards and amendments thereof and Interpretations effective for the current period that are relevant to the Trust include:

AASB 2015-1 ‘Amendments to Australian Accounting Standards – Annual Improvements to Australian Accounting Standards 2012-2014 Cycle’. Effective for annual reporting periods beginning on or after 1 January 2016.
AASB 2015-2 ‘Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 101’. Effective for annual reporting periods beginning on or after 1 January 2016.

The adoption of these new and revised Standards and Interpretations has not had any significant impact on the disclosures or amounts reported in these financial statements.

(c) New standards and interpretations not yet adopted

At the date of this report, the Standards and Interpretations listed below were on issue but not yet effective. They are available for early adoption at 30 June 2017, but have not been applied in preparing these financial statements. The potential effect of the below Standards and Interpretations on the Trust’s consolidated financial statements has been assessed and determined to be immaterial:

AASB 9 ‘Financial Instruments’, AASB 2009-11, AASB 2010-7 and AASB 2014-7 ‘Amendments to Australian Accounting Standards arising from AASB 9’. Effective for annual reporting periods beginning on or after 1 January 2018.
AASB 2016-2 ‘Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 107’. Effective for annual reporting periods beginning on or after 1 January 2017.
AASB 2017-1 ‘Amendments to Australian Accounting Standards – Transfers of Investment Property, Annual Improvements 2014-2016 Cycle and Other Amendments’. Effective for annual reporting periods beginning on or after 1 January 2018.

(d) Use of estimates and judgements

In the application of the Trust’s accounting policies, the Responsible Entity is required to make judgements, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period; or in the period of the revision and future periods if the revision affects both current and future periods. The key estimates and judgements in the financial report relate to the valuation of investment properties (per Note 8) and derivative financial instruments (per Note 20).

Judgements made by the Responsible Entity that have significant effects on the financial statements and estimates with significant risk of material adjustments in the next year are disclosed, where applicable, in the relevant notes to the financial statements.

(e) Segment reporting

The Trust operates in one segment, being investments in Australian industrial, metropolitan and business park office property. The Trust has determined its one operating segment based on the internal information that is provided to the chief operating decision maker and which is used in making strategic decisions. The Responsible Entity has been identified as the Trust’s chief operating decision maker.

AASB 15 ‘Revenue from Contracts with Customers’, AASB 2014-5 ‘Amendments to Australian Accounting Standards arising from AASB 15’. Effective for annual reporting periods beginning on or after 1 January 2018.
AASB 16 ‘Leases’. Effective for annual reporting periods beginning on or after 1 January 2019.

26 Centuria Metropolitan REIT Annual Report 2017

FUND PERFORMANCE

3. REVENUE

Revenue is measured at the fair value of the consideration received or receivable to the extent it is probable that the economic benefits will flow to the Trust and the revenue can be reliably measured.

(a) Rental income

Rental income from investment property is recognised in profit or loss on a straight line basis over the term of the lease. Rental income not received at reporting date is reflected in the consolidated statement of financial position as a receivable. If rents are paid in advance these amounts are recorded as payables in the consolidated statement of financial position.

Lease incentives granted are recognised as an integral part of the net consideration agreed for the use of the leased premises, irrespective of the incentive’s nature or form or the timing of payments. The aggregate cost of lease incentives are recognised as a reduction of rental income on a straight-line basis over the lease term.

Contingent rents based on the future amount of a factor that changes other than with the passage of time are only recognised when charged.

(b) Recoverable outgoings

Recoverable outgoings are recognised on an accrual basis.

(c) Interest revenue

Interest revenue is accrued on a time basis, by reference to the principal outstanding using the effective interest rate method.

(d) Sale of properties

Any gain or loss arising on the sale of an investment property is recognised when the significant risks and rewards of ownership have been transferred to the purchaser and where there is no continuing management involvement, which normally coincides with settlement of the contract for sale. The gain or loss is calculated as the difference between the net disposal proceeds and the carrying amount of the asset.

4. EXPENSES

(a) Finance costs

Finance costs include interest expense and amortised borrowing costs. Interest expense is recognised in profit or loss as it accrues. Finance costs are recognised using the effective interest rate applicable to the financial liability.

	30 Jun 2017	30 Jun 2016
	$’000	$’000
Interest expense	5,496	4,232
Borrowing costs	367	195
	5,863	4,427

(b) Other expenses

All other expenses, including management fees, are recognised in profit or loss on an accruals basis. Other operating expenses include legal, accounting and audit fees.

(c) Goods and services tax

Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST) recoverable from the Australian Taxation Office (ATO) as an input tax credit (ITC).

Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included in receivables or payables in the consolidated statement of financial position.

Cash flows are included in the consolidated statement of cash flows on a gross basis. The GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the ATO is classified as operating cash flows.

Centuria Metropolitan REIT Annual Report 2017

Notes to the consolidated financial statements For the year ended 30 June 2017

FUND PERFORMANCE

5. DISTRIBUTIONS

5. DISTRIBUTIONS
	30 Jun 2017 30 Jun 2016
	Cents per unit $’000 Cents per unit $’000
September quarter December quarter March quarter June quarter	4.375 5,225 4.25 5,075 4.375 5,224 4.25 5,075 4.375 5,224 4.25 5,075 4.375 5,224 4.25 5,074
	17.50 20,897 17.00 20,299
Allocation between previously stapled entities: CMR1 CMR2	13.38 15,971 8.98 10,728 4.12 4,926 8.02 9,571
	17.50 20,897 17.00 20,299
Key dates in connection with the 30 June 2017 distribution are: Event Date
Ex-distribution date 27 Jun 17 Record date 28 Jun 17 Distribution payment date 28 Jul 17

Distribution and taxation

Under current legislation the Trust is not subject to income tax when its taxable income (including assessable realised capital gains) is distributed in full to the security holders. The Trust ordinarily fully distributes its distributable income, calculated in accordance with the Trust constitution and applicable taxation legislation, to the security holders who are presently entitled to the income under the constitution.

Investments and financial instruments held at fair value may include unrealised capital gains. Should such a gain be realised that portion of the gain that is subject to capital gains tax will be distributed to security holders so that the Trust is not subject to capital gains tax.

Realised capital losses are not distributed to security holders but are retained in the Trust to be offset against any future realised capital gains. If realised capital gains exceed realised capital losses the excess is distributed to the security holders.

Distributions paid and payable are recognised as distributions within equity. A liability is recognised where distributions have been declared but not been paid. Distributions paid are included in cash flows from financing activities in the consolidated statement of cash flows.

6. EARNINGS PER UNIT/STAPLED SECURITY

6. EARNINGS PER UNIT/STAPLED SECURITY
	30 Jun 2017	30 Jun 2016
Basic and diluted earnings per CMA security (cents per security)	31.48	37.52
Earnings used in calculating basic and diluted earnings per security ($’000)	37,689	44,785
Weighted average number of CMA securities (‘000)	119,730	119,381
Basic and diluted earnings per CMR1 unit (cents per unit)	22.81	22.35
Earnings used in calculating basic and diluted earnings per unit ($’000)	27,309	26,676
Weighted average number of CMR1 units (‘000)	119,730	119,381

28 Centuria Metropolitan REIT Annual Report 2017

ASSETS AND LIABILITIES

7. TRADE AND OTHER RECEIVABLES

7. TRADE AND OTHER RECEIVABLES
	30 Jun 2017	30 Jun 2016
	$’000	$’000
Current
Trade debtors	259	72
Distributions receivable	–	173
Other current receivables	868	132
	1,127	377

Refer to Note 20 for details on fair value measurement and the Trust’s exposure to risks associated with financial assets (other receivables are not considered to be financial assets).

Trade receivables and other receivables are initially recognised at fair value and subsequently at amortised cost using the effective interest rate method, less an allowance for impairment. Due to the short-term nature of these financial rights, their carrying amounts are estimated to represent their fair values.

The carrying amounts of the Trust’s assets, other than those recorded at fair value, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognised directly in profit or loss.

8. INVESTMENT PROPERTIES

8. INVESTMENT PROPERTIES
	30 Jun 2017	30 Jun 2016
	$’000	$’000
Opening balance	398,730	323,110
Properties acquired on CUA acquisition	213,000	–
Purchase price of investment properties	–	43,025
Stamp duty and other transaction costs	–	2,491
Capital improvements	5,119	2,998
Total purchase costs	5,119	48,514
Gain on fair value before write-down of stamp duty and other transaction costs	17,180	25,737
Write-down of stamp duty and other transaction costs	–	(2,491)
Gain on fair value of investment properties	17,180	23,246
Change in deferred rent and lease incentives	428	3,263
Disposed deferred rent and lease incentives	938	–
Change in capitalised leasing fees	545	597
Disposals at fair value	(26,000)	–
Disposal costs	10	–
Closing balance^	609,950	398,730

^ The carrying amount of investment properties includes components related to deferred rent, capitalised lease incentives and leasing fees amounting to $9,138,000 (2016: $8,165,000).

During the year, the Trust acquired 438-517 Kingsford Smith Drive, QLD, 154 Melbourne Street, QLD, and 567 Swan Street, VIC as part of the acquisition of CUA. In addition, the Trust disposed of 14 Mars Road, Lane Cove NSW for a gross sale price of $26,000,000.

Centuria Metropolitan REIT Annual Report 2017 29

Notes to the consolidated financial statements For the year ended 30 June 2017

ASSETS AND LIABILITIES

8. INVESTMENT PROPERTIES CONTINUED

Leases as lessor

The Trust leases out its investment properties under operating leases. The future minimum lease payments receivable under noncancellable leases are as follows:

cancellable leases are as follows:
						30 Jun 2017 30		Jun 2016
							$’000	$’000
Less than one year						41,710		32,117
Between one and fve years						104,726		88,856
More than fve years						27,062		20,431
						173,498		141,404
								Last
	30 Jun 2017	30 Jun 2016	30 Jun 2017	30 Jun 2016	30 Jun 2017	30 Jun 2016		Independent
	Fair Value	Fair Value	Capitalisation	Capitalisation	Discount	Discount	30 Jun 2017	Valuation
Property	$’000	$’000	Rate	Rate	Rate	Rate	Valuer	Date
3 Carlingford Rd, Epping NSW	27,000	27,000	6.25%	6.25%	7.00%	7.50%	Independent	Jun 2017
44 Hampden Rd, Artarmon NSW^	9,000	8,500	8.00%	8.50%	8.75%	9.00%	Director	May 2016
1 Richmond Rd, Keswick SA	28,500	26,700	8.50%	9.25%	8.75%	9.75%	Director	May 2016
9 Help St, Chatswood NSW	65,000	55,100	6.50%	7.25%	7.50%	8.50%	Independent	Jun 2017
14 Mars Rd, Lane Cove NSW	–	21,500	–	8.00%	–	8.00%	N/A	May 2016
555 Coronation Dr, Brisbane QLD	31,500	33,100	8.00%	8.25%	8.75%	8.75%	Director	May 2016
149 Kerry Rd, Archerfeld QLD	25,500	24,500	7.25%	7.50%	8.25%	8.50%	Director	May 2016
13 Ferndell St, Granville NSW	18,200	17,800	7.50%	7.75%	8.75%	9.25%	Director	May 2016
35 Robina Town Ctr Dr, Robina QLD	51,000	48,800	7.25%	7.50%	8.25%	8.50%	Director	May 2016
54 Marcus Clarke St, Canberra ACT	18,250	16,930	8.75%	9.25%	9.00%	9.00%	Director	May 2016
60 Marcus Clarke St, Canberra ACT	56,000	52,800	7.75%	8.25%	8.00%	8.25%	Director	May 2016
131-139 Grenfell St, Adelaide SA	19,500	20,500	8.50%	8.75%	8.75%	9.00%	Director	May 2016
203 Pacifc Hwy, St Leonards NSW* ^	47,500	45,500	7.00%	7.50%	7.50%	8.00%	Independent	Jun 2017
438-517 Kingsford Smith Dr, Hamilton QLD	74,500	–	7.00%	–	8.00%	–	Director	Apr 2016
154 Melbourne St, South Brisbane QLD	77,500	–	7.00%	–	7.75%	–	Director	Mar 2015
567 Swan St, Richmond VIC	61,000	–	6.25%	–	7.25%	–	Director	May 2016
	609,950	398,730

The Trust owns 50% of 203 Pacific Highway, St Leonards NSW.

^ The Trust holds a leasehold interest in 44 Hampden Road, Artarmon NSW and 203 Pacific Highway, St Leonards NSW.

The Trust’s weighted average capitalisation rate for the year is 7.19% (2016: 7.86%).

30 Centuria Metropolitan REIT Annual Report 2017

Recognition and measurement

Investment properties are properties held either to earn rental income or for capital appreciation or for both. Investment properties are initially recorded at cost which includes stamp duty and other transaction costs. Subsequently, the investment properties are measured at fair value with any change in value recognised in profit or loss. The carrying amount of investment properties includes components relating to deferred rent, lease incentives and leasing fees.

An investment property is derecognised upon disposal. Any gain or loss arising on derecognition of the property (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the period in which the property is derecognised.

Valuation techniques and significant unobservable inputs

The fair value of the investment properties were determined by the directors of the Responsible Entity or by an external, independent valuation company having an appropriate recognised professional qualification and recent experience in the location and category of the properties being valued. Fair value is based on market values, being the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.

The valuations were prepared by considering the following valuation methodologies:

Capitalisation Approach: the annual net rental income is capitalised at an appropriate market yield to arrive at the property’s market value. Appropriate capital adjustments are then made where necessary to reflect the specific cash flow profile and the general characteristics of the property.
Discounted Cash Flow Approach: this approach incorporates the estimation of future annual cash flows over a 10 year period by reference to expected rental growth rates, ongoing capital expenditure, terminal sale value and acquisition and disposal costs. The present value of future cash flows is then determined by the application of an appropriate discount rate to derive a net present value for the property.
Direct Comparison Approach: this approach identifies comparable sales on a dollar per square metre of lettable area basis and compares the equivalent rates to the property being valued to determine the property’s market value.

The valuations reflect, when appropriate; the type of tenants actually in occupation or responsible for meeting lease commitments or likely to be in occupation after letting of vacant accommodation and the market’s general perception of their credit-worthiness; the allocation of maintenance and insurance responsibilities between the lessor and lessee; and the remaining economic life of the property. It has been assumed that whenever rent reviews or lease renewals are pending with anticipated reversionary increases, all notices and, where appropriate, counter notices have been served validly and within the appropriate time.

Fair value measurement

The fair value measurement of investment property has been categorised as a Level 3 fair value as it is derived from valuation techniques that include inputs that are not based on observable market data (unobservable inputs).

	Fair value measurement	Fair value measurement
	sensitivity to signifcant	sensitivity to signifcant
Signifcant unobservable inputs	increase in input	decrease in input
Net passing rent	Increase	Decrease
Gross market rent	Increase	Decrease
Net market rent	Increase	Decrease
Capitalisation rate	Decrease	Increase
Terminal Yield	Decrease	Increase
Discount Rate	Decrease	Increase

Capitalisation and discount rates are considered significant Level 3 inputs. Refer to Note 16 for further information.

Centuria Metropolitan REIT Annual Report 2017 31

Notes to the consolidated financial statements For the year ended 30 June 2017

ASSETS AND LIABILITIES

9. INVESTMENTS HELD IN LISTED TRUSTS

9. INVESTMENTS HELD IN LISTED TRUSTS
	30 Jun 2017	30 Jun 2016
	$’000	$’000
Current
Investment in GPT Metro Offce Fund (‘GMF’)
Opening balance	11,113	–
Acquisitions	–	10,755
Gain on fair value (excluding transaction costs)	89	358
Disposals at fair value	(11,202)	–
Closing balance of investment in GMF	–	11,113
Net gain/(loss) on fair value of investment in GMF
Gain on fair value (excluding transaction costs)	89	358
Brokerage and other transaction costs	–	(644)
Distribution income	–	173
Net gain/(loss) on fair value after transaction costs	89	(113)
Investment in Centuria Urban REIT (‘CUA’)
Opening balance	–	–
Acquisitions^	14,476	–
Gain on fair value (excluding transaction costs)	554	–
Disposals at fair value	(15,030)	–
Closing balance of investment in CUA	–	–
Net gain/(loss) on fair value of investment in CUA
Gain on fair value (excluding transaction costs)	554	–
Distribution income	241	–
Net gain on fair value after transaction costs	795	–
Total closing balance of investments held in listed trusts	–	11,113
Total net gain on fair value of investments held in listed trusts	884	(113)

^ On 23 November 2016 the Trust entered into a contract for the acquisition of 6,423,084 units (representing 8.76%) of Centuria Urban REIT (previously known as 360 Capital Office Fund), and the acquisition settled on 9 January 2017. On 14 June 2017, the unitholders of CUA voted to approve the merger, from which point the Trust is taken to have control over CUA. As such, the Trust no longer holds these units as an investment held at fair value through profit or loss as the units are eliminated on consolidation (refer to Note 10).

A financial asset is designated as at fair value through profit or loss upon initial recognition if:

(a) Such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or

(b) The financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Trust’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or

(c) It forms part of a contract containing one or more embedded derivatives, and AASB 139 Financial Instruments: Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as fair value through profit and loss.

Financial assets at fair value through profit or loss are stated at fair value, with any resultant gain or loss recognised in profit or loss. Fair value is determined in the manner described in Note 20.

32 Centuria Metropolitan REIT Annual Report 2017

10. ACQUISITIONS OF SUBSIDIARIES

Centuria Metropolitan REIT No. 2 (‘CMR2’)

On 9 February 2017, the Responsible Entity announced a proposal for a corporate simplification strategy which involved the de-stapling of CMR1 and CMR2, and acquisition of 100% of the units in CMR2 by CMR1. On 15 March 2017, the unitholders of CMA voted to approve the simplification strategy, with an implementation date of 22 March 2017. On the implementation date, all of the units on issue in CMR2 were transferred to CMR1 in exchange for the issue of additional units in CMR1. As such, from this date CMR1 has been recognised as a wholly owned subsidiary within the Trust’s consolidated financial statements.

Centuria Urban REIT (‘CUA’)

On 3 March 2017, the Responsible Entity announced a merger proposal with CUA, of which it already owned an 8.76% interest, by way of acquiring 100% of the remaining units. On 14 June 2017, the unitholders of CUA voted to approve the merger, from which point the Trust is taken to have control over CUA. As such, from this date CUA’s financial performance and financial position has been included within the Trust’s consolidated financial statements. The Trust completed the acquisition of the remaining units effective 29 June 2017.

Details of the purchase consideration to acquire the controlling interest in CUA are as follows:

	30 Jun 2017	30 Jun 2016
	$’000	$’000
Cash paid	15,377	–
Units issued at fair value	144,142	–
Investments held at fair value through proft or loss	15,030	–
Total purchase consideration	174,549	–

The fair value of assets and liabilities assumed as a result of the acquisition are as follows:

	30 Jun 2017	30 Jun 2016
	$’000	$’000
Assets
Cash and equivalents	2,602	–
Trade and other receivables	846	–
Investment properties	213,000	–
Total assets	216,448	–
Liabilities
Trade and other payables	47,609	–
Derivatives	646	–
Total liabilities	48,255	–
Identifable net assets acquired	168,193	–
Add: Consolidated goodwill	6,356	–
Less: Impairment of consolidated goodwill	–	–
Total purchase consideration	174,549	–

Centuria Metropolitan REIT Annual Report 2017 33

Notes to the consolidated financial statements For the year ended 30 June 2017

ASSETS AND LIABILITIES

10. ACQUISITIONS OF SUBSIDIARIES CONTINUED

Recognition and measurement

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred measured at acquisition date fair value and the amount of any non-controlling interests in the acquiree. For each business combination, the Trust elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred.

When the Trust acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date.

If the business combination is achieved in stages, any previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognised in profit or loss.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests, and any previous interest held, over the net identifiable assets acquired and liabilities assumed. After initial recognition, goodwill is measured at cost less any accumulated impairment losses.

Goodwill is reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognised directly in profit or loss.

11. OTHER ASSETS

11. OTHER ASSETS
	30 Jun 2017	30 Jun 2016
	$’000	$’000
Non-current
Investment property deposits^	2,912	–
	2,912	–

^ On 29 June 2017 the Trust entered into a contract for the acquisition of an investment property at 2 Kendall Street, Williams Landing. The Trust paid a 5% deposit, equivalent to $2,912,000, with the balance of the purchase price of $58,240,000 payable upon practical completion, which is expected to be in 2019.

12. TRADE AND OTHER PAYABLES

12. TRADE AND OTHER PAYABLES
	30 Jun 2017	30 Jun 2016
	$’000	$’000
Current
Trade creditors and expenses payable	1,010	1,931
Interest payable	202	229
Distributions payable	5,224	5,075
Accrued investment property costs	988	1,810
Accrued investment transaction costs	–	599
Accrued subsidiary acquisition costs	3,676	–
Accrued equity raising costs	537	–
Other current creditors and accruals	7,116	1,581
	18,753	11,225

Refer to Note 21 for amounts payable to related parties.

34 Centuria Metropolitan REIT Annual Report 2017

Trade payables and other accounts payable are recognised when the Trust becomes obliged to make future payments resulting from the purchase of goods and services and are recorded initially at fair value, net of any attributable transaction costs. Subsequent to initial recognition they are measured at amortised cost.

A provision is recognised if, as a result of a past event, the Trust has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (where the effect of the time value of money is material).

13. BORROWINGS

13. BORROWINGS
	30 Jun 2017	30 Jun 2016
	$’000	$’000
Non-current
Secured loan	189,526	142,027
Borrowing costs	(1,784)	(937)
	187,742	141,090
At 30 June 2017, the Trust had the following secured debt facilities:
Total facilities – bank loans	260,000	150,000
Facilities used at reporting date – bank loans	(189,526)	(142,027)
Facilities unused at reporting date – bank loans	70,474	7,973

As at 30 June 2017, the Trust had $84,000,000 (2016: $84,000,000) of interest rate swaps hedged against its drawn debt. Refer to Note 14 for further details on interest rate swap contracts held at, and contracts executed subsequent to, 30 June 2017.

All facilities are interest only facilities and are secured by first mortgages over the Trust’s investment properties and a first ranking fixed and floating charge over all assets of the Trust.

The secured loans have covenants in relation to Loan to Value Ratio (‘LVR’) and Interest Coverage Ratio (‘ICR’) which the Trust has complied with during the year.

Borrowings are recorded initially at fair value, net of any attributable transaction costs. Subsequent to initial recognition they are measured at amortised cost using the effective interest rate method with any difference between the initial and recognised amount and redemption value being recognised in profit or loss over the period of borrowing and are derecognised when the contractual obligations are discharged, cancelled or expire.

Refer to Note 20 for details on the Trust’s exposure to risks associated with financial liabilities.

Centuria Metropolitan REIT Annual Report 2017 35

Notes to the consolidated financial statements For the year ended 30 June 2017

ASSETS AND LIABILITIES

14. DERIVATIVES

Interest rate swap contracts

Under interest rate swap contracts, the Trust agrees to exchange the difference between fixed and floating rate interest amounts calculated on agreed notional principal amounts. Such contracts enable the Trust to mitigate the risk of changing interest rates on the cash flow exposures on the variable rate debt held. The following table details the specific instruments held at reporting date, showing the notional principal amounts and contracted fixed interest rate of each contract:

			Notional
		Contracted	amount of	Fair value	Fair value
		fxed interest	contract	of assets	of liabilities
Type of contract	Maturity Date	rate	$’000	$’000	$’000
30 Jun 2017
Interest rate swap	10 Dec 19	2.85%	48,000	–	(1,053)
Interest rate swap	10 Jul 20	2.55%	36,000	–	(562)
Interest rate swap	21 Jan 20	2.61%	20,000	–	(373)
			104,000	–	(1,988)
30 Jun 2016
Interest rate swap	10 Dec 19	2.85%	48,000	–	(1,889)
Interest rate swap	10 Jul 20	2.55%	36,000	–	(1,217)
			84,000	–	(3,106)

On the 6th of July 2017, the Trust entered into two new interest rate swap arrangements which totalled $100,000,000, at a weighted average rate of 2.18%. Subsequent to this, on 28 July 2017 a further $40,000,000 swap agreement was entered into at a fixed rate of 2.22%. This has given certainty to the financing costs of the Trust with approximately 56% of the current drawn debt hedged.

Derivatives are initially recognised at fair value and attributable transaction costs are recognised in profit or loss when incurred. Subsequent to initial recognition, derivatives are measured at fair value, and the resulting gain or loss is recognised in profit or loss.

The fair value of interest rate swaps is the estimated amount that the entity would receive or pay to transfer the swap at reporting date, taking into account current interest rates and the current creditworthiness of the swap counterparties.

The Trust has not applied hedge accounting to its derivative financial instruments.

Refer to Note 20 for details on the Trust’s exposure to risks associated with financial liabilities.

15. ISSUED CAPITAL – CMR1

	30 Jun 2017 30 Jun 2016
	Units ‘000 $’000 Units ‘000 $’000
Opening balance CMR2 applications – 22 Mar 2017 Consolidation – 22 Mar 2017 CUA unitholder applications – 29 Jun 2017 Distributions reinvested Equity raising costs	119,407 129,328 119,167 129,110 95,526 124,704 – – (95,526) – – – 58,834 144,142 – – – – 240 265 – (537) – (47)
Closing balance	178,241 397,637 119,407 129,328

CMR1 is the parent of the Trust. All units in CMR1 are of the same class and carry equal rights to capital and income distributions.

An equity instrument is any contract that evidences a residual interest in the assets of a Trust after deducting all of its liabilities. Equity instruments issued by the Trust are recognised at the proceeds received, net of direct issue costs.

36 Centuria Metropolitan REIT Annual Report 2017

16. NON-CONTROLLING INTEREST – CMR2

16. NON-CONTROLLING INTEREST – CMR2
	30 Jun 2017 30 Jun 2016
	Units ‘000 $’000 Units ‘000 $’000
Opening balance Redemptions – 22 Mar 2017 Distributions reinvested Equity raising costs Distributions to members of CMR2 Net proft attributable to members of CMR2	119,407 119,250 119,167 110,530 (119,407) (124,704) – – – – 240 229 – – – (47) – (4,926) – (9,571) – 10,380 – 18,109
Closing balance	– – 119,407 119,250

On 22 March 2017, the units in CMR1 were unstapled to the units in CMR2 and CMR1 acquired 100% of the units in CMR2. Accordingly, there is no non-controlling interest of the Trust following this date.

17. CONTINGENT ASSETS, LIABILITIES AND COMMITMENTS

Unless otherwise stated in this report, the Trust has no contingent assets, liabilities or commitments as at 30 June 2017.

Centuria Metropolitan REIT Annual Report 2017 37

Notes to the consolidated financial statements For the year ended 30 June 2017

CASH FLOW

18. CASH AND CASH EQUIVALENTS

18. CASH AND CASH EQUIVALENTS
	30 Jun 2017	30 Jun 2016
	$’000	$’000
Cash and bank balances	8,187	4,911
	8,187	4,911
Reconciliation of proft for the year to net cash fows from operating activities:
Net proft for the year	37,689	44,785
Adjustments:
Net gain on fair value of investment properties	(17,180)	(23,246)
Net (gain)/loss on fair value of listed investments	(470)	113
(Gain)/loss on fair value of derivatives	(1,420)	2,373
Disposed deferred rent and lease incentives	(938)	–
Change in deferred rent and lease incentives	(428)	(3,263)
Change in capitalised leasing fees	(545)	(597)
Borrowing cost amortisation	367	193
Transaction costs	587	–
Changes in operating assets and liabilities:
(Increase)/decrease in receivables	(142)	28
Decrease/(increase) in other assets	7	(53)
Increase in payables	4,478	2,573
Net cash generated by operating activities	22,005	22,906

Cash and cash equivalents comprise of cash on hand and cash in banks, net of outstanding bank overdrafts.

38 Centuria Metropolitan REIT Annual Report 2017

OTHER NOTES

19. AUDITOR’S REMUNERATION

19. AUDITOR’S REMUNERATION
	30 Jun 2017	30 Jun 2016
	$	$
KPMG:
Audit and review of fnancials	150,000	118,500
Taxation and property due diligence services	5,118	63,000
Financial due diligence services & advice	–	143,000
	155,118	324,500

20. FINANCIAL INSTRUMENTS

A. Fair value

The fair values of financial assets and financial liabilities, together with the carrying amounts in the consolidated statement of financial position are as follows:

fnancial position are as follows:
			Carrying
		Fair Value	amount	Fair value
	Measurement	Hierarchy	$’000	$’000
30 Jun 2017
Financial liabilities
Payables (excluding non-fnancial payables)	Amortised Cost	Not applicable	11,779	11,779
Borrowings (excluding borrowing costs)	Amortised Cost	Not applicable	189,526	189,526
Interest rate swaps	Fair Value	Level 2	1,988	1,988
			203,293	203,293
30 Jun 2016
Financial assets
Investments in listed trust		Level 2	11,113	11,113
			11,113	11,113
Financial liabilities
Payables (excluding non-fnancial payables)	Amortised Cost	Not applicable	9,685	9,685
Borrowings (excluding borrowing costs)	Amortised Cost	Not applicable	142,027	142,027
Interest rate swaps	Fair Value	Level 2	3,106	3,106
			154,818	154,818

The directors of the Responsible Entity consider that the carrying amount of the financial assets and financial liabilities recorded at amortised cost in the financial statements approximates their fair value.

Valuation techniques

The fair value of financial assets and financial liabilities are determined as follows:

The fair value of interest rate swaps are determined using a discounted cash flow analysis. The future cash flows are estimated based on forward interest rates (from observable yield curves at the end of the reporting period) and contracted interest rates, discounted at a rate that reflects the credit risk of various counterparties.

The Trust classifies fair value measurements using a fair value hierarchy that reflects the subjectivity of the inputs used in making the measurements. The fair value hierarchy has the following levels:

Level 1: derived from quoted prices (unadjusted) in active markets for identical assets or liabilities that the Trust can access at the measurement date.
Level 2: derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Centuria Metropolitan REIT Annual Report 2017 39

Notes to the consolidated financial statements For the year ended 30 June 2017

OTHER NOTES

20. FINANCIAL INSTRUMENTS CONTINUED

A. Fair value continued

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.

The determination of what constitutes ‘observable’ requires significant judgement by the Responsible Entity. The Responsible Entity considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.

Fair value hierarchy

The table below sets out the Trust’s financial assets and liabilities (by class) measured at fair value according to the fair value hierarchy:

value hierarchy:
	Total	Level 1	Level 2	Level 3
	$’000	$’000	$’000	$’000
30 Jun 2017
Financial liabilities held at fair value
Interest rate swaps	1,988	–	1,988	–
	1,988	–	1,988	–
30 Jun 2016
Financial assets held at fair value
Investments in listed trusts	11,113	–	11,113	–
	11,113	–	11,113	–
Financial liabilities held at fair value
Interest rate swaps	3,106	–	3,106	–
	3,106	–	3,106	–

There were no transfers between Level 1 and Level 2 during the period.

The Responsible Entity obtains independent valuations to measure the fair value of financial instruments at each reporting date. The Responsible Entity assesses and documents the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of International Financial Reporting Standards, including the level in the fair value hierarchy that the resulting fair value estimate should be classified.

B. Financial risk management objectives

The Trust is exposed to a variety of financial risks as a result of its activities. These potential risks include market risk (interest rate risk), credit risk and liquidity risk. The Trust’s risk management and investment policies seek to minimise the potential adverse effects of these risks on the Trust’s financial performance.

C. Market risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. The Trust’s activities expose it primarily to the financial risks of changes in interest rates. The Trust enters into derivative financial instruments to manage its exposure to interest rate risk and these include interest rate swaps that the Trust has entered into to mitigate the risk of rising interest rates.

There has been no change to the Trust’s exposure to market risks or the manner in which it manages and measures the risk from the previous year.

40 Centuria Metropolitan REIT Annual Report 2017

Interest rate risk management

In respect of income-earning financial assets and interest-bearing financial liabilities, the following table indicates their effective interest rates at reporting date:

interest rates at reporting date:
Note	30 Jun 2017 30 Jun 2016
	Effective interest rate Total $’000 Effective interest rate Total $’000
Financial assets Cash and cash equivalents 18	1.00% 8,187 1.08% 4,911
	8,187 4,911
Financial liabilities Borrowings (excluding borrowing costs) 13 Interest rate swaps 14	3.23% 189,526 3.09% 142,027 2.70% 1,988 2.72% 3,106
	191,514 145,133

The sensitivity analysis below has been determined based on the Trust’s exposure to interest rates at the reporting date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period, in the case of financial assets and financial liabilities that have variable interest rates.

At reporting date, if variable interest rates had been 100 (2016: 100) basis points higher or lower and all other variables were held constant, the impact to the Trust would have been as follows:

Variable + / -	Sensitivity impact
	Rate increase $’000 Rate decrease $’000
30 Jun 2017 Net proft/(loss) 1.00%	1,668 (1,730)
	1,668 (1,730)
30 Jun 2016 Net proft/(loss) 1.00%	2,343 (2,467)
	2,343 (2,467)

The Trust’s sensitivity to interest rates calculated above is after taking into account the impact of interest rate changes on the interest rate swap fair values. The methods and assumptions used to prepare the sensitivity analysis have not changed during the year.

D. Credit risk

The Trust has adopted the policy of dealing with creditworthy counterparties and obtaining sufficient collateral or other security where appropriate, as a means of mitigating the financial risk of financial loss from default. The Trust’s exposure and the credit ratings of its counterparties are continuously monitored by the Responsible Entity.

At 30 June 2017, the main financial assets exposed to credit risk are trade receivables. There were no significant concentrations of credit risk to counterparties at 30 June 2017. Refer to Note 7 for details of trade receivables.

The credit risk on receivables is minimal because of the proven remittance history of the counterparties. Credit risk from balances with banks and financial institutions is managed by the Responsible Entity in accordance with the Trust’s investment policy. Cash investments are made only with approved counterparties.

The carrying amounts of financial assets best represent the maximum credit risk exposure at the reporting date.

Centuria Metropolitan REIT Annual Report 2017 41

Notes to the consolidated financial statements

For the year ended 30 June 2017

OTHER NOTES

20. FINANCIAL INSTRUMENTS CONTINUED

E. Liquidity risk

The Trust’s strategy of managing liquidity risk is in accordance with the Trust’s investment strategy. The Trust manages liquidity risk by maintaining adequate banking facilities and through the continuous monitoring of forecast and actual cash flows and aligning the profiles of financial assets and liabilities.

The following tables summarise the maturity profile of the Trust’s financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Trust can be required to pay. The tables include both interest and principal cash flows:

		Total principal	Less than
	Effective	and interest	1 year	1 to 5 years	5+ years
	interest rate	$’000	$’000	$’000	$’000
30 Jun 2017
Trade and other payables	–	11,779	11,779	–	–
Borrowings	3.23%	207,935	6,129	201,806	–
Derivative fnancial instruments	2.70%	1,988	1,988	–	–
		221,702	19,896	201,806	–
30 Jun 2016
Trade and other payables	–	9,685	9,685	–	–
Borrowings	3.09%	167,647	4,631	163,016	–
Derivative fnancial instruments	2.72%	3,417	935	2,482	–
		180,749	15,251	165,498	–

The principal amounts included in the above borrowings is $189,526,000 (2016: $142,027,000).

42 Centuria Metropolitan REIT Annual Report 2017

21. RELATED PARTIES

Key management personnel

The Trust does not employ personnel in its own right. However it is required to have an incorporated Responsible Entity to manage the activities of the Trust and this is considered the key management personnel. The directors of the Responsible Entity are key management personnel of that entity and their names are:

Jason Huljich

Peter Done

Matthew Hardy

Darren Collins

No compensation is paid directly by the Trust to any of the directors or key management personnel of the Responsible Entity.

Key management personnel loan disclosures

The Trust has not made, guaranteed or secured, directly or indirectly, any loans to the key management personnel or their personally related entities at any time during the reporting period.

Responsible entity fees and other transactions

The Responsible Entity is entitled to a management fee which is calculated at 0.55% of the gross value of assets held plus GST.

At reporting date an amount of $247,384 (2016: $188,802) owing to the Responsible Entity and its related parties was included in trade and other payables. The payables are non-interest bearing with payment terms and conditions consistent with normal commercial practices.

The following fees were paid and/or payable to the Responsible Entity and its related parties from the Trust and all subsidiaries during the financial year:

during the fnancial year:
	30 Jun 2017	30 Jun 2016
	$	$
Leasing fees	575,531	135,250
Management fees	2,385,042	1,984,964
Custodian fees	4,438	–
Fund recoveries	38,865	–
Property management fees	477,359	340,229
Development fees	134,915	205,931
Other professional fees	16,902	34,362
	3,633,052	2,700,736

All transactions with related parties are conducted on normal commercial terms and conditions. From time to time Centuria Property Funds Limited, its directors or its director-related entities may buy or sell securities in the Trust. These transactions are on the same terms and conditions as those entered into by other Trust investors.

Centuria Urban REIT merger

On 9 January 2017, the Responsible Entity for CUA was acquired by Centuria Capital Group. As Centuria Capital Group also hold an ownership interest in the Responsible Entity for the Trust, CUA is considered a related party to the Trust from this date. On 3 March 2017, the Responsible Entity announced a merger proposal with CUA, of which it already owned an 8.76% interest, by way of acquiring 100% of the remaining units. On 14 June 2017, the unitholders of CUA voted to approve the merger and the Trust completed the acquisition of the remaining units effective 29 June 2017. During the period from 9 January 2017 to 14 June 2017, the Trust received a distribution of $240,866 from CUA.

Centuria Metropolitan REIT Annual Report 2017 43

Notes to the consolidated financial statements For the year ended 30 June 2017

OTHER NOTES

Securities in the Trust held by related parties

At 30 June 2017, the following related parties of the Responsible Entity hold units in the Trust:

	Closing	Closing
	securities held	interest held
30 Jun 2017
Centuria Capital No. 2 Offce Fund	12,890,787	7.23%
Over Fifty Guardian Friendly Society Limited	11,521,625	6.46%
Centuria Growth Bond Fund	4,739,200	2.66%
Centuria Capital No. 2 Fund	2,590,837	1.45%
Centuria Balanced Bond Fund	357,143	0.20%
Roger William Dobson	208,334	0.12%
Centuria High Growth Fund	150,000	0.08%
Nicholas Collishaw	132,511	0.07%
Peter Done	75,000	0.04%
John McBain	63,158	0.04%
Darren Collins	20,000	0.01%
Matthew Hardy	17,080	0.01%
Jason Huljich	3,174	0.002%
	32,768,849	18.37%
30 Jun 2016
Over Fifty Guardian Friendly Society Limited	11,521,625	9.65%
Centuria Growth Bond Fund	4,739,200	3.97%
Centuria Capital Limited	2,590,837	2.17%
Centuria Balanced Bond Fund	357,143	0.30%
Roger William Dobson	208,334	0.17%
Nicholas Collishaw	132,511	0.11%
Peter Done	75,000	0.06%
John McBain	63,158	0.05%
Darren Collins	20,000	0.02%
Matthew Hardy	17,080	0.01%
Jason Huljich	3,174	0.003%
	19,728,062	16.51%

No other related parties of the Responsible Entity held units in the Trust.

21. OTHER TRANSACTIONS WITHIN THE TRUST

No director has entered into a material contract with the Trust since the end of the previous year and there were no material contracts involving directors’ interests subsisting at year end.

44 Centuria Metropolitan REIT Annual Report 2017

22. EVENTS SUBSEQUENT TO REPORTING DATE

23. PARENT ENTITY DISCLOSURES

23. PARENT ENTITY DISCLOSURES
	30 Jun 2017	30 Jun 2016
	$’000	$’000
Financial position*
Assets
Current assets	10,650	5,352
Non-current assets	293,561	152,654
Total assets	304,211	158,006
Liabilities
Current liabilities	10,037	5,363
Non-current liabilities	4,293	4,293
Total liabilities	14,330	9,656
Equity
Issued capital	272,933	129,328
Retained earnings	16,948	19,022
Total equity	289,881	148,350
Financial performance*
Proft for the year*	27,309	26,676
Total comprehensive income for the year	27,309	26,676

The above table represents the stand alone financial position and performance of CMR1 and does not include the financial position or performance of its subsidiaries. Accordingly, the amounts reflected above may be different from the consolidated financial statements.

At reporting date, CMR1 has not entered into any guarantees or commitments to purchase property plant and equipment.

24. ADDITIONAL INFORMATION

The registered office and principal place of business of the Trust and the Responsible Entity are as follows:

Registered office: Suite 39.01, Level 39, 100 Miller Street NORTH SYDNEY NSW 2060

Principal place of business: Suite 39.01, Level 39, 100 Miller Street NORTH SYDNEY NSW 2060

Centuria Metropolitan REIT Annual Report 2017 45

Directors’ Declaration

The directors of Centuria Property Funds Limited, the Responsible Entity of Centuria Metropolitan REIT (‘the Trust’), declare that:

(a) in the directors’ opinion, there are reasonable grounds to believe that the Trust will be able to pay its debts as and when they become due and payable;
(b) the attached financial statements and notes thereto are in compliance with International Financial Reporting Standards, as stated in Note 1 to the financial statements; and
(c) in the directors’ opinion, the attached financial statements and notes 1 to 24 are in accordance with the Corporations Act 2001, including compliance with Australian Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements, and giving a true and fair view of the Trust’s financial position as at 30 June 2017 and of its performance for the financial year ended on that date.

Signed in accordance with a resolution of the board of directors of the Responsible Entity made pursuant to s.295(5) of the Corporations Act 2001.

Peter Done Director

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Jason Huljich Director

Dated at Sydney this 14th day of August 2017.

46 Centuria Metropolitan REIT Annual Report 2017

Independent Auditor’s Report

To the unitholders of Centuria Metropolitan REIT

Opinion

We have audited the Financial Report of Centuria Metropolitan REIT (the Group).

In our opinion, the accompanying Financial Report of the Group is in accordance with the Corporations Act 2001 , including:

giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its financial performance for the year ended on that date; and
complying with Australian Accounting Standards and the Corporations Regulations 2001 .

The Financial Report comprises:

Consolidated statement of financial position as at 30 June 2017
Consolidated statement of profit or loss and other comprehensive income, Consolidated statement of changes in equity, and Consolidated statement of cash flows for the year then ended
Notes including a summary of significant accounting policies
Directors’ Declaration.

The Group consists of Centuria Metropolitan REIT and its controlled entities at the year-end or from time to time during the financial year.

Basis for opinion

We conducted our audit in accordance with Australian Auditing Standards . We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report.

We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code.

Key Audit Matters

The Key Audit Matter we identified is:

Valuation of Investment Properties

Key Audit Matters are those matters that, in our professional judgment, were of most significance in our audit of the Financial Report of the current period.

These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

Liability limited by a scheme approved under Professional Standards Legislation.

Centuria Metropolitan REIT Annual Report 2017

Directors’ Report

Valuation of Investment Properties ($610m)

Refer to Note 8 to the Financial Report

The key audit matter

How the matter was addressed in our audit

The valuation of investment properties is a key audit matter as they are significant in value to the Group and significant judgment is required in estimating their value.

Investment properties are valued at fair value and the fair value is determined using internal methodologies or through the use of external valuation experts.

The valuation methodology for investment properties require significant judgments on the following inputs used:

capitalisation rates;
discount rates;
market rents;
vacancy levels;
projections of capital expenditure;

Our procedures included:

Evaluating management’s process regarding the preparation, review and approval of the valuation of investment properties;
Assessing whether the methodology used in the valuation of investment properties was consistent with accounting standards;

For a sample of investment properties:

Assessing the competence and objectivity of external independent experts and internal valuers; and
Challenging key assumptions including capitalisation rates, discount rates, market rents, vacancy levels, projections of capital expenditure and leasing incentives by benchmarking to external market data and historical performance of the asset.
leasing incentives.

Other Information

Other Information is financial and non-financial information in Centuria Metropolitan REIT’s annual reporting which is provided in addition to the Financial Report and the Auditor's Report. The Directors of Centuria Property Funds Limited (the Responsible Entity) responsible for the Other Information.

The Other Information we obtained prior to the date of this Auditor’s Report was the Directors’ Report, Corporate Governance Statement and Additional ASX Information. The remaining sections of the Group’s annual reporting relating to Fund Update, Strategies and Objectives are expected to be made available to us after the date of the Auditor's Report.

Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not and will not express an audit opinion or any form of assurance conclusion thereon.

In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report.

48 Centuria Metropolitan REIT Annual Report 2017

Responsibilities of the Directors for the Financial Report

The Directors of Centuria Property Funds Limited are responsible for:

preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error
assessing the Group’s ability to continue as a going concern. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they 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 Financial Report

Our objective is:

to obtain reasonable assurance about whether the Financial Report as a whole is 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 Australian Auditing Standards will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error. They 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 this Financial Report.

A further description of our responsibilities for the Audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_files/ar2.pdf. This description forms part of our Auditor’s Report.

KPMG

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----- Start of picture text -----

Nigel Virgo
Partner
Sydney
14 August 2017
----- End of picture text -----

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----- Start of picture text -----

45
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Centuria Metropolitan REIT Annual Report 2017 49

Corporate Governance Statement For the year ended 30 June 2017

The current Corporate Governance Statement can be found on the Centuria website at http://www.centuria.com.au/listed-property/corporate-governance/

50 Centuria Metropolitan REIT Annual Report 2017

As at 1 August 2017

Additional ASX information

DISTRIBUTION OF HOLDERS OF SECURITIES

	Number of	Number of	Percentage of
Holding range	securities	holders	total (%)
1 to 1,000	72,991	302	0.04
1,001 to 5,000	2,414,344	700	1.18
5,001 to 10,000	5,861,998	743	2.86
10,001 to 100,000	35,457,800	1,318	17.29
100,001 and over	161,261,337	93	78.63
Total	205,068,470	3,156	100.00

SUBSTANTIAL SECURITY HOLDERS

SUBSTANTIAL SECURITY HOLDERS
	Number of	Percentage of
	securities	total (%)
CITICORP NOMINEES PTY LIMITED	37,231,191	18.16
J P MORGAN NOMINEES AUSTRALIA LIMITED	36,086,793	17.60
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED	17,145,124	8.36
NATIONAL NOMINEES LIMITED	15,399,078	7.51
CENTURIA INVESTMENT HOLDINGS PTY LIMITED	14,904,973	7.27
Total	120,767,159	58.90

VOTING RIGHTS

All securities carry one vote per security without restriction.

TOP 20 SECURITY HOLDERS

TOP 20 SECURITY HOLDERS
	Number of	Percentage of
	securities	total (%)
CITICORP NOMINEES PTY LIMITED	37,231,191	18.16
J P MORGAN NOMINEES AUSTRALIA LIMITED	36,086,793	17.60
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED	17,145,124	8.36
NATIONAL NOMINEES LIMITED	15,399,078	7.51
CENTURIA INVESTMENT HOLDINGS PTY LIMITED	14,904,973	7.27
BNP PARIBAS NOMINEES PTY LTD	4,926,685	2.40
CENTURIA FUNDS MANAGEMENT LIMITED	2,995,656	1.46
WYLLIE GROUP PTY LTD	2,200,000	1.07
G C F INVESTMENTS PTY LTD	1,817,227	0.89
CONTEMPLATOR PTY LTD	1,452,779	0.71
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED – A/C 2	1,348,168	0.66
AMP LIFE LIMITED	1,327,349	0.65
SANDHURST TRUSTEES LTD	1,155,000	0.56
TRISTAR METALS PTY LTD	970,000	0.47
HORRIE PTY LTD	891,912	0.43
PERSHING AUSTRALIA NOMINEES PTY LTD	874,038	0.43
SOUTH CREEK INVESTMENTS PTY LTD	850,000	0.41
CITICORP NOMINEES PTY LIMITED	703,982	0.34
PAKLITE HOLDINGS PTY LTD	689,939	0.34
AVANTEOS INVESTMENTS LIMITED <1703553 JOHNSON A/C>	678,139	0.33
Total	143,648,033	70.05

Centuria Metropolitan REIT Annual Report 2017 51

Disclaimer and definitions

Disclaimers

Important information on the performance figure referred to on page 3 of the Annual Report

The total return figure for CMA on page 3 is based on the movement in unit price from inception of the fund in December 2014 to close of market on 21 August 2017, plus distributions declared during that period and assumes no reinvestment of distributions. The ASX AREIT 300 Accumulation index measures price growth and assumes that dividends are reinvested. http://www.asx.com.au/products/capitalisation-indices.htm

Definitions

Distributable earnings is a financial measure which is not prescribes by Australian Accounting Standard (AAS) and represents the profit under AAS adjusted for specific non-cash and significant items. The directors consider that distributable earnings reflect the core earnings of CMA.

52 Centuria Metropolitan REIT Annual Report 2017

Corporate directory

Contact Us

Share Registry Enquiries Computershare Investor Services GPO Box 2975 Melbourne VIC 3001 Telephone: 1300 855 080 Mail to

Centuria Capital Limited Reply Paid 695, Melbourne VIC 8060 (no stamp required)

Head Office Level 39, 100 Miller Street Sydney NSW 2060 Telephone: (02) 8923 8923 Facsimile: (02) 9460 2960 [email protected]

Shareholder Enquiries

Centuria Capital Limited, Share Registry, GPO Box 2975

Melbourne VIC 3001 Telephone: 1800 11 29 29

Company Secretary

James Lonie Level 39, 100 Miller Street Sydney NSW 2060 Telephone: (02) 8923 8923 Facsimile: (02) 9460 2960

AI assistant

CENTURIA OFFICE REIT — Annual Report 2017

64683_rns_2017-09-25_f4cc709f-3f75-44d0-aa4c-df88fdb1003b.pdf

26 September 2017

Dear Securityholder,

Centuria Capital Group

Financial performance in line with guidance

Maximising income and value growth

CMA’s portfolio is well positioned to ensure occupancy and income continue to be maximised.

Strategic transactions

Corporate simplification

Sale of 14 Mars Road, Lane Cove, NSW

Merger with Centuria Urban REIT

Acquisition of 2 Kendall Street, Williams Landing, VIC

Acquisition of 42-46 Colin Street, West Perth, WA

Inclusion in the S&P/ASX 300 Index

Acquisition of 144 Stirling Street, Perth, WA

Disciplined capital management

Debt profile

Capital raising

The Centuria Listed Property Team

Strategy

Guidance

FY17 results

Geographic diversification (by value)

Tenant composition (by income)

Weighted average lease expiry (WALE)

Top 10 tenants (by gross income)

NSW

QLD

WA

ACT

VIC

SA

Financial Statements

Directors’ Report

DIRECTORS OF THE RESPONSIBLE ENTITY

PRINCIPAL ACTIVITIES

SIGNIFICANT CHANGE IN THE STATE OF AFFAIRS

REVIEW OF OPERATIONS

Results

Investment property valuations

Leasing and occupancy

Capital management

Merger with Centuria Urban REIT

Outlook

Distributions

ENVIRONMENTAL REGULATION

OPTIONS GRANTED

EVENTS SUBSEQUENT TO BALANCE DATE

INDEMNIFYING OFFICERS OR AUDITORS

Indemnification

Insurance premiums

TRUST INFORMATION IN THE DIRECTORS’ REPORT

Responsible Entity interests

Other Trust information

AUDITOR’S INDEPENDENCE DECLARATION

ROUNDING OFF OF AMOUNTS

Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001

Consolidated statement of financial position

Consolidated statement of changes in equity

Consolidated statement of cash flows

ABOUT THE REPORT

1. GENERAL INFORMATION

Statement of compliance

Basis of preparation

Going concern

Net current liability position

Rounding of amounts

Functional and presentation currency

2. SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of consolidation

i. Stapled scheme

ii. Subsidiaries

ABOUT THE REPORT

2. SIGNIFICANT ACCOUNTING POLICIES CONTINUED

(a). Basis of consolidation continued

ii. Subsidiaries continued

(b) Adoption of new and revised accounting standards

(c) New standards and interpretations not yet adopted

CENTURIA OFFICE REIT Annual Report 2017