CENTURIA OFFICE REIT — Interim / Quarterly Report 2016

Feb 8, 2016

Centuria Metropolitan REIT

A stapled entity comprised of Centuria Metropolitan REIT No. 1 (ARSN: 124 364 718) and Centuria Metropolitan REIT No. 2 (ARSN: 124 364 656) and its controlled entities

Condensed Interim Financial Report For the half-year ended 31 December 2015

Centuria Metropolitan REIT Table of contents

For the half-year ended 31 December 2015

	Page
Directors' report
Auditor's independence declaration	5
Condensed consolidated statement of profit or loss and other comprehensive income	6
Condensed consolidated statement of financial position	7
Condensed consolidated statement of changes in equity	8
Condensed consolidated statement of cash flows	9
Notes to the condensed consolidated financial statements	10
Directors' declaration	21
Independent auditor's review report	22

For the half-year ended 31 December 2015

The directors of Centuria Property Funds Limited, the Responsible Entity of Centuria Metropolitan REIT ('the Fund' or 'CMA'), being a stapled scheme consisting of Centuria Metropolitan REIT No. 1 ('the Parent' or 'CMR1') and Centuria Metropolitan REIT No. 2 ('CMR2') and its controlled entities, present their report together with the financial report of the Fund for the half-year ended 31 December 2015 ('the period') and the independent auditor's review report thereon.

Directors of the Responsible Entity

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

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

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

Name	Appointed	Resigned
Matthew Coy	19 Oct 2009	14 Aug 2015
James Lonie	14 Aug 2015 Continuing

Principal activities

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

The principal activity of the Fund in the course of the period 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 Fund did not have any employees during the period.

Review of operations

Results

The results of the operations of the Fund are disclosed in the condensed consolidated statement of profit or loss and other comprehensive income of these financial statements. The Fund's profit from continuing operations for the half-year ended 31 December 2015 was \$19,324,000 (Dec-2014: \$1,847,000 loss).

1

For the half-year ended 31 December 2015

Review of operations (continued)

Investment property valuations

Valuations increased by \$12.5 million or 3.9% (excluding capital improvements) for the like for like portfolio of twelve assets for the six months to 31 December 2015. This was primarily driven by increases in the value of two of the Fund's assets, 9 Help Street, Chatswood NSW and 3 Carlingford Road, Epping NSW, which increased by \$3.5 million (7.2%) and \$4.0 million (19.0%) respectively (excluding capital improvements). A 50% interest in 203 Pacific Highway, St Leonards NSW was also acquired during the period for \$43.0 million and externally valued at \$43.5 million on acquisition. The total value of the Fund's portfolio at 31 December 2015 was \$379.2 million.

The weighted average capitalisation rate ('WACR') for the portfolio has firmed by 28 basis points from 8.43% at 30 June 2015 to 8.15% at 31 December 2015

At 31 December 2015, the Fund's Net Tangible Assets ('NTA') has increased to \$2.05 per stapled security and the Fund's gearing was 32.0%.

Leasing and occupancy

Since 30 June 2015, the Fund has secured 26 leasing transactions across a total 8,766 square metres, comprising 15 new leases over 5,409 square metres and 11 renewals over 3,357 square metres. Of the 8,766 square metres of transactions secured, 3,207 square metres relate to 2016 financial year expiries, 3,913 square metres of new leasing over previously vacant space and 1,646 square metres of 2017 financial year and beyond expiries.

Combined occupancy in the Fund's Canberra sub-portfolio has increased from 76% at acquisition in May 2015 to approximately 87% at 31 December 2015.

At 31 December 2015, the Weighted Average Lease Expiry ('WALE') was 4.8 years and occupancy in the portfolio was 97.3%.

Outlook

The Responsible Entity remains focused on actively managing the portfolio with a emphasis on tenant retention to ensure income and occupancy are maximised. The Responsible Entity will pursue acquisitions that fit the Fund's strategy and provide meaningful benefits to security holders.

The Fund's objective is to own quality Australian office assets located in established suburban and fringe CBD markets, particularly those markets where competing supply is being restrained, and well located industrial, warehouse and business park assets with long dated leases to quality tenants.

The Fund seeks to acquire 'fit for purpose' Australian office and industrial assets with stable and secure income streams that can be further enhanced through active asset management and repositioning strategies. The Responsible Entity continually assesses repositioning strategies that will deliver capital upside through the removal of leasing risk and subsequent income enhancement. This is in addition to initiatives involving asset refurbishment and enhancement, development planning and approvals, and zoning and use changes.

The Responsible Entity confirms distributable earnings guidance for the 2016 financial year of 17.9 cents per stapled security. The Fund's distribution guidance for the 2016 financial year is 17.0 cents per stapled security in line with previously announced guidance. This equates to a distribution annualised forecast yield of 8.54% on the 5 February 2016 closing price of \$1.99 per stapled security. Distributions will continue to be paid quarterly.

For the half-year ended 31 December 2015

Review of operations (continued)

Distributions

Distributions paid or payable in respect of the period were:

		31 Dec 2015		31 Dec 2014
	Cents per unit	\$'000	Cents per unit	\$'000
September quarter	4.25	5,075	0.76	626
1 Oct 2014 to 30 Nov 2014			0.50	416
December quarter ^	4.25	5,075		۰
	8.50	10,150	1.26	1,042
Allocation between stapled entities:
CMR1 - pre-listing			0.63	521
CMR1 - post-listing	4.49	5,365		÷.
	4.49	5,365	0.63	521
CMR2 - pre-listing	۰		0.63	521
CMR2 - post-listing	4.01	4,785	۰	٠
	4.01	4,785	0.63	521
	8.50	10,150	1.26	1,042

^ On 22 December 2015, the Responsible Entity announced a distribution for the December 2015 quarter of 4.25 cents per stapled security.

Key dates in connection with the December 2015 distribution are:

Event	Date
Ex-distribution date	29 Dec 15
Record date	31 Dec 15
Distribution payment date	12 Feb 16

The Fund will aim to distribute between 90% and 100% of its distributable earnings each year. The table below provides a reconciliation from the condensed consolidated statement of profit or loss and other comprehensive income to the distributable earnings for the period:

	31 Dec 2015 \$'000
Net profit for the period	19.324
Adjustments:
Gain on fair value of investment properties	(9,280)
Loss on fair value of derivative financial instruments	871
Straight-lining of rental income and amortisation of rental incentives	(756)
Lease incentives funded by vendors on property acquisitions	726
Distributable earnings for the period	10,885

For the half-year ended 31 December 2015

Auditor's independence declaration

The auditor's independence declaration is set out on page 5 and forms part of the directors' report for half-year ended 31 December 2015.

Rounding of amounts

In accordance with ASIC Class Order 98/100, dated 10 July 1998, amounts in the directors' report and the interim financial report 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.306(3) of the Corporations Act 2001.

Peter Ø6 Director

$9 + h$

Jason Huljich Director

2016.

Dated at Sydney this

Febru day of

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 (a stapled entity comprising Centuria Metropolitan REIT No. 1 and Centuria Metropolitan REIT No. 2 and its controlled entities)

I declare that, to the best of my knowledge and belief, in relation to the review for the half-year ended 31 December 2015 there have been:

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

KPMG

Steven Gatt Partner

Sydney

9 February 2016

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 Condensed consolidated statement of profit or loss and other comprehensive income

For the half-year ended 31 December 2015

Revenue Rent and recoverable outgoings
		17,644	6,707
Other income
Interest income		43	21
Gain on fair value of investment properties	4	9,280
Gain on fair value of derivative financial instruments			501
Expenses
Loss on fair value of investment properties			(3,763)
Loss on fair value of derivative financial instruments		(871)
Rates, taxes and other property outgoings		(3, 576)	(1,685)
Finance costs		(1,809)	(2,802)
Incentive fees waived			123
Management fees	10	(911)	(362)
Professional fees		(336)	(175)
Public Offer transaction costs			(382)
Other expenses		(140)	(30)
Profit/(loss) from continuing operations for the period		19,324	(1, 847)
Net profit/(loss) for the period		19,324	(1, 847)
Other comprehensive income
Other comprehensive income for the period		٠
Total comprehensive income/(loss) for the period		19,324	(1, 847)
Net profit/(loss) attributable to:
Members of the Parent - CMR1		12,220	(830)
Non-controlling interest - CMR2		7.104	(1,017)
		19,324	(1, 847)
Total comprehensive income/(loss) attributable to:
Members of the Parent - CMR1		12,220	(830)
Non-controlling interest - CMR2		7,104	(1,017)
		19,324	(1, 847)
Basic and diluted earnings per CMR1 unit
Units on issue (cents per unit)		10.25	(3.75)
Basic and diluted earnings per CMA stapled security
Stapled securities on issue (cents per stapled security)		16.20	(8.34)

Centuria Metropolitan REIT Condensed consolidated statement of financial position

As at 31 December 2015

	Note	31 Dec 2015 \$'000	30 Jun 2015 \$'000
Assets
Current assets
Cash and cash equivalents		5,709	6,273
Trade and other receivables		531	232
Prepayments		280	379
Total current assets		6,520	6,884
Non-current assets
Investment properties	$\overline{4}$	379,150	323,110
Total non-current assets		379,150	323,110
Total assets		385,670	329,994
Liabilities
Current liabilities
Trade and other payables		6,811	5,136
Provision for distributions		5.075	4,957
Total current liabilities		11,886	10,093
Non-current liabilities
Borrowings	5	127,350	83,912
Derivative financial instruments		1,604	733
Total non-current liabilities		128,954	84,645
Total liabilities		140,840	94,738
Net assets		244,830	235,256
Equity
Issued capital	6	129,328	129,110
Retained earnings/(accumulated losses)		2,471	(4, 384)
Non-controlling interest - CMR2	$\overline{7}$	113,031	110,530
Total equity		244,830	235,256

Centuria Metropolitan REIT Condensed consolidated statement of changes in equity

For the half-year ended 31 December 2015

		Retained
Note	Issued capital \$'000	earnings/(acc umulated losses) \$'000	Non- controlling interest \$'000	Total equity \$'000
	29,255	(6, 358)	20,269	43,166
		(830)	(1,017)	(1, 847)
	۰	(830)	(1, 017)	(1, 847)
	61,277	٠	53,033	114,310
	(7, 308)		(6, 324)	(13, 632)
	(2, 462)		(2, 131)	(4, 593)
8		(521)	(521)	(1,042)
	80,762	(7,709)	63,309	136,362
	129,110	(4, 384)	110,530	235,256
		12,220	7,104	19,324
	٠	12,220	7,104	19,324
6 & 7
6 & 7	265		229	494
6 & 7
6 & 7	(47)		(47)	(94)
8	۰	(5, 365)	(4,785)	(10, 150)
	129,328	2,471	113,031	244,830

Centuria Metropolitan REIT Condensed consolidated statement of cash flows

For the half-year ended 31 December 2015

Note	31 Dec 2015	31 Dec 2014
	\$'000	\$'000
Cash flows from operating activities
Receipts from customers	18,361	7,217
Payments to suppliers	(5,622)	(2.749)
Interest received	45	21
Interest paid	(1,695)	(2,607)
Net cash generated by operating activities	11,089	1,882
Cash flows from investing activities
Payments for investment properties	(44, 626)	(74, 837)
Net cash used in investing activities	(44, 626)	(74, 837)
Cash flows from financing activities
Proceeds on issue of stapled securities		114,310
Payments to procure issued stapled securities	(356)	(3, 593)
Payments for redemption of stapled securities		(13, 632)
Distributions paid	(10.032)	(1,042)
Proceeds from borrowings	43,738	48,000
Repayment of borrowings		(67, 944)
Payments to procure borrowings	(377)	(500)
Net cash generated by financing activities	32,973	75,599
Net (decrease)/increase in cash and cash equivalents	(564)	2.644
Cash and cash equivalents at beginning of the period	6.273	2,760
Cash and cash equivalents at end of the period	5,709	5,404

For the half-year ended 31 December 2015

Note		Page
1.	General information	11
2.	Application of new and revised accounting standards	11
3.	Summary of significant accounting policies	11
4.	Investment properties	13
5.	Borrowings	14
6.	Issued capital - CMR1	14
7.	Non-controlling interest - CMR2	15
8.	Distributions to stapled security holders	15
9.	Fair value of financial instruments	16
10.	Related parties	18
11.	Events subsequent to reporting date	19
12.	Contingent assets, liabilities and commitments	20
13.	Additional information	20

For the half-year ended 31 December 2015

$1.$ 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 Fund is disclosed in the directors' report.

$2.$ Application of new and revised accounting standards

In the current period, there were no new and revised Standards and Interpretations issued by the Australian Accounting Standards Board effective for the current reporting period that were relevant to the Fund's operations.

$3.$ Summary of significant accounting policies

$(a)$ Statement of compliance

The condensed interim financial report is a general purpose financial report prepared in accordance with AASB 134 'Interim Financial Reporting' and the Corporations Act 2001. Compliance with AASB 134 ensures compliance with International Financial Reporting Standard IAS 34 'Interim Financial Reporting'.

The interim financial report does not include all of the information required for a full annual financial report, and should be read in conjunction with the annual financial report of the Fund for the year ended 30 June 2015.

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

The interim 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 9 February 2016.

$(b)$ 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 revalued amounts or fair value. Historical cost is generally based on the fair value of the consideration given in exchange for assets.

In accordance with ASIC Class Order 98/100, dated 10 July 1998, amounts in the interim financial report are rounded off to the nearest thousand dollars, unless otherwise indicated.

The accounting policies applied by the Fund in the preparation of the interim financial report are consistent with those adopted and disclosed in the Fund's annual financial report for the year ended 30 June 2015, except for the impact of the adoption of the new and revised Standards and Interpretations described above. These accounting policies are consistent with Australian Accounting Standards and with International Financial Reporting Standards.

Going concern

The interim 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.

For the half-year ended 31 December 2015

$3.$ Summary of significant accounting policies (continued)

$(c)$ Functional and presentation currency

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

$(d)$ Segment reporting

The Fund operates in one segment, being investments in Australian industrial, metropolitan and business park office property. The Fund 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 Fund's chief operating decision maker.

For the half-year ended 31 December 2015

Z

	31 Dec 2015 \$'000	30 Jun 2015 \$'000
Investment properties
Opening balance	323,110	110,450
Purchase price of investment properties	43.025	200.950
Stamp duty and other transaction costs	2.453	9,996
Capital improvements	259	1,839
Total purchase costs	45,737	212,785
Gain/(loss) on fair value	9.280	(451)
Change in deferred rent and lease incentives	756	161
Change in capitalised leasing fees	267	165
Closing balance ^	379,150	323,110

^ The carrying amount of investment properties includes components related to deferred rent, capitalised lease incentives and leasing fees amounting to \$5,328,000 (Jun-2015: \$4,305,000).

Property	31 Dec 2015 Valuer	31 Dec 2015 Capitalisation Rate	Most Recent Independent Valuer Capitalisation Rate	31 Dec 2015 Fair Value \$'000	Last Independent Valuation Date	Independent Valuer Firm
3 Carlingford Rd, Epping NSW	Independent	6.75%	6.75%	25,000	Dec 2015	CBRE
44 Hampden Rd, Artarmon NSW ^	Director	8.50%	9.00%	7,950	Dec 2014	DTZ.
1 Richmond Rd, Keswick SA	Director	9.50%	10.00%	25,200	Sep 2014	JLL
9 Help St. Chatswood NSW	Independent	7.75%	7.75%	52,000	Dec 2015	C&W
14 Mars Rd, Lane Cove NSW	Director	9.00%	9.25%	19.300	Sep 2014	Colliers
555 Coronation Dr. Brisbane QLD	Director	8.50%	8.75%	33.800	Dec 2014	DTZ.
149 Kerry Rd, Archerfield QLD	Director	7.50%	8.00%	23,600	Dec 2014	DTZ.
13 Ferndell St, Granville NSW	Director	8.00%	8.25%	17,100	Sep 2014	DTZ
35 Robina Town Ctr Dr, Robina QLD	Director	7.75%	7.75%	47,300	Mar 2015	CBRE
54 Marcus Clarke St, Canberra ACT	Director	9.75%	10.00%	14,800	Mar 2015	Savills
60 Marcus Clarke St, Canberra ACT	Director	8.25%	8.35%	49.200	Mar 2015	Savills
131-139 Grenfell St, Adelaide SA	Director	9.00%	$9.00\%$	20,400	Mar 2015	Savills
203 Pacific Hwy, St Leonards NSW * ^	Director	7.75%	7.75%	43,500	Oct 2015	CBRE
				379,150

* The Fund owns 50% of 203 Pacific Hwy, St Leonards NSW.

^ The Fund holds a leasehold interest in 44 Hampden Rd, Artarmon NSW and 203 Pacific Hwy, St Leonards NSW.

During the period, the Fund acquired the following investment properties at the below contracted purchase price (excluding stamp duty and other transaction costs):

	Purchase
Property 203 Pacific Hwy, St Leonards NSW (50% ownership interest)	Price \$'000 43.025	Month Acquired Dec 2015
	43.025

For the half-year ended 31 December 2015

5.	Borrowings	31 Dec 2015 \$'000	30 Jun 2015 \$'000
	Non-current
	Secured Ioan	128,348	84.610
	Borrowing costs	(998)	(698)
		127,350	83,912

At 31 December 2015, the Fund had the following secured debt facilities:

	Execution Date	Maturity Date	Facility Limit \$'000	Drawn Amount \$'000	Hedged Amount \$'000	Funds Available \$'000
31 Dec 2015
Tranche A	09 Dec 14	31 Dec 19	55,000	53,463	48,000	1.537
Tranche B	28 May 15	31 May 20	40,000	35,299	36,000	4.701
Tranche C	22 Dec 15	22 Dec 20	45,000	39,586		5,414
			140.000	128.348	84,000	11,652
30 Jun 2015
Tranche A	09 Dec 14	31 Dec 19	55,000	53.463	48.000	1,537
Tranche B	28 May 15	31 May 20	40.000	31,147		8,853
			95,000	84,610	48,000	10,390

The interest only facilities are secured by first mortgages over the Fund's investment properties and a first ranking fixed and floating charge over all assets of the Fund.

The variable interest rate on the secured loan has been swapped into fixed rates on \$84,000,000 of the loan principal, resulting in an all-in cost of 3.77%.

The secured Ioan has covenants in relation to Loan to Value Ratio ('LVR') and Interest Coverage Ratio ('ICR') which the Fund has complied with during the period.

		31 Dec 2015		30 Jun 2015
6.	Issued capital - CMR1	Units '000	\$'000	Units '000	\$'000
	Opening balance	119,167	129,110	82,824	29,255
	Redemptions - 9 Dec 2014		٠	(26, 730)	(7,308)
	Consolidation of units - 9 Dec 2014	۰.	٠	(41,749)
	Public Offer applications - 9 Dec 2014	٠	н	57,155	61.277
	Entitlement issue - 4 May 2015		۰	47.667	50,051
	Distributions reinvested	240	265
	Equity raising costs	-	(47)		(4.165)
	Closing balance	119,407	129.328	119.167	129,110

CMR1 has been designated parent of the Fund. All units in CMR1 are of the same class and carry equal rights to capital and income distributions.

For the half-year ended 31 December 2015

		31 Dec 2015		30 Jun 2015
7.	Non-controlling interest - CMR2	Units '000	\$'000	Units '000	\$'000
	Opening balance	119, 167	110,530	82,824	20,269
	Redemptions - 9 Dec 2014			(26, 730)	(6, 324)
	Consolidation of units - 9 Dec 2014	٠		(41, 749)
	Public Offer applications - 9 Dec 2014	۰		57,155	53.033
	Entitlement issue - 4 May 2015	٠		47,667	50,051
	Distributions reinvested	240	229
	Equity raising costs	٠	(47)	٠	(3, 840)
	Distributions to members of CMR2	-	(4,785)		(4, 499)
	Other comprehensive income	۰
	Net profit attributable to members of CMR2	۰	7.104		1,840
	Closing balance	119,407	113,031	119.167	110.530

On the basis that there is no ownership interest between the entities involved in the stapling arrangement, the net assets and profit or loss of CMR2 are disclosed separately as a non-controlling interest. All units in CMR2 are of the same class and carry equal rights to capital and income distributions.

		31 Dec 2015		31 Dec 2014
		Cents per		Cents per
		unit	\$'000	unit	\$'000
В.	Distributions to stapled security holders
	September quarter	4.25	5,075	0.76	626
	1 Oct 2014 to 30 Nov 2014			0.50	416
	December quarter^	4.25	5,075	۰	۰
		8.50	10,150	1.26	1,042
	Allocation between stapled entities:
	CMR1 - pre-listing			0.63	521
	CMR1 - post-listing	4.49	5,365
		4.49	5,365	0.63	521
	CMR2 - pre-listing		$\overline{\phantom{a}}$	0.63	521
	CMR2 - post-listing	4.01	4,785
		4.01	4,785	0.63	521
		8.50	10,150	1.26	1,042

^ On 22 December 2015, the Responsible Entity announced a distribution for the December 2015 quarter of 4.25 cents per stapled security.

Key dates in connection with the December 2015 distribution are:

Event	Date
Ex-distribution date	29 Dec 15
Record date	31 Dec 15
Distribution payment date	12 Feb 16

For the half-year ended 31 December 2015

Fair value of financial instruments 9.

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

	Measurement	Fair Value Hierarchy	Carrying amount	Fair value
			\$'000	\$'000
31 Dec 2015
Financial liabilities
Payables (excluding non-financial payables)	Amortised Cost	Not applicable	5.402	5,402
Borrowings (excluding borrowing costs)	Amortised Cost	Not applicable	128,348	128.348
Interest rate swaps	Fair Value	Level 2	1.604	1.604
			135,354	135,354
30 Jun 2015
Financial liabilities
Payables (excluding non-financial payables)	Amortised Cost	Not applicable	4.308	4.308
Borrowings (excluding borrowing costs)	Amortised Cost	Not applicable	84.610	84.610
Interest rate swaps	Fair Value	Level 2	733	733
			89.651	89.651

These financial assets and liabilities are recognised in accordance with the accounting policies described in Note 3 to the financial statements.

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 Fund 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 Fund 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).

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.

For the half-year ended 31 December 2015

9. Financial instruments (continued)

Fair value hierarchy

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

31 Dec 2015	Total \$'000	Level 1 \$'000	Level 2 \$'000	Level 3 \$'000
Financial liabilities held at fair value
Interest rate swaps	1,604		1,604	-
	1,604		1,604
30 Jun 2015
Financial liabilities held at fair value
Interest rate swaps	733		733
	733		733

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 Accounting Standards, including the level in the fair value hierarchy that the resulting fair value estimate should be classified.

For the half-year ended 31 December 2015

$10.$ Related parties

Key management personnel

The Fund does not employ personnel in its own right. However it is required to have an incorporated Responsible Entity to manage the activities of the Fund 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 Fund to any of the directors or key management personnel of the Responsible Entity.

Key management personnel loan disclosures

The Fund 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 (up to 8 December 2014, the management fee was 0.60%).

At reporting date an amount of \$167,000 (Jun-2015: \$175,000) owing to the Responsible Entity 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 during the period:

	31 Dec 2015 \$'000	31 Dec 2014 \$'000
Finance costs	۰	48
Incentive fees waived	٠	(123)
Leasing fees	63	30
Management fees	911	362
Property management fees	152	84
Other professional fees	26	38
	1.152	439

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 stapled securities in the Fund. These transactions are on the same terms and conditions as those entered into by other Fund investors.

For the half-year ended 31 December 2015

Related parties (continued) $10.$

Stapled securities in the Fund held by related parties

At 31 December 2015, the following related parties of the Responsible Entity hold stapled securities in the Fund:

	Closing stapled securities held	Closing interest held
	Units '000	$\frac{9}{6}$
31 Dec 2015
Over Fifty Guardian Friendly Society Limited	11,522	9.65%
Centuria Growth Bond Fund	4,739	3.97%
Centuria Capital Limited	2,591	2.17%
Centuria Balanced Bond Fund	357	0.30%
Roger Dobson	208	0.17%
CBF1 Investment Trust 1	161	0.13%
Centuria High Growth Bond Fund	150	0.13%
Peter Done	75	0.06%
John McBain	63	0.05%
Nicholas Collishaw	133	0.11%
Darren Collins	20	0.02%
Matthew Hardy	17	0.01%
Jason Huljich	3	0.003%
	20,039	16.77%
31 Dec 2014
Over Fifty Guardian Friendly Society Limited	6.913	9.67%
Centuria Growth Bond Fund	2.844	3.98%
Centuria Capital Limited	1.524	2.13%
CBF1 Investment Trust 1	161	0.23%
Roger Dobson	125	0.17%
Peter Done	45	0.06%
John McBain	50	0.07%
Nicholas Collishaw	25	0.03%
Jason Huljich	3	0.004%
	11,690	16.35%

No other related parties of the Responsible Entity held stapled securities in the Fund.

Other transactions within the Fund

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

Events subsequent to reporting date $11.$

There have been no events subsequent to balance date which would have a material effect on the Fund's financial statements at 31 December 2015.

For the half-year ended 31 December 2015

Contingent assets, liabilities and commitments $12.$

Prior to listing on the ASX, the Responsible Entity was entitled to receive an incentive fee when an investment property is sold, equal to 15.00% of the excess of the net sale price over the total acquisition cost of an investment property on a property by property basis. The Responsible Entity has waived its entitlement to this incentive fee for so long as the Fund remains listed on the ASX. In the event that the Fund is de-listed, the Responsible Entity's entitlement to the incentive fee will resume from the date of delisting, on the terms described above, with the acquisition costs of each property being reset to the valuation at the time of de-listing.

$13.$ Additional information

The registered office and principal place of business of the Fund 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 Directors' declaration

For the half-year ended 31 December 2015

The directors of Centuria Property Funds Limited, the Responsible Entity of Centuria Metropolitan REIT ('the Fund'), declare that:

• $(a)$ in the directors' opinion, there are reasonable grounds to believe that the Fund will be able to pay its debts as and when they become due and payable; and
• $(b)$ in the directors' opinion, the attached financial statements and notes 1 to 13 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 Fund's financial position as at 31 December 2015 and of its performance for the half-year ended on that date.

Signed in accordance with a resolution of the board of directors of the Responsible Entity made pursuant to s.303(5) of the Corporations Act 2001.

Peter Don Director

q∗r

Jason Huljigh Director

Dated at Sydney this

day of

2016.

Independent auditor's review report to the unitholders of Centuria Metropolitan REIT (a stapled entity comprising Centuria Metropolitan REIT No. 1 and Centuria Metropolitan REIT No. 2 and its controlled entities)

We have reviewed the accompanying half-year financial report of Centuria Metropolitan REIT (a stapled entity comprising Centuria Metropolitan REIT No. 1 and Centuria Metropolitan REIT No. 2 and its controlled entities) (the Stapled Entity), which comprises the condensed consolidated statement of financial position as at 31 December 2015, condensed consolidated statement of comprehensive income, condensed consolidated statement of changes in equity and condensed consolidated statement of cash flows for the half-year ended on that date, notes 1 to 13 comprising a summary of significant accounting policies and other explanatory information and the directors' declaration.

Directors' responsibility for the financial report

The directors of Centuria Property Funds Limited (the Responsible Entity) are responsible for the preparation of the half-year financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the half-year financial report that is free from material misstatement, whether due to fraud or error.

Auditor's responsibility

Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the half-year financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the Group's financial position as at 31 December 2015 and its performance for the half-year ended on that date; and complying with Australian Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001. As auditor of Centuria Metropolitan REIT, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report.

A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Independence

In conducting our review, we have complied with the independence requirements of the Corporations Act 2001.

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.

Conclusion

Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of Centuria Metropolitan REIT is not in accordance with the Corporations Act 2001, including:

• (a) giving a true and fair view of the Stapled Entity's financial position as at 31 December 2015 and of its performance for the half-year ended on that date; and
• (b) complying with Australian Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001.

$K/m4$

KPMG

Steven Gatt Partner

Sydney 9 February 2016